The other entities and individuals penalised by SEBI are Vinayak Vasant Jadhav, Mukundan Raghavan, First Overseas Capital Ltd, Athos Capital Advisors Pvt Ltd, Jinesh Narottamdas Mehta, Raj Jagtani, proprietor of BM Traders, and Fahim Iunus Shaikh.
In its final order, SEBI directed VCL and Mr Sabale to bring back ₹62.51 crore allegedly diverted from the company's initial public offering (IPO) and rights Issue proceeds, along with interest at 12%. Mr Sabale has also been directed to disgorge unlawful gains of ₹128.77 crore, along with simple interest at 12% per annum from the dates on which the relevant shares were sold.
SEBI has further barred VCL and Mr Sabale from accessing the securities market for seven years. During this period, they cannot buy, sell or otherwise deal in securities, directly or indirectly. Mr Sabale has also been prohibited for seven years from associating with any listed company or SEBI-registered intermediary as a director or key managerial person.
Financial Misstatements and Fictitious Transactions
SEBI's proceedings followed a preliminary examination triggered by newspaper reports and media posts concerning Varanium Cloud. The regulator found that the company had allegedly misrepresented its financial statements and prospectus through fictitious sales and purchases.
SEBI also found incorrect disclosures regarding the utilisation of IPO proceeds and shareholding, diversion of IPO and Rights Issue funds to promoter-related and other entities, misleading information concerning business acquisitions and other disclosure failures.
A key finding involved transactions with Varanium Earth Pvt Ltd, a related party in which Mr Sabale held a 99.99% stake. Varanium Cloud recorded a sale of ₹5.90 crore and a purchase of ₹3.26 crore involving the entity. However, SEBI said the company failed to provide material supporting these transactions, while Varanium Earth did not respond to the regulator's summons.
The regulator concluded that the transactions were non-genuine and fictitious, allegedly used to inflate financial figures and mislead investors.
Questions over US Subsidiary Revenue
SEBI also questioned the revenue reported by Varanium Cloud from its US subsidiary, Varanium Cloud Inc.
The company reported consolidated revenue of ₹395.15 crore for the third quarter of FY23-24, compared with standalone revenue of only ₹3.04 crore. This implied revenue of ₹392.11 crore from the US subsidiary in less than two months.
Despite seeking supporting documents, SEBI said Varanium Cloud failed to provide invoices, contracts, employee details and other evidence to substantiate the reported revenue.
₹62.51 Crore Public Issue Funds Allegedly Diverted
SEBI found diversion of public issue proceeds amounting to ₹62.51 crore. This included ₹18.98 crore from the IPO proceeds and ₹43.53 crore from the rights issue proceeds. Of the rights issue proceeds, ₹32.73 crore was transferred to Mr Sabale's personal account.
According to SEBI, Mr Sabale exercised control over the movement of funds from the IPO and rights issue. He was the sole authorised signatory for the relevant bank account and approved transfers of ₹15.46 crore (38.31% of the net IPO proceeds) and ₹4.20 crore (8.67% of the net Rights Issue proceeds) to BM Traders.
The regulator also found payments to another entity without evidence of work performed or assets procured, as well as the diversion of ₹10.12 crore to related entities.
BM Traders received around ₹19 crore from IPO and Rights Issue proceeds and another ₹119.17 crore directly from Mr Sabale's personal account. SEBI said it found no supporting documents to substantiate transactions involving around ₹138 crore.
Key Managerial Personnel Raise Concerns
Statements recorded from key managerial personnel (KMP) also formed part of SEBI's findings.
An accountant told the regulator that Mr Sabale directed purchases, sales and journal entries without supporting documents. The former chief financial officer said he was unaware of several transactions involving promoter-related entities and the US subsidiary.
The company secretary alleged that Mr Sabale would withhold her salary if she did not follow his instructions.
SEBI said these statements, along with other material on record, established Mr Sabale's role in the alleged financial misstatements, revenue manipulation and diversion of public issue proceeds.
₹128.77 Crore Unlawful Gains from Share Sales
The regulator also examined trading in Varanium Cloud shares by the promoter group.
SEBI calculated that Mr Sabale sold 1.29375 crore shares for an aggregate consideration of ₹131.46 crore and made net gains of ₹111.52 crore after accounting for acquisition costs.
Varanium Networks Pvt Ltd sold 14 lakh shares and made net gains of ₹17.25 crore. Since Mr Sabale held 99.99% of Varanium Networks, SEBI held him liable for the gains made by the promoter entity as well. This took the aggregate unlawful gains to ₹128.77 crore.
SEBI rejected Mr Sabale's contention that a substantial portion of the shares had been sold involuntarily by a third-party pledgee. The regulator said he failed to provide evidence supporting the claim and found his explanation regarding the estimated gains from pledged and voluntary sales unsupported.
Market Bans on Other Entities
Apart from VCL and Mr Sabale, SEBI has imposed varying market restrictions on the other entities and individuals.
Athos Capital Advisors and its director Mr Mehta have been debarred for two years. Mr Jagtani, proprietor of BM Traders, has been debarred for four years, while Mr Jadhav, Mr Raghavan and Mr Shaikh have each been debarred for one year.
First Overseas Capital has been debarred for two years and cannot accept any new mandate relating to issue management during the debarment period. SEBI clarified that this debarment will run consecutively with an earlier two-year debarment imposed on the merchant banker in October 2025.
₹33.08 Crore in Monetary Penalties
The monetary penalties imposed under the final order total ₹33.08 crore. Varanium Cloud has been fined ₹1.30 crore, while Mr Sabale has been penalised ₹20.40 crore.
Mr Jadhav, Mr Raghavan and Mr Shaikh have each been fined ₹6 lakh. First Overseas Capital has been fined ₹10 lakh, while Athos Capital Advisors and Mr Mehta have each been fined ₹50 lakh.
Mr Jagtani has been fined ₹10.10 crore. The penalties are required to be paid within 45 days of receipt of the order.
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