SecUR Credentials, Managing Director Faces SEBI Action over Financial Misconduct
Moneylife Digital Team 14 June 2024
Securities and Exchange Board of India (SEBI) has debarred background check company SecUR Credentials and its managing director (MD) Rahul Belwalkar from the securities market, for imposing significant restrictions due to alleged financial irregularities and corporate governance lapses. This action follows a series of communications between the company and the exchange, with the latter expressing concerns over the non-provision of crucial details by the company.
In the order, Ashwani Bhatia, whole time member (WTM ), says "The company and its MD have also adopted a cavalier approach while seeking to ensure compliance with fair and accurate disclosure requirements as is evident from the non–disclosure of the outstanding balance in respect of the unsecured loan availed from its MD, accurate disclosure of the status of its Rights Issue"
SEBI issued an Interim Order against Varanium Cloud Ltd  and its MD, Harshawardhan Hanmant Sabale, for misusing public funds and manipulating financial statements. They were found to have made fictitious purchases from SecUR Credentials Ltd, where Mr Sabale's shareholding increased from 1.22% to 17.83% between December 2023 and March 2024.
Further the market regulator noted that the order highlights several critical issues. SecUR Credentials had announced fund-raising efforts through Rights Issues totaling Rs6,190 lakh in December 2022 and September 2023, but subsequently did not proceed with these issues nor disclosed updates, which appears to contravene Regulation 30(7) of the LODR Regulations. Additionally, the company entered into an agreement with Varanium to outsource operations for conducting due diligence on Bank of Maharashtra's loan applicants. However, discrepancies were found in the operational details provided, suggesting potential violations of Regulations 4(1)(c), 4(1)(e) read with 30(12) of the LODR Regulations.
SEBI's investigation uncovered that there was no clear segregation between the bank accounts of SecUR and Mr Belwalkar, with funds being transferred between the company and various entities linked to the promoter and directors without adequate substantiation. This raises suspicions of fund diversion. Further scrutiny of transactions between SecUR and Varanium revealed that revenue recognition from these transactions resulted in an inflated net profit of approximately 30% in the company's financial statements. Furthermore, Mr Belwalkar was found to have transferred significant funds to the MD of Varanium Mr Sabale. 
The order also noted material related party transactions (RPTs) with Mr Belwalkar that exceeded shareholder-approved limits and were inadequately disclosed in the company's financial statements. The company failed to reclassify its promoter and promoter group entities despite repeated requests, and Mr Belwalkar acted as the compliance officer without formal appointment, contravening the LODR Regulations.
SEBI findings indicated a troubling concentration of power in Mr Belwalkar's hands, which led to a disregard for regulatory compliance and corporate governance practices. The company's funds were used by Mr Belwalkar without proper checks, reflecting poorly on the management's commitment to shareholder interests and market integrity. This situation is particularly concerning given SecUR's migration from the SME platform to the mainboard in October 2022, attracting investments from a larger number of retail investors. As of 31March 2024, SecUR had 9,626 public shareholders, whose interests are now at risk.
SEBI has restrained SecUR and Mr Belwalkar from buying, selling, or dealing in the securities market until further orders. They are allowed to close out any open positions in exchange-traded derivative contracts within seven days. Additionally, Belwalkar is barred from acting as a Director or Key Managerial Personnel of any listed company or SEBI-registered intermediary until further notice.
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