New Delhi, May 15—In a decisive regulatory move, the Securities and Exchange Board of India (Sebi) has barred Varyaa Creations Ltd (VCL), a company listed on the BSE's SME platform, from accessing the securities market over alleged misuse of IPO proceeds.
The watchdog has also prohibited Inventure Merchant Banking Services Pvt Ltd, the IPO's lead manager, from taking on new merchant banking assignments until further notice.IPO Fund Misuse Alleged, ₹9 Crore Withdrawn in Cash
VCL, engaged in wholesale precious metals trading and jewellery manufacturing, raised ₹20.10 crore via its IPO, which concluded with its BSE SME listing on April 30, 2024. However, Sebi's probe revealed that over 70% of the issue proceeds — approximately ₹14 crore — were transferred on the listing day to three entities: Kaveri Corporation, Maruti Corporation, and Overseas Metal and Alloys Pvt Ltd.While these transactions were declared as payments for IPO-related expenses such as issue management fees, commissions, and registrar fees, Sebi noted a glaring mismatch between the stated use of funds and the disclosures made in the prospectus.
A particularly alarming discovery was that ₹9 crore was credited to Kaveri Corporation and then withdrawn in cash on the day of listing.
Lack of Transparency and Inadequate Explanations
When questioned, Varyaa Creations failed to offer a satisfactory explanation, citing the unavailability of its accounts team and statutory auditor. Inventure Merchant Banking Services claimed that the transactions aligned with the prospectus objectives, such as inventory purchase and general corporate expenses.However, Sebi’s interim investigation found discrepancies in the stated purposes and actual flow of funds, prompting immediate action.
Shareholding Freeze and Market Access Ban
To prevent possible share offloading, Sebi has frozen the holdings of seven promoter group entities. This measure comes after the expiration of the lock-in period on May 14 for a portion of the promoters’ shares, amid concerns that shares could be dumped while the investigation is still underway.Monitoring and Future Oversight
Sebi has also directed the appointment of a monitoring agency to oversee Inventure's pending assignments. This action is part of a broader effort by Sebi to tighten scrutiny over SME IPOs following a string of cases involving fund misutilisation and siphoning.The market regulator's stringent steps underscore its commitment to maintaining transparency and accountability in the capital markets, especially within the increasingly active SME sector.