Market regulator Securities and Exchange Board of India (SEBI) has barred the SME company Varaya Creations Limited (VCL) from accessing the market, VCL promoter shares have been frozen, and merchant banker Inventure Merchant Banking Services has been asked not to take new merchant banking assignments till further orders.
SEBI, while carrying out a routine inspection of merchant banker Invenure, found something unusual. SEBI's inquiry revealed that VCL had raised Rs 20.10 Cr from the IPO in April 2024. In the prospectus company had proposed the utilisation of the IPO proceeds as Rs 10 Cr for the purchase of inventory, Rs 5.5 Cr for capex as opening of a showroom, Rs 4 Cr as general corporate purpose and Rs 60 lakhs as issue expenses.
But SEBIs initial findings were startling, as out of the issue of Rs 20.10 Cr, Rs 14 Cr were transferred to 3 entities, namely Kaveri Corporation, Maruti Corporation and Overseas Metal and Alloys Pvt Ltd immediately after listing. And the amount was withdrawn from the bank accounts quickly. These funds transfers were at the instructions of merchant banker of the issue, Inventure.
SEBI interim order passed by Whole Time Member, Ashwani Bhatia noted, analysis of the bank statements of Kaveri Corporation revealed that an amount of Rs 4 Crore was credited to the account on April 30, 2024, at 16:27 hrs, originating from the issue account of VCL, maintained with HDFC Bank. And then the entire amount was withdrawn in cash on the same day at 16:43 hrs, within 16 minutes after the funds were received.
Further analysis of Kaveri Corporation’s bank statement revealed that an amount of Rs 5 Cr was received by Kaveri Corporation from Maruti Corporation on April 30, 2024, at 16:58 hrs. This amount was also withdrawn on the same day of listing. Out of 20.10 Cr, Rs 9 Cr of issue proceeds were withdrawn same day. SEBI has so far not received the bank statement of Maruti Corporation.
Another entity, Overseas Metal and Alloys Pvt Ltd, received Rs 5 Cr from the issue account of VCL on April 30, 2025. But next day on May 01, 2024, Overseas Metal transferred Rs 4,98 Cr to ‘transpaacific’. These funds were transferred directly from the issue account even before reaching to the company account. As per SEBI, ‘transpaacific’ has a common link with the issue of Synoptics Technologies Limited. Funds from the issue of Synoptics were also transferred to ‘transpacific’. First Overseas Capital Limited was the merchant banker for the issue of Synoptics Technologies. SEBI had passed an interim order in the case on May 6, 2025. First Overseas Capital Limited was initially the merchant banker for VCL, but later Inventure was appointed after BSE's observation.
Merchant banker Inventure justified these funds transfers as ‘made in furtherance of the objects of the issue as stated in the Prospectus—namely, purchase of inventory and general corporate purposes. But the merchant banker’s letter to the bank had a different reason. As per SEBI order, “The stated purpose of the transfers, as per the aforesaid letter, was to cover issue management fees, underwriting and selling commissions, registrar fees, and other IPO-related expenses”. As per SEBI, VCL could not give a satisfactory reason for such transfers.
VCL had also approved a plan last month to raise an additional Rs 35 Cr through a rights issue, strangely within 13 months of the IPO. Despite material concerns regarding the diversion of funds raised through the IPO remaining unresolved. SEBI said this additional fundraising cannot be permitted in the ongoing scenario. SEBI's interim order also cautioned exchanges while approving the SME issues.
SEBI whole time member Ashwani Bhatia, on a concluding note, wrote, “It has to be mentioned that over the past year, SEBI has had to repeatedly intervene in cases, especially in the SME segment, where IPO proceeds were misutilised or siphoned off. The task often feels Sisyphean—but when confronted with facts that strike at the very heart of investor protection and market integrity, SEBI’s hands are forced. Inaction is not an option”.
SEBI has passed multiple orders against SME related issues in recent months. SEBI last year also reviewed the SME IPO regulations, tightening some norms but also ensuring that genuine companies do not face issues in fundraising.
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