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Sebi bars Varyaa Creations, freezes promoters' shares over IPO misuse

The Securities and Exchange Board of India (Sebi) on Wednesday debarred Varyaa Creations, a company listed on the small and medium enterprise (SME) platform of the BSE, from the securities market for the alleged diversion of funds raised through its initial public offering (IPO). The holdings of seven promoter group members have also been frozen until further directions. Sebi's investigation revealed that over 71 per cent of the IPO proceeds were transferred to third parties under the guise of issue-related expenses, on the instruction of the lead manager. The market regulator has also restrained Inventure Merchant Banking Services, the lead manager for the IPO, from taking up any new assignment. This is the second merchant banker, after First Overseas Capital, to be restricted this month by Sebi for lapses in SME IPOs. Sebi noted that the modus operandi in both cases was the same. The company, engaged in manufacturing and wholesale trading of jewellery, was listed on the SME platform of the BSE in April 2024 and raised ₹20 crore. Sebi's probe found that the company had access to only about 30 per cent of the issue proceeds. Further, the company had also planned to raise ₹35 crore through a rights issue—an amount significantly higher than the ₹20 crore raised through the IPO, and within just 13 months of the initial fundraising. Sebi stated that such a fundraise cannot be permitted while the investigation is ongoing. The regulator noted that, as the lock-in period for a portion of the promoters' shareholding was set to expire on May 14, immediate action was necessary to prevent them from offloading their shares. Highlighting several instances of fund diversion in the SME segment, Sebi whole-time member Ashwani Bhatia remarked: '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 also advised the BSE and NSE to exercise greater care and diligence while permitting listings, stating that such instances are not in the interest of investors.