The Securities and Exchange Board of India (SEBI) has barred jewellery firm Varyaa Creations Limited from the securities market after noticing certain irregularities in the IPO process. In a notice to the company SEBI said, “SEBI, while carrying out a routine inspection of the activities of the Inventure noticed certain irregularities in the IPO process of VCL and initiated an inquiry in the matter. It was noted that initially First Overseas Capital Limited (FOCL) was to have acted as the Lead Manager to the issue. However, subsequent to certain observations made by BSE, Inventure was appointed as the Lead Manager.”
SEBI found that the company diverted IPO proceeds meant for business purposes. VCL had listed its shares on the SME Platform of BSE Ltd on April 30, 2024. The market regulator also found that Inventure failed in its due diligence duties by allowing IPO fund movements without scrutiny. It has been restrained from taking on new IPO assignments.
SEBI had initiated the inquiry after discovering irregularities during its routine inspection. During the course of inquiry, it found that a Public Issue Account cum Sponsor Bank Agreement dated April 02, 2024 (Escrow Agreement) was entered by the Company (VCL), Lead Manager (Inventure), the Registrar to the Issue (Bigshare Services Private Limited) and the Banker to the Issue (HDFCBank). In terms of the Escrow Agreement, the issue proceeds were deposited into an escrow account maintained with HDFC Bank, SEBI said in its notice.
The market regulator found that more than 70 per cent of the proceeds from the IPO, which is around Rs 14 crore, were transferred to three entities directly from the escrow account on the day of listing (April 30, 2024), under the instructions of Inventure. These transfers, made in the guise of covering issue-related expenses, raised concerns as they were disproportionate to the disclosed expenses in the IPO’s prospectus.
VCL and Inventure were asked to explain the transfers. The lead manager replied on the same day saying that the transfer of funds were made for purchase of inventory and general corporate purposes. VCL, however, failed to provide satisfactory response, citing the unavailability of its accounts and statutory auditor team and asked for time till May 14, which was denied by the SEBI. The company, however, was asked to submit its reply by May 12, which it could not provide.
Upon further investigation, SEBI found discrepancies in the use of the funds, noting that payments made to Kaveri Corporation, a sole proprietorship in the agriculture sector, and Overseas Metal and Alloys Pvt Ltd, did not align with the stated objectives of the IPO, particularly the opening of a new showroom in Agra. The transfer of funds and their subsequent withdrawal in cash raised red flags about the authenticity and purpose of the transactions. SEBI said, “…it prima facie appears that Rs 9 crore from the IPO proceeds was credited to the bank account of Kaveri Corporation and withdrawn in cash on April 30, 2024 -the very day the Company was listed.”
Consequently, SEBI imposed interim measures, such as freezing the shareholdings of certain individuals involved and prohibiting Inventure from accepting new merchant banking assignments. Additionally, it also directed the appointment of a monitoring agency for all ongoing projects associated with Inventure.