There are allegations that Verma "blackmailed" Varun, a member of the Defence Consultative Committee, into sharing sensitive information on crucial arms matters.
"I didn't know him personally but knew him through family as he was the son of a Member of Parliament", Gandhi added.
He also threatened to sue Swaraj Abhiyan founders Prashant Bhushan and Yogendra Yadav, who released the letter to the PMO at a press conference, for defamation.
"I have heard wild and nonsensical allegations but there is not a shred or iota of proof or evidence to substantiate any of these insane claims. Abhishek Verma", Bhushan and Yadav said in a statement.
C Edmonds Allen and Abhishek Verma broke ties in 2012 and accused each other of money-laundering, siphoning and cheating. The complaint is dated 16 September and alleges that arms dealer Abhishek Verma used Gandhi to disclose defence details to arms manufacturers looking to score contracts for India.
The Economic Times has reported that C Edmonds Allen, who is a known whistleblower and has exposed a number of controversial arms deals, has written to the PMO that Gandhi is being blackmailed by Verma. He said despite having knowledge of all these things, the BJP government did not blacklist Thales, the company that sold scam-tainted Scorpene submarines, as Dassault acquired it.
Releasing Allen's letter, Bhushan and Yadav alleged that "these startling disclosures suggest that politicians from Congress as well as the BJP may have been involved in compromising vital national security information".
Varun said that he last met Verma when he was a post graduate student in London at the age of 22 years.
"These so-called emails and photos are fabricated as I had not issued nor photographed Mr Gandhi nor referred to him anywhere. It was because Prime Minister of India and President of France agreed that we have this deal which has not been offered to any other country", Parrikar said.
"The government should order an FIR against Verma and Thales for payment of commission in Scorpène deal and another FIR against Verma and the officers of Navy and Air Force for leaking defence secrets", Bhushan demanded. Classified documents or information is not shared with members of the committee.