One reason it appears is when the IP address is restricted on the SSH Server end of the connection.
The following could be posted under the SSH Server forum as well, but during the connecting event of the SSH Server COM component, if you set the action = deny, the SFTP.NET client will receive that error in response.
that could be one of the reasons. But I think error says it all - connection was just closed by remote peer for no obvious reason. There can be millions of reasons, I doubt we can enumerate all of them in the helpfile.
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