SEBI Targets Rajesh Exports: Massive Misrepresentation and Fraudulent Trading Indicated in FY 2020-24 Financials

SEBI Targets Rajesh Exports: Massive Misrepresentation and Fraudulent Trading Indicated in FY 2020-24 Financials​

The Securities and Exchange Board of India (SEBI) has issued a severe Interim Order against Rajesh Exports Limited (REL), finding prima facie evidence of systematic financial misrepresentation, fraudulent trade practices, and gross governance lapses across multiple financial years. The investigation covers the period from April 2020 to March 2024, alleging that REL artificially inflated its operational scale by recording non-genuine transactions.

Misrepresenting Scale: How Inflated Revenue Distorted REL’s Financial Health​

SEBI's findings indicate that a significant portion of REL's consolidated revenues were not genuine, raising serious questions about the company's financial integrity. The regulatory body noted that approximately 97% to 99% of REL's consolidated revenue during the investigated period was attributed to its overseas subsidiaries and step-down entities.

The investigation uncovered several instances of improper accounting treatments designed to distort reported turnover and operational margins. Foreign exchange fluctuations, totaling INR 866.60 crore in revenue and INR 716.18 crore in purchases, were improperly included as part of Revenue from Operations and Cost of Materials Consumed. Furthermore, interest income on Fixed Deposits and Mutual Funds, amounting to INR 204.00 crore, was also booked within operational revenue, which SEBI deemed inconsistent with applicable accounting standards (Ind AS 115).

Beyond the improper financial instrument recognition, REL's consolidated accounts were found to be materially misstated regarding overseas operations. The claim of INR 1,035.27 crore for 'Investment in Gold Mines in Africa,' as disclosed in consolidated reports, could not be corroborated by any available documentation or verifiable records from subsidiary ledgers and assets statements.

Governance Failures: Fund Misuse and Opaque Transactions Exposed​

The investigation revealed a pattern of non-compliance concerning corporate governance and the handling of internal funds within REL. SEBI found that REL recorded extensive transactions with Affluence, a third-party entity, amounting to INR 11,486.60 crore in sales and INR 11,488.42 crore in purchases over three financial years (FY 2021-23). The investigation concluded these transactions were fictitious, noting that the companies involved had minimal actual operations, suggesting a clear intent to inflate figures.

A more alarming finding relates to the diversion of corporate funds through promoter-linked entities. REL transferred substantial amounts aggregating up to INR 338.90 crore to Mr. Rajesh Mehta's personal bank account for various purposes, including court proceedings and facilitating onward transfers. SEBI noted that such routing of funds lacked proper disclosure or Board/Audit Committee approval, constituting a prima facie misutilization of company assets.

Regulatory Action: Interim Order Restrains Actions Against REL​

Citing the cumulative evidence of financial misrepresentation—including fictitious sales figures, improper expense booking, and non-disclosed related party transactions—SEBI has moved to issue urgent interim directions to protect investor interests. The investigation showed that executives of REL exercised substantial control over operations and oversaw impugned transactions routed through personal accounts.

In response to these findings, SEBI issued several stringent directions:

• Non-Dealing Mandate: Mr. Rajesh Mehta (Noticee No. 2) is immediately restrained from buying, selling, or dealing in securities of Rajesh Exports Limited, directly or indirectly.
• Transparency Obligation: REL is directed to ensure true and fair disclosures of all financial statements, related party transactions, and other necessary information as per the Listing Obligations and Disclosure Requirements (LODR).
• Forensic Audit: SEBI has directed the appointment of a new forensic auditor to conduct a thorough audit of the company's books, given the prior failure of the existing Forensic Auditor due to non-cooperation from the Noticees.

The Interim Order underscores that the financial statements disseminated by REL created a "false and misleading appearance" of its operational scale, significantly distorting the natural price discovery mechanism in the securities market.