SEBI Upholds Fund Diversion Charges Against Bajaj Hindusthan Sugar; Dismisses 'Lack of Jurisdiction' Defense

SEBI Upholds Fund Diversion Charges Against Bajaj Hindusthan Sugar; Dismisses 'Lack of Jurisdiction' Defense​

The Securities and Exchange Board of India (SEBI) has issued a definitive order rejecting the legal challenge filed by Bajaj Hindusthan Sugar Limited (BHSL) concerning alleged diversion of funds and non-disclosure of related party transactions (RPTs). The quasi-judicial authority concluded that SEBI possesses the necessary jurisdiction to proceed with its investigation.

The ruling, dated May 13, 2026, addresses whether SEBI's initial Show Cause Notice (SCN) was flawed due to procedural lapses or a lack of foundational facts. The decision reaffirms SEBI's power to investigate allegations related to fund misconduct.

Original Allegations: Fund Misappropriation and Disclosure Lapse​

The investigation, which covered the period from FY 2010-11 to FY 2021-22, initially centered on complaints regarding BHSL's financial dealings. The core allegations revolved around the diversion or misappropriation of funds through associated entities like Ojas Industries Private Limited (OIPL) and Bajaj Power Generation Private Limited (BPGPL).

SEBI's findings detailed prima facie evidence of two major concerns. First, the transfer of funds to related parties through OIPL to avoid RPT disclosures occurred since March 2014. Second, the investigation highlighted substantial alleged diversions. These included a net transfer of ₹ 318.50 crore from BHSL to related parties via OIPL (between December 31, 2013, and August 01, 2014). Separately, ₹ 870.60 crore was allegedly diverted from BHSL for the benefit of entities under the influence of the Noticees through BPGPL.

The Legal Battleground: Jurisdiction and Limitation Defenses​

The Noticees mounted a rigorous legal defense, primarily focusing on two arguments: the lack of jurisdiction and the statute of limitations.

They argued that the proceedings were legally invalid because the investigating authority (IA) failed to consider crucial exculpatory facts. Specifically, they emphasized two separate forensic audits—one by Deloitte and another by Mazars—both of which concluded that no diversion or fraudulent transactions had occurred.

Furthermore, the Noticees contended that SEBI’s SCN, issued in October 2023, suffered from an unexplained delay of approximately nine years. They argued that because the company made mandatory disclosures in annual reports and restructuring details were made public in 2018, the delay rendered the entire proceeding invalid.

SEBI’s Verdict: Adjudicatory Facts vs. Jurisdictional Rights​

The quasi-judicial authority systematically addressed the Noticees' objections, drawing a clear distinction between foundational rights and the merits of the case.

On the issue of jurisdiction, the authority ruled that the core allegations of fund diversion fall squarely within SEBI’s statutory power to investigate misconduct. The detailed audit reports (FARs) and the ownership structure (such as BPGPL’s equity acquisition) were deemed to be matters relating to the merits of the case, not the fundamental jurisdiction of SEBI.

In a critical ruling, the authority distinguished between 'jurisdictional facts' (which are mandatory prerequisites for the authority to act) and 'adjudicatory facts' (which determine the truth or falsehood of the claims). The investigation, therefore, was deemed a valid exercise of power, even if the evidence was contested.

Addressing the Delay and Public Disclosure Arguments​

Regarding the alleged delay of nine years, the order rejected the contention that the mere existence of financial statements or restructuring disclosures in the public domain established SEBI's knowledge of misconduct.

The authority clarified that the allegation of fraud or diversion must be not only disclosed but also must be reasonably discernible from the available material. The failure to prove the underlying falsity or non-genuine routing of funds, rather than the mere existence of a document, constitutes a dispute of evidence.

Ultimately, the order concluded that the statutory principle for limitation in matters of fraud begins only upon the discovery of the fraud, making the alleged delay irrelevant to the continuation of the proceedings.

The final determination confirms that SEBI had the jurisdiction to issue the SCN dated October 16, 2023, and the Noticees' objections regarding jurisdiction and limitation are legally unsustainable.