Fictitious trades, Doctored Books & Rs 15.15 Lakh Cr Revenue gap: Why SEBI Cracked The Whip On Rajesh Exports

In the matter of Rajesh Exports Ltd, market regulator SEBI has passed an interim order on Wednesday, June 3, after conducting an investigation which lasted between April 1, 2020 to March 31, 2024.

The investigation was result of a shareholder complaint against alleged financial misrepresentation

According to SEBI's interim order, it has asked Rajesh Exports and its owner Rajesh Mehta to fully co-operate with the investigation, produce documents and reply to explanations sought by the regulator within 30 days.

Rajesh Exports and Rajesh Mehta have also been ordered to co-operate with a newly appointed forensic auditor.

Meanwhile, the company's promoter, Rajesh Mehta, has been restrained from buying, selling or dealing in shares of the company, directly, or indirectly, until further orders.

Interim Order Against Rajesh Exports

The company has been asked by SEBI to make true and fair disclosures of financial statements, related party transactions carried out by them, and also to make other mandatory disclosures under SEBI's LODR regulations.

Which Parties Are Involved?

Rajesh Exports has been accused of financial misrepresentation, disclosure failures, improper accounting treatment and diversion of funds.

SEBI found Prima Facie that Rajesh Mehta, the promoter, Executive Chairman, Director and Audit Committee Member at the company, exercised substantial operational & financial control over Rajesh Exports & its subsidiaries, and was directly connected with several questioned transactions.

What Does The SEBI order Against Rajesh Exports Allege?

SEBI alleges that Rajesh Exports refused access to systems and books of account, did not provide journal dumps, refused to provide detailed, subsidiary level records, provided incomplete ledgers with missing narration details, failed to provide supporting documents for large transaction samples, and co-operated only partially with the forensic auditor, restricting verification significantly.

SEBI viewed this as a deliberate attempt to obstruct verification of financial disclosures.

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What Did SEBI Find In Its Rajesh Exports Investigation?

Rajesh Exports did not upload audited financial statements of subsidiaries and step-down subsidiaries on its website.

The entities for which statements were missing included Rajesh Exports Singapore, Global Gold Refineries AG (GGR), Valcambi SA, Bab Al Rayan Jewellery LLC, ACC Energy Storage Pvt. Ltd.

The company also failed to provide customer-wise, vendor-wise and debtor/creditor information of overseas subsidiaries despite repeated summons.

SEBI cited its concerns in this matter as 97% to 99% of the company's consolidated revenue came from its overseas subsidiaries.

What Is The Financial Misrepresentation Charge Against Rajesh Exports?

Rajesh Exports reported consolidated revenue of around Rs 15.45 lakh crore between financial year 2021 to fiscal year 2025.

However, SEBI found that the key operating subsidiary, Valcambi SA, reported only a fraction of those revenues in its audited standalone accounts.

Additionally, GGR, a holding company with no meaningful operations, also reported extraordinarily high unaudited revenue.

SEBI concluded in this regard that nearly ₹15.15 lakh crore of revenue attributed to subsidiaries was misrepresented and that amounts to nearly 99.8% of the company's consolidated revenue reported during this period.

What Are The Fictitious Transactions Reported By SEBI Against REL?

Rajesh Exports recorded sales of ₹11,487 crore, and purchases of ₹11,488 crore with Affluence Shares and Stocks Pvt. Ltd. between financial year 2022 and 2024. These transactions amount to 66% of standalone sales and 67% of standalone purchases.

In turn, Affluence informed the regulator that Rajesh Exports was never its client and that no agreement existed with the company, adding that no transactions were executed with the company at all.

Instead, Affluence dealt only with Rajesh Mehta on a personal level. Rajesh Mehta traded gold derivatives through his personal account and that funds of Rajesh Exports were routed through him to finance these trades.

Improper Accounting Treatment

SEBI has also alleged that Rajesh Exports inflated revenue by including forex fluctuations in revenue and purchases instead of separately accounting for them. This includes a sum of Rs 866 crore added to its revenue and Rs 716 crore added to purchases.

The company also included interest earned from fixed deposits and mutual funds within "revenue from operations"

False Consolidated Accounts

SEBI has also alleged in its order that Rajesh Exports failed to eliminate intra-group balances and incorrectly consolidated investments and liabilities.

This resulted in inflation of investments by Rs 2,501 crore and trade payables by Rs 1,456 crore, thereby allegedly overstating the group's balance sheet strength.

The regulator also found that Rajesh Exports doctored old receivables, used opaque adjustments against payables and failed to properly disclose the nature of these adjustments, thereby misleading investors regarding the true financial position of the company.

Misutilisation & Rerouting of Funds

SEBI has found that Rs 339 crore were transferred from Rajesh Exports to Rajesh Mehta of which, only ₹232 crore were transferred back.

There were no board approvals, no audit committee approvals, no proper agreements or disclosures regarding the same.

SEBI specifically observed that Rajesh Exports admitted funds were routed through Rajesh Mehta's account "without revealing the originating bank account."

A sum of Rs 566 crore was also transferred from Rajesh Exports to Elese Pvt. Ltd., of which only Rs 350 crore were returned, resulting in a net outflow of Rs 216 crore.

Despite this, Rajesh Exports disclosed only a small rental income transaction and major fund outflows were not properly disclosed.