SEBI flags Rs 15.15 lakh crore revenue misstatement in 5 Years, Interim order against Rajesh Exports - Moneycontrol.com
SEBI has ordered the appointment of a fresh forensic auditor to examine the company's books and records, observing that an earlier forensic audit was completed
SEBI has ordered the appointment of a fresh forensic auditor to examine the company's books and records, observing that an earlier forensic audit was completed without full cooperation from the noticees. The Swiss Vault: SEBI's theory of how a Rs 15-Lakh-Crore revenue puzzle was built at Rajesh Exports SEBI issues interim order against Rajesh Exports and Rajesh Mehta Company accused of misrepresenting 99.8% of consolidated revenues Rajesh Mehta barred from trading Rajesh Exports securities Did our AI summary help? Market regulator Securities and Exchange Board of India (SEBI) has passed an interim e parte order against Rajesh Exports Ltd. (REL) and its Chairman and Managing Director, Rajesh Mehta, citing prima facie findings of financial misrepresentation, fund-routing irregularities and non-cooperation during an ongoing investigation. SEBI alleged that in the interim order, REL misrepresented consolidated revenues aggregating to approximately Rs 15.15 lakh crore, representing 99.80 percent of the total consolidated revenue for the period FY 2020-21 to FY 2024-25. In a 109-page order on Wednesday, Whole Time Member Kamlesh Chandra Varshney noted that REL engaged in a multi-year pattern of recording non-genuine transactions, adopting improper accounting treatments, routing corporate funds through personal accounts and promoter-linked entities, and failing to make adequate disclosures to investors. "It is an interim order and nothing in it is true," Rajesh Mehta, chairman and managing director at Rajesh Exports, told Moneycontrol on June 4 morning. "We are in the process of studying it and will prepare a response," he added. How does SEBI allege misrepresentation? SEBI’s interim order alleges that Rajesh Exports materially misrepresented its consolidated financial statements by reporting extremely large revenues from overseas subsidiaries that could not be independently verified.
According to SEBI, nearly 97–99 percent of the company’s consolidated revenue originated from foreign subsidiaries, particularly Valcambi SA. However, Valcambi’s audited standalone financial statements showed only a small fraction of the revenues reported at the group level. SEBI contends that the company recognized gross gold transaction values rather than only refining or processing income, without providing adequate supporting records, customer details, invoices, or accounting justification, thereby potentially inflating revenues and misleading investors. "I prima facie find that the pattern of routing substantial sums through the personal bank accounts of Mr. Rajesh Mehta and Siddharth Mehta, coupled with absence of approvals, non-disclosure and inconsistent explanations, demonstrates systemic failure of corporate governance, concealment of material information and deliberate circumvention of regulatory requirements," Varshney said in the order. According to SEBI, the company's books and financial statements for FY21-FY25 were prima facie manipulated through non-genuine and unverifiable transactions, incorrect consolidation of accounts, unexplained investments, non-disclosure of related-party transactions, and diversion of funds through promoter-linked entities. Also read: IndusInd Bank insider trading probe: SEBI conducts Kolkata searches; e official under scanner The regulator alleged that these actions resulted in misleading financial statements that portrayed an inflated picture of the company's operational scale, balance sheet strength, and financial health. Among its findings, SEBI alleged that REL misrepresented consolidated revenues aggregating approximately Rs 15.15 lakh crore, representing about 99.8 percent of total consolidated revenue reported during FY21-FY25. Order stated, “REL has prima facie misrepresented approximately Rs 15,15,385 crore i.e. representing 99.80% of its revenues which are attributed to subsidiaries during the period FY 2020-21 to FY 2024-25.
The aforesaid conduct appears to have prima facie enabled REL to portray an inflated and misleading picture of its operational scale, consolidated financial position and financial health before investors and the securities market”. It also alleged misrepresentation of standalone revenues amounting to Rs 12,557 crore during FY21-FY24. The regulator further alleged that REL falsely recorded derivative transactions executed by Rajesh Mehta in his personal capacity as company sales of Rs 11,487 crore and purchases of Rs 11,488 crore, classified exchange fluctuations of Rs 867 crore and Rs 716 crore as revenue and purchases respectively, and booked Rs 204 crore of interest income from mutual funds and fixed deposits as revenue from operations. Also Read | LIC holds over 10% stake in Rajesh Exports; FIIs hold nearly 14% SEBI also noted that, false claim of investment in Gold Mine in Africa was also made. SEBI order noted, “It is observed that the claim made by REL that “Other Non-Current Investments” represented “investment in gold mines in Africa” could not be corroborated with financial statements available on record.” SEBI also alleged that company funds were routed through the personal bank accounts of Rajesh Mehta and Siddharth Mehta without disclosure as related-party transactions or approval from the board and audit committee. SEBI, in its interim order, alleged that REL had “Hampered SEBI’s investigation by failing to provide consolidated-level information and furnishing varying and inconsistent submissions w.r.t. standalone-level information, at different stages of the investigation”. Order further stated, “By publishing such misrepresented financial results and annual financial statements containing prima facie non-genuine and unsupported transactions, REL failed to ensure accuracy, completeness and transparency in its disclosures to stock exchanges and investors”.
The regulator has also referred the matter to the Financial Reporting Authority (NFRA) for examination of the conduct of the company's statutory auditors. The order stated, “Looking at the prima facie misconduct and dereliction of duties of on the part of the statutory auditors, a copy of this order shall be forwarded to Financial Reporting Authority for appropriate actions, if any, against the Statutory Auditors of REL”. Rajesh Exports has been directed to cooperate and provide the documents and explanations as sought by the Investigating Authority. Also, make true and fair disclosures of their financial statements, related party transactions and other disclosures as per SEBI’s listing regulations. SEBI has restrained Rajesh Mehta from buying, selling, or dealing in Rajesh Exports Limited securities until further orders and ordered a fresh forensic audit. Also read: From NSE Shares to Courtrooms: FIR Against Relative of Veteran Investment Banker Sparks Legal Battle However, Rajesh Exports Chairman and Managing Director, Rajesh Mehta, denied the SEBI's allegations. "It is an interim order and nothing in it is true," Rajesh Mehta, chairman and managing director at Rajesh Exports, told Moneycontrol on June 4 morning.
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