The Securities and Exchange Board of India (Sebi) has raised significant concerns regarding the financial practices at Rajesh Exports Ltd (REL) through a 109-page interim order. This order not only highlights alleged accounting discrepancies but also questions the authenticity of much of the reported business activity of the company over several years. Sebi has found that between 97% and 99% of the company’s consolidated revenue appears to be inflated, lacking adequate documentary support.

The gravity of these findings has prompted Sebi to describe the situation as “egregious and unheard of.” The regulator is specifically inquiring whether the substantial revenues reported, amounting to several lakh crore rupees, can be substantiated with authentic evidence of business transactions.

Rajesh Exports, known for its gold refining and jewellery operations including the Shubh Jewellers chain, reported consolidated revenues in FY21 of Rs 2.58 lakh crore, Rs 2.43 lakh crore in FY22, and projected figures of Rs 3.39 lakh crore in FY23, among others. While these figures position the company among India’s largest revenue producers, doubts have emerged regarding the validity of these figures.

Investigation Originated from Shareholder Complaint

The investigation into Rajesh Exports commenced after a shareholder lodged a complaint with Sebi in March 2024. The complaint highlighted concerns about substantial trade receivables that had remained unpaid for over two years. These receivables relate to money owed by customers, and prolonged non-payment often triggers regulatory scrutiny regarding the legitimacy of reported sales.

In response to the allegations, Sebi initiated an investigation and appointed BDO India Services for a forensic audit. Early findings from the investigation revealed significant discrepancies between the standalone and consolidated revenues of Rajesh Exports. It was noted that nearly all reported revenue derived from foreign subsidiaries, raising questions about the company’s ability to provide verifiable evidence of these sales.

Throughout the inquiry, Sebi requested comprehensive supporting documentation, including customer sales data and vendor records. However, REL reportedly failed to provide such records satisfactorily, resulting in raised suspicions about the veracity of their financial disclosures.

Concerns Over Lack of Transparency and Inconsistencies

A notable focus of the investigation was on Valcambi SA, a Swiss precious metals refiner controlled by Rajesh Exports. Despite the company’s assertion to Sebi that Valcambi only recognised processing charges in its financial statements, Sebi found this claim unconvincing. The financial statements audited by KPMG did not reflect the substantial revenues claimed by Rajesh Exports.

Additionally, discrepancies in reported sales figures surfaced during the investigation, with the company submitting varying data at different stages. Sebi rejected requests from Rajesh Exports to disregard earlier submissions, maintaining that the integrity of underlying sales figures must remain consistent.

Moreover, transactions involving promoter Rajesh Mehta’s personal account drew scrutiny. Sebi expressed concern that trades executed through Mehta’s account lacked the necessary approvals and documentation, casting doubt on their legitimacy. The regulator’s findings suggested that transactions worth Rs 11,486.60 crore and Rs 11,488.42 crore may not have been genuine.

In addition to this, Sebi identified missing documentation related to purchases of over Rs 59 crore from certain entities. The absence of requisite records such as purchase orders and invoices weakened the case for the validity of these transactions.

Regulatory Actions and the Road Ahead

At present, Sebi has issued an interim ex-parte order as the investigation remains ongoing. Rajesh Mehta has been barred from trading in shares of Rajesh Exports, and the company is required to provide documents and cooperate with the authorities fully. A fresh forensic audit has been mandated to ensure compliance and accurate financial reporting.

Additionally, Sebi has referred the case to the National Financial Reporting Authority for further investigation of the statutory auditors’ conduct. While the allegations against Rajesh Exports have raised significant concerns about investor trust, the company and its promoters will have the opportunity to defend themselves in the ongoing proceedings.

As one of the more serious investigations into a listed company in recent years, the outcome of this case could have considerable implications for the wider market, particularly regarding the reliability of financial disclosures in securities trading.

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