Sebi cracks whip on Rajesh Exports promoter over alleged fund diversion

The market regulator barred promoter Rajesh Mehta from dealing in company securities for three years and ordered a forensic audit amid allegations of financial misstatements

The Securities and Exchange Board of India (Sebi) on Wednesday barred Rajesh Mehta, promoter and executive chairman of jewellery firm Rajesh Exports (REL), from dealing in the company's securities for three years over alleged financial misstatements and regulatory violations.

 

In a 109-page interim order, Sebi alleged that company funds were routed and layered through personal accounts and related entities without adequate disclosures or supporting documentation.

 

According to the regulator, REL transferred company funds to Mehta's personal account for derivative trading through his account with stockbroker Affluence Shares and Stocks. These transactions were allegedly disguised in the company's books as sales and purchase transactions.

 

Sebi said REL misstated its standalone financial statements between FY22 and FY24 by recording non-genuine sales and purchase transactions worth ₹11,487 crore and ₹11,488 crore, respectively, in the name of Affluence.

 

Furthermore, the regulator alleged misrepresentation to the tune of ₹15.15 trillion, or 99.8 per cent, of revenues attributed to subsidiaries between FY21 and FY25.

 

The regulator's findings further indicated that REL withheld material financial information relating to entities that accounted for a majority of its consolidated revenue and assets. It also alleged that the company incorrectly classified ₹204 crore of interest income from mutual funds and fixed deposits as revenue from operations, and recorded foreign exchange fluctuations amounting to ₹867 crore as operating revenue and ₹716 crore as purchases.

 

“The aberrations prima facie noted in the matter, where approximately 97-99 per cent of the company's revenue is inflated, are egregious and unheard of,” Sebi whole-time member Kamlesh Chandra Varshney said in the order.

 

Sebi also accused REL of impeding its investigation by failing to furnish consolidated-level information and by making inconsistent submissions at different stages of the probe.

 

The regulator has directed REL to cooperate with the investigation and submit the required documents and explanations within 30 days. It has also ordered the appointment of a new forensic auditor while a detailed investigation continues.

 

Separately, Sebi has referred the matter to the National Financial Reporting Authority (NFRA) for appropriate action against the company's statutory auditors.