Explainer: What is Rajesh Exports controversy, why SEBI took action; What effect does this have on investors? know everything

Rajesh Exports Scam: Rajesh Exports, one of the country’s largest gold refinery and jewelery companies, is currently in the headlines. In fact, market regulator SEBI has issued a very strict and historic internal order against the company and its chairman Rajesh Mehta. SEBI has taken this step in the case against the company and promoter for allegedly inflating the revenue of Rs 15.15 lakh crore.

Taking action amidst investigation may weaken the confidence of the company’s investors. Analysts believe that this may create a crisis of confidence in the company. The market regulator has described this case as a very serious and shocking case in corporate history. Let us try to understand this entire matter in detail.

What is the Rajesh Exports controversy?

Let us tell you that this whole matter started in March 2024 with the complaint of a shareholder, who raised huge ‘trade receivables’ pending for years in the company’s accounting. (i.e. money outstanding from customers). Subsequently, SEBI initiated forensic audit and formal investigation for the period between financial years 2020-21 to 2024-25 (5 years). The things that came to light in this investigation are extremely shocking.

1. Fake revenue of Rs 15.15 lakh crore: SEBI alleges that Rajesh Exports has overstated or misrepresented approximately 97 percent to 99.8 percent of its total consolidated revenues in the last 5 years.

2. Game of Overseas Subsidiaries: The company revealed that more than 98 percent of its revenue is coming from foreign companies outside India (such as Singapore and Switzerland). According to the market regulator, when documentary evidence of the transactions of these foreign subsidiaries was sought, the company could not show any concrete records or invoices.

3. Personal trading shown as company business: SEBI found that promoter Rajesh Mehta was trading in gold derivatives from his personal account through a broking firm (Affluence Shares & Stocks). He deposited his personal losses/profits and transactions in the corporate accounts of Rajesh Exports under the company’s ‘Sale and Purchase’ Recorded as sales of Rs 11,487 crore and purchases of Rs 11,488 crore.

4. Misappropriation of funds: Without the approval of the board or audit committee, Rs 339 crore was transferred from the company’s accounts to the private account of promoter Rajesh Mehta, out of which only Rs 232 crore was returned.

Why did SEBI take action against the company?

Kamlesh Chandra Varshney, whole-time member of the Security and Exchange Board of India, in his 109-page order has termed this irregularity as extraordinary and unheard of. SEBI has taken these immediate steps to protect the interests of investors and maintain market regulation.

Ban on trading: Rajesh Mehta, promoter and CMD of the company, has been completely banned from buying, selling or doing any kind of transaction in the shares or securities of Rajesh Exports till further orders.

Charge of non-cooperation: During the investigation, the company and its promoters did not give access to its main accounting system (ERP) and journal dumps to SEBI and forensic auditors. Despite sending summons, necessary documents were not handed over. The company’s statutory auditors also reneged on their promise to submit working papers. According to SEBI, this non-cooperation only proves that the company is hiding something.

New Forensic Audit: SEBI has ordered the appointment of a new independent forensic operator to investigate the company’s accounts and transactions in more depth. Also, the company has been asked to provide all pending information within 30 days.

What is the stand of Rajesh Exports?

After this action, Rajesh Exports Chairman Rajesh Mehta rejected the allegations and called it a communication gap and confusion. He says that the revenue declared by the company is completely correct and nothing has been exaggerated in it. SEBI officials may have been confused about the difference between gross profit and revenue. The nature of gold refining business is different.

The company further said that due to an ongoing dispute with MCX, the company was not able to trade digital gold directly, hence the promoter’s personal account was used only as a medium, which was ultimately for the company. The company will soon clarify this entire matter by submitting all necessary and relevant documents to SEBI.

Also read: Panic in the stock market! Rajesh Exports accused of fake earnings of Rs 15 lakh crore, SEBI bans it

Impact on markets and investors?

As soon as this news came stock market Rajesh Exports’ shares witnessed a huge fall in 2017 and came down to the lower circuit of 5 per cent. This controversy is not only affecting big institutional investors but also the common people, because the country’s largest government insurance company LIC (Life Insurance Corporation of India) holds about 10.80 percent stake in Rajesh Exports. In such a situation, the money of crores of policyholders is also indirectly linked to this company through LIC.