Rajesh Export Scam: Rajesh Exports Share Price Hits 5% lower circuit; Here's Why

Rajesh Exports Ltd has come under the regulatory spotlight after the Securities and Exchange Board of India (SEBI) issued an interim order outlining multiple alleged financial reporting and disclosure irregularities. The regulator's investigation, initiated following a shareholder complaint, examined the company's financial statements, subsidiary operations, accounting practices and fund movements between April 2020 and March 2024.The stock was locked in the 5 per cent Lower Circuit at Rs 103.92.

According to the interim order, SEBI's findings cover several areas, including alleged misrepresentation of consolidated revenue, questionable transactions with third parties, improper accounting treatment, fund routing through promoter-linked accounts, and discrepancies in disclosures relating to overseas subsidiaries and investments.

From Shareholder Complaint To Regulatory Investigation

The matter originated in March 2024 when SEBI received a complaint from a shareholder alleging possible financial misrepresentation relating to long-outstanding receivables in the company's books.

Following a preliminary review, the regulator appointed an Investigating Authority and later engaged a forensic auditor to examine the company's financial records and disclosures. During the course of the investigation, SEBI noted that several records, supporting documents and subsidiary-level financial statements sought from the company were either unavailable or incomplete.

Revenue Figures Come Under Regulatory Scrutiny

A significant portion of SEBI's observations relates to Rajesh Exports' consolidated financial statements.

The regulator noted that the company's overseas subsidiaries and step-down subsidiaries accounted for more than 97 per cent of its consolidated revenue during the review period. However, according to the order, the underlying customer-wise sales records, vendor details, invoices and transaction-level documents supporting these revenues could not be independently verified despite repeated requests.

SEBI's examination focused on entities including Global Gold Refineries AG (GGR) and Valcambi SA. While Valcambi was presented as the group's principal operating business, the regulator observed that its audited standalone revenues were substantially lower than the revenues reflected in the group's consolidated accounts.

Based on its analysis, SEBI stated that approximately Rs 15,15,385 crore of revenue attributed to subsidiaries and step-down subsidiaries during FY21 to FY25 appeared to be misrepresented, representing nearly 99.8 per cent of the revenue attributed to those entities.

Questions Raised Over Transactions With A Third-Party Entity

The interim order also examines transactions reported between Rajesh Exports and Affluence Shares and Stocks Pvt. Ltd.

According to SEBI, Rajesh Exports recorded sales of around Rs 11,487 crore and purchases of around Rs 11,488 crore with the entity between FY22 and FY24. These transactions accounted for a substantial portion of the company's standalone sales and purchases during the period.

However, Affluence reportedly informed the regulator that Rajesh Exports was never its client and that no transactions had been executed with the company.

The entity stated that its dealings were only with Rajesh Mehta in his personal capacity. SEBI noted that company funds were allegedly routed through Rajesh Mehta's account in connection with gold derivative transactions.

Accounting Treatment Under The Lens

The regulator has also questioned certain accounting practices followed by the company.

According to the interim order, foreign exchange fluctuations were allegedly included within revenue and purchase figures instead of being accounted for separately. SEBI stated that this treatment resulted in approximately Rs 866 crore being added to revenue and around Rs 716 crore being added to purchases.

The regulator further observed that interest income earned on fixed deposits and Mutual Funds was reportedly classified under revenue from operations.

Rajesh Exports Consolidation Issues And Balance Sheet Impact

SEBI's order also points to alleged deficiencies in the preparation of consolidated financial statements.

According to the regulator, intra-group balances were not properly eliminated, resulting in investments being overstated by approximately Rs 2,501 crore and trade payables being overstated by around Rs 1,456 crore.

The order further notes that adjustments involving receivables and payables were carried out without adequate disclosure regarding their nature and rationale, potentially affecting the presentation of the group's financial position.

Fund Transfers Through Promoter And Group-Linked Entities

The investigation also examined the movement of funds from the company to certain individuals and entities.

SEBI observed that around Rs 339 crore was transferred from Rajesh Exports to Rajesh Mehta, of which approximately Rs 232 crore was subsequently returned. According to the regulator, these transactions were carried out without board approvals, audit committee approvals or formal agreements.

The order also refers to transfers of approximately Rs 566 crore to Elese Pvt. Ltd., out of which around Rs 350 crore was returned, resulting in a net outflow of about Rs 216 crore. SEBI noted that these transactions were not fully disclosed in the manner expected under applicable regulations.

African Gold Mine Investment Claim Examined

Another aspect reviewed by the regulator relates to disclosures concerning investments in African gold mines.

Rajesh Exports had previously disclosed that approximately Rs 1,035 crore classified under other non-current investments represented investments in gold mines in Africa.

However, according to SEBI, no identifiable investment corresponding to these disclosures could be traced in the standalone financial statements of Rajesh Exports or in the financial records of Global Gold Refineries AG that were reviewed during the investigation.

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Disclaimer: The article is for informational purposes only and not investment advice.