SEBI's Rajesh Exports Order: A Landmark Enforcement Action On Financial Reporting And Disclosure

1. Background

 Rajesh Exports Limited (“REL”), a Bengaluru-based company incorporated in 1989, built its reputation as a global gold giant and was seen as one of India’s largest gold companies by revenue. REL refined precious metals and exported jewellery worldwide, with its reported revenues placing it among India’s largest listed firms. The latest controversy, following the passing of SEBI’s interim order against REL, raises serious questions about India’s corporate governance framework. The controversy arose when a shareholder raised a complaint to SEBI on March 11, 2024. According to the complainant, the company had large trade receivables outstanding for more than two years. Large outstanding receivables raise concerns as they may indicate difficulty in collecting payments or point to potential accounting irregularities.

Following a preliminary examination, SEBI appointed an investigating authority in October 2024 and subsequently engaged BDO India Services Private Limited as a forensic auditor. During the investigation, SEBI alleged that REL failed to provide complete records, denied access to accounting systems and furnished inconsistent information, resulting in significant limitations on the forensic audit process. Given that approximately 97% to 99% of REL’s reported consolidated revenues originated from overseas subsidiaries, particularly entities connected with its Swiss operations, SEBI focused its investigation on the reliability of subsidiary-level reporting and the basis on which those revenues were consolidated.

2. Key Findings

2.1 Consolidated financial statements failed to present a true and fair view of the group’s revenue

The central finding in the Order relates to misrepresentation of REL’s consolidated revenues, which aggregated to more than INR 15 lakh crores during the FY 2020-21 to FY 2024-25.

REL, in its annual reports for FY 2020-21 to FY 2024-25, disclosed consolidated revenues from operations aggregating to approximately INR 15,44,899 crore and consolidated purchases aggregating to approximately INR 15,43,533 crore. In the absence of underlying transactional records and supporting documents, consolidated sales and purchase figures disclosed by REL could not be independently verified. It was observed that more than 97% of REL’s consolidated revenues during FY 2020-21 to FY 2024-25 were attributed to its subsidiaries and step-down subsidiaries.

It is prima facie observed by SEBI that the consolidated revenues disclosed by REL were substantially dependent upon the financials attributed to Valcambi SA, the Swiss refinery which was the operating company within the Group. In order to examine the aforesaid claim, the standalone revenues of Valcambi SA (audited) were compared with the consolidated revenues reported by Global Gold Refineries AG (“GGR”), a group company of REL and the holding company of Valcambi SA. Pursuant to which it was noted that the standalone revenues of Valcambi SA constituted only a negligible fraction of the consolidated revenues reported by GGR and REL . For instance, during CY 2023, the standalone revenue of Valcambi SA amounted to approximately INR 542.68 crore, whereas GGR reported consolidated revenues of approximately INR 2,92,713.71 crore and REL reported consolidated revenues of approximately INR 2,80,676.35 crore. In other words, it is observed that the standalone revenues of Valcambi SA constituted less than 0.50% of the consolidated revenues reported by GGR and REL, which appears fundamentally inconsistent with REL’s repeated assertion that Valcambi SA was the principal operating entity driving the group’s revenues and the fact that GGR is holding company and is not having any day to day operations.

Upon being called upon to explain the aforesaid discrepancy, REL contended that Valcambi SA accounted only for “processing revenues” or “value addition”, whereas GGR recognized the gross value of gold transactions together with processing charges. This explanation did not seem to be prima facie untenable. The audited standalone financial statements of Valcambi SA, prepared in accordance with Swiss law and audited by KPMG SA, correctly recognized only the processing charges/value addition as revenue and do not reflect any recognition of the alleged “true and fair sales revenue” relied upto by REL. It is not clear as to how the consolidating entity changes fundamental of accounting by including market value of goods belonging to third party as its revenue, when the operating entity itself accounts for only value addition (as it does not claim to take ownership of goods belonging to someone else).

Infact REL’s explanation effectively implies that GGR, despite being merely a holding company with no independent operational activities or trading operations, recognized incorrectly market value of goods as revenues arising from processing transactions undertaken by Valcambi SA, even though such revenues were not recognized in the books of Valcambi SA itself as Valcambi SA was only accounting for value addition. SEBI observed that such accounting treatment is prima facie internally inconsistent, commercially implausible and unsupported by verifiable underlying records.

2.2 Misrepresentation of Standalone Financial Statements

SEBI also examined certain transactions recorded by REL in its standalone financial statements involving Affluence Shares and Stocks Private Limited (“Affluence”), a SEBI-registered stockbroker. During the FY 2020-21 to FY 2023-24 REL reported sales of INR 11,487 crore and purchase transactions aggregating to INR 11,488 crore with Affluence, which constituted a significant portion of REL’s standalone revenue and purchase figures. SEBI observed that these transactions resulted in negligible value addition (of approximately INR 1.82 crores), with the reported sales and purchases being nearly identical.

SEBI’s investigation raised concerns regarding the genuineness and economic substance of these transactions. The investigation noted that REL’s GSTR-2A records did not reflect any purchase transactions with Affluence and that no direct banking transactions between REL and Affluence were identified. Further, Affluence’s financial statements did not appear to correspond with the scale of transactions recorded by REL. Affluence, in response to SEBI’s summons, stated that REL was never its client, no agreement had been executed with REL and it had not undertaken any transactions on behalf of REL. Affluence’s promoter further confirmed during deposition that the trading relationship existed only with Mr. Rajesh Mehta, REL’s promoter and chairman, in his personal capacity.

SEBI observed that the transactions recorded in REL’s books represented gold derivative trades undertaken by Mr. Rajesh Mehta through his personal account with Affluence. As per the Order, REL had provided margin money to Mr. Mehta for undertaking such trades, following which the resultant gains or losses were settled back with REL. SEBI observed that these derivative transactions, although undertaken through Mr. Mehta’s personal account, were recorded in REL’s books as sales and purchases executed with Affluence.

REL sought to explain that the transactions were routed through Mr. Mehta’s account due to litigation involving the Multi Commodity Exchange of India Limited (“MCX”) and that Mr. Mehta acted merely as a conduit for the company. However, SEBI rejected this explanation, noting the absence of any contemporaneous supporting documentation, including agreements, authorisations, board approvals or audit committee approvals evidencing such an arrangement.

Based on the cumulative circumstances, including the near-identical value of sales and purchases, absence of direct transactions between REL and Affluence, Affluence’s categorical denial of any dealings with REL, and lack of supporting corporate authorisations, SEBI expressed serious concerns regarding the genuineness and economic substance of the transactions. SEBI further observed that the accounting treatment of these transactions had a material impact on REL’s reported financial statements, as they represented a significant component of the company’s disclosed revenue and purchases during the relevant period. Accordingly, SEBI observed that the standalone financial statements of REL may have been materially misstated.

2.3 Non-availability of financial statements of REL’s subsidiaries/ step-down subsidiaries

A key issue examined by SEBI in the Order relates to REL’s failure to make available the audited financial statements of its subsidiaries and step-down subsidiaries (“SDSs”), despite statutory requirements mandating such disclosures. The issue assumes significance given that several of REL’s subsidiaries, including Valcambi SA, were integral to the company’s consolidated operations and revenue profile.

The disclosure framework under the Companies Act, 2013 (the “Companies Act”) and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) places specific obligations on companies to ensure that investors have access to subsidiary-level financial information. Section 128(1) of the Companies Act requires every company to maintain books of account and financial statements that provide a true and fair view of its financial position. Further, Section 136(1) requires companies having subsidiaries to place the separate audited financial statements of each subsidiary on their website. This obligation is reinforced for listed entities under Regulation 46(2)(s) of the LODR Regulations, which requires disclosure of separate audited financial statements of every subsidiary at least 21 days prior to the Annual General Meeting.

Against this statutory backdrop, SEBI observed that REL had failed to upload the financial statements of its subsidiaries and SDSs on its website. SEBI noted that the absence of subsidiary-level financial information, particularly in respect of entities such as Valcambi SA which contributed significantly to REL’s consolidated business operations, restricted the ability of investors, auditors and regulators to independently evaluate the financial position, risks and performance of the consolidated entity.

SEBI further observed that disclosure of consolidated financial statements cannot be treated as a substitute for subsidiary-wise financial statements. The disclosure of consolidated results serves a different purpose from the publication of individual subsidiary financial statements, which enables investors and stakeholders to examine the financial position and performance of material subsidiaries forming part of the listed entity’s corporate structure. Accordingly, SEBI viewed REL’s failure to provide subsidiary-level financial statements as impairing the transparency expected of a listed entity and limiting shareholders’ ability to make informed investment decisions.

Following directions from SEBI to address these deficiencies, REL provided certain financial statements relating to entities including REL Singapore, GGR and Valcambi SA. However, SEBI observed that the disclosures provided by REL were incomplete. Several subsidiary financial statements were still not made available, including those of REL Singapore, Bab Al Rayan Jewellery LLC, GGR, Valcambi SA, Valcambi USA Inc., and ACC Energy for the relevant financial years. SEBI noted that these continued gaps meant that investors did not have access to complete subsidiary-level financial information.

In response to multiple summons issued by SEBI, REL contended that its standalone and consolidated financial statements were sufficient and that the financial information of its subsidiaries could be derived from the consolidated figures. SEBI rejected this submission, holding that the statutory requirement to publish subsidiary-wise financial statements is an independent disclosure obligation and cannot be satisfied through consolidated reporting alone.

SEBI’s observations highlight the importance of subsidiary-level disclosures in ensuring meaningful transparency within corporate groups. The Order emphasises that while consolidated financial statements provide investors with an overview of the group’s financial position, they do not eliminate the need for entity-specific disclosures where such information is necessary to assess underlying risks, business operations and financial dependencies.

In this regard, we advert your attention to SEBI’s informal guidance letter dated May 30, 2019, issued in the matter of HCL Technologies Limited (“HCL”), which affirmed the position that Indian listed entities with foreign subsidiaries operating in jurisdictions that do not mandate audits or permit the publication of audited financial statements may publish unaudited financial statements of such subsidiaries on their website. The guidance was sought in the context of HCL’s acquisition of Actian Corporation (“Actian”), a Delaware-based entity having fifteen wholly owned subsidiaries and step-down subsidiaries, of which thirteen were incorporated outside India and two were incorporated in India. HCL had highlighted that certain foreign jurisdictions neither required statutory audits nor permitted the publication of audited financial statements. In response, SEBI clarified that listed entities must publish audited financial statements where such publication is permissible under the applicable local laws and, where the relevant jurisdiction does not mandate audits or permit such publication, unaudited financial statements may be disclosed to ensure compliance with the disclosure requirements under Indian securities laws.

In our view, the HCL guidance provides useful context on SEBI’s approach towards disclosure obligations of listed entities with overseas subsidiaries. While SEBI has recognised that differences in foreign regulatory frameworks may create practical challenges, such considerations cannot dilute the underlying objective of ensuring adequate and meaningful disclosures. The observations in the REL Order reinforce the importance of maintaining access to subsidiary-level financial information, particularly where such subsidiaries form a material part of the listed entity’s consolidated operations, to facilitate regulatory oversight and enable investors to make informed decisions.

2.4 Non-availability of information at consolidated level

Another significant issue examined by SEBI was REL’s inability to provide detailed operational information relating to its overseas subsidiaries, particularly GGR and Valcambi SA. SEBI noted that REL exercised complete control over both entities through direct and indirect shareholding structures. Despite such control, REL claimed that it was unable to furnish granular information relating to the consolidated operations of these entities, including party-wise details of sales, purchases, debtors, creditors and inventory.

SEBI had issued multiple communications, including emails dated June 28, July 11, August 6, August 21 and September 4, 2024, followed by summons dated June 16, July 2 and July 24, 2025, seeking the aforesaid information. In response, REL relied on restrictions under Swiss law and confidentiality arrangements entered into by GGR and Valcambi SA, contending that these prevented the sharing of such information with SEBI.

To support its position, REL submitted copies of the Swiss Federal Act on Data Protection (“FADP”) along with a sample confidentiality agreement. REL contended that the FADP restricted the cross-border transfer of personal data to India and relied upon an email from the CEO of Valcambi, forwarded by Mr. Rajesh Mehta, reiterating these concerns.

SEBI, however, rejected REL’s reliance on the FADP and observed that the legislation was inapplicable to the financial information sought during the investigation. Upon examining Article 1 of the FADP, SEBI noted that the legislation is intended to protect the personal data of natural persons and does not extend to corporate information or financial data of legal entities such as Valcambi SA.

SEBI further observed that, even in relation to personal data, Article 17 (1) (c) of the FADP contains exceptions permitting disclosure where such disclosure is necessary to safeguard an overriding public interest or to establish, exercise or enforce legal rights before a competent foreign authority. Accordingly, SEBI held that REL could not rely on the FADP as a basis for refusing to provide corporate financial information sought by the regulator.

SEBI also emphasised that a listed entity operating in the Indian securities market cannot avoid its statutory obligations under Indian securities laws by relying on foreign data protection provisions or private confidentiality arrangements. Where a listed company chooses to conduct business through overseas subsidiaries and incorporates their financial results into its consolidated disclosures, it remains responsible for maintaining access to sufficient underlying information necessary for regulatory oversight and ensuring transparency for investors.

The observations highlight SEBI’s approach towards cross-border corporate structures, particularly where overseas subsidiaries form a material part of a listed entity’s consolidated operations. The Order makes clear that regulatory disclosure obligations under Indian securities laws cannot be diluted through contractual confidentiality arrangements or foreign legal restrictions where such information is necessary for investor protection and regulatory examination.

2.5 Related Party Transactions and Fund Flows

The Order also records SEBI’s examination of a series of transactions involving Rajesh Mehta, members of his family and other promoter-linked entities. SEBI identified transactions between REL, and entities associated with the promoter group, including Elest Private Limited (“Elest”), an entity alleged to be controlled by Rajesh Mehta. Certain investments made by Mr. Rajesh Mehta in Elest as well as certain sale of stake by Mr. Rajesh Mehta of the stakes in Elest was not adequately disclosed as related party transaction. This non-disclosure raised concerns regarding transparency, corporate governance standards and compliance with the regulatory framework governing related party transactions.

3. Broader Implications

 The Order reinforces that the disclosure obligations under Regulation 46(2)(s) of the LODR and Section 136(1) of the Companies Act operate as independent statutory requirements. These obligations are intended to ensure meaningful access to subsidiary-level financial information and should be viewed as substantive safeguards that promote transparency, accountability and informed decision-making by investors, and cannot be deemed as mere procedural compliance requirements.

Further, SEBI’s rejection of REL’s reliance on the Swiss Federal Act on Data Protection underscores that foreign data protection or confidentiality laws cannot, by themselves, be used to avoid statutory disclosure obligations under Indian securities laws. When considered alongside SEBI’s guidance in the HCL Technologies matter, it appears that SEBI’s approach is to recognise genuine jurisdictional constraints while ensuring that such constraints do not undermine the objective of investor transparency.

4. Conclusion

 While the findings recorded in the Order are at an interim stage and remain subject to further proceedings, in our view, the Rajesh Exports Order represents a significant development in SEBI’s approach towards financial reporting and disclosure obligations of listed entities with multiple level of group companies ( within and outside India). The Order underscores that transparency in financial reporting cannot be assessed solely through consolidated financial statements but must be supported by adequate subsidiary-level information, robust documentation and effective governance processes. This assumes particular significance for companies operating through complex domestic and overseas group structures, where access to underlying information is critical to ensuring accurate reporting, regulatory oversight and investor confidence. The Order reinforces that disclosure obligations are not merely procedural requirements, but fundamental safeguards that promote accountability and integrity in the securities market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.