SEBI’s Rajesh Exports Order: Closing Loopholes For Offshore Fraud

The Securities and Exchange Board of India (“SEBI”) passed an ex parte interim order dated 03.06.2026¹ directing Rajesh Exports Limited (“REL”), a listed gold refining and jewellery company, to respond to a shareholder complaint pertaining to a long-standing issue relating to trade receivables spanning from April 2020 to March 2024.

Background: Offshore Subsidiaries and Non-Disclosure

REL carried on a substantial part of its business through its Swiss subsidiaries, particularly Valcambi SA and its holding company Global Gold Refineries AG (“GGR”). Between 97% and 99% of REL’s total sales were booked through these foreign entities. Despite this, REL did not consistently upload its audited financial statements on its website, nor did it provide complete financial information on record to SEBI. When questioned, REL claimed that the Swiss Federal Act on Data Protection (“FADP”) prevented disclosure of such information in India.

SEBI rejected this position, noting that the FADP concerns the processing of personal data of individuals and does not cover audited financial statements of companies. Moreover, the FADP permits disclosure to competent foreign authorities where necessary. SEBI, therefore, held that a listed Indian company cannot rely on a foreign privacy regime to evade its disclosure obligations in India.

Structure and Execution of the Alleged Fraud Scheme

1. Inflated Revenues via the Swiss Holding Structure

The most serious concern identified by SEBI was the substantial gap between revenues reported at the GGR level and the audited numbers of Valcambi SA. GGR, essentially a holding company without independent operations, showed unaudited consolidated revenue of approximately ₹2,92,714 crore for 2023, whereas Valcambi SA – the actual operating entity – reported audited standalone revenue of only about ₹542 crore. REL, however, relied on GGR’s inflated figures to represent a very large scale of business in its consolidated accounts.

SEBI estimated that, over a five‑year period, the revenues of REL’s subsidiaries were overstated by about ₹15,15,385 crore, amounting to more than 99.8% of the subsidiary revenue reported in REL’s consolidated financial statements. This formed a core element of the alleged scheme to misrepresent the financial position and performance of the company to the market.

2. Use of the Company as a Vehicle for Promoter’s Personal Trades

On a standalone basis, REL booked more than ₹11,400 crore each of sales and purchases with a broker, Affluence Shares and Stocks. SEBI concluded that these were not genuine business trades of the company, but instead represented gold derivatives trades undertaken for the personal benefit of Chairman‑promoter Rajesh Mehta, routed through REL’s accounts. This treatment artificially inflated REL’s reported turnover and gave an impression of much higher commercial activity than actually existed.

3. Aggressive Accounting and Questionable Assets

REL also adopted accounting treatments that enhanced the appearance of its operating performance. Significant foreign exchange gains and interest income were classified as “Revenue from Operations”, thereby overstating operating revenue. An unverified asset titled “Investment in Gold Mines in Africa” was recorded at over ₹1,000 crore without adequate supporting documentation.

Trade receivables amounting to nearly ₹3,000 crore were written off or adjusted against payables based on old invoices and informal telephonic understandings, rather than on clear and documented arrangements. Collectively, these practices allowed REL to present stronger revenues and a cleaner balance sheet than warranted by its underlying financial reality.

4. Diversion of Company Funds and Related-Party Concerns

SEBI found that substantial funds were diverted from REL without the proper approval of the audit committee. Large sums were transferred to the personal accounts of Rajesh Mehta for trading and court‑related deposits, and company funds were used to meet the personal credit card expenses of his son, Siddharth Mehta. A significant net amount was also routed to Elest Pvt. Ltd., another promoter‑controlled company.

These transfers were neither transparently disclosed to shareholders nor treated and approved as proper related‑party transactions under the applicable regulatory framework. SEBI held that the overall scheme misled investors and violated the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”), as well as multiple provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).

These transfers were not clearly disclosed to shareholders and were not handled as proper related-party transactions. SEBI held that the overall scheme misled investors and violated the Prohibition of Fraudulent and Unfair Trade Practices (“PFUTP Regulations”) as well as several provisions of the LODR Regulations.

Reference to binding Precedents of Reliance Industries Limited & N. Narayanan to establish dishonest conduct

SEBI, at the time of passing this Interim Order in the present matter, relied on binding judgments passed by the Hon’ble Supreme Court, such as Reliance Industries Limited v. SEBI² and N. Narayanan v. Adjudicating Officer³. It emphasised that the dishonest conduct aimed at misleading the market is enough to amount to “fraud” under securities law and that the Regulators do not first have to prove exact loss for each investor.

The said approach laid down by SEBI is imperative for tackling complex accounting scams. Many such frauds are structured to make it difficult to show direct loss to individual shareholders. By treating false revenues, sham trades and diversion of funds as fraud in themselves, SEBI can act faster and more firmly. In this case, SEBI has banned key persons from accessing the securities market on an interim basis; ordered a fresh forensic audit; and directed REL to correct its financial disclosures.

SEBI has also sent a strong message to the market on offshore structures. If a listed Indian company chooses to operate through foreign subsidiaries, it must still provide full financial information to Indian regulators. Foreign data protection laws that apply only to personal data cannot be used as an excuse to block SEBI.

Further, the auditors accepted unrealistic group revenue figures at the GGR level without properly reconciling them with Valcambi SA’s audited numbers and relied on management’s accounting manuals. In view thereof, SEBI has referred the conduct of REL’s auditors to the National Financial Reporting Authority (“NFRA”). The said act of SEBI signifies that the auditors who fail to question doubtful consolidation practices for foreign subsidiaries may face regulatory action.

Deterrent Action and the System’s Weak Spot

The interim order has shaken investor confidence in REL and has likely made the market more cautious about companies that (a) report exceptionally high overseas revenues while offering minimal public information about subsidiary accounts, or (b) engage in significant related‑party dealings with promoters and their controlled entities. For promoters and potential wrongdoers, the message is explicit: complex offshore structures and reliance on foreign privacy arguments will not immunise them from SEBI’s scrutiny; routing personal trades through corporate accounts may be treated as securities fraud; and auditors will be held to a higher standard when certifying group financial statements. At the same time, the order highlights weaknesses in the earlier oversight architecture that allowed the alleged fraud to persist over several years. There had been heavy reliance on management‑provided numbers for foreign subsidiaries, with limited independent verification. Although the SEBI LODR Regulations contain provisions regarding related‑party transactions, the repeated movement of funds to promoters’ personal accounts and group entities indicates weak real‑time monitoring by audit committees and independent directors. REL’s refusal to grant SEBI and the forensic auditor access to its Enterprise Resource Planning (“ERP”) systems and critical accounting data also evidences that existing penalties for obstructing investigations were not sufficiently immediate or stringent to ensure cooperation

Conclusion

SEBI’s interim order in the REL matter represents an important step towards recognising and closing regulatory gaps around offshore subsidiaries, foreign data protection arguments, and audit quality. By looking through the Swiss holding structure to the actual operating entity, and by rejecting a misplaced reliance on Swiss data protection law, SEBI has made it conspicuously clear that listed companies that raise capital from Indian investors must disclose accurate financial information, regardless of where their operations or subsidiaries are located.

Simultaneously, the order highlights the seriousness of adherence to accounting norms and advances responsibility from auditors and other external professionals who are directly responsible for financial scrutiny of a company. It signals that they must independently test group numbers – particularly where foreign subsidiaries and related parties play a central role – and cannot merely accept management explanations at face value. Collectively, these actions make it more difficult for promoters to inflate revenues, divert company funds, or cosmetically improve financial statements without early detection, and should contribute to improving the overall quality and reliability of financial reporting in India’s capital markets.

Footnotes

1. WTM/KV/CFID/CFID-SEC6/32431/2026-27 dated 03.06.2026 passed by SEBI

2. Reliance Industries Limited & Others v. Securities and Exchange Board of India, 2026 INSC 585

3. N. Narayanan v. Adjudicating Officer, Securities and Exchange Board of India, (2013) 12 SCC 152

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