New Delhi: Gold refiner and jewellery manufacturer Rajesh Exports Ltd (REL) allegedly inflated its consolidated revenues by more than Rs 15 lakh crore over five years by attributing massive revenues to overseas subsidiaries, particularly Switzerland-based Valcambi SA, despite the subsidiary’s audited standalone financial statements showing only a fraction of those amounts, according to an interim order by Sebi.
The regulator has raised serious concerns over what it described as a prima facie misrepresentation of the company’s financial position, noting that almost entire of REL’s reported revenues were attributed to overseas subsidiaries whose financial statements were not made publicly available.
According to Sebi, REL reported consolidated revenues of about Rs 15.18 lakh crore between FY21 and FY25. Of this, approximately Rs 15.15 lakh crore, or 99.8 per cent of the revenues attributed to subsidiaries, could not be reconciled with the audited standalone financial statements of Valcambi SA, the group’s principal operating subsidiary.
Valcambi SA, a precious metals refiner, earns revenue from refining services and the sale of branded bullion products. However, its audited standalone accounts, prepared under Swiss law and audited by KPMG SA, recorded only processing charges or value addition as revenue.
Sebi found a stark mismatch between these audited figures and the revenues reported by Rajesh Exports and its intermediary holding company, Global Gold Refineries (GGR).
For instance, in calendar year 2023, Valcambi SA reported a standalone revenue of around Rs 543 crore, while GGR and REL reported consolidated revenues of approximately Rs 2.93 lakh crore and Rs 2.81 lakh crore, respectively. As a result, Valcambi’s standalone revenues accounted for less than 0.5 per cent of the revenues reported at the consolidated level.
The regulator questioned how a holding company with no independent operating activities could recognise gross transaction values running into several lakh crore rupees when the operating subsidiary itself recognised only processing fees as revenue.
When asked to explain the discrepancy by Sebi, REL argued that Valcambi accounted only for processing income, whereas GGR recognised the gross value of gold transactions along with processing charges.
Sebi, however, found the explanation prima facie untenable. It noted that Valcambi’s audited financial statements did not recognise the gross value of gold transactions as revenue and reflected only processing income.
The regulator further observed that REL failed to provide documentary evidence, accounting opinions, principal-agent assessments, bullion ownership records, inventory risk allocation details, inter-company agreements or reconciliation statements to justify the recognition of gross transaction values at the holding-company level.
“It is not clear as to how the consolidating entity changes fundamentals of accounting by including market value of goods belonging to third parties as its revenue, when the operating entity itself accounts for only value addition,” Sebi noted in its 109-page order passed on Wednesday.
The regulator further observed that REL’s explanation implied that GGR, despite being merely a holding company without operational activities, recognised the market value of third-party-owned gold as revenue from processing transactions undertaken by Valcambi.
According to Sebi, such accounting treatment appeared “internally inconsistent, commercially implausible and unsupported by verifiable underlying records”.
The order also noted that although 97-99 per cent of REL’s consolidated revenues were claimed to originate from overseas subsidiaries, particularly Valcambi SA, the company had failed to upload the financial statements of any subsidiary or step-down subsidiary on its website and did not furnish critical underlying data, including customer and vendor details, despite repeated summons from investigators.
Sebi Whole Time Member Kamlesh Chandra Varshney said REL had prima facie misrepresented about Rs 15,15,385 crore of revenues attributed to subsidiaries during FY21-FY25, thereby portraying an inflated and misleading picture of its operational scale, consolidated financial position and financial health before investors and the securities market.
Calling the apparent inflation of 97-99 per cent of the company’s revenues “egregious and unheard of”, the regulator said the gravity of the findings warranted interim directions pending completion of the investigation.
Accordingly, Sebi barred Rajesh Exports’ promoter and CEO Rajesh Mehta from dealing in the company’s securities, alleging large-scale misrepresentation of financial statements and diversion of funds. The regulator also directed the company to make true and fair disclosures of their financial statements, related party transactions and other disclosures under the Listing Obligations and Disclosure Requirements (LODR) regulations.
In a statement on Thursday, Rajesh Exports denied any financial irregularities, saying its reported revenues were correct and that there seemed to be a communication gap between the markets regulator and the firm.
“The revenues declared by the company are correct, and there is no over-stating of revenues. There seems to be some type of communication gap and confusion between Sebi and the company,” Rajesh Exports said in a BSE filing.
The interim order came after Sebi received a complaint in March 2024 from a REL shareholder, who alleged potential financial misrepresentation in the books with respect to a large sum of trade receivables outstanding for more than two years.
The present proceedings have emanated from an investigation conducted for the period from April 1, 2020, to March 31, 2024.
PTI
