ED conducts searches at Rajesh Exports premises in Bengaluru, Mumbai after Sebi scrutiny

The Enforcement Directorate (ED) on Tuesday conducted searches against Rajesh Exports Ltd (REL) which is facing scrutiny from market regulator Securities and Exchange Board of India (Sebi) over alleged financial irregularities, official sources said.

The action is understood to have been taken under the Foreign Exchange Management Act (FEMA) at the Bengaluru-headquartered company.

Premises in Bengaluru and Mumbai linked to the company are being covered, they said.

REL allegedly inflated its consolidated revenues by more than ₹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 restrained the company's Chairman and Managing Director, Rajesh Mehta, from buying, selling or dealing in securities of Rajesh Exports, either directly or indirectly, until further orders.

Rajesh Exports has 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.

At the standalone entity level, REL reported executing gold sales worth ₹11,487 crore and purchases worth ₹11,488 crore through broker Affluence Shares and Stocks Private Limited.

However, Sebi’s investigation found otherwise. Affluence denied carrying out any bulk gold transactions on behalf of the company. Instead, Sebi alleged that REL had diverted corporate funds into the personal accounts of Rajesh Mehta, who then used the money to undertake personal gold derivative trades through Affluence. After incurring losses, Mehta allegedly returned the remaining funds to REL. The regulator found that the company subsequently recorded Mehta’s personal trading activity as corporate bulk gold transactions to inflate reported business turnover.

Separately, REL had disclosed to stock exchanges that it held “Other Non-Current Investments” worth ₹1,035.27 crore as of March 31, 2023, describing the asset as an investment in gold mines in Africa. Auditors, however, were unable to trace this investment anywhere in the standalone financial statements of REL or those of its direct holding subsidiaries.

Rather than imposing a blanket market ban, Sebi’s interim directions focused on structural restrictions, asset freezes and mandatory governance measures. The regulator did not prohibit Rajesh Mehta from trading across the broader market; instead, it restricted him from dealing in shares of his own company to mitigate the risk of potential market manipulation.