Securities and Exchange Board of India's findings on Rajesh Exports has rocked the Indian stock market, with the company now caught in a two-front crisis - a sweeping markets regulator order alleging one of India's largest revenue-misrepresentation cases, and a pending insolvency petition from one of its lenders.
Both Life Insurance Corporation of India and Canara Bank carry exposure to the embattled Bengaluru-based company.
Here are five things you need to know about the Rajesh Exports fraud case.
SEBI has barred the company and its promoter
In light of its finding, SEBI, thorugh an interim order on June 3, has barred the company and its owner from the securities markets until it completes the investigation. The directive restrains Chairman and Managing Director Rajesh Mehta from the capital market.
The alleged fraud runs to Rs 15.15 lakh crore
Perhaps the most striking figure from SEBI's entire findings was that Rajesh Exports misrepresented Rs 15.15 lakh crore, representing 99.8% of its revenues from subsidiaries between FY21 to FY25.
ALSO READ: SEBI Bars Rajesh Exports, Promoter Over Alleged Rs 15.15 Lakh Crore Revenue Fraud
SEBI said 97-99% of Rajesh Exports' consolidated revenue came from overseas subsidiaries, particularly Switzerland-based Valcambi SA. However, the company did not disclose those subsidiaries' financials publicly.
SEBI flagged non-genuine entries and fund diversion
As per the order, the company recorded Rs 11,487 crore in sales and Rs 11,488 crore in purchases with an entity called Affluence Shares and Stocks Pvt. Ltd, but those have been denied by Affluence.
SEBI alleged Rajesh Exports routed company funds worth Rs 339 crore to the owner Mehta's personal accounts, including for derivative trades. This was allegedly done without board or audit committee approval. The regulator estimated wealth erosion of the company's shareholders, including small shareholders, at Rs 12,726 crore
Canara Bank wants it in insolvency and is exiting the loan
Canara Bank is a key element in this entire saga, as Rajesh Exports had defaulted on its repayment obligations, prompting the state-run lender to classify its exposure as a stressed loan.
The bank's total dues from the company stood at Rs 509 crore. Canara Bank has now decided to sell the stressed exposure, with the transfer set to be carried out through an open auction.
LIC is a major shareholder
While Canara Bank is a victim of the Rajesh Exports fraud case, another government entity in Life Insurance Corporation of India (LIC) is exposed to the fallout as well, thanks to its 10.8% holdings in Rajesh Exports.
This ranks LIC among the largest institutional investors in the company. It must be noted that LIC holdings are effectively funded by its policyholders - the premiums of crores of ordinary Indians, not the insurer's own capital - leaving household savings exposed to the fallout.
Rajesh Exports Chairman and Managing Director Rajesh Mehta has broken his silence on the market regulator's sweeping order against the company, telling NDTV Profit that the findings are inaccurate and that a detailed response is on the way.
"It is an interim order, findings (are) not accurate," Mehta told NDTV Profit. "We are going through the findings and will share a detailed statement within an hour," he said.
ALSO READ: Rajesh Exports' Shares Hit Lower Circuit After SEBI Probe Into Rs 15.15 Lakh Crore Revenue Mismatch
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.