Vipan Kumar, PhD

June 29th, 2026

A. Cover Story

[A.1] The Rajesh Exports Investigation: A Wake-Up Call for Corporate Governance

The ongoing regulatory scrutiny surrounding Rajesh Exports Limited has sent ripples across India’s capital markets. Following a 109-page interim order issued by the Securities and Exchange Board of India (SEBI) on June 3, 2026, the global gold powerhouse company is now facing serious allegations of financial misrepresentation and opaqueness in governance.

This case serves as a critical study for investors and legal practitioners that highlights the danger of blindly trusting the reported numbers and not verifying the underlying operational reality. Some of the key areas of concern surrounding Rajesh Exports are as follows:

  • The ₹15.15 Lakh Crore Revenue Gap

The heart of the investigation lies in a massive discrepancy in revenue reporting. SEBI alleges that over five financial years (FY2021–FY2025), Rajesh Exports reported consolidated revenues of approximately ₹15.15 lakh crore that simply cannot be reconciled with the audited standalone financial statements of its primary Swiss operating subsidiary, Valcambi SA. While the listed Indian entity attributed nearly 97–99% of its revenue to overseas subsidiaries, these figures lacked verifiable support. When regulators requested transaction-level documentation, the company cited Swiss confidentiality laws. However, SEBI rejected the argument, noting that such laws do not apply to corporate financial records required for regulatory oversight.

  • Governance and Fund Routing

Beyond the numbers, the investigation has uncovered patterns that raise significant red flags regarding internal controls. SEBI flagged approximately ₹926 crore in gross transfers from the company to promoter-linked entities and individuals, including Chairman Rajesh Mehta, without adequate board or audit committee approval. The company also recorded ₹1,035 crore as an investment in African gold mining assets, yet investigators were unable to find any contemporaneous documentation to prove these assets exist. Further, probes by the Enforcement Directorate (ED) noted strange practices, such as the CFO allegedly drawing no salary since 2020, and the Managing Director receiving a monthly remuneration of only ₹17,000 despite the company’s massive reported scale.

  • Regulatory Escalation

The situation has moved beyond SEBI. The Enforcement Directorate (ED) has conducted searches under the Foreign Exchange Management Act (FEMA) regarding suspected foreign exchange violations, and the Serious Fraud Investigation Office (SFIO) has been tapped to lead a probe into the complex web of allegations.

Lessons for Investors

This case is a classic example of why investors must look beyond top-line revenue growth. A company can report record-breaking revenue, but if those sales are not backed by cash inflows, they are often illusory. Investors often assume consolidated statements are a guarantee of transparency. However, when the operating unit of a group is abroad, the lack of this unit-level disclosure can hide massive gaps. Further, when a company’s financial indicators depart from normal commercial practices, such as non-verifiable assets or suspiciously low management salaries, it is often a signal that the underlying business model requires deeper scrutiny.

Conclusion

Rajesh Exports continues to contest these allegations, maintaining that its disclosures are accurate and blaming communication gaps for the discrepancies. While the final legal verdict is pending, the case has already achieved one thing, that is, it has forced a broader market discussion on the transparency of multinational corporate structures and the urgent need for stricter verification of overseas revenue streams. For now, the investigation stands as a stark reminder that in the world of investing, if a story sounds too good to be true, the data usually holds the answer, provided that you know where to look.

B. Case Laws

[B.1] Supreme Court curbs SEBI’s disgorgement powers in Reliance case

In 2007, Reliance Industries Ltd. (RIL), the promoter of Reliance Petroleum Ltd. (RPL), resolved to divest 5% of its 75% stake (22.5 crore shares) in RPL. Anticipating price volatility, RIL executed a dual strategy: selling shares in the cash market while simultaneously taking short positions in the futures market via 12 independent entities. These entities operated under agency agreements where RIL provided all instructions and bore all profits/losses.

SEBI initiated proceedings, alleging that this structure was a “fraudulent and manipulative” device to circumvent position limits, depress settlement prices, and generate unlawful gains. The Whole Time Member (WTM) and a majority of the Securities Appellate Tribunal (SAT) upheld charges of market manipulation and ordered the disgorgement of approximately ₹447 crore.

RIL appealed to the Supreme Court, contending that the futures positions were legitimate hedges and that no fraudulent intent existed. The Supreme Court set aside the findings of fraud and the disgorgement order, while confirming that RIL had violated disclosure requirements.

The issue-wise analysis of this case is as follows:

Issue No. 1: Whether the position limits taken by Reliance through 12 different entities can be aggregated to check the violation of the 2001 SEBI circular?

The SEBI Circular No. SMDRP/DC/CIR-10/01, dated November 2, 2001, was a foundational regulatory framework issued to introduce single stock futures into the Indian securities market and establish the necessary risk containment measures for derivatives trading.

The circular established a disclosure-based regime. It required clients or trading members to disclose when their positions in the derivative segment exceeded the prescribed limits.

In the present case, the apex court held that the aggregation is required. The court rejected the argument that the circular did not mention the persons acting in concert (PAC) clause. The court reasoned that the objective of position limits is to prevent market manipulation and preserve price discovery integrity. Allowing a principal to circumvent these limits by splitting trades among multiple agents would undermine the regulator’s purpose. The court invoked the legal principle that “what cannot be done directly cannot be done indirectly”. While the Circular lacked an explicit ‘PAC’ clause, the mandate for position limits created an implicit duty to disclose aggregate positions.

Issue No. 2: Does a breach of position limits render the underlying derivative contracts void or invalid under Section 18A of the SCRA?

The court found that the 2001 Circular provided for specific penalties (fine, suspension, etc.) but did not expressly state that a breach would render the contracts void. The court held that consequences not expressly stipulated in the statute or circular cannot be read in by implication. Consequently, the contracts remained valid, and the regulatory breach was punishable only by the prescribed penalties and not by nullifying the trades.

Issue No. 3: Did the RIL’s actions constitute fraud and manipulation under the PFUTP Regulations?

The court established a high burden of proof for the regulator. It held that while ‘preponderance of probabilities’ is the standard, where inducement is not proven, the factum of manipulation must be established cogently with attending circumstances that exclude any other explanation. The court found the futures positions were bona fide hedges against the promoter’s cash-segment risk.

The court also rejected the allegation that RIL depressed prices on the settlement date to profit, as RIL, being a 70% stakeholder, had a strong economic interest against depressing the share price. The regulator’s case relied on mere suspicion, which failed to meet the required standard.

Issue No. 4: Whether the disgorgement of profits is justified in the absence of proven fraudulent conduct.

Disgorgement is an equitable remedy intended to deprive a wrongdoer of ill-gotten gains. It compels the wrongdoer to surrender the profits earned. In this case, the court determined that since the charges of fraud and manipulation under the PFUTP Regulations were set aside, the foundation for the disgorgement order disappeared. While the appellant was found liable for non-disclosure (a regulatory breach), this did not equate to ‘unlawful gain’ derived from a fraudulent scheme. Therefore, the drastic remedy of disgorgement was legally unsustainable.

This judgement provides essential clarity for establishing that regulatory breaches, such as violating position limits, must be distinguished from actual fraud. The authorities cannot infer fraudulent intent based solely on suspicion. This ruling reinforces a higher burden of proof on regulators, emphasising that economic reality and the absence of clear manipulative ‘actus reus’ should safeguard entities from punitive disgorgement unless intent to defraud is manifest.

(Source: Reliance Industries Ltd v. Securities and Exchange Board of India, Supreme Court, May 29th, 2026)

[B.2] Ratio of Bhavesh Pabari’s case applicable to penalty provisions under Companies Act

In a significant judgement, N.S.J.L Nidhi Ltd v. Regional Director (Wr) Ministry of Corporate Affair, the Bombay High Court on April 27th, 2026, has curbed the practice of imposing maximum, cumulative penalties for minor technical defaults.

In this case, the petitioner company and its directors had failed to separately certify the list of allottees attached to 16 filings of Form PAS-3 (Returns of Allotment) uploaded between 2019 and 2021. The Adjudicating Officer (AO) imposed a penalty of ₹1 lakh per violation, multiplied by the number of directors, resulting in an aggregate penalty of ₹64 lakh.

The Court held that Section 39(5) of the Companies Act, which uses the expression “whichever is less”, is neither a fixed nor a minimum penalty provision. Therefore, the AO has an adjudicatory duty to exercise discretion rather than mechanically compute the maximum penalty.

The AO failed to apply the factors listed in Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014, such as the nature of the default and the absence of aggravating factors. Drawing a parallel to Section 15-A of the SEBI Act (as interpreted by the Supreme Court in Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90), the court ruled that adjudicators must consider both mitigating and aggravating circumstances. The Court found the AO’s approach of multiplying the maximum penalty by the number of directors ‘perverse’ and ‘arbitrary’. It ruled that liability for such technical defaults should be imposed on the company and its directors jointly and severally rather than cumulatively.

This judgement underscores that the adjudicating officers must exercise proportionality and mechanical penalty calculations.

[B.3] A winding-up petition can be transferred to NCLT if an irreversible or irretrievable stage has not reached

In a recent dispute involving Shiva Shakti Security Services (the appellant), a security agency appointed by the Official Liquidator to protect assets of Martina Boi Genics Pvt. Ltd. (the company in liquidation), the Calcutta High Court upheld the company court’s discretion to transfer the winding-up petition.

In this case, the appellant provided security services following a winding-up order passed against the company in November 2016, but its bills remained unpaid. While these winding-up proceedings were pending, Section 434 of the Companies Act, 2013, came into effect, enabling the transfer of certain pending proceedings to the National Company Law Tribunal (NCLT).

The company court, relying on Supreme Court precedents (Action Ispat & Power and A. Navinchandra Steels), transferred the winding-up petition to the NCLT. The appellant challenged this transfer, arguing that its unpaid claims and the principle of custodia legis should bar such a transfer or, at least, condition it upon the payment of its dues. The Calcutta High Court dismissed the appeals, affirming the Company Court’s discretion to transfer the proceedings.

The issue-wise analysis of this case is as follows:

Issue 1: Whether the Company Court retains the discretion to transfer pending winding-up petitions to the NCLT under Section 434 of the Companies Act, 2013, even after the admission of the petition and the appointment of an Official Liquidator.

Yes, the Company Court retains the discretion to transfer winding-up petitions to the NCLT at any stage, provided no irreversible acts have been committed. The Court held that Section 434(1)(c) does not restrict the transfer of proceedings to any specific stage of winding up. Citing the Supreme Court in Action Ispat & Power, the High Court reasoned that even post-admission and post-appointment of a liquidator, the company court is vested with the discretion to transfer the petition. This discretion is limited only by the irreversible stage test, meaning if the proceedings have reached a point where it is impossible to set the clock back (e.g., actual sale of assets), the company court should retain the matter. The mere appointment of an official liquidator does not automatically strip the court of this transfer power.

Issue 2: Whether the pendency or non-payment of claims (specifically those of an official liquidator’s appointee) constitutes an irreversible stage that bars the transfer of a winding-up petition to the NCLT.

No, the pendency or non-payment of claims by an appointee does not qualify as an irreversible stage, and such claims can be effectively adjudicated before the NCLT. The Court clarified that the test for irreversibility centres on whether the winding-up has reached a stage where the clock cannot be set back, specifically citing the sale of movable or immovable assets. The Court held that the pendency of a service provider’s claim or the Official Liquidator’s failure to pay such expenses is not a barrier to transfer. Such claims are not irreversible acts. They are liabilities that can be suitably raised and adjudicated before the NCLT under the Insolvency and Bankruptcy Code (IBC) framework. The appellant’s argument that it should be allowed to prove its claim solely before the company court was rejected.

(Source: Shiva Shakti Security Services v. Official Liquidator, High Court of Calcutta, May 11th, 2026)

C. Q&A

[C.1] Does the Companies Act, 2013, mandate website disclosures?

The Companies Act 2013 does not mandate all companies to have a website. However, if a company already has a website (or conducts online business), the Act requires it to publish specific details on the website’s homepage and mandates the disclosure of the web address on all official publications.

Thus, while the Companies Act, 2013, does not force private companies to build a site, if the company is publicly listed, the Securities and Exchange Board of India (SEBI) strictly requires it to maintain a fully functional, updated website under Regulation 46 of the SEBI LODR Regulations.

Once the company is maintaining the website as mandated under Regulation 46 or on a voluntary basis, the following provisions become relevant:

  • Section 12 (3)(c): Website address to be mentioned on all its business letters, billheads, letter papers and in all its notices and other official publications.
  • Section 13(8)(i): The notice of change of objects for which money is raised through a prospectus shall also be placed on the website of the company.
  • Section 92 (3): Every company shall place a copy of the annual return on the website of the company, if any, and the web link of such annual return shall be disclosed in the Board’s report.
  • Section 177 (10): Details of the establishment of a vigil mechanism shall be disclosed by the company on its website, if any.
  • Section 178 (3) and proviso of 178 (4): The nomination and remuneration policy shall be placed on the website of the company, if any. Further, if a company is having NRC, the company’s policy on directors’ appointment and remuneration includes criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178.
  • Section 134 (3) (e) and (o) and Proviso to 134: Details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year.
  • Schedule IV: The terms and conditions of appointment of independent directors shall also be posted on the company‘s website.

Apart from the abovementioned provisions, there are different rules enacted under the Companies Act that mandate disclosures on websites. These sections and rules are in addition to the regulations enacted by SEBI and applicable only to listed companies.