The recent action involving Rajesh Exports, where allegations of overstatement of revenues by ₹15 lakh crore were made, has reopened an old debate. Since the matter has not attained finality, no conclusions should be drawn about this specific case. However, this episode again raises questions that India cannot ignore.
These questions extend far beyond one company. They require a serious examination of the regulators and individuals entrusted with safeguarding market integrity. The real question is why multiple layers of oversight repeatedly fail to identify and address warning signals in time, despite ever-expanding powers of the regulators.
The Renco Gears episode in the late 1990s raised concerns about the reliability of corporate financial reporting. A decade later, the Satyam scandal exposed one of the largest accounting frauds in India. Both episodes triggered demands for stronger oversight.
Around 2008, multiple GDR frauds exposed weakness in India’s securities market oversight yet again. More than one hundred companies showed sham fund raises overseas through the same structure. Indian investors lost thousands of crores. Yet a fundamental question remained unanswered: how did so many similar transactions escape timely scrutiny by regulators and exchanges?
More recently, studies highlighted retail investor losses of nearly ₹2 lakh crore in futures and options. Questions were raised regarding trading strategies involving foreign funds operating simultaneously in cash and derivatives markets. While the issue generated considerable public debate, there has been limited discussion on whether surveillance mechanisms had functioned effectively and whether enforcement followed through to its logical conclusion.
Across Renco Gears, Satyam, the GDR frauds, abuse of derivatives markets, and now the allegations involving Rajesh Exports, a common pattern emerges. The methods differ, but the recurring theme is the absence of accountability for failures of those entrusted with investor protection.
A noteworthy aspect of the Rajesh Exports matter is that the trigger reportedly came from a shareholder complaint primarily based on the company’s published financial statements.
If concerns of such magnitude could be identified from publicly available information by a common shareholder, it is reasonable to ask whether similar questions should have arisen much earlier within SEBI, whose statutory responsibility includes monitoring listed entities.
After every scandal, the focus remains on the companies, promoters, and, occasionally, auditors. No attention is given to examining whether those entrusted with regulatory oversight and vigilance responsibilities discharged their duties diligently.
That omission matters because every regulatory power and surveillance responsibility is ultimately exercised by human beings. When serious failures occur despite extensive legal powers and sophisticated systems, attention must shift to the people operating them.
India today possesses a comparatively far more advanced regulatory framework. Regulators have extensive coercive powers. Real-time surveillance systems are highly sophisticated. Corporate disclosures are digitised. It is, therefore, not possible to argue that regulators lacked either the tools or the information necessary to identify risks.
Corporate misconduct rarely occurs because management is exceptionally ingenious. It survives because multiple lines of defence fail simultaneously. Boards fail. Auditors fail. Regulators fail. Sometimes other authorities fail as well.
When several layers of oversight break down together, the issue becomes larger than merely corporate wrongdoing.
If warning signs existed for years, it is legitimate to ask not only what wrong the company did, but also what SEBI oversight officials were doing during the same period. Companies interact continuously with auditors, tax authorities, banks and multiple government agencies. If major discrepancies eventually emerge, one must ask whether indicators existed in the system and whether information was effectively shared and acted upon.
One of the most troubling features of earlier episodes was the absence of meaningful consequences for failures of oversight on the part of individuals. There was no examination of whether officials entrusted with regulatory or vigilance responsibilities had performed their duties diligently.
This culture must change. Accountability cannot be a one-way street applicable only to regulated entities. It must extend equally to those exercising regulatory and statutory powers.
An equally important issue is the independence of internal vigilance oversight. In institutions such as SEBI, vigilance functions operate within internal administrative structures where reporting relationships and performance evaluation of the CVO remain with the organisation’s leadership. Yet vigilance officers may also be required to examine matters involving senior functionaries or issues that attract judicial scrutiny of the leadership. This single fact is enough to expose the farce of the vigilance set up at an all-powerful regulator like SEBI and the functioning of the so-called independent CVO.
There is a pressing need for the Central Vigilance Commission to undertake a comprehensive review of vigilance mechanisms within key regulatory and governmental institutions. Where facts reveal possible wilful neglect of duty, suppression of information, abuse of authority or collusion, competent authorities should act.
The objective is not to criminalise every error of judgement. But there is an important distinction between an honest mistake and a failure to exercise responsibilities entrusted by law. India’s capital markets are among the country’s greatest economic achievements. Millions of citizens and institutions participate daily. Their participation rests fundamentally on trust.
There has been praiseworthy strengthening of regulatory systems over the last decade. The next stage of real reform must focus on something more difficult but far more important: accountability of individuals entrusted with public authority. The question before India is no longer whether regulators possess sufficient powers. The question is whether those powers are being exercised with the diligence, due scepticism, accountability, and internal vigilance that citizens have a right to expect.
Until that question is answered honestly, every new scandal will be followed by another round of cosmetic reforms while the deeper problem remains untouched.
The writer is a retired IRS officer and Ex-Chief of Surveillance at SEBI. Advisor to corporates, market participants and tech entrepreneurs.
