The alleged Rs 15 lakh crore financial misreporting by Bengaluru-based Rajesh Exports has raised questions about the role of its statutory auditors and the accuracy of their audits.
Two relatively lesser-known auditors, PV Ramana Reddy, proprietor of PV Ramana Reddy & Co, and PL Venkatadri, partner at BSD & Co, provided audit services to Rajesh Exports during the investigation period from FY21 to FY24.
The auditors allegedly failed to flag numerous questionable transactions, including related-party dealings, inflated domestic revenues and misreporting of trade payables. As a result, the alleged financial misreporting continued for five years, affecting around 2 lakh retail investors holding shares of the company.
Sebi Flags Non-Cooperation
On June 3, market regulator Securities and Exchange Board of India (Sebi) issued an ex parte interim order barring Rajesh Mehta, Chairman and Managing Director of Rajesh Exports, from accessing the securities market. Sebi also directed the company to correct its filings and cooperate with the ongoing investigation.
The order stated that the auditors did not cooperate with the probe despite being asked to submit audit working papers.
"REL's Statutory Auditors, despite undertaking to furnish audit working papers during their depositions, have also not complied. This sustained non-cooperation is itself indicative of an intent to suppress material information and obstruct regulatory inquiry," Sebi said.
Auditors of listed companies can face serious consequences for audit failures. In previous cases, Sebi has taken action against audit firms for deficiencies in documentation and oversight. The National Financial Reporting Authority (NFRA) can also initiate proceedings against auditors for professional misconduct.
Domestic Transactions Also Under Lens
A significant portion of the alleged Rs 15 lakh crore misreported revenue originated from foreign subsidiaries of Rajesh Exports.
While foreign subsidiaries are audited by professionals in their respective jurisdictions, Indian auditors generally rely on audited financial statements provided by those entities through the parent company.
However, Sebi's order also highlighted several domestic transactions that allegedly violated accounting and disclosure norms but were not flagged by the auditors.
According to the regulator, standalone revenues of Rs 12,500 crore, representing 64% of the company’s total standalone revenue between FY21 and FY24, were misrepresented. The auditors allegedly failed to seek supporting documentation such as invoices during the audit process.
The order further alleged that Rajesh Mehta executed gold derivative trades in his personal capacity, selling contracts worth Rs 11,487 crore and purchasing contracts worth Rs 11,488 crore through Sebi-registered broker Affluence. These transactions were reportedly recorded as company transactions.
Accounting Treatment Questioned
Sebi also alleged that the auditors permitted the reduction of long-outstanding receivables worth Rs 2,914 crore through opaque netting arrangements without adequate disclosures explaining the nature and basis of the adjustments.
The regulator said the auditors failed to present a true and fair view of the company’s financial position by incorrectly including intra-group investments worth Rs 2,501 crore as of March 31, 2025, and intra-group trade payables worth Rs 1,457 crore as of March 31, 2025, and Rs 1,379 crore as of March 31, 2024, in the consolidated financial statements.
According to Sebi, these intra-group balances should have been eliminated during the consolidation process under standard accounting principles.
