Rs 15 Lakh Crore Financial Misreporting by Bengaluru-based Rajesh Exports: What did its Auditors do Wrong?
PV Ramana Reddy of PV Ramana Reddy & Co is one of the two auditors of REL. The second auditor is PL Venkatadri, partner of audit firm BSD & Co. The two auditors of REL have audited the accounts of the firm for FY21 to FY24.
Reddy’s and Venkatadri’s did not detect a plethora of suspicious transactions including a plethora of related party transactions including a local revenue boost up and misstated trade payables. Relatively small transactions which when put together lead to huge losses for millions of small investors who held REL’s shares.
The Sebi Order Against Rajesh Exports: What Auditors Missed – Detailed. The Securities and Exchange Board of India (Sebi) on June 3 passed an ex parte interim order against REL’s MD, Rajesh Mehta and REL (Rajesh Exports Ltd), mandating them to make necessary corrections in all the erroneous filings with stock exchanges and also extend full cooperation to the regulator in ongoing probe into alleged financial misreporting by the Bengaluru-based leading branded Jewellery manufacturer in India, and exporter to several countries outside India, including USA.
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 noted in its interim order.
“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,” the Sebi order said.
We have not received any comments from BSD & Co or PV Ramana Reddy & Co as on date and shall update the copy once we receive the same.
A Statutory Auditors of a Company is a very responsible person and can be held liable for any lapses in Audit of Financial Statements of a Company. The liability of a Auditors of a Company is even greater for Listed Companies on Stock Exchanges as has been shown by various Sebi orders against largest audit firms of India for not ensuring proper documentation.
NFRA can also issue order against auditor.
Key misses by Rajesh Exports’ auditors
A large part of the Rs 15 lakh crore misreported revenues by REL were of nature of revenues earned by foreign subsidiaries of REL. In such cases, since the accounts of foreign entities are not audited by Indian Auditors, REL as holding company of foreign entities would rely on audited accounts of foreign entities (designated professionals in the country where the foreign entity is incorporated). For foreign subsidiaries, Indian auditors rely on the audited statements of the foreign entity provided by the Indian company.
The Financial Statements of Foreign Subsidiaries – REL’s Case in Point: Does Indian Auditor Play Any Role?
Many of the domestic transactions too were in contravention of law but were not detected and accordingly highlighted by audit.
As Mehta carried out gold derivative trades in his personal capacity, he would have to sell these contracts through a broker. “He sold contracts worth Rs 11,487 crores through Affluence (a Sebi registered broker) and then immediately purchased contracts of same value, he stated. The broker’s records would reveal that these transactions were carried out by Mehta in his personal capacity and not on behalf of REL, he added.
As part of his investment portfolio, Mehta had executed gold derivative trades in his personal capacity. The trades that have caused a stir in the market were of sold gold contracts worth Rs 11,487 crore and bought gold contracts worth Rs 11,488 crore, all done through Sebi registered stock broker Affluence. Interestingly, Mehta had reported these trades to the stock exchanges in the name of his company REL.
It appears that the auditor had readily agreed to decreased in long outstanding receivables of Rs 2,914 cr through so called netting of all outstanding invoice receivables without ever seeking adequate disclosure from Management on nature and basis of such downward write off and subsequent reduction.
Auditors did not represent true and fair view of REL’s financials, as they included intra-group investments of Rs 2,501 crores (as on 31st March, 2025) and intra-group trade payables of Rs 1,457 crores (as on 31st March, 2025) and Rs 1,379 crores (as on 31st March, 2024) in consolidated financial statements of REL. Such amounts are required to be eliminated in consolidation statements in line with normal accounting practice.
REL’s consolidated financial statements filed with stock exchanges for last two years included intra-group investments of Rs 2,501 crores (as on 31st March, 2025) and intra-group trade payables of Rs 1,457 crores (as on 31st March, 2025) and Rs 1,379 crores (as on 31st March, 2024) which were required to be eliminated under consolidation principles.
