Market regulator Securities and Exchange Board of India (SEBI) has dismissed the preliminary objections filed by Bajaj Hindusthan Sugar Ltd, its chairman Shishir Bajaj and managing director (MD) Kushagra Bajaj against a show-cause notice (SCN) concerning alleged fund diversion and related-party transaction (RPT) disclosure lapses involving more than ₹1,189 crore.
In an
order, SEBI’s chief general manager and quasi-judicial authority (QJA) N Murugan says, “The noticees have not demonstrated that the annual reports filed during FY10-11 to FY14-15 or the restructuring disclosure dated 1 January 2018 themselves contained material which reasonably brought out the alleged diversion, alleged non-genuine routing of funds, or the alleged absence of commercial substance in the transactions. Mere disclosure of transactions in financial statements cannot ipso facto lead to the conclusion that the alleged falsity and fund diversion underlying such transactions had itself become publicly known.”
“I note from the date of complaint that the investigation has been completed, and SCN has been issued within a reasonable time. Therefore, on these grounds, I observe that delay cannot be a jurisdictional issue in the facts and circumstances of the matter. Since the proceedings are within a reasonable period, the question of prejudice does not arise. Accordingly, I find that SEBI had jurisdiction to issue the SCN in the instant case,” the CGM says in the order.
The order held that the regulator had valid jurisdiction to issue the SCN dated 16 October 2023 and rejected the noticees’ contention that the proceedings were vitiated by the non-consideration of forensic audit reports, delay in initiating action, and the alleged absence of jurisdictional facts.
SEBI’s investigation pertains to the period from FY10-11 to FY21-22 and was initiated following complaints alleging the diversion and misappropriation of funds through loans advanced to Ojas Industries Pvt Ltd (OIPL) and Bajaj Power Generation Pvt Ltd (BPGPL), as well as the alleged non-disclosure of related-party transactions.
The regulator had earlier alleged prima facie evidence of diversion of ₹318.50 crore through OIPL and another ₹870.60 crore through BPGPL for the benefit of entities allegedly controlled or influenced by Shishir Bajaj and Kushagra Bajaj.
The noticees had argued before SEBI that two separate forensic audit reports—one by Deloitte Touche Tohmatsu India LLP and another by Mazars Business Advisors Pvt Ltd — had concluded that there was no diversion, siphoning, or fraudulent transactions. They contended that these reports were not properly considered by the investigation authority (IA), thereby rendering the proceedings without jurisdiction.
They also argued that the company’s loans and investments had effectively been squared off through the acquisition of a 13% stake in Bajaj Power Ventures Pvt Ltd (BPVPL), which holds interests in operational power companies, including Bajaj Energy Ltd and Lalitpur Power Generation Pvt Ltd. According to the noticees, these material facts were omitted from the action matrix presented to SEBI’s whole-time member (WTM) for approval of the SCN.
Rejecting these arguments, the CGM held that SEBI’s statutory jurisdiction to investigate allegations of fund diversion remained intact and that any alleged omission in considering certain evidence would, at best, amount to an erroneous exercise of jurisdiction rather than the absence of jurisdiction itself.
The order specifically observed that the forensic audit reports relied upon by the noticees had a limited scope because they did not examine the bank accounts of intermediary entities such as OIPL and BPGPL through which the alleged diversion was said to have occurred.
SEBI also rejected the contention that the proceedings suffered from unreasonable delay. The noticees had argued that the impugned transactions dated back to FY11-15 and had already been disclosed in annual reports and stock exchange filings, rendering the SCN issued in October 2023 delayed by nearly nine years.
However, SEBI held that mere disclosure of transactions in annual reports did not automatically reveal the alleged fund diversion or the allegedly non-genuine nature of the fund flows. The order noted that such misconduct could become apparent only after detailed analysis of banking records, fund trails and related-party transactions.
The authority further observed that the investigation was completed and the SCN was issued within a reasonable period after SEBI received complaints in 2020.
With the preliminary objections dismissed, the adjudication proceedings on the substantive allegations of fund diversion, misleading disclosures and alleged violations of securities laws will now continue before SEBI.
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