Rajesh Exports Didn't Fail Because of a Foreign Subsidiary — Here's What Actually Went Wrong

The Rajesh Exports SEBI order triggered a wave of YouTube explainers, most of which left retail investors with a vague impression that Indian companies with foreign subsidiaries are doing something inherently risky or opaque. This impression is wrong — and it creates a second-order problem for legitimate businesses that are structured correctly.

Rajesh Exports' foreign subsidiary, Valcambi SA, is one of the world's largest gold refineries. It is a real, operational, internationally recognised business. The problem was not the subsidiary. The problem was what Rajesh Exports did with the subsidiary's revenues in its Indian consolidated accounts — and the audit trail that was missing when SEBI looked.

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What Valcambi SA Is (And What It Isn't)

Valcambi SA is a Swiss gold refinery headquartered in Balerna, Switzerland. It processes approximately 1,400 tonnes of gold annually, making it one of the largest refiners in the world. Rajesh Exports acquired a majority stake in Valcambi in 2015 for approximately $400 million.

The acquisition itself was straightforward: an Indian company making an overseas investment in an operational business under the ODI (Overseas Direct Investment) framework. This is legal, transparent, and happens regularly. The structure — Indian parent company with a foreign subsidiary — is used by hundreds of Indian companies across manufacturing, IT services, pharmaceuticals, and finance.

SEBI's problem with Rajesh Exports was not the Valcambi acquisition. It was three specific compliance failures in how the parent-subsidiary relationship was managed and reported.

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What SEBI Actually Found Wrong

Failure 1: Revenue That Couldn't Be Reconciled

SEBI found that 97–99% of Rajesh Exports' consolidated revenue came from Valcambi. This in itself is not unusual — Valcambi's revenue is large because gold refining is a volume business with thin margins.

The problem: when SEBI investigators tried to reconcile the revenue reported at the Valcambi level with what appeared in Rajesh Exports' consolidated financial statements, the numbers did not match. Over five years, the consolidated revenues totalled ₹15.15 lakh crore — but the audit trail connecting Valcambi's operational records to the Indian consolidated statements could not be verified.

For any company with a foreign subsidiary, this is a basic accounting control failure. Monthly and quarterly reconciliation between subsidiary management accounts and parent consolidated accounts is standard practice. The reconciliation should happen continuously, not only at the year-end statutory audit. When it doesn't, gaps compound.

Failure 2: Related Party Transactions With Unverifiable Counterparties

Rajesh Exports recorded purchases of approximately ₹11,487 crore with an entity called Affluence Shares. When SEBI investigated, Affluence Shares denied that these transactions had occurred. The company had booked massive purchase entries with a counterparty that denied the trades.

This is not a subsidiary problem — it is a related party transaction problem. Whether the counterparty was connected to Valcambi's operations, to the Indian parent, or to neither is part of what SEBI was investigating. The failure was the absence of verifiable documentation: no contracts, no matching invoices, no bank flows that could support the recorded transactions.

Every inter-company or related-party transaction requires a paper trail: agreement or purchase order, invoice, bank statement showing the payment, and receipt confirmation from the counterparty. For transactions between an Indian parent and its foreign subsidiary, these records need to exist in both jurisdictions.

Failure 3: APR Data Inconsistencies

Indian companies with foreign subsidiaries must file an Annual Performance Report (APR) with the Reserve Bank of India each year. The APR covers the overseas entity's financial performance, outstanding investments, and dividends repatriated to India.

In the Rajesh Exports investigation, SEBI found that data in the APR filings and the subsidiary's own financial records could not be reconciled. The APR — which is supposed to be a clean record of the overseas entity's performance — did not match what the subsidiary's own accounts showed.

This is a FEMA violation on top of the Companies Act and SEBI disclosure violations. APR filing is not optional and is not a technicality.

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How Overseas Direct Investment (ODI) Is Supposed to Work

For Indian companies wanting to invest in a foreign subsidiary, the legal framework is the ODI route under FEMA (Foreign Exchange Management Act).

Automatic Route

Most Indian companies can invest overseas under the automatic route — no prior RBI approval needed — subject to:

• Investment amount not exceeding 400% of the company's net worth (for non-NBFC companies in manufacturing or service sectors)


• Investment in sectors not restricted by Indian or foreign regulations


• No adverse SEBI/regulatory proceedings against the investing company

Under the automatic route, the company submits Form ODI to its AD (Authorised Dealer) bank at the time of investment. The bank reports to RBI. No prior RBI approval needed.

Approval Route

For investments exceeding the automatic route limits, investments in financial services sectors, or investments by companies under regulatory investigation, RBI prior approval is required.

WOS vs JV

WOS (Wholly Owned Subsidiary): Indian company owns 100% of the foreign entity. Full consolidation required under Ind AS 110. APR filed for the WOS. Transfer pricing applies if there are transactions between parent and WOS.

JV (Joint Venture): Indian company owns less than 100%, in partnership with another entity. Accounting treatment depends on the ownership percentage — equity method or proportionate consolidation under the applicable Ind AS. APR filed for the JV stake.

Rajesh Exports held its Valcambi stake through a WOS structure. The consolidation and APR requirements for WOS are stricter because 100% of the subsidiary's results flow into the parent's consolidated statements.

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Annual Compliance for Indian Companies With Foreign Subsidiaries

This is what should have been happening at Rajesh Exports — and what any Indian company with a foreign subsidiary must do:

1. Annual Performance Report (APR) — File by 31 December
Filed with RBI through the AD bank for each preceding financial year. Covers: audited financials of the overseas entity, outstanding investment balance, dividends repatriated, guarantees given. Non-filing is a FEMA violation subject to compounding.

2. Form ODI Updates — At Each Transaction
Any change in the investment (additional capital, changes in ownership, disinvestment) requires Form ODI submission to the AD bank.

3. Ind AS 110 Consolidation — Annually and Quarterly
All subsidiaries must be consolidated. For listed companies and large unlisted companies, consolidated financial statements are mandatory. The consolidation must eliminate inter-company transactions and reconcile subsidiary revenues to consolidated revenues line by line.

4. Transfer Pricing Study — If Related-Party Transactions Exceed ₹5 Crore
If the Indian parent and foreign subsidiary transact with each other (services, loans, goods) and the aggregate exceeds ₹5 crore in the Tax Year, a transfer pricing study is mandatory. The study confirms that prices are at arm's length (as if between unrelated parties).

5. Board Approval for Inter-Company Transactions
Every transaction between the Indian parent and the foreign subsidiary — loans, services, management fees, royalties — requires board approval and must be documented with proper agreements.

6. Monthly Reconciliation
Not a regulatory requirement, but a basic control: reconcile subsidiary management accounts against the parent's consolidation workings every month. This is what catches the kind of revenue gap that SEBI found in the Rajesh Exports case.

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For Foreign Companies Setting Up Indian Subsidiaries

The reverse scenario — a foreign company investing in India via a wholly owned Indian subsidiary — is the primary use case for makeitlegit.in's audience.

FDI (Foreign Direct Investment) into India is governed by the FDI Policy and FEMA. Most sectors allow 100% FDI under the automatic route — no prior RBI approval required. The Indian subsidiary is incorporated as a Private Limited Company under the Companies Act 2013.

Annual compliance for the Indian subsidiary of a foreign parent:

• MGT-7 (Annual Return): Filed with MCA within 60 days of AGM
• Financial Statements: Filed with MCA within 60 days of AGM
• FC-GPR: Filed with RBI within 30 days of issuing shares to the foreign investor (reports the FDI received)
• FC-TRS: Filed with RBI within 60 days of any transfer of shares between resident and non-resident parties
• Transfer Pricing: If transactions with the foreign parent exceed ₹5 crore annually, a transfer pricing study is required
• FEMA Annual Return (FLA): Annual return on Foreign Liabilities and Assets, filed with RBI by 15 July each year
• Tax return: Corporate income tax return filed annually; advance tax paid quarterly

The lesson from Rajesh Exports for this scenario: reconcile transactions between the Indian subsidiary and the foreign parent continuously. The inter-company transactions — management fees, royalties, services — must be priced at arm's length and documented. The FLA return must match the subsidiary's own records.

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Compliance Checklist: Both Directions

Indian company with foreign subsidiary (ODI):

• [ ] Form ODI filed at investment


• [ ] Annual Performance Report (APR) filed by 31 Dec each year


• [ ] Ind AS 110 consolidation done annually


• [ ] Transfer pricing study if inter-company transactions >₹5 crore


• [ ] Board approval for all inter-company transactions


• [ ] Monthly inter-company reconciliation


• [ ] FEMA compounding done if any prior violations exist

Foreign company with Indian subsidiary (FDI):

• [ ] FC-GPR filed within 30 days of share issuance


• [ ] MGT-7 and financial statements filed annually


• [ ] FLA return filed by 15 July annually


• [ ] Transfer pricing study if inter-company transactions >₹5 crore


• [ ] Advance tax paid quarterly


• [ ] Annual income tax return filed

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See Also

• "Just Invoice the Indian Subsidiary a Management Fee": What Transfer Pricing Actually Requires
• "We're too small for transfer pricing rules": What India's Income-tax Act actually requires
• Repatriating Profits From India: What FEMA Actually Requires on Dividends, Royalties, and Technical Fees

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