Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs63 lakh on Rajasthan Tube Manufacturing Company Ltd (RTMCL) and the company’s promoters, directors and others for engaging in fictitious transactions to inflate sales and misrepresent financial statements. The regulator found that the company, along with its key management personnel (KMP) including promoters and directors and connected entities, siphoned funds and deceived investors by presenting manipulated accounts between April 2017 and March 2020.
SEBI levied a penalty of Rs7 lakh on RTMCL. Harish Chand Jain, chairman and managing director (CMD), Rajshree Jain, executive director (ED) and Pradeep Jain, promoter and chief financial officer (CFO), have been fined a total of Rs30 lakh, to be paid jointly. Further, Deepika Jain, Saurabh Jain, Rajendra Steel Company and Jain Impex were penalised Rs5 lakh each. Independent directors Deepesh Jain and Mahendra Kumar Jain, along with Sunil Kumar Jain, were fined Rs2 lakh each.
In an order, Amit Kapoor, adjudicating officer (AO) of SEBI, emphasised that in the present matter, the facts of the case clearly bring out the default made by the noticees and their failure in fulfilling their responsibility endowed upon them by virtue of them being the members of the board and audit committee members. “Hence, I note that the noticees failed to present true and fair picture of financials of the company and, thereby have violated the relevant provisions of SEBI Act, SCRA, PFUTP Regulations and LODR Regulations.”
The case originated from a letter dated 3 March 2023, from the principal commissioner of central goods and services tax (CGST) and central excise at Jaipur, which alleged that RTMCL had issued goods-less invoices to fraudulently avail and pass on input tax credit under the CGST Act, 2017. SEBI launched its own investigation to determine whether the company had also misrepresented its accounts to investors and violated securities laws.
SEBI investigation revealed that RTMCL engaged in circular trading of ERW pipes with connected entities Rajendra Steel Company, Jain Impex and SS Trading Company. The company sold 5,896 metric ton (MT) of pipes worth Rs31.16 crore to these companies and repurchased nearly the same quantity at a higher value of Rs32.08 crore, incurring a loss of Rs48 lakh. SEBI found that these were not genuine trades but sham transactions supported by fake invoices, with little to no documentation, such as purchase orders or transport records.
Further scrutiny of bank statements showed that funds were circulated back and forth between RTMCL and its connected entities, particularly Rajendra Steel Company, which acted as a conduit. Nearly Rs30.12 crore was routed through this company, with money flowing into the personal accounts of the promoters, directors and their relatives. SEBI noted that about Rs13.18 crore was diverted in this manner, with Rs1.34 crore directly linked to fraudulent transactions.
During the investigation period, RTMCL financial statements showed revenues of Rs77.27 crore in FY17-18 and Rs41.41 crore in FY19-20, but these figures were inflated by fictitious sales. The company also reported profits and assets that were not supported by genuine business activity. SEBI observed that the misrepresentation contributed to fluctuations in the company’s share price, which rose and fell sharply between 2017 and 2020.
RTMCL’s KMP, including the CMD, ED and CFO were found to be actively involved in creating false financial reports and diverting funds. Other promoters and relatives also benefited from the siphoning of company resources. Independent directors, meanwhile, failed to exercise due diligence and merely signed off on accounts without questioning the authenticity of transactions.
In its order, SEBI concluded that RTMCL and its directors colluded to inflate turnover, misrepresent financial results, and divert funds, thereby deceiving investors and eroding trust in market integrity. The regulator emphasised that clean audit reports or technical defenses cannot absolve directors from responsibility when evidence points to sham transactions.
By imposing penalties totalling Rs63 lakh, SEBI reaffirmed its stance that misrepresentation of financial statements, circular trading, and diversion of funds will attract strict enforcement action, particularly when listed companies and their directors collude to mislead shareholders.
