Mumbai: Market regulator SEBI has dealt a significant setback to Bajaj Hindusthan Sugar Limited and its promoters by rejecting their preliminary objections in an alleged fund diversion case. The regulator has made it clear that the proceedings against the company and related parties will continue on merits and cannot be stalled merely on technical grounds.
Show-Cause Notice Linked to Fund Diversion Allegations
The matter relates to a show-cause notice issued in October 2023 against Bajaj Hindusthan Sugar Limited, promoter Shishir Bajaj and managing director Kushagra Bajaj over allegations of fund diversion through inter-corporate loans and transactions involving connected entities. According to SEBI, several financial transactions and fund flow structures may have been used in a manner that could affect investor interests and market transparency.
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The company and its promoters had argued before SEBI that the regulator lacked jurisdiction in the matter because two separate forensic audits conducted under RBI-monitored restructuring exercises had already examined the transactions. The audits conducted by Deloitte and Mazars had reportedly found no clear evidence of diversion or siphoning of funds. The company maintained that the transactions were part of ordinary business activities and were being mischaracterized.
However, SEBI’s Quasi-Judicial Authority N. Murugan rejected these arguments in his order. The authority observed that even if the investigating agency failed to consider certain documents or facts, such omission would not automatically invalidate the entire investigation. SEBI, the order said, has clear statutory powers under the SEBI Act and PFUTP Regulations to investigate allegations relating to fund diversion, fraud and misconduct affecting investors and securities markets.
SEBI Rejects Jurisdiction Challenge
The order further stated that once SEBI is vested with jurisdiction over a subject matter, the investigation and preparation of reports under that authority cannot be challenged merely because there may be differing interpretations of facts or conclusions. The authority emphasized that the matter directly concerns investor protection and transparency in the securities market, making regulatory scrutiny both necessary and legally valid.
During the proceedings, SEBI also clarified the distinction between “jurisdictional facts” and “adjudicatory facts.” Referring to multiple Supreme Court judgments, the authority said jurisdictional facts determine whether an authority can act at all, while adjudicatory facts concern the appreciation of evidence and the merits of the allegations.
SEBI noted that forensic audit reports, restructuring disclosures and recovery of loans through acquisition of equity stakes are matters connected to the merits of the case and not grounds capable of defeating the regulator’s jurisdiction at the threshold stage. The authority further observed that if certain entities’ banking activities were not comprehensively examined during forensic audits, a separate scrutiny of possible fund trails could still be warranted.
Fund Trails and Connected Entities Under Scrutiny
The company had also contended that the alleged transactions dated back to financial years 2011 to 2015 and had already been disclosed in annual reports and stock exchange filings. On that basis, it argued that initiating proceedings after such a long period was unfair and suffered from excessive delay.
SEBI, however, rejected this argument as well. The authority stated that mere public disclosure of transactions does not automatically reveal the true nature of alleged fund diversion or layered transactions. In many such cases, the actual picture emerges only after detailed examination of banking records, fund flows and related entities.
The order specifically pointed out that the audit reports did not include detailed examination of bank accounts linked to entities such as OIPL and BPGPL. Therefore, the authority said, it would be incorrect to conclude that no diversion of funds had taken place through those entities.
SEBI also clarified that its investigation findings are not based solely on forensic audit conclusions. The probe relies on multiple sources, including annual reports, MCA records, banking documents and analysis of fund trails across connected entities. The authority added that even if the investigating agency’s conclusions are later found to be incorrect, that by itself would not affect SEBI’s jurisdiction to conduct the investigation.
