Kerala High Court Issues Notice To SEBI On Plea Alleging Financial Irregularities Against Kitex Group

The Kerala High Court on Saturday issued notice to the Securities and Exchange Board of India (SEBI) on a petition by a Kitex Garments Limited shareholder seeking consideration of his complaint alleging irregularities in the company's financial and related-party transactions.

The court also issued notice to Kitex Garments Limited (KGL) and Kitex Childrenswear Limited (KCL), which have been named as respondents in the petition.

Justice Bechu Kurian Thomas issued the notice.

SEBI's counsel sought time to obtain instructions and accepted notice on behalf of the regulator. The matter has been posted after two weeks for further consideration.

The petition, filed by Muhammed Firdouz A.V., alleges that SEBI failed to consider a complaint submitted on April 16, 2026, concerning financial reporting, related-party transactions, and cross-border dealings involving KGL, KCL, and their US-based joint venture, Kitex USA LLC (KUL).

According to the petition, Firdouz examined the companies' annual reports, audited financial statements, statutory auditors' reports and related-party disclosures before approaching SEBI.

A key issue raised in the petition concerns transactions between KGL and KUL. The petitioner claims that KGL reported export sales to KUL totalling about ₹1,838.03 crore between FY 2016-17 and FY 2024-25.

The petition also points to trade receivables from KUL of about ₹216.05 crore in FY 2019-20, ₹221.58 crore in FY 2021-22 and ₹122.77 crore in FY 2024-25.

It further states that KGL's investment of about ₹27.76 crore in KUL was written down in FY 2024-25, while receivables of about ₹122.77 crore remained outstanding.

The petitioner relies on observations attributed to the statutory auditors that they could not comment on the recoverability of the receivables because KUL's net worth had been fully eroded and there was no corroborative evidence available to them.

The petition states that KUL subsequently paid about ₹94.86 crore towards the outstanding receivables during FY 2025-26. Firdouz has sought examination of the circumstances surrounding the payment, including the source of funds, the underlying transactions and the corresponding banking records.

The petition also raises questions over commission payments made to KUL. It states that KCL paid about ₹46.98 crore in commission to KUL between FY 2019-20 and FY 2024-25, while KGL separately paid about ₹44.36 crore during the same period.

The petitioner has sought examination of the agreements, invoices, services allegedly rendered, basis for computation of the commission, and the corresponding banking transactions.

Another issue raised concerns the manner in which certain transactions were classified in the companies' related-party disclosures.

According to the petition, transactions between KCL and KUL were disclosed under specific heads such as rent, job work charges, expenses recovered and revenue from services between FY 2015-16 and FY 2020-21. From FY 2021-22, these transactions were substantially reflected under the head "Revenue from Sale of Goods".

The petitioner has also relied on a Draft Audit Report dated December 7, 2024, prepared by the Office of the Deputy Commissioner, State Goods and Services Tax Department, Kerala.

According to the petition, the report treated KUL as a related entity and referred to the applicability of the reverse charge mechanism. It proposed proceedings under Section 74 involving about ₹5.63 crore under this head, out of a stated total exposure of about ₹6.12 crore.

The petitioner has alleged that despite submitting the complaint to SEBI on April 16, the regulator has neither examined it nor communicated a reasoned decision on whether the allegations warranted further action.

In the petition, Firdouz pleaded, "the continued failure of the 1st Respondent to consider the complaint assumes greater significance since the 2nd Respondent is a listed company having substantial public shareholding."

The petition further states that any material irregularity in KGL's financial affairs or related-party transactions would affect the interests of its public shareholders.

Firdouz has sought a direction from SEBI to consider his April 16 complaint and pass a reasoned order within a time-bound period.

He has also sought a direction to SEBI to examine whether it should make any representation or objection before the National Company Law Tribunal in connection with the proposed scheme of arrangement between KCL and KGL, and take appropriate steps before the scheme is sanctioned.

For Petitioner: Advocates Bijoy P Pulipra, Kesiya Biju, Nithya Sumam Das, Varsha Vijay Menon, R.S Anandan, Karthik K.S, Sreejith V, Nimiya Feroz, Abhijith U and Kishor Kumar K