SEBI Rejects Bajaj Hindusthan Sugar's Challenge To ₹1,189 Crore Fund Diversion Proceedings

The Securities and Exchange Board of India (SEBI) has recently rejected Bajaj Hindusthan Sugar Ltd.'s challenge to its authority to proceed with a case over alleged diversion of more than ₹1,189 crore through related entities.

It held that objections over forensic audit findings, alleged squaring off of loans and delay in initiating action are not grounds to stop the proceedings at the threshold.

“The alleged non-consideration of such material by the IA does not render the investigation without jurisdiction. At best, it may be argued that certain material was not considered or was not given due weight at the stage of investigation.,” SEBI's Quasi-Judicial Authority N. Murugan held.

The regulator is investigating Bajaj Hindusthan Sugar Ltd. (BHSL), a sugar and ethanol maker, over alleged diversion of funds and failure to properly disclose related party transactions between FY 2010-11 and FY 2021-22.

According to SEBI, ₹318.50 crore was allegedly routed through Ojas Industries Private Limited and ₹870.60 crore through Bajaj Power Generation Private Limited for the benefit of entities linked to the promoters.

SEBI has alleged that BHSL failed to disclose these related party dealings and published misleading information in its annual reports. A show cause notice was issued in October 2023 to the company and its promoters, Shishir Bajaj and Kushagra Bajaj, asking why penalties should not be imposed.

The company and its promoters had approached the Bombay High Court, which directed SEBI to first decide whether it had the authority to continue with the proceedings before examining the allegations in detail.

The noticees argued that two forensic audits conducted by Deloitte and Mazars during the company's debt restructuring had found no fund diversion or fraudulent transactions in the company's affairs. They argued that if this material was not properly considered before SEBI initiated action, the proceedings themselves were legally defective.

They also argued that loans involving Bajaj Power Generation had effectively been squared off through a later equity transaction and that no loss was caused to public shareholders. They further argued that SEBI had acted too late, issuing the notice nearly nine years after the transactions in question despite the disclosures being in the public domain.

Rejecting these arguments, SEBI said the audit reports did not examine the bank accounts of the entities through which the alleged diversion was said to have taken place and therefore could not conclusively answer the allegations.

On the delay argument, SEBI ruled, “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”

SEBI also rejected allegations that its investigating authority acted unfairly by not placing certain material before the authority that approved the show cause notice.

Concluding that these objections went to the merits of the allegations rather than SEBI's legal authority to investigate them, the regulator held that the proceedings can continue.