The Securities and Exchange Board of India (SEBI) has prohibited industrialist Anil Ambani and 24 other entities, including former key officials of Reliance Home Finance, from the securities market for five years due to the diversion of company funds.
Penalty of Rs 25 crore on Ambani
Sebi has imposed a Rs 25 crore penalty on Anil Ambani and has barred him from any association with the securities market, including holding positions as a director or Key Managerial Personnel (KMP) in any listed company or intermediary registered with the market regulator, for a period of five years.
Additionally, the regulator barred Reliance Home Finance from the securities market for six months and imposed a Rs 6 lakh fine on the company. In its 222-page final order, Sebi determined that Anil Ambani, with the assistance of RHFL’s key managerial personnel, orchestrated a fraudulent scheme to siphon off funds from RHFL by disguising them as loans to entities linked to him.
Despite the Board of Directors of RHFL issuing strong directives to halt such lending practices and regularly reviewing corporate loans, the company’s management disregarded these orders. This indicates a significant failure of governance, influenced by certain key managerial personnel under the direction of Anil Ambani.
Given these circumstances, RHFL as a company should not be held equally responsible as the individuals directly involved in the fraud.
Furthermore, the regulator noted that the remaining entities either acted as recipients of the illegally obtained loans or served as conduits to facilitate the illegal diversion of funds from RHFL.
Existence of a fraudulent scheme
Sebi stated that its findings have confirmed the “existence of a fraudulent scheme, orchestrated by Noticee No. 2 (Anil Ambani) and executed by the KMPs of RHFL, to siphon off funds from the publicly listed company (RHFL). These funds were disguised as ‘loans’ to credit unworthy conduit borrowers, who then forwarded the funds to onward borrowers. All of these borrowers were found to be ‘promoter-linked entities,’ meaning they were associated or linked with Noticee 2 (Anil Ambani).”
Ambani used his position as ‘chairperson of the ADA group’ and his significant indirect shareholding in the holding company of RHFL to orchestrate the fraud.
Sebi, in its order on Thursday, noted the cavalier approach of the company’s management and promoter in approving loans worth hundreds of crores to companies that had little to no assets, cash flow, net worth, or revenue.
This points to a sinister motive behind the ‘loans,’ especially given that many of these borrowers were closely linked to the promoters of RHFL. Ultimately, most borrowers defaulted on their loans, causing RHFL to fail in meeting its own debt obligations. This situation led to the company’s resolution under the RBI Framework, leaving public shareholders in a difficult position. For instance, RHFL’s share price was around Rs 59.60 in March 2018, but by March 2020, as the scale of the fraud became apparent and the company’s resources were depleted, the share price had collapsed to just Rs 0.75. Today, over 9 lakh shareholders remain invested in RHFL, enduring substantial losses.
24 restrained entities – List
The 24 restrained entities include former key officials of Reliance Home Finance Ltd (RHFL)—Amit Bapna, Ravindra Sudhalkar, and Pinkesh R Shah. Sebi has imposed fines on them for their involvement in the case, with Ambani being fined Rs 25 crore, Bapna Rs 27 crore, Sudhalkar Rs 26 crore, and Shah Rs 21 crore.
Additionally, the remaining entities—Reliance Unicorn Enterprises, Reliance Exchange Next Ltd, Reliance Commercial Finance Ltd, Reliance Cleangen Ltd, Reliance Business Broadcast News Holdings Ltd, and Reliance Big Entertainment Private Ltd—have each been fined Rs 25 crore.
These fines have been imposed on the entities for either receiving illegally obtained loans or acting as intermediaries to facilitate the unlawful diversion of funds from RHFL. In February 2022, the markets watchdog Sebi issued an interim order restraining Reliance Home Finance Ltd, industrialist Anil Ambani, and three individuals—Amit Bapna, Ravindra Sudhakar, and Pinkesh R Shah—from the securities market until further notice, due to allegations of siphoning off funds from the company.