SEBI bars Anil Ambani, 24 others from securities market for 5 years

The Securities and Exchange Board of India (SEBI) has barred industrialist Anil Ambani and 24 others, including former officials of Reliance Home Finance (RHFL), from accessing the securities market for five years for diversion of funds.

Ambani and 23 others have been fined ₹25 crore each. The other entities include Reliance Unicorn Enterprises, Reliance Exchangenext, Reliance Commercial Finance, Reliance Cleangen, Reliance Business Broadcast News Holdings and Reliance Big Entertainment.

RHFL banned

SEBI has also banned RHFL from the securities market for six months and levied a penalty of ₹6 lakh on it.

The regulator concluded that Ambani had a significant role in the affairs of Reliance ADAG, specifically with respect to the companies that are allegedly part of the fraudulent scheme that diverted RHFL funds.

According to the SEBI order, a fraudulent scheme was orchestrated by Ambani and administered by the key managerial persons of RHFL, to siphon off funds from the latter by structuring them as ‘loans’ to credit unworthy conduit borrowers, and onward borrowers, all of whom were ‘promoter-linked entities’.

KMPs under the instruction of Ambani – who was not holding any position in governance of RHFL – systematically stripped the company’s assets in blatant defiance of the RHFL Board’s direction, SEBI’s 222-page order said.

A forensic audit conducted by Bank of Baroda, the lead bank of the consortium of lenders of RHFL, into its loan transactions showed indicated trends like circular transactions and evergreening of loans.

Anomalies found

The first report highlighted anomalies in the credit appraisal process of RHFL. About ₹12,574 crore was disbursed to potentially indirectly linked entities. The second report indicated that 100 loan cases amounting to ₹8,884.46 crore were still open and outstanding in the books of RHFL.

Pinkesh Shah, a key official, attended RHFL Board’s meetings held on February 11, 2019, and March 28, 2019, where the Board expressed concerns on General Purpose Working Capital Loans (GPCL) lending and directed the same to be discontinued. The then statutory auditor PWC also raised queries on the GPCL lending process.

Disbursing the GPC ‘loans’ resulted in erosion of the company’s finances as such loans were eventually declared non performing assets.

“Most of the GPCL borrowers’ accounts turned NPAs and as a consequence of the same, RHFL defaulted in its payment obligations towards its lenders which has culminated in its resolution under the RBI framework. As a result, the company’s public shareholders have been left high and dry,” the Sebi order said.

In the two years to March 2020, the RHFL scrip fell from around ₹59.6 to ₹0.75. Even as on date, there are more than 9 lakh shareholders invested in RHFL.