SEBI Cracks Down on Reliance Home Finance, Bans Anil Ambani for 5 Years and Rs 25 Crore Fine

By Legal Wires 6 Minutes Read

In a significant development, the Securities and Exchange Board of India (SEBI) has issued a comprehensive order against industrialist Anil Ambani and several other connected entities related to the Reliance ADA Group. SEBI has banned Anil Ambani from the securities market for a period of five years, imposed a hefty penalty of Rs 25 crores, and restricted his association with any listed company, its holding or associate companies, or any intermediary registered with SEBI. The order comes after SEBI discovered a fraudulent scheme involving the diversion of funds from Reliance Home Finance Ltd. (RHFL) to promoter-linked entities, which resulted in a massive financial collapse of RHFL.

Overview of SEBI’s Order:

• Banning and Penalty: SEBI has barred Anil Ambani from participating in the securities market for five years. Additionally, a penalty of Rs. 25 crores has been imposed on him for his involvement in the fraudulent diversion of funds from RHFL.
• Entities Affected: Along with Reliance Home Finance Ltd. and Anil Ambani, SEBI has also prohibited several connected entities and former officials associated with the Reliance ADA Group from participating in the capital markets for five years. In total, 27 entities have been penalized.
• Penalty Payment: The fine amounts must be deposited within 45 days from the receipt of SEBI’s order.

Details of the Fund Diversion Scheme:

• Approval and Disbursement of GPC Loans: SEBI discovered that between FY18-19, Reliance Home Finance Ltd. (RHFL) had been approving and disbursing large General Purpose Capital Working (GPC) Loans amounting to thousands of crores of rupees to non-descript borrowers with weak financials. These borrowers had negative or negligible net worth, profits, assets, and cash flows compared to the quantum of loans disbursed.
• Deviation from Credit Due Diligence: SEBI found that in many cases, RHFL deviated from standard credit due diligence procedures while approving these GPC Loans. The borrowers were connected to the promoter-group and, in some instances, promoter-group companies provided post facto guarantees for the loans.
• Diversion of Funds: SEBI concluded that the scheme involved diverting funds from RHFL to promoter-linked entities, which led to the financial collapse of RHFL and caused significant losses to investors.

Findings of SEBI:

• Fraudulent Scheme: SEBI’s Whole Time Member Ananth Narayan G recorded in the judgment, “The only rational explanation that can account for the above series of otherwise inexplicably terrible decisions and events, by overwhelming preponderance of probability, is that this was all part of an elaborate and nefarious scheme undertaken by all the Noticees to divert funds from RHFL to promoter-linked entities, while concealing the financial implications of their artifice to the investing public.”
• Role of Anil Ambani: SEBI found that Anil Ambani had a significant role in the fraudulent scheme. The judgment noted that he was the “mastermind behind the fraudulent scheme,” with Reliance ADAG companies at the center of the diversion of funds. SEBI held that by preponderance of probabilities, Anil Ambani approved the disbursement of loans for the direct or indirect benefit of Reliance ADA Group entities.
• GPC Loans to Promoter-Linked Entities: SEBI revealed that GPC Loans were structured to facilitate the transfer of funds to Reliance ADA Group companies. The loans were irregularly disbursed, with little to no interest in recovering them. The management of both lender and borrower companies indicated that the loans were designed for the direct benefit of Anil Ambani.

Concluding Observations by SEBI:

• Governance Failures: SEBI noted the complete breakdown of governance at RHFL. The market regulator highlighted that despite being regulated by NHB, RBI, and SEBI, the company failed to maintain high standards of governance.
• Board Defiance: SEBI pointed out that RHFL’s management defied its own Board’s directives, which had raised concerns about GPC lending and urged the company to comply with legal standards. The company’s Key Managerial Personnel (KMPs), along with Anil Ambani, were found to have ignored these concerns and acted in violation of governance practices.

Click to read: SEBI Judgement

Legal Wires

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