MUMBAI: The markets watchdog Securities and Exchange Board (Sebi) has banned Anil Ambani and 24 others, including former key officials of Reliance Home Finance, from the securities market for five years charging them with fund diversion by creating a “fraudulent scheme to siphon off money from the company by structuring it as loans to credit-unworthy borrowers.”
The Rs 104 crore cumulative fine on the individuals along with the Rs 150.6 crore cumulative fine on six group companies make this the highest ever fine slapped by the regulator on rule breakers.
Sebi has imposed a Rs 25 crore fine on the already bankrupt Ambani, who has no cash generating entities, except Reliance Infra, under his control now after Reliance Capital was also sent to the bankruptcy court a few years ago and has since been acquired by the holding company of Indusind Bank.
Apart from Ambani, those debarred and heavily fined include the former officials of Reliance Home Finance -- Amit Bapna, Ravindra Sudhalkar and Pinkesh Shah. Bapna, Sudhalkar and Shah have been fined Rs 27 crore, Rs 26 crore and Rs 21 crore respectively, Sebi said in a late Thursday night order.
While the fines on these individuals total Rs 104 crore, those on the companies total Rs 150 crore, taking the overall fine to Rs 254 crore. That apart, Reliance Home Finance was slapped with a Rs 6 lakh fine and barred for six months.
Furthermore, the entities fined and debarred include Reliance Unicorn Enterprises, Reliance Exchange Next, Reliance Commercial Finance, Reliance Cleangen, Reliance Business Broadcast News Holdings, and Reliance Big Entertainment. Each of these six companies has been fined Rs 25 crore for either receiving the illegally obtained loans or facilitating illegal diversion of funds.
In the order, the regulator has said most of these borrowers were linked to large shareholders with the ability to influence company decisions.
Apart from the personal fine of Rs 25 crore, Sebi has also prohibited Ambani from holding any directorial or key managerial position in any listed company or any intermediary registered with the regulator during the ban period. The ban is for their alleged involvement in fund diversion from the company.
The order said Sebi's extensive investigation has revealed that Ambani, aided by key managerial personnel of Reliance Home Finance, devised a fraudulent scheme to siphon off funds from the company by disguising them as loans to entities associated with him.
Despite clear directives from the board of directors to cease such lending practices and regular reviews of corporate loans, the company's management disregarded these orders, indicating a significant failure of governance influenced by certain key managerial personnel under Ambani's influence, the order said.
Sebi has also noted that given the circumstances, Reliance Home Finance itself should not be held equally responsible as the individuals involved in the fraud. The remaining entities have been found to have played the role of either recipients of illegally obtained loans or conduits to facilitate the illegal diversion of funds from the company.
In its final order, Sebi noted "the existence of a fraudulent scheme, orchestrated by Anil Ambani and administered by the key managerial persons of the Reliance Home Finance, to siphon off funds from the public listed company by structuring them as 'loans' to credit unworthy conduit borrowers, and in turn, to onward borrowers, all of whom have been found to be promoter linked entities i.e. entities associated/linked with Ambani".
Ambani, in his capacity as the chairperson of the Anil Ambani group and through his substantial indirect shareholding in Reliance Home Finance’ holding company, orchestrated a fraudulent scheme, the order said.
The order also highlights the company management and promoter's reckless approach in sanctioning substantial loans to entities with minimal assets, cash flow, net worth or revenue.
The suspicious nature of these loans is further amplified by the fact that many of the borrowers had close ties to Reliance Home Finance promoters. Ultimately, most of them defaulted on their loan repayments, causing Reliance Home Finance to fail in meeting its own debt obligations. This led to its resolution under the RBI framework, leaving public shareholders in a precarious situation.
Reliance Home Finance's share price plunged from around Rs 59.60 in March 2018 to a mere Rs 0.75 by March 2020 as the magnitude of the fraud became apparent and the company's resources were depleted. Currently, over 9 lakh shareholders remain invested in this company, facing substantial losses.
In February 2022, Sebi had issued an interim order restraining Reliance Home Finance, Ambani, Bapna, Sudhakar and Shah from the markets until further notice for allegedly siphoning off funds from the company.
The Reliance Group led by Anil Ambani was created in July 2006 following a demerger from Reliance Industries, which is led by Anil’s elder brother Mukesh Ambani.
Reliance Home Finance shares fell 5 percent after the news to Rs 4.46.