Anil Ambani banned from security market for 5 yrs, fined Rs 25 cr by Sebi
New Delhi, Aug 23, 2024
Anil Ambani and 24 other entities have been barred from the securities market for five years for fund diversions from Reliance Home Finance Ltd
The Securities and Exchange Board of India (Sebi) has imposed a significant blow to industrialist Anil Ambani and 24 other entities, including key former officials of Reliance Home Finance Ltd (RHFL), by banning them from the securities market for five years and imposing a penalty of Rs 25 crore on the industrialist. The decision follows a detailed investigation into allegations of fund diversion from RHFL, revealing a fraudulent scheme orchestrated by Ambani and his associates.
Why did Sebi ban Anil Ambani from the market?
In its 222-page order, Sebi outlined how Ambani leveraged his position as chairperson of the ADA Group and his indirect control over RHFL to collaborate with the company’s key managerial personnel to misappropriate company funds. These funds were disguised as loans extended to entities linked to Ambani, which were often financially unviable and lacked sufficient assets or revenue.
The investigation found the “existence of a fraudulent scheme, orchestrated by Noticee No 2 (Anil Ambani) and administered by the KMPs of RHFL, to siphon off funds from the public listed company (RHFL) 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’ that is, entities associated/ linked with Noticee 2 (Anil Ambani)”.
Failure in corporate governance at Reliance Home Finance
The investigation, covering the financial year 2018-19, was triggered by multiple complaints and reports about the possible misappropriation of RHFL’s resources. Sebi’s findings highlighted a glaring failure in corporate governance at RHFL, where the management, under Ambani’s influence, blatantly disregarded the board of directors’ directives to curb questionable lending practices. The order makes it clear that while the company was manipulated, the fraudulent activities were primarily driven by certain key individuals within the organisation.
“Sebi was in receipt of multiple complaints/ reports alleging diversion/ siphoning of funds of Reliance Home Finance Ltd. An investigation was undertaken by Sebi for the period of FY 2018-19, to ascertain whether any provision of Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, or any provisions of securities law, were violated,” the order reads.
Many of the entities that received these loans, often linked to the promoters of RHFL, defaulted on repayments, leading to RHFL’s own debt defaults.
Rs 25 crore penalty imposed on Anil Ambani
For his role in the scandal, Sebi has imposed a penalty of Rs 25 crore on Anil Ambani and barred him from holding any position as a director or Key Managerial Personnel (KMP) in any listed company or intermediary registered with the market regulator for the next five years. RHFL itself has been banned from the securities market for six months and fined Rs 6 lakh.
Investigation finds 24 other entities
The investigation also identified several entities and individuals as either direct recipients of the misappropriated funds or as intermediaries facilitating the illegal diversion. Former RHFL officials Amit Bapna, Ravindra Sudhalkar, and Pinkesh R Shah have been fined Rs 27 crore, Rs 26 crore, and Rs 21 crore respectively for their involvement.
Other entities associated with Ambani’s business empire, such as Reliance Unicorn Enterprises, Reliance Commercial Finance Ltd, and Reliance Big Entertainment Pvt Ltd, have each been slapped with Rs 25 crore fine.
This latest development follows Sebi’s interim order in February 2022, which had already barred RHFL, Anil Ambani, and three other individuals from the securities market. The final order cements these restrictions, highlighting the serious nature of the violations and the regulator’s intent to hold those responsible accountable.
For the over 900,000 shareholders of RHFL, the consequences of this fraud are severe, with many facing substantial losses due to the collapse of the company’s value. As the legal and regulatory ramifications continue to unfold, the case serves as a stark reminder of the critical importance of corporate governance and the need for stringent oversight in the financial markets.
Reliance Home Finance Ltd shares have dropped 5.12 per cent as of 11.45 am on Friday.
[The Business Standard]
