Fund diversion: SEBI imposes heavy fines, bars Anil Ambani, and others for 5 years; group stocks tank

Virendra Pandit

New Delhi: In a significant move, markets regulator Securities and Exchange Board of India (SEBI) has imposed heavy fines and barred businessman Anil Ambani and 24 other entities, including former key officials of his public-listed Reliance Home Finance Ltd (RHFL), from the securities market for five years for alleged diversion of funds from the company, causing losses to investors.

SEBI has penalized Ambani by Rs. 25 crore and restrained him from being associated with the securities market, including as a director or Key Managerial Personnel (KMP) in any listed company or intermediary registered with the market regulator, for five years, the media reported on Friday.

Additionally, it barred RHFL from the securities market for six months and fined Rs. 6 lakh.

In its 222-page final order, the market watchdog found that Ambani, with the help of RHFL’s KMPs, orchestrated a fraudulent scheme to siphon off funds from the company by disguising them as loans to entities linked to him.

Although the RHFL Board of Directors had issued strong directives to stop such lending practices and regularly review corporate loans, management ignored these orders. The reports suggested a significant failure of governance, driven by certain KMPs, under the influence of Ambani.

Under these circumstances, the regulator said, the company itself should not be held equally responsible as the individuals involved in the fraud.

Also, SEBI noted, that the remaining entities have either received illegally obtained loans or conduits to enable the illegal diversion of monies from RHFL.

SEBI said its findings had established 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’, i.e. entities associated/ linked with Noticee 2 (Anil Ambani).”

Ambani orchestrated the fraud using his position as ‘Chairperson of the ADA group’ and his significant indirect shareholding in RHFL’s holding company, the reports said.

In its order on Thursday, SEBI noted the cavalier approach of the company’s management and promoter in approving loans worth hundreds of crores to companies with little to no assets, cash flow, net worth, or revenue.

This suggests a sinister objective behind the ‘loans.’ The situation becomes even more suspicious when considering that many of these borrowers were closely linked to the promoters of RHFL.

Eventually, most of these borrowers failed to repay their loans, causing RHFL to default on its debt obligations. This led to the company’s resolution under the RBI Framework, leaving its public shareholders in a difficult position.

For example, in March 2018, RHFL’s share price was around Rs. 59.60. By March 2020, as the extent of the fraud became clear and the company was drained of its resources, the share price had plummeted to just Re. 0.75.

Over 9 lakh shareholders remain invested in RHFL, facing significant losses.

The 24 restrained entities included former key officials of RHFL—Amit Bapna, Ravindra Sudhalkar, and Pinkesh R Shah.

While SEBI has fined Anil Ambani to pay Rs. 25 crore, it has levied Rs. 27 crore on Bapna, Rs. 6 crore on Sudhalkar, and Rs. 21 crore on Shah.

Besides, the remaining entities, including Reliance Unicorn Enterprises, Reliance Exchange Next, Reliance Commercial Finance Ltd, Reliance Cleangen Ltd, Reliance Business Broadcast News Holdings Ltd, and Reliance Big Entertainment Private Ltd, have been imposed a penalty of Rs. 25 crore each.

These fines have been levied on them for either receiving illegally obtained loans or acting as intermediaries to facilitate the illegal diversion of funds from RHFL.

In February 2022, SEBI passed an interim order and restrained RHFL, Anil Ambani, and three other individuals (Amit Bapna, Ravindra Sudhakar, and Pinkesh R Shah) from the securities market until further orders for allegedly siphoning off funds from the company.

Following SEBI’s strong action, shares of companies led by Anil Ambani fell sharply on Friday. The stock of RHFL fell 5.12 percent to Rs 4.45 on the NSE and 4.90 percent to Rs. 4.46 on the BSE.

Reliance Infrastructure shares tumbled 10.83 percent to trade at Rs. 209.90 apiece on the BSE. On the NSE, it plunged 8.89 percent to Rs. 214.76.

In addition, Reliance Power stock declined 5 percent each to Rs. 34.45 and Rs. 34.48 on BSE and NSE, also its lower price band.