Sebi bans Anil Ambani from trading in the securities market for 5 years (Photo: Bloomberg)
The Securities and Exchange Board of India (Sebi) has dealt a major blow to businessman Anil Ambani and 24 other entities, including former key executives of Reliance Home Finance Ltd (RHFL), by banning them from participating in the securities market for five years and imposing a fine of Rs 25 crore. The move comes after a detailed investigation into allegations of siphoning off funds from RHFL, which revealed a fraudulent scheme orchestrated by Ambani and his associates.
Why did Sebi ban Anil Ambani from entering the market?
In its 222-page order, Sebi described how Ambani leveraged his position as chairman of ADA Group and his indirect control over RHFL to collaborate with key management personnel of the company and misappropriate funds from the company. These funds were disguised as loans to entities linked to Ambani, which were often financially unviable and lacked sufficient assets or revenues.
The investigation found the “existence of a fraudulent scheme, orchestrated by Noticee No 2 (Anil Ambani) and managed by the KMPs of RHFL, to siphon off funds from the listed company (RHFL) by structuring them as ‘loans’ to credit unworthy conduit borrowers and in turn to subsequent borrowers, all of whom have been found to be ‘promoter linked entities’ i.e. entities associated/linked with Noticee 2 (Anil Ambani).”
Corporate governance failure at Reliance Home Finance
The probe, which spanned the financial year 2018-19, was triggered by multiple allegations and reports of possible misappropriation of RHFL’s resources. Sebi’s findings highlighted a glaring lapse in RHFL’s corporate governance, where the management, under Ambani’s influence, blatantly flouted board 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 received multiple complaints/reports alleging diversion/misappropriation of funds from Reliance Home Finance Ltd. Sebi conducted an investigation during the period of FY 2018-19, to determine whether any provision of the Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, or any provision of securities law was violated,” the order read.
Many of the entities that received these loans, often linked to RHFL’s promoters, defaulted on their payments, leading to RHFL’s own debt default.
Anil Ambani fined Rs 25 crore
For his role in the scandal, Sebi has imposed a fine of Rs 25 crore on Anil Ambani and banned him from holding any position as a director or key management personnel member (KMP) in any listed company or intermediary registered with the market regulator for the next five years. RHFL itself has been banned from the stock market for six months and fined Rs 6 lakh.
Investigation finds another 24 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, including Reliance Unicorn Enterprises, Reliance Commercial Finance Ltd and Reliance Big Entertainment Pvt Ltd, have been slapped with a fine of Rs 25 crore.
This latest development follows Sebi’s interim order in February 2022, which had already banned RHFL, Anil Ambani and three others from accessing the securities market. The final order consolidates these restrictions, highlighting the gravity of the violations and the regulator’s intent to hold those responsible accountable.
For RHFL’s more than 900,000 shareholders, the consequences of this fraud are severe, with many facing substantial losses due to the company’s plummeting 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 strict oversight in financial markets.
Shares of Reliance Home Finance Ltd fell 5.12 per cent at 11.45 am on Friday.
First published: August 23, 2024 | 11:59 am IS
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