RHFL fund diversion case: 5-year market ban for Anil Ambani, 24 others

Sebi imposes Rs 624 cr fine on 27 individuals, entities

The Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs 624 crore on 27 individuals and entities, including Reliance Group Chairman Anil Ambani, his group firms, and their former directors, for allegedly siphoning off funds from Reliance Home Finance (RHFL).

The Sebi has also barred Anil Ambani and 24 others from accessing the securities market. Individual entities have also been barred from holding key positions in any listed firm or its associates for five years. The penalty imposed on Ambani is Rs 25 crore.

The Anil Ambani-led group declined to comment on the Sebi’s order issued late Thursday. The market regulator observed that Ambani designed a fraudulent scheme to siphon off RHFL funds by doling out loans to entities linked to the promoters, which acted as conduits to divert the money. 

 

 

The matter pertains to general purpose working capital loans (GPCL) disbursed by RHFL between 2018 and 2019. The regulator found several irregularities, violations, and disclosure lapses at RHFL. The loans extended by RHFL had increased significantly to Rs 8,670 crore in 2018-19 from Rs 3,742 crore in 2017-18.

According to the Sebi order, the total outstanding amount that was pending to be received by RHFL stood at Rs 6,931 crore.

Following Sebi’s stricter, several listed stocks belonging to the ADAG group hit their 5 per cent lower trading limits.

The order follows an interim order-cum-show cause notice issued by Sebi in February 2022.

During the hearing provided by Sebi, Ambani submitted that he was not involved in the day-to-day management of RHFL and he did not hold any position in RHFL.

He also submitted that RHFL was regulated by the National Housing Bank (NHB) and the Reserve Bank of India (RBI) and that any concerns pertaining to business operations were a subject matter for these regulators, not Sebi. Others in their replies said Sebi had issued the order with a ‘pre-conceived mindset’.

“The facts of this case are particularly disturbing since it reveals a complete breakdown of governance in a large listed company apparently orchestrated by and/or at the behest of the promoter, aided by the indulgent key managerial personnel (KMPs) of the company,” noted Ananth Narayan, whole-time member of Sebi, in the order extending to over 200 pages.

He noted that certain directors and management officials did not comply with the directions given by the board on restricting lending to corporates and thus ‘systematically stripped the company’s assets/funds’ under the instructions of Ambani.

Besides Sebi investigations, these lapses were also confirmed by reports from independent auditors PwC and Grant Thornton.

Sebi’s latest order follows a previous order issued by the National Financial Reporting Authority (NFRA) in April, to which the regulator had referred the case. The NFRA had noted lapses on the part of the auditors in examining RHFL’s loan disbursals to financially weak companies without appropriate business rationale, with funds diverted to other group entities.

Earlier in 2019, auditor PwC had highlighted concerns over the net worth of borrowers being negative, nil revenue or profit, no business activity of the borrowing companies, low equity capital, lending to group firms, and incorporation right before the disbursement of the loans.

Adverse findings

Borrowers connected to Anil Ambani group companies
 

Loans given to entities with weak financials
 

No proper documentation, no due diligence, loan diversion
 

Disbursement of loan on the same date as application
 

Over Rs 6,931 crore pending to be received by RHFL