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Markets regulator Sebi has barred industrialist Anil Ambani, 24 other entities, including former key officials of Reliance Home Finance from the securities market for five years for diversion of funds from the company.
Sebi has imposed a penalty of Rs 25 crore on Ambani and restrained him from being associated with the securities market including as a director or Key Managerial Personnel (KMP) in any listed company, or any intermediary registered with the market regulator, for a period of 5 years.
Also, the regulator barred Reliance Home Finance from the securities market for six months and slapped a fine of Rs 6 lakh on it.
In its 222-page final order, Sebi found that Anil Ambani, with the help of RHFL's key managerial personnel, had orchestrated a fraudulent scheme to siphon-off funds from RHFL by disguising them as loans to entities linked to him.
Although the Board of Directors of RHFL had issued strong directives to stop such lending practices and reviewed corporate loans regularly, the company's management ignored these orders.
This suggests a significant failure of governance, driven by certain key managerial personnel under the influence of Anil Ambani.
Given these circumstances, the company RHFL itself should not be held equally responsible as the individuals involved in the fraud.
Further, the remaining entities have played the role of being either recipients of illegally obtained loans or conduits to enable illegal diversion of monies from RHFL, the regulator noted.
Sebi said its findings have 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 used his position as 'chairperson of the ADA group' and his significant indirect shareholding in the holding company of RHFL to orchestrate the fraud.
Sebi, in its order on Thursday, noted the cavalier approach of the company's management and promoter in approving loans worth hundreds of crores to companies that had 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 own 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 Rs 0.75.
Even now, over 9 lakh shareholders remain invested in RHFL, facing significant losses.
The 24 restrained entities include former key officials of Reliance Home Finance Ltd (RHFL) -- Amit Bapna, Ravindra Sudhalkar and Pinkesh R Shah -- and Sebi has imposed fine on them for their role in the case.
Also, the regulator levied a fine of Rs 25 crore on Ambani, Rs 27 crore on Bapna, Rs 26 crore on Sudhalkar and Rs 21 crore on Shah.
Additionally, the remaining entities including Reliance Unicorn Enterprises, Reliance Exchange next Lt, 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 the illegally obtained loans or acted as intermediaries to facilitate the illegal diversion of funds from RHFL.
In February 2022, markets watchdog Sebi had passed an interim order and restrained Reliance Home Finance Ltd, industrialist Anil Ambani and three other individuals (Amit Bapna, Ravindra Sudhakar and Pinkesh R Shah) from the securities market till further orders for allegedly siphoning off funds from the company.