SEBI bans Anil Ambani and 24 other entities including KMPs of Reliance Home Finance Limited for a period of 5 years from the securities markets through an order issued on Thursday, 22nd August, 2024. SEBI has imposed a penalty of Rs. 624 crores on these individuals and entities for allegedly siphoning funds.
Background
SEBI had undertaken an investigation for FY 2018-19 following several complaints alleging diversion of funds from Reliance Home Finance. SEBI in its order has established the existence of a fraudulent scheme, orchestrated by 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, borrowers all of whom have been found to be ‘promoter linked entities’.
Interim Order in February 2022
In February 2022, SEBI had passed an interim order restraining Anil Ambani and Reliance Home Finance Limited amongst others from the securities market until any further orders. This was on account of adverse findings and allegations of diversion of funds from Reliance Home Finance Limited which is promoted by Reliance Capital Limited.
Final Order – SEBI bans Anil Ambani
As per its final order on Thursday, SEBI bans Anil Ambani for a period of 5 years from the securities market and has imposed a fine of Rs. 25 crores on him. Other key managerial persons (KMPs) of Reliance Home Finance Limited Amit Bafna, Ravindra Sudhalkar and Pinkesh Shah have been Rs. 27 crores, Rs. 26 crores and Rs. 21 crores respectively. The company RHFL has also been fined for Rs. 6 lakhs and barred for a period of 6 months. This detailed order of around 222 pages was uploaded on the SEBI website on 23rd August, 2024.
Adverse Observations
It was pointed out that the Board of Directors of Reliance Home Finance Limited had expressed its serious concerns on the red flags in the lending of advances and had strongly urged the company to abstain from such lending, the management of the company continued to overlook the concerns of the board.
As per the adverse findings of SEBI, loans were given to entities with weak financials that could not sustain and comply with the terms of the financing. SEBI noted that the loans were given to entities that had poor cash flows, low net worth, declining revenues and little or no assets. Moreover, there was lack of proper documentation and no due diligence before the advances were given. In some cases, SEBI pointed out that the disbursement of the loans was on the date of the loan application itself thus proving the allegation that there was lack of due diligence and a complete lapse of procedural compliances.
Another red flag observed by SEBI was that the borrowers of such loans were in many cases related/linked to the promoters or Reliance Home Finance Limited. These borrowers eventually failed to repay their loan obligations and thus, Reliance Home Finance Limited also failed to service its debts on time.
Penalties and Bans Imposed
Other group entities like Reliance Unicorn Enterprises, Reliance Exchange Next Ltd, 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 since these were the linked entities that received these illegally sanctioned loans or were intermediaries in the process of siphoning off funds from Reliance Home Finance Limited.
SEBI bans Anil Ambani as it observed that such fraudulent schemes were designed to siphon off funds from Reliance Home Finance Limited to entities known/related to the promoters and KMPs who facilitated such diversion of funds.
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