 "SEBI")
SEBI (Photo: Shutterstock)
The Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs 625 crore on 26 individuals and entities, including Anil Ambani, his group firms, and their former directors, for allegedly siphoning off funds from Reliance Home Finance (RHFL).
The market regulator has also debarred Anil Ambani and others from accessing the securities market and from holding any key position in any listed firm or its associate for a period of five years.
The penalty imposed on Ambani is Rs 25 crore.
Sebi observed that Ambani designed a fraudulent scheme to siphon off money from RHFL by doling out loans to borrowers linked with the promoters. The borrower entities acted as conduits for siphoning off RHFL’s funds to promoter-related entities, the order stated.
The matter pertains to general purpose working capital loans (GPCL) disbursed by RHFL during 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.
As per the Sebi order, the total outstanding amount that was pending to be received by RHFL stood at Rs 6,931 crore.
Sebi’s stricture could mean Ambani might have to step down from the boards of several firms where he serves as director.
Following Sebi’s final order issued late Thursday, 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 in February 2022 by Sebi.
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 further 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 also said that 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 further 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 market regulator had referred the case. 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 April, auditor PwC had highlighted concerns about 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.
The order further notes that Sebi will determine the quantum of illegal gains made by the alleged fraudulent schemes and action may be initiated accordingly.
First Published: Aug 23 2024 | 7:14 PM IST