SEBI bars Anil Ambani from securities market for 5 years, imposes ₹25 crore fine

The Securities and Exchange Board of India (SEBI) on Thursday barred industrialist Anil Ambani and 24 other persons and entities from accessing the securities market for five years, citing their involvement in a fraudulent scheme that led to the diversion of funds from Reliance Home Finance (RHFL)..In addition to the ban, SEBI imposed a penalty of ₹25 crore on Ambani and prohibited him from serving as a director or key managerial personnel in any listed company during this period..The SEBI investigation revealed a complex scheme where RHFL disbursed significant loans amounting to ₹9,295.25 crore to 45 General Purpose Working Capital Loans (GPCL) entities. Of this, ₹4,944.34 crore was disbursed to 13 specified GPCL borrowers, who further lent ₹4,013.43 crore to nine promoter-related entities.The investigation found that these transactions were part of a coordinated effort to move funds from RHFL to financially weak companies linked to the Reliance ADA Group, ultimately leading to non-performing assets (NPAs) of ₹6,931.31 crore, as of September 30, 2021."Credit defaults in financing business are not by themselves unusual or suggestive of fraudulent activity. Inter-corporate loans or related party transactions (subject to disclosures and compliance with law) are also not per se illegal or suspicious. However, the facts and circumstances of this case clearly indicate that the defaults are the culmination of an elaborate and coordinated design to move funds from the public listed company to non-descript and financially weak privately held companies connected with the Reliance ADA group," the order stated..The case highlighted severe governance failures within RHFL, where key management personnel (KMPs) including Amit Bapna, Ravindra Sudhalkar and Pinkesh R Shah allegedly disregarded directives from the Board of Directors to halt lending to certain corporate entities.Statutory auditor PricewaterhouseCoopers (PWC) and forensic auditor Grant Thornton concluded that these loans were part of a fraudulent scheme, directly implicating Ambani as the mastermind behind the operation.In his order, Whole-Time Member Ananth Narayan G observed, "When juxtaposed against a well-regulated financial system where extending even small-ticket loans is subject to multiple checks and restrictions, the cavalier approach by the company management and the promoter in approving loans amounting to hundreds of crores to companies, many of which had negligible assets, cash flows, net worth, or revenues, suggests a sinister objective behind the ‘loans.’".The fraudulent activities caused a significant financial decline for RHFL, severely impacting its shareholders. The company’s share price plummeted from ₹59.60 in March 2018 to ₹0.75 by March 2020, leaving over nine lakh shareholders at a loss..SEBI also barred RHFL from accessing the securities market for six months and levied a ₹6 lakh fine on the company. The total fines imposed by SEBI on all 27 entities implicated in the scam amounted to over ₹625 crore.The violations identified by SEBI included breaches of multiple regulations, such as the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015; SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011..[Read Order].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.