Anil Ambani, chairman of ADAG, and 24 other entities, including former key managerial personnel (KMPs) of Reliance Home Finance Ltd (RHFL), have been barred from the securities market for five years by securities markets regulator Securities and Exchange Board of India (Sebi) for diverting funds from the company.
Ambani was also fined Rs 25 crore by Sebi for masterminding a fraudulent plan that damaged trust in the integrity of governance structures in firms under regulation in the financial sector and negatively impacted RHFL’s stakeholders. Over Rs 625 crore is the total penalty levied against Ambani and the other 24 organizations.
The RHFL instance
A non-banking financing business (NBFC) that specialized in home loans, loans secured by real estate, and construction finance, RHFL was the subject of an investigation by Sebi following several complaints and reports of purported fund diversion or siphoning within the organization.
With a 47.91% stake, Reliance Capital Ltd (RCL) was the primary promoter of RHFL. During FY2018–19, Ambani served as RCL’s promoter in addition to being a non-executive and non-independent director.
According to research by Sebi, RHFL’s loans to corporations rose from Rs 3,742.60 crore in 2017–18 to Rs 8,670.80 crore in 2018–19. It was discovered that during FY2018–19, RHFL gave generic customers with incredibly poor financials a number of sizable general purpose working capital (GPC) loans.
These borrowers’ enterprises, assets, cash flows, profits, and net worth were all negative or insignificant. Unexpectedly, Sebi stated in its comprehensive, 222-page order, that no security, guarantee, or collateral was documented during the loan disbursement process.
The ruling states that, based on data provided by RHFL, 45 borrower firms received 97 GPC loans totaling Rs 8,470.65 crore from the company in FY2018–19. Up to 62 loan applications were accepted on the same day, and in 27 cases, the loan was also disbursed to the borrower entity’s account on the application date, according to an examination of 70 loan applications for GPC loans totaling Rs 6,187 crore.
The RHFL board formally directed the company to stop making GPC loan disbursements on February 11, 2019. But even though Ambani was not affiliated with RHFL, RHFL went ahead and disbursed these loans with his assent as Group Head.
In his role as Chairman of Reliance ADA Group, “Noticee No. 2 (Anil Ambani) approved 14 loan applications involving an amount of Rs 1,472.16 crore during a period of just over 1.5 months (between February 11, 2019 – March 31, 2019),” the regulator stated.
Sebi’s findings
The Sebi ruling states that despite the fact that about half of RHFL’s assets as of March 31, 2019, were GPC loans given to questionable and credit-unworthy businesses, the company’s FY18–19 financial statements showed a relatively low Expected Credit Loss (ECL). The internal estimate, or ECL, of a bank represents the projected future losses on a loan exposure resulting from default, which is anticipated to happen in the regular course of business.
Sebi has discovered that RHFL frequently, erratically, and mysteriously departed from accepted credit due diligence and procedures while authorizing the GPC loans.
The investigation into the matter has shown that Ambani and 24 other companies, the Noticees, were part in a fraudulent operation that entailed disbursing GPC “loans,” which finally led to the loans being labeled non-performing assets (NPA) and eroding the company’s finances.
According to the order, money transfers that were set up as GPC loans were made either directly or indirectly to companies connected to the Reliance ADA Group.
Read Also: Sebi bans Anil Ambani, 24 more securities market firms throughout a five-year period
Anil Ambani’s involvement in approving these “loans,” the sudden and blatantly irregular way in which the “loans” were disbursed, the proof that senior officials had pushed for the loans to be given to these entities, and the total lack of interest in collecting the debts all indicate a desperate need on their part to move money in one way or another, the statement reads.
In addition, the ownership and management style of these businesses—both lenders and borrowers—leads one to believe that Noticee No. 2’s (Anil Ambani) direct or indirect gain from financial transfers to these businesses was the driving force behind the “loans,” the statement continues.
Anil Ambani’s answer
In response to Sebi’s five-year stock market suspension and Rs. 25 crore fine, Anil Ambani is reportedly considering his legal options, according to a statement from his representative.
According to Ambani’s spokeswoman, he has been “in compliance with the said interim order for the last two and a half years” and has resigned from the boards of Reliance Infrastructure and Reliance Power in response to Sebi’s interim order of February 11, 2022.
Read Also: Paytm shares rise by over 5%, while Zomato’s stock gains 2% following a ticketing business deal
