Sebi Imposes 5-Year Market Ban On Anil Ambani, Fines Rs 25 Crore

The Securities and Exchange Board of India (Sebi) has barred Anil Ambani, chairman of ADAG, along with 24 other entities, from the securities market for five years. This action follows allegations of fund diversion from Reliance Home Finance Ltd (RHFL). Sebi has also imposed a Rs 25 crore fine on Ambani for orchestrating a fraudulent scheme that undermined RHFL's stakeholders and governance structures in the financial sector.

Sebi's investigation into RHFL revealed significant irregularities in loan disbursements. The company, which focuses on housing loans and construction finance, saw its corporate loans surge from Rs 3,742.60 crore in 2017-18 to Rs 8,670.80 crore in 2018-19. Many of these loans were given to borrowers with weak financials and no collateral.

Details of the RHFL Case

Reliance Capital Ltd (RCL), holding a 47.91% share in RHFL, was the major promoter. During FY2018-19, Anil Ambani served as the promoter and non-executive director of RCL. Sebi found that RHFL disbursed numerous large general-purpose working capital (GPC) loans to financially unstable borrowers without proper due diligence or security.

The Sebi order highlighted that RHFL disbursed 97 GPC loans amounting to Rs 8,470.65 crore to 45 entities during FY2018-19. Analysis showed that many loan applications were approved and disbursed on the same day, raising concerns about the approval process's integrity.

Sebi's Observations

Despite half of RHFL's assets being dubious GPC loans by March 31, 2019, the company's financials projected a low Expected Credit Loss (ECL). ECL estimates future losses on loan exposure due to defaults expected during normal business operations. Sebi noted that RHFL deviated significantly from standard credit due diligence processes when approving these loans.

Sebi concluded that Ambani and others were involved in a fraudulent scheme by disbursing GPC loans that led to financial erosion as these loans turned into NPAs. The funds were transferred directly or indirectly to entities related to the Reliance ADA Group.

Ambani's Involvement

The Sebi order stated: "Noticee No. 2 (Anil Ambani) approved 14 loan applications involving an amount of Rs 1,472.16 crore in his capacity as Chairman of Reliance ADA Group during a period of just over 1.5 months (between February 11, 2019 – March 31, 2019)." This approval came despite explicit instructions from the RHFL board to stop disbursing GPC loans.

The order further noted: "The abrupt and thoroughly irregular manner in which 'loans' were disbursed...and Anil Ambani's own involvement in approving such 'loans' all point to the pressing desire on their part to transfer funds one way or another." It concluded that these actions were motivated by Ambani’s direct or indirect benefit through fund transfers.

Anil Ambani's Response

Anil Ambani is considering legal options following Sebi's ban and fine. His spokesperson stated that he had resigned from the boards of Reliance Infrastructure and Reliance Power after Sebi's interim order dated February 11, 2022. The spokesperson added that Ambani has complied with this interim order for two and a half years.

The statement also mentioned that Ambani is now reviewing Sebi’s final order dated August 22, 2024 and will take appropriate action based on legal advice.