India’s markets regulator Securities and Exchange Board (SEBI) has taken stringent action against industrialist Anil Ambani, along with 24 other entities, for their role in a fraudulent scheme involving the diversion of funds from Reliance (NS:RELI) Home Finance Ltd (RHFL).
The market regulator’s sweeping measures include a five-year ban from the securities market for Ambani and others involved in the scheme.
The penalties come in the wake of a detailed investigation that uncovered widespread financial misconduct and governance failures within RHFL.
SEBI’s extensive penalty and market ban
SEBI’s order, issued on Thursday, outlines severe penalties and restrictions on those involved in the fraudulent scheme.
Anil Ambani, once considered one of the wealthiest individuals globally, has been fined ₹25 crore.
In addition, the regulator has barred him from holding any position as a director or Key Managerial Personnel (KMP) in any listed company or any intermediary registered with SEBI for a period of five years.
Other key individuals named in the order, including former officials of RHFL such as Amit Bapna, Ravindra Sudhalkar, and Pinkesh R Shah, have also been penalized heavily, with fines ranging from ₹21 crore to ₹27 crore.
The regulator’s investigation revealed that these individuals played critical roles in enabling the diversion of funds through various conduit borrowers, many of which were linked to the promoters of RHFL.
The diversion scheme: how funds were siphoned off
According to SEBI’s 222-page final order, the fraudulent activities at RHFL involved disguising the diversion of funds as loans to entities closely associated with Anil Ambani.
These loans were granted to companies with little to no assets, cash flow, or net worth. The funds were then funnelled to onward borrowers, which were also found to be linked to Ambani and his entities.
Despite clear directives from RHFL’s Board of Directors to halt such lending practices, the company’s management, under the influence of Ambani, ignored these orders.
SEBI’s investigation concluded that this disregard for governance standards allowed the fraudulent scheme to continue, ultimately leading to significant financial losses for the company and its shareholders.
Impact on RHFL and its shareholders
As a result of the fraudulent activities, RHFL suffered severe financial distress, eventually defaulting on its debt obligations.
The company’s share price plummeted from ₹59.60 in March 2018 to just ₹0.75 by March 2020, reflecting the extent of the damage caused by the siphoning of funds. Even today, over 9 lakh shareholders remain invested in RHFL, facing substantial losses.
SEBI’s order notes that while the company itself has been barred from the securities market for six months, the primary responsibility for the fraud lies with the individuals who orchestrated the scheme.
The regulator has emphasized that RHFL’s management and promoters, particularly Anil Ambani, are to be held accountable for the misconduct.
Market reaction and broader implications
Following SEBI’s order, shares of Anil Dhirubhai Ambani Group (ADAG) companies saw a sharp decline in the stock market.
RHFL shares hit the 5% lower circuit, while other group companies such as Reliance Power (NS:RPOL) and Reliance Infrastructure (NS:RLIN) also witnessed significant drops in their share prices.
The market’s response reflects the broader concerns over governance and financial stability within the ADAG group.
The SEBI order not only affects Ambani’s ability to participate in the securities market but also raises questions about the future of his remaining businesses.
Legal battles and financial struggles
Anil Ambani’s financial woes are compounded by ongoing legal battles. In April, the Supreme Court of India set aside an ₹8,000 crore arbitral award in favor of a company within Ambani’s group, adding further strain to Reliance Infrastructure’s already precarious financial position.
The group is currently undergoing debt restructuring, and the latest legal setbacks will likely exacerbate its cash flow issues.
As the legal and financial challenges facing Ambani and his companies continue to mount, the broader implications of SEBI’s order will likely have a lasting impact on investor confidence and market stability in India.
This article first appeared on Invezz.com
