SEBI Bans Anil Ambani From Securities Market for 5 Years: What Does it Mean?

Capital market regulator SEBI has banned industrialist Anil Ambani, along with 24 others, from the securities markets for five years on charges of fund siphoning from Reliance Home Finance.

The regulator has imposed a fine of Rs 25 crore on Ambani and restrained him from being associated with the securities market including as a director or Key Managerial Personnel (KMP) in any listed company, or any intermediary registered with the SEBI, for a period of five years.

In addition, SEBI has barred Reliance Home Finance from the securities market for six months and imposed a penalty of Rs 6 lakh on it.

Following the ban, Ambani and other affected entities are restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, the regulator said.

Shares of Anil Dhirubhai Ambani Group (ADAG) companies crashed up to 14 per cent on Friday after SEBI’s order. Shares of Reliance Power, which had surged nearly 100 per cent in the last one year, fell by 5 per cent to close at Rs 34.48. Reliance Home Finance touched the 5 per cent lower circuit to settle at Rs 4.45.

Reliance Infrastructure settled 10.91 per cent down at Rs 209.99 after hitting the day’s low of Rs 202. Trading in Reliance Capital, Reliance Communications, and Reliance Naval and Engineering remains suspended.

Why SEBI has banned Anil Ambani from securities markets?

SEBI in its 222-page final order found that Anil Ambani, with the help of RHFL’s key managerial personnel, orchestrated a fraudulent scheme to siphon off funds from RHFL by disguising them as loans to entities linked to him.

According to the SEBI order, RHFL’s board of directors issued strong directives to stop such lending practices and reviewed corporate loans regularly but the company’s management ignored these orders. This shows a significant failure of governance, driven by certain key managerial personnel under the influence of Anil Ambani.

Unprecedented loan approvals for unsuitable entities

From FY18 to FY19, RHFL approved and disbursed a series of large Guaranteed Payment Credit (GPC) loans, each for hundreds of crores of Rupees, cumulating to several thousands of crores of Rupees. These loans were issued to non-descript borrowers with extremely weak financials including negligible net worth, profits, assets, cash flows and businesses. Notable, there was no other collateral or security that was recorded while disbursing these loans.

SEBI noted that RHFL’s management repeatedly deviated from standard credit due diligence and processes. Despite the borrowers’ glaringly weak financials, the internal credit ratings were sidelined and the requirement to assess the probability of default of the loans was waived. The negligible amount of scrutiny led the risky loans to proceed unchecked.

On February 11, 2019, the RHFL board explicitly instructed the company to cease disbursing any further GPC loans. However, the company continued to disburse these loans with impunity, including those sanctioned by Anil Ambani in his capacity as group head.   

According to SEBI’s findings, all the GPC loan borrowers and the entities receiving these funds were connected to the promoter group in some form or other.

Most of these borrowers failed to repay their loans, causing RHFL to default on its own debt obligations. This led to the company’s resolution under the RBI framework, leaving its public shareholders in a difficult position.

In March 2018, RHFL’s share price was around Rs 59.60. After the extent of the fraud became clear and the company was drained of its resources, the share price had plunged to just Rs 75 by March 2020. Currently, more than 9 lakh shareholders are invested in RHFL and facing significant losses.

In June 2019, the Statutory Auditor PWC resigned after raising serious concerns with the RHFL management regarding the quality, recoverability, and possible related party status of loans disbursed by the company.

SEBI’s action against 24 entities

The regulator barred Anil Ambani along with 24 entities including former key officials of RHFL – Amit Bapna, Ravindra Sudhalkar and Pinkesh R Shah. It imposed a penalty of Rs 25 crore on Ambani, Rs 27 crore on Bapna, Rs 26 crore on Sudhalkar and Rs 21 crore on Shah.

According to SEBI, Anil Ambani, Chairman of the ADA Group and a significant promoter of RHFL’s holding company played a crucial role in orchestrating the fraudulent loans. He influenced the approvals of substantial amounts of loans and directed funds to related entities.

Bapna, former CFO of RHFL and a member of the Credit Committee was involved in approving the loans despite deviations from standard procedures. He continued to facilitate GPC loan disbursements even after the board’s directive to halt them.

Sudhalkar, CEO of RHFL, was responsible for the approval and management of the loans. SEBI pointed out that he failed to follow the board’s instructions and neglected to recover funds or enforce guarantees, contributing to the company’s eventual downfall.

The CFO of RHFL, Shah, responsible for financial and accounting functions, certified the company’s financials as accurate despite being aware of the questionable loan practices and the auditor’s concerns.

The other entities including Reliance Unicorn Enterprises, Reliance Exchange Next Ltd, Reliance Commercial Finance Ltd, Reliance CleanGen Ltd, Reliance Business Broadcast News Holdings Ltd and Reliance Big Entertainment Private Ltd have been imposed a penalty of Rs 25 crore.

In February 2022, SEBI issued an interim order and barred Reliance Home Finance Ltd, industrialist Anil Ambani and three other individuals including Amit Bapna, Ravindra Sudhalkar and Pinkesh R Shah from the securities market till further orders for allegedly siphoning off funds from the company.