SEBI bans Anil Ambani for 5 yrs, fines Rs 25 cr; ADAG shares down 14%

Shares of the Anil Dhirubhai Ambani Group (ADAG) dropped up to 14 per cent on Friday after the Securities and Exchange Board of India (SEBI) banned industrialist Anil Ambani and 24 others, including three ex-officials of Reliance Home Finance Limited (RHFL), from the securities market for five years. A fine of Rs 25 crore was also imposed on Ambani.

THE BANS AND THE FINES

The ban means Anil Ambani is barred from holding any position as a director or Key Managerial Personnel (KMP) in any listed company registered with the market regulator for five years. RHFL could face a six-month ban.

While Ambani has to pay a penalty of Rs 25 crore, RHFL was fined Rs 6 lakh. Three former officials of the company — Amit Bapna, Ravindra Sudhalkar and Pinkesh R Shah — were fined Rs 27 crore, Rs 26 crore, and Rs 21 crore respectively for their role in what SEBI has described as a “fraudulent scheme”.

Other ADAG businesses such as Reliance Commercial Finance, Reliance Unicorn and Reliance Big Entertainment were fined 25 crore each.

Shares of the penny stock RHFL fell 5.12 per cent to Rs 4.46 on the BSE Sensex index following Ambani’s ban and the fine while Reliance Power, which had surged nearly twice over the past year, dropped 5 per cent to Rs 34.45.

THE PROBE AND THE ORDER

The SEBI order follows a probe that covered the fiscal year 2018-’19. The regulatory body had started the investigation after receiving several complaints about probable misappropriation of RHFL resources. The probe established that RHFL had diverted funds, revealing Ambani and his associates had engaged in the fraudulent scheme.

“SEBI was in receipt of multiple complaints/ reports alleging diversion/ siphoning of funds of Reliance Home Finance Ltd (RHFL). An investigation was undertaken by SEBI for the period of FY 2018-19, to ascertain whether any provision of Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, or any provisions of securities law, were violated,” SEBI said in its order of 222 pages.

The order added that there was “a fraudulent scheme, orchestrated by Noticee No 2 (Anil Ambani) and administered by the KMP of RHFL, to siphon off funds from the public listed company (RHFL) by structuring them as ‘loans’ to credit unworthy conduit borrowers and, in turn, to onward borrowers, all of whom have been found to be ‘promoter linked entities’ that is, entities associated/ linked with Noticee 2 (Anil Ambani)”.

The investigation noted that corporate governance of RHFL had failed and the management, influenced by Ambani, blatantly disregarded directives of the board of directors to stop dubious practices.

Several bodies that received these loans defaulted on repayment, which in turn led to debt defaults on part of RHFL. The home finance company has more than 9,00,000 shareholders who potentially stand to lose money as a fallout of Friday’s events.