India’s market regulator, the Securities and Exchange Board of India (Sebi), has taken a significant step in cracking down on financial misconduct by imposing a five-year ban on industrialist Anil Ambani and 24 others, including top executives of Reliance Home Finance Ltd. (RHFL). This action comes after a thorough investigation into RHFL, where funds were allegedly diverted through questionable loans, resulting in substantial losses and causing concern among investors.
In addition to the ban, Sebi has imposed a hefty ₹25 crore penalty on Ambani and prohibited him from holding any directorial or key managerial positions in listed companies or intermediaries registered with the regulator for five years. RHFL, on the other hand, has been barred from the securities market for six months and fined ₹600,000.
Sebi’s probe into RHFL revealed instances of financial mismanagement, particularly in the disbursement of Guaranteed Payment Credit (GPC) loans. These loans were extended to entities with weak financial profiles, entities that would not typically qualify for such substantial financial support. The investigation highlighted the unprecedented loan disbursements to unworthy entities during FY18 and FY19, where RHFL disbursed significant amounts in GPC loans to entities with negative net worth and minimal assets, without any collateral or security.
The management at RHFL disregarded internal credit ratings and failed to assess the probability of default, allowing risky loans to be issued without proper scrutiny. Despite a direct order from the board to cease GPC loan disbursements, the company continued to issue these loans, including those personally sanctioned by Anil Ambani. This blatant disregard for board directives underscored significant internal control failures within the company.
Further investigation revealed that the borrowers of the GPC loans and the entities receiving the funds were connected to the promoter group, with post-facto guarantees from promoter-group companies confirming these links. The statutory auditor, PwC, raised concerns about the quality and recoverability of the loans but resigned in June 2019, citing these issues.
Sebi has imposed fines on key players involved in the fraudulent scheme, including Amit Bapna, Ravindra Sudhalkar, and Pinkesh Shah, all key officials at RHFL. Anil Ambani, as chairman of the Anil Dhirubhai Ambani Group and a key promoter of RHFL’s holding company, played a pivotal role in orchestrating the fraudulent loans. Bapna, the former CFO, continued to facilitate GPC loan disbursements despite clear deviations from standard procedures. Sudhalkar, as chief executive, failed to adhere to the board’s instructions, neglected to recover funds, and did not enforce guarantees, contributing to the company’s downfall. Shah, the CFO 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.
Sebi’s actions against Anil Ambani and others involved in the fraudulent loan disbursements send a strong message about the importance of financial integrity and accountability in the securities market. Investors are advised to exercise caution and seek advice from certified experts before making any investment decisions. Stay updated on the latest business news and market updates by downloading The Mint News App.