The Securities and Exchange Board of India (SEBI) has taken significant action against Anil Ambani, Chairman of the Anil Dhirubhai Ambani Group (ADAG), banning him and 24 other individuals from the securities market for five years. This decision stems from a major fraud case involving Reliance Home Finance Ltd (RHFL), where funds were allegedly diverted, leading to substantial losses for stakeholders.
The RHFL Case: A Deep Dive
RHFL, a non-banking financial company (NBFC) specializing in housing loans and property finance, came under SEBI’s scrutiny after multiple complaints surfaced about possible fund siphoning. Reliance Capital Ltd (RCL), which owned a 47.91% stake in RHFL, was the major promoter, with Ambani serving as its promoter and non-executive director during the financial year 2018-19.
SEBI’s investigation revealed a sharp rise in loans disbursed by RHFL, increasing from Rs 3,742.60 crore in 2017-18 to a staggering Rs 8,670.80 crore in 2018-19. A significant portion of these loans was allocated to financially weak borrowers, many of whom had negative net worth and no collateral was secured against these loans.
Key Findings and SEBI’s Observations
SEBI’s detailed 222-page order highlighted the disbursement of 97 General Purpose Working Capital (GPC) loans, totaling Rs 8,470.65 crore, to 45 borrower entities during FY2018-19. Notably, a majority of these loans were approved and disbursed on the same day, raising red flags about the process followed.
Despite an RHFL board directive on February 11, 2019, to cease further GPC loans, the company continued disbursing such loans, allegedly under Ambani’s approval as Group Head. The SEBI investigation found that 14 loans worth Rs 1,472.16 crore were approved by Ambani in just over one and a half months after the board’s instruction.
SEBI’s order highlighted several irregularities, including the company’s projected low Expected Credit Loss (ECL) for FY2018-19, despite half of RHFL’s assets being tied to GPC loans given to dubious entities. The investigation concluded that Ambani and the others involved perpetrated a fraudulent scheme, causing significant financial erosion to RHFL.
Anil Ambani’s Response
In response to SEBI’s order, a spokesperson for Anil Ambani stated that he is exploring legal options. The spokesperson also mentioned that Ambani had resigned from the boards of Reliance Infrastructure and Reliance Power following SEBI’s interim order in February 2022 and has been compliant with the order for over two years. Ambani is currently reviewing SEBI’s final order and will take appropriate legal action.
This landmark case underscores SEBI’s commitment to maintaining the integrity of the financial markets and serves as a stern warning against fraudulent activities.