SEBI has barred industrialist Anil Ambani from the securities market for five years for diversion of funds from the company.
| Photo Credit: Reuters

Market regulator SEBI has barred industrialist Anil Ambani, 24 other entities, including former key officials of Reliance Home Finance from the securities market for five years for diversion of funds from the company.

SEBI has imposed a penalty of ₹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 market regulator, for a period of five years.

Also, the regulator barred Reliance Home Finance from the securities market for six months and slapped a fine of ₹6 lakh on it.

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

Although the Board of Directors of RHFL had issued strong directives to stop such lending practices and reviewed corporate loans regularly, the company’s management ignored these orders.

This suggests a significant failure of governance, driven by certain key managerial personnel under the influence of Anil Ambani.

Given these circumstances, the company RHFL itself should not be held equally responsible as the individuals involved in the fraud.

Further, the remaining entities have played the role of being either recipients of illegally obtained loans or conduits to enable illegal diversion of monies from RHFL, the regulator noted.

SEBI said its findings have established the “existence of a fraudulent scheme, orchestrated by Noticee No. 2 [Anil Ambani] and administered by the KMPs 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’ which means entities associated with Noticee 2 [Anil Ambani]”.

Mr. Ambani used his position as ‘chairperson of the ADA group’ and his significant indirect shareholding in the holding company of RHFL to orchestrate the fraud.

SEBI, in its order on Thursday (August 22, 2024) noted the cavalier approach of the company’s management and promoter in approving loans worth hundreds of crores to companies that had little to no assets, cash flow, net worth, or revenue.

This suggests a sinister objective behind the ‘loans’. The situation becomes even more suspicious when considering that many of these borrowers were closely linked to the promoters of RHFL.

Eventually, 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.

For example, in March 2018, RHFL’s share price was around ₹59.60. By March 2020, as the extent of the fraud became clear and the company was drained of its resources, the share price had plummeted to just ₹0.75.

Even now, over nine lakh shareholders remain invested in RHFL, facing significant losses.

The 24 restrained entities include former key officials of Reliance Home Finance Ltd (RHFL) — Amit Bapna, Ravindra Sudhalkar and Pinkesh R Shah — and Sebi has imposed fine on them for their role in the case.

Also, the regulator levied a fine of ₹25 crore on Ambani, ₹27 crore on Bapna, ₹26 crore on Sudhalkar and ₹21 crore on Mr. Shah.

Additionally, the remaining entities including Reliance Unicorn Enterprises, Reliance Exchange next Lt, 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 ₹25 crore each.

These fines have been levied on them for either receiving the illegally obtained loans or acted as intermediaries to facilitate the illegal diversion of funds from RHFL.

In February 2022, markets watchdog SEBI had passed an interim order and restrained Reliance Home Finance Ltd, industrialist Anil Ambani and three other individuals (Amit Bapna, Ravindra Sudhakar and Pinkesh R Shah) from the securities market till further orders for allegedly siphoning off funds from the company.

He was ranked the sixth richest person in the world in 2008 but a series of setbacks — the latest being the Supreme Court setting aside a ₹8,000 crore arbitral award that was granted in favour of a firm in his group — reversed his fortunes.

An MBA from Wharton School, Anil Ambani, 64, the younger son of legendary business tycoon, Dhirubhai Ambani, was known for his flamboyant nature — he married bollywood actress Tina Munim and was a Rajya Sabha MP for two years — as much as for his unbeatable business acumen. But over the past few years, he has had setbacks across businesses that pushed him out of the billionaire list.

The Supreme Court on April 10 set aside a ₹8,000 crore arbitral award granted in favour of Delhi Airport Metro Express Pvt (DAMEPL).

The award was in relation to a dispute arising out of a “concession agreement” that was entered into between DAMEPL (a subsidiary of Anil Ambani’s Reliance Infrastructure) and Delhi Metro Rail Corp in 2008. The court asked DAMEPL to refund all sums previously paid by the Delhi Metro Rail in accordance with the arbitral award. DMRC had paid ₹3,300 crore to the Reliance Infra arm, which now needs to be refunded.

Anil Ambani’s Reliance Infrastructure Ltd in a stock exchange filing that no liability has been imposed on it by the Supreme Court order. “Reliance Infrastructure wishes to clarify that the Order dated April 10, 2024, passed by the Supreme Court does not impose any liability on the company and the company has not received any money from DMRC/DAMEPL under the arbitral award,” it said.

While DAMEPL is a subsidiary of Reliance Infrastructure, it is a separate entity and the liability falls on it.

Rise and fall

After Dhirubhai suffered a stroke in 1986, Anil took on day-to-day management of Reliance’s financial relationships under his father’s oversight. He and his elder brother, Mukesh, assumed joint leadership of the Reliance companies after their father’s death in 2002.

But soon after they feuded over control, leading to split — Mukesh got control of flagship oil and petrochemicals, while Anil gained control of the newer businesses such as telecommunications, power generation, and financial services through a 2005 demerger.

The two brothers, who had diverging fortunes thereafter, did not stop feuding. They fought over supply of gas from fields operated by Mukesh’s company to the power plant of Anil’s group. The elder brother won the case in Supreme Court which said a family pact cannot override a government’s allocation policy.

Anil borrowed money to fuel an expansion with forays into infrastructure, defence and entertainment businesses. In 2009, the Allahabad High Court quashed land acquisition for the proposed mega gas-based power project at Dadri in Uttar Pradesh by Anil’s group.

A non-compete clause between the brothers kept Mukesh out of telecom but that was scrapped in 2010. Mukesh quickly returned, pumping in more than ₹2.5 lakh crore over the next seven years to build a speedier 4G wireless network, which drove out competition, including Anil’s Reliance Communications (RCom).

His venture into the entertainment business with a $1.2 billion deal with Adlabs in 2005 and DreamWorks in 2008 did not work. In 2014, his power and infrastructure companies plunged into huge debt. Anil sold assets to quell investor concerns around the indebtedness of some of his companies. He sold companies like Big Cinema, Reliance Big Broadcasting, and Big Magic. RCom, which ushered in a telecom revolution in the country, was sent to insolvency proceedings to repay debt.

His bets on defence manufacturing, too, failed.

In 2019, the Supreme Court had threatened Anil Ambani with prison after Reliance Communications (RCom) failed to pay ₹550 crore to Ericsson AB’s Indian Unit. The court gave him a month to find the funds and Mukesh Ambani bailed him out at the last moment by giving the required money.

In 2019, three Chinese banks dragged Anil Ambnai to a London court over a $680 million loan default. Industrial & Commercial Bank of China Ltd, China Development Bank and the Export-Import Bank of China had in 2012 agreed to loan $925 million to his group firm Reliance Communications on condition that he provide a personal guarantee.

RCom defaulted and the three banks sued Anil Ambani, who said he agreed to give a non-binding “personal comfort letter” but never a guarantee tied to his personal assets. The matter is still in court.

Reliance Capital filed for bankruptcy in 2021 after defaulting on bonds worth ₹24,000 crore.

Reliance Infrastructure Ltd, which built Mumbai’s first metro line, missed a bond payment as it waited for proceeds from the sale of power transmission assets to Gautam Adani’s unit to cover the amount.