Anil Ambani. Photo source: Anil Ambani's Facebook page.
Mumbai: The Securities and Exchange Board of India (SEBI) has restrained Anil Dhirubhai Ambani, the younger brother of India’s richest business tycoon Mukesh Ambani, along with 24 others, from accessing the securities market and prohibited him from buying, selling or otherwise dealing in securities, directly or indirectly, for a period of 5 years.
Anil Ambani, who is also a former member of Parliament (Rajya Sabha), is also restrained from being associated with the securities market including as a director or Key Managerial Personnel (KMP) in any listed company, holding/ associate company of any listed company, or in any intermediary registered with SEBI, for a period of 5 years, from the date of coming into force of this direction.
SEBI also imposed a penalty of INR 25,00,00,000 on him under Section 15HA of the SEBI Act. SEBI also imposed a penalty of INR 600,000 on Reliance Home Finance Limited (RHFL), and restrained the company from accessing the securities market and prohibited it from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for 6 months.
SEBI also slapped a penalty on 25 other KMPs/Stakeholders ranging from INR 27,00,00,000 to 25,00,00,000, asking them to make the payment within forty-five (45) days from the date of receipt of the order.
“I note that Anil D Ambani had a significant role in the affairs of Reliance ADAG [Anil Dhirubhai Ambani Group], and specifically with respect to the companies who are allegedly part of the fraudulent scheme for diverting the funds of RHFL…By a preponderance of probability, the mastermind behind the fraudulent scheme is the Chairman of ADAG – Anil Ambani,” Ananth Narayan G., Whole Time Member of SEBI said in his ruling on August 22, 2024.
SEBI ruled that Reliance Home Finance Limited (RHFL) misrepresented its financial statements for the year 2018-19 by making incomplete, misleading, and false disclosures concerning General Purpose Working (GPC) Lending. The company also overstated its revenues by not making adequate provisioning against the impairment for GPC loans.
The RHFL Management and Anil Ambani, “all of whom are professionals with knowledge of business and finance”, approved General Purpose Working Capital (GPC) loans running into hundreds of crores of Rupees to non-descript borrowers with “stunningly weak” financials and business operations while deviating from and “closing their eyes” to even the most basic of due diligence processes. In the process the company, its promoter and key management concealed the facts about the poor quality of the GPC Loans, and gave false certification about the financial health of RHFL in FY18-19, thereby misleading all of RHFL’s investors and other stakeholders, SEBI ruled.
Refuting claims of the stakeholders that the decision to grant GPC Loans was a commercial decision and that the borrowers had no relation to RHFL, the Securities and Exchange Board of India (SEBI) said the fact was that the companies of Reliance Anil Dhirubhai Ambani Group had come forward to offer guarantees of more than INR 2,000 Crore for borrowers with” weak financials and a clear inability to service such loans”.
“The only reasonable explanation, by the overwhelming preponderance of probability, that can explain the indiscriminate lending, the blatant defiance of the directions of the RHFL Board, is that all this was a fraudulent device and artifice put together to divert money away from a listed company by subterfuge,” SEBI said.
Offering details it disclosed that as per the information submitted by Reliance Home Finance Limited (RHFL), the company had disbursed 97 General Purpose Working Capital (GPC) loans amounting to INR 8470.65 Crore to 45 GPCL Borrowers entities during the investigation period (Financial Year 2018-19).
Out of the total loans, two accounts for two entities were written off which amounted to INR 152.30 Crore. Further, out of a total of 97 GPC Loans, 27 unique GPCL Borrower entities were given an amount of INR 5,165.05 Crore under 63 different loan applications. As on November 30, 2020, out of the said amount of INR 5,165.05 Crore, an amount of INR 3,858.51 Crore
was still outstanding as due towards RHFL and due to the said fact, such 63 accounts (pertaining to the amount of INR 5,165.05 Crore) were declared as Non-Performing Assets (NPAs). However, after the passage of 10 months (i.e. as on September 30, 2021), RHFL had not recovered any further amount either from the loans which were earlier (as on November 30, 2020) stated to be Standard (INR 2,920.50 Crore) or from the outstanding amounts from the accounts declared as NPA (INR 3,858.51 Crore). Eventually, all the 95 Accounts (2 accounts out of 97 accounts were already written off from the books of RHFL), containing a total amount of INR 8,318.35 Crore and declared as NPA as on September 30, 2021.
“The said fact shows that RHFL has not recovered any amount from such GPCL borrower entities since November 2020 and the total outstanding amount which was pending to be received by RHFL was INR 6,931.31 Crore,” SEBI stated. It added that “the non-invocation of such corporate guarantees and declaring the loans as NPAs leads to an inference that such guarantees were provided by the promoter group companies only to hoodwink the shareholders at large as well as the relevant authorities and regulators and to give them a false sense of assurance that the GPCLs are well secured by guarantees”.
SEBI noted that many of the entities to whom funds were onward transferred/ advanced by GPCL borrower companies of RHFL were found to be entities related to promoters of RHFL itself. It found that almost all of the GPCL borrowers and onward borrowers had “box-structured shareholding” i.e. there was cross-shareholding amongst each other. In the majority of the GPCL borrowers and Onward Borrowers, behind multiple layers of companies, once the cross-shareholdings were eliminated, Anil Ambani and his family members were seen to be the “natural persons remaining”.
Investigation revealed that out of the total amount of GPCL of INR 4,944.34 Crore received by the aforesaid 13 entities, the major portion amounting to INR 4,533.43 Crore (91.69% of the total GPCL) was lent onward by such borrower entities. In around 40 instances of such onward lending, the amount that was lent onwards was 100% of the amount, which was lent by RHFL to the GPCL Borrower entities while in many other instances, the said amount of onward transfer was more than 98% of the total amount received from RHFL. Further, in 54 instances, such onward lending was done on the same date by the borrower entities. Out of 45 GPCL borrowers, 41 such entities shared common addresses with at least one of such other borrower entities. Further, many of the GPCL borrowers shared the same registered e-mail ID. There were instances where GPCL borrowers and Onward Borrowers shared common addresses. In addition to the same, some of the GPCL borrowers and Onward Borrowers had the same persons as Directors and as per the statements recorded by certain directors of GPCL borrowers, they were past/ current directors of Reliance ADA Group itself.
SEBI added that it was reasonable to infer that a major portion of GPC loans was extended by RHFL to GPCL Borrower companies only to further transfer such loan amounts to promoter and promoter-related entities.
“GPCL Borrowers appear to have acted as mere conduits to obtain loans from RHFL only to immediately pass on those loans onwards to other promoter-linked entities. The purpose behind such layering of funds transfers under the garb of advancing GPCL appears to be to hide the facts that the ultimate beneficiaries of such loans are in fact Reliance Capital Limited and other promoter-related entities,” it stated.
SEBI pointed out that the shareholding of these companies “is so intertwined and labyrinthine that it is not immediately possible to ascertain the ultimate beneficiary of these companies even though there are instances where some of the shareholding is held by Anil D. Ambani and his family members”. However, it concluded, “In majority of the GPCL borrowers and Onward Borrowers, behind multiple layers of companies once the cross-shareholdings were eliminated, Noticee No. 2 (Anil Ambani) and his family members were seen to be the natural persons remaining”.
SEBI had received 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 the Securities and Exchange Board of India Act, 1992 (SEBI Act, 1992), Securities Contracts (Regulation) Act, 1956 (SCRA), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations/ SEBI (LODR Regulations), Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations) or any provisions of securities law were violated.
RHFL as part of its business, provides housing loans, Loan against property and construction finance etc. The loans extended by RHFL to the Corporates had significantly increased from an amount of INR 3742.60 Crore in 2017-18 to INR 8670.80 Crore in the year 2018-19.
During the investigation, SEBI had sought copies of certain Loan Application Documents pertaining to the General Purpose Working Capital Loans (GPCL/ GPC Loans). An analysis of such documents (a total of 70 Loan Application Documents for the loans amounting to INR 6187.78 Crore for GPCL disbursed in FY 2018-19) as furnished by RHFL to SEBI vide its letter dated December 23, 2021, revealed the following facts:
a) As many as 62 Loan Applications covering an amount of INR 5552.67 Crore (65.55% of INR 8470.65 Crore) were approved on the date of loan application itself, and 27 Loan Applications amounting to INR 1940.58 Crore (22.90% of INR 8470.65 Crore) were disbursed to the account of borrower entities on the date of the application itself.
b) In the Credit Approval Memo (CAM) of loans amounting to INR 5850.19 Crore, deviations from due process have been recorded. The nature of various deviations so recorded in the CAMs are: Field Investigation waived, Probability of Default waived, eligibility criteria not as per the norms, no creation of security, no customer rating undertaken, escrow account not opened, etc. Further, the loan approval documentations were not properly executed and it has been noted that most of the loan application forms were left blank and the authorized signatories have merely signed on the last page of such application form(s).
c) GPC Loans amounting to INR 4715.62 Crore (involving 56 applications) were approved by the Credit Committee/Leadership Committee and out of the said loans, deviations as noted above, have been recorded by RHFL in the CAMs of as many as 50 such loans amounting to INR 4378.03 Crore. Senior key functionaries of the Company were entrusted with the task of approving loans involving amounts greater than INR 5.00 Crore, however, despite the constitution of the Credit Committee and even after recording deviations in the CAMs, serious aspects of the borrower entities like negative net worth, weak financials etc., have been completely overlooked and the loans have been sanctioned by the Credit Committee/ Leadership Council, in spite of the aforesaid deviations and deficiencies in the financial conditions of the applicants.
In terms of the loan documents submitted to SEBI, it has been noticed that 14 such loan applications involving an amount of INR 1472.16 Crore (approx.) were approved/sanctioned by Anil Ambani in his capacity as Chairman, ADA Group, in spite of the decision of the Board of Directors of RHFL in its meeting held on February 11, 2019, to not grant any further loans to corporates. Further, in respect of two such loan transactions, Reliance Infrastructure Limited extended Guarantee for a sum of INR 385 Crore.
Based on the conclusions arrived at pursuant to the investigation, an Interim Order cum Show Cause Notice dated February 11, 2022 (Interim Order/ SCN) was passed in the matter. The Interim Order restrained RHFL, Anil Ambani and three others from dealing in securities in any manner whatsoever until further orders. It further restrained Anil Ambani and three others from associating themselves with any intermediary registered with SEBI, any listed public company or acting as Directors/ promoters of any public company which intends to raise money from the public, till further orders.
SEBI called upon 28 individuals/entities to show cause why suitable directions should not be issued against them and why penalty should not be imposed on them per the relevant provisions of the SEBI Act. Amit Bapna, a non-executive director of RHFL, was also called upon to show cause why a penalty should not be imposed on him for making false statements during the investigation.
Anil Ambani raised a preliminary objection that the instant proceedings against him are barred in law as there is a statutory moratorium in force. He submitted that the State Bank of India had filed applications under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) against him before the National Company Law Tribunal, Mumbai in March 2020 and a moratorium under Section 96 of the IBC came into force on and from March 12, 2020. He submitted that given the moratorium, no legal action or proceedings in respect of any debt can continue after the commencement of proceedings against an individual and all actions including but not limited to proceedings to impose a monetary penalty would constitute a proceeding in respect of a debt.
SEBI however cited relevant court judgments to rule that Anil Ambani’s submission that the preliminary issue has to be decided first before going on merits “cannot be accepted”.
Anil Ambani also submitted on February 27, 2023, that the interim moratorium does not apply to remedial directions and that he was in compliance with the remedial directions passed in the interim order in any case, but SEBI overruled his submission.
Anil had argued that the show cause notice did not make any specific mention of the breaches and defaults committed by him and did not mention the directions proposed to be issued to him. He said SEBI did not confirm whether it provided him with all the documents referred to and relied upon by SEBI. He further told SEBI that he was not a director of RHFL and there was nothing on record to say that he was in charge of or responsible to RHFL or he was involved in day to day management of RHFL.
“In terms of Ind AS 28 [Indian Accounting Standard 28], a legal fiction is created of a person having gained ‘significant influence’ by virtue of his shareholding even though such person may not have actually been exercising or participating in the financial and/ or operating policy decisions of an enterprise,” he argued. He said he was disclosed as a ‘person having significant influence during the year’ in the Annual Report of Reliance Capital Limited (RCL) for FY 2018-19 because of his share ownership in RCL and he cannot be made liable for all operations of RCL. He further argued that the objective of disclosing a ‘significant beneficial owner’ is to show who has economic ownership of more than 10% and not who has control. He claimed that being a significant beneficial owner does not ipso facto mean he was or is liable for all operations of RCL, RHFL or other entities in which such a disclosure was made.
SEBI, however, said it did not find these arguments to be tenable. “The Interim Order cum SCN in fact brought out the role of all Noticees [who were served show cause notices] in perpetrating the fraudulent scheme,” it stated. It noted that from the shareholding pattern, RCL was the major promoter of RHFL during the relevant period holding 47.91% of its shares. Anil Ambani was also the Promoter and Non-executive and Non-Independent Director of RCL, during FY 2018-19. Further, in terms of the Related Party disclosure made in the Annual Report of RCL, he had been disclosed as an Individual Promoter being ‘the person having significant influence during the year’. Furthermore, he was also found to be a significant beneficial owner of Reliance Inceptum Private Limited, Reliance Innoventures Private Limited, and Reliance Infrastructure Consulting & Engineers Private Limited, which had a stake in RHFL. He was also chairman of the Board of Directors of RInfra and RPower during the time when guarantees were given by them to RHFL or GPCL borrowers. Reliance Infrastructure Limited also executed guarantees on behalf of certain Onward Borrowing entities against the loans extended by GPCL Borrower entities of RHFL.
Anil Ambani claimed that as a Core Investment Company, RCL was primarily a holding company, holding investments in its subsidiaries, associates, and other group companies, each of which was run by professional management. He pleaded that he was “merely” a non-executive director of RCL and was in no way involved in its day-to-day affairs. Also, he was not even on the board of the remaining entities to whom money was onward lent by borrowers of RHFL.
Merely under being tagged a Chairman of RCL/ Anil Dhirubhai Ambani Group, Anil contended that he could not and did not have the right or authorization to participate in or influence the financial or operating policy decisions of RHFL.
SEBI however, countered his contention on grounds that although Anil Ambani was not a member of the Board of RHFL or a Key Managerial Personnel (KMP) of RHFL, “by a preponderance of probability, he can be said to be the prime orchestrator of the scheme considering that the diversion of monies was to entities that were directly or indirectly linked to him or the ADA [Anil Dhirubhai Ambani] group. His own direct role in this scheme is clear from the approvals granted to several GPC loans disregarding the multiple deviations recorded in the CAMs. He has in his replies sought to distance himself from the aforesaid diversion by claiming that the company was professionally run and that he had no involvement in the same and that
loans, if any, were only ‘confirmed’ by him in the capacity of Chairman of the holding company. However, the facts and circumstances brought out above run contrary to his claims”.
Anil had sought to clarify that any action taken by him in relation to loans was not in his personal capacity or in his capacity as ‘Chairman of Reliance ADA Group’, but instead, by RCL. “It is not SEBI’s case that RCL wrongly approved/sanctioned or confirmed such loans. RCL was neither required nor had the locus standi to conduct due diligence or carry out any credit assessment of the proposed borrowers of RHFL, in relation to credit memos placed before RCL by RHFL as per its GPCL policy. It was RHFL’s responsibility to undertake all checks and balances including due diligence on the proposed borrowers prior to sanctioning loans,” he contended.
Anil Ambani further claimed that he was informed that the requirement of signing the Credit Approval Memos (CAMs) was pursuant to the newly adopted/ amended GPCL Policy which required ‘confirmation’ from the holding company above certain thresholds from a good business perspective for information/ noting purposes. “The policy did not envisage any approval from the holding company,” he said and claimed that he “only countersigned” such CAMs on behalf of RCL without there being any requirement for him to exercise any due diligence or credit risk evaluation or check the credit worthiness of the borrowers. However, SEBI’s investigation showed that these loan applications were “explicitly approved by him in his capacity as ‘Chairman, Reliance Group’ and not as a representative of RCL”.
Anil also claimed that RHFL Board’s decision in its meeting dated February 11, 2019, to not grant any further loans to corporates was applicable only to the management of RHFL and he was not holding any executive role, as an officer, director or otherwise, in RHFL. Further, he claimed he was not present at the said Board meeting and was not aware of such a Board decision. “As per a copy of the minutes of the meeting of the RHFL Board held on February 11, 2019, the operative decision taken by the RHFL Board was the establishment of the ‘Review Committee of Directors’ and not the directions issued to the management of RHFL which merely formed part of the discussions amongst the directors of RHFL,” he claimed. He also pleaded that he had not violated Regulations 26(3) and 33(2) of LODR Regulations since as per Regulation 26(3) of LODR, the obligation of compliance is on the board of directors and senior management personnel of the company, and he was neither a member of the board, nor a director, nor an officer of RHFL, nor a chief executive officer, nor a chief financial officer of RHFL.
Concerning allegations of violation of PFUTP Regulations, he had submitted that the show cause notice was based on a business decision of RHFL concerning granting loans and it is not shown in SCN that he devised any scheme to defraud or manipulate dealing in securities.
“I do not find these arguments to be tenable. The Interim Order cum SCN in fact brought out the role of all Noticees in perpetrating the fraudulent scheme… the definition of “dealing in securities” as per regulation 2(1)(b) of the PFUTP Regulations, with effect from February 1, 2019, explicitly include “such acts which may be knowingly designed to influence the decision of investors in securities” and “any act of providing assistance to carry out the aforementioned acts”… Therefore, even though GPCL borrowers, onward borrowers, or other Noticees may not have directly dealt in the securities of RHFL,.. it [is] amply clear that all the Noticees have played different roles in the elaborate and nefarious device to siphon out funds from RHFL, while concealing such acts from investors thereby lulling them into believing that the financial health of RHFL was far better than it actually was,”Ananth Narayan G. said in his order.
