New Delhi: The Securities and Exchange Board of India (SEBI) has come down hard on Anil Ambani and Reliance Home Finance (RHFL) for giving unscrutinised loans to parties related to the company.
The SEBI has fined Ambani Rs 25 crore and banned him from the securities market for five years. In addition, SEBI has levied penalties on the company itself and its other key management personnel.
SEBI’s order, released Thursday evening, followed an investigation into alleged violations of various SEBI laws.
In the order, the markets regulator said that Ambani was the “mastermind behind the fraudulent scheme” under which the company in 2018-19 gave loans — ostensibly categorised as working capital loans, and which were disbursed without due diligence — to related parties.
The loans under investigation amounted to Rs 8,470 crore.
“It is also now clear that the transfer of monies, structured as GPC (General Purpose Working Capital) loans, were directly or indirectly made to entities that were related to the Reliance ADA Group,” the order said.
The order further noted the “abrupt and thoroughly irregular manner” in which the loans were disbursed; the evidence, the investigation found, of senior officials having canvassed for disbursing the loans to the entities; the “absolute lack of interest” in recovering the dues; and Anil Ambani’s involvement in approving all such loans.
“Coupled with this, the ownership and management pattern of these companies (both lender and borrowers) leads to the conclusion that the ‘loans’ were motivated by Noticee No. 2’s [Anil Ambani] direct or indirect benefit through fund transfers to these companies,” the order said.
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The nature of the malpractice
The SEBI investigation found that 62 loans, worth Rs 5,552.67 crore or 65.5 percent of the total amount under investigation, got approved on the date of the loan application, and 27 loans worth Rs 1,940.6 crore got disbursed to the borrowers on the date of the application as well.
The SEBI order said the Credit Approval Memos (CAM) of loans worth Rs 5,850.19 crore recorded “deviations from due process”.
The CAMs recorded deviations such as waived field investigations, the probability of waived default, eligibility criteria not meeting the norms, no security imposed for the loans, no customer ratings undertaken, escrow accounts 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 authorised signatories have merely signed on the last page of such application form(s),” the investigation found.
The report also noted that despite senior key functionaries of the company remaining entrusted with approving loans involving amounts greater than Rs 5 crore, the constitution of a credit committee, and the recording of the deviations in the CAMs, several deficiencies in the borrowers went ignored.
“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,” the order said.
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SEBI is not the only one finding faults
The order also said that SEBI’s investigation also incorporated the findings of two separate reports — one by Price Waterhouse & Co. (the statutory auditor of RHFL) and the other by Grant Thornton (the forensic auditor appointed by Bank of Baroda, the lead bank of the consortium of lenders of RHFL).
It noted that PWC, in a letter, dated 11 June 2019, to the Board of Directors of RHFL, said that certain acts on the part of the company compelled PWC to withdraw from its audit engagement in compliance with the code of ethics issued by the Institute of Chartered Accountants of India, and the applicable standards on auditing.
Such acts, the order said, included non-receipt of substantive or satisfactory responses to the queries raised by PWC during the audit, failure to call the meeting of the audit committee within the prescribed time, and threatening PWC with legal proceedings.
The order did note that RHFL, however, through its letter dated 12 June 2019 to the National Stock Exchange and Bombay Stock Exchange, had disagreed with the reasons cited by PWC for its resignation.
“Further, in the said letter dated April 18, 2019, PWC also sought clarifications as to why the borrower entities should not be considered as group companies as the email id of the borrower company was having email domain address of Reliance ADA group, brand name of “Reliance” was appearing in the name of borrower company, directors of such companies were employees of Reliance ADA group and multiple borrower companies having same registered address,” the order noted.
The Grant Thornton report found similar discrepancies, as the SEBI investigation, and also noted some irregularities related to related companies.
“The report observed notable instances where eight borrower entities were earlier being reflected as related parties of Reliance Power Limited and Reliance Infrastructure Limited (i.e. the group companies of RHFL), however, just before disbursal of such loans, these entities were reclassified as non-related party,” the order said, citing the Grant Thornton report.
Loans worth Rs 1,323.43 crore were disbursed to these eight entities.
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Stringent penalties imposed
The SEBI order imposed penalties on the 28 recipients of its notice — RHFL, Anil Ambani, several Reliance ADA group companies, and other key management personnel.
The SEBI has banned RHFL from accessing the securities market or being directly or indirectly associated with it for six months. The ban will apply to Anil Ambani and 26 other people and entities for five years.
Further, the order has banned Anil Ambani from being a director or key managerial personnel in any listed company, holding company or intermediary company registered with SEBI for five years.
The markets regulator has also imposed fines of Rs 5 lakh on RHFL, Rs 25 crore on Anil Ambani, Rs 27 crore on RHFL chief financial officer Amit Bapna, and Rs 26 crore on RHFL CEO Ravindra Sudhalkar.
Moreover, it has imposed a fine of Rs 25 crore each on all the other companies that received the SEBI notice.
(Edited by Madhurita Goswami)
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