Market regulator SEBI (Securities Exchange Board of India) has barred Reliance Home Finance Ltd (RHFL), industrialist Anil Ambani along with Amit Bapna, Ravindra Sudhakar and Pinkesh R Shah from trading in the market for alleged fraudulent activities involving the company.
SEBI banned Ambani and others, including RHFL for three months for misusing funds of the company and diverting them to other groups of entities to clear debt. The industrialist as well as his associates were also forbidden from associating with any of the listed entities.
SEBI said on 11 February that they are restrained from “associating themselves with any intermediary registered with SEBI, any listed public company or acting directors/promoters of any public company which intends to raise money from the public till further orders”.
The issue concerns RHFL's misappropriation of funds, for which PriceWaterhouse & Co (PwC), the company's former auditors, refused to sign the annual reports and eventually resigned.
All of these people involved in this case are restricted from “buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders”.
In the 100-page order, SEBI noted: “The way the chairman of the group, the CEO and the CFOs have conducted themselves in extending gratuitous treatment to the GPCL (general-purpose corporate loan) borrower entities, gives a clear indication that the destination of the funds lent by RHFL was already known to the noticee numbers 1 to 5 [RHFL, Ambani, Bapna, Sudhakar and Shah) at the time of sanctioning itself.”
“It is apparent that under a well-drafted scheme, these Noticees devised an artifice to ensure the siphoning of funds to the benefit of the promoter related entities by layering the lending operations through GPCL borrower entities,” it added.
Additionally, SEBI stated that under the circumstances, concealing such material information, which was evidently in the knowledge of the aforementioned KMPs — key managerial persons — cannot be considered an act that can lead to the disclosure of a true and fair picture of the company's affairs in the financial statements.
It explained that by concealing such loan transactions with potentially promoter-connected parties, the CEO also misrepresented before the Risk Management Committee (RMC) that such GPC loans were in the category of 'construction finance' or 'exposure to commercial real estate'.
But in reality, none of the said GPC loan funds was sanctioned or ever used for the said purposes.
According to the order, SK Mohanty, SEBI's whole-time member, noted the proceedings stemmed from several sources, including a letter of resignation from PwC to RHFL as its statutory auditor, citing various grounds and reasons.
SEBI had received complaints alleging syphoning off/diversion of the company's funds by its promoters and management. The regulator had also got multiple fraud monitoring returns from banks alleging that funds borrowed by RHFL from various lenders were partially used to repay loans, among other things.
“It was also complained that various, connected parties and companies with weak financials were used as conduits to siphon off funds from RHFL to entities connected to the promoter company viz., Reliance Capital Limited,” added the report.
Acting on these letters and complaints, SEBI began investigating RHFL's affairs for fiscal 2018-19 and discovered that the majority of the allegations were true, according to the order.
“The focus of the said investigation was broadly to investigate into the manner in which the loans were disbursed by RHFL during 2018-19 to several borrowing entities, to ascertain if any provision of Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 etc., have been violated,” the order noted.
SEBI discovered that RHFL had transferred money to at least 13 different companies, including Tulip Advisors, CITI Securities & Financial Services and Arion Movie Production — disguised as GCPL, a legal accounting practice.
A forensic audit, for example, discovered that during FY19, the company disbursed Rs 14,578 crore to numerous entities as GPCL, of which Rs 12,489 crore was disbursed to 47 companies linked to the promoters and management of RHFL.
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