Capital markets regulator Securities and Exchange Board of India (SEBI) has barred Anil Ambani and three others from participating in the securities market until further orders. The action came on the back of alleged siphoning of funds from Reliance Home Finance Limited (RHFL) by key managerial persons and directors.

SEBI has clarified that any restraint imposed on Anil Ambani in the order shall not come in the way of resolution or revival plan that has been approved or will be approved.

The SEBI order prohibits Ambani, along with Amit Bapna, Ravindra Sudhalkar and Pinkesh R. Shah, “from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders”. They have been given three months time from the date of the order, i.e. February 11, 2021, or till the expiry of the contract, whichever is earlier, to close out or square off their open positions in any exchange traded derivative contracts.

SEBI has also called upon the noticees to show cause why further investigation should not be carried out against them.

Ambani and the others named in the order have also been barred by the market regulator “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”.

The SEBI investigation in the matter originated in light of multiple submissions, including a letter by Price Waterhouse & Co. (PWC) addressed to RHFL announcing their resignation as the statutory auditor of the company. The market regulator came to know that funds borrowed by RHFL from different lenders were partly used towards repayment of loans, etc. 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, Reliance Capital Limited (RCL).

“In their letter dated June 11, 2019, addressed to the board of directors of RHFL, PWC had expressed that due to certain acts on the part of the Company such as non-receipt of substantive/satisfactory responses to the queries raised by them during the audit; failure to call the meeting of audit committee within the prescribed time after issuance of letter dated April 18, 2019 by PWC; and threatening PWC with legal proceedings, it (PWC) was compelled to withdraw from the audit engagement,” the SEBI order noted.

PWC had also informed the Ministry of Corporate Affairs (MCA) about its decision under relevant sections of the Companies Act, as well as intimated the SEBI about the same.

Before this, PWC had written to the key personnel and audit committee of RHFL, seeking clarifications on the exponential rise in general purpose corporate (GPC) loans disbursed by the company. The amount under this head had increased from ₹900 crore as on March 31, 2018 to ₹7,900 crore on March 31, 2019. The auditor also pointed out that the net worth of borrowers was in the negative and they had no revenue or profit to repay the loans extended to them. Later investigation revealed that these borrowers were group companies of RHFL.

Another forensic audit by a consortium of lenders led by Bank of Baroda revealed that RHFL extended GPC loans to the tune of ₹14,577 crore to various entities, of which ₹12,487 crore was given to potentially indirectly linked entities (PILEs).

Another report showed that 150 loan cases between fiscal 2016-17 and fiscal 2018-19 were granted to PILEs. Of this, 100 loan cases worth ₹ 8,884 crore were still outstanding in the books of RHFL.

“Under the circumstances, there is a heavy preponderance of probabilities that the company and the individuals comprising the Senior Management (named above), unless specifically prohibited, shall perpetuate their ill intent by indulging in such malpractices, which are prima facie injurious to the SEBI Act, 1992 and regulations made thereunder,” the market watchdog noted in its order.

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