Anmol Ambani To Pay Rs 1cr To SEBI?

The Indian market regulator, Securities and Exchange Board of India(SEBI), took action on Monday as it imposed heavy penalties on two officials involved in the Reliance Home Finance case. The chairman of Reliance Capital Mr. Anil Ambani’s son Anmol Ambani has been asked to pay Rs 1 crore to the bank as he had not exercised due caution while granting general-purpose corporate loans (GPCL).

The second individual is – Krishnan Gopalakrishnan, former Chief Risk Officer of Reliance Housing Finance, who has been penalized Rs 15 lakh. Both of them have been ordered by SEBI to pay their respective fine within 45 days as said in the order released by the regulatory body.

As SEBI’s order pointed out a particularly disturbing instance of an incident wherein Anmol Ambani was serving as a board member of Reliance Home Finance. On 14 February 2019, Anmol sanctioned a loan of Rs 20 crore to Accura Productions Private Limited, even when just a few days earlier, on February 11, the company’s board of directors had unmistakably directed it to stop seeking GPCL approvals. This invited heavy criticism from the SEBI who noted that Anmol “has taken the company in his own direction and has gone overboard in his role as director. and has not acted with due care and diligence, and has not maintained high ethical standards.”

The regulatory body further noted that Anmol, sitting on the boards of Reliance Capital and other group companies of Reliance ADAG, had not himself exercised reasonable due diligence into the lending practices. The GPCL loans were apparently onward lent to other entities in the ADAG group, including Reliance Capital.

Krishnan Gopalakrishnan was held to have passed many GPCL loans at a time when he was well aware of the major deviations in the credit approval processes. He had the duties and responsibilities as Chief Risk Officer of Reliance Housing Finance to strictly follow the company’s code of conduct.

Both Anmol Ambani and Gopalakrishnan have been accused of breaching the Listing Obligations and Disclosure Requirements (LODR) of the SEBI rules. This case resonates with the determination of the regulatory authority to ensure corporate governance standards in the case of the bigger business conglomerates, maintaining transparency in financial practice when the Chairperson of the company is accused of serious illegal acts.

The punishments meted out to both these individuals serve as a reminder that positions of leadership in the financial sector come with major responsibilities and temptations, and one fails at one’s own risk. As the 45-day deadline for making the payment hangs over their heads, we will be closely following any further development in this ongoing investigation into one of India’s most prominent business families.

However, the new development comes in the wake of a continued probe by SEBI, which had banned Anil Ambani along with 24 others from the securities market for five years in August. This ban was a result of the alleged siphoning off of funds of Reliance Home Finance Ltd and has seen Anil Ambani land the massive Rs 25 crore fine.

SEBI imposed a penalty of Rs 624 crore on 25 people, including Anil Ambani, group chairman of Anil Dhirubhai Ambani Group (ADAG). It barred its director for 5 years from the securities market. This prohibition extends to three former top executives of RHFL as well : these are Amit Bapna, Ravindra Sudhalkar, and Pinkesh R Shah who are also prohibited from being associated with any of the listed companies for the next five years.

The 222-page report from Sebi’s investigation unpinned a remarkable nexus of fraud in respect of Ambani and the three former executives. The report further clarified that they had extended large amounts of credit to several other companies related to ADAG, which could not be recovered.

This regulatory step had to be taken when Domain Consumer released intermediate directions that it was under a compulsion to do in February this year, and the investigation was initiated based on those intermediate directions.

The probe relied on two reports:

One from PricewaterhouseCoopers, which was RHFL’s statutory auditor when the said fraud occurred, and secondly from Grant Thornton, the forensic auditor appointed by Bank of Baroda, which is the lead of the syndicate of banks to which RHFL belonged to.  In June early this year, Turkey’s National Financial Regulatory Authority had also suspended two chartered accountants of two Reliance Capital-related companies for not reporting fund diversions.

Most of the infractions Sebi is investigating have had to do with RHFL’s business activities during the 2016-17 and 2018-19 periods. It surfaced that a form of extended lending product termed as general purpose working capital loans (GPC loans) was used to extend loans to various entities with procedures that do not apply to what is classified as the rules.

It includes a steep rise in the volume size of these loans that rose to Rs 900 crore in FY18 and jumped to Rs 7,900 crore in FY19.

Some of the major issues raised in the letter to RHFL management by PwC include –

Borrowers without or with little revenues and questionable business worth. Companies whose net worth was negative or at worst limited and companies which were formed right from the time of loan disbursement and were not really in business, were given the money.

For instance, email domains and brand names among borrowers besides registered addresses with a company of the Reliance ADA Group companies.

It was this that exposed the fact which led to PwC giving up its position as a statutory auditor of RHFL and referring such a case to the appropriate department – SEBI.

The forensic audit conducted by Grant Thornton exposed that out of the Rs 14,578 crore disbursed as GPC loans about Rs 12,488 crore was siphoned off to 47 entities that were traced to the ADAG Group. The funds were utilized for evergreening the loans and rotated in different group companies which included Reliance Capital Ltd., Reliance Commercial Finance Ltd., Reliance Infrastructure Ltd., etc.

We are waiting for Ambani’s response on these accusations and we are looking forward as to how will SEBI take care of its internal matters concerning the irregularities around the position of its current Chairperson, Madhabi Puri Buch.