Market regulator SEBI (Securities Exchange Board of India) has banned Reliance Home Finance Ltd (RHFL), industrialist Anil Ambani as well as Amit Bapna, Ravindra Sudhakar and Pinkesh R Shah from trading in the market for activities suspected fraud involving the company.
SEBI banned Ambani and others, including RHFL, for three months for embezzling company funds and diverting them to other groups of entities to clear debt. The industrialist and his associates were also prohibited from associating with any of the listed entities.
SEBI said on Feb. 11 that it is prohibited from “associating with any SEBI-registered intermediary, any publicly traded public company, or the acting directors/promoters of any public company who intends to raising funds from the public until further notice.”
The issue concerns the embezzlement of RHFL funds, for which PriceWaterhouse & Co (PwC), the company’s former auditors, refused to sign annual reports and eventually resigned.
All such persons involved in this matter are prohibited “from buying, selling or dealing in securities, directly or indirectly, in any manner whatsoever until further notice”.
In the 100-page order, SEBI noted: “The manner in which the Group Chairman, CEO and Chief Financial Officers conducted themselves in extending free treatment to borrower entities GPCLs (general purpose corporate loans), clearly indicates that the destination of the funds lent by RHFL was already known from notices numbers 1 to 5[RHFLAmbaniBapnaSudhakarandShah)atthetimeofsanctioning[RHFLAmbaniBapnaSudhakarandShah)atthetimeofsanctioningitself”[RHFLAmbaniBapnaSudhakaretShah)aumomentdesesanctionner[RHFLAmbaniBapnaSudhakarandShah)atthetimeofsanctioningitself”
“It is evident that within the framework of a well-drafted scheme, these notifications have devised an artifice to ensure the diversion of funds to the benefit of the entities linked to the promoter by superimposing the lending operations via the GPCL borrower entities”, he said. -he adds.
Further, SEBI stated that under the circumstances, the concealment of such material information, which was obviously within the knowledge of the aforementioned KMPs – the key executives – cannot be considered an act that may lead to the disclosure of a true and fair view. and loyal to the business of the company. in the financial statements.
He explained that by concealing such loan transactions with parties potentially connected to the developer, the CEO also misrepresented before the Risk Management Committee (RMC) that these GPC loans fell under the category of “construction finance” or “commercial real estate exposure”.
But in reality, none of the said GPC loan funds have been sanctioned or ever used for the said purposes.
According to the order, full-time SEBI member SK Mohanty noted that the proceedings stemmed from multiple sources, including a letter of resignation from PwC to RHFL as auditor, citing various grounds and reasons.
SEBI had received complaints alleging siphoning/embezzlement of company funds by its promoters and management. The regulator had also received several fraud check returns from banks alleging that funds borrowed by RHFL from various lenders were partially used to repay loans, among other things.
“There have also been complaints that various related parties and companies with fragile finances have been used as conduits to divert funds from RHFL to entities related to the promoter company, namely Reliance Capital Limited,” the report added.
Following these letters and complaints, SEBI began investigating RHFL’s affairs for the 2018-19 fiscal year and found the majority of the allegations to be true, according to the order.
“The purpose of the said investigation was broadly to investigate the manner in which loans were disbursed by RHFL in 2018-2019 to several borrowing entities, to ascertain whether any provision of the 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 Trading Practices), 2003, etc. 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, revealed that in the financial year 2019, the company had paid Rs 14,578 crore to numerous entities as GPCL, of which Rs 12,489 crore was paid to 47 businesses linked to the promoters and management of RHFL.