Promoter orchestrated fraudulent scheme to siphon funds from housing finance company through credit-unworthy borrowers, causing share price collapse

SEBI found that promoter orchestrated fraudulent scheme to siphon funds from public listed housing finance company through loans to credit-unworthy conduit borrowers linked to promoter group. Investigation revealed complete governance breakdown with key managerial personnel actively participating despite board directions to cease such lending. Share price collapsed from INR 59.60 to INR 0.75 affecting 9 lakh shareholders. SEBI imposed maximum penalties including 5-year market ban on promoter and key officials, and 6-month ban on the company from securities market access.

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The key points from the SEBI order are:

1. SEBI found that Reliance Home Finance Limited (RHFL), its promoter Anil Ambani, and key managerial personnel engaged in a fraudulent scheme to divert funds from the listed company RHFL to entities connected to the Reliance ADA group.

2. RHFL disbursed large corporate loans (General Purpose Corporate Loans or GPCLs) to entities with weak financials and poor credit quality, in violation of due diligence norms, on the instructions of Anil Ambani despite objections from RHFL's board.

3. The borrower entities acted as conduits to transfer the funds to other Reliance group entities related to Anil Ambani. Most of these loans eventually turned non-performing assets (NPAs).

4. RHFL misrepresented its financials by underprovisioning for potential losses from the GPCL lending and making incomplete disclosures about the GPCL disbursals.

5. SEBI found violations of securities laws by RHFL, Anil Ambani, the KMPs (Amit Bapna, Ravindra Sudhalkar, Pinkesh Shah), and the borrower/conduit entities.

6. SEBI has passed directions restraining the entities from the securities market for varying periods and imposed maximum monetary penalties totaling over Rs. 625 crores on the entities involved.

7. SEBI will separately determine the illegal gains from the fraudulent scheme for potential disgorgement.

In summary, SEBI uncovered a major fraud orchestrated by Anil Ambani to divert funds from the listed RHFL to other Reliance group entities through sham corporate loans, leading to restraint and heavy penalties on those involved.

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