'The Timing, Small Fine': How Anil Ambani's Relevance Diminished in the Reliance Home Finance Case
New Delhi: On September 12, the Securities and Exchange Board of India (SEBI) penalised Reliance Home Finance with Rs 15 lakh and its three promoters Rs 6.5 lakh, due to violations of some regulations and its failure to disclose the adverse findings of a forensic report, the Hindu BusinessLine reported.
This order marked the culmination of a show-cause notice that had been issued on August 5, 2021, specifically targeting the company's lapses in disclosures between April 1, 2019, and March 26, 2020.
During this period, Reliance Home Finance had failed to make essential disclosures to stock exchanges. These disclosures were vital in assessing the security of the company's debt instruments. The consequences of these lapses affected the company's stock price, which plummeted from a high of Rs 31 in April 2019 to a mere Rs 0.75 a year later.
Meanwhile, Price Waterhouse resigned as auditor of Reliance Capital and Reliance Home Finance amid suspicions of fraud. It cited an inability by the Anil Ambani-led firms to satisfactorily resolve “certain observations/transactions” which could be significant or material to the financial statements of both companies.
Backstory
Reliance Home Finance had borrowed a staggering sum of over Rs 12,000 crore from banks and investors, only to later default on its obligations.
The company has been accused of violating SEBI's LODR norms, or Listing Obligation and Disclosure Requirements, which say that a listed entity shall disclose to stock exchange(s) all events or information, which are material, as soon as reasonably possible and not later than 24 hours from the occurrence of event or information.
This SEBI regulation enables transparency and fair disclosures by all listed entities in India.
As part of the debt resolution process, the company's lenders, in August 2019, had appointed Grant Thornton to conduct an independent forensic audit. This procedure is a mandatory requirement as per the Reserve Bank of India (RBI) guidelines for the Prudential Framework for Resolution of Stressed Assets in cases involving a change of control and management.
In January 2020, the auditor said that it found "anomalies" in the credit appraisal process of the company. It noted that more than 80% of the loans were corporate loans, which were disbursed to a group of 47 borrowers that shared these common characteristics, the Economic Times had reported, citing people aware of the matter.
The auditor also found that eight of the 47 borrowers were “related parties” of Reliance Group companies, Reliance Power and Reliance Infrastructure Ltd, prior to disbursal of loans worth Rs 1,300 crore.
"The auditor also found instances where loans granted to the group of 47 borrowers eventually found their way back to Anil Ambani group companies through onward lending," ET had reported, citing the people quoted above.
The Morning Context noted in an analysis published on September 20 that "the forensic audit not only outlined the movement of funds raised from investors to several promoter-linked companies, but also to the family of Rana Kapoor, then the CEO of Yes Bank, a lender to Reliance Home Finance.".
Kapoor has been in jail since March 2020 in connection with various cases of fraud. "A similar transaction between Kapoor and Dewan Housing Finance landed its promoters, Kapil and Dhiraj Wadhawan, in jail," the report noted.
Also read: Book Excerpt: The Unravelling of Anil Ambani’s Empire
The lapses
The news outlet noted how Anil Ambani may just go scot free and said "though the company was promoted by Anil Ambani, SEBI’s show-cause notice was directed against the company and three of its top executives: chief executive officer Sharad Sudhalkar, company secretary and compliance officer Parul Jain and chief financial officer Pinkesh Shah."
"Even though the investigation had nothing to do directly with Anil Ambani right from the start, its timing and rather meek closure with a small fine will go a long way in helping him slowly wriggle out of the mess caused in the company over the years. Of course, lapses in disclosures or other regulatory filings are in general treated as the fault of the key managerial personnel. But in this case, I strongly believe Ambani should have been a party to the investigation as the problems in the company started with the debenture funds being routed to companies related to the promoters," The Morning Context observed.
"Though SEBI’s investigation was in the works for nearly two years, its final order comes at a time when Ambani is no longer Reliance Home Finance’s promoter," it added.
The firm was acquired by Authum Investment and Infrastructure, under the bankruptcy resolution process.
Despite the gravity of the case, SEBI had not conducted an in-person meeting with the company officials, which is typically a mandatory requirement for a final order, the news outlet noted.
There were significant delays in the proceedings, as the company had filed a settlement application. It took six months for the company to respond to the show-cause notice, and even then, SEBI faced difficulties in obtaining necessary documents.
Amid these developments, as mentioned earlier, Reliance Home Finance was acquired by Authum. This rendered Anil Ambani's involvement irrelevant in the context of SEBI's actions.
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