The Securities and Exchange Board of India (Sebi) has barred Anil D. Ambani and 24 others from the securities market for five years for the alleged diversion of funds from Reliance Home Finance Ltd (RHFL).

The market regulator has imposed a penalty of ₹25 crore on Ambani and restrained him from serving as a director or key managerial personnel (KMP) in any listed company, associate firm of a listed company or any Sebi registered entity for five years.

RFHL has been barred from accessing the securities market for six months and imposed a penalty of ₹6 lakh.

Sebi has also levied a fine ranging ₹25-27 crore on 24 other entities.

The 222-page regulatory action came after the regulator conducted a probe for 2018-19 to ascertain any regulatory violations. Reliance Capital was the major promoter of RHFL, holding 47.91 per cent of its equity.

Sebi sought copies of certain loan application documents pertaining to General Purpose Working Capital Loans (GPCL/GPC Loans).

An analysis of such documents — total 70 application documents for loans of ₹6,187.78 crore for GPCL — showed 14 applications involving ₹1,472.16 crore were approved by Ambani in his capacity as chairman, Anil Ambani group. Sebi said this was done despite a decision of the RHFL board on February 11, 2019 not to grant any further loans to corporates

Sebi said it detected a fraudulent scheme, orchestrated by Ambani and administered by KMPs of RHFL, to siphon off funds from RHFL by structuring them as ‘loans’ to credit unworthy conduit borrowers and in turn to onward borrowers, all of whom have been found to be ‘promoter linked entities’— entities associated or linked with Ambani.

It added that after presented with the data pertaining to disproportionate lending to GPCL borrowers by RHFL — 55 per cent to GPC loans compared with 45 per cent for housing loans — the board of RHFL constituted a sub-committee to review such exposures on a bi-monthly basis.

While the board issued ``strong and equivocal directions with respect to GPC loans’’, Sebi claimed the functionaries of the company did not comply with the directions of the board.

Sebi concluded that Ambani and other noticees were involved in perpetrating a fraudulent scheme by disbursing GPC ‘loans’.

Most of GPCL borrowers’ accounts turned NPAs and subsequently, RHFL defaulted on its payment obligations towards its lenders which culminated in its resolution under the RBI framework.

The company’s public shareholders have been left high and dry: the share price fell to just ₹0.75 by March 2020 from around ₹59.60 in March 2018.

The market regulator was also of the view that there was a significant failure of governance, driven by certain KMPs under the influence of Ambani.

The ‘cavalier’ approach in approving loans to companies many of which had negligible assets, cash flows, net worth or revenues, suggested a `sinister’ objective behind the loans.

Sebi said this becomes clear when the relationship of the borrowers with the promoters of RHFL are taken into account.

Ambani and three former officials of RHFL — Amit Bapna, Ravindra Sudhalkar and Pinkesh Shah — who were also KMPs in 2018-19 have been “restrained from being associated with the securities market including as a director or KMP in any listed company, or any intermediary registered with Sebi, for 5 years”.

It levied a fine of ₹27 crore on Bapna, ₹26 crore on Sudhalkar and ₹21 crore on Shah.

The remaining entities — Reliance Unicorn Enterprises, Reliance Exchange Next, Reliance Commercial Finance, Reliance Cleangen, Reliance Business Broadcast News Holdings and Reliance Big Entertainment — have been penalised by ₹25 crore each.

They have been fined for either receiving the illegally obtained loans or acting as intermediaries to facilitate the illegal diversion of funds from RHFL.