SAT stays ₹25 crore SEBI fine against Anil Ambani subject to...

The Securities Appellate Tribunal (SAT) Friday conditionally stayed a ₹25 crore fine imposed on businessman Anil Ambani by the Securities and Exchange Board of India (SEBI) over his alleged involvement in a fraudulent scheme that led to the diversion of funds from Reliance Home Finance (RHFL).

The SAT Bench of judicial member Justice PS Dinesh Kumar and technical members Meera Swarup and Dheeraj Bhatnagar directed Anil Ambani to pay 50 percent of the ₹25 crore penalty within four weeks as a condition for the stay.

"There should be no recovery of the penalty amount of ₹25 crore subject to 50% of deposit within 4 weeks," the SAT directed.

The order was passed on an appeal filed by Anil Ambani against SEBI's August 22 ruling in the matter.

Ambani was accused of being part of being part of a complex scheme to siphon off funds from Reliance Home Finance.

SEBI found that there was a complex scheme at play, where RHFL disbursed significant loans amounting to ₹9,295.25 crore to 45 General Purpose Working Capital Loans (GPCL) entities. Of this, ₹4,944.34 crore was disbursed to 13 specified GPCL borrowers, who further lent ₹4,013.43 crore to nine promoter-related entities.

The market regulator's investigation found that these transactions were part of a coordinated effort to move funds from RHFL to financially weak companies linked to the Reliance ADA Group, ultimately leading to non-performing assets (NPAs) of ₹6,931.31 crore as of September 30, 2021.

The SEBI's August 22 order noted that while such credit defaults are not by themselves unusual or suggestive of fraud, the loan defaults in this case were the culmination of an "elaborate and coordinated design to move funds from the public listed company to non-descript and financially weak privately held companies connected with the Reliance ADA group."

The SEBI further found that such fraudulent activities caused a significant financial decline for RHFL, severely impacting its shareholders. The company’s share price plummeted from ₹59.60 in March 2018 to ₹0.75 by March 2020, leaving over nine lakh shareholders at a loss.

It, therefore, barred Anil Ambani and 24 other persons and entities from accessing the securities market for five years, while also imposing a ₹25 crore penalty on Anil Ambani.

Ambani then moved the appellate tribunal challenging the market regulator's order.

During Friday's hearing, Senior Advocate Harish Salve, representing Anil Ambani, argued that SEBI overstepped its jurisdiction by penalizing Ambani.

He pointed out that Section 12A of the SEBI Act specifically addresses manipulative and deceptive practices, insider trading and substantial acquisitions of securities.

Salve emphasized that these provisions pertain to activities directly related to the buying or selling of securities on recognized stock exchanges, rather than broader actions that may be considered "generally in the interest of investors."

“SEBI is a market regulator, not a corporate affairs regulator," Salve contended.

Salve further argued that the order in question relates to loans disbursed by Ambani’s company. He noted that there are numerous actions that can impact a company’s financial health, and not all of them should be classified as fraud.

He urged for an interim order to stay the penalty imposed on Ambani, while referring to an existing SEBI interim order from February 2022 that restricts him from trading in any securities until further notice.

Salve contended that the penalty should be suspended, as the order lacks any findings indicating that Ambani personally benefited from the alleged actions.

“There is no evidence that even a single rupee has entered his pocket,” Salve stated.

In contrast, SEBI’s counsel opposed any interim relief. He argued that Ambani’s claims - that the funds were primarily used to repay banks and financial institutions - do not justify relief. He highlighted that the funds in question came from a home finance company with thousands of shareholders, and the loan amounts, which range from ₹4,000 to ₹8,000 crores, warrant action given their scale and impact.

After hearing the parties, the tribunal granted a conditional stay on the find imposed by the market watchdog.

While the monetary penalty has been conditionally stayed by the SAT, no stay has been passed with respect to the SEBI's temporary ban against Anil Ambani and others from accessing the securities market.

SEBI was asked to file its reply to the appeal within four weeks.