On August 23rd, the Securities & Exchange Board of India (SEBI) slapped ADAG Chairman Anil Ambani and its associated 24 entities with a combined penalty of ₹624 crores for allegedly siphoning off funds. And if you’re wondering why and what Anil Ambani had to say in defense, here’s our simplified take on the saga.

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With that out of the way, let’s get on to today’s story.

The Story

Let’s take it from where it all started…

It’s 2017, and you're a young up-and-coming investor having parked some money in an Indian housing finance company. Housing finance companies are all the rage at the time. So you think you've made a sound investment.

But a year passes by and the stock doesn't perform as expected. Then, troubling news begins to surface.

First, you hear about fund diversion. And then you see reports about the company’s top management, especially the chairman. It seems he has been approving loans worth thousands of crores of rupees without following due process. And these loans were improperly categorized as general-purpose working capital loans (GPCL) and were being used to pay off earlier loans in a circular funding scheme, or what accountants call “evergreening of funds”. Worse still, the companies receiving these loans seem dubious—with close ties to the chairman and little to no real assets backing them.

Then in June 2019, the company's statutory auditor abruptly resigns. The reason? Several irregularities, and a shocking revelation – loans disbursed by the company for general corporate purposes spiked from ₹900 crores in March 2018 to ₹7,900 crores in March 2019.

₹7,000 crores in general loans in just one year? That looked bad and it gets worse for your investment. As the fraud becomes apparent, the share price collapses to just ₹0.75 by March 2020.

Come 2021, and you realise that SEBI has found further irregularities in the company's operations and has barred the chairman from the markets. Panic spreads, and investors like yourself finally begin to sell what little shares they hold.

Now it’s 2024, and the market regulator drops another bombshell. ₹8,470 crores in loans were disbursed from the housing finance company to 45 related companies, all without proper due diligence. In fact, most of the loans were disbursed on the same day, and of those 45 companies, 41 companies shared a common email address.

Unfortunately, you missed the bus on the whole saga and you couldn't sell your stocks. Your once-valuable shares worth ₹100 seven years ago, are just worth ₹4 today. And it’s not just you. Close to 9 lakh investors are now staring at massive losses.

It’s a nightmare no investor would wish for!

And as you may have guessed already. The company here is Reliance Home Finance Limited (RHFL) and the chairman is Anil Ambani.

And last week, i.e. on August 23, 2024, SEBI took decisive action against Anil Ambani, chairman of the Reliance ADA Group. It slapped Anil Ambani with a Rs 25 crore fine and banned him from the securities market for five years for diverting funds from RHFL, a company promoted by Reliance Capital Ltd (RCL). SEBI didn’t stop there. Amit Bapna, the CFO, was fined ₹27 crore; CEO Ravindra Sudhalkar faced a ₹26 crore penalty; and senior executive Pinkesh Shah was hit with a ₹21 crore fine. Additionally, the 45 companies that facilitated the fraudulent loan disbursements were penalised ₹25 crore each.

Now you may look at all this and say - Justice finally served.

But –this case isn’t as straightforward as it looks.

Why? Well, because Ambani might have a legal trick up his sleeve! And here’s where it gets tricky.

You see, Ambani’s legal team has invoked something called the moratorium provision under the Indian Insolvency and Bankruptcy Code (IBC) to challenge SEBI’s ruling.

Wait – moratorium? What’s that?!

It’s somewhat like a game of freeze tag. Just as you’re about to get tagged, you shout “Pause!” and everyone has to stop moving until you’re ready to play again. Similarly, when a company's financial troubles catch up with it, they go for a legal "pause" or ‘moratorium’ which can temporarily halt all consequences and gives the company time to sort out its finances without the threat of legal action.

So Anil Ambani is now hitting a legal "pause" to halt all consequences temporarily. Clever, right? But here’s the catch.

The moratorium is supposed to give a struggling company some breathing room to fix its finances and, ideally, bounce back stronger. But when it’s used to stall regulatory action, it creates a problem. It sets up a legal tug-of-war between two powerful forces: the IBC, which aims to help companies resurrect from the dead (sometimes), and SEBI, which focuses on protecting investors and ensuring fair market practices.

And moratoriums are rarely a win for investors.

Take the saga of Essar Steel, one of India’s largest steel producers, for example. In 2015, with debts of over ₹50,000 crores, the company invoked a moratorium. This paused legal actions and dragged the process out for more than two years. During this time, shareholders watched their investments shrink, banks faced delayed recoveries, and employees and suppliers dealt with uncertainty. While the moratorium offered Essar Steel temporary relief, it left creditors and investors in limbo.

In fact, moratoriums can often extend much longer than intended because as of 2024, 67% of corporate insolvency cases exceeded the 270-day resolution timeline.

So, what did SEBI have to say when Anil Ambani’s legal team argued that no further action should be taken because a moratorium was in place?

Well, the market watchdog didn’t mince words…

It rejected Ambani’s defence, stating that the moratorium under the Insolvency and Bankruptcy Code (IBC) does not bar SEBI from exercising its regulatory powers to safeguard the interests of investors.

In other words, SEBI made it clear that its actions aren’t about recovering debt—they’re about protecting the market from fraudulent activities.

The ruling was crystal clear too: Allowing a moratorium to block regulatory action would undermine the very foundation of securities law, which is built on transparency, fairness, and investor confidence.

So, SEBI’s final message? A moratorium cannot be used as a shield to evade accountability.

And the regulator has ruled that the fines, amounting to hundreds of crores, must be deposited. It has effectively sidelined all those involved in the fraud from the markets for 5 years.

But what does this mean for the 9 lakh investors still holding RHFL shares? Can they hope to sell their stuck investment and recoup losses?

Much depends on how this all unfolds. Because while the penalties may restore some market confidence, the damage to the company's reputation and financial health is severe. Moreover, Anil Ambani is still reviewing the SEBI orders.

Shareholders could face a long uncertain road ahead. For the banks associated with RHFL, their ability to recover the outstanding debts hinges on how effectively RHFL restructures and regains financial stability. The Supreme Court also approved a resolution plan for RHFL, which involves a takeover by Authum Investment and Infrastructure Ltd., but the transition is still ongoing here.

So, in the meantime, all eyes will be on how Reliance Home Finance Limited navigates this crisis and what next steps Anil Ambani takes in his defence.

The stakes are high, and the path forward is anything but clear.

Let’s hope it ends well for the investors and stakeholders in the company. Godspeed!

Until then…

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Note: An earlier version of this story stated '₹7,000 in general loans in just one year.' This has been corrected to '₹7,000 crores in general loans in just one year'.

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