MUMBAI (Reuters) -- India's markets regulator late on Thursday banned Anil Ambani, one of India's best-known businessmen, and 24 others from the securities market for five years on charges of diversion of funds.
The Securities and Exchange Board of India (SEBI) also imposed a fine of 250 million rupees (about $3 million) on Ambani, saying he orchestrated a scheme to "siphon off" funds from Reliance Home Finance, a listed subsidiary of conglomerate Reliance Group of which he is chairman.
The ban means Ambani and the others affected are restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, the regulator said.
The regulator said the "fraudulent" scheme was to "siphon off" funds from Reliance Home Finance, which provides loans for housing and construction, by structuring those funds as loans to credit-unworthy borrowers.
Most of these borrowers were linked to "promoters", an Indian term for large shareholders with the ability to influence company decisions, the SEBI added.
A spokesperson for Reliance Group did not immediately respond to an email seeking comment.
Reliance Group - which spans financial services, infrastructure and telecommunications - was created in July 2006 following a demerger from Reliance Industries, which is led by Anil's brother Mukesh Ambani.
Anil has seen three of the largest firms within the group, including Reliance Communications, Reliance Capital and Reliance Infrastructure, undergoing bankruptcy or debt restructuring.
Reliance Home Finance RLIC.NS shares shed 5%, while among other listed entities within the group, Reliance Infrastructure shares were down nearly 13% and Reliance Power dropped 5% as of 1:24 p.m. IST (0754 GMT).
The regulator charged Anil Ambani on two grounds - diversion of substantial funds of the company to the detriment of the company and its stakeholders, and for acts of concealment from shareholders by manipulating its financial accounts.
The regulator said more than 90 billion Indian rupees worth of loans from Reliance Home Finance were made to "non-descript borrowers who had no demonstrable financial ability to repay any of it".
In addition, it said more than 50 billion rupees worth of loans were granted to entities connected to promoters of Reliance Group.
Given the obvious credit weaknesses of the borrowers, the probability of default by such borrowers - and hence the expected credit losses - was considerably higher than acknowledged in the financial statements, SEBI said.
“The facts of this case are particularly disturbing since it reveals a complete breakdown of governance in a large listed company, apparently orchestrated by and/ or at the behest of the promoter aided by the indulgent management of the company,” SEBI added.
The other 24 banned include executives of Reliance Group and other unlisted companies connected to Anil Ambani. ($1 = 83.8620 Indian rupees)
