RBI Gives Clean Chit to Indiabulls? Not Really

The share price of Indiabulls Housing Finance Limited (IBHFL) had jumped up by a whopping 14.84% to Rs 321.20 on Monday. Mainstream media houses reported that this was after the Reserve Bank of India (RBI) had given a “clean chit” to IBHFL.

However, according to a counter affidavit filed in the Delhi High Court (HC) on February 26 on behalf of the RBI by Amitabh Deepak, an employee of the Reserve Bank of India (RBI), this does not seem to be the case. In its affidavit, the RBI does not mention the phrase “clean chit” anywhere and it does not mention either that the “company had not violated any law”, as reported in the media.

A writ petition filed in the public interest in the Delhi HC in September 2019 had alleged that the Indiabulls Housing Finance Group, headed by Sameer Gehlaut, misappropriated thousands of crores of rupees and round-tripped the funds through complex transactions involving, among others, entities in the Reliance Anil Dhirubhai Ambani Group led by Anil Ambani and the DLF Group, promoted by K.P. Singh.

In the petition, five major corporate groups have been accused in the petition of being involved in alleged round-tripping of money in the writ petition. These are: The Americorp Group, Reliance Anil Dhirubhai Ambani Group (ADAG), Chordia Group, Vatika Group and the DLF Group. Indiabulls Housing had been accused of round-tripping funds by extending loans worth Rs 151.90 crores to five companies in The Americorp Group, promoted by Harish Fabiani, a non-resident Indian based in Madrid, Spain. Fabiani allegedly invested Rs 254.87 crores back into Indiabulls Group firms through his companies, Jasol Investment and Trading Company Private Limited and Joindre Finance Private Limited. Similar allegations had been levelled about IHFL’s dealings with Reliance ADAG. It had been claimed that five companies in the conglomerate headed by Anil Ambani received loans worth Rs 1,580 crores from IBHFL and that Rs 570 crores out of this amount was brought back into nine companies either owned or promoted by Gehlaut directly or indirectly, or through group subsidiaries.
 

In a regulatory filing on February 28, IBHFL had informed the National Stock Exchange, “RBI submitted its affidavit in the court in the PIL matter, the RBI affidavit has highlighted the details of loans taken by the borrowers mentioned in PIL and the repayment dates of such loans, the RBI affidavit has mentioned no violations of any nature or kind regarding Indiabulls Housing Finance. Further the RBI affidavit states that: ‘The Writ Petition is not maintainable either on facts or law as against this Respondent, the Reserve Bank of India, and hence liable to be dismissed as such’.”

However, the IBHFL’s claim that the RBI has “mentioned no violations of any nature or kind regarding Indiabulls Housing Finance” is not the correct picture to portray since the counter affidavit mentions that many of the allegations levelled in the writ petition consisted of information on companies which was not available with the RBI. The affidavit states, “...the matter relates to a period in which housing finance companies were being fully regulated and supervised by NHB (National Housing Bank), RBI has very limited information with regard to the supervisory aspects mentioned in the Petition with respect to IBHFL and the same would be available with NHB.”

The last line of the affidavit clearly states: “Therefore, it is submitted that this Hon'ble Court may be pleased to dismiss the writ petition as ‘against the Reserve Bank of India’.”

The RBI’s affidavit actually highlights that the allegations made in the writ petition which could have been verified by the RBI have been investigated and found to be true to a large extent. As part of the Rs 151.90 crores which was allegedly lent to The Americorp Group, an amount of Rs. 39 crores was lent to Americorp Private Limited. The affidavit states, “In this regard, it was observed during the scrutiny from the data provided by the NBFCs concerned that, as mentioned in the Writ Petition, IBHFL had actually lent Rs.39 crores to Americorp Capital Pvt. Ltd. on March 30, 2016 for the purpose of "as per usage defined in AOA/MOA and/or General Corporate Purpose “at variable interest rate...”

The RBI found out that the loan of Rs. 39 crore was also repaid on September 1, 2016, to Indiabulls Housing. Since the rest of the amount lent to the Americorp Group was not through Non-Banking Financial Companies (NBFC) registered with the RBI, it was not investigated by the central bank.

Allegations regarding Rs 254.87 crores being invested by The Americorp Group through its NBFCs such as Jasol Investment & Trading Company Pvt. Ltd. and Joindre Finance Pvt. Ltd. into Quoted and Unquoted (quasi equity) equity shares of Indiabulls group companies were found to be true as well.

The affidavit also states the RBI has found that Rs 1,568 crores was given as loans to Anil Ambani’s Anil Dhirubhai Ambani Group. It had been alleged in the writ petition that Reliance ADAG had received a sum of Rs 1,580 crores from Indiabulls Housing. It was observed that a total of Rs 570 crores was invested by Reliance Capital Limited and Reliance Corporate Advisory Services Limited taken together into 0.001% Optionally Convertible Debentures of Indiabulls group companies, as had been alleged in the writ petition.

The affidavit makes it clear that many of the allegations could not have been investigated by the central bank since the information was not available with the institution but to suggest that the RBI gave a “clean chit” to Indiabulls is highly misleading. On the contrary, many of the observations and allegations made in the writ petition have been found to be true by the Reserve Bank of India.