Markets regulator SEBI on Thursday barred former Religare Finvest Ltd CEO Kavi Arora from the securities market for two years and imposed a fine of Rs 5 crore in connection with a case of fund diversion. The case relates to the diversion of funds to the tune of Rs 2,473.66 crore of Religare Finvest Ltd (RFL), a subsidiary of Religare Enterprises Ltd (REL), from FY2014-15 till FY2017-18, in the garb of loans through layers of entities for the ultimate benefits of entities controlled by the erstwhile promoters -- Malvinder Mohan Singh and Shivinder Mohan Singh.
In a 128-page final order on Thursday, SEBI Whole Time Member Ananta Barua said that Arora was "involved knee deep in the perpetration of a scheme of diversion of funds." He was appointed as CEO and MD of RFL on November 14, 2011, and resigned from the company in 2017. The alleged diversion of funds happened during the period from FY2014-15 to FY2017-18.
"I note that there is ample material on record to hold that, despite repeated and specific adverse comments by RBI, ICRA and some lending banks, Noticee no 12 gave his consent to the approval of fresh loans under CLB (Corporate Loan Book) and even ever greening of certain loans under CLB," he said. Noticee no 12 is Kavi Arora. "I note that the financial statements of RFL were consolidated with the financial statements of REL on quarterly basis. The diversion of funds was never disclosed to the shareholders of REL, which mislead them to remain invested in the shares of Religare or deal in the securities of REL," Barua said.
Thus, the diversion of funds from RFL (in the garb of loans), led to indirect manipulation of the price of shares of REL and thus, such an act was fraudulent and an unfair trade practice relating to securities market, as per the order. By indulging in the scheme of diversion of funds along with the erstwhile promoters, Arora has also violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules.
According to the order, Arora is restrained from accessing the securities market and from buying, selling or otherwise dealing in securities, directly or indirectly, for two years. Besides, he has been barred from getting associated with the securities market, including as a director or Key Managerial Personnel in a listed company or a SEBI-registered intermediary.
A fine of Rs 5 crore has also been imposed on Arora. SEBI had passed an interim order on March 14, 2019, and then the confirmatory order in September 2019 with respect to alleged diversion of around Rs 2,315.09 crore from Religare Enterprises Ltd (REL)/ RFL for the benefit of promoter/ promoter connected entities.
In July 2022, SEBI passed a final order in the matter where it imposed a penalty totalling Rs 60 crore on 10 entities, including Malvinder Mohan Singh and Shivinder Mohan Singh (Singh brothers), in a case involving the diversion of funds of RFL. In addition, the Singh brothers were barred from the securities market for three years, or till the recovery of the diverted money along with interest, while other entities were prohibited for two years.