SBI Classifies Reliance Communications’ Loan Account as ‘Fraud’; Anil Ambani To Be Reported to RBI

New Delhi: The State Bank of India (SBI) has classified Reliance Communications’ loan account as fraud and is expected to report its former director, Anil Ambani, to the Reserve Bank of India (RBI) in accordance with the central bank’s guidelines.

Other banks that have given loans to the firm are expected to follow suit, the Hindu reported.

According to RBI guidelines, after a bank declares an account as ‘fraud’, it has to report the fraud to the RBI within 21 days and also report the case to the police or the Central Bureau of Investigation.

The company is already under a corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016. As part of its regulatory filing, the company said that it had received a letter regarding its loan account from SBI on June 23.

According to the filing, the company and its subsidiaries – Reliance Infratel and Reliance Telecom – received a total of Rs 31,580 crore from banks in loans. 

SBI’s fraud identification committee (FIC) in its letter to Reliance Communications said that it had found deviations in the utilisation of loan funds.

“We have taken cognisance of the responses to our Show Cause Notice and after due examination of the same, it is concluded that sufficient reasons have not been provided by the respondent to explain the non-adherence to the agreed terms and conditions of the loan documents or the irregularities observed in the conduct of the account of RCL to the satisfaction of the bank,” it said.

As per the FIC, out of the total loan received by Reliance Communications, Rs 13,667  or 44% was used to clear other loans and obligations. An additional Rs 12,692 crore were used to pay connected parties.

According to the filing, Rs 6,265.85 crore was used for repaying other bank loans and Rs 5,501.56 crore was paid to related or connected parties, which was not in adherence to the bank’s lending guidelines.

A Rs 250-crore loan from Dena Bank was also diverted to Reliance Communications Infrastructure Limited (RCIL) as an inter-corporate deposit – an unsecured loan that one corporate entity grants to another – and was later claimed to repay an external commercial borrowing (ECB) loan, which went against the sanctioned use of the funds.

“Thus, loan was not used for the purpose it was availed,”the committee said, adding that it appears that there was a “routing of transaction” through a subsidiary or an associate company to conceal the source of funds to avoid regulatory approval in the ECB loans case.

The committee also found that funds from a loan of Rs 248 crore sanctioned by IIFCL, meant for meeting capital expenditure, were paid to Reliance Infratel Limited (Rs 63 crore) and RIEL (Rs 77 crore) for repayment of loans.

“But instead of transferring the fund directly to these companies, it was routed through RCIL. The reason for that has not been given by management or by Anil Ambani. These (Dena Bank and IIFCL loan use) appear to be misappropriation of funds and breach of trust,” the report said.

As per the central bank’s guidelines, the penalty for fraudulent borrowing is applicable to the promoter director and other whole-time directors of the company. They can be barred from availing finance from banks, Development Financial Institutions and government-owned NBFCs, etc., for a period of five years from the date of full payment of the defrauded amount. After this period, it is up to financial institutions to decide whether they want to lend to such a borrower.

'SBI order violates Supreme Court, RBI guidelines': Ambani's counsel

Ambani's lawyers in a letter to SBI have expressed 'shock' at its order and said that is "in violation of the principles of natural justice."

"SBI's order is in direct contravention of various judgments of the Hon’ble Supreme Court and the Hon’ble Bombay High Court, as well as RBI guidelines. SBI has not even responded to Mr. Ambani’s communication about the invalidity of the Show Cause Notice (SCN) for almost a year, and has not even provided the information forming the basis of their decision despite being repeatedly requested by Mr. Ambani, to enable him to respond to the SCN," the letter reads.

The lawyers of the industrialist have also claimed that he was not given ample opportunity to respond to SBI's allegations.

"We repeat and reiterate that our client [Anil Ambani] was not a whole-time director, but was a non-executive director on the board of directors of [Reliance Communications], and was not responsible for the day-to-day functioning and operations of RCOM which was undertaken by the KMPs," the letter says.

Meanwhile, both Reliance Infrastructure and Reliance Power have released statements clarifying that the SBI action against Ambani "has no bearing or impact on the governance, management, or operations" on the two entities that are "separate and independently listed" and have "no business or financial linkage to Reliance Communications."

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