MUMBAI: The nation’s largest bank State Bank of India (SBI) has decided to classify the loan account of the beleaguered telecom firm Reliance Communications (RCom) that’s under bankruptcy since June 2019, as a "fraud" account and also to report the name of its erstwhile promoter and director Anil Ambani to the Reserve Bank.
The company has been found to have used as much as Rs 12,692.31 crore of bank loans which is 41% of the total loan, to pay connected parties through a web of inter-group transactions - while only Rs 6,265.85 crore was used to repay other bank loans, as much as Rs 5,501.56 crore was paid to related or connected parties which were not aligned with sanctioned purposes, SBI said in its letter to the company by its own admission owed Rs 31,580 crore to banks.
In an exchange filing Wednesday, RCom said it is in receipt of a letter to the effect from SBI, dated June 23, 20225, and has asserted its right to seek remedial and legal measures as it feels that the bank has not heard it properly as prescribed by the Supreme Court or followed the RBI norms on classifying an loan account as fraud. In a March 28, 2023 order, the apex court asked banks to provide borrowers with a personal hearing before classifying their loan accounts as fraudulent, citing the principles of natural justice, so as to ensure that borrowers have an opportunity to present their case before being labeled as fraudulent.
The apex court order was based on the principle of ‘audi alteram partem,’ which means ‘hear the other side’ which the court considers to be a cornerstone of natural justice, requiring that no one is condemned unheard because classifying a loan account as fraud has severe implications for the borrower, including potential criminal proceedings and restrictions on future borrowing. Following this, the Reserve Bank issued revised guidelines to banks incorporating this ruling to its February 2016 guidelines.
In the exchange filing, RCom said it and its subsidiaries had taken Rs 31,580 crore from banks.
The move by the largest lender is expected to be followed by other lenders who had given loans to RCom.
"We have taken cognizance 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," SBI said on June 25, which RCom sent to the exchanges on Wednesday.
Accordingly, the bank said, the fraud identification committee of the bank has decided to classify the RCom loan account as fraud and also name its director Anil Ambani in its report to the RBI, citing the extant regulatory guidelines, according to which after a bank classifies an account as 'fraud', the lender should then report the fraud to RBI within 21 days of detection and also report the case to CBI/police.
The SBI letter also said the bank has found deviation in utilisation of the loans involving complex web of fund movements across multiple group entities.
According to the report of the fraud identification committee, of the total loan Rs 13,667.73 crore, about 44% was utilized for loan repayment and meeting other obligations, while Rs 12,692.31 crore or 41% of the total loan, was utilized 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/ connected parties which were not aligned with sanctioned purposes.
Further, a Rs 250-crore loan from Dena Bank (meant for statutory dues) was not utilized as disclosed in the loan application. The loan was diverted to an RCom group firm Reliance Communications Infrastructure (RCIL) as an inter-corporate deposit and was later claimed to repay an external commercial borrowing loan.
The committee has also found that Rs 248 crore was sanctioned by IIFCL for meeting capital expenditure but RCom paid Rs 63 crore to Reliance Infratel (RITL) and Rs 77 crore to RIEL for loan repayment.
"But instead of transferring the fund directly to these companies it was routed through RCIL, reason for that has not been given by the management or by Ambani. These (Dena Bank and IIFCL loan use) appear to be misappropriation of funds and breach of trust," the report said.
The committee has also observed potential routing of bank loans by RCom Group including mobile tower firm Reliance Infratel (RITL) telecom services company Reliance Telecom (RTL), Reliance Communications Infrastructure (RCIL), Netizen, Reliance Webstore (RWSL) etc.
The report said RCom, RITL, and RTL engaged in ICD (inter-corporate deposit) transactions totaling Rs 41,863.32 crore of which only Rs 28,421.61 crore was traceable. Also, RCom used a Rs 100-crore intraday limit to cycle funds through group entities including RWSL, RTL, RCIL multiple times in a single day.
"These transactions do not appear to be genuine or conducted in a normal course of business. It appears that RCom has utilised intra-day limits to finance RWSL to pay collection proceeds worth Rs 1,110 crore. As a result, debtors of RTL got reduced by that extent... transactions can be termed as manipulation of books of accounts through fictitious accounts," the report said.
The committee said funds transactions involving Netizens as "an attempt of fund diversion by manipulation of books of accounts through fictitious account/fictitious entries."
Since June 28, 2019, RCom has been in NCLT and business and assets are being managed by the resolution professional Anish Niranjan Nanavaty.
In his reply to SBI on Wednesday, Ambani's legal counsel Agarwal Law Associates said, the bank has thrown the apex court directions an RBI guidelines on labelling a loan account as fraud to the winds.
“State Bank’s order referred in the RCom disclosure is shocking and has been passed ex-parte, and in violation of the principles of natural justice. The order is in direct contravention of various judgments of the Supreme Court and the Bombay High Court, as well as RBI guidelines.”
SBI has not even responded to Ambani’s communication about the invalidity of the show cause notice for almost a year, and has not even provided the information forming the basis of their decision despite being repeatedly requested for, to enable Ambani to respond to the show cause notice, it said, adding the bank has also not allowed Ambani an opportunity of personal hearing to make submissions against its allegations.
The Ambani lawyer further claimed that SBI has withdrawn the show cause notice to other non-executive and independent directors of RCom, while wrongly named Ambani who was also a non-executive director not involved in the day-to-day affairs of the company.