SBI marks Reliance Communications as fraud account; company says order ex-parte

State Bank of India (SBI) has classified the loan account of Reliance CommunicationsRCom) as fraud diversion of sanctioned loan amounts to pay connected parties, inter-company loan transactions and investments and misutilisationon of sales invoices. The bank will take further action against the company and its former promoter director, Anil Ambani by reporting them to the Reserve Bank of India (RBI), according to a letter posted on the stock exchanges.

In response to the stock exchange disclosure, Delhi based Agarwal Law Associates on behalf of their client Anil Ambani expressed shock at what they said was an ex-parte order of SBI. “Vide our letter dated October 21, 2024 we had submitted that as the bank’s show cause notice (SCN) dated December 20, 2023 had been issued prior to the revised RBI Master Directions dated July 15, 2024 which completely superseded the directions under which the SCN had been issued (and which are no longer in existence), the bank would need to withdraw the said SCN,” the law firm said.

Agarwal Associates said that after almost a one-year silence by SBI, Anil Ambani was under the impression that the bank had accepted the client’s position and did not intend to precipitate the matter.

The law firm also said that similar allegations against various other people have been dropped after the RBI master directions and Anil Ambani should also get that benefit. “We reiterate that our client was not a whole-time director but was a non-executive director on the board of RCom and not responsible for the day to day functioning and operations of RCom which was undertaken by the key management personnel,” the law firm said in its letter addressed to the SBI fraud monitoring department, the bank’s chairman, managing director and deputy managing director.

Agarwal Associates said their client was provided an incomplete copy of the forensic audit report (FAR) and without any underlying documents. “The failure to provide all the documents has prevented our client from giving his detailed response to the allegations set out in the SCN and making submissions that there was no violation of the sanctioned facilities,” the law firm said. Ambani was also not given the opportunity of a personal hearing in the matter, Agarwal Associates said.

In its detailed notice to the company SBI said after the Supreme Court order in March 2023 which said that promoters of companies have to be given a hearing before they are declared as fraud, the bank reversed its ‘fraud’ tag on RCom and its promoters.

“As part of the re-initiation of the process of fraud identification in the account, SCNs were served to the borrower and its promoters, directors dated December 20, 2023 for giving an opportunity of hearing in adherence to the principles of natural justice before deciding on identification and reporting of account as fraud…” SBI said in its letter.

Another notice with a forensic audit report was sent to the promoters, directors again in March 2024 and another one in September 2024. The resolution professional had replied to the notices from SBI in January 2024, saying that nothing should constraint the bank from pursuing any action against hr erstwhile directors, management or employees of the company for fraudulent or actions of omissions.

SBI follows, its peer Canara Bank which had also classified RCom as fraud citing similar reasons like routing of loan amounts to settle liabilities with connected parties and inter-company transactions. RCom and its subsidiaries had taken loans totalling Rs 31,580 crore from banks.