Bombay HC Backs SBI Move to Report Anil Ambani to RBI in Reliance Communications Case

The Bombay High Court last week upheld the State Bank of India’s (SBI) decision to label the accounts of Reliance Communications (RCom) as “fraud” and submit Anil Ambani’s name to the Reserve Bank of India (RBI).

On October 3, a panel of Justices Revati Mohite Dere and Neela Gokhale decided that a personal hearing was not required and that the SBI had given him enough time to present his case in accordance with the RBI’s and the Supreme Court’s directives. Ambani asserted that the bank had not given him a chance to present his arguments in a face-to-face hearing.

Why Reliance’s Anil Ambani is Facing the Heat?

The court held that once RCom – where Ambani was a director and promoter – was identified as “fraud”, his name could be disclosed to the RBI since he was “in control” of the firm during the relevant period. Due to his affiliation with RCom, which defaulted on loans and credit facilities totalling more than INR 1,500 crore that were approved between 2012 and 2016, the court’s ruling will essentially prohibit Ambani from raising money or pursuing credit facilities.

 The RBI Master Directions on Frauds list this restriction on credit and funding as one of the “penal measures”. These regulations prohibit anyone who is deemed to be a fraudster and those “associated” with them from obtaining credit from banks and non-banking financial companies (NBFCs), which are governed by the RBI.

This restriction is in effect for five years after the date of the settlement of dues or the full repayment of the fraudulent sum. Ambani filed a plea in court contesting a June ruling by the SBI’s Fraud Identification Committee (FIC). In 2020, the SBI initially deemed RCom accounts to be “fraud” in accordance with the RBI’s 2016 Master Directions.

Following a Supreme Court decision in 2023 that required borrowers to have a previous hearing, this injunction was revoked. After that, the bank sent Ambani a new show-cause letter and provided him an opportunity to reply. In June, it declared that RCom’s account was fraudulent and that the RBI would be notified of his identity.

On What Basis HC Termed RCom Fraud?

Based on the financial system’s handling of “fraud”, which is regulated by the RBI’s Master Directions and altered by the Supreme Court’s historic State Bank of India & Ors. v. Rajesh Agarwal & Ors. ruling in 2023, the HC ruling was made. How banks identify, categorise, and report fraud is outlined in the RBI’s 2016 Master Directions on fraud classification and reporting by commercial banks and selected financial institutions.

In 2017, the SBI designated Reliance Communications’ account as a non-performing asset (NPA) due to the company’s failure to fulfil its commitments under the loan restructuring. As instructed by the RBI, SBI’s FIC deemed RCom’s account to be “fraud” in November 2020. In a subsequent case, the directives were contested on the grounds that they did not necessitate a hearing before labelling an account as fraudulent.

Following a historic Supreme Court ruling in the Rajesh Agarwal case, which established that borrowers must be given a chance to be heard before such categorisation, SBI retracted its classification of RCom’s account as fraudulent.