Anil Ambani's Reliance Communications Gets Fraud Notice From Canara Bank For Loan Misuse

Canara Bank has issued a notice to declare the loan account of Anil Ambani-owned Reliance Communications Ltd. as "fraud", alleging extensive misuse of funds.

The notice, dated Oct. 28 and disclosed to stock exchanges on Friday, mentions the issues in using loans worth Rs 1,050 crore, sanctioned as credit facilities for the telecom company.  

The loans, which included term loans, guarantees, and letters of credit, were classified as non-performing assets on March 9, 2017, after RCOM defaulted on repayments and breached the terms of the sanction. 

After these defaults, Ericsson India Pvt. initiated insolvency proceedings against RCom. 

A forensic audit conducted by BDO India Ltd., completed on Oct. 15, 2020, revealed discrepancies in how the funds were utilised. 

According to the audit, RCOM and its subsidiaries—Reliance Telecom Ltd. and Reliance Infratel Ltd.—had collectively received loans amounting to Rs 31,580 crore from various banks. Of this amount, Rs 13,667.73 crore was used to repay loans and financial obligations to other banks, while Rs 12,692.31 crore was transferred to related and connected parties.

The audit found that Rs 6,265.85 crore of the loans was specifically used for repaying other bank loans, contrary to the agreed terms.

Additionally, Rs 5,501.56 crore was paid to connected parties, and Rs 1,883.08 crore was invested in instruments that were later redirected for unauthorised purposes. 

These transactions indicated a clear diversion of funds. It was revealed that loan funds obtained by RITL were routed through Reliance Communications Infrastructure Ltd. and then transferred to RCOM. 

These funds were used to pay RCOM’s liabilities or transferred to related parties. 

Of the Rs 1,976 crore obtained by RITL, Rs 1,783.65 crore was transferred to RCOM for unauthorised use once again. 

The audit also mentioned mis-utilisation of loans sanctioned by Bank of Baroda for capital expenditures.

Instead of being used as intended, Rs 469.45 crore was diverted for non-capital expenditure purposes. 

Similarly, sums were transferred among RCOM, RTL, and RITL without clarity on their use. 

The notice by the bank also mentioned an instance where RCOM transferred Rs 783.77 crore to RTL and Rs 1,435.24 crore to RITL from bank loans.  

The misuse extended to invoice financing as well. RITL discounted bills worth Rs 200 crore, but used the proceeds to pay related party loans instead of the intended purpose.

Additionally, RITL engaged in repeated bill discounting to cover liabilities, which auditors flagged as irregular.

In another instance, RCOM raised Rs 1,300 crore in January 2015 by allotting shares to Telecom Infrastructure Finance Pvt. 

However, this amount was largely used for mutual fund investments and loan repayments, instead of being deployed correctly.  

Reliance Communications, which is already undergoing insolvency proceedings, has yet to respond to the notice.

This comes days after Reliance Power Ltd.—also owned by Anil Ambani—got a show cause notice from the Solar Energy Corp. for allegedly providing a fake bank guarantee for its recent bid, according to an exchange filing.

The notice was issued a week after the SECI barred the Anil Ambani-led power firm, along with its subsidiaries, from submitting bids in future tenders for providing a "fake endorsement" for its bank guarantee.

SECI has claimed that not only the endorsement, but the bank guarantee itself was also fake.