Indian Overseas Bank issues Show Cause Notice to RTL, RCoM, Anil Ambani & others as to why the account / name shall not be classified and reported as ‘Fraud’

After Bank of India (BOI) recently classified the loan accounts of Anil Ambani-led Reliance group entities as fraud, the Indian Overseas Bank (IOB) has now initiated similar action against Reliance Telecom Ltd (RTL), Reliance Communications (RCoM), its directors and other group entities. Earlier, State Bank of India (SBI) had also classified the Loan Account of RCoM as fraud.

BOI has issued Show Cause Notice (SCN) to RTL, RCoM, Anil Ambani and several other directors and its group entities calling upon them to explain why their accounts and names should not be classified and reported as fraud under RBI guidelines. The SCN relates to credit facilities availed by RTL from IOB.

The said SCN has been issued on the basis of findings of the forensic audit undertaken by BDO India LLP, which pointed to misutilization and diversion of loan funds and had been appointed for period commencing 01.04.2013 to 31.03.2017 by Lead Bank, SBI.

The other entities to whom the SCN has been issued are Reliance Infratel Ltd, Reliance Communications Infrastructure Ltd, Reliance Global Com BV, as well as their directors and key individuals including Anil Ambani, Manjari, Grace Thomas, Sateesh Seth, Gautam Bhailal Doshi, Gurdeep Singh, Satyendra Mohanlal Sorupria, Dagdu Lal and Prakash Shenoy.

According to the forensic audit, significant amounts sanctioned for telecom business purposes were diverted for repayment of loans, investments in mutual funds, and transfers to connected parties, in violation of sanction terms and conditions. The Bank has stated that such transactions bear clear indications of fraudulent diversion and evergreening of loans.

The audit showed that a Rs 31,580 crore Loan to RCoM, RTL and RITL for the purpose of Telecom Business (term loans, sales bill discounting, packing credit and ECB) as funding expansion and capacity augmentation of existing telecommunications network related to 2G/3G/ BWA, Direct-to-Home Services, and capital and operational expenditure and repayment of liabilities was misutilized. According to BOI, RCoM’s directors, who were whole-time members of its board during the period, failed to prove that the transactions occurred without their knowledge or consent.

The issuance of the SCN establishes that the companies as well as its directors namely, Anil Ambani, Manjari, Grace Thomas, Sateesh Seth, Gautam Bhailal Doshi, Gurdeep Singh, Satyendra Mohanlal Sorupria, Dagdu Lal and Prakash Shenoy were involved in diversion of funds.

As per RBI’s framework, the borrowers and guarantors have been given 21 days to respond to the notice, failing which the Bank will proceed to classify and report the accounts as fraud.