Canara Bank drops fraud label on Rs 1,050 cr RCom loan after Bombay HC case

Canara Bank has informed the Bombay High Court that it has withdrawn its classification of industrialist Anil Ambani's loan account as 'fraudulent'. This decision comes after Ambani's Reliance Communications, along with its unit, was initially labelled as such due to allegations of misappropriating a Rs 1,050 crore loan, news agency PTI reported. The funds, sanctioned in 2017 for capital expenditure and debt repayment, were alleged to have been misused, resulting in the November 2024 fraud classification. Ambani challenged this move in court, asserting that the bank had bypassed necessary procedures.

The contention revolved around the Bank's compliance with the Reserve Bank of India's master circular on fraudulent accounts. This circular mandates that borrowers must be given a chance to be heard before any fraud classification is finalised. In February, the High Court had stayed the bank's order pending further hearings, questioning whether banks were abiding by the stipulated procedures and the Supreme Court's ruling on the matter. The court's intervention highlights the critical need for transparency and fairness in such financial decisions.

The Rs 1,050 crore loan extended by Canara Bank to Reliance Communications was for specified purposes, but the bank alleged non-compliance with these terms. The funds were reportedly diverted through inter-company transactions, and investments were made in mutual funds and fixed assets. "Loans availed were also invested in mutual funds and fixed assets and the same were liquidated to make payments to related and non-related parties," stated the bank. Such allegations have brought significant scrutiny on the financial practices of the company.

Reliance Communications refuted these allegations, emphasising that the company was under an insolvency resolution process since 2018, which should shield it from such classifications. The company maintained that such a fraud declaration should not interfere with the ongoing insolvency procedure, as it could complicate the restructuring efforts.

Earlier, in June, the State Bank of India also classified the loan account of Reliance Communications as 'fraud'. This development highlights ongoing scrutiny and pressure faced by the telecom company amidst its financial struggles.

The Bombay High Court's intervention and Canara Bank's subsequent withdrawal of the fraud label underscore the critical nature of procedural adherence in financial declarations and the importance of judicial oversight in such matters. The case serves as a reminder of the need for rigorous checks and balances in the financial sector to prevent arbitrary decisions.