Delhi High Court Orders Stay on Two Of Anil Ambani’s Companies, Public Lenders Classify The Two As Fraud Accounts

Anil Ambani
Anil Ambani

In a recent development, the Delhi high court provided an interim stay to two of Anil Ambani‘s companies. The companies are Reliance Home Finance and Reliance Commercial Finance. The companies had filed a petition against the public lenders i.e. Bank of Baroda and Punjab National Bank. The public lenders recently had classified the two accounts as fraud accounts.

Why were the accounts classified as a fraud?

Mint on 4th August 2020 reported the news of Reliance Home Finance Limited being tagged as fraud by Punjab National Bank. According to the report, the bank had also communicated the matters to the Reserve Bank of India.

The outstanding loan of Reliance Home Finance in the bank was Rs. 7109 crore on 3rd July 2019. The loan for the other Anil Ambani company was Rs. 9182.9 crore as of 31st March.

Punjab National Bank’s exposure was of Rs. 80 crore as of 3rd of July 2019. Punjab National Bank took the decision on the basis of a forensic audit that was carried out. After the forensic audit, Reliance Home Finance notified the stock exchanges on 12th January that no evidence of fraudulent activity was found.

After the audit was conducted and the report was published, the Reliance Home Finance said, “The forensic auditors have submitted their report, and there are no adverse findings recorded on 11 key parameters, including diversion and siphoning of funds; embezzlement, malafide operations, falsification of accounts, fraudulent transactions and frauds.”

Despite this, the public lenders went ahead to take the step and label the account as “fraud”.

The news agency Mint also reported a banker’s statement who through anonymity, said that although the audit report published in January was inconclusive, they were informed that the company used its bank loans to repay the loans taken by the group entities.

Another report by the Economic Times quoted an official statement saying that the state-lender declared the account as a fraud based on the forensic audit.

The matter now:

The Delhi High Court passed two orders. On 11th August the court looked into the matter of PNB’s classification of the accounts of the two companies as a fraud. On the 14th of August, the ruled in the case of Bank of Baroda. As reported by the news agency mint who saw the copies of the orders, the two companies went to court with the primary objection that they were not provided with a hearing before the banks decided to proceed with the classification.

The court said, “Respondent No. 1 (PNB) will maintain the status quo as of today (11 Aug) regarding the impugned order till the next date of hearing.” The state-lender can issue a show-cause notice to the petitioner, give a hearing through video conferencing, and then pass an order, as per law. The court also added that the bank can “take up any step/investigation/file any complaint/proceedings against the companies as per law independent of the aforesaid order declaring the account of petitioner number one as a fraud account.”

Both the companies, Reliance Home Finance and Reliance Commercial Finance are stated as petitioner number one in the case against the Punjab National Bank.

Both companies have been in focus since 2019. Price Waterhouse and Co Chartered Accountants (PwC) resigned as one of the statutory auditors of Reliance Home Finance in June last year. They claimed that the company was unable to resolve “certain observations/transactions”. These observations/transactions were suspected to be significant or material to the financial statements of both companies. Later, media houses stated that PwC alleged diversion of funds and alerted the ministry of corporate affairs of their suspicions.

The companies stated that although the consortium of the lenders met on 6th June 2020, no notice was sent to them. They also stated that there were not even provided with the minutes of the meetings.

The high court order said, “On 28 July 2020, petitioner number one, it is stated, was shocked to learn from the queries raised by the media that respondent number one (PNB) has classified the account of petitioner number one as a fraud. It appears that respondent number one had informed the other banks of such classification.”

Reliance Home Finance has informed the stock exchanges after the court proceedings, “We hereby inform that in the writ petition filed by the company challenging the wrongful action of Bank of Baroda, the lender and lead bank of the consortium, of classifying the company’s account as a fraud, the Delhi high court has by way of an order dated August 14, 2020, directed that placing of the company in the category of ‘Fraud’ shall be kept in abeyance.”

The also added that the court in a separate petition on the 11th of August, 2020 had directed Punjab National Bank to maintain the status quo in relation to the classification of the company’s account as fraud. The other Anil Ambani company, the Reliance Commercial Finance, had provided a similar statement before the stock exchange.



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