Canara Bank informs Bombay High Court on Thursday, July 10, that it has withdrawn its order classifying industrialist Anil Ambani‘s loan account as fraudulent, as per a report by PTI.
The issue began in November 2024 when Canara Bank labelled the loan account of Reliance Communications, which is currently undergoing insolvency proceedings, as fraudulent. The bank’s action was based on the RBI’s master circular on fraudulent accounts, which outlines the criteria and procedures for such declarations.
What is the case about?
The case involves a Rs 1,050 crore loan that Canara Bank had extended in 2017 to Reliance Communications and its unit. The loan was sanctioned for capital expenditure and repaying existing debts. In November last year, the bank declared the account as fraudulent, alleging fund misuse and diversion.
The bank alleged that the funds were not used as per the sanctioned terms, and some amounts were routed through inter-company transactions and even invested in mutual funds and fixed assets.
Ambani alleges no notice before Fraud tag; HC questions banks flouting SC rules
Back in February this year, the Bombay High Court had stayed Canara Bank’s fraud classification order while hearing Ambani’s plea. During that hearing, the court had also questioned whether the RBI was taking any action against banks that continued to bypass the Supreme Court’s directive requiring a personal hearing before declaring an account as fraudulent.
The RBI’s master circular lays down specific procedures for tagging accounts as fraud. It also mandates banks to formulate an internal fraud policy and follow principles of natural justice—such as providing notice, allowing borrowers to respond, and issuing a reasoned order.
Ambani had argued that he was not given any opportunity to be heard before the classification. He claimed that although the fraud label was issued on November 8, 2024, it was only communicated to him on December 25—after the HC had already stayed a similar order in a related case.
SBI also flagged RCom loan account as fraudulent
Earlier on June 2, The State Bank of India (SBI) had also classified the loan account of Anil Ambani’s Reliance Communications as ‘fraud’, the bankrupt telecom company claimed.
Reliance Communications says fraud tag irrelevant
Reliance Communications, which went bankrupt in 2018, has argued that the fraud classification is irrelevant since the company is already undergoing insolvency proceedings. It said that no legal action can be taken for loans disbursed prior to the insolvency resolution process.
Further, the company maintained that the fraud tag would have no effect on the ongoing insolvency process.