SBI Classifies Reliance Communications Loan Account As Fraud Amid Insolvency Proceedings

India's largest bank, State Bank of India (SBI), has labelled the loan account of Anil Ambani's Reliance Communications as "fraud". This decision follows a series of show cause notices issued to the company in December 2023, March 2024, and September 2024. SBI concluded that Reliance Communications failed to justify non-compliance with loan terms and account irregularities.

Reliance Communications is currently undergoing a corporate insolvency resolution process (CIRP) since 2019. A resolution plan has been approved by creditors and is awaiting final approval from the National Company Law Tribunal (NCLT). The loans mentioned in SBI's letter dated June 23, 2025, relate to the period before CIRP began.

SBI's Fraud Classification

SBI's fraud identification committee decided to classify the account as "fraud" after reviewing Reliance Communications' responses. The bank plans to report both Reliance Communications and Anil Ambani to the Reserve Bank of India (RBI). This move comes months after Canara Bank also classified the company's account as "fraud" in November 2024.

In February 2025, however, the Bombay High Court stayed Canara Bank's action due to a lack of borrower hearing, which is required under RBI guidelines. This legal intervention highlights procedural concerns in such classifications.

Legal Protections Under CIRP

During CIRP, Reliance Communications is shielded from any lawsuits or proceedings against it. According to Section 32A of the Insolvency and Bankruptcy Code (IBC), once NCLT approves the resolution plan, the company will be immune from liabilities for offences committed before CIRP started.

The company emphasised that these credit facilities must be resolved within a resolution plan or through liquidation under IBC. Legal advice is being sought on how to proceed following this recent development with SBI.

This situation underscores ongoing challenges faced by companies under insolvency proceedings. It also highlights the complexities involved in resolving financial disputes while adhering to regulatory frameworks and legal protections provided by insolvency laws.