State-owned Canara Bank has classified Reliance Communications and its subsidiary, Reliance Telecom, as "fraud" accounts, the company announced in an exchange notification on Friday. The Company is currently undergoing a corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016.
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Accounts Declared Fraud
"Company and its subsidiary Reliance Telecom Limited has received letters from Canara Bank, with subject "Classifying the Account as Fraud", classifying accounts of Company and its subsidiary, Reliance Telecom Limited as 'fraud'," the company said in an exchange filing.
According to the bank, the accounts were classified as fraudulent due to the non-utilisation of funds in accordance with the sanctioned terms. The loan amounts were allegedly routed through Reliance Communications to Reliance Telecom to settle liabilities with connected and related parties. Additionally, loans availed were invested in mutual funds and fixed assets, which were liquidated immediately to make payments to related and non-related parties.
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Alleged Fund Diversion and Misuse
Of the loans, Rs 6265.85 crores obtained from banks through loans were utilised for repayment of other bank loan, while Rs 5501.56 crores obtained from banks through loans were utilised for payment made to related and connected parties, Canara Bank noted in its letter dated November 5, 2024, to Reliance Communications.
Accounts Reported as Fraud to RBI
The accounts were reported as "fraud" by the lender to the Reserve Bank of India (RBI) on September 18, 2024. Canara Bank had reportedly sanctioned Rs 1,050 crore to Reliance Communications. The company slipped into "non-performing account" status in March 2017. Subsequently, Ericsson India initiated the insolvency process against the company, leading to its admission into the CIRP in May 2018.
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Insolvency Resolution Process
Reliance Communications noted that upon the approval of the resolution plan for the company by the National Company Law Tribunal (NCLT), the company will be deemed to have immunity against any liabilities arising from purported offences committed prior to the commencement of the CIRP, including those related to any unlawful transactions identified in the forensic audit report.
So, the classification ("fraud") is not expected to have any impact on the Company, the company statement added.
