The Mumbai Bench of the National Company Law Tribunal (NCLT) on Thursday admitted a plea filed by State Bank of India (SBI) to initiate personal insolvency proceedings against Reliance Group Chairman Anil Ambani.
A Bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar passed the order.
The tribunal initiated insolvency resolution process against Ambani and declared a moratorium in relation to all debts for 180 days or till it passes an order on a repayment plan, whichever is earlier.
The NCLT also directed resolution professional (RP) Prashant Jain to publish a public notice on behalf of the tribunal within seven days, inviting claims from all creditors within 21 days.
SBI has claimed dues of around ₹1,200 crore from Ambani.
The case stems from credit facilities granted by SBI to Reliance Communications and Reliance Infratel in 2016. Reliance Communications had approached SBI’s project finance strategic business unit for credit facilities of ₹565 crore for repayment of existing debt. Reliance Infratel, a sister concern of Reliance Communications, had similarly sought credit facilities of ₹635 crore.
SBI sanctioned the loans under rupee loan facility agreements dated August 29, 2016, later amended and restated on September 8, 2016. Ambani executed personal guarantee deeds in favour of SBI on September 23, 2016 for the credit facilities granted to both companies.
Reliance Communications and Reliance Infratel defaulted on repayment around January 2017. Their accounts were later retrospectively classified as non-performing assets with effect from August 26, 2016.
In 2018, the NCLT admitted insolvency petitions filed by Ericsson India Private Limited against Reliance Communications and Reliance Infratel.
Following the default, SBI invoked Ambani’s personal guarantee on January 31, 2018. The bank later issued a demand notice to Ambani in February 2020, claiming that no repayment had been made by him as personal guarantor.
SBI then moved the NCLT in March 2020 under Section 95 of the Insolvency and Bankruptcy Code to initiate insolvency resolution process against Ambani.
In August 2020, the NCLT appointed Jitender Kothari as resolution professional in the matter under Section 97 of the IBC.
One of Ambani’s key arguments before the NCLT was that the personal guarantee itself was void since it was executed after the date from which the loan account was retrospectively classified as NPA.
The NCLT on Thursday rejected the argument. It held that the NPA classification was made later with retrospective effect under Reserve Bank of India norms and could not be used to invalidate the guarantee.
The tribunal also rejected Ambani’s argument that SBI’s rights against him stood extinguished after approval of the resolution plan for Reliance Communications.
It noted that the resolution plans expressly preserved lenders’ rights to enforce personal guarantees and third-party securities.
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It’s not only NCLT that has dusted the files, which can invoke personal guarantees; this week some movement happened on an old Income Tax undisclosed foreign asset case too. Making him seek protection from court against possible coercive action.
If early signs signify shape of things to come, SFIO may also step in soon, with some slow paced investigations gathering momentum in Q3. With most known Indian assets already seized by ED in lieu of unpaid debts by group companies, this NCLT case may start unlocking the provisional attachments as the adjudicating authorities classify the attachments as permanent. (Anil Ambani may need to knock the doors of a court against to delay the process).
The biggest post attachment dilemma would be to first encash the value of the attached properties before proportionate allocation to all qualified debtors. Or else, get Amitabh Jhunjhunwala to reveal the comparatively liquid investments from offshore entities in securities, and those round tripped back to India through potentially related entities later reinvested through friendly NBFCs. That could be an easier and more liquid source of funds that can be clawed against personal guarantees to PSU banks. The interrogations have not led to any tips from the seasoned amitabh Jhunjhunwala; and no questions appear to have come on the potential business associations post 2019. Eg: how AJ capital was financing movies produced by reliance entertainment, 1983 being one of them. Was Jhunjhunwala using the global funds under his control to provide liquidity and later take out profits, even if the movies failed commercially.
The “no association” claims are outrightly rubbished if the post 2019, overlapping business associations and transactions are mapped; which will give insights into the offshore bank accounts of AJ Capital. Getting it out from Amitabh Jhunjhunwala won’t be an easy task for relatively unseasoned investigators, as Jhunjhunwala counts days before he is shifted to byculla hospital on health grounds by end of the month, if the new application under drafting and crafting, gets a courts nod; and no cash is left to encash personal guarantees of Anil Ambani by PSU banks.