Insolvency Proceedings Against Anil Ambani

Background 

Anil Ambani sought loans by promoting Reliance Communications Limited (RCom) and Reliance Infratel Limited (RITL) in 2015. For this, he approached the Project Finance Strategic Business Unit of the SBI. SBI granted two loans of Rs 565 crore and Rs 635 crore to Reliance Communications and RTIL respectively in August 2016. 

In September 2016, Mr. Ambani gave a personal guarantee to avail the credit facility. This personal guarantee was equivalent to Rs. 1200 crore. 

However, Mr. Ambani failed to repay the credit extended to RCom and RITL. As a result of this, in January 2018, SBI invoked the personal guarantee given by Mr. Ambani. 

In February 2020, SBI issued a demand notice to recover its dues for which it received no response. Before this, an application moved by Ericsson India Private Limited had already admitted both his companies into insolvency. 

SBI was not the only bank whose loans Mr. Ambani failed to repay. In June 2020, Chinese Banks secured an order from the UK courts to recover Rs 5,447 crore loans given to Reliance Communications. Three banks namely, Industrial and Commercial Bank of China Limited, China Development Bank and Exim Bank of China have already initiated recovery proceedings against Anil Ambani in the UK. 

State Bank of India vs. Anil Ambani 

The case holds importance due to the fact that this is the first time that insolvency proceedings have been initiated against a major business group head.

The case was initiated by the State Bank of India. The Project Finance Strategic Business Unit of the Bank (Financial Creditor) filed two applications under Section 97(3) of the Insolvency and Bankruptcy Code, 2016 against Anil Ambani. 

Mr. Ambani responded by saying that a Resolution Plan for both the companies have already been submitted.  While the Resolution Plan in the CIRP of RCOM was submitted by the UV Asset Reconstruction Company Limited. Reliance Digital Platform & Project Services Limited have submitted a resolution plan for RITL. Since, resolution plans have been submitted for both Corporate Debtors, there was no need to proceed against a personal guarantor. 

After looking at the provision of the IBC, the National Company Law Tribunal observed that it would be erroneous to assume that no action can be taken against the personal guarantor. The tribunal referred to section 60(2) read with sections 95 and 97(3) of the IBC and stated that action can be taken against the personal guarantor in spite of the pendency of the Resolution Plans.

After seeing and determining that Mr. Anil Ambani did in fact, give his personal guarantee for the credit facilities the tribunal issued direction under Section 97(3) and appointed Resolution Professional for initiating a resolution process against Mr. Ambani. A two-member Bench of Member (Judicial) Janab Mohammed Ajmal and Member (Technical) Ravikumar Duraisam passed the order.

Accordingly, Mr. Jitender Kothari has been appointed as the Resolution Professional under section 97(4) IBC read with Rule 8 of the I&B (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019.

Since the companies were admitted into insolvency, all the loans and assets of the company as well as promoters were placed in a moratorium. It is pertinent to note that the rules regarding personal insolvency is a recent development. In fact, the said rules for moving an application on the grounds of personal insolvency were notified in December, 2019. 

It will be interesting to see; how Ambani’s defense shapes up in this case.

If his contention is that the value of his personal assets has eroded and will prove deficient to meet the amount of personal guarantee, then a full recovery of the borrowed amount seems unlikely. Growing NPAs for banks increase chances for floating haircut schemes to mitigate the loss.