The Bombay High Court has ruled that Anil Ambani, as the promoter and person in control of Reliance Communications Limited (RCom), is liable to face consequences after the company's loan account was classified as fraudulent by the State Bank of India (SBI). The court dismissed Ambani's petition challenging the SBI order, asserting that the bank's decision was well-reasoned and without legal flaws.
Justices Revati Mohite Dere and Neela Gokhale of the Division Bench stated that when a company's account is declared fraudulent, the promoters and directors in control are automatically liable for penal measures. The court further clarified that these individuals can be reported as fraud and debarred from raising funds or seeking credit facilities, as they are deemed responsible for the company's actions. The ruling underscores that promoters/directors who were in control of the company will have to face penal consequences.
Ambani's legal team, led by Senior Advocate Darius Khambata, argued that the show-cause notice issued in December 2023 was invalid because it relied on superseded 2016 guidelines. They also contended that Ambani was denied a personal hearing, violating the principles of natural justice. Ambani's defense also pointed out that similar orders against other non-executive directors were dropped. It was emphasized that Ambani was a non-executive director and not involved in RCom's day-to-day operations, therefore he should not be held liable for the company's alleged irregularities.
However, the court rejected these arguments, stating that the law is well settled and there was no need to spell out specific allegations against the promoter and director having control over the company. The bench also noted that the roles of the other directors who were exonerated were different, as they were non-executive directors and not responsible for the day-to-day functioning of RCom.
SBI, represented by Senior Advocate Aspi Chinoy, argued that Ambani was given an opportunity to make a written representation, which he failed to utilize. The bank also stated that as per the Reserve Bank of India's (RBI) Master Directions, no personal hearing was required. The court agreed with SBI's argument that natural justice only requires an opportunity for written representation, which was provided to Ambani. The High Court referenced the RBI's Master Directions on Fraud Risk Management in Commercial Banks and All India Financial Institutions dated July 15, 2024.
The court concluded that SBI's order classifying Anil Ambani and Reliance Communications' accounts as fraud was a reasoned decision without legal flaws. The judges also underscored that promoters and directors in control of a company are automatically liable when the company's account is declared fraudulent. The bench stated that there was no merit in Ambani's petition and dismissed it.
