India’s largest public sector lender, the State Bank of India (SBI), has formally categorized the loan account of Reliance Communications as fraudulent, escalating a long-standing financial saga involving the telecom company once led by Anil Ambani. SBI’s decision follows months of unanswered concerns over financial irregularities and breaches of loan terms. This classification, which aligns with similar action taken by Canara Bank in 2024, has significant regulatory implications. However, Reliance Communications has invoked protections under the Insolvency and Bankruptcy Code (IBC), arguing that the liabilities in question predate its corporate insolvency resolution process initiated in 2019.
SBI’s Fraud Determination: A New Chapter in a Protracted Financial Dispute
In a decisive move dated June 23, 2025, the State Bank of India issued a formal communication announcing its decision to classify Reliance Communications Ltd.'s outstanding loan account as "fraud." This classification stems from the company's failure to provide satisfactory explanations regarding multiple financial and procedural irregularities.
The process leading to this declaration included a series of show cause notices issued in December 2023, March 2024, and September 2024. Despite multiple opportunities, Reliance Communications failed to clarify its deviations from the loan agreement’s stipulated conditions. Consequently, SBI’s internal Fraud Identification Committee approved the fraud classification, setting in motion steps to inform the Reserve Bank of India (RBI) and flag both the company and its former promoter, Anil Ambani.
Precedents and Legal Roadblocks: The Canara Bank Parallel
This is not the first instance where a public sector bank has flagged Reliance Communications’ account as fraudulent. In November 2024, Canara Bank made a similar declaration. However, that classification was legally challenged, and the Bombay High Court intervened in February 2025, issuing a stay order on procedural grounds. The court held that the borrower had not been afforded an adequate opportunity to present its case, a requirement under RBI’s master directions on loan classification.
The Canara Bank episode illustrates the delicate legal tightrope that lenders must walk in fraud classification cases, particularly those involving entities undergoing insolvency proceedings. It also underscores the importance of adhering strictly to procedural fairness to avoid judicial setbacks.
Reliance Communications’ Stand: Legal Protections Under Insolvency Code
In its response to SBI’s recent action, Reliance Communications emphasized its current status under the Corporate Insolvency Resolution Process (CIRP), which began in 2019. The company highlighted that all loans and credit facilities mentioned by SBI predate the initiation of the CIRP and, therefore, must be resolved exclusively through the resolution process outlined in the Insolvency and Bankruptcy Code (IBC).
According to the company, a resolution plan has already secured approval from its committee of creditors and is now pending final confirmation by the National Company Law Tribunal (NCLT). During this process, Reliance Communications enjoys a statutory moratorium on all legal and enforcement actions under the provisions of the IBC.
Furthermore, the company has invoked Section 32A of the IBC, which grants immunity to a corporate debtor from prosecution for offences committed prior to the CIRP’s commencement, upon the approval of a resolution plan. The provision aims to encourage corporate turnaround while ensuring that incoming resolution applicants are not burdened by legacy liabilities.
The company also confirmed that it is actively consulting with legal advisors to assess the implications of SBI’s action and chart a compliant path forward.
Market Reactions and Broader Implications
While SBI’s move may not have an immediate impact on equity markets—given that Reliance Communications is no longer an actively traded or operational telecom player—the broader implications are notable. The classification could influence how lenders and regulators deal with large corporate defaulters, particularly those under insolvency resolution.
It also highlights increasing assertiveness among Indian banks in identifying and publicly designating problematic accounts, even in legally complex scenarios. If SBI’s classification is not stayed by judicial intervention—as happened in Canara Bank’s case—it may embolden other lenders to adopt a more proactive approach, especially in legacy cases involving high-profile borrowers.
From a systemic perspective, the case reflects the ongoing challenge of balancing creditor rights with the rehabilitation objectives of the IBC. It also raises pertinent questions about the enforcement latitude banks have while resolution proceedings are still underway.
Conclusion: An Ongoing Legal and Regulatory Crossroads
SBI’s designation of Reliance Communications’ loan account as fraud marks a critical escalation in the lender's efforts to address non-performing assets, particularly in high-profile cases. However, with the matter entangled in insolvency proceedings and supported by statutory protections under the IBC, the final outcome will likely be shaped in the courtroom rather than the boardroom.
As India’s financial ecosystem continues to evolve under the twin forces of regulatory tightening and insolvency reform, cases like Reliance Communications serve as pivotal stress tests. They spotlight the need for more nuanced coordination between banking regulation and insolvency law—one that balances accountability with recovery.
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