Anil Ambani Bankruptcy Case

Nov 26, 2020

Reliance Corporation founder Anil Ambani approached the Project Finance Strategic Business Unit of the SBI in 2015 and put in a request for two loans of Rs. 565 Crore, and Rs. 635 Crore respectively. When the loan was disbursed in 2016, he gave a guarantee equivalent to the total loan amount of Rs. 1200 Crores, which was approximately $160 Million. When the companies failed to repay the credit amount, the State Bank of India invoked the personal guarantee given by Ambani. However, shortly after this, both Reliance Communications Limited (RCom) and Reliance Infratel Limited (RITL) filed for insolvency after admitting it on an application moved by Ericsson India Private Limited. The companies being admitted into insolvency have placed all the company assets and the promoters in the moratorium, and the IBC didn't have provisions for personal insolvency. The rules for this were notified in December 2019. 

The SBI petitioned the National Companies Law Tribunal (NCLT) claiming for repayment of the credit. A two-member panel of the NCLT in Mumbai decided to hear the case and appointed a bankruptcy administrator to verify SBI’s claim. The NCLT also appointed Jitender Kothari as the IRP to assess Ambani’s assets and liabilities and draw conclusions on the SBI petition. This ruling is the most high-profile insolvency case, and it will essentially set a precedent for both personal and corporate insolvency cases. The legal case imposes a moratorium on all attempts to recover credit dues from Ambani's assets. This also affected the ability of a chain of Chinese banks from enforcing a separate court decision in London to recover dues worth $717 Million. In May, however, Judge Nigel Teare stated that three state-controlled Chinese banks including Industrial & Commercial Bank of China Ltd. could claim their dues from Ambani. The SBI filed its petitions as they were concerned that the Chinese banks would try to seize Ambani's assets after the U.K court ruling as this would adversely affect their right to recovery of dues. The Indian company court ruling can further be challenged in an appellate court and then the Supreme Court. Ambani’s spokesperson said that the NCLT order will not have any bearing on the operations of Reliance Infrastructure Ltd., Reliance Power Ltd. and Reliance Capital Ltd. and that he could keep managing those companies. 

Reliance Communications filed for bankruptcy in 2019. In August last year, the lenders submitted claims of approximately Rs. 49,000 Crore. In March 2020, the SBI board approved the CIRP resolution plan under IBC with projections of lenders recovering around Rs. 23,000 Crore or less than half their outstanding loans. Reliance Communications Limited. Owes almost Rs. 5,000 Crore to the SBI. The Delhi High Court took up the NCLT, and they started to hear his case.

Anil Ambani was represented by Senior Counsels Harish Salve and JJ Bhatt and IBBI and the Ministry of Corporate Affairs were represented by the Additional Solicitor General (ASG), Madhavi Diwan. The SBI was represented by Senior Counsels Neeraj Kishan Kaul, Nirav Shah and Ryan Dsouza of DSK legal representing the SBI. Ambani, in his petition, relied on a recent order concerning businessman Lalit Jain where the Delhi High Court stayed the insolvency proceedings and issued notices to the MCA, IBBI and Law Ministry. The division bench consisted of Justice Vipin Sanghi and Justice Rajnish Bhatnagar. They stayed the order of NCLT on the appointment of IRP for the assessment of Ambani’s assets until further notice. Since the plea sought the same relief as done by Lalit Jain, the court decided to club both matters and have a joint hearing. They further stated that “The high court has now given interim relief to Ambani and has stayed the proceedings initiated against him under part 3 of Insolvency & Bankruptcy Code (IBC).” This came as a major relief to Ambani as he was asked not to dispose of his assets until further order. It halted the personal bankruptcy case proceedings in light of Ambani’s petition challenging certain parts of India’s insolvency law. He specifically challenged rules about personal guarantees and individual bankruptcy. It however allowed corporate insolvency proceedings against Ambani’s telecom companies to proceed as the company is considered to be an entirely different entity.

This is a clear case of conflict of interest because, on the one hand, SBI wants to recover the credit that's due to it, but on the other, Chinese banks, including Industrial & Commercial Bank of China Ltd. want to claim their dues through a separate court hearing. Cumulatively, Anil Ambani now owes his creditors a sum of $877 Million. Through the Corporate Insolvency Resolution Process, the company will soon be able to relist its shares on the National Stock Exchange. It will have to bring its public shareholding to 25% in three years. This is the rehabilitation process followed for corporate insolvency. With regard to private insolvency, the Delhi High Court has directed the parties to file their replies before the next hearing and has scheduled the hearing for 6th October 2020.