The National Company Law Tribunal (NCLT)’s Mumbai bench has allowed State Bank of India (SBI) to initiate insolvency proceedings against Anil Ambani as personal guarantor after two companies promoted by him failed to pay dues on Rs1,200 crore. This is the first insolvency proceedings against a chief of a business, who have given personal guarantee for obtaining loan.
The NCLT also directed to appoint Jitender Kothari as the resolution professional (RP) in the matter.
In the order, the bench of Janab Mohammed Ajmal and Ravikumar Duraisamy said, “…while an application for corporate insolvency resolution process or liquidation proceedings of corporate debtors are pending before this authority i.e. to say during the pendency of a process of corporate insolvency resolution of the corporate debtors, an application against the personal guarantor shall have to be filed. This itself indicates that the process of corporate insolvency resolution of the corporate debtors in an application relating to insolvency resolution of a personal guarantor needs to be filed and can be prosecuted.”
“The law does not envisage that the insolvency resolution of the personal guarantor should follow only when the process of corporate insolvency resolution of the corporate debtor has come to an end. Therefore, the submission that this Authority should wait till the resolution of Reliance Communications Ltd (RCom) or Reliance Infratel Ltd (RITL) is successfully accomplished and the debts of the corporate debtors have been satisfied, would be eristic. It is to be remembered that the present forum is not a recovery forum and has nothing to do with the satisfaction or otherwise of the debts of the corporate debtors,” it added.
In 2015, Anil Ambani-promoted RCom and RITL obtained a loan of Rs565 crore and Rs635 crore, respectively from SBI. For obtaining the loan from SBI’s project finance strategic business unit, Mr Ambani gave a personal guarantee that was equivalent to the total loan amount or Rs1,200 crore. The loan was disbursed in 2016.
During 2017, both RCOM and RITL of Anil Ambani committed defaults in repayment. The accounts were retrospectively declared as non-performing account (NPA) by SBI with effect from 26 August 2016 pursuant to the risk based supervision during the year 2017.
The NCLT observed that without obtaining consent from SBI, Mr Ambani provided personal guarantees for Anil Dhirubhai Ambani (ADA) group of companies, from Industrial and Commercial Bank of China Ltd, China Development Bank and Exim Bank of China. In February this year, a UK High Court judge in London directed Anil Ambani to pay within six weeks $100 million pending the trial of a debt claim brought by three Chinese banks against him personally.
In February 2012, RCom signed an agreement to borrow $925 million from these three Chinese lenders to meet its obligations under foreign currency convertible bonds that were due to mature in the March 2012. The outstanding principal plus interest as on 7 February 2020 was $708 million.
The dispute, however, was not about the loan, but about the personal guarantee provided by Anil Ambani. While he had denied that he is bound by the guarantee either as a matter of actual or apparent authority, the Banks contended that Mr Ambani did provide a personal guarantee as the guarantor of the loan to RCom, which was an explicit precondition of the facility agreement.
Mr Ambani also told the UK Court that he was “unable to raise any finance from external sources” – including family members. Reports that his brother Mukesh Ambani had personally paid $76 million on his behalf to Ericsson India Pvt Ltd in connection with proceedings against RCom were incorrect and misleading, Anil Ambani had claimed.
In February 2019, the Supreme Court of India had asked ADA group to pay Rs453 crore along with interest to Ericsson India within four weeks, the apex court had also imposed a fine of Rs1 crore each on three companies of ADA group (ADAG).
On failure to repay the credit extended to RCom and RITL, State Bank of India invoked the personal guarantee given by Anil Ambani. SBI issued invocation notice, and also a demand notice on 20 February 2020 to him, however, the NCLT bench noted that there was no response from the ADA group chief.
SBI felt that the Chinese Banks might attempt to initiate enforcement or execution proceedings against Anil Ambani in India including attachment or restraint of his assets in India and abroad. It then filed an application before the NCLT’s Mumbai bench.
During the hearing, Anil Ambani contended that while the resolution plans for the corporate debtors are pending consideration, it would be prudent not to proceed against him as personal guarantor. However, the bench rejected the submission.
The NCLT also passed strictures on SBI for retrospectively declaring loans as NPA. It says,
“The RCOM and RITL committed default in repayment in and around January 2017. The accounts were retrospectively declared as NPA with effect from 26 August 2016 i.e. even before loan agreements had been entered into. Such retrospective declaration seems rather incongruous, akin to the adage, ‘putting the cart before the horse’. While debt and default has
remained undisputed, the incongruity of declaration of NPA, has not been raised and contested by Anil Ambani. Besides, reappraisal of the declaration of the NPA by this authority would not fall within the ambit of the provisions of the Insolvency and Bankruptcy Code (IBC), under which the instant applications have been made.”