Bank of Maharashtra classifies Reliance Communications loan account as fraud

Reliance Communications Limited (RCOM), which is currently undergoing a corporate insolvency resolution process (CIRP), has disclosed that the Bank of Maharashtra has classified the company’s loan account as ‘fraud’. Reliance Communications received the formal letter detailing the classification, dated October 4, 2025, on October 24, 2025.

The classification relates to credit facilities extended by the bank’s Fort Branch in Mumbai. The company has two accounts mentioned: a Debit Balance in a Current Account with an outstanding balance of Rs 488.78 Crores as of September 30, 2025 (excluding interest), and a Letter of Credit facility with a limit of Rs 500.00 Crores and an outstanding balance of Rs 0.00.

Details of the fraud classification

The Bank of Maharashtra’s decision to classify the account as fraud stems from findings of misappropriation of funds and criminal breach of trust.

• Fraud Angle: The bank claims that Letter of Credit (LC) discounting was used for round-tripping of loans to and/or from related parties and for the repayment of outstanding LCs.
• Reasoning: These transactions are classified as potential evergreening and diversion of funds. The bank’s reasoned order includes an Addendum to a Forensic Audit Report dated July 2020.
• Reporting: The Bank of Maharashtra has reported the classification to the Reserve Bank of India (RBI), and the consequences mentioned in RBI Master Directions are expected to follow, which include filing a police complaint or a CBI complaint.

Forensic audit findings on circular fund routing

The Addendum to the Forensic Audit Report specifically details a scheme involving the circular routing of funds between RCOM, its subsidiary Reliance Infratel Limited (RITL), and Reliance Communication Infrastructure Ltd (RCIL).

• The Modus Operandi:
  • Reliance Communications availed a non-fund based LC facility of Rs 500 Crores from Bank of Maharashtra, sanctioned on June 30, 2014. The purpose was to provide LC facility to RITL for purchasing telecom equipment, diesel, etc..
  • RITL discounted LCs worth Rs 2,779.38 Crores of RCOM (issued by Bank of Maharashtra).
  • RITL then routed Rs 2,393.22 Crores back to various RCOM bank accounts, partially through RCIL (Rs 1,787.31 Crores).
  • This flow of funds restored the overdraft limits in RCOM’s various accounts.
  • RCOM then used the discounted funds to repay existing LCs nearing their 180-day tenure, a process involving Rs 1,730.10 Crores paid back to Bank of Maharashtra.
  • The audit concluded that this was done by obtaining new LCs to repay outstanding ones, which is indicative of potential evergreening and diversion of loan funds.

Impact on RCOM under CIRP

RCOM stated that the estimated impact on the listed entity is mitigated because the company is already undergoing a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016.

• Pre-CIRP Loans: The credit facilities and loans subject to the fraud classification are from the period prior to the CIRP and must be resolved as part of a resolution plan or in liquidation. A resolution plan has been approved by the Committee of Creditors and is currently awaiting approval from the National Company Law Tribunal (NCLT).
• CIRP Protection: Under Section 14(1)(a) of the Code, the company is protected from the institution or continuation of any suits or proceedings, including the execution of any judgment, decree, or order.
• Protection Against Offence Liability: The company may also receive protection under Section 32A of the Code against liability for an offence committed prior to the CIRP, and from related prosecution, provided the resolution plan is approved by the NCLT and results in a change in management or control.

Reliance Communications noted that its Resolution Professional has also filed avoidance applications with the NCLT based on a review of avoidance transactions identified by an auditor, and these are currently sub-judice. The company is currently seeking legal advice on the way forward regarding this new development.

Also See: Central Bank of India classifies Reliance Communications Rs 368-cr loan account as fraud