Delhi Court Denies Bail To Ex-RCOM Executive Over Alleged Loan Fund Diversion Used To Acquire Yacht, Overseas Apartment

A Delhi court on Monday denied bail to Punit Narendra Garg, former Executive Director of Reliance Communications Ltd. (RCOM), in a case arising from allegations that Reliance Anil Ambani Group entities diverted loan funds linked to borrowings of more than ₹40,185 crore to acquire a luxury yacht and an overseas apartment.

The court held that Garg had failed to satisfy the conditions for bail under the Prevention of Money Laundering Act.

Special Judge (PC Act) CBI Ajay Gupta of the Rouse Avenue Courts observed that the material on record prima facie showed Garg was aware that the yacht and apartment were proceeds of crime and had played an active role in their disposal and concealment.

“In view of the aforesaid detailed discussions, it is prima facie clear that accused was having knowledge of acquisition of both the assets (POC), though, it seems that he had no direct role in acquisition of the same but prima facie, it has come on record that despite knowing that both these assets relates to POC, he disposed of these assets by playing an active role. Besides, he also concealed both these transactions during insolvency proceedings which shows that these assets were always projected as untainted properties,” the court held.

The case stems from CBI cases registered on complaints by State Bank of India, Bank of Baroda, and Punjab National Bank concerning loans extended to RCOM and its group entities. According to the Enforcement Directorate, RCOM and related entities availed multiple loans and credit facilities, including loans obtained between 2013 and 2017. The agency alleged that overall outstanding dues to lenders in India and abroad exceeded ₹40,185 crore.

The ED alleged that part of those funds was diverted through subsidiaries and step-down subsidiaries instead of being used for legitimate business purposes. The agency alleged that the diverted funds were later used to acquire overseas assets. These included a yacht purchased in 2008 and an apartment in New York acquired through Bonn Investment Inc.

While examining the allegations relating to the yacht, the court observed that RCOM had projected the funds used for its acquisition as a loan transaction routed through group entities. The court, however, noted that the material placed before it prima facie indicated that the arrangement was not a genuine loan transaction.

“Thus, it is prima facie clear from the aforesaid statement that in regard to the funds which were used for buying the Yacht, it has been projected by RCOM that same were availed through a loan given by GNTPL to AHL but the factual position is altogether different as specified above that in reply to the FEMA show cause notice, it was stated that the said funds were provided for buying the handsets. Be that as it may, but the fact of the matter is that prima facie, the said transaction appeared to be a sham transaction as the said payment was neither made as a loan to AHL nor towards the advance payment for buying the handsets but only for buying the Yacht,” the court observed.

The court also examined the acquisition of the apartment. It recorded a prima facie finding that funds moved through subsidiaries and related entities before being used for the purchase. The court further noted that the apartment was sold in 2023. It observed that the sale proceeds were not used to repay funds advanced by entities that had financed the acquisition.

“The aforesaid transaction was diversion of funds which is also prima facie clear from the facts that despite the sale of the said apartment in 2023, the sale proceeds were not utilized for repayment of the funds taken by Bonn from RCI and RCII which is further prima facie shows that the said transaction was not a commercial transaction and was done only for buying the apartment. Thus, it is prima facie clear that both these assets were purchased by RCOM (RAAG) through diversion of funds of loan-1,” the court held.

Referring to Garg's position within RCOM, the court observed that he was aware of the company's financial difficulties and the corporate insolvency resolution process initiated against it. The court recorded a prima facie view that, despite restrictions imposed during that process, Garg participated in transactions relating to the disposal of the assets. It also observed that the transactions were concealed during insolvency proceedings.

“Thus, it is prima facie clear that accused, being an Executive Director of RCOM was fully aware that the RCOM was undergoing financial stress and also that due to the said reasons CIRP proceedings have been directed to be issued against RCOM and its other companies. He also must be aware that while issuing directions for initiation for CIRP proceedings, Hon'ble NCLT had restrained the corporate debtor (RCOM) etc. from alienating or disposing off any of its assets or any legal right or beneficial interest therein,” the court observed.

The court ultimately recorded a prima facie finding that Garg had dealt with proceeds of crime valued at about ₹149 crore. According to the court, this included the disposal, concealment, and dissipation of the yacht and apartment.

The court also referred to allegations that Garg used funds linked to the apartment and its rental income for personal expenses.

Holding that the statutory conditions for bail had not been met, the court dismissed his application for bail.