NCLT Mumbai Initiates Personal Guarantor Insolvency Proceedings Against Anil Ambani On SBI Plea

Industrialist Anil Ambani has been admitted to personal insolvency proceedings by the Mumbai Bench of the National Company Law Tribunal on an application filed by State Bank of India over guarantees furnished for loans extended to Reliance Communications Ltd (RCOM) and Reliance Infratel Ltd (RITL), involving a default of ₹853.25 crore.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar admitted SBI's application after accepting the Resolution Professional's recommendation that debt and default existed.

Admitting the proceedings, the tribunal held, “Considering the above facts and circumstances and upon perusal of the documents on record, the C.P. (IB)/916/MB/2020 filed under Section 95 of the Code, hereby admitted and the Insolvency Resolution Process stands initiated against Mr. Anil Dhirajlal Ambani viz. the Personal Guarantor herein.”

The tribunal rejected Ambani's contention that the debt stood discharged under RCOM's resolution plan. It observed that recoveries for lenders remained dependent on future asset monetisation, spectrum-related litigation and other uncertain events. SBI had not received any cash recovery till date and had already taken a substantial haircut.

On this aspect, the Tribunal observed:

“The most valuable asset is spectrum, and multiple litigations on spectrum dues have delayed plan approval and implementation. There is no clarity on either the quantum or the timeline of any recovery to SBI, and no cash has been received by SBI till date. Even after receiving certain amounts under the RCOM resolution plan, SBI has had to take a substantial haircut, and the debt remains largely unsatisfied.”

The dispute arose from credit facilities of ₹565 crore extended to RCOM and ₹635 crore extended to RITL in 2016. Ambani executed a personal guarantee in favour of SBI on September 23, 2016.

After the borrower companies defaulted, SBI invoked the guarantee on January 31, 2019. The bank claimed an outstanding default of ₹853.25 crore as on March 1, 2019.

The tribunal also rejected Ambani's challenge to the Resolution Professional's report. It held that the Resolution Professional's role was limited to examining material relevant to the existence of debt and default. The report, the Tribunal observed, was recommendatory in nature and did not determine the rights of the parties.

Rejecting the contention that material furnished by SBI ought to have been shared with Ambani before submission of the report, the Tribunal held:

“The explanation sought by the Resolution Professional from the financial creditor is only in relation to the existence of debt, which was disputed by the personal guarantor. In our considered view, the Resolution Professional, in exercise of his non-adjudicatory function, can not be required to provide the information, supplied by the financial creditor and personal guarantor, to the other side under the principles of audi alteram partem, as the Resolution Professional's report is not final in nature and does not prejudice either of party, as both the parties have opportunity to make their submissions objecting to the conclusions as well as the material, which is basis of such opinion.”

The Tribunal further rejected Ambani's challenge to the validity of the guarantee. Ambani had argued that the guarantee was unenforceable because the borrowers were already in default when it was executed. The Tribunal found that the borrowers' accounts were classified as non-performing assets with retrospective effect only after the guarantee had been furnished and after restructuring efforts had failed.

Rejecting the contention, the Tribunal held:

“In view of the aforesaid, we do not find any merit in the contention of the Personal Guarantor that he executed guarantee on 23.09.2016 in favor of applicant creditor, when the principal borrower was already in default on 26.8.2016, because the principal borrower was classified as NPA in January, 2017 with retrospective effect after the execution of the guarantee, and the earlier default committed by the Principal Borrower had, for the time being, eclipsed in view of restructuring arrangement and the lender was obligated to classify the account of principal borrower as NPA relatable to original date of default (which was earlier to the execution of guarantee by the personal guarantor) in terms of RBI guidelines mandating classification w.r.t. original date of default in case of failure of restructuring.”

Accordingly, the tribunal admitted SBI's application and initiated the insolvency resolution process against Ambani in his capacity as a personal guarantor. Prashant Jain will act as the Resolution Professional for the process.