Reliance Communications subsidiary Reliance Telecom Limited has officially been classified as fraud by Punjab National Bank (PNB). PNB has classified Rs.201 crore loan account of Reliance Communications as ‘Fraud’. You can read the details of allegations, imposed by PNB against the Reliance Communications, below and download copy of the letter. The pdf of the letter sent by PNB to Reliance Communications is given at last.
Earlier, SBI, BOB, BOI, Canara Bank had declared the account as Fraud.
PNB alleged that Reliance Communications had artificially inflated the company’s turnover. According to the bank, funds worth ₹221.93 crore were transferred from Reliance Telecom Limited to Reliance Communications. A part of this money was later invested in mutual funds.
The bank further alleged that funds raised from member banks were misused for payments to connected parties instead of being used for the intended business purposes. Another major allegation by PNB is that entries worth ₹1,347.70 crore shown in the books of Reliance Communications were fictitious.
Allegations by PNB
1. Fictitious Debtors: Collections received by RTL (Reliance Telecom Ltd.) from RWSL (Reliance Webstore Limited) amounting to INR 1,110.50 crores were received from Reliance Communications Ltd. i.e. RCOM (as ICD/against outstanding), through a series of transactions. These funds were obtained by RCOM vide intraday limit of INR 100 crore in HDFC A/C 2817 which were then routed to RTL through RWSL and/or RCIL (Reliance Communications Infrastructure). After this cycle of transactions, RTL paid the same amount to RCOM, thus, refurbishing the intraday limit in the books of RCOM and allowing RCOM to make a fresh payment to RWSL. (This was repeated multiple times). Such transactions inflated the balance sheet/turnover of the company.
2. RTL transferred Rs. 221.93 crore to RCOM (Reliance Communications Limited) out of the loans received by RTL. Out of these, INR 110 crores were invested by RCOM in Mutual Funds.
- RCOM and its subsidiaries including RTL received Rs.31580 crores by way of advances from member banks. Out of which, Rs.13667.73 crores (44%) were utilised for repayment of loans and other obligations to banks/FI and Rs.12692.31 crores (41%) were utilised to pay to connected parties.
3. RCOM holds 78.8% share in RTL and RILL holds 21.2% shares in RTL. Total payment by RTL to RCOM during the Review Period was INR 3,742.47 crores and total receipts were INR 537.83 crores. RTL promoters did not infuse any equity during the Review Period and all the contribution was in the form of short-term loans.
4. There were numerous assignments in the books of RCOM, RTL and RTIL wherein high-value receivable and payable balances were transferred to corresponding parties to the assignment. Unusual JV entries in the ledgers of key parties and large amounts were transferred to parties with very weak financial backgrounds or unclear nature of business. The parties analysed were as follows:
5. As per Forensic Auditor’s analysis of RTL’s transactions with Consortium and Non-Consortium Banks, out of total transactions, 97% of the transactions were with non-consortium banks and the balance 3% of transactions are with consortium banks.
6. Forensic Auditor stated that as per the information provided by the Management, the lenders, and the Resolution Professional till 26 June 2020, the ICDs were used as a mechanism to route money through related parties. For instance, on 10 November 2015, INR 200 crores received from RCOM as ICD were paid to Netizen as capital advance. Such transactions are diversion of funds.
7. As on 1st April 2013, Rs.1347.70 crores were receivable from RTL in the books of Reliance Infratel Ltd (RITL). RTL issued preference shares worth Rs.1347.70 crores to RITL in satisfaction of the receivable amount on 31st March, 2014. RITL sold the said preference shares to Reliance Communications Tamilnadu Ltd (RCTNL) on the same date i.e. 31.03.2014 for Rs.260.00 crores, thereby incurring a loss of Rs.1087.70 crores and further RCTNL paid the same to RITL for purchase of preference share of RTL. It appears that the receivable balance from RTL was fictitious and this loss was not recorded as business loss in the books of RITL but as a loss on sale of investment.
8. Forensic Auditor had stated that based on the findings during the Forensic Audit and to the extent up to which information was made available by the Management, lenders and the Resolution Professional, it was noted that the invoice financing/discounting was used for round-tripping of loans to and/or from related parties. In the absence of supporting documents from the Management till 26 June 2020, these transactions appear to be misappropriated and can be classified as diversion of loan funds as per the Master Circular issued by the Reserve Bank of India and the same should be read in conjunction with the circular DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 on classification and reporting of Fraud.
9. The companies (RCOM, RTL and RIL (Reliance Infratel Ltd.)) for whom the Forensic Audit was conducted did not provide information like Ageing Analysis – Creditors for the Review Period, Documents related to investments, Stock Count reports for the review period, Documents pertaining to disclosures filed by the Companies with the banks on transactions with non-consortium banks, etc. to the Forensic Auditors.
Click here to download letter sent by PNB to Reliance Communications (This PDF is available for premium users only. Click here to join Premium)
