Reliance Home Fin resolution may be delayed as auditors split on fraud call
In a bizarre turn of events, the forensic audit conducted for State Bank of India on Reliance Home Finance by audit firm, MK Aggarwal and Co, has given the Anil Ambani company a clean chit but another forensic report by Grant Thornton, prepared for Bank of Baroda for the same account, has classified the home finance company as a fraud.
Though the Delhi High Court has stayed classifying the account as fraud till the next hearing, this turn of events will impact the debt resolution of the company which was initiated by the banks, say bankers.
As per the Delhi High court filings, Bank of Baroda was a lender to the extent of only two percent of the monies lent by consortium of banks. The lead bank, the State Bank of India appointed a forensic Auditor, M.K. Aggarwal & Co., Chartered Accountants, who after auditing submitted a report to banks that there was nothing incriminating against the company nor was there any activity or transaction that would tantamount to a fraud in the accounts of the company. A copy of the said forensic report was sent to all the banks.
In a meeting of the consortium of the banks held on February 27 this year, the banks decided to close the forensic auditor’s report and declared the account Reliance Home Finance as “no fraud”. They said report was even accepted by all the lenders including Bank of Baroda.
During the hearing in HC, RHFL’s counsel Mukul Rohatgi submitted that before a final decision acceptance of the report of Grant Thornton India LLP by BoB, RCFL’s version was not heard. ‘’As the said opportunity was not accorded therefore BoB classifying the account as fraud is in breach of the principles of natural justice,” the court was told.
During the hearing, Rohatgi said RCFL ought to have been heard before any precipitate measures were taken against them, and the fraud categorization has caused not only immense distress to RCFL but also led to a loss to its reputation. Besides, it was not even supplied the report submitted to Bank of Baroda by Grant Thornton India LLP, on which the bank’s decision was based.
BoB and SBI did not comment on the matter. A RHFL spokesperson said the court has stayed the BoB classification.
But banking sources said the debt resolution of RHFL will be delayed till the entire issue is not resolved. “The banks would like to have the clarity on the accounts of the company,” said a banker. In March this year, Care had placed Rs 11,726 crore of RHFL loan in default category.
On August 5th, Reliance Home Finance had said it has net cash of more than Rs 800 crore in the form of investment in liquid mutual fund. However, the delay in debt servicing is due to prohibition on the company to dispose of any assets, due to an order dated November 20, 2019 passed by the Delhi High Court.
Further, RHFL said its lenders have entered into an Inter-Creditor Agreement for arriving at the debt resolution plan in accordance with the circular dated June 7, 2019 issued by the Reserve Bank of India on resolution of stressed assets. The above has resulted in delay in debt servicing by the company.
