Reliance Home Fin resolution may be delayed as auditors split on fraud call

Clean chit by SBI-appointed forensic auditor, fraud call by Bank of Baroda's party

In a bizarre turn of events, the forensic audit conducted for State Bank of India (SBI) on Reliance Home Finance by audit firm M K Aggarwal and Co has given the Anil Ambani firm a clean chit, however, another forensic report by Grant Thornton prepared for Bank of Baroda for the same account has classified the company as fraud. 

Though the Delhi High Court (HC) has stayed classifying the account as fraud until next hearing, this turn of events will impact the debt resolution of Reliance Home Finance, said bankers.

According to the HC filings, Bank of Baroda has an exposure of 2 per cent of the amount lent by consortium of banks. The lead bank, SBI, appointed a forensic auditor — M K Aggarwal & Co — that submitted a report saying neither was there anything incriminating evidence against the company nor was there any fraud transaction. A copy of the forensic report was sent to all the banks. 

In a meeting of the consortium of the banks held on February 27, the banks decided to close the forensic auditor's report and declared the account Reliance Home Finance as 'no fraud'. The report was even accepted by all the lenders, including Bank of Baroda (BoB). 

During the hearing in HC, Reliance Home's counsel Mukul Rohatgi said, "As the said opportunity was not accorded, therefore, BoB classifying the account as fraud is in breach of the principles of natural justice.”

According to Rohatgi, Reliance Home Finance ought to have been heard before any precipitate measures are taken against them, and the fraud categorisation has not only caused immense distress to the company but also led to a loss to its reputation. Besides, the report was not even submitted to BoB by Grant Thornton India LLP on which the bank's decision was based.

BoB and SBI did not comment on the matter. A Reliance Home Finance spokesperson said the court had stayed the BoB classification. 

However, according to banking sources, the debt resolution of Reliance Home Finance will be delayed until 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, Care had placed Rs 11,726 crore of Reliance Home Finance loan in default category.

On August 5, Reliance Home Finance said it had net cash of more than Rs 800 crore in the form of investments in liquid mutual fund. However, the delay in debt servicing caused because of prohibition on the company to dispose of any assets due to an order dated November 20, 2019, passed by the Delhi HC. 

Further, Reliance Home Finance said its lenders had entered into an inter-creditor agreement for arriving at the resolution plan in accordance with the circular dated June 7, 2019, issued by the Reserve Bank of India. The above has resulted in delay in debt servicing by the company.