Reliance Communications has disclosed that its subsidiary Reliance Telecom Limited (RTL) has been classified as a fraud account by State Bank of India (SBI) following extensive forensic audit findings. The bank's Fraud Identification Committee reached this decision on February 21, 2026, after examining evidence of systematic fund misutilization and breach of loan covenants.

Fraud Classification Details

SBI's decision stems from a comprehensive forensic audit conducted by BDO India LLP, which revealed significant irregularities in RTL's loan account operations. The bank had issued show cause notices in December 2023, providing RTL an opportunity to respond before making the final determination.

Financial Irregularities Identified

The forensic audit uncovered substantial misutilization of borrowed funds by RTL. The company had availed aggregate loans of ₹375 crore from various banks during the review period, with SBI providing ₹125 crore as part of a composite sanction.

The loan terms specifically excluded repayment of related party or shareholder loans, but the forensic audit revealed that the majority of RTL's borrowed funds were diverted to connected entities, constituting a clear breach of trust and misappropriation.

Key Fraud Triggers

SBI's Fraud Identification Committee identified several critical violations that led to the fraud classification:

• Fund Misutilization: RTL used loan proceeds for purposes other than those approved, particularly payments to connected parties
• Breach of Loan Covenants: Violation of specific restrictions against related party payments mentioned in sanction terms
• Circular Transactions: Complex routing of funds through multiple group entities without commercial substance
• Manipulation of Accounts: Structured transactions designed to obscure actual fund utilization patterns

Corporate Insolvency Protection Claims

RTL's Resolution Professional had argued that the company enjoys protection under the Insolvency and Bankruptcy Code, 2016, citing moratorium provisions and immunity under Section 32A. However, SBI's Fraud Identification Committee determined that:

• Moratorium provisions do not apply to fraud identification proceedings
• Section 32A protection is not available until resolution plan approval by NCLT
• Fraud classification proceedings serve different purposes than insolvency resolution

Regulatory Reporting and Next Steps

Following the fraud classification, SBI will report RTL's name to the Reserve Bank of India as per regulatory guidelines. The bank has completed its due process by:

• Issuing show cause notices in December 2023
• Providing complete forensic audit reports in October 2025
• Allowing adequate response time before final determination
• Following principles of natural justice as mandated by Supreme Court judgment

Impact on Listed Entity

Reliance Communications noted that both the parent company and RTL are undergoing corporate insolvency resolution process, with approved resolution plans awaiting NCLT approval. The company emphasized that credit facilities referenced in SBI's letter pertain to the pre-CIRP period and must be resolved through the resolution plan or liquidation process as per the Insolvency and Bankruptcy Code.

Reliance Communications Limited has received formal notification from Canara Bank regarding the classification of credit facilities extended to both the company and its subsidiary Reliance Telecom Limited as "fraud", with the bank ordering reporting to the Reserve Bank of India for inclusion in the Central Fraud Registry. The disclosure was made pursuant to regulatory requirements under SEBI Listing Regulations following letters received on March 06, 2026.

Formal Notification Details

Canara Bank issued separate letters dated February 27, 2026 to both Reliance Communications and Reliance Telecom Limited, formally classifying their accounts as fraudulent. The bank's decision stems from a comprehensive forensic audit conducted by BDO India LLP covering the period from April 01, 2013 to March 31, 2017, with the final report submitted on October 15, 2020.

Key Audit Findings and Irregularities

The forensic audit uncovered multiple irregularities in fund utilization across RCOM group companies. The investigation revealed that Rs. 6,265.85 crores obtained from banks were utilized for repayment of other bank loans, while Rs. 5,501.56 crores were used for payments to related and connected parties, deviating from sanctioned purposes.

Significant inter-company transactions were identified, including RCOM transferring Rs. 783.77 crores to RTL and Rs. 1,435.24 crores to RITL from bank loans. Additionally, RITL discounted bills worth Rs. 8,514.70 crores for RCOM and Rs. 1,041.42 crores for RTL, with funds primarily used for connected party payments.

Legal Challenges and Bank's Response

The Resolution Professional Mr. Anish Niranjan Nanavaty had contested the fraud classification through representation dated October 16, 2025, arguing that the moratorium under Section 14(1)(a) of the Code prohibits such identification during ongoing CIRP. However, Canara Bank clarified that fraud classification constitutes a regulatory action under RBI guidelines and is not barred by the moratorium provisions.

The bank referenced the Mumbai Bench NCLT ruling in Rolta India RP vs. Bank of India dated July 14, 2025, which held that banks can classify corporate debtor accounts as fraudulent even during CIRP, as such classification under RBI's Master Direction on Frauds 2016 represents regulatory action not prohibited by Section 14 of IBC.

Current CIRP Status and Impact Assessment

Both Reliance Communications and Reliance Telecom Limited are currently undergoing corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. Resolution plans for both companies have been approved by their respective committees of creditors and are presently awaiting approval from the National Company Law Tribunal, Mumbai Bench.

The company has indicated that the credit facilities in question pertain to the period prior to the CIRP of both RCOM and RTL. Under the Insolvency and Bankruptcy Code, these matters are required to be resolved as part of the resolution plan or in liquidation proceedings. The company noted that Section 32A of the Code provides protection against liability for offences committed prior to CIRP commencement, upon approval of the resolution plan by NCLT.