India's Anil Ambani is facing a $680m question in an English court

Lenders seek to recover the amount from former Indian billionaire by invoking what they say is a personal guarantee

Anil Ambani, Chairman of India’s Reliance Communication, addresses a news conference at the company’s headquarters in Mumbai, India, December 26, 2017. REUTERS/Danish Siddiqui

Anil Ambani, the younger brother of Asia’s richest man, faces a $680 million (Dh2.5 billion) legal test to answer one question: how much did he know about what his employees were doing on his behalf?

Other Indian tycoons will take an abiding interest in his defence.

The $680m is the amount Industrial and Commercial Bank of China is seeking to recover from the former Indian billionaire by invoking what it say is a personal guarantee he gave in 2012 to secure a $925m loan for Reliance Communications, his mobile services firm that is now in bankruptcy.

Mr Ambani, whose older brother Mukesh controls Reliance Industries, India’s most valuable company, claims he never knowingly provided any guarantee for the loan facility.

In his version, he had only authorised his employees to furnish a non-binding “personal comfort letter” to lenders, including ICBC, China Development Bank and the Export-Import Bank of China.

Somehow, that letter of comfort became what the banks now argue to be an iron-clad guarantee under English law.

“A truly remarkable feature of Mr Ambani’s case,’’ London Judge David Waksman said in his order on Monday, “is that he has proffered no explanation as to why he should have been deceived in this way."

As to how personal assets were put at risk unknown to the boss until RCom defaulted in 2017, the order noted that Mr Ambani’s lawyer had argued that his client's “position was that ‘he hasn’t got a clue’ how all of this came about”.

Mr Waksman stopped short of awarding the summary judgment requested by ICBC, though not before calling Mr Ambani's evidence “inexplicably incomplete, implausible and highly unlikely”.

A trial will start next year. Pending the verdict, the court may ask some or all of the claim to be deposited with it.

Mr Ambani’s representative focused on the the judge’s decision to dismiss the banks’ application for a summary judgment.

“Mr Ambani has contested the proceedings and put up a strong legal defence, and will continue to contest the proceedings and seek leave to defend, without any conditions as to making of deposits or payments being imposed,” the representative told Bloomberg News.

This is the younger Ambani’s second brush with the pitfalls of personal guarantee. This year, he managed to avoid a three-month prison term when his elder brother settled an $80m claim by Ericsson.

The Swedish telecoms equipment maker obtained a contempt-of-court order to put Mr Ambani in jail if the payment, which he had personally guaranteed, was not received by March 19.

Other Indian business families should treat Mr Ambani’s travails as a cautionary tale.

When India’s economy was booming and firms were greedy to use influence to grow, many of their controlling shareholders liberally gave out personal guarantees to lenders.

But the rosy assumptions behind aggressive, debt-fuelled expansion came unstuck for many borrowers in an economy that has slowed down sharply.

The Ruia family recently lost its crown jewel — a 10 million tonne a year integrated steel plant in western India — to ArcelorMittal.

The former asset owners had backed their borrowings with personal guarantees, and State Bank of India, the main lender, had even made an attempt to enforce them.

With Mittal’s $6bn cheque in the bank, that recovery may have now become a moot point.

But from December 1, personal guarantees on corporate loans will be adjudicated under Indian bankruptcy law.

That will put a healthy fear in the minds of Indian businessmen about borrowing too recklessly. Their own assets could end up being liquidated with those of their companies.

Mr Ambani he will get his day in an English court to prove his lack of awareness. The bar is high, though.

“I consider it extremely unlikely that his role was really limited to simply chairing board meetings with little or no interest or role in what RCom was doing, especially in the context of a major refinancing which was needed urgently,” Mr Waksman noted.

This has all the ingredients of an engaging courtroom drama.

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