The Bombay High Court has stayed all existing and future actions initiated by three public sector banks to classify the accounts of industrialist Anil Ambani and Reliance Communications Ltd (RCom) as “fraud”.
In an interim order passed on Wednesday, the High Court observed that the banks had violated the Reserve Bank of India’s (RBI) Master Directions while issuing show-cause notices to Ambani and his company. The notices were issued by Indian Overseas Bank, IDBI Bank and Bank of Baroda, seeking to declare the accounts as fraud accounts.
Justice Milind Jadhav noted that the banks’ action was based on a forensic audit report prepared by external auditor BDO LLP. However, the court held that the report could not be relied upon as it was not signed by a duly qualified chartered accountant, as mandated under the RBI’s 2024 Master Directions on fraud.
Anil Ambani had approached the court seeking interim relief, arguing that BDO LLP was not eligible to conduct the forensic audit since the signatory was not a chartered accountant. He also sought a stay on the show-cause notices and an injunction against any coercive action by the banks.
The banks contended that the forensic audit was conducted in line with the RBI’s 2016 Master Directions, under which an external auditor need not necessarily be a chartered accountant. However, the High Court rejected this argument, stating that under the RBI’s Master Directions, only a chartered accountant is eligible to be appointed as an auditor.
Granting interim relief, the court said that failure to stay the proceedings would cause “grave and irreparable harm” to Ambani and Reliance Communications. The court emphasised that principles of natural justice require not only that justice be done, but that it must also be seen to be done.
The High Court also highlighted the severe consequences of declaring an account as fraud, noting that such action can lead to blacklisting, denial of future bank credit, initiation of criminal proceedings, reputational damage, and long-term impairment of fundamental rights related to financial access.
In strong remarks, the court criticised the banks for their delayed action, calling it a “classic case where the banks have woken up from their deep slumber.” The court observed that although the alleged transactions pertained to the period between 2013 and 2017, the banks initiated the forensic audit only in 2019.
Key Takeaway:
The High Court’s order reinforces strict compliance with RBI norms on forensic audits and reiterates the importance of natural justice in bank-led fraud classification proceedings.
