The Bombay High Court has delivered significant interim relief to Anil Ambani and Reliance Communications (RCom), staying all actions by three public sector banks to classify their loan accounts as “fraud”.
In a sharp rebuke, the court ruled that the banks violated the Reserve Bank of India’s Master Directions while initiating the fraud-tag process, raising serious questions about procedural lapses and delayed action by lenders.
In its order passed on Wednesday, the High Court restrained Indian Overseas Bank, IDBI Bank and Bank of Baroda from taking any present or future steps to declare Ambani and RCom as fraud accounts. The court held that the banks had failed to comply with mandatory requirements under the RBI’s 2024 Master Directions on fraud classification.
The relief came after Anil Ambani challenged the show-cause notices issued by the banks, arguing that the process was fundamentally flawed. The notices were based on a forensic audit conducted by BDO LLP, which the petitioner contended was not valid under RBI norms.
Justice Milind Jadhav observed that the forensic audit report could not be relied upon, as it was not signed by a duly qualified chartered accountant. Under the RBI’s Master Directions, only a chartered accountant is eligible to be appointed as an auditor for such forensic examinations. The court noted that this requirement goes to the root of the matter and renders the audit report legally untenable.
The banks argued that the audit was conducted in accordance with the RBI’s 2016 Master Directions, under which an external auditor need not necessarily be a chartered accountant. However, the court rejected this contention, holding that the applicable RBI framework mandates CA qualification, particularly when the findings are used to initiate fraud proceedings with far-reaching consequences.
Granting interim relief, the court warned that denying protection would cause “grave and irreparable harm” to Ambani and RCom. It underlined that branding an account as fraud carries drastic implications, including blacklisting, denial of future bank credit, possible criminal proceedings, and severe reputational damage — amounting to what the court described as “civil death”.
The high court also criticised the banks for their delayed response, remarking that this was a “classic case where the banks have woken up from their deep slumber”. It noted that the forensic audit pertained to transactions between 2013 and 2017, even though the banks moved to initiate action only years later.
