HC stays action by 3 banks against Anil Ambani, Reliance Communications; says RBI directions violated

The Bombay High Court has put on hold all present and future steps taken by three public sector banks to classify the accounts of industrialist Anil Ambani and Reliance Communications Ltd (RCom) as “fraud”, observing that mandatory Reserve Bank of India (RBI) directions were not followed, PTI reported.

Justice Milind Jadhav, in an interim order passed on Wednesday, said the banks’ action was based on a forensic audit conducted by BDO LLP, but the report could not be relied upon as it was not signed by a duly qualified chartered accountant, a requirement under the RBI’s 2024 Master Directions on fraud classification.

The court noted that denying interim relief would result in “grave and irreparable harm” to Ambani and RCom. It underlined that the principles of natural justice demand not just fairness in action but also the appearance of fairness, adding that banks cannot issue show-cause notices solely on the basis of a forensic audit prepared by an external auditor that does not meet statutory norms.

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According to the order, the RBI’s Master Directions are mandatory and operate within a binding legal framework, obligating banks to appoint auditors strictly in accordance with the law. Allowing the lenders to proceed with fraud classification, the court said, would have “virtually drastic” consequences, including blacklisting, prolonged denial of credit, potential criminal proceedings, reputational damage, and serious impact on the right to financial access.

The high court also took a critical view of the timing of the banks’ action, describing it as a case where lenders “woke up from deep slumber”. It pointed out that the forensic audit related to the period between 2013 and 2017, but was initiated only in 2019.

Ambani had approached the court challenging show-cause notices issued by Indian Overseas Bank, IDBI Bank and Bank of Baroda, which proposed declaring his and RCom’s accounts as fraud. He argued that BDO LLP was an accounting consultancy and not an audit firm, and that its signatory was not a chartered accountant, making the audit legally invalid.
The banks, however, contended that the audit complied with the 2016 RBI Master Directions, which did not mandate that an external auditor be a CA. They also alleged that Ambani’s challenge to the auditor’s qualifications was belated and mala fide.
Rejecting this argument, the court held that RBI norms require only a chartered accountant to be appointed as an auditor. It also noted a potential conflict of interest, as BDO LLP had previously acted as a consultant for the lending banks, undermining its independence, as per the report.