A significant ruling from the Bombay High Court has reinforced the authority of banking regulations. The court emphasized that the Reserve Bank of India’s fraud classification rules must protect lenders. This decision overturns a previous order that had favored industrialist Anil Ambani.
The division bench stated the RBI’s Master Directions are designed to safeguard public funds. Their primary goal is early fraud detection and recovery of money. Interpreting them otherwise would harm bank interests.
Justice Shree Chandrashekhar and Justice Gautam Akhand delivered this verdict. They found the single-judge bench’s earlier order contained contradictory findings. That judge had misunderstood the core objective of the fraud framework.
The case centers on classifying loan accounts of three Ambani companies as fraud. Public sector banks sought this action based on a forensic audit. The single-judge bench had temporarily blocked this classification.
That lower court accepted Ambani’s argument about auditor qualifications. It ruled the forensic report was not signed by a qualified chartered accountant. This technicality formed the basis for the interim injunction.
However, the division bench strongly disagreed with this reasoning. It clarified the auditor, BDO India LLP, is empanelled by SEBI. Therefore, there was no prima facie reason to grant relief to Amil Ambani.
The bench called this a matter of public importance affecting the national financial system. Granting an injunction on such grounds was deemed patently illegal. They warned such findings could impact ongoing criminal proceedings.
The involved banks are Bank of Baroda, IDBI Bank, and Indian Overseas Bank. They issued show-cause notices to Amil Ambani between January and December 2024. The notices proposed declaring accounts of his three companies as fraudulent.
These companies are Reliance Communications Ltd, Reliance Telecom Limited, and Reliance Infratel Limited. The case stems from the financial collapse of RCom. The company entered insolvency in 2019 after defaulting on massive loans.
A consortium of over twenty lenders, led by State Bank of India, was affected. Banks commissioned a forensic audit by BDO India LLP in 2020. This audit aimed to trace the movement of funds from the troubled companies.
The audit flagged suspicious transactions worth about ₹31,580 crore. It alleged funds were siphoned to related entities instead of being used for operations. This triggered the process to classify the accounts as fraud.
Under RBI Master Directions, banks must classify accounts as fraud upon forensic evidence of diversion. Amil Ambani challenged this, arguing he was denied a fair hearing. He also questioned the forensic auditor’s technical qualifications.
The High Court’s ruling now sets aside those challenges. It reinforces the procedural framework established by the central bank. The decision underscores the priority of protecting the banking system.
This ruling clarifies the interpretation of critical regulatory directions. It strengthens the hand of lenders in pursuing fraud classification. The legal landscape for such financial disputes has been firmly defined.