In a significant interim relief for businessman Anil Ambani, the Bombay High Court on Wednesday stayed all actions by three public sector banks seeking to classify his and Reliance Communications Ltd.'s accounts as 'fraud.'
The court ruled the lenders' case was built on a legally flawed forensic audit and sharply criticized the banks for procedural lapses and delay.
Justice Milind N. Jadhav restrained Indian Overseas Bank, IDBI Bank, and Bank of Baroda from acting on show-cause notices and fraud classification orders.
The decision centers on a forensic audit report by BDO LLP, which the court found was "prima facie inconclusive" and, crucially, not signed by a duly qualified Chartered Accountant as mandated by the Reserve Bank of India's (RBI) 2024 Master Directions on fraud.
The Core Legal Flaw: An Unqualified Auditor
The court held that the entire edifice of the banks' action was "palpably dubitable".
The 2024 RBI Master Directions require any forensic audit used for fraud classification to be conducted by an external auditor qualified under relevant statutes like the Companies Act.
The report by BDO LLP, prepared in October 2020, failed this basic test as its sole signatory was not a Chartered Accountant.
"The Master Directions of RBI are not a mere paper tiger," Justice Jadhav observed, warning that banks cannot ignore mandatory guidelines.
The bench also flagged a conflict of interest, noting BDO LLP had previously worked as a consultant for the lender banks, compromising its independence as an auditor.
A "Drastic" Outcome and a Delayed Reaction
The court underscored the severe consequences of a fraud tag, which can lead to blacklisting, being barred from bank credit for years, criminal FIRs, reputational ruin, and a "civil death without trial".
Given these high stakes, the court found the foundation of the banks' case—the faulty audit—too weak to allow the process to continue, or it would cause "grave and irreparable harm".
Justice Jadhav rebuked the banks for their "belated action," calling it a "classic case where the banks have woken up from their deep slumber".
The lenders sought in 2019 to audit transactions from 2013-2017, ignoring the timelines prescribed in the RBI's own guidelines.
Forensic Audit Timeline & Key Issues
|Period of Transactions Investigated | 2013-2017 |
|Audit Commissioned by Banks | 2019 |
|Forensic Audit Report Date | October 15, 2020 |
|Key Court Finding | Report not signed by a qualified CA, violating RBI 2024 Master Directions |
|Court's Criticism of Banks | "Woken up from deep slumber"; violated RBI timelines |
Broader Implications for Banking Accountability
The ruling transcends the immediate parties, delivering a stern message on banking governance. Justice Jadhav emphasized that banks are custodians of public money and must strictly follow RBI norms.
The court's order is an interim stay, meaning the substantive legal challenge is still pending.
The banks had argued that the audit was conducted under the 2016 RBI rules, which did not explicitly require a CA, and that Ambani's challenge was an afterthought. The court, however, applied the clarified 2024 standards and found the core process legally unsustainable.
This decision halts immediate coercive action against Anil Ambani and Reliance Communications but also sets a precedent for rigorous procedural compliance in bank fraud cases, putting financial institutions on notice that their audits must be beyond reproach.
