Judges cite violations of mandatory RBI rules, say move was based on legally flawed forensic audit, berate banks for late action
Reliance Group Chairman and MD Anil Ambani. FILE PIC
The Bombay High Court on Wednesday stayed all “fraud” classification proceedings against Anil Ambani and Reliance Communications by a consortium of three banks, citing violations of mandatory Reserve Bank of India rules.
Granting an interim relief to Ambani and his company by staying all present and future action by Indian Overseas Bank, IDBI Bank, and Bank of Baroda, Justice Milind Jadhav said that the banks’ move was based on a legally flawed forensic audit and violated the Reserve Bank of India’s (RBI) mandatory guidelines.
The court refused to take on record a forensic audit report prepared by BDO LLP in October 2020, saying the report was “prima facie inconclusive” and could not be used as a basis for punitive action because it was not signed by a Chartered Accountant (CA) as required under the RBI’s 2024 Master Directions on fraud.
The judge also pointed out that the BDO LLP had previously worked as a consultant for one of the lender banks, creating a “conflicting position” that undermined its independence as an auditor.
The consequences of allowing the banks to declare the accounts of Ambani and his company as fraud are “virtually drastic and lead to disastrous consequences like being blacklisted, barred from new bank loans/credit for years, criminal FIR filing, reputation damage, impacting fundamental rights to financial access and civil death,” the high court said in its 116-page order.
The HC also berated the banks for their “belated action”, describing it as a “classic case where the banks have woken up from their deep slumber”. The lenders sought to conduct a forensic audit in 2019 for transactions that occurred between 2013 and 2017, failing to adhere to the timelines prescribed by the RBI.
“The RBI Master Directions are mandatory in nature, and they operate within a binding statutory framework requiring banks to engage auditors strictly in accordance with applicable law,” said the court order. Ambani had challenged show-cause notices issued by the Indian Overseas Bank, IDBI Bank, and Bank of Baroda, seeking to declare his and Reliance Communications’ accounts as fraud accounts.
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