The Bombay High Court has set aside a December 2025 interim order that had restrained three public sector banks from classifying industrialist Anil Ambani’s and Reliance Communications Ltd’s loan accounts as fraud under the Reserve Bank of India’s Master Directions on Frauds.
A Division Bench of Chief Justice Shree Chandrashekhar and Justice Gautam Ankhad allowed appeals filed by Indian Overseas Bank, IDBI Bank and Bank of Baroda, along with BDO India LLP, and held the single judge’s order to be “perverse and illegal”, suffering from “procedural irregularity and impropriety” and being in breach of natural justice.
The Court emphasised that the RBI’s Master Directions are designed to secure public money and enable early detection and reporting of fraud, and cannot be interpreted in a manner that prejudices lender banks.
It held that:
- The directions aim at timely identification, control, reporting and mitigation of fraud risk.
- They facilitate information sharing about frauds and unscrupulous borrowers to protect the banking system.
- Not every alleged violation of the Master Directions is amenable to judicial scrutiny.
Terming the issue one of public importance affecting the financial system, the Bench ruled that grant of an interim stay against fraud classification proceedings was “patently illegal”.
The Court found no prima facie case for granting interim relief to Ambani and observed that continuation of the proceedings would not cause irreparable injury to him.
It also noted that criminal investigations are ongoing, which would be directly impacted by an injunction against the banks’ actions.
Rejecting the single bench’s findings on the forensic audit, the Division Bench held:
- The Master Directions do not mandate a forensic audit before banks take a final decision on fraud classification.
- Banks are entitled to engage external auditors, forensic experts, or internal teams for investigation.
- The BDO India LLP report was prepared by empanelled external auditors with forensic expertise.
The earlier finding that BDO’s report did not appear to be a forensic audit was termed “perverse and liable to be set aside.”
The Court also recorded that BDO is empanelled with the Indian Banks’ Association and SEBI for conducting forensic audits.
The Division Bench criticised the earlier interim order for:
- Contradictory findings
- Misunderstanding the object of the RBI Master Directions
- Being based on flawed assumptions of fact and law
It accepted the banks’ contention that the interim stay undermined public confidence in the banking system.
Ambani had challenged show-cause notices issued by the three banks proposing to classify his and Reliance Communications’ accounts as fraud. He contended that:
- The forensic audit by BDO was legally flawed
- The firm was not qualified to conduct a forensic audit as its signatory was not a chartered accountant
- The process violated RBI’s mandatory guidelines
The single bench had accepted these submissions and stayed all present and future action by the banks.
The banks, in appeal, argued that the audit was legally valid and based on serious findings of fund siphoning and misutilisation.
After pronouncement of the judgment, Ambani’s counsel sought a stay of the Division Bench order to approach the Supreme Court. The High Court declined the request.
With the Division Bench setting aside the interim stay, the three public sector banks are now free to proceed with the process of classifying Ambani’s and Reliance Communications’ accounts as fraud in accordance with the RBI Master Directions.
