The Bombay High Court on Wednesday extended interim protection to businessman Anil Ambani by putting on hold all actions already taken, as well as any future steps proposed, by a consortium of banks after classifying his accounts as fraudulent. The court observed that the very foundation of the banks’ decision appeared legally suspect and cautioned that permitting such actions to continue could effectively amount to a “civil death without trial.”
A single-judge bench led by Justice Milind Jadhav stayed proceedings initiated by Indian Overseas Bank, IDBI Bank Ltd and Bank of Baroda. This included show-cause notices already issued to Ambani, which, if acted upon, could have resulted in severe civil and regulatory consequences.
The court was hearing Ambani’s challenge to the banks’ decision to label his accounts as fraud. He argued that the move was primarily based on a forensic audit report prepared by BDO India, which, according to him, does not meet the definition of an “auditor” under the Reserve Bank of India’s Master Directions on Fraud issued on July 15, 2024. Ambani contended that reliance on such a report rendered the entire action procedurally and legally flawed.
In its observations, the High Court underlined the far-reaching and severe consequences that follow a fraud classification. These include blacklisting by financial institutions, denial of access to bank credit for extended periods, the possibility of criminal complaints being lodged, lasting reputational damage, and restrictions on fundamental financial rights. The bench noted that when such drastic outcomes flow from a decision, the underlying process must strictly comply with the law.
The court also expressed serious reservations about the forensic audit report itself, describing it as a “highly contentious document.” It pointed to concerns regarding the credentials of the person who prepared the report and noted that it was not authored by a qualified chartered accountant acting as an external auditor, as mandated under the RBI’s regulatory framework.
Importantly, the bench took into account a written statement from the designated external auditor, which indicated that the forensic audit findings did not reveal any fraud or criminal breach of trust. The court said this assertion significantly strengthened Ambani’s case at the interim stage.
Concluding that Ambani had made out a strong prima facie case warranting protection until the matter is fully heard, the High Court granted interim relief and stayed all consequential actions by the banks, while keeping the petition pending for further consideration.
