Bombay HC: Not every breach of RBI fraud rules warrants court review in Anil Ambani case
The Bombay High Court has lifted the stay on three public sector banks, allowing them to classify Anil Ambani’s and Reliance Communications’ accounts as fraud. The division bench ruled that RBI’s Master Directions are meant to safeguard public money and cannot be diluted through judicial intervention.
Mumbai: The RBI’s Master Directions aim to identify frauds and unscrupulous borrowers for timely action, and every violation of the same is not subject to judicial scrutiny, the Bombay High Court has said while lifting the stay on action by three banks to classify industrialist Anil Ambani’s accounts as fraud.
A bench of Chief Justice Shree Chandrashekhar and Justice Gautam Ankhad on Monday quashed a single bench order of December 2025, which stayed the action initiated by three public sector banks based on the Master Directions issued by the RBI to classify Ambani’s and Reliance Communications Ltd’s bank accounts as fraud.
The court allowed appeals filed by the three public sector banks and the auditor firm BDO India LLP against the December 2025 interim order passed by a single bench of the HC.
The division bench held the single bench order as “perverse and illegal” and in breach of natural justice and said it suffers from “procedural irregularity and impropriety”.
The court in its judgment, which was made available on Tuesday, said the Master Directions issued by the Reserve Bank of India (RBI) cannot be interpreted in a different manner so as to cause prejudice to the lender banks and harm their interest.
It added that the issue was of public importance and concerned the financial system in the country and hence grant of an interim stay in such a matter was “patently illegal”.
Based on the facts of the case, it is not difficult to arrive at a conclusion that “no irreparable injury” would be caused to Ambani if the proceedings against him are continued, the judgment noted.
“There is no prima facie reason to grant an interim injunction in favour of the respondent (Ambani). There are criminal investigations going on which shall be directly affected by the order of injunction granted by the court,” HC said.
The court also criticised the single bench order for its “contradictory findings” and said that it was based on “flawed assumptions of fact and law”.
The single bench completely misunderstood the primary object behind the Master Directions issued by the RBI, the judgment said, adding the same were issued in the interest of Banking Policy.
“These Master Directions are intended at securing public money and to provide a framework for early detection of frauds and recovery of public money through timely identification, control, reporting and mitigation of fraud risk,” HC said.
These directions provide guidelines to the banks and financial institutions for effective investigation and reporting of fraud cases to appropriate regulatory and law enforcement authorities, it added.
Through these directions, the RBI disseminates information to the banks on details of frauds and unscrupulous borrowers so that timely action can be taken and the banks’ interests are protected, the court noted.
“These directions cannot be interpreted in a different manner so as to cause prejudice to the lender banks and harm their interest. Every violation of the Master Directions shall not be amenable to judicial scrutiny,” it said.
The bench also noted that the banks were entitled to engage an external auditor, including a forensic expert or an internal team for investigation and said the forensic report of BDO LLP was prepared by external auditors who are also forensic experts.
The Master Directions of 2016 do not contemplate a mandatory forensic report before the banks take a final decision, HC said.
The court also noted that the single judge’s finding that the report submitted by BDO LLP does not prima facie appear to be a forensic report is clearly “perverse and liable to be set aside”.
BDO LLP is an accounting consultancy firm, which is empanelled by the Indian Banks Association and also the SEBI for conducting a forensic audit, the judgment said.
The court agreed with the arguments of the banks that the single judge’s order undermines public confidence in the banking system.
On Monday, Ambani’s counsels sought the HC to stay its order so that they could approach the Supreme Court, but the request was declined.
The earlier single bench order had stayed all present and future action by Indian Overseas Bank, IDBI Bank and Bank of Baroda, noting that the action was based on a legally flawed forensic audit and violated the RBI’s mandatory guidelines.
The three banks in their appeal said the forensic audit, which led to accounts being classified as “fraud”, was legally valid and based on serious findings of fund siphoning and misutilisation.
Ambani had challenged before the single bench show-cause notices issued by the three banks, seeking to declare his and Reliance Communications’ accounts as fraud accounts.
As an interim relief, he sought a stay of the notices and an injunction against any coercive action on the ground that BDO LLP was not qualified to conduct the forensic audit as its signatory was not a chartered accountant.
BDO LLP was an accounting consultant firm and not an audit firm, Ambani claimed.
The single bench had agreed with Ambani and stayed the action by the banks.
