The Delhi High Court on Friday set aside the Union Bank of India’s decision to classify the bank account of a company owned by Jai Anmol Ambani as fraudulent, holding that the action was taken in violation of settled principles of natural justice and contrary to binding Supreme Court precedent.
The order was passed by the single-judge Bench of Justice Jyoti Singh on a writ petition filed by Jai Anmol Ambani, son of industrialist Anil Ambani, challenging the bank’s decision to designate the account as fraud without prior notice or an opportunity of hearing.
The High Court examined the decision-making process adopted by the bank in light of the procedural safeguards mandated under banking regulations and constitutional principles of fairness.
The petitioner contended that the impugned classification had been effected unilaterally, without issuance of a show cause notice or disclosure of the material relied upon, thereby infringing the audi alteram partem rule. Reliance was placed on the Supreme Court’s judgment in State Bank of India v. Rajesh Agarwal, which had authoritatively held that a borrower must be afforded prior notice and a reasonable opportunity to represent against any proposal to classify an account as fraud, given the serious civil and criminal consequences flowing from such a declaration.
Appearing for Jai Ambani, Senior Advocate Rajiv Nayar submitted that Union Bank’s own affidavit disclosed that the purported show cause notice had been dispatched to an address which the company had vacated as early as September 2020. It was argued that service at an incorrect or abandoned address could not be treated as valid compliance with the requirement of prior notice.
After perusing the records, the High Court found merit in the submission and concluded that no effective show cause notice had been served on the petitioner before the account was classified as fraudulent. It held that the absence of notice and hearing vitiated the decision-making process and rendered the classification unsustainable in law, particularly in view of the law declared by the Supreme Court in the Rajesh Agarwal case.
While quashing the impugned classification and declaration of the account as fraud, the High Court clarified that the judgment would not preclude the Union Bank of India from initiating fresh proceedings in accordance with law. The bank was permitted to issue a fresh show cause notice, accompanied by all material, documents, and records, so as to enable the petitioner to submit an effective response. The single-judge Bench further observed that a reasoned order could thereafter be passed after considering the petitioner’s reply.
The dispute arose against the backdrop of criminal proceedings initiated by the Central Bureau of Investigation against several companies of the Anil Ambani group, involving alleged financial irregularities amounting to approximately ₹14,853 crore. Insofar as Jai Anmol Ambani was concerned, the CBI alleged that he had caused a wrongful loss of nearly ₹228 crore to Union Bank of India.
According to the prosecution case, Reliance Home Finance Limited, in which Jai Anmol Ambani had served as a director, had availed substantial credit facilities from the bank but failed to adhere to repayment obligations, leading to the account being classified as a non-performing asset. A forensic audit was stated to have revealed diversion and misuse of loan proceeds, rather than their utilisation for the sanctioned purposes.
The Union Bank of India claimed a wrongful loss of approximately Rs 228.06 crore and, following its decision to classify the account as fraudulent, lodged a complaint with the CBI alleging offences of criminal conspiracy, cheating, and criminal misconduct under the relevant provisions of the Indian Penal Code and the Prevention of Corruption Act.
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