The Bombay High Court on Wednesday granted interim protection to Anil Ambani, founder and chairman of the Reliance Group, by staying all present and future coercive measures initiated against him by the Bank of Baroda, IDBI Bank and the Indian Overseas Bank on the basis of a forensic audit report prepared by BDO India LLP in relation to Reliance Communications Limited and allied group entities.
The single-judge bench of Justice Milind Jadhav restrained the three banks from proceeding further on the show-cause notices issued to Ambani and from taking any steps pursuant to the proposed fraud classification proceedings until the hearing and final disposal of the suit. It further stayed the effect of any fraud-classification order or allied action arising from the impugned forensic audit.
The High Court noted that the forensic audit report dated October 15, 2020, could not be relied upon for the purposes of initiating adverse banking action. It pointed out that the report was not signed by a duly qualified chartered accountant holding a valid certificate of practice, as required under the Reserve Bank of India’s regulatory framework governing fraud identification and reporting.
Justice Jadhav observed that the RBI Master Directions on Fraud, particularly as clarified under the 2024 regime, which superseded the 2016 framework, expressly tethered forensic and external audits for fraud determination to statutory qualifications prescribed under applicable laws, including the Companies Act, 2013. Even under the 2016 Master Directions, the appointment of a forensic auditor was required to conform to statutory audit standards, failing which the entire exercise would be rendered legally infirm, he added.
The High Court cautioned that permitting banks to engage unqualified persons or entities as forensic auditors would result in an impermissible dilution of statutory safeguards and create a dichotomy between statutory auditors and forensic auditors. Such an approach would vest excessive discretion in banks and could lead to arbitrary and disastrous outcomes within the banking system.
Rejecting the contention that the Master Directions merely provided administrative guidance, Justice Jadhav underscored that RBI directions issued under statutory powers were binding in nature and could not be treated as a “paper tiger” to be invoked selectively or at the convenience of lenders. The High Court took serious note of the fact that the banks had sought to conduct a forensic audit in 2019 for transactions spanning the period between 2013 and 2017, without adhering to the timelines prescribed under the 2016 Master Directions.
Such belated action, undertaken without procedural compliance, was prima facie violative of the rule of law, it noted, adding that the failure of banks to act within prescribed timelines could have broader ramifications for the economy, particularly where public funds and depositor confidence were involved.
Justice Jadhav emphasised that monies handled by banks constituted public money, thereby necessitating strict adherence to statutory accounting and audit norms. In this context, banks were ultimately answerable to the common depositor who reposed faith in the financial system by placing savings and investments with them, he added.
On the issue of consequences, the single-judge Bench held that fraud classification entailed drastic and irreversible civil and regulatory outcomes, including blacklisting, prolonged exclusion from institutional credit, initiation of criminal proceedings, reputational damage, impairment of access to financial services, and what the High Court described as a form of “civil death”. Given the severity of these consequences, it held that strict compliance with statutory and regulatory requirements was non-negotiable.
Ambani, who had served as a non-executive director of Reliance Communications Limited, had approached the High Court challenging the jurisdictional validity of the show-cause notices and the fraud-classification process initiated by the consortium of lenders, with State Bank of India acting as the lead bank. He contended that the forensic audit was conducted by an entity not qualified under law and was signed by an individual who was not a chartered accountant. The audit itself did not conclusively attribute any finding of fraud to him, noted the plea filed by Ambani.
It further alleged violations of principles of natural justice on the grounds that the erstwhile management was not afforded a meaningful opportunity to participate in the forensic exercise. Reliance was also placed on the four-year delay in invoking the fraud framework, which was argued to be contrary to the RBI’s prescribed timelines.
The banks opposed the grant of interim relief, raising objections of limitation, waiver and estoppel. They contended that the account of Reliance Communications had been classified as fraud as early as December 2020, and that Ambani had participated in correspondence, personal hearings and writ proceedings without challenging the competence of BDO India LLP. They submitted that the 2016 Master Directions did not mandate that a forensic auditor be a chartered accountant, adding that subsequent regulatory clarifications could not be applied retrospectively.
The High Court, however, rejected these submissions, holding that even forensic audits ordered under RBI directions were required to comply with statutory audit qualification norms. Judicial interference could not be resisted where the very edifice of the action was palpably doubtful. Recording that Ambani had made out a strong prima facie case and that the balance of convenience lay in his favour, the single-judge Bench granted interim relief, observing that the frailty of the forensic audit and the lack of statutory qualifications on the part of the auditor warranted protection pending trial.
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