Bombay High Court issues notice to RBI and Union Bank for declaring Loan Account of Anil Ambani as Fraud
The Bombay High Court has questioned the Reserve Bank of India (RBI) and Union Bank of India for allegedly not following rules while declaring businessman Anil Ambani’s loan accounts as “fraudulent.” On Friday, the court issued notices to both institutions, asking them to explain their actions.
Court Raises Concerns Over Banks Ignoring RBI Rules
A division bench comprising Justices Revati Mohite Dere and Dr. Neela Gokhale strongly criticized Union Bank for bypassing the RBI’s guidelines. The court observed that banks frequently classify accounts as “fraudulent” without giving borrowers a chance to be heard.
“We are repeatedly seeing cases where banks declare accounts as fraudulent without following RBI guidelines,” the court said. It specifically reprimanded Union Bank for labeling the accounts of Reliance Communications, a company founded by Anil Ambani, as fraudulent without granting him a fair hearing.
How the Dispute Began
The issue dates back to January 2024, when Union Bank sent a show-cause notice to Reliance Communications. The bank warned that the company’s loan account would be marked as fraudulent due to alleged misuse of credit facilities, including term loans, bank guarantees, and letters of credit worth ₹1,050 crore.
Ambani requested a hearing before any decision was made, but Union Bank did not provide one. Then, in November 2024, the bank officially classified Reliance Communications’ loan account as fraudulent, prompting Ambani to challenge the decision in court.
Legal Arguments Against the Bank’s Actions
Senior advocate Gaurav Joshi, representing Ambani, argued that Union Bank made its decision based on an incomplete First Information Report (FIR). He said that the bank acted merely on allegations of “potential routing of funds” without concrete evidence. He also highlighted that being labeled as fraudulent has serious financial and legal consequences for businesses.
The court was also concerned about how banks handle fraud classifications. It criticized the “cut, copy, paste” approach used by banks, where they issue fraud declarations without proper investigation or reasoning.
Court Demands RBI to Strengthen Rules
Expressing concern over repeated violations, the court emphasized that banks must be held accountable for their decisions, especially when public money is involved.
“Banks are not complying. Ultimately, this is public money,” the court remarked. It suggested that Ambani could file a complaint with the RBI against Union Bank’s decision.
The court directed the RBI to take the following actions:
- Issue clear guidelines to ensure banks strictly follow rules before labeling accounts as fraudulent.
- Mandate hearings for borrowers before their accounts are classified as fraudulent.
- Publish fraud classification policies on bank websites and social media to ensure transparency.
- Monitor banks to identify repeat violators and prevent misuse of fraud classification powers.
The court stressed that RBI must collect data on banks that repeatedly violate guidelines. It warned that setting aside wrongful fraud classifications repeatedly was not a sustainable solution. “We cannot keep setting aside orders only for the same mistakes to be made again,” the court stated.
RBI Defends Its Role
Senior advocate Venkatesh Dhond, appearing for the RBI, clarified that the central bank does not act as a mediator between borrowers and banks. Instead, it reviews complaints and takes necessary action.
However, the court insisted that borrowers must have a clear way to challenge fraud classifications. It suggested that RBI establish a proper complaint mechanism for affected borrowers.
Next Hearing on March 13
The Bombay High Court has scheduled the next hearing for March 13, 2025. By then, RBI and Union Bank are expected to submit their responses to the court’s concerns.
