The Bombay High Court on Wednesday stayed all coercive action by Bank of Baroda, IDBI Bank and Indian Overseas Bank against Anil Ambani. The action was based on a forensic audit report of October 2020 related to Reliance Communications (RCOM) and its group companies.
The court said that the forensic audit report prepared by BDO LLP could not be relied upon. The court noted that the report was not signed by a qualified chartered accountant, which is mandatory under the RBI’s 2024 Master Directions on fraud. These new directions replaced the earlier 2016 rules.
The judge said that once the RBI clearly stated in 2024 that forensic auditors must have statutory qualifications under law, any report signed by a non-chartered accountant cannot be treated as valid. Such a report cannot be used by banks to take punitive action, including fraud classification.
The court also observed that the banks failed to follow the timelines and procedures laid down by the RBI. Justice Jadhav remarked that if banks themselves do not follow RBI rules and the rule of law, it could harm the wider economy.
He criticised the banks for ordering a forensic audit in 2019 for transactions from 2013 to 2017, long after the period in question, and without following RBI timelines. Calling out the delay, the judge said the banks appeared to have “woken up from deep slumber”.
As a result, the court restrained the three banks from proceeding with show-cause notices and fraud-classification steps against Anil Ambani. The court also rejected requests by the banks and BDO LLP to stay the order, saying there was no reason to keep the relief on hold.
Anil Ambani, former non-executive director of RCOM, had approached the court challenging the show-cause notices and fraud proceedings initiated by a consortium of banks. He argued that BDO LLP was only an accounting consultancy firm and not a firm of chartered accountants registered with the Institute of Chartered Accountants of India (ICAI).
He also said that the person who signed the forensic audit report was not a practising chartered accountant, making the report invalid under the RBI’s 2024 Master Directions and the Companies Act, 2013. Ambani further alleged that the principles of natural justice were violated, as the previous management was not allowed to participate in the forensic audit.
Ambani argued that under the 2024 RBI rules, banks cannot rely on a report prepared by an unqualified person to label an account as fraud, which has serious consequences.
The banks opposed the relief, claiming that the account had already been classified as fraud in December 2020 and that Ambani had participated in earlier proceedings without questioning BDO’s role. They argued that under the 2016 RBI rules, there was no requirement for forensic auditors to be chartered accountants, and that changing this interpretation could disrupt many past fraud cases.
However, the court held that after the 2024 RBI Master Directions, banks cannot continue to rely on reports signed by persons who are not qualified under law, even for ongoing actions.
The case will continue to be heard, but for now, all coercive action against Anil Ambani has been put on hold.
Download Court Order PDF (This PDF is available for Premium Users Only. Click here to join premium)
