Bombay High Court Stays Canara Bank’s Order to Classify Anil Ambani’s Loan Account as Fraud
In a significant development, the Bombay High Court on Friday put a hold on Canara Bank’s November 8, 2024, order that classified industrialist Anil Ambani’s loan account as “fraudulent.” The loan account is linked to Reliance Communications (RCom), which is currently undergoing insolvency proceedings. The court also raised questions about the Reserve Bank of India (RBI) and asked what action it plans to take against banks that declare loan accounts as “fraudulent” without giving borrowers a chance to present their side.
Key Highlights of the Court’s Decision
- The court stayed Canara Bank’s order, which had labeled Ambani’s loan account as “fraudulent.”
- The bench, comprising Justices Revati Mohite-Dere and Neela Gokhale, questioned the RBI about its plans to address banks that repeatedly violate its master circular and the Supreme Court’s ruling. These guidelines mandate that borrowers must be given a hearing before their accounts are declared fraudulent.
- The judges expressed concern over the recurring issue, asking, “Why should people repeatedly come to court? RBI needs to take some action against banks.”
- The court allowed Anil Ambani to amend his petition to include the RBI as a respondent in the case.
- The bench also referred to its December 20, 2024, order, in which it had stayed a similar fraud classification against Manjari Kacker, an independent director of Reliance Communications.
Anil Ambani’s Argument
Anil Ambani challenged Canara Bank’s order, arguing that he was not given a hearing before his loan account was classified as fraudulent. His legal team pointed out that the fraud classification was issued on November 8, 2024, but Ambani was only informed about it on December 25, 2024—after the Bombay High Court had already stayed a similar classification in a related case.
Court’s Concerns Over RBI’s Role
The court emphasized that banks must follow the RBI’s master circular and the Supreme Court’s guidelines, which require borrowers to be given a fair hearing before their accounts are labeled as fraudulent. The judges questioned why the RBI has not taken action against banks that repeatedly ignore these rules, forcing borrowers to seek legal recourse.
Background of the Case
The dispute stems from Canara Bank’s decision to classify Anil Ambani’s loan account as fraudulent, citing irregularities in the loan linked to Reliance Communications. RCom, once a major player in India’s telecom sector, has been under insolvency proceedings due to mounting debts. Ambani’s legal team argued that the bank’s decision was unfair and violated due process.
What’s Next?
- The court’s stay on Canara Bank’s order means the fraud classification will not take effect for now.
- The RBI is expected to respond to the court’s questions about its plans to address banks that fail to follow due process.
- Anil Ambani will amend his petition to include the RBI as a respondent, and the case will proceed with further hearings.
Why This Matters
This case highlights the ongoing tension between banks and borrowers over the classification of loan accounts as fraudulent. It also raises important questions about the RBI’s role in ensuring that banks follow due process and treat borrowers fairly. The Bombay High Court’s decision underscores the need for transparency and accountability in the banking sector, especially when dealing with high-profile cases involving significant financial stakes.
The outcome of this case could set a precedent for how banks handle fraud classifications in the future, ensuring that borrowers are given a fair chance to defend themselves before such serious allegations are made.
