The Bombay High Court has stayed all present and future actions by three public sector banks seeking to declare the accounts of Anil Ambani and his company, Reliance Communications, as `fraud’.
In an order on Wednesday, the High Court noted that the provisions of the RBI‘s Master Directions were violated in the process.
Anil Ambani had challenged show-cause notices issued by the Indian Overseas Bank, IDBI and Bank of Baroda, seeking to declare his and Reliance Communications’ accounts as fraud accounts.
Grounds for interim relief
Justice Milind Jadhav noted that the action was based on a forensic audit report prepared by an external auditor, BDO LLP. The HC judge said that this report cannot be relied upon because it had not been signed by a duly qualified chartered accountant (CA) as required under the Reserve Bank of India’s 2024 Master Directions on fraud.
As interim relief, Amabni had sought a stay of the notices and an injunction against any coercive action on the grounds that BDO LLP was not qualified to conduct the forensic audit, as its signatory was not a chartered accountant.
The banks argued that the audit report was submitted as per the 2016 RBI Master Directions, according to which an external auditor need not be a CA. But the court maintained that, as per the RBI’s Master Directions, a person shall be eligible for appointment as an auditor of a company only if he or she is a CA.
Banks have woken up from their deep slumber: HC
The order said that if interim relief was not given to Ambani and Reliance Communications, it would cause “grave and irreparable harm / loss”,
“Principles of natural justice are based on the maxim `justice should not only be done but should manifestly be seen to be done,’ the HC said, adding that a forensic audit report prepared by an external auditor cannot be relied upon by the banks to issue a show-cause notice.
The consequences of allowing the banks to declare the accounts of Ambani and his company as fraud are “virtually drastic and lead to disastrous consequences like being blacklisted, barred from new bank loans / credit for years, criminal FIR filing, reputation damage, impacting fundamental rights to financial access and civil death,” said the high court.
The court also berated the banks for their belated action against Ambani and his company, stating that this was a “classic case where the banks have woken up from their deep slumber.” The court sought to conduct a forensic audit for the period from 2013 to 2017 in 2019.