Mumbai: In a major relief for Anil Ambani, the Bombay High Court, on Wednesday, stayed all present and future actions by three banks seeking to declare his accounts and those of his company Reliance Communications Ltd as “fraud”.
The process violates provisions of the Reserve Bank of India’s Master Directions, the Court observed.
Justice Milind Jadhav noted that the action initiated by Indian Overseas Bank, IDBI and Bank of Baroda was based on a forensic audit report prepared by external auditor BDO LLP.
The report could not be relied upon as it had not been signed by a duly qualified chartered accountant, which is a requirement under the RBI’s 2024 Master Directions on fraud, the Court held, as reported by The Telegraph Online.
If interim relief was not granted to Ambani and Reliance Communications, it would cause “grave and irreparable harm/loss”, it was further observed.
The Court emphasised the importance of procedural fairness and said: “Principles of natural justice are based on the maxim `justice should not only be done but should manifestly be seen to be done.”
It adding that a forensic audit report prepared by an external auditor cannot be relied upon by banks to issue a show cause notice.
“The RBI Master Directions are mandatory in nature and they operate within a binding statutory framework requiring banks to engage auditors strictly in accordance with applicable law,” the court said in its order.
The bench also took note of the serious implications of a “fraud” classification, observing that the consequences 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”.
Justice Jadhav further criticised the banks for the delay in initiating action against Ambani and Reliance Communications, terming it a “classic case where the banks have woken up from their deep slumber”.
The Court also noted that the lenders sought to conduct a forensic audit in 2019 for transactions covering the period from 2013 to 2017.
Ambani had approached the High Court challenging the show cause notices issued by the three banks, seeking to declare his personal accounts and those of Reliance Communications as fraud accounts.
He sought a stay on the notices and an injunction against any coercive action as interim relief, arguing that BDO LLP was not qualified to conduct the forensic audit since its signatory was not a chartered accountant.
Ambani further contended that BDO LLP was an accounting consultant firm and not an audit firm.
It was argued by the banks, however, that the audit report had been submitted in accordance with the 2016 RBI Master Directions, under which an external auditor was not required to be a chartered accountant.
They also claimed that Ambani had belatedly challenged the report on the issue of the auditor’s qualification and that the challenge was an afterthought and a malafide exercise.
The Court rejected these submissions and maintained that under the RBI’s Master Directions, a person is eligible for appointment as an auditor of a company only if he or she is a chartered accountant.
BDO LLP had previously worked as a consultant for the lender banks, which placed it in a conflicting position as an independent auditor, the Court noted.
