Bombay High Court Considers Banks’ Plea to Resume Fraud Action Under RBI Guidelines

Public sector banks, along with audit firm BDO India LLP, have approached the Bombay High Court seeking removal of a judicial stay that has so far restrained them from proceeding against Anil Ambani under the Reserve Bank of India’s fraud classification framework.

The matter is being heard by a Division Bench headed by Chief Justice Shree Chandrashekhar, which is examining an appeal filed against an earlier single-judge order that had halted further action based on a forensic audit report.

Background
The dispute originates from steps taken by lending banks to classify certain loan accounts linked to companies associated with Anil Ambani as fraud, relying on findings of a forensic audit conducted in 2020. The banks acted under the RBI’s Master Directions on Fraud Risk Management, which govern the procedure for declaring borrower accounts as fraudulent.

However, a single judge of the Bombay High Court had stayed these proceedings, holding that the forensic audit report relied upon by the banks did not comply with procedural requirements under the RBI framework. The court noted that the audit was allegedly not signed by a chartered accountant meeting regulatory criteria, raising questions about its validity.

Banks’ Arguments
Challenging the stay, the banks argued that the order places undue emphasis on technical objections while ignoring the substantive findings of the audit. They contended that the borrower had long been aware of the audit conclusions, which included allegations of diversion of funds and irregular financial practices, and had not disputed them on merits at the appropriate stage.

The banks further submitted that continuing the stay could weaken the RBI’s fraud detection regime and set a precedent allowing borrowers to stall regulatory action on procedural grounds.

Current Status
The Division Bench has begun hearing detailed submissions from all parties and is considering whether the stay order should continue or be lifted to allow the banks to proceed in accordance with RBI directions. Further hearings are expected as the court evaluates the scope of judicial interference in regulatory fraud classification.