The Bombay High Court has stayed all coercive action by Bank of Baroda, IDBI Bank and Indian Overseas Bank against Anil Ambani. The Court held that the forensic audit relied upon was not signed by a qualified chartered accountant and cannot be the basis for fraud action.
The Bombay High Court on Wednesday granted major relief to industrialist Anil Ambani by staying all coercive action initiated by Bank of Baroda, IDBI Bank and Indian Overseas Bank against him, which was based on an October 2020 forensic audit report concerning Reliance Communications Limited (RCOM) and its group companies.
Justice Milind Jadhav, while passing the interim order, took a strong prima facie view that the forensic audit report prepared by audit firm BDO LLP could not be relied upon.
The Court observed that the report was not signed by a duly qualified chartered accountant, which is a mandatory requirement under the Reserve Bank of India’s 2024 Master Directions on fraud. These 2024 directions have replaced the earlier 2016 framework.
The judge noted that once the RBI, through its 2024 Master Directions, clearly stated that an external or forensic auditor must possess statutory qualifications under relevant laws, any forensic audit report signed by a non-chartered accountant could not be considered valid.
Such a report, the Court said, cannot be used as a basis for taking serious and punitive banking actions such as fraud classification.
While highlighting the broader implications, Justice Jadhav observed,
“If Banks themselves do not follow the Rule of Law and timelines as prescribed under the RBI Master Directions, which is prima facie observed in the present case and take action at the right time, it will affect the broader economy of the country,”.
The Court described the case as one where the banks acted belatedly and without following regulatory timelines. Justice Jadhav remarked that this was a situation where
“the banks have woken up from their deep slumber, seeking to conduct a forensic audit for the period from Audit 2013 and 2017 in the year 2019, without adhering to any of the timelines prescribed under the 2016 RBI Master Directions.”
In view of these findings, the Court restrained Bank of Baroda, IDBI Bank and Indian Overseas Bank from proceeding further with the show-cause notices issued to Anil Ambani and from taking any steps towards classifying the accounts as fraud.
The banks, along with BDO LLP, sought a stay on the operation of the High Court’s order. However, this request was firmly rejected. Justice Jadhav made it clear that his prima facie findings were strong and left no scope for keeping the relief on hold.
Emphasising the binding nature of RBI regulations, the judge observed,
“The Master Directions of RBI are not a mere paper tiger to enable the Banks to wake up from their deep slumber and initiate action according to their convenience,”.
Anil Ambani, who was a former non-executive director of Reliance Communications Limited, had approached the Bombay High Court challenging the show-cause notices and the fraud-classification proceedings initiated by a consortium of banks. He argued that these actions were illegal and arbitrary.
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Ambani contended that BDO LLP was merely an “accounting consultant firm” and not a firm of chartered accountants registered with the Institute of Chartered Accountants of India (ICAI).
He further submitted that the forensic audit report was signed by a person who was admittedly not a chartered accountant holding a valid certificate of practice.
According to Ambani, this made the entire forensic audit exercise illegal and without jurisdiction under the RBI’s 2024 Master Directions as well as the Companies Act, 2013.
He also alleged serious violations of principles of natural justice, pointing out that the erstwhile management of RCOM was never given an opportunity to participate in or respond during the forensic audit process.
Ambani argued that the 2024 Master Directions expressly link the eligibility of external and forensic auditors to statutory qualifications prescribed under relevant laws.
Therefore, banks could not rely on a report prepared and signed by an unqualified individual to impose harsh and far-reaching consequences like fraud classification.
On the other hand, the banks opposed the grant of interim relief. They argued that Ambani’s challenge was barred by limitation, waiver and estoppel.
The banks pointed out that RCOM’s accounts had already been classified as fraud in December 2020 and that Ambani had participated in several rounds of correspondence, personal hearings and earlier writ proceedings without questioning the competence of BDO LLP.
The banks further submitted that under the 2016 RBI Master Directions, there was no explicit requirement that a forensic auditor must be a chartered accountant. They also warned that accepting Ambani’s interpretation would disrupt several completed and ongoing fraud investigations across the banking system.
However, the Court was not persuaded by these arguments. Justice Jadhav observed that once the RBI consciously chose to link forensic audits for fraud classification to statutory audit qualifications in 2024, banks could not continue to rely on drastic measures based on a report prepared and signed by an entity and individual who were not even members of ICAI.
Senior advocates Gaurav Joshi, Ashish Kamat and Mayur Khandeparker, along with advocates Ameet Naik, Madhu Gadodia, Piyush Raheja, Abhishekh Kale, Devashish Jagirdar and Ronit Doshi, instructed by Naik Naik & Company, appeared for Anil Ambani.
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Senior advocates Zal Andhyarujina, Zarir Bharucha and Kevic Setalvad, along with advocates Akansha Agarwal, Babu Sivaprakasam, Nandita Bajpai, Rahat Kalptri, Vijay Srinivasan, Yogesh Pirtani, Rishi Thakur, Dhwani Gala, Jeehan Lalka, Nishit Dhruva, Niyati Merchant and Rajlaxmi Pawar, briefed by MDP Legal, represented the banks.
Advocates Kunal Dwarkadas, Rahul Dwarkadas, Prachi Dhanani, Raushan Kumar and Aniket Kharote, instructed by RJD and Partners, appeared on behalf of forensic auditor BDO LLP.
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