The court noted that banks have been failing to follow the RBI’s master circular and the Supreme Court’s order, which makes it mandatory to give account holders an opportunity to be heard before their accounts are tagged as fraudulent. The judges pointed out that this issue is not unique to Ambani’s case but has been raised in multiple other petitions as well.
Bombay: The Bombay High Court asked the Reserve Bank of India (RBI) whether it plans to take action against banks that repeatedly classify a person’s loan account as fraudulent without first giving them a chance to explain their side. The court’s direction came while hearing a petition filed by industrialist Anil Ambani, whose loan account with Canara Bank was declared fraudulent without any hearing.
A bench comprising Justices Revati Mohite-Dere and Neela Gokhale granted relief to Ambani by putting a stay on Canara Bank’s decision to classify his account as fraudulent.
The judges highlighted that when an account is marked fraudulent, it leads to what is known as “civil death,” which has serious financial consequences for the account holder.
The court noted that banks have been failing to follow the RBI’s master circular and the Supreme Court’s order, which makes it mandatory to give account holders an opportunity to be heard before their accounts are tagged as fraudulent. The judges pointed out that this issue is not unique to Ambani’s case but has been raised in multiple other petitions as well.
Expressing concern over the repeated violations, the bench stated,
“We want the RBI to be made a party. This is happening repeatedly. Why should the RBI not take action against the officers? It can’t just say that a circular is issued, and you figure out what to do. Ultimately, this is public money.”
The court directed Ambani’s lawyer to include the RBI as a respondent in the case and scheduled the next hearing for March 6.
Advocate Harsh Sheth, representing Canara Bank, claimed that the bank had followed proper procedures. He stated that show-cause notices were issued to the petitioner, allowing them a chance to respond before declaring the account fraudulent.
However, Ambani’s lawyer countered this claim, arguing that his company was already undergoing insolvency proceedings and had not received any communication from the bank before the classification.
Canara Bank had classified the loan accounts of Ambani’s bankrupt telecom company, Reliance Communications, and its subsidiary as fraudulent. The bank alleged that Rs 1,050 crore, which was loaned in 2017, was misused.
In a notice issued in November 2024, Canara Bank stated, “After availing and enjoying the said loans and credit facilities, your company committed default and breached the sanctioned terms and conditions. The loan accounts slipped into Non-Performing Asset (‘NPA’) status on 09.03.2017.”
The bank claimed that the account was marked fraudulent due to non-utilisation of funds according to the sanctioned terms. It also alleged that the funds were used for inter-company transactions to settle other debts instead of being used for capital expenditure and debt repayment, as originally approved.
Reliance Communications, which went bankrupt in 2018, has maintained that the company is currently undergoing an insolvency resolution procedure.
