Supreme Court Refuses Anil Ambani's Plea To Restore Stay On Banks' Fraud Classification Proceedings

The court, however, clarified that the observations made by the High Court would not influence the final adjudication of the suit filed by Ambani against the banks concerning the account classification.

After the order was pronounced, Kapil Sibal, appearing for Ambani, stated that Ambani was willing to explore a settlement with the banks and requested that this be recorded.

However, Solicitor General Tushar Mehta opposed the request, submitting that recording such a statement could have unintended consequences and might be used in ways not presently foreseeable.

However, the bench recorded Sibal's statement that Ambani wished to settle the matter with banks without expressing any opinion on the case.

Ambani approached the Supreme Court against the Bombay High Court Division Bench's February 23 order, which vacated the stay granted by the Single Bench on the fraud classification of his bank accounts

During the hearing, Senior Advocate Kapil Sibal, appearing for Anil Ambani, at the outset argued that the matter raises a pure question of law, emphasizing that the report itself states it is not an audit engagement and therefore cannot be used to allege fraud or siphoning of funds.

On the issue of auditor determination, Sibal argued that only a qualified auditor/chartered accountant can determine siphoning or fraud and conduct a financial audit, and since the report relied upon is not an audit and records finding of fraud, the classification is unsustainable. He added that while ED and CBI investigations stay are not being asked by Ambani, banks cannot base fraud findings on such a report or, especially when records are inaccessible due to NCLT proceedings.

He also contended that siphoning can only be determined by a qualified chartered accountant, not a forensic service provider who himself admits he is not an auditor, not following accounting standards, and has given no conclusive finding of fraud, only “potential diversion.” He argued that under the RBI framework, even if forensic inputs are used, the determination must ultimately be by an auditor, and banks cannot classify an account as fraud on such a report.

Solicitor General of India Tushar Mehta while denying Sibal's argument, said that the report was given by a reputed auditor having worldwide recognition and status.

However, Chief Justice said, “There are such serious allegations of siphoning of thousands of crores of rupees.”

Justice Bagchi, however, observed, “But there is a finding of diversion of funds,”, to which Sibal claimed that it was a finding regarding potential diversion and not actual diversion.

Justice Bagchi during the hearing also remarked that the single bench who stayed the classification, had effectively put form over substance.

Senior Advocate Shyam Diwan, also appearing for Ambani in the petition filed against the Indian Overseas Bank, submitted that since fraud classification has civil ramifications, there must be strict adherence to the statutory requirements. While echoing Sibal's argument that there was no audit report meeting statutory requirements, he argued that under the statutory framework, financial audits in India must be conducted only by a qualified chartered accountant, especially where serious civil and criminal consequences are involved, and therefore a forensic audit in such cases must be carried out by a duly qualified professional.

Divan also stressed that the RBI's 2024 Master Directions mandate the qualification of the auditor, which was not duly complied by the banks.

Background

The case arises from a forensic audit report dated October 15, 2020, relating to Reliance Communications and other ADAG entities, involving alleged irregularities of about Rs 31,580 crore. Based on the report, banks issued show-cause notices in 2024 and classified Anil Ambani as “fraud” on September 2, 2025. Ambani challenged the action, alleging that the report was invalid, prepared by an ineligible auditor, and relied upon in violation of principles of natural justice.

On December 24, 2025, a single judge of the Bombay High Court granted interim relief to Ambani, holding prima facie that the forensic audit was not in line with RBI directions and that fraud classification could have serious civil consequences. The court observed that such action could have “drastic and disastrous consequences" impacting financial access and leading to civil death and held that Ambani had made out a “reasonably strong case for trial.”

On February 23, 2026, a Division Bench set aside the interim relief while allowing appeals filed by the banks and the auditor, holding that the single judge had examined the validity of the forensic report at an interim stage and gone beyond the pleadings. The bench also accepted the lenders' argument that the audit had been conducted under earlier RBI directions and that the challenge was raised belatedly.