Breaking | Bombay High Court Sets Aside Stay On Fraud Classification Proceedings Against Anil Ambani

The Bombay High Court on Monday allowed appeals filed by Bank of Baroda, Indian Overseas Bank and IDBI Bank, which had challenged a single judge's order staying fraud classification proceedings against Anil Ambani, the founder and chairman of the Reliance Group.

The court set aside a single-judge's interim order that had recorded a prima facie finding of “serious defects” in the forensic audit relied upon by the banks.

A Division Bench comprising Chief Justice Shree Chandrashekhar and Justice Gautam Ankhad pronounced the judgment. The detailed order is awaited.

Appearing for the banks, Solicitor General Tushar Mehta submitted that the forensic audit report dated October 15, 2020, on the basis of which the industrialist was classified as “fraud,” had not been questioned for nearly five years.

He argued that even in the suit before Justice Milind Jadhav, the challenge to the report was limited to “technical” grounds and did not address the merits.

Mehta stated that a show cause notice had initially been issued by the State Bank of India and that the fraud classification followed the audit report. That classification had earlier been challenged on the ground that the principles of natural justice mandated by the Supreme Court were not followed. He also referred to the Reserve Bank of India's modified Master Circular of 2024, which requires a personal hearing before an account is classified as fraud.

According to the Solicitor General, the fresh challenge was based on the contention that BDO LLP was not competent under the 2024 Master Circular. He argued that the circular does not mandate that the auditor must be affiliated with the ICA.

Senior Advocate Gaurav Joshi, appearing for the industrialist, contended that the fraud proceedings had resulted in his client's “civil death,” as he was unable to borrow funds or conduct business. He submitted that the audit report was “inconclusive, incomplete and error-ridden.”

Joshi further pointed out that the audit was conducted after the company had entered insolvency and a Resolution Professional had been appointed. He argued that the exercise undertaken by BDO LLP was not a forensic audit but an accounts audit, as it did not adhere to auditing standards.

He also submitted that Reliance Communications and its subsidiaries functioned as a “single economic unit,” yet the report treated transfers of funds within the same economic group as “diverging of funds.”

In his January 24 order, Justice Milind Jadhav had held that the appointment of BDO LLP as forensic auditor did not conform to the statutory qualification requirements under the Companies Act and cautioned against the consequences of such non compliance.

“Appointment of Auditor, whether internal or external even under the 2016 RBI Master directions has to conform to the applicable / relevant statute namely the Companies Act. It will otherwise lead to a disastrous situation wherein there will be a clear dichotomy for appointment of statutory Internal Auditor and External Forensic Auditor as any unqualified person having vast experience can get appointed in that case at the discretion of the Bank. This is not permissible,” the single judge had observed.