Bombay High Court stays classification of Anil Ambani’s Reliance Comm loan account as fraud

The Bombay High Court on Friday stayed Canara Bank’s November 2024 order classifying industrialist Anil Ambani’s loan account, linked to the insolvency-bound Reliance Communications, as fraudulent under the Reserve Bank of India’s (RBI) Master Circular..A Division Bench of Justices Revati Mohite Dere and Neela Gokhale also sought Canara Bank's response to plea moved by Ambani challenging the bank's move, and directed Ambani to implead the RBI as a party. .The Court also sought an explanation from RBI on whether it proposes to take any action against banks that have repeatedly defied the RBI’s master circular and Supreme Court rulings, which mandate that borrowers must be given a hearing before classifying their accounts as fraudulent. The Court relied on a December 2024 order in a related case, where it had stayed a similar fraud classification against an independent director of Reliance Communications."Have they got no accountability? Are they not duty-bound to go through the orders passed by the apex court from time to time?" the Court asked today..In its November 8, 2024 order, Canara Bank classified the loan accounts of Reliance Communications and its subsidiary as fraudulent, citing misappropriation of a ₹1,050-crore loan extended in 2017. During Friday’s hearing, Ambani’s counsel, Senior Advocate Gaurav Joshi, argued that the bank's classification order was issued on November 8 but was not communicated to Ambani until December 25 days after the Bombay High Court had already stayed a similar classification in a related matter. He further alleged that Canara Bank had informed the RBI about the fraud classification as early as September 2024, even before issuing the order."They (Canara Bank) declare fraud even before passing the order," Joshi submitted. He further contended that although a show-cause notice was issued on October 11, 2023, and a preliminary reply was submitted soon after, the bank failed to provide critical documents, including forensic reports and other materials relied upon for the classification. While the forensic report was shared, he argued that it was merely an opinion of a Chartered Accountant. Despite repeated requests including a letter on December 20, 2023, the bank allegedly refused to share the necessary materials. Joshi also pointed out that Canara Bank has not yet formulated its internal policy for classifying accounts as fraudulent, as required under the RBI guidelines..Canara Bank maintained that its fraud classification order was passed on September 6, 2024, and was communicated to the RBI only after the order was issued. The bank also defended its forensic report, asserting that it contained sufficient material supporting the classification. The Court, however, noted certain inconsistencies in the bank’s stance and remarked, "We will make RBI a party because RBI needs to take action against banks.".Canara Bank was directed to file its reply by February 28. The matter will be heard again on March 6.