Bombay HC halts banks’ fraud action on Ambani

The Bombay High Court has put a temporary stop to fraud-related action initiated by three public sector banks against Anil Ambani, raising serious concerns over the validity of the forensic audit that triggered the move.

Justice Milind Jadhav restrained Bank of Baroda, IDBI Bank and Indian Overseas Bank from acting on show-cause notices and other steps based on a forensic audit report prepared in 2020 for Reliance Communications and related companies.

The Court noted that the audit report, prepared by BDO LLP, could not be relied upon because it was not signed by a qualified chartered accountant. Under the Reserve Bank of India’s updated fraud guidelines issued in 2024, any forensic audit used for fraud classification must be conducted and signed by professionals holding statutory qualifications.

The judge observed that banks cannot take harsh action using reports that do not meet basic professional standards. He also criticised the delay, pointing out that banks sought to examine financial records from 2013 to 2017 only in 2019, long after the period in question.

According to the Court, such delayed and irregular action weakens trust in the system and can have wider economic consequences. It stressed that regulatory rules are meant to be followed strictly, not applied at convenience.

Ambani, a former non-executive director of Reliance Communications, challenged the bank actions by arguing that the audit firm functioned only as an accounting consultant and that the report’s signatory was not legally qualified to conduct such an audit. He also claimed the earlier management was not given a chance to participate in the forensic process.

The banks opposed the stay, arguing that the fraud classification was done years ago and that earlier rules did not require forensic auditors to be chartered accountants. They warned that accepting Ambani’s arguments could affect similar cases across the banking sector.

However, the Court took the view that once the RBI clarified auditor eligibility in 2024, banks could not continue relying on reports that failed to meet those standards. The request by banks and the audit firm to pause the Court’s order was rejected.

For now, all further action linked to the disputed audit has been halted.