The Bombay High Court has dealt a significant setback to industrialist Anil Ambani by setting aside an interim order that had restrained banks from proceeding with “fraud classification” proceedings against him.
The Division Bench comprising Chief Justice Shree Chandrashekhar and Justice Gautam Ankhad allowed appeals filed by three banks — Bank of Baroda, Indian Overseas Bank, and IDBI Bank.
A detailed copy of the judgment is yet to be made available.
What Is The Case About?
The banks had classified Ambani as “fraud” based on a forensic audit report dated October 15, 2020. The audit was conducted by BDO LLP.
In January 2026, a Single Judge, Justice Milind Jadhav, had stayed the fraud classification proceedings on the ground that the appointment of the auditor did not conform to the statutory requirements under the Companies Act. The court had observed that non-compliance with statutory qualifications in appointing an auditor could lead to “disastrous consequences.”
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Banks’ Arguments
Appearing for the banks, Solicitor General Tushar Mehta submitted that:
- The 2020 forensic audit report had never been challenged for nearly five years.
- Even in the present suit, the report was assailed only on “technical grounds,” not on its merits.
- The revised RBI Master Circular of 2024 mandates a personal hearing before classifying an account as fraud, and due process was followed.
- There is no requirement in the Circular that the auditor must be affiliated with any specific professional body.
The banks contended that staying the entire fraud classification process on technical grounds was unwarranted.
Ambani’s Submissions
Senior Advocate Gaurav Joshi, appearing for Ambani, argued that:
- The fraud classification resulted in the “civil death” of his client, as he could neither borrow funds nor carry on normal business operations.
- The audit report was “inconclusive, incomplete and error-ridden.”
- The concerned company, Reliance Communications, had already undergone insolvency proceedings and a Resolution Professional had been appointed.
- The audit conducted by BDO was not truly a “forensic audit” but merely an accounts audit that did not follow prescribed auditing standards.
- Transfers of funds between group entities were wrongly termed as “diversion of funds,” despite the companies forming a “single economic unit.”
Court’s Earlier Observation
In the earlier interim order, the Single Judge had held that the appointment of an auditor — whether internal or external — must comply with the Companies Act. Otherwise, banks could appoint any experienced individual at their discretion, creating a legal dichotomy and undermining statutory safeguards.
With the Division Bench now setting aside that interim relief, the banks are free to proceed with the fraud classification process.
What Next?
The detailed reasoning behind the Division Bench’s decision will become clearer once the full judgment is released. For now, the ruling marks a significant legal development in the ongoing dispute and could have broader implications for corporate lending, forensic audits, and the interpretation of RBI guidelines in fraud classification cases.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
