Bombay High Court Upholds Bank Authority Under 2016 RBI Guidelines in Ambani Fraud Case
In a significant ruling, the Bombay High Court has clarified that executive decisions and actions taken by banks under the Reserve Bank of India's (RBI) 2016 master directions are not invalidated merely because the central bank introduced new master directions in 2024. The court set aside a single judge's order from December 2024 that had restrained banks from acting on a 2020 forensic audit report against industrialist Anil Ambani and his company, Reliance Communications, which classified his account as fraud.
Court Emphasizes Continuity of 2016 Framework
The division bench, comprising Chief Justice Shree Chandrashekhar and Justice Gautam Ankhad, delivered the judgment on Monday, allowing appeals filed by the banks. The bench explicitly stated that "actions taken under the master directions of 2016 which are not repealed shall remain alive for all future purposes." This ruling reinforces the legal standing of measures implemented under the older regulatory framework, even as newer guidelines come into effect.
The court observed that RBI master directions are issued in the interest of banking policy and are designed to secure public money. They provide a comprehensive framework for the early detection of frauds and facilitate the recovery of public funds through timely identification, control, reporting, and mitigation of fraud risks. The bench underscored that these directions cannot be interpreted in a manner that would prejudice lender banks or harm their legitimate interests.
Rejection of Ambani's Arguments and Procedural Irregularities
The appeal bench found "no prima facie reason" to grant relief to Anil Ambani, who had argued that the forensic audit report violated the RBI master circular of 2024 by appointing BDO India LLP for the audit. In contrast, the firm maintained that its appointment was valid under the applicable 2016 guidelines. The court concluded that Justice Milind Jadhav, the single judge, had misunderstood the RBI guidelines in his December 2024 order.
In a strongly worded 52-page ruling made available on Tuesday, the division bench described the single judge's order granting relief to Ambani as "perverse and illegal" and in breach of natural justice. It further noted that the order suffered from "procedural irregularity and impropriety." The bench highlighted that the consequences of the forensic report have been ongoing since State Bank of India red-flagged Ambani's account, with criminal investigations directly affected by the injunction.
Expanded Scope of 2024 Master Directions and Legal Implications
The court acknowledged that the 2024 master directions expanded the applicability of RBI guidelines to include several new banking entities and regional rural banks that were excluded under the 2016 framework. These additions encompass foreign banks, local area banks, small finance banks, Exim Bank, Nabard, and the National Housing Bank. However, this expansion does not retroactively invalidate actions taken under the previous regulations.
The bench pointed out that Ambani has not filed a suit to challenge the order passed by SBI and cannot now contend that he would suffer irreparable loss if the implementation of the forensic report and his classification as fraud are not stayed. This stance reinforces the principle that regulatory actions must be challenged through appropriate legal channels in a timely manner.
High-Profile Legal Representation and Broader Context
The case featured an array of senior counsel representing the banks, BDO India LLP, and Anil Ambani. Notable appearances included solicitor general Tushar Mehta, senior counsel Aspi Chinoy, Kevic Setalvad, Zal Andhyarujina, Zarir Bharucha, Mustafa Doctor, with counsel Kunal Dwarkadas and solicitors RJD and Partners, Yogesh Pirthani, and MDP for the banks and auditor. For Ambani, senior counsel Mukul Rohatgi, Birendra Saraf, Gaurav Joshi, and solicitor Ameet Naik presented arguments.
This ruling sets a precedent for how courts interpret the transition between regulatory frameworks in the banking sector. It affirms that banks' actions under older RBI directions retain their validity unless explicitly repealed, ensuring stability and continuity in fraud detection and recovery processes. The decision also highlights the judiciary's role in balancing individual rights with the need to protect public money and maintain the integrity of financial systems.
