Bombay HC stays PSU banks’ action against Anil Ambani; says RBI master instructions are ‘not a mere paper tiger’

The Bombay High Court has stayed all current and future actions of three banks seeking to declare the accounts of Anil Ambani and Reliance Communications Ltd as fraud, citing violations of the RBI’s Master Directions. | Photo credit: VIVEK BENDRE

Justice Milind N Jadhav stayed the action of Bank of Baroda, IDBI Bank and Indian Overseas Bank, including show cause notices and fraud classification orders against Ambani and RCom, as he held that banks cannot selectively rely on RBI norms or act without strict compliance with statutory procedure. The court found that the forensic audit report dated October 15, 2020 was “prima facie inconclusive and incomplete” and noted that it was not signed by a qualified chartered accountant as required by law.

Noting that the FAR provided the sole basis for the show-cause notices and subsequent actions of the banks, Justice Jadhav ruled that the report could not be relied upon to initiate enforcement proceedings. “The FAR cannot be relied upon by the banks before me to issue the show-cause notices and take steps in furtherance thereof,” the court said.

The Supreme Court further ruled that classifying an account as fraud, or initiating legal proceedings solely on the basis of a forensic audit, without compliance with the legal and procedural framework, is legally untenable. “It is seen that classifying an account as fraud or initiating a lawsuit based solely on a forensic audit, without complying with the applicable legal and procedural framework, is legally untenable,” Justice Jadhav observed.

In strong observations aimed at the banking system, the court underlined that the RBI’s Master Directions impose mandatory obligations on banks and cannot be treated as optional or decorative guidelines. The court observed that lenders cannot remain inactive for years and later take drastic action without adhering to the timelines, safeguards and due process prescribed by the RBI framework, especially when government money is involved.

In a strongly worded order, Justice Jadhav said, “The Master Directions of RBI are not just a paper tiger to enable the banks to wake up from their deep slumber and take action as per their convenience. If the concerned accounts of the plaintiff had been red flagged due to one or two EWS in the year 2013 itself or even thereafter and if the banks had acted strictly in accordance with the prevailing Master Directions, the present situation would not have arisen. The banks are also I say this because in the In this case the figures are huge. They confuse a common man who puts his hard-earned savings in public sector banks in the hope that they will remain safe and grow.”

Referring to the allegations in the FAR about siphoning off a substantial portion of ₹31,580 crore, the bench said, “It is alleged in the FAR that loans were used for sanction purposes and were siphoned off. The above figures ring a bell. Funds of banks are public money and therefore accounting and/or auditing standards must be strictly applied as per relevant statutes. While this issue may not be directly relevant or important for deciding the interim measures, the court The question that requires an answer in this situation is the responsibility of the banking system and the banks involved, and to whom. In my opinion, the banks in such a situation are accountable to the common man who places trust in the banks by making investments and keeping deposits.

“If banks themselves do not follow the rule of law and timelines as prescribed in the RBI Master Directions, which is prima facie adhered to in this case, and take action at the right time, it will impact the broader economy of the country,” the court added.

Published on December 24, 2025