Mumbai: Bombay High Court on Friday stayed Canara Bank‘s order that declared industrialist Anil Ambani‘s loan account linked to Reliance Communications Ltd, which is undergoing insolvency proceedings, as fraudulent. It sought Reserve Bank of India’s response after it was told Ambani was not given a hearing.
“RBI needs to take some action against banks. This is repeatedly happening,” said Justices Revati Mohite Dere and Neela Gokhale. They stayed the bank’s Nov 8, 2024, order and permitted Ambani to amend his petition to add RBI as a party respondent.
On Nov 8, the bank classified the loan account as ‘fraud’ for reasons including that a Rs 1,050 crore loan extended in 2017 was routed to a group company to pay other liabilities to connected/related parties. The order was based on RBI’s master circular related to fraud accounts that laid guidelines for such declaration.
Ambani’s advocate argued that the order was communicated to him on Dec 25, after HC on Dec 20 had stayed the bank’s similar classification in respect of independent director Manjari Kacker. He alleged the bank informed RBI about the classification in Sept even before issuing the order.
He further said Ambani was issued a showcause notice on Oct 11 and a reply was submitted, but the bank did not provide documents that it relied upon for the classification. Also, while the forensic audit report was furnished, it was based on a chartered accountant’s opinion. “Why is declaring a fraud account classified information? There was no hearing, nothing. My company is undergoing insolvency,” he added.
Ambani’s advocate cited the Supreme Court’s judgment that borrowers must be given a hearing by the banks before classifying their accounts as fraudulent. He said RBI has issued a circular that says banks must follow the SC judgment and come up with their own fraud declaration policy. Canara Bank had not formulated an internal policy. The judges questioned whether banks have no accountability and whether they are not duty-bound to go through SC orders. Also, why such cases repeatedly come to court. “Ultimately it is wasting public money. Banks are repeatedly committing the same mistakes,” said Justice Mohite Dere.
The bank’s advocate said the order was passed on Sept 6, 2024, and was communicated to RBI only after it was issued to Ambani. He also said there was sufficient material for the classification.
The judges sought the bank’s reply. Posting the next hearing on March 6, they observed that they are “repeatedly coming across cases” of banks not complying with SC judgment. Further, they want to know what action RBI proposes to take against banks for not following the circular.