Relief For Anil Ambani As Bombay High Court Stays Canara Bank's Order Classifying Reliance Comm Loan Account As 'Fraud'

In a relief to industrialist Anil Ambani, the Bombay High Court on Friday stayed an order passed by the Canara Bank by which it classified his loan account, related to Reliance Communications, as "fraudulent account."

A division bench of Justices Revati Mohite-Dere and Dr Neela Gokhale noted that the action of the Bank was in contravention of the 'Master Circular' issued by the Reserve Bank of India (RBI) on fraud accounts and also in breach of the ruling of the Supreme Court.

Notably, both the Supreme Court and also the Master Circular has mandated that the borrowers must be given a hearing before the bank proceeds to classify them as fraud accounts. 

"We would want to know from the RBI whether it proposes to take any action against banks that have repeatedly defied its Master Circular and Supreme Court rulings, which mandate that borrowers must be given a hearing before such classifications. Do these banks got no accountability? Are the baks not duty-bound to go through the orders passed by the Supreme Court from time-to-time?" the court said.  

The judges, while staying the November 2024 order of the Canara Bank, also relied on a December 2024 order in a related case, where it had stayed a similar fraud classification order, against an independent director of Reliance Communications.

According to the petition, the Canara Bank on November 8, 2024 classified the loan accounts of Reliance Communications and its subsidiaries as 'fraudulent' citing misappropriation of a Rs 1,050 crore loan extended in 2017.

Senior Advocate Gaurav Joshi appearing for Ambani pointed out that though the bank passed the classification order on November 8 but it was communicated to Ambani only in December, which was again after 25 days of the HC bench staying a similar fraud classification order against an independent director of the Reliance Communications. 

The senior advocate further pointed out that his client was served wit a show cause notice on October 2023 to which a preliminary response was filed but despite repeated requests, the bank did not furnish the documents including a 'forensic report' which were purportedly relied by the bank authorities while classifying his loan account as fraudulent. He also told the bench that the Canara Bank has still not come up with its own internal policy for classifying loan accounts as fraudulent, as required under RBI guidelines.

On the other hand, the Canara Bank while rebutting the allegations, told the judges that it had passed the order classifying the loan account as fraudulent on September 6, 2024 and the same was communicated to the RBI only after the order was issued. 

However, the judges seemed unimpressed with the bank's stand and adjourned the hearing till March 6, with a directive to the bank to file a response to Ambani's plea and also ordered addition of RBI as a respondent to the petition.