Mumbai, Feb 24: The Bombay High Court has lifted the stay on action initiated by three public sector banks to classify the loan accounts of industrialist Anil Ambani and Reliance Communications Ltd as fraud, holding that the Reserve Bank of India’s Master Directions are meant to safeguard public money and cannot be routinely subjected to judicial scrutiny.
A division bench of Chief Justice Shree Chandrashekhar and Justice Gautam Ankhad on Monday quashed a December 2025 interim order passed by a single judge which had restrained banks from proceeding against Ambani under the Reserve Bank of India (RBI) Master Directions on fraud classification. The detailed 52-page judgment was made available on Tuesday.
Appeals by banks allowed
Allowing appeals filed by Indian Overseas Bank, IDBI Bank and Bank of Baroda and auditor BDO India LLP, the bench termed the earlier order “perverse and illegal” and said it suffered from “procedural irregularity and impropriety”.
The court emphasised that the RBI’s Master Directions were framed to ensure early identification of fraud and protection of the banking system.
“These Master Directions are intended at securing public money and to provide a framework for early detection of frauds and recovery of public money through timely identification, control, reporting and mitigation of fraud risk,” the High Court said.
Directions safeguard public money
The bench observed that the directions enable dissemination of information regarding frauds and unscrupulous borrowers so that banks can take timely action to safeguard their financial interests.
“These directions cannot be interpreted in a different manner so as to cause prejudice to the lender banks and harm their interest. Every violation of the Master Directions shall not be amenable to judicial scrutiny,” the court said.
Holding that the dispute involved issues of public importance affecting the country’s financial system, the bench ruled that grant of interim protection in such matters was “patently illegal”.
No irreversible harm to respondent
The judgment noted that continuation of proceedings against Ambani would not cause any irreversible harm.
“There is no prima facie reason to grant an interim injunction in favour of the respondent (Ambani). There are criminal investigations going on which shall be directly affected by the order of injunction granted by the court,” it said.
The division bench also criticised the single judge’s findings as contradictory and based on “flawed assumptions of fact and law”, observing that the primary objective behind the RBI’s directions had been completely misunderstood.
Forensic audit findings upheld
On the issue of forensic audit, the court held that banks are entitled to appoint external auditors or forensic experts while examining suspected fraud.
It clarified that the 2016 Master Directions do not mandate a forensic audit before a bank takes a final decision on fraud classification. The bench further held that the finding that BDO’s report was not a forensic audit was “perverse and liable to be set aside”.
The court noted that BDO India LLP is empanelled with the Indian Banks Association and the Securities and Exchange Board of India for conducting forensic audits, and its report could not be disregarded at the interim stage.
Request to suspend judgment rejected
The bench agreed with the banks’ contention that the earlier stay order undermined public confidence in the banking system.
Ambani’s counsel sought suspension of the judgment to enable an appeal before the Supreme Court, but the High Court declined the request, observing that granting such relief would continue an illegal order.
“…staying the operation of this judgment shall amount to continuing the illegal order for the next four weeks and perpetuate the illegality,” the court said.
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Earlier, the single bench had stayed present and future action by Indian Overseas Bank, IDBI Bank and Bank of Baroda after accepting Ambani’s contention that the forensic audit conducted by BDO was legally flawed. The division bench has now cleared the way for banks to proceed with fraud classification action in accordance with RBI norms.
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