Bombay High Court Overturns Stay on Fraud Classification Against Anil Ambani

The Bombay High Court has lifted a stay on action by three public sector banks to classify industrialist Anil Ambani's and Reliance Communications Ltd's bank accounts as fraud, ruling that not every violation of RBI fraud regulations is subject to judicial scrutiny. A division bench quashed a December 2025 order that had stalled the banks' proceedings, describing the previous decision as "perverse and illegal" and warning it could undermine public confidence in India's banking system.

The judgment, delivered by Chief Justice Shree Chandrashekhar and Justice Gautam Ankhad, represents a significant setback for Ambani's legal strategy to challenge fraud classification notices issued by Indian Overseas Bank, IDBI Bank and Bank of Baroda. The banks had initiated action under the Reserve Bank of India's Master Directions on Frauds after uncovering what they described as "serious findings of fund siphoning and misutilisation" in accounts linked to the Reliance Group chairman.

Background and Context

The case centers on the RBI's Master Directions on Frauds, regulatory guidelines designed to protect public money through early detection, reporting and mitigation of fraud risks in the banking sector. These directions provide banks with a framework for identifying unscrupulous borrowers and taking timely action to recover funds. The dispute began when the three banks issued show-cause notices to Ambani and his company seeking to classify their accounts as fraudulent based on a forensic audit conducted by BDO India LLP.

Ambani challenged these notices before a single bench of the Bombay High Court, which in December 2025 granted an interim stay on all present and future action by the banks. The single judge had ruled that the forensic audit was legally flawed, noting that BDO LLP was an accounting consultancy firm rather than an audit firm and that its signatory was not a chartered accountant. This decision was later appealed by the banks and BDO India LLP.

Key Figures and Entities

The case involves Anil Ambani, chairman of the Reliance Group, and his flagship company Reliance Communications Ltd, which has faced significant financial difficulties in recent years. According to court documents, Ambani challenged the fraud classification on procedural grounds, questioning the qualifications of BDO India LLP to conduct the forensic investigation.

BDO India LLP, an accounting consultancy firm empanelled by both the Indian Banks' Association and SEBI for conducting forensic audits, had prepared the report leading to the fraud classification notices. The three public sector banks—Indian Overseas Bank, IDBI Bank and Bank of Baroda—relied on this audit when initiating action under the RBI's Master Directions. The division bench noted that these banks were entitled to engage external auditors or forensic experts for such investigations.

Legal and Financial Mechanisms

The division bench's ruling clarifies the scope of judicial review over banking regulatory actions. According to the judgment, "every violation of the Master Directions shall not be amenable to judicial scrutiny," particularly when such intervention could prejudice lender banks and harm their interests. The court emphasized that these directions serve the public interest by securing public money and providing a framework for early fraud detection and recovery.

The bench specifically rejected the single judge's finding that the BDO LLP report did not prima facie appear to be a forensic report, calling this conclusion "perverse and liable to be set aside." The court noted that the RBI's Master Directions of 2016 do not mandate a forensic report before banks take final decisions on fraud classification. Additionally, the judgment highlighted that criminal investigations were ongoing and could be directly affected by injunctions against the banks' actions.

International Implications and Policy Response

The ruling has broader implications for India's banking regulatory framework and the balance between judicial oversight and autonomous banking regulations. The division bench characterized the case as being of "public importance" concerning the financial system, warning that interim stays in such matters were "patently illegal." The judgment emphasized that undermining the RBI's regulatory framework could erode public confidence in the banking system.

Following the court's decision on Monday, Ambani's legal team sought a stay of the order to allow for an appeal to the Supreme Court, but the request was declined. The case highlights ongoing tensions between debtor protections and banking sector autonomy in India, where non-performing assets remain a significant concern for financial stability. The judgment reinforces the authority of banking regulators while limiting judicial intervention in what the court characterized as routine regulatory procedures.

Sources

This report draws on court judgments from the Bombay High Court, regulatory guidelines from the Reserve Bank of India, and news reporting from PTI via ETV Bharat published in February 2026. Information regarding the RBI Master Directions on Frauds and the empanelment of forensic auditors is based on publicly available regulatory documents and court proceedings.