MUMBAI: The Reserve Bank of India’s (RBI’s) Master Directions on classifying debtors’ accounts as fraud cannot be interpreted to cause prejudice to lender banks and harm their interests, a division bench of the Bombay High Court said on Monday while striking down a single-judge bench’s order in December, which had granted a major reprieve to industrialist Anil Ambani.
The division bench of chief justice Shree Chandrashekhar and justice Gautam Akhand said the Master Directions are intended to secure public money, provide a framework for the early detection of fraud, and recover public money through timely identification, control, reporting and mitigation of fraud risk.
“These directions cannot be interpreted in a different manner so as to cause prejudice to the lender banks and harm their interest,” the division bench said. It added that the single-judge bench’s December 2025 order contained “contradictory findings” and the judge had completely misunderstood the primary objective behind the Master Directions.
The bench made these remarks, which were published on Tuesday, while setting aside the single-judge bench’s order restraining three public sector banks from classifying the loan accounts of three of Ambani’s companies as “fraud” based on a forensic audit report (FAR) from October 2020.
The single-judge bench had accepted Ambani’s argument that the report, prepared by external auditor BDO India LLP, could not be relied upon as it was not signed by a duly qualified chartered accountant, as required under the Master Directions.
However, the division bench clarified that BDO India LLP is empanelled by the Securities and Exchange Board of India (Sebi) as a forensic auditor for listed companies and, therefore, there was no prima facie reason to grant an interim injunction in favour of Ambani.
“In our opinion, this is an issue of public importance and concerns the financial system in the country. The grant of interim injunction in a matter like this and, that too, on such grounds is patently illegal,” the division bench said, adding that the single-judge bench’s findings would directly affect the criminal proceedings.
Three banks—Bank of Baroda, IDBI Bank, and Indian Overseas Bank—that had issued show-cause notices to Ambani between January and December 2024, based on an FAR from October 2020. The notices proposed declaring the accounts of three of his companies—Reliance Communications Ltd (RCom), Reliance Telecom Limited (RTL) and Reliance Infratel Limited (RITL)—as fraudulent.
The case is rooted in the financial collapse of RCom, which entered insolvency in 2019 after failing to pay back a consortium of over 20 lenders led by the State Bank of India. In 2020, the banks commissioned a forensic audit by BDO India LLP to trace the movement of funds. The audit flagged suspicious transactions totalling approximately ₹31,580 crore, alleging that funds were siphoned off to related entities rather than being used for business operations.
Under the RBI Master Directions on Fraud, banks are required to classify accounts as “fraud” if forensic evidence suggests criminal intent or fund diversion. Ambani challenged this in court, arguing that he wasn’t given a fair hearing and questioning the forensic auditor’s technical qualifications.