Anil Ambani
In a big relief to Anil Ambani and his company Reliance Communications Limited, the Bombay High Court has banned the efforts of three banks to declare the accounts as fraud. The court said that the master directions of the Reserve Bank of India (RBI) were not followed properly in this entire process.
No confidence in forensic audit report
Justice Milind Jadhav said in his order that the banks’ action was based on a forensic audit report, which was prepared by external auditor BDO LLP. But the court made it clear that this report cannot be trusted because it was not signed by any qualified Chartered Accountant (CA), whereas it is mandatory in the Master Directions of RBI 2024.
Heavy loss would result from not getting interim relief
The High Court said that if Anil Ambani and Reliance Communications were not given interim relief, they would have suffered serious and irreparable losses. According to the court, the consequences of declaring accounts as fraud are very serious, which include being blacklisted, being deprived of new bank loans or credit for many years, registration of criminal cases and huge damage to reputation.
Emphasis on principles of justice
The court said that according to the principles of justice, justice should not only be done, but should also be seen to be done. The court also clarified that banks do not have the right to issue show-cause notices on the basis of a forensic report prepared by an external consultant.
Reprimand on banks’ delay
The High Court also expressed displeasure over the late action taken by the banks. The court said that this is a case where the bank woke up from deep sleep and a forensic audit for the period 2013 to 2017 was conducted in 2019.
Arguments of banks and Ambani
Anil Ambani had challenged the show-cause notice issued by Indian Overseas Bank, IDBI Bank and Bank of Baroda. They said that BDO LLP was a consulting firm, not an audit firm, and hence it was not qualified to conduct forensic audits. The banks argued that the audit was conducted under the RBI Master Directions of 2016, in which it was not necessary for the external auditor to be a CA.
Court’s clear stance
The High Court finally clarified that the master directions of RBI are mandatory and the appointment of the auditor should be as per the law. Additionally, the court also said that BDO LLP had previously worked as a consultant for banks, which creates a situation of conflict of interest.