HC raps RBI, Union Bank over bypassing of rules to declare Ambani account “fraudulent”

MUMBAI: The Bombay high court on Friday issued notices to the Reserve Bank of India (RBI) and the Union Bank of India regarding the bypassing RBI’s master circular while classifying the loan accounts of businessman Anil Ambani as “fraudulent”.

“We are repeatedly coming across cases where banks declare accounts as fraudulent without following the guidelines issued by the RBI,” the division bench of justices Revati Mohite Dere and Dr Neela Gokhale said while rapping the UBI for classifying the accounts of Reliance Communications, founded by Ambani, as fraudulent without granting him a hearing.

The case dates back to January 2024, when Union Bank issued a show cause notice to Reliance Communications, saying its loan account would be classified as “fraudulent” as it had allegedly sanctioned several credit facilities like term loans, guarantees, and letters of credit under a non-fund-based credit limit of ₹1,050 crore. Ambani pleaded for an opportunity to be heard before a decision was taken on the accounts but was not granted the same.

In November 2024, Reliance Communications received a notice from Union Bank, saying its loan account had been classified as “fraudulent”, prompting Ambani to approach the high court.

Senior advocate Gaurav Joshi, representing Ambani, submitted that Union Bank had issued the revised show cause in January 2024 based on an incomplete FIR. The decision to classify Reliance Communications’ accounts as “fraudulent” was taken based on mere allegations of “potential routing of funds”, he said, emphasising the civil and financial consequences of such classification.

The division bench raised concerns over the “cut, copy, paste” attitude of banks, and the mechanical issuance of orders pronouncing an account as “defaulter” or “fraudulent” without the application of mind.

“Banks are not complying. Ultimately, this is public money,” said the court, and suggested Ambani could approach the RBI against the order.

The court directed the RBI to issue a notification for banks to frame a stringent policy in line with RBI’s master circular, which mandates that borrowers have to be heard before their accounts are classified as fraudulent, within a stipulated timeframe. It also instructed the RBI to publicise its fraud classification policies on banks’ websites and social media accounts.

The court stressed on the need for a structural mechanism to prevent banks from misusing their powers. “You should have data on which banks are repeatedly violating guidelines. We cannot keep setting aside orders only for the same mistakes to be made again,” it told the RBI representative. Once proper checks were in place, compliance would follow, the court observed.

In response, senior advocate Venkatesh Dhond, representing the RBI, clarified that it does not work as an adversarial forum between borrowers and banks; instead, it reviews complaints and takes actions.

The court, on the other hand, reiterated the need for concrete measures, highlighting the rights of borrowers to a clear recourse in case of such violations and suggested the RBI set up a clear-cut complaint mechanism.

The next hearing is scheduled on March 13, when the RBI and Union Bank are expected to submit their responses.

When contacted, a spokesperson for Reliance ADAG (Anil Dhirubhai Ambani Group) refused to comment on the development.