HC stays fraud proceedings against Anil Ambani over audit defects
HC stays fraud proceedings against Anil Ambani over audit defects
The Bombay High Court has stayed fraud classification proceedings against Anil Ambani, the founder and chairman of the Reliance Group.
The proceedings were initiated by Indian Overseas Bank, IDBI Bank, and Bank of Baroda based on a forensic audit report by BDO LLP.
The court found "serious defects" in the audit report dated October 15, 2020, which did not comply with Reserve Bank of India (RBI) Master Directions, Live Law reported.
Court questions BDO LLP's appointment as forensic auditor
The court, led by Justice Milind N Jadhav, questioned the appointment of BDO LLP as a forensic auditor under the Companies Act.
It said non-compliance with statutory qualifications could have disastrous results.
The court emphasized that auditors must conform to applicable statutes to avoid a dichotomy in appointing internal and external auditors.
The court said it is impermissible for any unqualified person with vast experience to get appointed at the discretion of the bank.
Ambani challenges fraud classification notices from banks
The case arose after the three banks issued show cause notices in 2024, proposing to classify Ambani as a fraud under the RBI's Master Directions on Fraud, 2016.
These notices were based on BDO LLP's forensic audit of Reliance Communications Ltd, Reliance Telecom Ltd, and Reliance Infratel Ltd between 2013 and 2017.
The audit was commissioned by a consortium of lenders led by the State Bank of India after the Rcom group companies entered insolvency proceedings.
Banks defend audit, court emphasizes compliance with statutes
Ambani challenged the notices on the grounds that BDO LLP was not qualified under the law and the audit was signed by a non-Chartered Accountant.
He also pointed to a four-year delay in invoking the fraud framework and argued that the audit did not conclude he had committed fraud.
The banks defended their actions, saying they were in accordance with RBI Master Directions, and later qualification requirements couldn't be applied retrospectively.
Court highlights potential consequences of fraud classification
The court also highlighted the potential consequences of such classification, including being blacklisted and barred from new bank loans.
It said these could impact fundamental rights to financial access and civil death.
The court rejected the banks' submission that its interference would derail the process, saying such a plea couldn't stand if based on dubious grounds.