Bombay High Court Flags 'Cut Copy Paste' Orders Being Passed By Banks To Declare Fraud Accounts; Asks Anil Ambani To Approach RBI

The Bombay High Court on Friday asked industrialist Anil Ambani to approach the Reserve Bank of India (RBI) to challenge the October 10, 2024 order passed by the Union Bank of India (UBI) by which it classified his loan account, related to Reliance Communications, as "fraudulent account."

A division bench of Justices Revati Mohite-Dere and Dr Neela Gokhale noted that the banks were merely 'cut, copy and pasting' the opinion of the auditors and declaring accounts as fraudulent or defaulters, without applying their own minds and even without following the mandate in the latest Master Circular of the RBI. 

"We have come across so many matters, wherein orders are picked up from auditor's reports... Cut copy paste the findings of the auditor...The committee (of the bank) also needs to apply it's mind...These orders (of declaring defaulters) do not show application of mind independently... Repeatedly we are coming across such orders, where the committee only cut copy pastes the auditors findings...We need to be mindful of the fact that all this is public money...Thus, there cannot be such casual orders. The RBI needs to bring in some mechanism to resolve this issue," Justice Mohite-Dere remarked orally.

The judges made it clear to the RBI that unless it decides to take action against such banks, things will not change and such matters, would continue to flood the court. 

"Unless you say some action will be taken against officers or banks, these will continue...We think all this is being done deliberately thus once there are checks and balances, we are sure banks will comply with the orders..." the judges opined.

During the hearing, the judges noted the submissions of senior advocate Venkatesh Dhond, who told the judges that the borrowers, who have complaints with the banks' orders declaring their accounts as defaulters, can file an online complaint with the central bank.

"Day in and day out this court is flooded with such cases, where ... Banks aren't acting in compliance with master circulars .. nobody comes and tells the RBI that a borrower is unhappy with the bank... We have a separate cell... If u come with such grievance to us, we will issue advisory... Nobody comes to us...But if someone comes to us and we find principles of natural justice were not followed, we will issue regulatory advisories," Dhond submitted. 

Dhond clarified that the RBI will only look into the complaints from the angle of whether principles of natural justice were followed or not and that the central bank will not touch the merits of the case, in such complaints. Therefore, the judges asked Ambani to approach the RBI since he too alleged that the principles of natural justice were not followed by the UBI in passing the impugned order i.e. the bank did not provide a personal hearing nor did it furnish any documents it relied to declare him a 'defaulter.'

Therefore, the bench refused to pass any "protective orders" for Ambani, noting that nothing much has proceeded against his companies despite the UBI passing orders (of classification his account fraud) in October last year.

"We will issue notice only, we will not say don't take any coercive steps etc because the orders have been passed in October last year and since then nothing much has happened," the bench said, refusing to accept Ambani's contention that his other companies will be affected adversely. 

The judges noted that the order classifying his account asa fraudulent one was in violation of the Master Circular of the Reserve Bank of India (RBI).  It therefore, highlighted to Dhond that this is not the first case, wherein the banks have not followed the Master Circular, which mandates each bank to have its own policy on fraud accounts as to what amounts to a fraud account and how can one account be declared to be a 'fraudulent' one. 

Dhond, however, assured the bench that the RBI will be taking steps to ensure that the banks frame their policies at the earliest. 

Notably, on February 7, the same bench had stayed Canara Bank's order classifying Ambani's loan account related to Reliance Communications as a fraudulent account.

Hearing in the instant case will be held within two weeks.