Mumbai: The Division Bench of the Bombay High Court has quashed a single-judge interim order that had stayed action against Anil Ambani and related entities in a dispute involving fraud classification proceedings.

The case concerns actions initiated by banks and audit agencies under the Reserve Bank of India’s 2024 Master Directions governing fraud classification.

Court’s ruling

The Division Bench, comprising Chief Justice Shree Chandrashekar and Justice Gautam Ankhad, described the earlier single-judge order as “perverse” and set it aside.

The court also refused to grant a four-week stay on its decision, stating that maintaining the interim protection would effectively continue what it considered an illegal order.

The bench observed that sustaining the previous stay would amount to perpetuating legal irregularity.

Background of the dispute

The order under challenge had restrained three banks — Bank of Baroda, IDBI Bank and Indian Overseas Bank — and audit firm BDO India LLP from taking coercive action against Ambani.

The single-judge bench had earlier held that forensic reports used for fraud classification must be prepared by auditors registered with the Institute of Chartered Accountants of India.

That view was based on the finding that the audit report in the case was signed by a person not registered with the institute.

Banks’ arguments

The appellant banks argued that Ambani’s challenge was largely based on technical grounds, including an RTI application regarding the auditor’s registration.

They also contended that the suit was time-barred and that the findings of the 2020 forensic audit report — including allegations of fund diversion, fictitious debtors and loan misuse — were never substantively disputed.

The banks warned that the earlier order could weaken the enforcement mechanism of the RBI’s fraud classification framework and potentially affect past fraud determinations.

The audit firm argued that it is a SEBI-approved forensic auditor and that its report should be considered valid for regulatory purposes.

What the ruling means

Legal experts say the judgment restores the ability of banks and regulators to proceed under fraud classification guidelines. The final detailed reasoning of the court will be known once the full judgment copy is released.

The dispute is part of long-running litigation related to Reliance Communications group entities.

Further proceedings in connected cases are expected as the matter continues in court.