The Bombay High Court on Friday issued notice to Union Bank of India and the Reserve Bank of India (RBI) in response to a petition filed by industrialist Anil Ambani challenging the classification of his loan account as fraud.
The loan account is linked to the insolvency-bound Reliance Communications and was described as fraudulent under the RBI’s Master Circular in October last year.
A division bench of Justices Revati Mohite-Dere and Neela Gokhale declined to stay the order, instead directing Ambani to approach the RBI with his grievance.
Notably, the same bench had earlier
stayed a similar order issued by Canara Bank against Ambani, citing non-compliance with the RBI’s Master Circular. This Circular requires banks to hear the borrower before classifying their account as fraudulent.
The Court also directed the RBI to take action to ensure that banks comply with the Master Circular, which mandates that banks establish their own fraud classification policies.
Appearing for Ambani, Senior Advocate Gaurav Joshi explained that Union Bank had initially issued a show cause notice on December 26, 2023, asking why Ambani’s account should not be classified as fraudulent.
A revised show cause notice was then issued on January 5, 2024, which was supported only by an incomplete first information report (FIR). Despite Ambani requesting additional documents on January 11, Union Bank proceeded to classify his accounts as fraudulent on October 10, 2024, without granting him a hearing.
Joshi argued that the bank's decision was passed mechanically, simply copying content from the audit report, and based on vague assertions of "potential routing of funds" - assertions, he argued, could lead to serious civil consequences.
The Court agreed with Ambani’s argument, noting that banks appear to be issuing such orders without proper consideration. It urged the RBI to take corrective action.
"We come across cases where the bank committee merely copies and pastes the findings. Where’s the application of mind? Despite the Master Circular, banks are not complying. They need to be more mindful, and we want you to do something about it.”
Representing RBI, Senior Advocate Venkatesh Dhond explained that the RBI is often not made aware of natural justice violations. He emphasised that the RBI has a complaint mechanism in place for borrowers who are dissatisfied with such orders.
According to Dhond, if a violation of natural justice occurs, the RBI issues an advisory as soon as it's brought to its notice.
“Nobody comes and informs RBI that a particular borrower is unhappy with the order. There is a department of supervision that can examine such complaints…If there is any violation of natural justice, we issue an advisory. Nobody is bringing it to our notice,” he said.
He, however, clarified that RBI doesn't go into the merits of such cases.
Dhond also encouraged borrowers to approach the RBI via the complaint email id on its website, and added that the RBI would update its FAQs to raise awareness of the complaint process.
The Court further noted that despite the RBI’s 2025 Master Circular requiring banks to create their own fraud policies, many banks have failed to comply. It stressed that the RBI must take action on this issue.
“The Master Circular of 2025 directs banks to frame policies. None of the banks have done so. If you don’t take action, this will continue."
Additionally, the Court instructed the RBI to set a clear timeline for banks to comply with the policy requirements, and mandated that these policies be made publicly available on the banks’ websites and social media accounts.
The Court also expressed concern about the casual nature of such orders, especially when they are routinely challenged. This raises doubts as to whether such orders are issued intentionally or simply by oversight.
“This involves public money. You cannot pass these kinds of orders so casually. We need to determine whether these actions are deliberate,” the Court concluded.
Union Bank is required to file its reply in a week. The matter will be heard next on March 13.
