Bombay High Court stays fraud action against Anil Ambani
The Bombay High Court has stayed all coercive action initiated against Anil Ambani based on an October 2020 forensic audit report into Reliance Communications and group entities by Bank of Baroda, IDBI Bank and Indian Overseas Bank.
High Court found it preposterous to accept the argument of Banks that an External Auditor not having Chartered Accountant qualifications could be validly appointed under the 2016 RBI Master Directions for External Audit.
"The consequences of allowing the Banks to proceed further and declaring the Plaintiff and Directors of the three Companies as fraud are already discussed hereinabove. They are virtually drastic and lead to disastrous consequences like being black listed, barred from new Bank loans / credit for years, criminal FIR filing, reputation damage, impacting fundamental rights to financial access and civil death," a bench of Justice Milind N Jadhav has held.
Justice Jadhav has held that in view of the Forensic Audit Report being a highly contentious document, qualification of the author of the Report being inadequate and it not having been authored by a qualified Chartered Accountant as External Auditor, role of the External Auditor in the present case when he being actively engaged before his appointment with the Lender Banks as Consultant and he himself suggesting and canvassing for his own appointment as Forensic Auditor before the Banks in the JLM, his participation in the JLM on 01.03.2019 and acting as Consultant to Lender Banks well before his appointment as External Auditor and most importantly he stating in writing through his Advocates that no fraud or criminal breach of trust has been observed by him in the FAR, Ambani has made out a reasonably strong case for trial.
High Court noted that banks are required to follow and adhere strictly to the “Rule of Law” and principles of due process of law in all operations, including Audits. "This obligation stems from the comprehensive legal and regulatory framework governing the Banking Sector. Banks have to operate for all purposes within a clear, established legal framework, and not by arbitrary power. Banks cannot appoint an ineligible and unqualified Auditor, whether Internal or External for Audit contrary to provisions of eligibility prescribed under the provisions of Section 141(1) and 141(2) of the Companies Act 2013 if the Auditor is not a practicing Chartered Accountant registered with the ICAI", the bench said.
"Banks’ case that interfering with the Show Cause Notices and further consequential action will derail investigation cannot be countenanced if the edifice on which it is based is itself palpably dubitable. Allowing the impugned action to proceed will lead to disastrous consequences in such cases where it leads to a certain civil death without trial. Hence on the parameter of grave and irreparable harm / loss, Plaintiff’s case deserves to be accepted for grant of interim relief for all the above reasons, legal and factual, and in accordance with the principles of natural justice. Principles of natural justice is based on the maxim – “Justice should not only be done but should manifestly be seen to be done”. It provides for a fair hearing, unbiased decision-making and presenting proper evidence before taking any action," the bench has held.
Case Title: Anil Ambani vs. Indian Overseas Bank & Ors.