Bombay High Court: The instant writ petition was filed by Anil Ambani (petitioner), challenging the order of State Bank of India (‘SBI’), which categorised the loan accounts of Anil Ambani and Reliance Communications Limited (‘RCOM’) as ‘fraud’. The Division Bench of Revati Mohite Dere* and Dr. Neela Gokhale, JJ., held that that the said order was not violative of the Master Guidelines 2024 as it gave multiple opportunities to the Anil Ambani to present his case but he did not make any representation or sent any letter to SBI. Furthermore, the Court emphasised that audi alteram partem does not mean that a person has the right to personal hearing. The Court pointed out that Anil Ambani was given multiple opportunities to present his case and was thus satisfied that the requirement of following the principle of natural justice was followed by SBI.
Additionally, the Court opined that since Anil Ambani had control over RCOM and that the Annual Reports of RCOM for the relevant years referred him as the “Promoter” and “person having control”, therefore, he automatically became liable to penal measures. and be reported as fraud.
Background
The SBI had sanctioned term loans of Rs 1500 crores to RCOM; Rs 125 crores to Reliance Telecom Limited (‘RTL’) and a non-fund based facility of Rs 859.59 crores to RCOM on 22-9-2012. In August 2016 SBI again, sanctioned term loans of Rs 565 crores to RCOM and Rs 635 crores to Reliance Infratel Limited (‘RITL’).
The Petitioner was the Promoter and Director of RCOM and RITL, and had given a personal guarantee of Rs 1200 crore for the term loans sanctioned by SBI. In 2017 RCOM defaulted in the payments of the loan to SBI therefore, the account of RCOM was categorised as non-performing asset according to the Master Directions on Fraud — Classification & reporting by Commercial Banks & Select Financial Institutions (‘Master Directions 2016’), notified by the Reserve Bank of India (‘RBI’). Consequently, the BDO India LLP (‘BDO’) prepared and submitted its preliminary and final Forensic Audit Report to SBI. Based on the findings in the BDO Report, RCOM’s account was declared as a ‘fraud account’ by the Fraud Identification Committee but the same was withdrawn in the view of the judgment passed by the Supreme Court in the case of SBI v. Rajesh Agarwal, (2023) 6 SCC 1, (‘Rajesh Agarwal case’), as no notice or prior opportunity to make representation was given to RCOM.
Accordingly, a fresh show-cause notice (‘SCN’) dated 20-12-2023 was issued by SBI to RCOM and its directors including the Petitioner, regarding the conduct of RCOM’s loan account and suspected fraudulent activity and were asked to show cause as to why their account/ name should not be categorized and reported as fraud as per the RBI guidelines.
Anil Ambani, through his Advocate’s letter dated 3-1-2024, responded to the SCN refuting the allegations in the show cause notice and persistently stating that he was unable to reply without being furnished all the relevant documents. He also raised a grievance that the SBI had violated the principles of natural justice, and its acts were contrary to the decision in Rajesh Agrawal case (supra) as well as the Master Directions 2024. SBI responded to Anil Ambani’s letter and provided him with a printed copy of the BDO Report. Anil Ambani was called upon to make his submissions in writing within 15 days from receipt of the letter.
Anil Ambani onceagain requested SBI to provide all the documents and material relied upon by SBI, including the complete report of BDO and suitable time of at least 4 weeks thereafter to respond. SBI furnished to the annexures with exhibits of the Forensic Audit Report and once again requested Anil Ambani to present his case and make relevant and specific submissions in writing within 21 days, as to why the account and his name should not be categorised and reported as fraud.
After September 2024, no response was received by SBI to its letter / Notice dated 26-9-2024, nor there was any complaint made by Anil Ambani related to the BDO Report dated 15-10-2020. Anil Ambani continued to insist that the SCN was non est, being issued prior to the superseded Master Directions 2016.
As no response/representation was received by SBI from Anil Ambani, despite the aforesaid Notice, the Committee concerned of the SBI passed a reasoned order dated 13-6-2025, identifying the account of RCOM as ‘Fraud’ and stating that the name of Anil Ambani, who was the Chairman, Promoter, Non-Executive and Non-Independent Director during the period under review would be reported to RBI as per the Master Directions 2024.
Aggrieved by the said order, the petitioner filed a writ petition before the present Court.
Analysis, Law and Decision
The Court noted that the petitioner had challenged the said order on three grounds:-
The order was violative of Master Directions 2024.
The Court observed that the plain reading of Rajesh Agarwal case (supra), clarified that the Supreme Court did not quash the Master Directions 2016 but in fact interpreted that same and read into the directions, the doctrine of audi alteram partem. The Court clarified that the Master Directions 2016 did not provide for an opportunity of being heard, therefore, pursuant to the said case the RBI issued the Master Directions 2024. While addressing the said directions to all the commercial banks, RBI in its covering letter, had mentioned that Master Directions 2024 shall supersede the earlier Directions i.e. Master Directions 2016, on the subject.
The Court pointed out that the footnote in Chapter II of Master Directions 2024 clearly stated that ensuring compliance of principles of natural justice is included in the Master Directions 2024, pursuant to the decision in Rajesh Agarwal case (supra). Directions to issue a detailed SCN was an integral part of adherence to the principles of natural justice.
Furthermore, the Court stated that the judgment of a Court operates retrospectively, unless expressly made prospective. Thus, the principles of audi altrem partem should be read as already existing, right from the beginning, in the Master Directions 2016.
The Court opined that issuance of a detailed SCN, to give an opportunity to the borrower of being heard, was the only sine qua non as per the Master Directions 2024. If the principles of natural justice were complied with and the doctrine of audi alteram partem was ensured, there was no violation of the Master Directions 2024. Additionally, the Court emphasised that mere conveying to the Banks, by way of a covering letter, that the Master Directions 2024 supersede the Master Directions 2016 would not render the SCN which was already issued by SBI to Anil Ambani, as invalid. Thus, SBI was entitled to proceed pursuant to the impugned SCN issued prior to the Master Directions 2024, as long as principles of natural justice were complied with. In the instant case, the Court observed that since no response was received by SBI to its letter / Notice dated 26-9-2024, nor any complaint was made by Anil Ambani against the BDO Report; he only continued to insist that the SCN was non est, being issued prior to the superseded Master Directions 2016. Therefore, the actions of SBI pursuant to the SCN issued prior to the Master Directions 2024 of RBI were valid as multiple chances of hearing were given to Anil Ambani thus, complying with the principles of natural justice.
Anil Ambani was not given a chance of personal hearing.
The Court opined that audi alteram partem, required that an entity against whom evidence is collected must be informed of the proposed action, supplied the material relied upon, and given an opportunity to explain why such action should not be taken. The Court noted that Master Directions 2024 nowhere contemplated a personal hearing. It only provided an opportunity of being heard as per the directions of the Supreme Court in Rajesh Agarwal case (supra).
Therefore, the Court stated that the principles of natural justice demand that the borrowers must be served a notice, furnished with the forensic audit report, and allowed to submit their representation before their account was classified as fraud. Thus, Master Directions 2024 read with the decision in Rajesh Agarwal case (supra), required an opportunity to submit a representation before classifying a person/entity, followed by the passing of a reasoned order. Hence, the right available was that of making a representation, and not of a mandatory personal hearing. Personal hearing could not be demanded as a matter of right, unless specifically mandated by statute or rules. The principles of natural justice cannot be applied in a straitjacket formula; their application depends on the facts and circumstances of each case.
The Court also pointed out that in the instant case, since Anil Ambani was afforded an adequate opportunity to submit his objections in writing, the requirement of fairness and compliance with the principle of natural justice, stood satisfied. Furthermore, since there was no response to the last communication addressed by Anil Ambani to SBI, thus, SBI was well within its powers in passing the said order.
The account of Anil Ambani could not be classified as ‘fraud’ when he was neither the whole-time director of RCOM, nor any specific allegations were made against him.
The Court opined that once the Company’s account was classified as fraud account, the promoters / directors who were in control of the Company become liable to penal measures and to be reported as fraud. Thus, there was no requirement of the SCN containing specific allegations against the individual or against the Promoter and Director having control over the Company.
In the instant case Anil Ambani had control over RCOM and that the Annual Reports of RCOM for the relevant years refers to Anil Ambani as being the “Promoter” and “person having control” of RCOM. Therefore, as Anil Ambani was in control of the company and responsible for the acts and omissions of the Company, he automatically became liable to penal measures and to be reported as fraud.
Accordingly, based on the aforementioned observations, the Court held that the said order was not violative of the Master Guidelines 2024 as it gave multiple opportunities to Anil Ambani to present his case but he did not make any representation or sent any letter to SBI. Furthermore, the Court emphasised that audi alteram partem did not mean that the person had the right to personal hearing. The fact that the petitioner was given multiple opportunities to present his case, satisfied the requirement of following the principle of natural justice. Additionally, the Court opined that since Anil Ambani had control over RCOM and that the Annual Reports of RCOM for the relevant years referred him as the “Promoter” and “person having control” of RCOM therefore, he automatically became liable to penal measures and to be reported as fraud.
[Anil Ambani v. SBI, W.P. No.3037 of 2025, decided on: 3-10-2025]
*Judgement authored by- Justice Revati Mohite Dere
Advocates who appeared in this case:
Advocate for the Petitioner- Darius Khambata, Prateek Seksaria, Senior Advocates; D.J.Kakalia, Bhavna S. Jaipuria, Kartik Hede, Ayaan Zariwalla and Ms. Bhakti Chandan i/b Mulla & Mulla & CBC
Advocate for the Respondents- Aspi Chinoy, Zal Andhyarujina, Senior Advocate; Sudeshna Roy, Abhiraj Arora, Treenok Guha, Ayush Chaturvedi i/b Saraf & Partners Law Offices, Pradeep Mane, Prasad Shenoy, Riddhi Badheka, Huzan Bhumgara i/b Desai & Diwanji
The post Bombay HC upholds order passed by SBI, declaring accounts of Anil Ambani and Reliance Communication Ltd (RCOM) as ‘Fraud’ appeared first on SCC Times.