The Bombay High Court on Friday issued notices to the 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 fraudulent.

Ambani’s loan account, linked to the insolvency-bound Reliance Communications, was designated as fraudulent under the RBI’s Master Circular in October last year. A division bench comprising Justices Revati Mohite-Dere and Neela Gokhale declined to stay the order, instead directing Ambani to approach the RBI with his grievance.

Interestingly, the same bench had previously stayed a similar fraud classification order issued by Canara Bank against Ambani, citing non-compliance with the RBI’s Master Circular. This circular mandates that banks provide borrowers an opportunity to be heard before labeling their accounts as fraudulent. The Court also instructed the RBI to ensure that banks adhere to these guidelines and establish their own fraud classification policies.

Senior Advocate Gaurav Joshi, appearing for Ambani, informed the Court that Union Bank had first issued a show cause notice on December 26, 2023, questioning why Ambani’s account should not be classified as fraudulent. A revised notice followed on January 5, 2024, based solely on an incomplete FIR. Despite Ambani’s request for additional documents on January 11, the bank proceeded to declare his accounts fraudulent on October 10, 2024, without granting him a hearing.

Joshi argued that the bank’s decision was a mechanical one, merely replicating content from an audit report without independent assessment. He further contended that the vague claim of "potential routing of funds" could have severe civil consequences.

The Court concurred, expressing concern over banks issuing such classifications without due consideration. It urged the RBI to intervene, noting, “We repeatedly see cases where bank committees merely copy and paste findings. Where is the application of mind? Despite the Master Circular, banks are failing to comply. The RBI must take corrective action.”

Representing the RBI, Senior Advocate Venkatesh Dhond contended that the central bank is often unaware of violations of natural justice in such cases. He highlighted that the RBI has a complaint mechanism for borrowers and issues advisories when such concerns are brought to its attention. However, he clarified that the RBI does not assess the merits of individual cases.

Dhond further encouraged borrowers to lodge complaints through the RBI’s official email and stated that the central bank would update its FAQs to enhance awareness about the process.

The Court also emphasized that despite the RBI’s 2025 Master Circular requiring banks to formulate their own fraud policies, many banks have yet to comply. It directed the RBI to establish a clear timeline for enforcement and mandated that these policies be publicly available on banks’ websites and social media.

Expressing concern over the casual manner in which such orders are issued, the Court remarked, “This involves public money. Such decisions cannot be taken lightly. We must determine whether these actions are intentional or simply due to negligence.”

The Union Bank has been given a week to file its response. The matter is scheduled for the next hearing on March 13.