Anil D Ambani v. INDIAN OVERSEAS BANK (IOB)
Retrospective Application of RBI Master Directions on Auditor Qualifications and Validity of Forensic Audit Reports.
Court: Bombay High Court
Citation: 2025:BHC-OS:26290
Decision Date: 24-12-2025
List of Laws
The Reserve Bank of India Act, 1934; The Banking Regulation Act, 1949; The Companies Act, 2013; The Chartered Accountants Act, 1949; The Civil Procedure Code, 1908
- Facts: Anil Ambani filed suits against Indian Overseas Bank, IDBI Bank Ltd., and Bank of Baroda, challenging Show Cause Notices issued under the 2024 RBI Master Directions, which relied on a Forensic Audit Report (FAR) prepared by BDO LLP. Ambani contended that BDO LLP was not qualified to conduct the audit as per the Chartered Accountants Act, 1949 and that the signatory of the FAR was not a Chartered Accountant. The banks argued that the 2016 RBI Master Directions, under which the audits were initiated, did not require such qualifications and that the 2024 directions should not be applied retrospectively.
- Procedural Posture: The case involves interim applications in three suits before the Bombay High Court, seeking a stay on the Show Cause Notices and related actions. The court is considering whether to grant interim relief.
- Issue: (1) Whether the 2024 RBI Master Directions, requiring auditors to be qualified under relevant statutes, apply retrospectively to audits initiated under the 2016 RBI Master Directions. (2) Whether a Forensic Audit Report (FAR) prepared by an entity not qualified as a Chartered Accountant under the Chartered Accountants Act, 1949, can form the basis for Show Cause Notices and subsequent actions by banks. (3) Whether the banks followed due process and adhered to the principles of natural justice in issuing the Show Cause Notices and initiating fraud classification proceedings.
- Holding: The Court granted interim relief to Anil Ambani, staying actions based on the Forensic Audit Report (FAR) and Show Cause Notices.
- Reasoning: The Court found that the 2024 RBI Master Directions, which require auditors to be qualified under relevant statutes, were applicable. The court emphasized that the relevant statutes include the Companies Act, 2013 and the Chartered Accountants Act, 1949. The court noted that the Forensic Audit Report (FAR) was prepared by Defendant No. 3, who was not a qualified Chartered Accountant, and that Defendant No. 2, BDO LLP, was described as an "Accounting Consultancy Firm" and not a firm of Chartered Accountants registered with the ICAI. The court also highlighted that the FAR did not bear a Unique Document Identification Number (UDIN), which is mandatory for audit reports. The court observed that the banks had not followed the due procedure prescribed in the 2016 Master Directions for undertaking an External Audit and that Defendant No. 2 was already engaged with the Lender Banks as Consultant all throughout. The court concluded that the banks had not adhered to the timelines prescribed under the RBI Master Directions and that the principles of natural justice had not been followed. The court also relied on the Supreme Court's decision in Rajesh Agarwal (supra), which mandated that personal hearing contemplated following principles of natural justice and also opportunity to make representation be followed.
🔒 For Members Only