Bombay High Court Slams Union Bank for Fraud Tagging, Directs Anil Ambani to Approach RBI

The Bombay High Court has taken a strong stance against banks for their lax approach in declaring bank accounts as fraudulent. In a recent development, the court directed industrialist Anil Ambani to take up his grievance with the Reserve Bank of India (RBI) regarding the decision of Union Bank of India to classify his account as fraudulent.

Bombay High Court Raises Concern Over Bank’s Actions

On Friday, the Bombay High Court issued a notice to Union Bank of India (UBI) and the RBI in response to a petition filed by Anil Ambani. The petition challenges the October 10, 2024, order by Union Bank, which labeled Mr. Ambani’s Reliance Communications loan account as fraudulent under the RBI’s Master Circular guidelines.

The Division Bench of Justices Revati Mohite-Dere and Dr. Neela Gokhale refrained from staying the order but instructed Mr. Ambani to raise the matter with the RBI.

Banks Must Not Take a Casual Approach, Says High Court

The court emphasized that banks must apply due diligence before declaring any account as fraudulent. It criticized the current practice where banks simply copy and paste the auditor’s findings without conducting an independent review.

“Despite the Master Circular, banks are failing to comply. They must be more mindful and act responsibly. Public money is involved, and such casual decisions cannot be tolerated,” the court observed.

The judges stressed that banks must formulate clear policies, as mandated by the 2025 Master Circular. They warned that if corrective action isn’t taken, such issues will persist, potentially leading to financial instability.

RBI’s Complaint Mechanism for Aggrieved Borrowers

Senior Advocate Venkatesh Dhond, representing the RBI, informed the court that the central bank has an online complaint mechanism where borrowers dissatisfied with a bank’s decision can file grievances.

“Most borrowers do not inform the RBI about their dissatisfaction. There is a separate Department of Supervision within the RBI that examines such complaints. If any violation of natural justice is found, an advisory is issued,” he explained.

However, he clarified that the RBI does not assess the merits of the case but only ensures that the necessary procedures were followed before the bank issued its decision.

Banks Failing to Implement Master Circular Directives

One of the key concerns raised by the court was the failure of banks to implement the policies outlined in the 2025 Master Circular. The judges observed:

“The Master Circular mandates banks to establish policies for handling fraud classifications. Yet, none of the banks have done so. If this continues unchecked, borrowers will suffer unfair consequences.”

The court instructed Mr. Ambani to file a formal complaint with the RBI, urging the regulatory body to take appropriate action against such discrepancies.

Union Bank’s Response and Future Legal Proceedings

The Union Bank of India has given a week to file its affidavit responding to Mr. Ambani’s petition. The matter is scheduled for further hearing on March 13, 2025.

The court’s sharp criticism of Union Bank’s actions could set a precedent for similar cases, ensuring that financial institutions adopt a more responsible and transparent approach in handling fraud classifications.

The Larger Implications for Banking Regulations

This case underscores the growing concerns over the arbitrary classification of loan accounts as fraudulent. If banks fail to follow due process, borrowers may suffer severe financial and reputational damage. The intervention of the Bombay High Court highlights the necessity for stricter compliance with RBI guidelines.

What Borrowers Can Learn from This Case

For individuals and businesses, this case serves as a warning that financial institutions can act arbitrarily. Borrowers should be aware of their rights and promptly report any unfair classification to the RBI.

• If your account is wrongfully classified as fraudulent, file a complaint through RBI’s online portal.
• Ensure that your financial records are in order to prevent misinterpretation by banks.
• Seek legal counsel if a bank’s decision negatively impacts your financial standing.

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Conclusion

The Bombay High Court has made it clear that banks cannot take a casual approach when labeling accounts as fraudulent. By directing Anil Ambani to approach the RBI, the court has emphasized the importance of following due process and protecting borrowers’ rights. The case against Union Bank of India is a wake-up call for all financial institutions to implement clear policies and act responsibly when dealing with public funds.

In the coming weeks, all eyes will be on the court’s further proceedings, which could redefine the way banks handle fraud classifications in India.