Supreme Court Dismisses Anil Ambani's Plea To Stay Fraud Classification Of Loan Accounts

The Supreme Court on Thursday dismissed the petition filed by Anil Ambani seeking to stay the classification of his loan accounts as "fraudulent" by the Bank of Baroda, Indian Overseas Bank Ltd and the IDBI Bank Ltd in terms of the Reserve Bank of India's 2024 Master Directions.A bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice Vipul Pancholi observed that it saw no ground to interfere with the judgment of the Bombay High Court Division Bench, which vacated the stay originally granted by the Single Bench.The bench however clarified that the observations made by the High Court will have no bearing on the final adjudication of the suit filed by Ambani against the Banks over the accounts classification.After the order was dictated, Senior Advocate Kapil Sibal, for Anil Ambani, submitted that his client would like to settle the matter with the banks, and requested the Bench to record his statement. Solicitor General of India Tushar Mehta, for the consortium of banks, opposed the recording of Sibal's statement, saying that "it will have other ramifications" and that the "statement will be used for purposes which we cannot conceive."Sibal however asked why the recording of the statement should be objected to. "Why would the Solicitor oppose an innocuous statement that I wish to settle the matter. Let the banks oppose the settlement, but what is the objection to recording my statement?" Sibal asked.Saying that "I know where this is going," the SG reiterated his objection, saying that the recording of the statement will be used in the other proceedings, including criminal investigation.Ultimately, the bench recorded Sibal's statement that the petitioner wished to settle the matter with banks. The bench clarified in the order that it has not expressed any opinion on that.The bench also ordered that the trial of the suit be expedited, subject to the cooperation of the parties. The other remedies available to Ambani in law were left open.Arguments in the Court Ambani approached the Supreme Court challenging the Bombay High Court Division Bench's February 23 order, which vacated the stay granted by the Single Bench on the fraud classification of his bank accounts.Senior Advocate Kapil Sibal, for Ambani (in the petition against Bank of Baroda), argued that the interim relief cannot be reversed in such a fashion, as the fraud classification will amount to a virtual "civil death." "I have been called a fraud. This is a virtual civil death, nobody will lend money to him," Sibal said, arguing that an interim relief cannot be ordinarily reversed unless it is so perverse or grossly egregious.The Chief Justice of India however pointed out that the investigations by the CBI and the ED were proceeding against Anil Ambani over alleged siphoning off of funds. Sibal said that the criminal investigation can go on in parallel, but the fraud classification must be interfered with as it was bad in law. Sibal contended that there was no proper audit of accounts before the fraud classification, and that the audit carried out by BDO LLP was not an audit meeting the statutory norms, as the entity was not qualified in terms of the RBI's Master Directions 2024.But the bench was not persuaded to interfere. "It's a case of siphoning of...we can't really express any opinion as we don't want to prejudice...if the hard-earned money...1000s of crores of taxpayer hard-earned money alleged to be siphoned...Has the loss been made good?" CJI Surya Kant asked."You cannot have a person who is a forensic service provider, who is not an auditor, and you cannot classify the account as fraud based on his report," Sibal argued. Solicitor General of India Tushar Mehta, however, refuted the argument and asserted that the report was given by a reputed auditor having global recognition. Sibal, on the other hand, claimed that BDO was not an auditor. "Show where he is an auditor. He is not a CA! He is himself saying that I am not a CA/auditor," Sibal said.Sibal said that there was a jurisdictional issue, as the classification was not done on the basis of a forensic audit in conformity with the statutory requirements under the Companies Act."But there is a finding of diversion of funds," Justice Bagchi said. Sibal claimed that it was a finding regarding "potential" diversion.Justice Bagchi observed that the single bench, who stayed the classification, "put form over substance". Sibal asserted that there is no conclusive finding in the report regarding fraud, and it only said that there was a "potential" for it, and that the report concluded by suggesting that the Banks may employ external auditors including forensic auditors."We would have accepted your argument, but the single judge does not question the competence of the entity which went into the audit....that is why we said the single judge put form over substance, there was substantial compliance," Justice Bagchi said.Senior Advocate Shyam Divan, appearing for Anil...

Supreme Court Dismisses Anil Ambani's Plea To Stay Fraud Classification Of Loan Accounts

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The Court recorded Ambani's statement that he wished to settle the matter with banks, and did not express any opinion on it.

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