The Bombay High Court has raised significant concerns about the manner in which banks classify loan accounts as fraudulent, highlighting issues with the cursory 'cut, copy, paste' method utilized by financial institutions. This scrutiny came as the court heard industrialist Anil Ambani's appeal against the Union Bank of India's recent decision to label his loan account fraudulent. The account in question is linked to Reliance Communications, which is currently facing insolvency proceedings.
During the hearing, Justices Revati Mohite Dere and Neela Gokhale expressed their frustration over the fact banks frequently fail to adhere to the necessary guidelines outlined by the Reserve Bank of India (RBI). Ambani's challenge was predicated on the assertion he had not been afforded the chance to present his case prior to the bank's decision, violating principles of natural justice. The bench stressed the importance of ensuring integrity when managing public money and questioned the casual approach taken by banks when issuing these classifications.
On October 10, 2024, Ambani received notification from Union Bank declaring his account fraud without offering him the opportunity for a hearing. He contested two show-cause notices issued earlier by the bank, asserting not only his lack of access to the documents the bank had relied upon but also the failure to conduct its evaluation with the due diligence required by law. "There cannot be such cut, copy and paste orders. There has to be some application of mind. This involves public money. We cannot have such orders passed casually," remarked the judges during Friday's proceedings.
The court noted its repeated encounters with similar cases where banks merely replicate auditor findings without proper examination. "It is incumbent on you to do things properly. This involves public money," expressed Justices Revati Mohite Dere and Neela K Gokhale, indicating the seriousness with which they regarded the matter. They urged RBI to implement necessary checks and balances to curb this concerning trend, warning of the potential for continued negligence without corrective action.
Senior advocate Venkatesh Dhond, representing the RBI, highlighted existing mechanisms for aggrieved parties. He stated individuals could lodge complaints online if they believe their cases have been mishandled — albeit with the caveat the RBI typically does not assess the merits of each case but rather if procedural standards have been upheld. "We feel this is being done deliberately. There has to be some checks and balances, otherwise this will go on," said Justice Gokhale during the discussion.
The court's stance could pave the way for stringent oversight of how banks handle allegations of fraud moving forward. It prompted Ambani to file his complaint with the RBI, advocating for clearer pathways for accountability and transparency within banking operations concerning fraud classifications. The judges also demanded amendments to public access to information about banks’ fraud policies, asserting they need to be available on financial institutions' websites and social media platforms to improve overall compliance.
Reflecting on the banking regulations, Justice Gokhale reiterated, "We repeatedly see cases where bank committees merely copy and paste findings. Where is the application of mind?" Highlighting the need for banks to rigorously follow the RBI's master circular — which mandates opportunities for borrowers to contest fraud allegations before any classification is made — the court rebuked Union Bank for its apparent lapse.
A series of procedural missteps, including those related to Ambani's loan classification, have prompted not only this current case but have also been indicative of systemic issues within certain banking practices. The justices underscored the need for banks to uphold their fiduciary responsibilities, especially when handling sensitive situations involving public funds and debtor reputation.
Ambani's case emerged from earlier proceedings where the court had temporarily stayed similar fraud allegations levied by Canara Bank, emphasizing non-compliance with due legal processes. The current situation signifies not only Ambani's struggle but reflects widespread concern among borrowers facing similar predicaments against major financial institutions.
The Bombay High Court's determination to maintain scrutiny over such banking practices marks a potentially transformative moment for procedural adherence within the banking sector. With the case scheduled for follow-up hearings and responses from both Union Bank and the RBI expected soon, the outcome could reshape how banks engage with classifications of accounts deemed fraudulent.
Scheduled for hearings on March 13, this case and others like it could catalyze broader reforms aimed at bolstering borrower protections, ensuring integrity, and aligning banking practices with established regulations.