Mumbai, Dec. 25 -- The Bombay High Court on Wednesday granted interim relief to industrialist Anil Ambani by staying coercive action by three banks seeking to declare the accounts of his companies as "fraud" based on a forensic audit report (FAR) from October 2020. A single-judge bench of justice Milind Jadhav accepted Ambani's argument that the report, prepared by external auditor BDO India LLP, could not be relied upon as it was not signed by a duly qualified chartered accountant, as required under the Reserve Bank of India's (RBI's) Master Directions. In his prima facie observations, justice Jadhav noted that "it is preposterous to accept the argument of the banks that an external auditor, not having chartered accountant qualifications, could be validly appointed under the 2016 RBI Master Directions for External Audit." The court added that allowing the banks to declare Ambani and the directors of his three companies as "fraud" would be "virtually drastic and lead to disastrous consequences," including blacklisting, denial of further loans for years, and criminal FIRs, "impacting fundamental rights to financial access and civil death". The case pertains to three banks that had issued show cause notices to Ambani based on the FAR for classifying the loan accounts of his companies, Reliance Communications Ltd (RCom), Reliance Telecom Limited (RTL) and Reliance Infratel Limited RITL), as "fraud" based on an October 2020 forensic audit report by BDO India LLP. Ambani, the former non-executive director of RCom, had filed three separate cases against the Indian Overseas Bank, IDBI Bank, and Bank of Baroda, urging the high court to restrain the banks from acting on show-cause notices issued to him from January-December 2024. As interim relief, Ambani sought a stay on the notices and any coercive action. He argued that the signatory of BDO India LLP, appointed by SBI, was not a chartered accountant registered with the Institute of Chartered Accountants of India. Hence, the firm was not authorised to carry out the audit according to the RBI's Revised Master Directions on Fraud dated July 15, 2024, he contended. The banks countered that the 2016 RBI Master Directions, which were relevant at the time of the audit, did not require the external auditor to be a chartered accountant, and that the 2024 directions should not be applied retrospectively. They also argued that questioning the auditor's qualifications was an "afterthought" after Ambani had failed to resist the inevitable-his declaration as "fraud". However, the high court disagreed with the banks, stating that forensic audits under RBI directions must meet statutory audit qualification standards. It also noted procedural lapses: the external auditor was appointed in 2019 to investigate the accounts for the period from 2013 to 2017. The 2016 and 2024 RBI Master Directions stipulate that the auditor must submit their report within three months, but BDO India LLP took 17 months, the court observed. "The Master Directions of RBI are not a mere paper tiger to enable the banks to wake up from their deep slumber and initiate action according to their convenience," said justice Jadhav. The court also said that BDO LLP's independence was "undoubtedly compromised" since it had participated in a Joint Lenders' Meeting in 2019. Finding fault with the conduct of the banks, justice Jadhav also observed: "If banks themselves do not follow the rule of law and timelines as prescribed under the RBI Master Directions, which is prima facie observed in the present case, and take action at the right time, it will affect the broader economy of the country." This was a classic case in which banks had failed to adhere to the timelines prescribed under the 2016 RBI Master Directions, the judge added. "...it is shocking to the core that banks, instead of adhering to the EWS (early warning signals) and red flagging of the account, have not adhered to the regime of the master directions at all," he said. The court also rejected the banks' contention that interfering with the show-cause notices issued to Ambani would derail the investigation. The court, however, said that "the edifice on which it is based is itself palpably dubitable."...