The Bombay High Court has held that when a company’s loan account is classified as fraudulent by a bank, those who control the company—such as promoters, directors, or others in de facto control—may automatically be exposed to penal consequences under the relevant RBI Master Directions.
In a case involving Reliance Communications (RCOM), whose account was declared “fraud” by SBI in mid-2025 over a loan default of around ₹1,500 crore, industrialist Anil Ambani challenged the classification. A division bench of Justices Revati Mohite-Dere and Dr. Neela Gokhale dismissed his plea.
Key observations by the Court:
Clause 4.4 of the RBI Master Directions (2024) makes clear that when proceedings are initiated to declare a company’s account as fraud, those who had control over the company become liable for penal measures.
The show-cause notice (SCN) need not individually name each director or promoter; control evidenced in public documents (e.g. annual reports) suffices.
The Court rejected Ambani’s argument that the SCN was issued under an older 2016 Master Direction (which lacked explicit natural justice safeguards) and that the 2024 version could not be applied retrospectively. The bench held that the 2024 Direction was clarificatory and aligned the earlier regime with Supreme Court mandates on natural justice, and thus could apply to ongoing proceedings.
Regarding the right to a hearing, the Court stated that the law provides for a right to representation (i.e., the opportunity to make written objections) and not necessarily a personal hearing in every case, unless the statute demands it. As long as the entity is given a chance to submit objections in writing, principles of fairness are met.
As a result, the plea by Anil Ambani was dismissed, reaffirming that persons who exercise control over corporate entities must face consequences when accounts are labeled fraudulent.
