Court pressure forces Canara Bank to take off fraud label from Anil Ambani’s loan account

Canara Bank has withdrawn its decision to classify the loan account of industrialist Anil Ambani’s Reliance Communications (RCom) as ‘fraudulent’, following months of legal wrangling and questions over due process.

The move, disclosed to the Bombay High Court on Thursday, 10 July, effectively ends Ambani’s legal challenge and spotlights critical gaps in how Indian banks implement fraud labelling under regulatory guidelines.

The dispute centres on a Rs 1,050-crore loan extended by Canara Bank in 2017 to Reliance Communications and its subsidiary. The funds were intended for capital expenditure and to repay existing debts.

However, in November 2024, Canara Bank classified the account as fraudulent, alleging that the money had been misused: routed through inter-company transactions, invested in mutual funds, and used for fixed assets rather than for the sanctioned purposes.

The bank’s action was grounded in the Reserve Bank of India’s (RBI) master circular on fraudulent accounts, which sets out criteria and procedures for such declarations, including the need for banks to have an internal fraud policy and to follow principles of natural justice.

Ambani challenged the ‘fraud’ tag in the Bombay High Court, arguing that he was not given any notice or opportunity to be heard before the classification — a clear violation of Supreme Court directives and RBI guidelines.

Notably, though the fraud label was issued on 8 November 2024, Ambani claims he was only informed on 25 December, after the high court had already stayed a similar order in a related matter.

The high court, in its February 2025 order, stayed Canara Bank’s fraud classification and sharply criticised banks for flouting Supreme Court-mandated procedures, including the right to a personal hearing before such a serious label is applied. The court questioned whether the RBI was holding banks accountable for procedural lapses and underscored the requirement for banks to adhere to principles of natural justice.

“Don’t they (banks) have any accountability? Are they not duty bound to go through the orders passed by the Supreme Court from time to time?” the High Court observed.

The RBI’s 2016 directions on fraud classification require banks to formulate internal policies and ensure borrowers are notified and given a chance to respond before a fraud tag is imposed. Ambani argued that Canara Bank had not even formulated such a policy at the time, further undermining the legitimacy of the fraud classification.

Meanwhile, Reliance Communications, which has been under insolvency proceedings since 2018, maintained that the fraud tag was irrelevant because no legal action can be taken for loans disbursed prior to the insolvency resolution process. The company also argued that the fraud label would have no impact on the ongoing insolvency case.