REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDCITION
CRIMINAL APPEAL NO. 76 OF 2004
R. Venkatakrishnan .... Appellant
Versus
Central Bureau of Investigation .... Respondent
[With Criminal Appeal No. 164 of 2004, Criminal Appeal No. 92 of 2004,
Criminal Appeal No. 101 of 2004, Criminal Appeal No. 90 of 2004,
Criminal Appeal No. 147 of 2004]
JUDGMENT
S.B. SINHA, J.
INTRODUCTION
These six appeals are directed against a judgment and order dated 4th
December, 2003 passed by the Special Court in Case No.2 of 1993 whereby
and whereunder the appellants herein were convicted and sentenced in the
following terms :-
“(a) Accused No. 1, K. Margabanthu is sentenced for
the offence punishable under Section 120-B read
1
with Section 409 of the Indian Penal Code read
with Section 13(1)[d](iii) read with Section 13(2)
of the Prevention of Corruption Act to undergo
R.I. for a period of six months and to pay fine of
Rs.1,00,000/- in default S.I. for two months.
(b) Accused No. 2, R. Venkatkirshnan is sentenced for
the offence punishable under Section 120-B read
with Section 409 of the Indian Penal Code read
with Section 13(1)[d](iii) read with Section 13(2)
of the Prevention of Corruption Act, to undergo
R.I. for a period of six months and to pay a fine of
Rs.1,00,000/- in default S.I. for two months.
(c) Accused No. 3, S.V. Ramnathan is sentenced for
the offence punishable under Section 120-B read
with Section 409 of the Indian Penal Code read
with Section 13(1)[d](iii) read with Section 13(2)
of the Prevention of Corruption Act to undergo
R.I. for a period of one month and to pay fine of
Rs.10,000/- in default S.I. for 15 days.
(d) Accused No. 5, Atul M.Parekh is sentenced for the
offence punishable under Section 120B of the
Indian Penal Code to undergo R.I. for a period of
15 days and to pay fine of Rs.10,000/-, in default
S.I. for 15 days.
(e) Accused No. 6, C. Ravikumar is sentenced for the
offence punishable under Section 120-B read with
section 409 of the Indian Penal Code read with
Section 13(1)[d](iii) read with Section 13(2) of the
Prevention of Corruption Act to undergo R.I. for a
period of three years and to pay fine of
Rs.1,00,000/- in default S.I. for three months.
(f) Accused No. 7, S. Suresh Babu is sentenced for the
offence punishable under Section 120-B read with
section 409 of the Indian Penal Code read with
Section 13(1)[d](iii) read with Section 13(2) of the
2
Prevention of Corruption Act to undergo R.I. for a
period of one year and to pay fine of Rs.50,000/- in
default S.I. for three months.”
BACKGROUND FACTS
While accused No.1, K. Margabandhu, at the relevant time, was the
Chairman and Managing Director of United Commercial Bank (UCO Bank),
(a public sector bank), accused No.2, Ramaiya Venkatkrishnan was the
General Manager and accused No.3, S.V. Ramnathan was the Divisional
Manager thereof of the Bombay Branch.
accused No.4, Harshad Shantilal Mehta (Harshad Mehta) is said to be
the kingpin of the whole operation. He is no more.
accused No.5, Atul Manubhai Parekh was working as Asst. Vice
President in M/s. Growmore Research and Assets Management Ltd.
Bombay and representing Harshad Mehta in the matter of undertaking
security transactions.
accused No.6 Coodli Ravi Kumar was Assistant General Manager of
National Housing Bank (NHB), Bombay and was in charge of its Funds
Department. accused No.7, Seethapathy Suresh Babu was the Assistant
Manager of National Housing Bank. He used to report to Accused No.6,
3
Shri Coodli Ravi Kumar in regard to his function and worked under his
instructions.
The basic allegation against the appellants and Late Harshad Mehta
was that some transactions were carried out in connivance with the officials
of the Financial Institutions, Banks illegally as a result whereof Late
Harshad Mehta was allowed to obtain a sum of Rs.40 crores which was
actually `Call Money’ given as a loan by the National Housing Bank to the
UCO Bank.
Similar illegal transactions relating to government securities and other
non governmental securities came to the notice of the Central Government.
A Committee commonly known as `Janakiraman Committee’ was thereafter
constituted, Shri R. Janakiraman, the then Deputy Governor of Reserve
Bank of India was appointed as its Chairman. The Committee submitted its
report between May, 1992 and April, 1993. On the basis of the report of the
said Committee, Special Courts were constituted in terms of The Special
Court (Trial of Offences Relating to Transactions in Securities) Act, 1993.
Allegations against the appellants and late Harshad Mehta were as
under:-
4
On 6th April, 1992 National Housing Bank lent a sum of Rs.40 crores
`at call’ to UCO Bank. However the said amount was credited to Harshad
Mehta’s account in UCO Bank, Hamam Street Branch, Mumbai. This was
allegedly done under the instructions of the Head Office in Calcutta and its
Zonal Office at Bombay. The Fund Dealing Officer at D.N. Road, Bombay,
Branch had alleged that a letter was received from National Housing Bank
enclosing the cheque but it was not traceable either in UCO Bank or in
National Housing Bank. On the date of credit, the account of Harshad
Mehta in UCO Bank, Hamam Street Branch showed an overdraft of
Rs.39.07 crores. Harshad Mehta allegedly repaid the said amount with
interest amounting to Rs.27 lakhs through Grindlays Banks which had
debited Harshad Mehta’s account.
It is stated that National Housing Bank could not have advanced loans
directly to the brokers. The recording of the transactions as call money
transactions through other banks was a subterfuge meant only to ensure
grant of loans to Harshad Mehta. It was also alleged that all the funds
management operations at the National Housing Bank (the lending bank)
were centralized with C. Ravikumar, Assistant General Manager (accused
No.6). He was not only the dealer but was also one of the signatories to the
cheques. The back up functions were conducted by S. Suresh Prabhu,
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Assistant Manager, who used to report to C. Ravikumar and acted under his
instructions. These two officers, between themselves, were responsible for
all functions including (i) making the deal; (ii) recording the same ; (iii)
preparing the vouchers; (iv) preparing the cheques; (v) signing the cheques
(as one of the two signatories); preparing and signing BRs; (vii) custody of
BRs received from counter-parties; (viii) issuing and receiving SGL transfer
forms and lodging the same with the RBI; and (ix) maintaining the account
with the RBI and reconciling the same.
The incident having come to light, an investigation was conducted
whereafter Charge Sheets were filed against the accused persons. Charges
were framed by the Special Court on or about 31st October, 2001 which were
as many as fourteen in number. We need not advert thereto.
PROCEEDINGS BEFORE THE TRIAL COURT
With a view to prove the charges against the accused persons the
prosecutions examined twenty witnesses, viz :-
1. Shri Bishwajit Choudhuri,
Chairman and Managing Director,
United Commercial Bank of India.Sanctioning Authority
2. Shri P. Arvindak Shah
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General Manager, Reserve Bank of India,
Production Witness3. Ravi Vira Gupta
Chairman, National Housing Bank,
Sanctioning Authority4. Shri B.L. Sachdeva,
Under Secretary in the Ministry of Finance in
Banking Division5. Shri Hiten D. Mehta,
Employee of late Shri Harshad S. Mehta6. Shri N.A. Shivraman,
Assistant, Funds Department,
National Housing Bank7. Shri Sunil Pandurang Gondhale,
Peon, National Housing Bank8. Jeroo Dalal,
Management Trainee, ANZ Grindlays Bank9. Shri Satish D. Hosangadi,
Chief General Manager, National Housing Bank.10. Mrs. Jyoti R. Patankar,
Officer, Reserve Bank of India Production Witness11. Sujata Milind Nimbalkar,
ANZ Grindlays Bank Production Witness7
12. Shri Sunil Kakkar,
Assistant Chief Officer, UCO Bank, Head Office,
Kolkata.13. Shri Chinmoykumar Mukherjee,
Assistant Chief Officer, UCO Bank,
Kolkata14. Shri K. Vijayan,
Manager, Accounts Department, D.N. Road
Branch, UCO Bank15. Shri Manohar C. Rupani
Assistant Manager, D.N. Road Branch, UCO Bank16. Neelam P. Kini
Clerk, Hamam Street Branch, UCO Bank.17. Shri K. Mallikarjunan,
Officer, UCO Bank, Head Office, Kolkata18. Shri Pradeep A. Karkhanis,
Senior Manager, UCO Bank, Hamam Street
Branch19. Shri Sitaram Premaram Paladia,
Supdt. Of Police, C.B.I.20. Shri P.K. Mankar,
Dy. S.P. C.B.I.8
For proving charges against accused No.1, evidence of P.W. No. 4Shri B.L. Sachdeva, PW-12, Shri Sunil Kakkar; PW-13, Shri
Chinkmoykumar Mukehrjee and PW-17, Shri K. Mallkarjunan are relevant.
Accused No.1 also examined defence witnesses inter alia contending that on
6th April, 1992 he was not present at the Head Office till 3.30 p.m. It was
furthermore contended that the transactions in question were held by and
between NHB and accused No.4 and the officers of UCO Bank had nothing
to do therewith. The depositions of the said witnesses are also relevant for
proving the charges so far as accused No.2 is concerned. His defence was
that the offence of conspiracy has not been proved. It is his case that the
purported decision to arrange for call money had not been taken by him
alone as per the statement of PW-3, P. Arvindk Shah and PW-17, K.
Mallikaarjunan, but by the Chairman-cum-Managing Director of UCO
Bank.
With a view to prove the charges against accused No.3 the learned
Special Court relied upon the evidence of PW-1, Shri Bishwajit Choudhuri,
PW-13, Shri Chinmoykumar Mukherjee, PW-16, Neelam P. Kini and PW-
18, Pradeep A. Karkhanis. His defence was that on the basis of the
documentary as well as oral evidence, the prosecution had not been able to
prove his involvement either for commission of the offence in conspiracy or
9
in commission of any other offence. The only evidence against him beingthat on 6th April, 1992 he had gone to Hamam Street Branch of the UCO
Bank and at that time accused No.5 was also present and the fact that he had
sent a letter for reviving the transaction with broker Late Harshad Mehta
from the Hamam Street Branch by itself does not prove the offence.
So far as accused No.5 is concerned, the prosecution had relied upon
the evidence of PW-5, Shri Hiten D. Metha, who was an employee of Late
Harshad Mehta. He in his deposition stated that he used to make telephone
calls the documents were prepared for repayment of Rs.40 crores on
instructions from accused No.5, Atul M. Parekh. The defence of the said
accused was that he was merely an employee and had been looking after the
execution of the transactions after the deal had been finalized under the
instructions of Harshad Metha. He being an employee could not be a party
to the conspiracy nor the prosecution had been able to show that he had any
role to play in the transaction.
Admittedly accused No.6, C. Ravikumar, was a dealer with NHB.
The prosecution relied upon the deposition of PW-3, Ravi Vira Gupta to
prove the order of sanction, validity whereof is in question. The prosecution
for proving charge against him relied upon the deposition of PW-5, Hiten D.
10
Mehta, who was working with Late Harshad Mehta. Reliance by theprosecution has also been placed on the evidence of PW-6, Shri N.A.
Shivraman, who was working as Assistant, Funds Department, NHB from
27th January, 1991 to 31st December, 1991. Reliance has also been placed in
this behalf on the deposition of PW-9, Shri Satish D. Hosangadi, who at the
relevant time was the Chief General Manager of NHB.
For proving the charges against accused No.7, the prosecution has
relied upon the depositions of PW-6, Shri N.A. Shivraman and PW-9, Shri
Satish D. Hosangadi.
Accused Nos. 1 to 3 and 6 & 7 were public servants.
Orders of sanction for their prosecution were passed by the competent
authorities. Accused Nos. 6 and 7 challenged the validity of the said orders
of sanction before the courts below.
All the accused persons had been charged for commission of offences
punishable under Section 120-B read with Section 409 and Section 34 of the
Indian Penal Code and Section 13(1)(d)(iii) r/w Sections 13(2) of the
Prevention of Corruption Act, 1988.
11
JUDGMENT OF THE SPECIAL COURTThe learned Special Court in its impugned judgment referred to the
decision of Ram Narayan Popli v. Central Bureau of Investigation,
[(2003) 3 SCC 641 ] in extenso so as to note the ingredients for commission
of the offence of conspiracy to conclude :-
“It is thus well established that the transaction of call
money which was shown to be between the National
Housing Bank and the UCO Bank was not a real
transaction of call money between the National Housing
Bank and the UCO Bank. It was really a transaction
between the National Housing Bank and Harshad Mehta
and the officers of the UCO Bank permitted the name of
the UCO Bank to be used to facilitate the transactions
between the National Housing Bank and UCO Bank.
Therefore, about the nature of the transaction, there is no
dispute.”Referring to the statement of accused No.1 it was furthermore held :-
“From the submissions of accused No. 1 it is clear that
even according to him in this transaction, the UCO Bank
allowed itself to be used by Harshad Mehta pursuant to
the routing facility that was extended by it to Harshad
Mehta. Accused No. 1 also relies on the deposition of
P.W. 5 Hiten Mehta in relation to this facility.”Yet again upon referring to the deposition of PW-5, Hiten D. Mehta
and PW-18, Pradeep A. Karkhanis, the learned court held :-
12
“Now, so far as the aspect of conspiracy is concerned,
P.W. 18 Karkhanis has stated that on 6.4.1992 at 12 –
‘12.30 Ramnathan accused No. 3 and Atul Parekh
accused No. 5 had come to the Hamam Street Branch and
before he received call from Vijayan, Atul Parekh told
him that he is expecting a cheque of Rs.40 crores from
the NHB. This clearly indicates that it was already
settled between the officers of the NHB and the UCO
Bank that on that day the NHB was to route Rs.40 crores
to Harshad Mehta through the UCO Bank and that
Ramnathan and Atul Parekh knew about it. It has come
on record that the transactions with the brokers were
stopped in the year 1991 from the Hamam Street Branch.
The accused No. 3 Ramnathan wrote a letter dated
17.3.1992 on instruction from accused No. 1 K.Margabanthu for starting of the transactions again. P.W.
18 Karkhanis has stated that on 6.4.1992 accused No. 3
Ramnathan came to the Hamam Street Branch and
insisted on starting the transactions immediately. He also
states that accused No. 3 said that he is saying so on
instructions from accused No. 1. This shows that
accused No. 3 knew that on that day N.H.B. was to route
Rs. 40 crores to Harshad Mehta through the UCO Bank
and he had gone to the UCO Bank Hamam Street Branch
to see that the transaction goes through and that he did so
on instruction from the accused No. 1, K. Margabanthu.
The Supreme Court has clearly laid it down in the case of
Somnath Thapa referred to above that for establishing
conspiracy knowledge about indulgence in illegal act is
necessary. So far as accused No. 1 is concerned, from
the statements that he made in the meeting on 6.4.1992 it
is clear that he knew about the transaction. (The dispute
about the time of the meeting raised by accused No. 1 is
really not relevant considering the means of
communication available and the written submissions
filed by him, where he says that this was a routine
routing transaction). So far as accused No.2 is
concerned, it is he who authorized the call money
transaction though the amount of Rs.40 crores was not
needed by the UCO bank on that day. Therefore, his13
knowledge about the nature of the transaction is well
established. So far as accused No. 3 Ramnathan is
concerned, his presence at the Hamam Street Branch on
6.4.1992 at 12 – 12.30 with Atul Parekh and his
insistence that the transaction with the broker should be
started immediately show that he was also aware of the
transaction. It is pertinent to note that cross-examination
of P.W. 18 by accused No. 3 shows that even an attempt
is not made to dispute the above referred statement of
P.W. 18. So far as accused No.5 Atul Parekh is
concerned, above referred statement of P.W. 18 clearly
establishes his knowledge of the transaction. The
statement of P.W. 8 Jeroo Dalal also shows that at his
instruction pay order for repayment to the NHB was
prepared.”Referring to the other cases vis-`-vis accused Nos. 6 and 7, it was
opined :-
“Thus, the evidence on record clearly shows that all the
accused persons had knowledge of the transaction and
that all of them have some part in the transaction.”The learned Special Court thereafter considered the question as to
whether the `transfer’ was illegal within the meaning of Section 43 of the
Indian Penal Code in the light of the provisions of Section 14 of the NHB
Act, holding :-
“It is thus clear that the National Housing Bank in terms
of Section 14 of the Act can only make loans and
advances to housing finance institutions and scheduled
banks or slum clearance authority constituted under the14
Central or State Legislation. Sub-section (4) of Section
49 of the National Housing Bank Act lays down that if
any other provision of this Act is contravened or if any
default is made in complying with any other requirement
of this Act, or of any order, regulation or direction made
or given or condition imposed thereunder, any person
found guilty of such contravention or default shall be
punishable with fine.”So far as the purported offence in regard to criminal breach of trust is
concerned, the learned Judge held that the same stood proved against the
officers of the Bank. However, so far as accused No.5 is concerned, the
same was held to have not been proved, although it was held that he was
guilty of commission of offence of conspiracy.
So far as the offences under the Prevention of Corruption Act, 1988 is
concerned, a finding has also been arrived at that the charges under the said
provisions have been proved.
The learned Special Court also negated the contention of accused
Nos.6 and 7 that the order of sanction passed against them are not valid.
SUBMISSIONS
The principal contentions raised on behalf of the appellants are :-
15
1) That the prosecution case even if taken to be correct in its entirety
does not disclose any offence of conspiracy.
2) So far as accused No. 1 and 2 are concerned they were stationed at
Kolkata. Only because they had held a meeting in the Chamber of
accused No.1 in presence of PWs 12 and 13, the same by itself
does not prove that they were party to a larger conspiracy, namely
use of call money for causing unlawful gain to Late Harshad
Mehta.
3) The charges of conspiracy vis-`-vis criminal breach of trust cannot
be said to have been proved as even in terms of Section 14 of the
National Housing Bank Act, such a transaction was legally
permissible.
4) Only because the accused No.3 was present at the Bank and wrote
a letter for reviving the account of Late Harshad Mehta, the same
by itself does not prove that he was a party to the conspiracy.
5) If the prosecution case that there had been a larger conspiracy
because of unlawful favour shown to Harshad Mehta is correct, the
other officers of the UCO Bank, concerned officers of Reserve
16
Bank of India and ANZ Grindlays Bank should have also beenprosecuted.
6) The orders of sanction for prosecuting accused Nos. 6 and 7 were
illegal.
7) The evidences of PWs. 5, 7, 12, 13 and 17 should not have been
relied upon by the learned Special Court as they were accomplices
to the crime.
8) Accused No.1 having come to his office at about 3.00 – 3.30 p.m.
from Chennai and the entire transaction having been completed by
2 O’ clock, he cannot be said to be a party to a decision either to
obtain call money from NHB or the cancellation thereof.
9) The documents proved on behalf of the prosecution do not disclose
that the accused and in particular accused Nos. 1 and 2 had any
intention to commit the alleged offence.
10) Accused No.2 having signed only two documents and accused
No.1 having put his initials only on one document, they could not
be held to be a party to the alleged conspiracy.
17
11) Witnesses, PW No. 5 – Hiten D. Mehta; PW No.12 Sunil Kakkar;
PW No. 13 – Chinmoykumar Mukherjee; PW No. 17 – K.
Mallikaarjunan and PW No. 18 – Pradeep A. Karkhanis, having
regard to Section 163 of the Evidence Act, 1872 read with
illustrations appended to clause VIII of Section 114 of the
Evidence Act, 1872, could not have been relied upon by the
learned Special Court without any corroboration of their
statements. In any view of the matter, evidence of one accomplice
cannot be taken into consideration for the purpose of corroboration
of the evidence of another alleged accomplice.
12) In a case of this nature, where the conspiracy was alleged in regard
to a legal act by illegal means, active participation by each one of
them must have been held to be imperative in character and in its
absence, they could not be held guilty of commission of any
offence.
13) Accused No.3, who was only Scale IV officer and posted at
Hamam Street Branch of UCO Bank, visited D.N. Road Branch
and he had issued a circular for reviving account of three brokers
18
including Late Harshad Mehta, the same by itself does not lead to aconclusion that he had committed the offence.
14) On behalf of accused No.5, it was submitted that being an
employee of Late Harshad Mehta and having acted on his
instructions, he cannot be held to have committed an offence of
conspiracy only because he had visited the banks and /or was in
touch with some of their officers for the purpose of ascertaining
the position of accounts of Mehta.
15) Accused No.6 merely being signatory to the cheque of Rs. 40
crores issued in favour of UCO Bank which has been cleared by
the Reserve Bank of India cannot be presumed to have any
knowledge of diversion of the said amount by the officers of UCO
Bank in the account of Late Harshad Mehta and the purported
refund of the said amount with interest by him through ANZ
Grindlays Bank, and as such he cannot be said to have committed
the offence of conspiracy. .
16) Accused No.7 merely being an Assistant Manager and having
discharged his functions acting under the directions of accused
19
No.6 and other higher officers cannot be said to have committedany offence as alleged or at all.
17) Departmental proceedings having not been initiated by the
employers and neither the UCO Bank nor the NHB having suffered
any loss, the judgment of conviction for criminal breach of trust is
wholly unsustainable.
18) The learned Special Court having not assigned any reason and
having not discussed the materials brought on record in details,
must be held to have acted illegally and without jurisdiction in
passing the impugned judgment.
19) The transfer of money being not `securities’ within the meaning of
the provisions of Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1993, the Special Court had no
jurisdiction to try the offences thereunder.
20) Accused No.5 having been acquitted from the charges of criminal
breach of trust, could not have been held to be guilty of being a
party to the conspiracy as alleged by the prosecution on the basis
of the materials brought on record.
20
Mr. Mohan Prasaran, learned Additional Solicitor General appearingon behalf of the Central Bureau of Investigation, on the other hand, urged:-
1) The prosecution case that NHB had diverted its funds in violation of
the provisions of the National Housing Bank Act, 1987 must be held
to have been proved as the accused persons including Late Harshad
Mehta and his associates utilized the officers of UCO Bank as a
conduit, having regard to the fact that it stands admitted that a ready
forward deal was entered into by and between UCO Bank and NHB
Bank, in terms whereof a sum of Rs.40 crores was credited to the
account of Late Harshad Mehta.
2) An offence of conspiracy need not be proved by adducing direct
evidence of meeting of mind but the same can be established by
cumulative consideration of various facts and several events which
had taken place in quick succession to facilitate the routing of the
amount.
3) From the evidence of PW-17, K. Mallikarjunan it has clearly been
established that both accused Nos. 1 and 2 had closely monitored the
purchases and sales of securities in tandem with Late Harshad Mehta
21
and they in conspiracy with each other had caused huge losses to theBank.
4) Accused No.3 although a Divisional Manager of UCO Bank, issued a
letter to the Zonal Manager, UCO Bank, Bombay, on 17th March,
1992, purported to be containing guidelines issued on BR transactions
whereby recommendations were made to deal with only three brokers,
including late Harshad Mehta, in terms of the purported instructions
of the Chairman-cum-Managing Director and as a copy of the said
letter was, inter alia. forwarded to accused No.2, showed that he had
also been a party to the said conspiracy which has also been proved by
reason of the fact that he had visited the D.N. Road Branch of UCO
Bank along with accused No.5 on the date of the said transaction.
5) Accused Nos. 6 and 7 had not only been a party to the entire
transaction but also manipulated other documents, and in particular,
the vouchers, which clearly show that they not only had the requisite
knowledge that the amount of Rs.40 crores had to be diverted to the
account of Late Harshad Mehta but also the fact that the said amount
would be returned with interest by him through ANZ Grindlays Bank.
22
6) The purported contradiction in regard to absence of accused No. 1
from the office of UCO Bank on 6th April, 1992, and also the timing
of meeting the same does not affect the prosecution case, namely the
commission of offence of conspiracy by all of them, as it has been
established that the cheque issued by the NHB was never intended to
be utilised as call money.
7) Accused No.2, in fact, in his written statement in unequivocal terms
admitted before the Special Court that the transaction involved was a
routing transaction, absolutely transparent and clear transaction in
ordinary course of nature, stated that had the scam not been attributed
to Harshad Mehta, nobody would have raised eye brows thereabout
and, thus, admitted that the routing of a sum of Rs.40 crores belonging
to NHB through UCO Bank to the account of Harshad Mehta was
carried out for unknown consideration.
8) The entire transaction being illegal would come within the purview of
Section 120-A and Section 120-B of Indian Penal Code and, thus, no
exception can be taken to the judgment of the learned Special Court.
23
OVER VIEWNATIONAL HOUSING BANK
NHB is a Bank constituted under the National Housing Bank Act,
1987 (in short NHB Act). The Act was enacted to establish a bank to be
known as the National Housing Bank (NHB) to operate as a principal
agency to promote housing finance institutions both at local and regional
levels and to provide financial and other support to such institutions and for
matters connected therewith or incidental thereto. It is a financial institution.
It is also a Bank within the meaning of the provisions of the Banking
(Regulation) Act, 1949.
The nature of business of the NHB is contained in Chapter IV of the
Act.
`Housing finance institution’ has been defined in Section 2(d), (as it then
stood) to mean –
“2. (d) “housing finance institution” includes every
institution, whether incorporated or not, which primarily
transacts or has as its principal object, the transacting of
the business of providing finance for housing, whether
directly or indirectly;”24
NHB was established with a view to give effect to the object and
purpose of the said Act. It is a subsidiary of Reserve Bank of India.
Provisions of Section 14 of NHB Act, as they are relevant for our purpose
may be noticed:-
“Section 14 – Business of the National Housing Bank
Subject to the provisions of this Act, the National
Housing Bank may transact all or any of the following
kinds of business, namely:–(a) promoting, establishing, supporting or aiding in the
promotion, establishment and support of housing finance
institutions;(b) making of loans and advances or rendering any other
form of financial assistance whatsoever to housing
finance institutions and scheduled banks,(c) subscribing to or purchasing stocks, shares, bonds,
debentures and securities of every other description;”The Hierarchy of NHB is as under:
1. Chairman-cum-Managing Director
2. Executive Director
3. Chief General Manager/s
4. General Manager/s
5. Deputy General Manager/s
6. Assistant General Manager/s
25
7. Regional General Manager/s
8. Manager/s
9. Deputy Manager/s
10. Assistant Manager
UCO BANK
UCO Bank is a nationalized bank having been taken over in terms of
the provisions of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970. Its head office is at Calcutta. Amongst others it
has two branches in Bombay – one at D.N. Road and other at Hamam Street,
Functions of the scheduled banks are governed by the provisions of
the Banking Companies Act, 1936. UCO Bank is one of the fourteen banks
which was nationalized. The administrative hierarchy of UCO Bank is as
under:
1. Chairman & Managing Director
2. Executive Director
3. General Manager (Scale VII)
4. Dy. General Manager (Scale VI)
5. Asstt. General Manager (Scale V)
6. Officer in (Scale IV)
26
7. Officer in (Scale III)
8. Officer in (Scale II)
9. Officer in (Scale I)
CALL MONEY – THE LEGAL HISTORY
The statute relating to business in Banking was the Bankers Book
Evidence Act, 1891. In 1936 Banking Companies Act, 1936 was enacted
which was also known as Indian Companies (Amendment) Act, 1936
wherein Part XA was inserted providing for far reaching effects on the
banking legislations. Subsequently, the Banking Regulation Act, 1949
(1949 Act) was enacted to consolidate and amend the law relating to
banking. It repealed and replaced Part XA of the Banking Companies Act,
1936.
In the meanwhile, however, Reserve Bank of India Act, 1934 came
into force. Section 42 of the 1934 Act provided for “cash reserves” to be
kept with the Bank, relevant provisions whereof read as under:-
“Section 42 – Cash reserves of scheduled banks to be
kept with the Bank(1) Every bank included in the Second Schedule shall
maintain with the Bank an average daily balance the
amount of which shall not be less than such per cent. of
the total of the demand and time liabilities in India of27
such bank as shown in the return referred to in sub-section (2), as the Bank may from time to time, having
regard to the needs of securing the monetary stability in
the country, notify in the Gazette of IndiaExplanation.-For the purposes of this section,-
(a) “average daily balance” shall mean the average
of the balances held at the close of business of
each day of a fortnight;… (1A) Notwithstanding anything contained in sub-
section (1), the Bank may, by notification in the Gazette
of India, direct that every scheduled bank shall, with
effect from such date as may be specified in the
notification, maintain with the Bank, in addition to the
balance prescribed by or under sub-section (1), an
additional average daily balance the amount of which
shall not be less than the rate specified in the notification,
such additional balance being calculated with reference
to the excess of the total of the demand and time
liabilities of the bank as shown in the return referred to in
sub-section (2) over the total of its demand and time
liabilities at the close of business on the date specified in
the notification as shown by such return so however, that
the additional balance shall, in no case, be more than
such excess:Provided that the Bank may, by a separate notification
in the Gazette of India, specify different dates in
respect of a Bank subsequently included in the Second
Schedule.…(3) If the average daily balance held at the Bank by a
scheduled bank during any fortnight is below the
minimum prescribed by or under sub-section (1) or sub-
section (1A), such scheduled bank shall be liable to pay
to the Bank in respect of that fortnight penal interest at a
rate of three per cent, above the bank rate on the amount
by which such balance with the Bank falls short of the
prescribed minimum, and if during the next succeeding28
fortnight, such average daily balance is still below the
prescribed minimum, the rates of penal interest shall be
increased to a rate of five per cent, above the bank rate in
respect of that fortnight and each subsequent fortnight
during which the default continues on the amount by
which such balance at the Bank falls short of the
prescribed minimum.”Section 42 also provides for penalties. It is, thus, mandatory in
character.
Maintenance of `cash reserve ratio’ is, therefore, a statutory
requirement. The consequence of non compliance thereof has been provided
for in sub-section 3 and 3A of Section 42 which was brought into the statute
book by Act 38 of 1956 which came into force from 6th October, 1956.
In terms of the said provision each bank is to maintain, what is known
as, `cash reserve ratio’ (CRR) every day. It is accepted at the bar that where
a bank having an excess amount would like to invest the same so as to
enable it to earn interest, those who fall short of `cash reserve ratio’ would
be under a statutory obligation to borrow the same so as to maintain the
`cash reserve ratio’ on such interest, as may be mutually agreed upon.
The Banks which are governed under the aforementioned Act being in
the business of banking, besides other purposes, may grant loans not only to
individuals or private persons or body corporates but also to another bank.
29
Control of Banking Companies is vested in the Reserve Bank of Indiaas would appear from Section 35 of the 1949 Act. Section 35A empowers
the Reserve Bank of India to issue direction, which the banks are bound to
carry out; on their failure to do so the penal clause contained in Section 46
would be attracted, sub-section (4) whereof reads as under :-
“Section 46 – Penalties
(4) If any other provision of this Act is
contravened or if any default is made in-(i) complying with any requirement of this
Act or of any order, rule or direction made
or condition imposed thereunder, or(ii) carrying out the terms of, or the
obligations under, a scheme sanctioned
under sub-section (7) of section 45,by any person, such person shall be punishable
with fine which may extend to fifty thousand
rupees or twice the amount involved in such
contravention or default where such amount is
quantifiable, whichever is more, and where a
contravention or default is a continuing one,with
a further fine which may extend to two thousand
and five hundred rupees for every day, during
which the contravention or default continues.”In view of the aforementioned provision the `cash reserve ratio’ as
specified in the statutes, is mandatorily required to kept with Reserve Bank
30
of India. Such average daily balance is not to be less than 3% of the totaldemand and time liabilities of such Bank in India.
Liabilities of a Bank may be in the form of demand or time deposits or
borrowings or other miscellaneous items of liabilities. Liabilities of the
Banks may be towards banking system (as defined under Section 42 of RBI
Act, 1934) or towards others in the form of Demand and Time deposits or
borrowings or other miscellaneous items of liabilities. Reserve Bank of India
has been authorized in terms of Section 42 (1C) of the RBI Act, 1934 to
classify any particular liability as either a demand or a time liability.
‘Demand Liabilities’ include all liabilities which are payable on
demand. `Time Liabilities’ are those which are payable otherwise than on
demand and they include fixed deposits, cash certificates etc.
“Call money” transactions are thus indisputably banking transactions.
It is no doubt true that in the event any irregularity is committed, the
Reserve Bank of India would be entitled to take action against the erring
Bank.
JURISDICTION OF THE SPECIAL COURTS.
31
During the period April, 1992 and June, 1992 certain large scaleirregularities and malpractices were detected in transactions of both
governmental and other securities, carried out by some brokers in collusion
with the employees of various Banks and Financial Institutions. To have a
more close look into the matter the RBI appointed a committee under the
chairmanship of the then Deputy Governor of RBI, Shri R. Jankiraman (“the
Jankiraman Committee”). The committee submitted its report between May,
1992 and April 1993. On the basis of the said report and to deal with the
situation as also to ensure the speedy recovery of the huge amount involved
the Parliament enacted the Special Court (Trial of Offences Relating to
Transaction in Securities) Act, 1992 (“the Special Courts Act”), establishing
the Special Court, from whose judgment this appeal arises.
The learned counsel for the appellants contend before us that the
special court so constituted did not have the jurisdiction to try this matter.
They argue that Section 7 read with Sub Section 2 of Section 3, of the
Special Court Act, limiting the jurisdiction of the Special Court only to
`offences relating to transaction in securities’ would not attract the
transactions which have been attributed to the appellants in the present case.
It is argued that the definition of the term `Securities’, as provided for in
Section 2 (c) of the Act does not bring within its ambit `call money
32
transactions’ for which they are being tried. It must be noted that the orderpassed by the learned Special judge is silent on the issue of jurisdiction even
though the issue is said to have been raised at the trial.
The Special Courts under the Act were established `for the trial of
offences relating to transaction in securities and for matters connected
therewith or incidental thereto.’
Section 3 of the Act deals with the appointment of, and the functions
of custodians under the Act. Section 3 (2) empowers the Custodians to
notify the name of any person who are involved `in any offence relating to
transaction in securities’. The relevant part thereof reads as under:
“3. Appointment and functions of custodians.-
…(2) The Custodian may, on being satisfied on
information received that any person has been
involved in any offence relating to transaction in
securities after the 1st day of April, 1991 and on
and before the 6th June, 1992 notify the name of
such person in the official gazette.” [Emphasis
supplied]Section 3, it must be noted, deals only with offences relating to
transaction in securities within the period of time specified in the Act. The
time period of carrying out the call money transactions is not in dispute
before us, for those transactions admittedly took place within the time period
33
referred to in the section. What is disputed however is whether the saidtransactions do not relate to transactions in securities, as is required by the
section. The definition of the term `securities’ as provided for in section 2
(c) of the Act, reads as under:
“…(c) “securities” includes –
(i) shares, scrips, stocks, bonds, debentures,
debenture stock, units of the Unit Trust of India or
any other mutual fund or other marketable
securities of a like nature in or of any incorporated
company or other body corporate;(ii) Government securities; and
(iii) rights or interests in securities;”[Emphasis added]
Section 4 of the Act gives the Custodians the requisite power to cancel
certain contracts entered into fraudulently and/or to defeat the provisions
therein. Section 5 of the Act provides for the establishment of a special
Court with a sitting judge of a High Court for speedy trial of such offences.
Section 6 empowers the Special Court to take cognizance or try such cases
as are instituted before it.
Section 7, which is of relevance in determining the present issues
before us, defines the jurisdiction of the Special Courts in criminal matters.
It reads as under:
34
“7. Jurisdiction of Special Court.-
Notwithstanding anything contained in any other
law, any prosecution in respect of any offence
referred to in sub section (2) of section 3 shall be
instituted only in the Special Court ….” [Emphasis
supplied]The said section begins with a non obstante clause providing that the
Special Court shall have jurisdiction to try matters in respect of the offences
referred to in Section 3 (2) of the Act.
The definition of `securities’ in the Act is an inclusive one. It is not
exhaustive. It takes within its purview not only the matters specified therein
but also all other types of securities as commonly understood.
In the State of Bombay and others v. The Hospital Mazoor Sabha
and others, [AIR 1960 SC 610] this Court while interpreting the definition of
“industry” as contained in Section 2(j) of the Industrial Disputes Act, 1947
noted as under:-
“It is obvious that the words used is an inclusive
definition denote extension and cannot be treated
as restricted in any sense. Where we are dealing
with an inclusive definition it would be
inappropriate to put a restrictive interpretation
upon terms of wider denotation” [Internal citations
omitted]35
{See also Regional Director, Employees State Insurance Corporation v.High Land Coffee Works of P.X.S. Saldanha and sons and another, [(1991)
3 SCC 617) and Commercial Taxation Officer, Udaipur v. Rajasthan
Taxchem Ltd.. [2007 (2) SCALE 120]. Karnataka Power Transmission
Corpn. & Anr. v. Ashok Iron Works Pvt. Ltd. [(2009) 3 SCC 240]}
However, even if we hold call money transactions not to be within the
scope and ambit of the definition of the term `securities’, it must still be
remembered that the jurisdiction of the Special Court extends even to
offences relating to transaction in securities. Therefore, the jurisdiction of
the Special Court could be invoked even in cases where the transaction is
somehow related to securities. It would extend also to the utilization of any
amount relating to transactions in securities and for matters connected
therewith or incidental thereto.
The jurisdiction of the Special Court is an exclusive one. It exercises
original jurisdiction to try offences relating to the securities scam. It, having
regard, to the peculiar nature of the offences sought to be dealt with, should
receive a liberal construction.
It was so held in Harshad S. Mehta and others v. State of
Maharashtra, [(2001) 8 SCC 257].
36
“The use of different words in Sections 6 and 7 of
the Act as already noticed earlier also show that
the words in Section 7 that the prosecution for any
offence shall be instituted only in Special Court
deserve a liberal and wider construction.”Similarly the court in L.S. Synthetics Ltd. v. Fairgrowth Financial
Services Ltd. and another, [(2004) 11 SCC 456] also noted that `[t]he
jurisdiction of the Special Court is of wide amplitude. Subject to a decision
in appeal therefrom, its decision is final.’
Further Section 4 of the Code of Criminal Procedure provides that all
offences under the Indian Penal Code shall be investigated and tried as per
the provisions of the Code. The same, however, would be subject to special
provisions to the contrary. Section 5 of the Code of Criminal Procedure
contains a saving clause in terms of which the jurisdiction of special
legislations is saved. The Jurisdiction of the Special Court was required to
be determined with reference to the said provision. The Act is a special Act.
The section conferring jurisdiction on the Special Courts under the Act
contains a `Non Obstante’ clause. It, thus, prevails over any other Law.
[See Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. and others,
[(2001) 3 SCC 71 ].
37
The Jurisdiction of the Special Court may be invoked when an offencecommitted relate to transactions in securities; the logical corollary whereof
would be that all parties connected in diverting the funds of the public
sectors and/or financial institutions would also come within the purview
thereof. For considering the provisions of the said Act, it has to be borne in
mind the object and purport thereof. We have noticed heretobefore that the
Reserve Bank of India constituted Janakiraman Committee for the purpose
of looking in to the Securities Scam of the early 90’s. A report pursuant
thereto was submitted. It was on the basis of that report that the said Act
was enacted and the Special Court was constituted. These background facts,
in our opinion, would be relevant for determining the issue.
For the purpose of determining the question as to whether the Special
Court had the jurisdiction to try the offences in question or not, in our
opinion, the principle of purposive construction must be resorted to. The
rule which is also known as the `mischief rule’ enables consideration of four
matters in construing an Act: (i) What was the law before the making of the
Act, (ii) What was the mischief or defect for which the law did not provide
(iii) What is the remedy that the Act has provided, and (iv) What is the
reason of the remedy. The rule then directs the courts to adopt that
construction which suppresses the mischief and advances the remedy. [See
38
Bengal Immunity Co. v. State of Bihar, AIR 1955 SC 661, Zile Singh v.State of Haryana, AIR 2000 SC 5100]. Simply stated `the courts should
identify the mischief which existed before passing of the statute and then if
more than one construction is possible, favour that which will eliminate the
mischief so identified.’ [Anderton v. Ryan, (1985) 2 All ER 355, per Lord
Roskill].
The phrase `offence relating to transaction in securities’ as used in
section 3 (2) is clearly subject to more than one meaning. It is anything but
clear. For the aforementioned purpose we may notice the meaning of the
word `in relation to’.
In M/s. Doypack Systems (Pvt.) Ltd. v. Union of India & ors., [(1988)
2 SCC 299], it was observed :-
“In view of the language used in the relevant
provisions, it appears to us that Section 3 has two
limbs: (i) textile undertakings: and (ii) right, title
and interest of the company in relation to every
such textile undertaking…. The expressions
“pertaining to”, “in relation to” and “arising out
of” , used in the deeming provision, are used in the
expansive sense, as per decisions of courts,
meanings found in a standard dictionaries, and the
principles of broad and liberal interpretation ….
We are of the opinion that the words “pertaining
to” and “in relation to” have the same wide
meaning and have been used interchangeably….The expression “in relation to” (so also “pertaining
39
to”), is a very broad expression which pre-supposes another subject matter. These are words
of comprehensiveness which might both have a
direct significance as well as an indirect
significance depending on the context…. In this
connection reference may be made to 76 Corpus
Juris Secundum at pages 620 and 521 where it is
stated that the term “relate” is also defined as
meaning to ring into association or connection
with. It has been clearly mentioned that “relating
to” has been held to be equivalent to or
synonymous with as to “concerning with” and
“pertaining to”. The expression “pertaining to” is
an expression of expansion and not of
contraction.” [Emphasis supplied]These lines were also quoted with approval in T.N. Kalyane
Mandapam Association v. Union of India, [(2004) 5 SCC 632]. (See also
Bismag v. Amblins (Chemists), [1970] 3 All ER 1053 (QB) and Re
National Federation of Retail Newsagents’, Booksellers’ and Stationers
Agreement) (Nos. 3 & 4), [1971] 1 WLR 408.)
Regard, therefore, in the matter of establishing and constitution of the
Special Court must also be had to the object of creating the Special Courts.
In Minoo Mehta v. Shavak D. Mehta, [ AIR 1998 SC 831), this
Court held:
“As the Preamble of the Act shows, the Act is to
provide for the establishment of a Special Court
for the trial of offences relating to transactions in40
securities and for matters connected therewith or
incidental thereto. Therefore, every offence
pertaining to any transaction in securities which is
covered by the sweep of the Act, that is, if such
transaction has taken place between 1-4-1991 and
on or before 6-6-1992 would be subjected to the
provisions of the Act regarding trial of such an
offence.”If the purport and object of the Act was to bring home an offence of
the nature discussed heretobefore, in our opinion, the Special Court would
have jurisdiction to try that offence. The money belonging to National
Housing Bank had been diverted to Harshad Mehta’s account who was a
broker dealing in securities so as to enable him to enter into transactions in
securities during the period 1st April, 1991 and on or before 6th June, 1992,
which was an offence triable exclusively by the Special Court. The Special
Court, therefore, rightly exercised the jurisdiction vested in it.
VALIDITY OF THE SANCTION ORDERS.
All the appellants before us, except accused No. 5 Atul M Parekh,
were at the relevant point of time public servants. Whereas Accused 1, 2 & 3
were employees of UCO Bank, Accused 6 & 7 were employees of the
National Housing Bank. They, therefore, have also been charged for
commission of offences under the Prevention of Corruption Act, 1988.
41
Section 19 of the Act however requires previous sanction for prosecution ofthe Public Servants. The relevant part thereof reads as under:
“19. Previous Sanction necessary for
prosecution.- (1) No Court shall take cognizance of
an offence punishable under sections 7, 10, 11, 13
and 15 alleged to have been committed by a public
servent, except with the previous sanction,-…(c) in the case of any other person, of the
authority competent to remove him from office.”Indisputably the competent authority had passed the orders of sanction
against all the concerned accused persons. Whereas accused 1, 2 & 3 have
raised no objection as regards validity of orders of sanction issued against
them; accused 6 & 7 who were employees of the National Housing bank
have questioned the same.
The order of sanction as against accused No. 6 was passed by the
Chairman-cum-Managing Director of NHB, Shri R.V. Gupta, who has been
examined as PW 3. The relevant portion of the order granting sanction reads
as under:-
“AND WHEREAS, I R.V. Gupta, Chairman
National Housing Bank, being the Authority
competent to remove the said Shri C.Ravi Kumar
from office, after fully and carefully examining the
materials and investigation report in regard to said
allegations and circumstances of the case, consider42
that the said Shri C. Ravi Kumar should be
prosecuted in the Court of Law of competent
jurisdiction for the said offences.NOW THEREFORE, I,R.V. Gupta, Chairman
National Housing Bank, do hereby accord sanction
under Section 19(1)(c) of Prevention of Corruption
Act, 1988 for prosecution of the said Shri C. Ravi
Kumar for the said offences and any other offence
punishable under other provisions of law in respect
of the acts aforesaid and for taking cognizance of
the offences by the Court of competent
jurisdiction.”It is contended by accused no. 6, C Ravi Kumar that he had come to
NHB on deputation from the RBI, and therefore the conditions of his service
were governed by the RBI regulations and not those of NHB Act. According
to him, the Governor of RBI was the only competent sanctioning authority.
Indisputably accused No.6 was initially appointed by the Reserve
Bank of India and was sent to NHB on deputation in the year 1988. He was,
however, permanently absorbed there in 1992 and the Order of sanction in
respect of him was passed on 26th February, 1993. It is a fundamental
principle of service jurisprudence that an employee, subject to statutory
interdict, cannot have two masters. If from the date of his absorption the
relationship of employer and employee came into being between him and
NHB, it is fallacious to suggest that the Reserve Bank of India continued to
43
be his employer. It is not in dispute that if accused No.6 is treated to be thean officer of the Bank, the Chairman-cum-Managing Director, being its
highest authority would be competent to pass the order of sanction.
Next it was urged before us on behalf of accused no. 7, S Suresh Babu
that since the terms and conditions of service of the employees of NHB till
as late as 1995 used to be governed by the Service Regulations framed by
Reserve Bank of India, Shri R.V. Gupta, the Chairman-cum-Managing
Director, NHB had no authority to issue the sanctioning order. It was argued
that NHB’s own staff regulations governing conduct and discipline came
into effect only in the year 1995.
The said contention in our opinion is wholly misconceived. Even if till
the framing of Regulations by NHB, it adopted the Service Regulations
governing the employees of the Reserve Bank of India, the same would not
mean that the appointing authority would also be an officer of the Reserve
Bank of India and not the appropriate authority of NHB. Chairman-cum-
Managing Director of NHB being a highest executive authority, would be,
subject to any delegation of powers conferred in terms of the Regulations or
through Resolutions adopted by the Board of Directors, the appointing
44
authority. As an appointing authority, therefore, he will have the requisitejurisdiction to accord sanction for prosecution of the employees.
Even though, in our opinion, the sanction orders are legal and valid,
even if any doubt exists, the same becomes clear in view of the provisions of
Section 19 (3). It is reproduced heretobelow:
“(3) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of
1974),-(a) no finding, sentence or order passed
by a special judge shall be reversed or
altered by a court in appeal, confirmation
or revision on the ground of the absence
of, or any error, omission or irregularity
in, the sanction required under sub-section (1), unless in the opinion of that
court, a failure of justice has in fact been
occasioned thereby;…Explanation.- For the purpose of this section.-
(a) error includes competency of the authority to
grant sanction;…” [Emphasis supplied]What has been challenged here before us by both the accused is in fact
the competence of the sanctioning authority to issue sanction orders against
them. As per the said section, `a finding’ or a `sentence’ shall not be
reversed by a court of appeal on the ground of any error, omission or
irregularity in the sanctioning order unless a failure of justice has been
45
occasioned thereby. In our considered opinion even if we assume for thesake of argument that the Chairman cum managing director of NHB, Shri
RV Gupta was not the competent authority to pass the orders of sanction
against the officials of NHB, the prosecution could still rely on the said s. 19
(3) of the Act; especially since there has been no failure of justice in the
present case by the said error in the orders. The contentions of the accused,
as to the validity of the Sanctioning orders, in view of the said sub section
must be rejected.
RELIANCE ON THE JANKIRAMAN COMMITEE
Before we move on to deal with the substantive criminal charges
under the Indian Penal Code and the Prevention of Corruption Act invoked
against the appellants herein, we must first deal with a grievance which has
been raised by the learned counsel for the appellants and, in our opinion,
rightly that in the impugned judgment the Special Court had acted illegally
and without jurisdiction in relying upon the report of the “Janakiraman
Committee” while imposing the sentence on respondent No.6; the relevant
portion whereof is as under:-
“So far as accused No.6 is concerned, it is clear
from what has been observed [by the] Jankiraman
Committee that there was virtually no supervision
on accused No.6 and he was managing the affairs46
or mismanaging the affairs of the N.H.B.according to his own acts, wish and ultimately at
the wish and fancy of the brokers. He was giving
loans to the brokers which the law prohibited him
from doing.”We have noticed hereinbefore the premise on which the said
Committee was constituted. We have also noted its objects and reasons.
There is no dispute that the Committee was appointed and it submitted its
report. It is one thing to say that the court records to the constitution of the
Committee for the purpose of tracing the history for enactment of the Act.
But it is another thing to say that the contents of the said report would be
admitted in evidence in a criminal case without proof thereof. The
Committee was not a court. It did not render any decision. It was merely a
fact finding body. It was constituted for a limited purpose. Contents of the
report, therefore, without formal proof, could not have been taken in
evidence.
A Division Bench of the Nagpur High Court in M.V. Rajwade v. Dr.
S.M. Hassan, [AIR 1954 Nag 71] following the judgment of the Privy
Council In Re. Maharaja Madhava Singh LR , [(1905) 31 IA 239], held that
a Commission is a fact finding body meant only to instruct the mind of the
47
Government without producing any document of a judicial nature and thatfindings of a Commission of Inquiry were not as definitive as a judgment.
Similarly in Branjnandan Sinha v. Jyoti Narain [1955] S.C.R. 955,
this Court held that the Commission appointed under the Public Servants
(Inquiries) Act, 1850, was not a court within the meaning of the Contempt of
Courts Act, 1952.[See also Ram Krishna Dalmia v. Justice S.R. Tendolkar,
1959 SCR 279, Puhupram v. State of Madhya Pradesh, (1968) MPLJ 629.
Sham Kant v. State of Maharashtra [1992 Suppl. (2) SCC 521]]
Accordingly, the Janakiraman committee report was not admissible in
evidence. The report in terms of the provisions of the Evidence Act, 1872 is
not a judgment. The report may facilitate investigation but cannot form
basis of conviction and sentencing of the accused. For the said purpose the
report was wholly inadmissible in evidence.
CRIMINAL CONSPIRACY
It would now be appropriate to deal with the offence of criminal
conspiracy of which all the appellants herein have been charged with and
convicted of. It is alleged by the prosecution that K Margabanthu (A 1), R
Venkatrrishnan (A-2) and SV Ramanathan (A 3), who all were at the
48
relevant time officials of UCO Bank, along with C Ravikumar (A 6) and SSureh Babu (A 7), both of whom were at the relevant time officials of the
National Housing Bank, at the behest of Late Harshad S Mehta and Atul M
Parekh (A 5) entered into a criminal conspiracy with the object of diverting
funds from the National Housing Bank to Late Harshad Mehta’s Account in
UCO Bank. The funds were diverted to enable Harshad Mehta to invest the
same in the Securities Market. It is alleged that in furtherance of the said
conspiracy K Margabathu (A 1), R Venkatkrishnan (A 2), C Ravikumar and
S Suresh Babu (A 7) created certain fake documents to facilitate the transfer
of funds. It is further alleged that SV Ramanathan (A 3) along with Atul M
Parekh (A5) then persuaded the officials of UCO bank to allow the said
transaction to proceed without any hindrance.
Criminal conspiracy in terms of Section 120B of the Code is an
independent offence. It is punishable separately. Prosecution, therefore,
must prove the same by applying the legal principles which are applicable
for the purpose of proving a criminal misconduct on the part of an accused.
A criminal conspiracy must be put to action and so long a crime is
merely generated in the mind of the criminal, it does not become punishable.
Thoughts, even criminal in character, often involuntary, are not crimes but
49
when they take concrete shape of an agreement to do or cause to be done anillegal act or an act which is not illegal but by illegal means then even if
nothing further is done, the agreement would give rise to a criminal
conspiracy.
The ingredients of the offence of criminal conspiracy are:
(i) an agreement between two or more persons;
(ii) the agreement must relate to doing or causing to be done either
(a) an illegal act;
(b) an act which is not illegal in itself but is done by illegal
means.
Condition precedent, therefore, for holding accused persons guilty of
a charge of criminal conspiracy must, therefore, be considered on the anvil
of a fact which must be established by the prosecution, viz., meeting point of
two or more persons for doing or causing to be done an illegal act or an act
by illegal means.
The courts, however, while drawing an inference from the materials
brought on record to arrive at a finding as to whether the charges of the
criminal conspiracy have been proved or not, must always bear in mind that
50
a conspiracy is hatched in secrecy and it is, thus, difficult, if not impossible,to obtain direct evidence to establish the same.
The manner and circumstances in which the offences have been
committed and the level of involvement of the accused persons therein are
relevant factors. For the said purpose, it is necessary to prove that the
propounders had expressly agreed to or caused to be done the illegal act but
it may also be proved otherwise by adduction of circumstantial evidence
and/ or by necessary implication. [See Mohammad Usman Mohammad
Hussain Maniyar & Ors. v. State of Maharashtra (1981) 2 SCC 443]
The following passage from Russell on Crimes (12th Edn. Vol 1)
refrred to by Jagannatha Shetty, J in Kehar Singh and Ors. v. State (Delhi
Administration), [1988 (3) SCC 609 at 731] brings out the legal position
succinctly:
“The gist of the offence of conspiracy then lies, not
in doing the act, or effecting the purpose for which
the conspiracy is formed, nor in attempting to do
them, nor in inciting others to do them, but in the
forming of the scheme or agreement between the
parties. Agreement is essential. Mere knowledge,
or even discussion, of the plan is not, per se
enough”51
It was further noted in that case that to establish an offence of criminal
conspiracy `[i]t is not required that a single agreement should be entered into
by all the conspirators at one time. Each conspirator plays his separate part
in one integrated and united effort to achieve the common purpose. Each one
is aware that he has a part to play in a general conspiracy though he may not
know all its secrets or the means by which the common purpose is to be
accomplished.’
Dr. Hari Singh Gour in his Commentary on Penal Law of India,
(Vol.2, 11th Edn. p. 1138) elaborates:
“In order to constitute a single general conspiracy
there must be a common design. …. The evil
scheme may be promoted by a few, some may
drop out and some may join at a later stage, but the
conspiracy continues until it is broken up. The
conspiracy may develop in successive stages.
There may be general plan to accomplish the
common design by such means as may from time
to time be found expedient.”In some cases, intent of unlawful use being made of the goods or
services in question may be inferred from the knowledge itself. This Court
in State of Maharashtra v. Som Nath Thapa [(1996) 4 SCC 659] opined that
it is not necessary for the prosecution to establish that a particular unlawful
52
use was intended, so long as the goods or services in question could not beput to any lawful use, stating:
“…to establish a charge of conspiracy knowledge
about indulgence in either an illegal act or a legal
act by illegal means is necessary. In some cases,
intent of unlawful use being made of the goods or
services in question may be inferred from the
knowledge itself. This apart, the prosecution has
not to establish that a particular unlawful use was
intended, so long as the goods or service in
question could not be put to any lawful use.
Finally, when the ultimate offence consists of a
chain of actions, it would not be necessary for the
prosecution to establish, to bring home the charge
of conspiracy, that each of the conspirators had the
knowledge of what the collaborator would do, so
long as it is known that the collaborator would put
the goods or service to an unlawful use.”[See also K.R. Purushothaman v. State of Kerala (2005) 12 SCC 631]
We may also notice a decision of this Court being State (NCT) of
Delhi v. Navjot Sandhu @ Afsan Guru [(2005) 11 SCC 600], commonly
known as the Parliament Attack case, wherein upon taking note of various
earlier decisions of this Court, it was opined that as conspiracy is mostly
proved by circumstantial evidence, usually both the existence of conspiracy
and its objects have to be inferred from the circumstances and the conduct of
the accused, stating :
53
“101. One more principle which deserves notice is
that the cumulative effect of the proved
circumstances should be taken into account in
determining the guilt of the accused rather than
adopting an isolated approach to each of the
circumstances. Of course, each one of the
circumstances should be proved beyond reasonable
doubt. Lastly, in regard to the appreciation of
evidence relating to the conspiracy, the Court must
take care to see that the acts or conduct of the
parties must be conscious and clear enough to infer
their concurrence as to the common design and its
execution.In Ram Narayan Popli (supra), this Court noted:
“…Law making conspiracy a crime is designed to
curb immoderate power to do mischief which is
gained by a combination of the means. The
encouragement and support which co-conspirators
give to one another rendering enterprises possible
which, if left to individual effort, would have been
impossible, furnish the ground for visiting
conspirators and abettors with condign
punishment…”{See also Esher Singh v. State of A.P. [(2004) 11 SCC 585]}:
Recently, in Yogesh @ Sachin Jagdish Joshi v. State of Maharashtra
[(2008) 6 SCALE 469], a Division Bench of this Court held:
“23. Thus, it is manifest that the meeting of minds
of two or more persons for doing an illegal act or
an act by illegal means is sine qua non of the
criminal conspiracy but it may not be possible to54
prove the agreement between them by direct proof.Nevertheless, existence of the conspiracy and its
objective can be inferred from the surrounding
circumstances and the conduct of the accused. But
the incriminating circumstances must form a chain
of events from which a conclusion about the guilt
of the accused could be drawn. It is well settled
that an offence of conspiracy is a substantive
offence and renders the mere agreement to commit
an offence punishable even if an offence does not
take place pursuant to the illegal agreement.”A conspiracy may further be a general one and a separate one. A
smaller conspiracy may be a part of a larger conspiracy. It may develop in
successive stages. [Nirmal Singh Kahlon v. State of Punjab and Others, 2008
(14) SCALE 639] New techniques may be invented and new means may be
devised for advancement of common plan. For the said purpose, conduct of
the parties would also be relevant.
Applying the principles of law to the facts of the present case, we may
take note of certain broad features. Indisputably, maintaining of cash
reserve ratio is a statutory requirement. All the Scheduled Banks are bound
to carry on the statutory instructions issued by the Reserve Bank of India in
this behalf. It is for the maintenance of this cash reserve ratio that UCO
Bank used to participate in call money transactions in the money market,
decision in respect whereof used to be taken at its Head Office at Kolkata.
55
For the said purpose, however, the Head Office used to be in touch with theD.N. Road Main Branch in Bombay.
It is neither in doubt nor in dispute that Mr. K. Venkatkrishnan
(Accused No. 2) at the Head Office in Kolkata was authorized for the said
purpose. P.W. 12 – Sunil Kakkar in his statement before the learned Special
Judge, stated as under:
“6. …The General manager Mr. Venkatakkrishnan
[A 2] used to decide upon the requirement of
borrowing of call money on a particular date. He
also used to decide about lending of call money to
other banks. Instructions in this respect were given
by the treasury and investment department head
office, Kolkatta by the General Manager to the DN
Road branch in Bombay. …. Mr Venkatakrishnan,
Genaral manager used to take decisions after
knowing the requirement, the rate of interest etc.
The call money transactions are authorized by him
and are recorded in a register known as call money
register. “Such a power had been conferred upon various officers to deal with
call money transactions. Indisputably, accused No.2 was one of them.
Although, those various other officers might have been taking decisions in
this behalf, but there is no reason to disbelieve P.W. 12 that ordinarily
Accused No. 2 used to take a decision.
56
For the purpose of exercise of power furthermore it may not benecessary that he would be given instructions only by Accused No. 2 and no
other. If he had been given instructions in this behalf from time to time by
the Assistant General Manager or Assistant Manager, the same would not
necessarily mean that Accused No. 2 was not exercising his power.
P.W. 13 in his evidence categorically stated that Mr. Mallikarjunan
(P.W. 17) would take instructions from all the fourteen centres on the basis
whereof the General manager Mr Venkatkrishnan [A2] used to take a
decision. P.W. 17 in his deposition categorically stated:
“2. The deals of lending or borrowing money
market were done at Calcutta Head Office by Mr.
Venkatakrishnan. This is in respect of call money
borrowing and lending…3. Mr Venkatkrishnan used to decide from
whom call money to be borrowed and to whom it
is to be lent. The necessary information could be
supplied by the Bombay main branch. Bombay
main branch informs us between 10:30 to 2:30 pm.
Once a decision is taken for borrowing or lending
call money to some institute at particular rate, the
entries are entered in Head Office in call money
register of Calcutta office. The decision is
communicated to the branch where the transaction
is to be executed.”57
Indisputably again, however, a decision taken by the General Manager
would be subject to any direction which may be issued by Margabanthu
(Accused No. 1), Managing Director of the Bank. Keeping that aspect of the
matter in mind, we may also take notice of the call money transaction which
took place on 6.4.1992 around which the prosecution case revolves.
Indisputably, call money was required on the 6th of April, 1993
although there may be some dispute with regard to the quantum thereof.
P.W. 17 in his deposition produced a `Chit’ which was marked as Exhibit 56
to show that call money was to be procured from Can Mutual, State Bank of
Saurashtra, and State Bank of Hyderabad amounting to Rs. 21 crores, Rs.30
crores and Rs. 50 crores besides of National Housing Bank for a sum of
Rs.40 crores.
It is profitable to notice the relevant portion of his testimony, which
reads as under:
“6. On 6.4.1992, I was informed by Mr.
Venkatakrishnan that Rs. 40 crore are borrowed as
call money from NHB. It was sometime in the
afternoon and must be at 2.00 pm. Mr
Venkatkrishnan informed me and I noted it down
on a chit in my own handwriting. I noted on that
chit the names of four institutions and the total
borrowing from four institution Rs. 144 crore. […]
I gave this chit to Mr Sunil Kakkar for making
necessary entries in the call money register. He58
made the entries and sent [the call money register]
through me to General Manager, Venkatkrishnan. I
am shown the call money register […] for
identification […]. I identify the handwriting of
Sunil Kakkar. The enteries in Call Money
Authorization register would be made
subsequently by Sunil Kakkar and register would
be signed by Venkatkrishnan. I am shown the
register […] These are in the handwriting of Mr
Kakkar and signed by Venkatkrishnan.[…]”With respect to the said chit in which Mr. Mallikarjun had noted down
the details regarding the call money transaction after receiving information
from A2 [Mr Venkatkrishnan], he further stated:
“On this sheet, I wrote the names, Can Mutual, SB
Saurashtra, and SBH, with the amounts and
interest against them as 21 crores. Can Mutual
23%, 30 crores Saurashtra at 26% and 50 crores
SB Hyderabad at 26% and these three were totaled
after drawing a line below it and the total of 101
crore was written. Thereafter I wrote NHB and
against that 40 crore and 26% and again after
drawing line the total of 141 crores is made.
Exactly I do not remember what happened but I
can say that [K Venkatakrishnan (A2)] must have
told me three names of the banks and there figures
and after totaling, he must have told the fourth
name and the figure which is added and the
amount is retotaled but I say that I noted down all
the four names and figures at the same time.”It is true that in his cross-examination, this witness stated that the
same was in his handwriting. Existence of the said Chit is thus not in
59
dispute. It matters little whether it is in the handwriting of P.W.17 orAccused No.2. The fact that the decision had been taken by the Accused
No.2 to obtain call money to the tune of Rs. 40 crores is, thus, not in dispute.
P.W.17 also notes that he had noted the details in the chit after receiving
information from Accused No. 2 in this behalf. The said Chit containing the
details of the call money transactions was thereafter handed over to P.W.12
– Sunil Kakkar. It has been brought on record that this witness used to
maintain the call money register, and was, therefore, required to note the
same in the said register.
The learned counsel appearing on behalf of the appellant, however,
would submit that the entries in respect of the said transactions had been
made post facto. For the aforementioned purpose our attention has been
drawn to the deposition of P.W. 12 – Sunil Kakkar who stated,
“the entries of the transactions would be made post
facto. It was the responsibility of superior officer
to verify the entries in the register. By superior
officers, I mean General Manager, Assistant
General Manager.”It was principally, therefore, the responsibility of those two officers to
make verification. The entry in relation to the said transaction inter alia
60
finds place in Exhibit 45 for daily funds records to the CMD dated 6.4.1992.This witness has proved the entries in the said registers.
Yet again, a comment has been made with reference to his statement
that a number of pages of the register were written at one time and i.e., post
facto and Accused No. 2 signed the same after the entries had been made
post facto. The signature of the Accused No. 2 in those registers, therefore,
stands proved.
The significance of this aspect of the matter would be dealt with a
little later. Before, however, we do so, we may notice the evidence of P.W.
12 – Sunil Kakkar in this behalf which is to the following effect:
“8. […] There is reference in the daily Report of
call money borrowing on 6.4.1992 amounting to
Rs. 141 crore […] the last borrowing is from
National Housing Bank Rs. 40 crore at 26 %
interest due date 7.4.1992 i.e. for one day. These
figures are collected from a slip of paper given to
me by Assistant general manager Mr. Mallikarjun.
The signature of the Assistant General Manager on
this document signifies that he has noted the daily
funds position as mentioned in the sheet”He, upon making entries with regard to the said transaction in the
register, in his deposition, stated:
61
“11. […] I am shown the entry of 6.4.1992. the
entry reads as borrowing transaction on 6.4.1992
call money of canbank mutual fund 21 crores
payable next date i.e. 7.4.1992 rate of interest 23%
[…] This entry is in my handwriting.[…] The
other three entries on that day are of State Bank of
saurashtra, state bank of Hyderabad and National
Housing Bank. These three entries are also in my
handwriting […]”The question as to whether the aforementioned amount of Rs.40
crores, which was to be taken on loan from National Housing Bank was
really needed or not is, however, a matter of some controversy. We may, at
this juncture, take note thereof.
The prosecution in view of the aforementioned documentary and oral
evidence must be held to have proved the following facts:
(i) That the decisions regarding the lending or borrowing of call money
were usually taken at the Head Office in Kolkata based upon the information
received from the DN Road Branch in Bombay.
(ii) These decisions in Kolkatta were primarily taken by K.
Venkatakriahnan (A 2) who at the relevant time was the General Manager of
UCO Bank Kolkatta.
62
(iii) The decision as to the call money borrowing on the 6th April, 1992
was also taken by K Venkatakrishnan. On that day he had communicated his
decision of borrowing of call money to K Mallikarjun, who at the relevant
time was an official there. K Mallikarjun had noted the information
regarding the borrowing in a chit of paper. He had noted down information
regarding call money borrowing amounting to a total of Rs. 141 crore from
four different banks. One of these banks was the NHB from which call
money amounting to Rs. 40 crore had been borrowed for a period of one day
at 26% interest.
(iv) K Mallikarjun had then handed over this chit with the call money
information to Sunil Kakkar who had the responsibility of noting the details
in the call money register. He accordingly noted the details of the Call
Money transactions of the day, including the one from NHB worth Rs. 40
Crore.
But that is not the end of the story.
Subsequently, however, a meeting has been alleged to have taken
place in the chamber of Accused No. 1. According to P.W. 17, it was at this
meeting that Accused No. 1 had informed him and others present at the
meeting that the call money which had been borrowed from the National
63
Housing Bank had in fact been arranged by Harshad Mehta for the purposeof carrying out his security transactions. He further informed them that the
money was required by Harshad Mehta at UCO Banks, Hamam Street
Branch in Bombay. As per the deposition of the said witness,
Venkatakrishnan (Accused No. 2) and C.K. Mukerjee (P.W. 13) were also
present in the said meeting. He stated:
“7. On 6.4.1992 there was meeting at about 2.00
p.m. in a chamber of Mr. Margabanthu where Mr
R. Venkatakrishna, myself and CK Mukherjee
were present. Mr Margabanthu who is accused in
this case told us that this amount from NHB of Rs.
40 Crore meant for Harshad S Mehta account.”In his cross-examination to which our attention has been drawn by the
learned counsel appearing on behalf of the appellant, he is said to have
accepted that he did not remember to have heard from Accused No. 2 that it
was not a call money and that the said amount was raised from the Bank by
Harshad Mehta. He further accepted :
“I did not tell the CBI about this as I was not asked
any question about the same by the CBI, […] I was
not knowing for what purpose the inquiry was
made. I did not tell CBI of my own regarding the
meeting in the Chamber of Mr Margabanthu, as I
was only answering the questions.”64
We have noticed hereinbefore that he, therefore, has given some
explanation as to why we could not disclose as to what had taken place in
the said meeting in his statement recorded by the Central Bureau of
Investigation. The fact that such a meeting had taken place was also the
subject matter of deposition by P.W. 13, stating:
“7. On that day in the afternoon I and
Mallikarjunan were called by General Manager
Venkatakrishnan. Mr. Venkatakrishnan told us that
we had to go to the chamber of Managing Director
Margabanthu and report to him about all the
treasury transactions. Then we, means, I ,
Mallikarjunan [PW 17] and Venkatakrishnan [A 2]
went to Mr Margabanthu’s office [A 1] and
Venkatkrishnan informed him the day’s
transactions. While referring to NHB’s call money
transaction of 40 crore Mr. Margabanthu said that
it was not UCO bank’s call money transaction. It
was money arranged by Harshad Mehta from
NHB. He also said that the money was required by
Harshad Mehta at our Bank at Hamam Street
Branch for undertaking certain securities
operations by him. […] He also told that Mr.
Venkatkrishnan General Manager that this amount
of Rs. 40 Crore should be immediately sent to
Hamam Street branch so that Security transactions
could be completed by Mr. Harshad Mehta”P.W. 13, allegedly on this basis, had called up Vijayan (P.W. 14) who
was the Manager, Accounts Department, D.N. Road Branch of the Bank to
inform him of the development, stating:
65
“[…] After the meeting was over we, i.e. I and Mr
Mallikarjun came down to our department and as
per instructions of Mr Venkatkrishnan, General
Manager I conveyed this message to Mr Vijanan
DN Road Branch, Mumbai”Such a telephone call to P.W.14 is further corroborated by P.W. 17,
stating:
“8. Mr CK Mukherjee phoned to Mr. Vijayan at
Bombay and informed him about this decision.[…]11. Mr Venkatakrishnan told me that he
telephoned and informed Mr. Vijayan, Bombay.
My statement that Mr Mukherjee telephoned Mr
Vijayan is on the basis what Mr. Venkatkrishnan
told me. Mr Venkatkrishnan told me most
probabally after the meeting but I do not recollect
the exact time.”Our attention, however, has been drawn to the evidence of P.W. 14 by
Mr. Narasimha, learned counsel appearing on behalf of the accused No. 2
that the instructions for cancellation was received at 1:00 p.m. or so.
Although, according to P.W. 17, the meeting had taken place at about 2:00
p.m.
It must, however, be borne in mind that in a case of this nature where
the witnesses were being examined more than ten years later i.e. in the 2003,
some amount of discrepancy with regard to time would not be of much
66
significance. We would deal with this aspect of the matter at some details atan appropriate stage. Keeping in view the statement made by P.W. 14 which
was not shaken in the cross examination, there is no reason for us to
disbelieve that part of the material brought on record that call money from
NHB was, in fact, sought to be cancelled. In any event, as would appear
from the discussions to be made hereinafter, the prosecution cannot be said
to have failed to prove its case. We may, however, notice that at one stage,
according to this witness, such a telephone call had been made at about 2:00
or 2:30 p.m.
Our attention has also been drawn that P.W. 13 before the C.B.I.
stated:
“Mr. Kakkar also told me that the telex message
received at Head Office from D.N. Road, Bombay
branch showing position of call money borrowed
lend on that day does not contain the borrowing
item of Rs.40 crores from National Housing
Bank.”Telex message has not been produced. Nothing much turns on the
said purported admission. It appears from the records that at a later stage the
General Manager (I&M) was asked to make an investigation. A report was
filed by P.W. 17. Only because in the said report again the factum of the
67
meeting did not find place, the same by itself should not be taken to be aground to ignore the depositions of all these witnesses.
Apart from the supposed contradictions and inconsistencies, it is also
pointed by the learned counsel for the appellants that no such meeting had
taken place in the chamber of Accused No.1 on 6.4.1982. Our attention has
been drawn to the evidence of D.W 1- Ajit Sadhukhan, who at the relevant
time was the driver of the Accused No. 1 to contend that Accused No.1
came to his chamber only at about 3.30 p.m. although the transaction was
over at 3.00 p.m., stating:
“On 6th April when in the morning I went to the
flat of Margbanthu, Mrs. Margbanthu informed me
that Mr. Margbanthu is coming to Calcutta by
flight from Madras and that I have to take the
vehicle to airport for Mr.Margbanthu. Shri
Margbanthu came to Calcutta Airport by flight at
about 12.30 p.m. He was having luggage with
him. The suitcase was having a registered tag. I
took him to his residence. Mr. Margbanthu told
me that he will leave for the office after his lunch.
We started the office at about 3.15 pm and reached
the office at 3.30 pm. We tell the airport with Mr.
Margbanthu at about 1 O’clock and reached the
residence at 2 O clock.”The prosecution case must be judged on a broad based fact. The
Indian Airlines Flight reached Kolkata Airport at about 12.30 p.m. on that
68
date. Evidences brought on record show that it takes about 45 minutes toreach the Head Officer from the Airport. According to the prosecution
witness to which we have already adverted to, the meeting took place round
about 2’O clock. Even if Accused No. 1 had gone to his house for taking
lunch, the possibility of his coming to his office round about 2’O clock
cannot be ruled out. The Chairman cum Managing Director of a Bank
presumably would like to attend to his duties during banking hours and
particularly when vital decisions as regards the borrowing of call money was
required to be taken. That amount of concern from a highly responsible
officer should be expected.
We must, however, notice that the evidence of P.W.14, who at the
relevant point of time was working at the Bombay Branch of UCO Bank,
categorically stated :
“7. The head office had instructed that call money
transaction of Rs. 40 crore was cancelled. This
instruction was received at about 1:00 pm or so.
From Head office Mr Mukherjee talked to me
about this cancellation of call money transaction
from NHB. Mr Mukherjee first told me that there
are four call money transaction from NHB and
subsequently informed that Rs. 40 crore
transaction from NHB has been cancelled.”69
Mr. Vijayan (PW 14) in his testimony further goes on to clarify about
the cancellation of the call money.
Though the entry for the call money transaction occurs in the Note
Book which was being maintained, but the final Call money register which
was being maintained only had three call money transactions, since by the
time the entries in the register had to be noted down the fourth transaction
had already been cancelled :
“9. I am shown note Book […] These four
entries in my handwriting are of all call money.
[…] and last entry is of NHB Rs. 40 crore rate of
interest @ 26 % and this entry has subsequently
cancelled on receipt of instruction from head
office. […] The entry of call money transaction is
taken in the call money register […] Mr Rupani
made entry in call money register from the note
book.10. The register shown to me is call money register
in which enteries are taken from note book. Only
three call money transactions of 6.4. 1992 are
mentioned in this register where as fourth
transaction of NHB is not mentioned and there is
no entry in this register. […]11. […]In respect of other three banks they issued
call money receipts to the said banks and collected
the cheques. It was between 2:00 to 3:00 pm. In
case of NHB Reciept was not prepared and sent as
transaction was cancelled. Before 2:00 pm it was
cancelled. […]”70
However, despite being informed that the call money from NHB had
been cancelled, when the DN Road Branch, UCO Bank received a cheque
for Rs. 40 crores from NHB, Mr. Vijayan (PW 14) [DN Road Branch] called
Mr. Ravikumar (A 6) [NHB] to seek clarification in this respect. Mr Vijayan
in his testimony notes:
“7. […] By 3.00 pm we received a cheque of Rs.
40 crores from NHB. Thereafter I telephoned Mr.
Ravi Kumar at NHB and asked why he had sent
the cheque when transaction is cancelled, he told
me on phone in reply that this cheque of Rs. 40
crore pertains to Hamam street Branch.[…]He further went on to state:
“12. […] I called up Mr Ravi Kumar because he
should have sent the cheque to Hamam street
branch instead he sent the cheque to DN Road
Branch.[…]”Mr Vijayan (PW 14) also clarified that he had also received
information from Mr. Mukherjee (PW 13) that the cheque was to be
transferred to the Hamam street branch of UCO Bank.
However, since there was little time left to transfer the cheque to the
Hamam street Mr Vijayan directly deposited the cheque with RBI. He also
71
informed this information to Mr Karkhanis (PW 18) from the Hamam streetbranch:
“7. […] Since there was no time left and since the
Hamam street Branch cannot deposit the cheque. I
informed the Hamam street branch that we have
received the cheque and I am depositing it with
RBI. Mr Karkhanis was the Hamam street Branch
Manager and I talked with him in connection with
the transaction. I told him that we received cheque
of Rs. 40 crore from NHB on behalf of Hamam
street branch and we have deposited it with RBI.”Mr. Karkhanis (PW 18 ) [Senior Manager, Hamam Street Branch]
stated in his testimony as regards the said phone call which was received by
him from Mr Vijayan (PW 14):
“2. On 06.04.1992 the current account of Harshad
Mehta was credited by 40 crores. The cheque was
deposited in DN Road Branch but I have not seen
that cheque. Sr. Manager of DN Road Branch, Mr
Vijayan informed me on phone that he had
received a RBI cheque of 40 crores and he was
depositing it directly with RBI because of time
constraint. He gave instructions to credit it to the
account of Harshad Mehta. The instruction were
received from Mr. Vijayan at about 3.00.”However, Mr Vijayan, (PW 14) [DN Road Branch] in his testimony
disclosed that he had only received information from NHB that the cheque
was to be transferred to the Hamam Street Branch in the following terms :
72
“It did not happen that I contacted Ravi Kumar on
telephone and he told me that amount of Rs. 40
crores is meant for Harshad Mehta, he only told
me that it is meant for Hamam Street Branch”There is a discrepancy between the two testimonies of Mr Vijayan
[DN Road] and Mr Karkhanis [Hamam Street], as Mr Vijayan in his
testimony stated that the amount of Rs. 40 Crore was meant for Hamam
Street Branch and that he himself had not been informed that the amount
was meant for Mr. Harshad Mehta. Mr Pradeep Kharkhanis stated that Mr.
Vijayan specifically informed him that the said amount was meant to be
credited to the account of Mr Harshad Mehta. If Mr Vijayan himself did not
know that the 40 crore were meant to be deposited in the account of Mr.
Harshad Mehta at Hamam Street Branch how could he have informed Mr
Kharkhanis that it was for Mr Harshad Mehta.?
The matter, however, must be considered from another angle. A
bankers’ cheque for a sum of Rs. 40 crores was received by the Hamam
Street Branch of the UCO Bank. The records of the UCO Bank reflect that
the same amount was to be repaid on 7.4.1992. The said sum was to carry
interest at the rate of 26% per annum.
73
Had the transaction related to call money, it should have beendeposited in the D.N. Road Branch and not in the Hamam Street Branch.
The Hamam Street Branch does not deal with call money. On 6.4.1992
itself the amount was credited to the account of Harshad Mehta. Although a
lot of arguments had been advanced to contend that National Housing Bank
is entitled to enter into the security transactions but neither the deceased
Harshad Mehta nor the accused No. 5 made any attempt to show that any
transaction had been entered into by and between the deceased Harshad
Mehta and National Housing Bank.
The accused in their statement under Section 313 of the Code of
Criminal Procedure accepted that the transaction in question was a routine
transaction. Such a transaction indisputably was utilized for the personal
gain of Harshad Mehta. If such transaction was a routine transaction, it goes
to show the long standing agreement between the said bank and Harshad
Mehta. Why on one pretext or the other UCO Bank would allow itself to be
used as a conduit thereto is the question.
P.W 5 – Hiten D. Mehta who used to work with Harshad Mehta
admitted that he knew Ravikumar (Accused No. 6) since 1990 and the
74
remittance facilities were available. A sort of arrangement by and betweenthe said Bank and Harshad Mehta, thus, stood established.
This is one of the links in the chain to show how the arrangement
developed so as to bring the matter within the purview of conspiracy
amongst the accused.
In between 11:00 a.m. and 3:00 p.m. things took place in quick
succession. The transaction in question was shown to be a call money
transaction. While assuming it to be so for the time being, if it was a call
money transaction it could not have been used for any other purpose. The
amount was required to be retained in the Bank and should have ordinarily
been deposited at the D.N. Road Branch. This was not done. Why the
amount had been deposited in the Hamam Street branch remains a mystery.
Indisputably, the money which had been lent to UCO Bank had been
credited to Harshad Mehta’s Hamam Street Bank account on the very same
day. Any call money operation could not have been carried out without the
knowledge and involvement of Accused Nos. 1 and 2. The involvement of
the accused No. 1 and 2 in tandem for the purpose of entering into such
agreement, thus, stands established.
75
It would be appropriate also to deal with the role played by SVRamanathan (A 3) in carrying out the said call money transactions at this
stage. As per Mr CK Mukherjee (PW 13) [Kolkata], Mr Margabanthu (A1),
in the meeting which took place in his chambers, reference whereto has been
made heretobefore, had informed him that Mr SV Ramanathan (A3) had
been authorized him to deal with security transactions of Mr Harshad Mehta
at the Hamam Street Branch, Bombay.
It has also been emphasized by the prosecution that Mr. SV
Ramanathan was present at the Hamam Street Branch on the day the said
transaction took place. The testimony of Pradeep Kharkhanis (PW 18) is
relevant which reads as under :
“On that day at about 12:00 to 12:30 Noon, Mr SV
Ramanathan, the Divisional Manager had come to
our office. Mr SV Ramanathan came to our office
at about 12:00 to 12:30 noon and told me that he
will take care of any difficulty about the
transaction as required by Parekh. These were
brokers transactions. Mr SV Ramanathan was
presenting the Bank when Mr Atul Parekh was
there”(Emphasis added)
Mr Kharkhanis, in his testimony, further clarified the role of Mr SV
Ramanathan in insisting the starting up of security transactions through the
76
account of Mr Harshad Mehta, regarding which Mr Ramanathan had evenaddressed the following letter:
“This letter was in connection with the restarting
of brokers transaction of Mr Harshad Mehta and
two other brokers. I identify the signature of the
Divisional Manager Mr SV Ramanathan. I have
made the endorsement to the effect that Mr SV
Ramanathan, DM visted the Branch on 6.4.1992
from 12:30 to 3:15 pm and insisted on starting
switch transactions which he said were as per the
chairman’s instructions.”
It is evident therefore that SV Ramanathan (A3) also played an
important role in ensuring that the call money from NHB which was meant
from UCO bank got transferred to Harshad Mehta’s Account.
It is pertinent to note that the money which was supposed to be
borrowed by UCO Bank as a call money was ultimately repaid by Harshad
Mehta through his account in ANZ Grindlays Bank directly.
Mr. Jeroo Dalal (PW 8) who at the time was an official at ANZ
Grindlays states in his testimony thus:
“2. Deceased Shri Harshad S Mehta was having
an account with ANZ Grindlays Bank…
4. I am shown document No. 14. It bears my
signature. I would have received instruction on
phone from Shri Atul Parekh on the basis of which
this is prepared. I can say that this was prepared on
77
pursuance of telephone of Shri Atul parekh and I
have mentioned in the document favouring
National Housing Bank for Rs. 40,27,52,42/- and
below that Debit Shri Harshad Mehta and I have
signed.”
Satish D Hosangadi (PW 9) [Chief General Manager, NHB] also, in
his deposition, notes with regard to the repayment of the said call money
from ANZ Grindlay Bank stated, thus:
“From the record, it appears that the cheque dated
16.4.1992 was given to the National Housing Bank
by Grindlays Bank. [Technically] the amount of
Rs. 40 crore is not yet repaid by the UCO Bank…
6. The cheque of Grindlays bank was directly
deposited with RBI and credited to the account of
NHB”
During his re-examination, Mr Satish D. Hasangadi furthermore to
the following questions :
“Q: During the period of 6th of April and 16th April,
1992 did the ANZ Grindlays Bank owe Rs.
40,27,52,42/] to the Nationla Housing Bank in
connection with any transaction.”
answered in negative.
The testimony of Mr Jeroo Dalal also brings out the involvement of
Mr Atul Parekh (A5) in the entire chain of conspiracy, stating :
78
“7 We used to get instructions from Atul
Parekh on behalf of accused No, 4 and as per
instructions from the bank, the amount used to be
debited in the account of Harshad Mehta.”
Mr Pradeep Anant Karkhanis (PW 18) [Hamam Street branch]
notes in his testimony, stated :
“Shri Atul Parekh accused in this case had also
come in our branch on that day. Shri Atul Parekh
had come to me for starting transaction in brokers
account. I raised certain queries in this respect and
I told Shri Atul Parekh that I was seeking replied
(sic) to the queries…These were brokers
transactions. Before I received telephone from
Vijayan.Shri Atul Parekh told me that he was
expecting a cheque of Rs. 40 crores from National
Housing bank.”
Whatever doubt had been left regarding the involvement of Shri
Atul Parekh (A5) has been cleared by the above stated testimony. He knew
that he was to receive 40 crores from NHB and that is why he had on the
said day come to the Hamam Street Branch of the Bank.
It must however be noted that the entire transaction could not have
been carried out, had the officials of the NHB been not involved.
79
We must here deal with the involvement of C Ravi Kumar (A6) and
Suresh Babu (A7). NA Shivraman (PW 6) [NHB] in his testimony in this
regard stated thus:
“I am shown Voucher D 11…. It mentions deal no.
395 amount Rs. 40,27,52,442/- It mentions Rs 40
crores call money and interst… The rate of interest
for 1 day is 26% and for 9 days it is 25% and the
date of maturity is 16.04.92. the date of deal is
6.4.92. Accused C Ravi Kumar was authorized to
decide the date of maturity or of extending the date
of maturity… The particulars of call money were
being first mentioned in his diary by C Ravi
Kumar and thereafter the entries were taken in call
money register….
11. I am shown the concerned page containing
entry of 6th April, 1992…. The entry mentions the
deal no 395 and the name of the institution as UCO
Bank with rate as 26 % and due date as 7.4. 92. …
The period extension to 9 days from 1 day is
written in the diary by C Ravi Kumar. Interest of
25% was for 9 days and 26% for 1 day”
It is amply clear from above testimony that the C. Ravi Kumar (A6)
was the person responsible for the extension of the call money transaction
from 1 day to 9 days and the reduction of the interest from 26% to 25%. The
involvement of C Ravi Kumar (A6) is also corroborated by the testimony of
Mr Vijayan (PW 14) where he made reference to the fact that it was the
former who had informed him that the cheque from NHB worth Rs. 40 crore
was to be transferred to the DN Road Branch of UCO Bank.
80
What survives is the involvement of the Suresh Babu (A7) who was
working under C Ravi Kumar (A6) at NHB. In this regard, reliance has
been placed by the prosecution and even by the Special Court in its
judgment on the testimony of Mr. Sunil Pandurang Gondale (PW 7) who
deposed that Suresh Babu (A 7) had sent him to UCO Bank, Hamam Street
Branch on the 16.4.1992 to collect the cheque for the return of the call
money advanced:
“For the first time, I had gone on 6.4.1992 I went
to UCO Bank and handedover the cheque. After
about 10 days on 15th or 16th Aptil, 1992 I again
had gone to UCO Bank on instructions of Shri
Suresh Babu. When I went for the second time, I
was directed to receive cheque from UCO bank,
Hamam Street Branch….However I did not get the
cheque from there as directed by shri Suresh Babu.
On Coming from UCO Bank I told Shri Suresh
Babu that I did not get the cheque and the person
to whom I was asked to meet had told me that
cheque was sent directly by UCO Bank”
In our opinion, reliance on the said testimony is not enough. Just
because Sunil Pandurang Gondale (PW 7) had been sent by Shri Suresh
Babu (A7) is not enough for his involvement in the criminal conspiracy
which was hatched on behalf of the other accused. Something more
substantial would be needed to bring him within its fold. In fact in his cross
examination he admits:
81
“It is not true to say that on 16.4.92 Suresh Babu
[A 7] told me to go to Hamam Street Branch. It is
not true to say that when I was sent to UCO bank
accused C Ravi Kumar [A 6] was not present”
The burden of proof is always heavy on the prosecution. The
prosecution must stand on its own legs basing its findings on the evidence
that has been let in by it. The prosecution has however failed in this task at
least with respect to A7, Shri Suresh Babu who was an officer working with
NHB.
Now that it has been established that the accused had the knowledge
of the call money transaction which took place between the National
Housing Bank and Harshad Mehta on the 6th April 2008, next we would
have to consider the question as to whether the said transaction was illegal
or not. To establish a charge of conspiracy, indulgence in either an illegal
act or a legal act by illegal means is necessary.
The definition of `illegal’ is provided for in section 43 of the Indian
Penal Code.
“43. `Illegal’, `legally bound to do’.-The word
`illegal’ is applicable to everything which is an
offence or which is prohibited by law, or which
furnishes ground for a civil action; and a person is
said to be `legally bound to do’ whatever it is
illegal in him to omit.”
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The word `illegal’ in the section has been given a very wide meaning.
It consists of three ingredients: (1) everything which is an offence; (2)
everything which is prohibited by law; and (3) everything which furnishes
ground for civil action.
It is contended on behalf of the respondent that the routing of call
money from the National Housing Bank to the Account of the deceased Shri
Harshad Mehta who was a stock broker was contrary to the provision of the
National Housing Bank Act, 1987.
To adequately deal with this leg of the submission we must notice the
provisions of the National Housing Bank Act, 1987 (The 1987 Act). The
NHB was created `to operate as a principal agency to promote housing
finance institutions both at local and regional levels and to provide financial
and other support to such institutions.’ It was thus created to provide finance
to housing finance institutions. Section 14 of the 1987 Act which is of some
relevance deals with the `Business’ of NHB, the relevant portions whereof
read as under:
“14. Business of the National Housing Bank.-
Subject to the provisions of this Act, the National
Housing Bank may transact all or any of the
following kinds of business namely:
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…(b) making of loans and advances or rendering
any other form of financial assistance whatsoever
to housing finance institutions and scheduled
banks. (or to any authority established by or under
any Central, State or provincial Act and engaged in
slum clearance).”
In terms of Section 14 the 1987 Act, NHB could advance loans to
`housing finance institutions’ and `scheduled banks’ or `slum authority’
constituted under a Central or State Legislation. Furthermore, Sub-section 4
of Section 49 of the Act lays down that if any other provision of the Act is
contravened or if any default is made in complying with any other
requirement of this Act, or of any order, regulation or direction made or
given or condition imposed thereunder, any person guilty of such
contravention or default shall be punishable with fine.
It reads as under:
“49. Penalties….(4) If any other provision of this
Act is contravened or if any default is made in
complying with any other requirement of this Act,
or of any order, regulation or direction made or
given or condition imposed thereunder, any person
guilty of such contravention or default shall be
punishable with fine which may extend to two
thousand rupees and where a contravention or
default is a continuing one, with further fine which
may extend to one hundred rupees for every day,
after the first, during which the contravention or
default continues.”
84
The NHB cannot, therefore, advance loans to anybody except housing
finance institutions, scheduled banks and statutory slum clearance body, and
in case it advances any loan to any individual the same would amount to an
offence under the provisions of the 1987 Act.
It has been contended by the learned counsel for the appellants that it
was for the Reserve Bank of India to take some action and the very fact that
it did not take any action against UCO Bank and NHB are pointers to show
that no offence had been committed. The said contention is untenable. It
was the Reserve Bank of India, which having regard to the magnitude of the
scam constituted Janakiraman Committee to look into the real nature of the
transactions and to find out if any fraud or irregularity had been committed.
Only pursuant to or in furtherance of the report a first information report was
lodged by the Central Bureau of Investigation. It was only with a view to
achieve a speedy trial and pass consequential orders in regard to the
properties acquired by illegal means, the Special Court was constituted in
terms of the provisions of the said Act. Reserve Bank of India in the
circumstances could not have done anything more.
Therefore, advancement of loan to Harshad Mehta by NHB under the
disguise of a call money transaction was illegal. The accused had the
85
knowledge of the said transaction. Therefore they have been rightly
convicted by the courts for commission of the offence of criminal
conspiracy.
In conclusion we hold that there is sufficient evidence to hold all
accused A1 to A3, all official of UCO Bank & A5 who was working under
Harshad Mehta and A6, official of NHB guilty of criminal conspiracy. But
there is not sufficient evidence to show the involvement of A7, NHB in the
said transactions.
CRIMINAL BREACH OF TRUST
The next charge we have to deal with is one arising under Section 409
IPC. For the offence of Criminal Breach of Trust by a public servant the
punishment is provided under Section 409 IPC. We must also in this respect
have regard to the provision of S 405 which defines Criminal Breach of
Trust :
“405. Criminal Breach of trust. Whoever , being in
any manner entrusted with property, or with any
dominion over property, dishonestly
misappropriates or converts to his own use that
property in violation of any direction of law
prescribing the mode in which such trust is to be
discharged, or of any legal contract, express or
implied, which he has made touching the discharge86
of such trust or willfully suffers any other person
so to do, commits `criminal breach of trust'”
Punishment for criminal breach of trust is provided in Section 406.
Punishment for an aggravated form of criminal breach of trust is provided in
Sections 407 to Section 409.
The terms of the section are very wide. They apply to one who is in
any manner entrusted with property or dominion over property. The section
does not require that the trust should be in furtherance of any lawful object.
It merely provides, inter alia, that if such a person dishonestly
misappropriates or converts to his own use the property entrusted to him; he
commits criminal breach of trust. This section requires
1) Entrusting any person with property or with dominion over property.
2) That person entrusted (a) dishonestly misappropriates or converts to
his own use that property; or (b) dishonestly uses or disposes of that
property or willfully suffers any other person so to do in violation –
(i) of any direction of law prescribing the mode in which such
trust is to be discharged, or
87
(ii) of any legal contract made touching the discharge of such
trust.
In Onkar Nath Mishra and Ors. vs. State (NCT of Delhi) and Anr.,
[(2008) 2 SCC 561] this court noted that in the commission of the offence of
criminal breach of trust, two distinct parts are involved. The first consists of
the creation of an obligation in relation to the property over which dominion
or control is acquired by the accused. The second is a misappropriation or
dealing with the property dishonestly and contrary to the terms of the
obligation created.
In Jaikrishnadas Manohardas Desai and Anr. v. State of Bombay,
[AIR 1960 SC 889], this Court observed :
“To establish a charge of criminal breach of trust,
the prosecution is not obliged to prove the
precise mode of conversion, misappropriation or
misapplication by the accused of the property
entrusted to him or over which he has dominion.
The principal ingredient of the offence being
dishonest misappropriation or conversion which
may not ordinarily be a matter of direct proof,
entrustment of property and failure, in breach of
an obligation, to account for the property
entrusted, if proved, may in the light of other
circumstances, justifiably lead to an inference of
dishonest misappropriation or conversion.
Conviction of a person for the offence of
criminal breach of trust may not, in all cases, be
founded merely on his failure to account for the
88
property entrusted to him, or over which he has
dominion, even when a duty to account is
imposed upon him but where he is unable to
account gwhich is untrue, an inference of
misappropriation with dishonest intent may
readily be made.”
However, Sections 407 to 409 make special provisions for various
cases in which property is entrusted to the enumerated categories of persons
who commit the offence.
Criminal breach of trust by a Public servant is dealt with under s. 409.
“409. Criminal breach of trust by public servant, or
by banker, merchant or agent.- Whoever, being in
any manner entrusted with property or with any
dominion over property in his capacity of a public
servant or in the way of his business as a banker,
merchant, factor, broker, attorney or agent,
commits criminal breach of trust in respect of that
property shall be punished with imprisonment of
life, or with imprisonment of either description for
a term which may extend to ten years, and shall
also be liable to fine.”
This section classes together public servants, bankers, merchants,
factors, brokers, attorneys and agents. The duties of such persons are of a
highly confidential character, involving great powers of control, over the
property entrusted to them and a breach of trust by such persons may often
89
induce serious public and private calamity. High morality is expected of
these persons. They are to discharge their duties honestly.
The following are the essential ingredients of the offence under this
section :
1) The accused must be a public servant;
2) He must have been entrusted , in such capacity with the property ;
3) He must have committed breach of trust in respect of such property.
In Raghunath Anant Govilkar Vs. State of Maharashtra and Ors,
[2008 (2) SCALE 303] the court noted that Section 406 which provides the
punishment for criminal breach of trust simplicitor and 409 of IPC are
cognate offences in which the common component is criminal breach of
trust. When an offence punishable under under Section 406 is committed by
a public servant (or holding any one other of the positions listed in the
Section) the offence would escalate to Section 409 of the Penal Code.
In Superintendent and Remembrancer of Legal Affairs, W.B. v. S.K.
Roy, [(1974) 4 SCC 230], this Court held:
“12. To constitute an offence under Section 409
IPC, it is not required that misappropriation must
necessarily take place after the creation of a legally90
correct entrustment or dominion over property.
The entrustment may arise in any manner
whatsoever. That manner may or may not involve
fraudulent conduct of the accused. Section 409
IPC, covers dishonest misappropriation in both
types of cases; that is to say, those where the
receipt of property is itself fraudulent or improper
and those where the public servant misappropriates
what may have been quite properly and innocently
received. All that is required is what may be
described as entrustment or acquisition of
dominion over property in the capacity of a public,
servant who, as a result of it, becomes charged
with a duty to act in a particular way, or, atleast
honestly.”
In Chelloor Mankkal Narayan Ittiravi Namhudiri v. State of
Travancore, Cochin, [AIR 1953 SC 478], this Court held:
“… to constitute an offence of criminal breach of
trust, it is essential that the prosecution must prove
first of all that the accused was entrusted with
some property or with any dominion or power over
it. It has to be established further that in respect of
the property so entrusted, there was dishonest
misappropriation or dishonest conversion or
dishonest use or disposal in violation of a direction
of law or legal contract, by the accused himself or
by someone else which he willingly suffered to
do.”
In Ram Narayan Popli (supra), this Court stated the law, thus :-
“81. To constitute an offence of criminal breach of
trust, there must be an entrustment, there must be91
misappropriation or conversion to one’s own use,
or use in violation of legal direction or of any legal
contract: and the misappropriation or conversion or
disposal must be with a dishonest intention. When
a person allows others to misappropriate the
money entrusted to him that amounts to a criminal
appropriation of trust as defined by Section 405.
The section relatable to property in a positive part
and a negative part. The positive part deals with
criminal misappropriation or conversion of the
property and the negative part consists of
dishonestly using or disposing of the property in
violation of any direction and of law or any
contract touching the discharge of trust.”
NON-INSTITUTION OF DEPARTMENTAL PROEEDINGS
In this regard, it must be emphasized that the submission of the
learned counsel that the Banks have not initiated any proceedings and
suffered any loss and thus the judgment of conviction and sentence of
criminal breach of trust is wholly unsustainable cannot be accepted for more
than one reason.
It is not the law that complaint petition under all circumstances must
be made by the Banks and Financial Institutions whose money had been the
subject matter of offence. It is also not the law that suffering of loss is a sine
qua non for recording a judgment of conviction. It is now trite that criminal
law can be set in motion by anybody. The prosecution was initiated on the
92
basis of the information received by the Central Bureau of Investigation. It
would entitled to do so not only in regard to its statutory powers contained in
the Delhi Special Police Act but it was also entitled to take cognizance in
terms of the report submitted by `Janakiraman Committee’. The money
involved in the transfer is public money belonging to Public Sector Banks.
The first allegation of criminal breach of trust is against accused No.6
and 7 as they had for allowed the diversion of a huge sum meant to be used
for specific purpose, namely – `call money’ to be lent to another
Nationalized Bank. We have already hereinbefore dealt with the question as
to the legality of the transactions having regard to the provisions of the NHB
Act. If the transaction was illegal, as result whereof, a private person, who
was not expected to reap the fruit of `call money’ was allowed to retain the
same for a period to make an unlawful gain therefrom, offence of criminal
breach of trust must be held to have been committed.
It is for the same reason, the submission that as no body ultimately
suffered any loss, an offence under Section 409 of the Indian Penal Code
was not made out, cannot be accepted. A Bank or Financial Institution may
not suffer ultimate loss but if the money has been allowed to be used by
another person illegally for illegal purposes, the ingredients of Section 405
93
of the Indian Penal Code would get attracted. A case involving temporary
embezzlement also attracts the ingredients of Section 405 of the Indian Penal
Code.
Furthermore, in terms of the above referred judgments of this Court,
when a person allows others to misappropriate the property entrusted to him,
that also amounts to criminal breach of trust.
In the present case the amount of Rs. 40 crore was entrusted to
accused No. 6, C Ravi Kumar to be dealt with in accordance with the
provisions of the NHB Act. As has already been noticed herein before, the
1987 Act does not permit grant of loan to an individual. Accused No 6 in
violation of the law handed over the amount to the UCO Bank with full
knowledge that the amount would be credited to the account of accused No.4
Harshad Mehta. The call money transaction with UCO Bank was only a
cover up. Thus the property which was trusted to accused No. 6 was
misappropriated by him.
It must in this regard be emphasized that an act of breach of trust
simpliciter involves a civil wrong of which the person wronged may seek his
redress for damages in a civil court but a breach of trust with mens rea gives
rise to a criminal prosecution as well. [SW Palanikar v. State of Bihar,
94
(2002) 1 SCC 241]. The element of `dishonest intention’ is therefore an
essential element to constitute the offence of Criminal Breach of Trust.
So far as the aspect of dishonest intention is concerned, the term
`Dishonestly’ is defined by Section 24 of the IPC:
“`Dishonestly’- Whoever does anything with the
intention of causing wrongful gain to one person or
wrongful loss to another person, is said to do that
thin `dishonestly’.”
Thus, an act done with the intention to cause `wrongful gain’ can be
said to be dishonest.
The term `wrongful gain’ is defined in Section 23 of the IPC as
follows:
“Wrongful gain’- `Wrongful gain’ is gain by
unlawful means of property to which the person
gaining is not legally entitled.”
The most essential ingredient of proof of criminal breach of trust,
therefore, is misappropriation with a dishonest intention. Breach of trust
simplicitor is not an offence as is it not associated with intention which is
dishonest.
95
The term dishonestly defined in Section 24 IPC means doing anything
with the intention of causing wrongful gain to one person or wrongful loss to
another. So the offence is completed when misappropriation of the property
has been made dishonestly. Accordingly, even a temporary misappropriation
falls within the ambit of the said offence. [See the Judgment of the Orissa
High Court in Kartikeshwar Nayak v. State, 1996 Cr.L.J. 2253].
In the present case accused No. 6 parted with money of NHB which
was entrusted to him so that Harshad Mehta could get it although not
entitled therefor in Law. The conduct of accused 6 was therefore dishonest.
He is guilty of the offence of criminal breach of trust. With regard to
accused No 7, Suresh Babu we have already mentioned that there is not
enough evidence to show his involvement in the said transactions.
So far as the involvement of accused 1 to 3 is concerned, we are of the
opinion that they also played an important role in diverting the supposed call
money from NHB which was meant for UCO Bank to the account of
Harshad Mehta. As soon as the cheque for Rs 40 crore was received by UCO
Bank the amount stood entrusted to the officials of UCO Bank. However
accused 1 to 3 in violation of law and in the absence of any contract
permitted the amount to be transferred to the account of accused no. 4
96
Harshad Mehta who was not entitled to it. Therefore, the offence of criminal
breach of trust stands proved against them also.
We must also make reference to the following observations of the
Supreme Court in Ram Narayan Popli (supra) which was a case arising from
the connected securities market scam, to bring home the point as to the
impact of the transactions:
“100. The offence in these cases were not of the
conventional or traditional type. The ultimate
objective was to use public money in a carefully
planned manner for personal use with no right to
do it.
101. Funds of the public bodies were utilized as it
they were private funds. There was no legitimacy
in the transactions. …Their acts had serious
repercussions on the economic system of the
country, and the magnitude of financial impact
involved in the present appeal is only tip of the
iceberg. There were several connected cases and
interestingly some of the prosecution witnesses in
the present case are stated to be accused in those
cases. That itself explains the thread of self-
perseverance running through their testimony.
Therefore, the need to pierce the facadial smoke
screen to unravel the truth to lift the veil so that the
apparent, which is not real can be avoided. The
proverbial red herrings are to be ignored, to find
out the guilt of the accused.
102. The cause of the community deserves better
treatment at the hands of the Court in the discharge
of its judicial functions. The Community or the
97
State is not a persons non grata whose cause may
be treated with disdain. The entire community is
aggrieved if economic offenders who ruin the
economy of the State are not brought to book. A
murder may be committed in the heat of moment
upon passions being aroused. An economic
offence is committed with cool calculation and
deliberate design with an eve on personal profit
regardless of the consequence to the Community.”
PREVENTION OF CORRUPTION ACT
Apart from the charges under the IPC,accused 1 to 3 [UCO Bank
officials] and accused 6 & 7 [NHB officials] have also been charged of
committing the offence under s 13 (1) (d) (iii) read with s 13 (2) of the
Prevention of Corruption Act. It must be placed on record that in this regard
that the Prevention of Corruption Act, 1988 replaced the Prevention of
Corruption Act, 1947. The new Act was enacted `to consolidate and amend
the law relating to the prevention of corruption and for matters connected
therewith.’ Relevant portions of section 13 which provide for criminal
misconduct by a public servant read as under.
“13. Criminal misconduct by a public servant.- (1)
A public servant is said to commit the offence of
criminal misconduct,-
…(d) if he,-
…(iii) while holding office as a public servant,
obtains for any person any valuable thing or
98
pecuniary advantage without any public
advantage; or
(2) Any public servant who commits criminal
misconduct shall be punishable with imprisonment
for a term which shall be not less than one year but
which shall may extend to seven years and shall
also be liable to fine.”
Section 13 in general lays down that if a public servant, by corrupt or
illegal means or otherwise abusing his position as a public servant obtained
for himself or for any other person any valuable thing or pecuniary
advantage he would be guilty `criminal misconduct’. Clause (2) thereof
speaks of the punishment for such misconduct. [See CK Damodaran Nair v.
Government of India, AIR 1997 SC 551.]
The ingredients of Sub-clause (iii) of S 13 (1) (d) contemplate that a
public servant who while holding office obtains for any person any valuable
thing or pecuniary advantage without any public interest would be guilty of
criminal misconduct. Sub section (2) of section 13 provides for the
punishment for such criminal misconduct.
Minimum sentence is prescribed under Section 13(2) of the 1988 Act
and a public servant who abuses his position as such for obtaining for
himself or for any other person any valuable thing or pecuniary advantage
cannot be punished for a term of imprisonment, which is less than for the
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duration of one year. For convicting the person under Section 13(1)(d)(iii),
there must be evidence on record that accused ‘obtained’ for any other person
any valuable thing or pecuniary advantage without any public advantage.
In Dalpat Singh v. State of Rajasthan, [AIR 1969 SC 17] while
interpreting an analogous provision in the unamended Prevention of
Corruption Act, this opined noted:
“The ingredients of the offence under section 5 (1)
(d) are: (1) that the accused should be a public
servant, (2) that he should use some corrupt or
illegal means or otherwise abuse his position as a
public servant, (3) that he should have obtained a
valuable thing or pecuniary advantage, and (4) for
himself or any other person”
The Madras High Court in B. Ramachandran and S.S. Abdul Hameed
vs.State rep. by The Inspector of Police, Special Police Establishment,
Central Bureau of Investigation, Anti-Corruption Branch, Crl. A. No. 553 of
2000 decided on 23.03.2007 noted thus:
“Section 13(1)(d) of the said Act also deals with
the criminal misconduct by a public servant by
means of corrupt or illegal means, obtains for
himself of for any other person any valuable thing
or pecuniary advantage; or by abusing his position
as a public servant, obtains for himself or for any
other person any valuable thing or pecuniary
advantage; or while holding office as a public
servant, obtains for any person any valuable thing100
or pecuniary advantage without any public
interest.”
In the light of the provisions already enumerated by us we per the law
laid down we therefore hold that the accused A1 to A3 [officials of UCO
Bank] & A6 [officials of NHB] are guilty of criminal misconduct under the
Prevention of Corruption Act. For the reasons already mentioned by us we
do not find sufficient evidence to bring in the involvement of A7, Suresh
Babu within the fold of the said transaction.
All the accused were at the relevant time public servants. Each one of
them played a specific role in diversion of funds from NHB to the account of
Harsad Mehta, all ostensibly under a call money transaction. They thereby in
our opinion facilitated Harshad Mehta to obtain pecuniary advantage within
the meaning of the section. The acts were anything but intended to be in
public interest. On the contrary the public loss and suffering occasioned
thereby was immeasurable. Though it is true, as has been argued before us
that all the funds diverted have subsequently been returned to NHB and no
actual loss has been occasioned there by either to the UCO Bank or the
NHB. But it must not be forgotten that white collar crimes of such a nature
affect the whole society even though they may not have any immediate
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victims. We, accordingly, hold accused A1 to A3 and A6 guilty of criminal
misconduct under s. 13 (1) (d) (iii) of the Prevention of Corruption Act.
SENTENCING
A sentence of punishment in our opinion poses a complex problem
which requires a balancing act between the competing views based on the
reformative, the deterrent as well as the retributive theories of punishment.
Accordingly a just and proper sentence should neither be too harsh nor too
lenient. In judging the adequacy of a sentence, the nature of the offence, the
circumstances of its commission, the age and character of the offender,
injury to individual or the society, effect of punishment on offender, are
some amongst many other factors which should be ordinarily taken in to
consideration by the courts. We may also place on record that as the CBI has
not preferred any appeal against the quantum of sentence, this Court cannot
impose a higher sentence.
We must first accordingly take into consideration the sentence
imposed by the Special Court :
As regards A1, K Margabanthu, the court stated that he had been the
Chairman and the Managing director of a public sector bank when he
committed the offence. Though the court was of the opinion of giving him
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a harsh sentence because of the key role played by him in the entire
transaction, it, however, while considering his age and health condition,
sentenced him to undergo only six months Rigorous Imprisonment and
ordered him to pay a fine of Rs.1,00,000/- and in default to undergo SI for
two months. We find no reason to interfere with the sentence imposed by the
special court.
As regards A2, R Venkatakrishnan the Special Court again for the
reasons of his age and the financial status of his family imposed exactly the
same sentence as that was imposed on A1. We do not intend to interfere
with the sentence of A2 either as regards to the punishment that he had to
undergo or the amount of fine imposed on him.
As regards A3, SV Ramanathan the court considering his lower rank
in the hierarchy of the bank imposed on him only a sentence of one month
RI and ordered to pay a fine of Rs. 10,000/- and in default SI for 15 days.
Though we are of the opinion that he deserved to be dealt more harshly by
the trial court but after five years having passed since the pronouncement of
the judgment we do not propose to effect any change the said sentence.
As to A 5, Atul M Parekh the court took note of the fact that he was
working under the orders of A4, the deceased Harshad Mehta, being his
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employee, and handed him a sentence of merely 15 days and ordered him
to pay a fine of Rs. 10,000 and in default SI for 15 days. We need not
interfere with the said sentence.
As to A6, C Ravi Kumar the court gave him a sentence of three years
and ordered him to pay a fine 1,00,000 in default SI for 3 months. We have
herein before already deprecated against the reference by the Special Court
on the Jankiraman Committee Report while awarding the sentence. Though
we too are of the opinion that A6 played a very instrumental role in the
entire scheme of things, but feel that the Special Court might have been
influenced by the observations of the Report while awarding the sentence. In
our opinion the transaction could not have been possibly carried on without
the help of A6. But so long as there is doubt that the court was not wholly
correct in awarding the sentence we would not be in a position to uphold it.
This is also visible from the wide difference in the sentence of imprisonment
which has been given to him as compared to other accused who also played
a equally instrumental role in the illegal transactions. We accordingly reduce
his sentence of his imprisonment to six months but uphold the amount of
fine which has been imposed upon him.
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Since we have acquitted A7, S Suresh Babu of all charges no question
as regards the sentence to be imposed on him arises.
CONCLUSION
1. A1, K Margabanthu is sentenced for the offence punishable under s.
120B and s. 409 of the IPC as also s.13 (1) (d) (iii) read with s. 13
(2) of the Prevention of Corruption Act to undergo RI for a period of
six months and to pay fine of Rs. 1,00,000 in default to undergo SI for
two months
2. A-2 , R Venkatkrishnan is found guilty of offence under s. 120B and
s. 409 of the IPC as also s. 13 (1) (d) (iii) read with s. 13(2) of the
Prevention of Corruption Act and is sentenced to undergo RI for a
period of six months and to pay fine of Rs. 1,00,000 and in default SI
for two months.
3. A3, SV Ramanathan is sentenced for the offence punishable under s.
120B and s. 409 of the IPC as also s.13 (1) (d) (iii) read with s. 13
(2) of the Prevention of Corruption Act to undergo RI for a period of
one months and to pay fine of Rs. 10,000 and in default SI for two
months.
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4. A5, Atul M Parekh is sentenced for the offence punishable under
section 120 B of the IPC to undergo RI for a period fo 15 days and to
pay a fine of Rs. 10,000 and in default to undergo a SI for 15 days.
5. A6, C Ravikumar is sentenced for offences under punishable s. 120B
and s. 409 of the IPC as also s 13 (1) (d) (iii) read with s. 13(2) of the
Prevention of Corruption Act and is sentence to undergo
imprisonment for 1 year and to pay a fine of Rs. 1,00,000 and in
default to undergo a imprisonment for SI for two months.
6. A7, S Suresh Babu is hereby acquitted of all charge as the prosecution
has failed to prove the case against him beyond all reasonable doubts.
Each accused should be given a set off for the period for which he has
already undergone imprisonment in this case. So far as the payment of fine
is concerned, a period of 2 months time is given to all accused persons, on
whom fine has been imposed, to pay the said fine.
………………………….J.
[S.B. Sinha]
…………………………..J.
New Delhi; [Cyriac Joseph]
August 7, 2009
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