REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 942 OF 2009
[Arising out of SLP (Criminal) No. 7125 of 2007
S.V.L. MURTHY ... APPELLANT
Versus
STATE REP. BY CBI, HYDERABAD ... RESPONDENT
WITH
CRIMINAL APPEAL NO. 945 OF 2009
[Arising out of SLP (Criminal) No. 7145 of 2007
P. JAYAKUMAR ... APPELLANT
Versus
STATE OF ANDHRA PRADESH REP. BY CBI ... RESPONDENT
WITH
CRIMINAL APPEAL NOS. 943-944 OF 2009
[Arising out of SLP (Criminal) Nos. 7313-7314 of 2007
2
VENUGOPAL LOYA & ORS. ... APPELLANTS
Versus
STATE OF A.P. ... RESPONDENT
JUDGMENT
S.B. SINHA, J.
1. Leave granted.
2. These appeals arising out of a common judgment and order dated
17.07.2007 passed by the High Court of Andhra Pradesh at Hyderabad were
taken up for hearing together and are being disposed of by this common
judgment.
3. Accused No. 4 – S.V.L. Murthy was the Branch Manager of Begum
Bazar Branch of State Bank of India (for short, “SBI”). Accused No. 1 –
Venugopal Loya was proprietor of some business concerns, namely, M/s
Shobhachand Shivijiram (“SS”), M/s Sreeji Industries (“SI”) and M/s
Harikrishan Roopchand (“HR”). Whereas SS and HR used to deal in
wholesale trade in grains and spices, SI was a plastic manufacturing concern.
Accused No. 2 – Gopaldas Dharak was a partner of M/s Gayatri Traders
3
(“GT”). He used to operate current account in the same Branch. Accused
No. 3 – Radheshyam Dharak, partner of GT, an Accountant working in the
firms of Accused No.1. Accused No. 5 – P. Jayakumar was the Accountant
in the Begam Bazar Branch of the State Bank of India. Accused No. 6 – Y.
Narahari Murthy was the Charge Branch Manager.
4. SS was established in the year 1860. It opened current account with
Begum Bazar Branch of the State Bank of India on or about 5.12.1979.
Accused No. 1 opened Current Account with SBI on behalf of SI in his
capacity as a Managing Partner on or about 10.5.1988. He was granted
cheque discounting facility. For the said purpose, he deposited his title
deeds on or about 6.9.1988
5. Srinivasa Rao (P.W. 22), the then Branch Manager of the SBI by a
letter dated 10.1.1989 addressed to the Regional Manager sought for his
advice as to whether levy of 5 paise per thousand per day instead of 10 paise
as commission should be relaxed. Indisputably, collateral securities were
furnished by the appellants for availing cheque discounting facility.
6. Accused No. 4 – S.V.L. Murthy, however, stopped this discounting
facility with SS. inter alia on the premise that three bills purchased by the
Bank and sent to Salem Branch for collection had been returned unpaid. So
far as the bill limit due in account of SS was concerned, the same stood at
4
Rs.20,18,240/- out of which Accused No. 1 is said to have made payment of
Rs.5,00,314/- for returned bills with interest within 2 hrs. It is stated that on
or about 7.4.1989, a meeting was held at the residence of the Regional
Manager (P.W. 20 – V. Ramamurthy). Accused No. 1 is alleged to have
complained that Accused No. 4 had stopped discounting of cheques to him
whereupon Regional Manager (P.W. 20) allegedly instructed Accused No. 4
to continue the practice of discounting cheques to Accused No. 1 on the
premise that he was a reputed customer of the Bank. Pursuant thereto, the
discounting facility was made available with Accused No.1 upon obtaining
sufficient collateral security, i.e., title deeds of moveable and immoveable
properties of Accused No.1 worth Rs.1.09 lacs.
7. The Bank allegedly sanctioned discounting facility to the extent of
Rs.30 lacs on the basis of collateral securities furnished on or about
15.4.1989. However, ten cheques aggregating to Rs.29,86,219/- were
discounted and sent for clearing by Bank, which were returned unpaid from
clearing house. Appellants contended that they were sent for clearing
without proper stamping/endorsement; they did not reach drawer bank at all.
Indisputably, however, the Regional Office issued instructions for stopping
cheque discounting facility without notice. It is stated that the appellants
paid a sum of Rs.29,90,941/-, which covered the discounting amount
together with interest on or about 25.4.1989. The Bank seized office-cum-
5
godown and stocks of SS at about 11.45 a.m. on the same day. On or about
26.4.1989, 26 account payee cheques were presented in various banks across
the counter which should have been presented through clearing. However,
Rs.1,28,63,441/- was said to have remained outstanding.
8. Accused No. 1 is stated to have made payment of Rs.38,84,000/-
through pay order on or about 27.4.1989. On the said date, liability is said
to have stood at Rs.89,79,441/-.
Indisputably, Accused No. 4 proceeded on leave from 19.4.1989 and
handed over the charge of his office to Mr. Y. Narahari Murthy (Accused
No. 6). Accused No. 1 furthermore applied for grant of overdraft facility to
the limit of Rs.90 lacs against collateral security. It was granted. Sufficient
securities were also furnished. The Regional Manager was informed by the
Branch that Accused No. 1 has promised to pay a sum of Rs.15 lacs within a
week. However, a suit was filed in the court of 4th Additional Judge, City
Civil Court at Hyderabad being CSOS No. 827 of 1989 for recovery of a
sum of Rs.90,19,789.11 with interest on or about 10.5.1989. On or about
10.5.1989, City Civil Court passed interim direction ordering attachment
before judgment.
6
9. On 21.6.1989, a criminal complaint was lodged by the Bank before
the III Metropolitan Magistrate at Hyderabad under Sections 120B, 420,
467, 471 of Indian Penal Code (IPC) and under Section 138 of the
Negotiable Instrument Act inter alia alleging that cheques issued to SI were
fraudulently discounted and amounts were drawn between 14.2.1989 and
1.5.1989.
It is not in dispute that in the said complaint no allegation was made
against the officers of the Bank. On or about 17.7.1989, the Metropolitan
Magistrate directed the Central Bureau of Investigation (CBI) to investigate
into the case pursuant whereto a First Information Report was lodged under
Sections 120B, 420 of IPC read with Section 13(1)(d) of the Prevention of
Corruption Act on or about 5.9.1989.
10. We may, however, place on record that P.W. 22 – Srinivasa Rao took
over charge as Branch Manager on the oral instructions of P.W. 20 – V.
Ramamurthy, on or about 28.4.1989.
Indisputably, disciplinary proceedings were initiated against the
Accused No. 4, Accused No. 5 as also P.W. 20.
In the said disciplinary proceedings, they were placed under
suspension. They were, however, reinstated in service. Whereas P.W. 20
7
was censured, Accused No. 4 was inflicted with a punishment of stoppage of
five increments. Some minor punishments was also imposed on the
Accused No. 5.
Indisputably, a vigilance enquiry was conducted on or about
26.4.1989 at Begum Bazaar Branch of the SBI wherein a report dated
18.1.1990 was submitted indicating that there has been a technical violation
on the part of the Bank Officer, inter alia, arriving at the following
conclusions:
“iv. S.V.L. Murthy, who had succeeded Shri
Vijaya Kumar has apparently also passed on
pecuniary advantage to Shri Loya and his
group of concerns,a. By continuing the irregular practice of purchasing local
cheques and that too for large amounts. It was his period
the liability on account of local cheque purchased
touched one crore mark in March 1989.b. By not collecting the applicable interest as laid down, he
had caused considerable loss of income to the Bank.c. He also did not report the LOIT facility being extended
to the firms to the Controlling Authority directly. He
had, however, made a reference to the Controlling
Authority in January 1989.d. Although, it came to his knowledge that the firms are
indulging in irregular and objectionable transactions, he
did not adequately safeguard the Bank’s interests nor
initiated location as is necessary to avoid loss to the
Bank.e. He did not ensure that the local cheques purchased were
promptly presented in clearing and payment obtained.
8
Similarly, he did not ensure prompt recovery on return of
cheques in clearing.”Both his predecessor as also successor in office were found guilty of
some negligence on their part. Some laxity on the part of office of the
Controlling Authority was also pointed out.
12. A charge sheet was filed on or about 8.9.1993 under Sections 120B,
420 IPC read with Section 13(1)(d) of the Prevention of Corruption Act,
1988 alleging inter alia that there was criminal conspiracy between the
accused persons during 1988-89 to cheat SBI.
13. On or about 7.2.1994, learned Special Judge for CBI Cases,
Hyderabad framed charges against the accused persons under Sections
120B, 420 IPC read with Section 138 of the Negotiable Instruments Act.
However, Accused Nos. 4 to 6 were additionally charged with Section
13(1)(2) of the Prevention of Corruption Act.
14. Before the learned Special Judge, a large number of witnesses were
examined. They included P.W. 1 – Sh. R. Vijay Kumar, Branch Manager,
State Bank of India, Karimnagar Branch, who was holding the post of
Manager, in the Begum Bazaar of the State Bank of India, Hyderabad from
31.8.1987 to 9.8.1988, i.e., prior to Accused No.4. P.W. 19 – S.V.
Panchapakesan, Dy. General Manager, SBI Capital Market Bombay, who
9
worked as Administrative Officer Advances in the Regional Office and P.W.20 – V. Ramamurthy, the Additional Manager-cum-Deputy General
Manager of the Regional Offices.
15. Learned Special Judge for CBI Cases, Hyderabad by reason of
judgment and order 28.8.1998, held:
“84. The prosecution has failed to establish the
Charge U/s 138 of N.I. Act against A1 to
A3. Hence I found them not guilty for the
offence U/s 138 of N.I. Act against A1 to
A3.85. Admittedly A4 to A6 are the employees
working in Begumbazar branch at
Hyderabad and they are public servants.
They abused their positions as public
servants. They purchased local cheques
which are totally irregular and against the
establishment norms of the bank and
therefore they have committed an offence of
criminal misconduct. A4 to A6 purchased
local cheques upto Rs.90 lakhs. There
cannot be any evidence that A4 to A6 had
pecuniary advantage due to their misconduct
but due to their misconduct they obtained
benefit to A1 to A3. Hence I found A4 to
A6 guilty for the offence U/s 13(2) r/w
13(1)(d) of P.C. Act, 1988.86. In the result, A1 to A6 are found guilty for
the offence U/s 120-B, A1 to A6 are found
guilty for the offence U/s 420 I.P.C. A4 to
A6 are found guilty for the offence U/s
13(2) r/w 13(1)(d) of P.C. Act, 1988.”He convicted and sentenced the accused persons as under:
10
” A1 is convicted and sentenced to suffer R.I.
for THREE YEARS and to pay a fine of
Rs.10,000/-. In default S.I. for ONE YEAR for
offence U/S 420 IPC.A1 is sentenced to suffer R.I. for THREE
YEARS and to pay a fine of Rs.10,000/-. In
default S.I. for ONE YEAR for offence U/s 120-B
IPC.A2 is sentenced to suffer R.I. for THREE
YEARS and to pay a fine of Rs.5000/- for offence
U/S. 120-B IPC. In default S.I. for ONE YEAR.A2 is sentenced to suffer R.I. for THREE
YEARS and to pay a fine of Rs.5000/-. In default
S.I. for ONE YEAR for offence U/S. 420 IPC.A3 is convicted and sentenced to suffer R.I.
for THREE YEARS and to pay a fine of Rs.5000/-
In default S.I. for ONE YEAR for offence U/s.
120-B I.P.C.A3 is convicted and sentenced to suffer R.I.
for THREE YEARS and to pay a fine of Rs.5000/-. In default S.I. for ONE YEAR for offence
U/s. 420 I.P.C.A4 to A6 are convicted and sentenced to
suffer R.I. for THREE YEARS each and to pay a
fine of Rs.5000/- each. In default S.I. for ONE
YEAR for offence U/s. 120-B I.P.C.A4 to A6 are convicted and sentenced to
suffer R.I. for THREE YEARS each and to pay a
fine of Rs.5000/- each. In default S.I. for ONE
YEAR for offence U/s 420 I.P.C.A4 to A6 are convicted and sentenced to
suffer R.I. for TWO YEARS for offence U/s. 13(2)
r/w 13(1)(d) of P.C. Act, 1988 and to pay a fine of
Rs.5000/- each. In default, S.I. for SIX MONTHS
each.11
A1 to A3 are not found guilty for offence
U/s. 138 of Negotiable Instruments Act and they
are acquitted for the same offence.All the sentences of imprisonment shall run
concurrently. Accused are entitled to set off for
the remand period if any.”16. Feeling aggrieved and dissatisfied with the aforesaid judgment,
appellants preferred appeals.
The High Court by reason of the impugned judgment in dismissing
the appeals of the appellant, held:
“57. Learned counsel appearing for the accused
contended in chorus that the practice of
discounting cheques was in existence even prior to
A4 taking charge as the Branch Manager of
Begum Bazar Branch, State Bank of India,
Hyderabad and the said practice was a part of
accepted norms. I do not find any substance in
their contention. A practice even if it was
prevailing, if wrong, is not to be approved. The
subsequent clarifications do not in any way put
seal of approval on the practices adopted in the
past, on the other hand it condemns it.58. When the factual background highlighted is
considered in the light of the various provisions, it
is clear that the alleged offences under Sections
120-B and 420 IPC against A1 to A5 and under
Section 13(1)(c) r/w. 13(2) of the Prevention of
Corruption Act, 198 against A4 and A5 are clearly
established.”However, accused No. 6 was acquitted.
12
17. Mr. K.T.S. Tulsi, learned Senior Counsel appearing on behalf of
Accused Nos. 1 to 3 would contend:
i. Accused Nos. 1 to 3 having not been charged for
conspiracy with the Bank officials under the Prevention
of Corruption Act, the impugned judgment is wholly
unsustainable.
ii. One of the principal ingredients of cheating as envisaged
under Sections 415 of the IPC being dishonest intention
at the inception of contract being wholly absent,
appellants could not have been convicted under Section
420 of the IPC.
iii. Admittedly, the Bank had not suffered any financial loss
and in fact having received interest to the extent of Rs.44
lakhs from the appellants, the impugned judgment
holding that they had entered into a criminal conspiracy
for cheating the Bank must be held to be wholly
untenable.
18. Mr. Ravindra Shrivastava, learned Senior Counsel appearing on
behalf of Accused No.4 would urge:
13
i. Bill discounting facility which is accepted as a normal banking
practice wherefor even Reserve Bank of India had issued
guidelines, the High Court committed a serious error in passing
the impugned judgment.
ii. Accused No. 4 having merely followed the practice for the
purpose of said banking practice and acted for the promotion of
the business of the Bank by granting discounting facility to
Accused Nos. 1 to 3 which had been initiated by his
predecessor, namely, P.W. 1, it will be incorrect to contend that
the appellant had any wrongful intention or had any mens rea to
commit the offence.
iii. Accused No. 4 having himself stopped discounting of cheque
facility to Accused No.1 in April 1989, the courts below acted
illegally in opining that he was a party to the alleged
conspiracy.
iv. No evidence having been brought on record whether oral or
documentary to establish that Accused No. 4 had acted for the
purpose of obtaining any wrongful gain for himself, the
provisions of the Prevention of Corruption Act have no
application.
14
v. Accused No.4 being the Branch Manager of the Bank for a
short time, i.e., from April 1988 to 18.4.1989 and the similar
facility having been granted to the other accused persons even
by Accused No. 6 who have since been acquitted, the
prosecution must be held to have failed in proving his case.
19. Mr. K.V. Mohan, learned counsel appearing on behalf of the Accused
No. 5 would urge:
i. As an Accountant, the job of the accused was merely to make
necessary entries in the books of accounts and in view of the
practice prevailing that the entry into the customers’ account
should be made only after return of the cheque, IBIT (Inter
Branch Items in Transit A/c) and LIT (Local Items in Transit)
Registers were being maintained, in view of the evidence of
P.W. 2 that whatever was in practice having been followed, it is
incorrect to contend that the Accused No.5 was a party to the
conspiracy.
ii. The learned special judge as also the High Court having relied
upon the letter purported to have been issued by the Accused
No. 4 to Accused Nos. 5 and 6 that the practice should not be
15
discontinued, the appellant cannot be treated differently vis-`-vis the Accused No. 6 as he had been acquitted.
20. Mr. B. Datta, learned Additional Solicitor General appearing on
behalf of CBI, on the other hand, would submit:
i. The offences against the appellants having been found to have
been proved by two courts, this Court in exercise of its
jurisdiction under Article 136 of the Constitution of India
should not interfere therewith.
ii. As from a perusal of the judgment and order passed by the
learned Special Judge as also the High Court, it would be
evident that the appellants had entered into a conspiracy to
cause wrongful loss to the Bank and to cause wrongful gain for
themselves by using the public fund for their own benefit, there
is absolutely no reason why the impugned judgment should be
interfered with.
iii. Accused No. 4 and Accused No.5 being the Officers of the
Bank, they had domain over the public fund and in that view of
the matter, the courts below have rightly found them guilty for
commission of offences.
16
21. We have noticed hereinbefore the charges leveled against the
appellants. So far as the principal accused, namely, Accused Nos. 1 to 3 are
concerned, they having not been charged for entering into a criminal
conspiracy with the Bank officials for commission of offences under the
Prevention of Corruption Act, it was necessary only to see as to whether a
case of cheating has been made out.
The fact that Accused No. 1 had a long standing business relationship
with the Bank is not in dispute. The Officers of the Bank particularly P.W.
2, P.W.19 and P.W.20 in their deposition clearly stated that the banking
practice allows grant of such discounting facility. In fact, the Reserve Bank
of India Circular whereupon reliance has been placed by the courts below
clearly points out existence of such a practice. The Reserve Bank of India,
however, laid down certain guidelines with a view to safeguarding the
interest of the Bank.
It is also not in dispute that for the said purpose, a Circular has also
been issued.
The proposal of the Branch to grant such discounting facility to
Accused Nos. 1 to 3 had not been accepted in its entirety. An ad hoc limit of
Rs.35 lakhs has been fixed.
17
P.W. 1 – R. Vijaykumar, in his evidence categorically admitted that
the bill discounting facility had started during his tenure as Branch Manager.
It is, furthermore, accepted that said facility was extended to Accused Nos. 1
to 3 having regard to the business potentiality they had. He furthermore
accepted that the weekly statements used to be prepared and placed before
the higher authorities who had also not objected to grant thereof. The said
witness, in fact, in his deposition stated that the Regional Manager wanted
Accused No.1 to carry on all his business only through this branch. In his
cross- examination on behalf of A1 to A3, he stated:
“I know A1 since 1988. I know Harinarayana
Kakani, who is the father of A1. It is to my
knowledge that they were operating firms which
are reputed. Before forwarding any proposal for
sanctioning limits, the branch will make appraisal
of the creditworthiness of the party. I have sent
the proposals in favour of the firms of A1. The
credit limit for the firms of A1 were duly
sanctioned by the Regional Office. The credit
limits were sanctioned by the Regional office in
favour of M/s Sobhachand Shivaji Ram. A1 was
representing Shobhachand Shivaji Ram.He furthermore stated:
“Whatever limits were utilized by the firm
Shobhachand Shivaji Ram have permanent
sanction. All the cheques that were presented
during my tenure, were duly honoured. To my
knowledge the firms Shri Jee Industries and
Shobhachand Shivaji Ram Industries were having
substantial deposit potentials and were also
resources.”18
He in his cross-examination on behalf of A4 to A6 stated:
“The practice in our Begum Bazar Branch SBI was
to debit LOIT account, the amount of local
cheques purchased. Auditing was done during my
tenure and no objection was taken for debiting to
LOIT account by the auditor. It is true that when a
local cheque was returned unpaid for want of
sufficient fund, then only such cheques will be
debited the account of the party. If the cheques is
returned with an endorsement `effects not cleared,
present again’, it will not be debited to the account
of the party.xxx xxx xxx
I know that our Regional Manager and A.O.
(Advances) was impressing A1 to confine all the
business dealings of all the firms to SBI Begum
Bazar. A1 agreed with a stipulation that all his
credit requirements must be met by the branch. I
was in receipt of a letter from A1 requesting for
sanction of ad hoc limits to Shri Jee Industries.
Regional office never objected to negotiations of
local cheques in favour of Shri Jee Industries. I do
not remember whether I presented cheques with a
delay of three or four days in clearance. From
February 1986 to August 1987 there was no
permanent Branch Manager to Begum Bazar
Branch.”P.W. 19 – R.V. Panchapakesan – who worked as an Administrative
Officer (Advances) in the Regional Office, in his deposition, stated as under:
“It is true the transaction is of civil nature and we
can approach the civil courts for recovery of the
19
liability from A1. It is not true to suggest that we
intentionally taken up the criminal forum also in
prosecuting A1 in order to harass him because the
cheques were bounced there is criminal liability of
A1 hence we have complaint. The bank also filed
civil suit against A1.I do not admit the suggestion that A1
V.G.Loya had not committed any fraud in the
bank. It is not true to suggest that I gave false
statement before CBI in order to save my skin.”He, in his cross-examination by A4 to A6, stated:
” At the instructions of D.G.M. I was looking
after deposit mobilization and market promotion.No written instruction were given to me.
It is true even before A4 S.V.L. Murthy took
charge as Bank Manager, Begumbazar branch, I
am acquainted with A1 V.G. Loya.I do not remember whether myself or our
R.M. have approached Sri V.G. Loya seeking
deposits to him.It is true after ascertaining the worthiness of
parties Sri VG Loya (A1) we have sanctioned the
limits.I do not know A4 S.V.L. Murthy addressing
a letter dt. 24.3.89 hearing No: F/20-75 to the
Regnl. Office expressing some suspicion about the
bills discounted on behalf of Sobachand Sivajiram,
as I was not working as A.O. at that time.xxx xxx xxx
20
I learnt that the then Branch Manager i.e. A4
SVL Murthy has stopped discounting any bills on
the a/c Sobachand Sivajiram before the receipt of
my confidential dt. 10.4.89.As A.O. Advances I agree that A4 SVL
Murthy has taken a correct stand of not
discounting the bills pertaining to Sobachand
Sivajiram Indus.I do agree that the bank has not suffered any
loss on bills returned as the amount has been
recovered from the party.xxx xxx xxx
The R.M. has to visit the branch periodically
and it is his duty to scrutinize the ledgers of the
Bank branch A.O. advances I do not go for such
inspection.It is not true to suggest that the discounting
of local cheques is a part of lending activity of the
bank.Discounting bills falls under lending
activity.It is true during the customers relations
meeting A1 and other customers have complained
to R.M. about delay in relations of cheques by the
Begumbazar branch and our R.M. advised replying
customers that the delays can be avoided if the
clearing cheques are presented by the branch to the
services branch on the same day.xxx xxx xxx
I remember the original limit proposed for Rs.85
lakhs and the ad hoc limit (in principal limit) was
Rs.35 lakhs. The party requires ad hoc limits in
urgency pending sanction of regular limit.
21xxx xxx xxx
The weekly abstracts of branches cannot be
scrutinized by A.O. branch they go to A.O.
General Manager. The weekly abstracts contain
expenses of bills discounted and balance of bills
discounted.The Electronic Data processing (BDP) of
local head office generates weekly outputs from
the weekly abstracts from the banks giving figures
of deposits and advances. These are received by
A.O. advances for enabling scrutiny of branch
figures of advances and their variations.”From the aforementioned statements, it is evident that all transactions
were being carried on in a transparent manner having regard to the prevalent
practice. In fact, as noticed hereinbefore, Shri Vijay Kumar not only started
granting the said facility to the principal accused, some amount of laxity on
his part was also found.
P.W. 20 – V. Ramamurthy in his deposition, stated:
“I took charge as Dvnl. Manager Region 1 during
the August 1987 when I visited Begumbazar
branch the then branch manager PW1 Vijaykumar
took me to A1 Loya’s house and introduced him as
bank customer. We have sanctioned loan limits to
A1 Sri V.G. Loya in the name of the company M/s
Shobachand Shivajirao and A1 was the Managing
Partner of the company, the connection of that loan
A1 visited my office.Part of the limits was sanctioned by me for
Shobchand Shivajiram and part of limits was
sanctioned by Dy. General Manager. The D.D.22
purchased documentary bills is for Rs.20 lakhs and
D.D. purchased for bill discounting facility is for
Rs.5 lakhs. Cash Credit hundi typed limit of Rs.20
lakhs was sanctioned by the D.G.M., Sri
Seshasahi. The sanctioned was communicated to
the branch.xxx xxx xxx
After processing the proposals we found out
quite a few gaps in their proposal so we wrote to
the branch for clarifications on certain points vide
our letter dated 28.8.1988 bearing No. 009104-1-80. The same letter is marked as Ex. P. 674. We
have not received any clarifications and we did not
attend to this proposal. There are specific
guidelines by R.B.I., to all the banks in regard to
purchase of local cheques. These guidelines are
contained in this circular no. ADV No. 2, dated
24.1.1984, the bank communicated these
guidelines to all the branches. The said circular is
marked as Ex. P.675, with enclosures (6 folio). I
now identify the circular dated 24.6.1983 (Ex.
P.11) regarding local offices clearing account and
local offices clearing items in transit accounts. I
visited the branch (Begumbazar) once in
September, 1988 and another time in November,
1988. My first visit for development of business
where I talked to Branch Manager about the
advances and deposits and second visits if for the
inauguration of lockers. A small customers meet
was conducted on the occasion of inauguration of
lockers. A1 Venugopal Loya was present at the
customers meet. At that time A4 C.S. Murthy was
the branch manager. The discussion of purchase
of cheques by the branch on behalf of A1
Venugopal Loya did not arise in this customers
meet. However, the customers including A1
wanted the branch to purchase the local cheques as
there was some delay in clearing these cheques. I
told them that R.B.I. prohibits us from allowing
such purchase of local cheques and we will instruct
the branch to present these instruments received
23
from the customers quickly on the same day in the
clearing so that the delay can be avoided.xxx xxx xxx
On 7.4.80, while at my house on sick leave, A1
Venugopal Loya, and A4 S.V.L. Murthy met me at
my house. I requested Mr. Panchapakesan to come
and join me in the meeting. In this meeting, A1
Loya complained that the branch has discontinued
purchase of bills and he wanted this ban to be
lifted. Sri Panchapakesan questioned Loya about
the genuineness of the bills he could not give
satisfactory answers. We told Shri Loya, A1, that
unless the full-scale investigation into this matter
is over we cannot resume purchase of bills in this
account. This disturbed Shri Loya, A1. We
requested A4 to visit Sailam or Madurai, if
necessary, and enquire into the matter to find out
whether any movement of any goods in regard to
these bills and submit a report to us. I resumed
duty on 17.4.1989.xxx xxx xxx
The branch of the bank used to send periodical
abstract to Regional Office Ex. P. 623 to 666 are
the weekly abstract sent by Begumbazar Branch to
Regional Office. The purpose of weekly abstract
is to furnish information to Regional Office for
communicating RBI about time liabilities of the
bank branch as the bank is to maintain certain
reserves as per RBI Rules. The weekly abstract
reflects total of various transaction such as
advances, deposits etc. They won’t reflect the
details. The abstract will not come to Regional
Manager the Desk Officer shall sent statement in
routine course.He in his cross examination on behalf of A4 to A6, stated:
24
“It is a fact as a Regional Manager, it is my duty to
control advances, deposits and other miscellaneous
transaction including house keeping of the branch.Discounting of cheques fall under advances
of portfolio of the branch.It is a fact our Bank Manager initiated
departmental enquiry against me pertaining to the
Begumbazar transaction in respect of Sriji
Industries.It is a fact in this transaction I was issued a
charge sheet, I submitted my explanation and on
that basis the bank management given me
punishment of `Censure’.xxx xxx xxx
It is a fact that A1 V.G. Loya is a
resourceful and potential customer in attracting
deposits and introducing new cliental to the
branch.A1 Loya might have given some deposits to
Begumbazar Branch.I might have asked for deposits A1 Loya and
he might have promised me to secure NRI deposits
upto 25 Lakhs. I cannot exactly recall at this
length of time.xxx xxx xxx
Before sanctioning limits to A1 Loya under
the A/c. Shobchand Shivajiram, I took into
consideration of the Branch Manager’s Report
about credit worthiness, integrity of A1.When the such credit facilities provided for
A1 Loya the Branch Manager was Sri R.Vijayakumar (PW1).
25
It is a fact that the precautions taken by A4
as Branch Manager while discounting the bills
(purchasing bills) as narrated under Ex. P.670 are
proper and sufficient.xxx xxx xxx
It is a fact Ex.D.11 letter A4 SVL Murthy
mentioned that Sri V.G. Loya has been presenting
demand /usance bills for purchase/discounting
supported by Lorry Receipts which are originating
from a place called Jaora (M.P.). The
consignments are booked from Jaora and sent to
different destinations etc. The relevant portion is
marked as Ex. D.11 (a). It was also mentioned by
A4 that “I am of the view that this practice is
fraught with risks and not in the interest of the
Bank, this is also against the terms of sanction of
bill limits”. The relevant portion is marked as Ex.D. 11(b) in (EX. D.11) xxx xxx xxxIt is a fact the bank has earned appropriate
interest on this transaction.Such income arrived by way of interest by
the bank will be reflected in the banks monthly
performance report.I had no occasion to ask the Branch
Manager how it happened to get such huge income
by way of interest.At no point of time I have gone through the
weekly statements of Begumbazar branch sent
during the period of A4 SVL Murthy. The witness
adds that “I cannot say I have not seen the weekly
statement, there may be occasions for me to go
through the weekly statements, if they are placed
before me by my staff.26
It is a fact the weekly abstract is statutory
return and very important return and it is submitted
as per the guidelines of RBI.It is true the weekly statement abstract will
give the entire picture about performance of the
branch.xxx xxx xxx
I learnt subsequently that there was purchase of
local cheques Begumbazar branch even prior to
assumption of office as Branch Manager A4 SVL
Murthy. The predecessor of A4 is one R.Vijaykumar (P.W.1)
To my knowledge even the said R.
Vijaykumar when he discounted cheques for A1 to
the tune of Rs.15 to 20 lakhs he has not obtained
any sanction or permission from Regional Office.xxx xxx xxx
Whenever there were customer relations
programmes conducted by the branch, the minutes
of the programe will be sent to Regional Office.Ex. D. 39 is such Xerox copy of such
minutes for the quarter ending March 89 dt.
17.3.89.It is true in Ex. D.39 it was reported by A4
that LOIC facility was extended to 21.3.89 on local
cheques purchases. The witness volunteers “The
customer relationship will be held with a purpose
of bringing customer together and also cultivating,
so the minutes will be sent to inform Regional
Office that branches doing in Customer Relations
Meetings. The comment with regard to LOIT
facility customer etc. is not warranted to
incorporate in Minutes. This is done intentionally
by A4 involving Regional Office.27
xxx xxx xxx
I am not aware whether other branches in
Twincities situate in my region like Osmangunj,
Charminar, Gowliguda, Old MLA Quarters
branches were also discounting local cheques. I
am not acquainted with the initials of Mr. Srinivas
(LW.1). It is not true to suggest that the circular in
Ex. P.675 were sent to the Begumbazar in May
1989 after completion of disputed transaction. It is
a fact that the R.B.I. did not prohibit totally the
discounting of local cheques.xxx xxx xxx
I do not know whether A4 Branch Manager
stopped purchasing local cheques from A1 from
31.3.89 onwards and restored the facility only
from 7.4.89. It is not true to suggest that the above
said restoration of facility and its continuation was
done by A4, only after I accorded permission to
him.Generally I do not entertain my bank
customers at my house. On 7.4.89, I was on sick
leave. By 7.4.89 the purchase of bills under the
A/c of M/s Sobchand Shivji Ram was already
stopped. I entertained A1 at my residence on
repeated requests made by him on Telephone on
condition of his bringing the Branch Manager
along with him. I did not inform the branch
manager to come along with A1. It is not true to
suggest that A1 complained on 7.4.89 at my
residence against Branch Manager (A4) that he is
rigid in his approach of stopping discounting of
local cheques particularly after receiving telex
message from Sailam Branch. It is not true to
suggest that the meeting on 7.4.89 was held at the
instance of A1 only for the purpose of seeking my
permission to resume purchase of local cheques
and I instructed A4 to restore the facility to
discounting of local cheques at the rate of Rs.30
lakhs per day and asked A1 to reduce the limits
28
gradually. It is not true to suggest that A4 asked
me whether he could report the matter in writing to
me before restoration of facility and in instructed
him not to do so.xxx xxx xxx
But the facility to A1 was continued till
myself and D.G.M. visited Begumbazar branch on
25.7.89. It is not true to suggest that my office
instructing Begumbazar branch on 18.4.89 to
discontinue the facility is false. It is a fact that I
orally instructed A6 Narahari Murthy on 25.4.89 to
stop the facility. I did not give those instructions
in writing. It must be a fact that all the cheques
that were purchased till 18.4.89 by A4 were
cleared.”The said witness accepted that he used to receive oral instructions
from the A.O.
P.W.22 – S. Srinivas Rao in his cross examination stated as under:
“The practice of purchase of local cheques was in
vogue at Begambazar branch prior to August 1988
also. I did not happen to go through the spot audit
report Ex. P. 683 submitted by Sri G.L. Joseph
Branch Inspector, as it was directly submitted to
Regional Office. No copy was send to our branch.
Since April, 1987 the practice of local purchase of
cheques was in vogue at the branch, so also
debiting of the cheques thus purchased to L.O.I.T.
A/c.xxx xxx xxx
It might be that interest earned by the bank
on the local cheques purchase extended to Sree
Industries was to the tune of about Rs. 44 lakhs. I
29
didn’t come across any letter written either by
Administrative Officer or Regional Manager
seeking clarification from Branch manager as to
how there is substantial increase in the earnings of
the branch beyond the targets prescribed.Thus, he quantified the interest earned. He was the successor of Accused
No. 4.
Having noticed the evidence adduced on behalf of the prosecution, we
are of the opinion that no evidence was brought on record to show that
Accused No. 4 or for that matter Accused No. 5 entered into any conspiracy
with others. Accused No. 4, in fact, had stopped grant of the said facility
and only at the instance of P.W. 20, the said facility was restored. It is true
that said witness had denied a suggestion made by the Accused No. 4 but the
fact that the oral instructions used to be given to the Officers concerned have
not only been accepted by P.W. 19 but also by P.W. 20.
Criminal breach of trust is defined in Section 405 of IPC. The
ingredients of an offence of the criminal breach of trust are:
“1. Entrusting any person with property or with
any dominion over property.2. That person entrusted (a) dishonestly
misappropriating or converting to his own
use that property; or (b) dishonestly using or
disposing of that property or willfully
suffering any other person so to do in
violation–30
(i) of any direction of law prescribing the
mode in which such trust is to be
discharged, or(ii) of any legal contract made touching
the discharge of such trust.”Ingredients of Section 409 of IPC read as under :
“(i) The accused must be a public servant;
(ii) He must have been entrusted, in such
capacity, with property.(iii) He must have committed breach of trust in
respect of such property.”Section 415 of the Indian Penal Code defines cheating as under :
“Section 415.–Cheating–Whoever, by
deceiving any person, fraudulently or dishonestly
induces the person so deceived to deliver any
property to any person, or to consent that any
person shall retain any property, or intentionally
induces the person so deceived to do or omit to do
anything which he would not do or omit if he were
not so deceived, and which act or omission causes
or is likely to cause damage or harm to that person
in body, mind, reputation or property, is said to
`cheat’.”An offence of cheating cannot be said to have been made out unless
the following ingredients are satisfied :
“i) deception of a person either by making a
false or misleading representation or by
other action or omission;
31
(ii) fraudulently or dishonestly inducing any person to
deliver any property; or
(iii) to consent that any person shall retain any property and
finally intentionally inducing that person to do or omit to
do anything which he would not do or omit.”
For the purpose of constituting an offence of cheating, the
complainant is required to show that the accused had fraudulent or dishonest
intention at the time of making promise or representation. Even in a case
where allegations are made in regard to failure on the part of the accused to
keep his promise, in absence of a culpable intention at the time of making
initial promise being absent, no offence under Section 420 of the Indian
Penal Code can be said to have been made out.
We may reiterate that one of the ingredients of cheating as defined in
Section 415 of the Indian Penal Code is existence of an intention of making
initial promise or existence thereof from the very beginning of formation of
contract.
In Hira Lal Hari Lal Bhagwati v. CBI [(2003) 5 SCC 257], this Court
held :
“40. It is settled law, by a catena of decisions, that
for establishing the offence of cheating, the
complainant is required to show that the accused
had fraudulent or dishonest intention at the time of
making promise or representation. From his
making failure to keep promise subsequently, such
a culpable intention right at the beginning that is at
the time when the promise was made cannot be
32
presumed. It is seen from the records that the
exemption certificate contained necessary
conditions which were required to be complied
with after importation of the machine. Since the
GCS could not comply with it, therefore, it rightly
paid the necessary duties without taking advantage
of the exemption certificate. The conduct of the
GCS clearly indicates that there was no fraudulent
or dishonest intention of either the GCS or the
appellants in their capacities as office-bearers right
at the time of making application for exemption.”
[See also Indian Oil Corporation v. NEPC India Ltd. & Ors. [(2006) 6
SCC 736]
In Vir Prakash Sharma v. Anil Kumar Agarwal [(2007) 7 SCC 373],
noticing, inter alia, the aforementioned decisions, this Court held:
“13. The ingredients of Section 420 of the Penal
Code are as follows:
(i) Deception of any persons;
(ii) Fraudulently or dishonestly inducing any
person to deliver any property; or
(iii) To consent that any person shall retain any
property and finally intentionally inducing
that person to do or omit to do anything
which he would not do or omit.
No act of inducement on the part of the appellant
has been alleged by the respondent. No allegation
has been made that he had an intention to cheat the
respondent from the very inception.
14. What has been alleged in the complaint
petition as also the statement of the complainant
and his witnesses relate to his subsequent conduct.
The date when such statements were allegedly
made by the appellant had not been disclosed by
33
the witnesses of the complainant. It is really absurd
to opine that any such statement would be made by
the appellant before all of them at the same time
and that too in his own district. They, thus, appear
to be wholly unnatural.
15. In law, only because he had issued cheques
which were dishonoured, the same by itself would
not mean that he had cheated the complainant.
Assuming that such a statement had been made,
the same, in our opinion, does not exhibit that
there had been any intention on the part of the
appellant herein to commit an offence under
Section 417 of the Penal Code.”
The said principle has been reiterated in All Carogo Movers (I) Pvt.
Ltd. v. Dhanesh Badarmal Jain & Anr. [2007 (12) SCALE 391], stating:
“For the said purpose, allegations in the complaint
petition must disclose the necessary ingredients
therefor. Where a civil suit is pending and the
complaint petition has been filed one year after
filing of the civil suit, we may for the purpose of
finding out as to whether the said allegations are
prima facie cannot notice the correspondences
exchanged by the parties and other admitted
documents. It is one thing to say that the Court at
this juncture would not consider the defence of the
accused but it is another thing to say that for
exercising the inherent jurisdiction of this Court, it
is impermissible also to look to the admitted
documents. Criminal proceedings should not be
encouraged, when it is found to be mala fide or
otherwise an abuse of the process of the Court.
Superior Courts while exercising this power should
also strive to serve the ends of justice.”
34
In R. Kalyani v. Janak C. Mehta & Ors. [2008 (14) SCALE 85], this
Court held:
“24. As there had never been any interaction
between the appellant and them, the question of
any representation which is one of the main
ingredients for constituting an offence of cheating,
as contained in Section 415 of the Indian Penal
Code, did not and could not arise.
25. Similarly, it has not been alleged that they
were entrusted with or otherwise had dominion
over the property of the appellant or they have
committed any criminal breach of trust.”
(See also Sharon Michael & ors. vs. State of Tamil Nadu & Anr.
[2009 (1) SCALE 627]
22. It may be that there had been certain procedural irregularities in the
transaction.
However, sufficient evidence is available on record to show that the
Officers had done so for the purpose of promoting the business of the Bank.
In relation whereto or in respect whereof, initiatives had been taken by
P.Ws. 19 and 20. It is furthermore not denied or disputed that after the
cheque discounting facility was stopped in April, 1989 by Accused No. 4,
there has been a meeting at the residence of P.W. 20. In his deposition, the
said witness categorically admitted that the said meeting was arranged at the
instance of Accsued No. 1. It is incomprehensible that a meeting has been
35
arranged at his residence on the day he was on leave at the instance of
Accused No.1. He must have developed grievance against the Accused No.
4 as regards the stoppage of the said facility. If immediately thereafter the
said facility had been restored by the Accused No. 4, a stand taken by him
that it was done under the oral instructions of the higher authorities appears
to be plausible.
23. The prosecution apart from the fact that it had utterly failed to bring
on record any evidence of conspiracy must also be held to have failed to
bring on record any evidence of wrongful gain so as to attract the provisions
of the Prevention of Corruption Act, 1988 or otherwise.
24. The entire argument of Mr. B. Datta, learned Additional Solicitor
General as also the findings arrived at by the learned Special Judge as also
the High Court proved the ingredients of offence under Section 409 of the
IPC. The accused persons, however, have not been charged for commission
of the said offence. Conspiracy by and between the Bank officials and the
Accused Nos. 1 to 3 has been stated to be for commission of the offence of
cheating for the purpose of arriving at a finding that there has been a
conspiracy so as to cheat the Bank. It was necessary for the prosecution to
establish that there had been a meeting of mind at the time when the facility
had been granted. Such meeting of mind on the part of the accused persons
has not been proved. Furthermore, the prosecution case even if given face
36
value and taken to be correct in its entirety does not lead to a finding that
even Accused Nos. 1 to 3 had any wrongful intention at the time when the
contract was initiated.
25. We do not mean to suggest that in the matter of operating the account,
no offence might have been committed by them. The offence, if any, it will
be bear repetition to state, was committed under Section 409 of the IPC.
26. The learned Special Judge as also the High court unfortunately
proceeded on the basis that the cheque discounting facility could under no
circumstances be made available to them.
27. We do not think that, that was a correct approach. The RBI guidelines
categorically show that it was not a wrong practice. It is one thing to say
that there has been an abuse of a prevalent banking practice for the purpose
of causing wrongful loss to the Bank and causing wrongful gain to others
but it is another thing to say that by reason thereof, the ingredients of
cheating are attracted.
28. We have noticed hereinbefore that learned Additional Solicitor
General merely took us through the judgment of the learned Special Judge as
also the High court. His entire contention revolved around the commission
of criminal breach of trust. Unfortunately, they have not been charged
therewith. It would bear repetition to state that accused persons have not
37
been charged under Section 409 of the IPC; even the Accused Nos. 1 to 3
have not been charged for entering into a conspiracy with Accused Nos. 4, 5
and 6 in respect of commission of offences under the Prevention of
Corruption Act.
29. It is in the aforementioned situation, we are of the opinion that the
judgment of conviction and sentence cannot be upheld. So far as the
submission of learned Additional Solicitor General that this Court, having
regard to the concurrent findings of fact as regards the commission of
offence arrived at by the learned Special Judge as also the High Court,
should not exercise its discretionary jurisdiction under Article 136 of the
Constitution of India is concerned, we do not find any substance therein.
Appellants have been charged under wrong provisions. Proper charges have
not been framed against them.
30. In Lala Ram & Ors. vs. State of U.P. (1990) 2 SCC 113, whereupon
strong reliance has been placed by the learned Additional Solicitor General,
this Court noticing various decisions opined that when there are various
infirmities, the Supreme Court can interfere.
It is, therefore, a case which comes within the purview of the dicta
laid down therein. It is significant to notice that in that case itself this Court
38
keeping in view the findings arrived at therein allowed the appeal preferred
by the accused persons and set aside the judgment of conviction.
It is one thing to say that ordinarily a concurrent finding of fact shall
not be interfered with by this Court in exercise of its jurisdiction under
Article 136 of the Constitution of India but it is another thing to say that
despite opining that accused are entitled to acquittal, a judgment of
conviction passed against them should be upheld. In fact, the jurisdiction of
this Court must be exercised wherever it is required to do so for securing the
ends of justice and to avoid injustice.
31. The upshot of our discussions is:-
(a) The prosecution did not lay down any foundational facts to arrive at a
finding of dishonest intention on the part of the appellants, nor any
such finding has been arrived at by the trial court or the High Court.
(b) The circumstances which were considered sufficient to bring home
the charges against the appellant were: the cheques of accused Nos. 1,
2 and 3 were discounted after purchasing cheques; cheques were
deposited after a gap of 1 to 4 days; only later the amounts were
deposited in the account which circumstances, in our opinion, are not
sufficient to hold the appellants guilty for commission of offence
39
under Section 420 of the IPC as all the actions on the part of the bank
officers were in consonance with the long standing banking practice.
(c) Accused No. 4 had taken care of having adequate security to ensure
that the bank does not suffer any loss, the gain if any was caused to
the Bank.
(d) Appellants acted on instructions by the higher authority.
(e) The prosecution evidence does not establish any conspiracy on their
part vis-`-vis Accused Nos. 1, 2 and 3.
32. For the aforementioned reasons, the impugned judgment and order of
the High Court, being unsustainable, is set aside. The appeals are allowed.
Appellants are are on bail. Their bail bonds shall stand discharged.
……………………………….J.
[S.B. Sinha]
……………………………….J.
[Dr. Mukundakam Sharma]
New Delhi;
May 06, 2009