S. Mohan Vs. Central Bureau of Investigation [2008] INSC 978 (16 May 2008)
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 906 OF 1998 S.Mohan
.....Appellant Versus Central Bureau of Investigation ....Respondent WITH
CRIMINAL APPEAL NO. 910 OF 1998
K.G. Balakrishnan, CJI These two
statutory appeals under Section 10 of the Special Court (Trial of Offences
relating to Transactions in Securities) Act, 1992 (for short `the said Act')
are filed by Accused No. 3 and 4 in Special Case No. 7/1994, being aggrieved by
the Judgment and Order dated 6th/7th/13th/14th August, 1998 convicting and
sentencing them.
2
2. These two appellants were tried
alongwith two other accused persons by the Special Court (Trial of Offences
Relating to Transactions in Securities) at Bombay and by Judgment dated 14th
August, 1998, these appellants were found guilty of various offences. The
appellant in Criminal Appeal No. 906 of 1998 (third accused - S. Mohan) was
found guilty of offence punishable under Section 409 IPC and was sentenced to
undergo rigorous imprisonment for seven years and a fine of Rs. 1 lakh, and
with default, sentence for a period of one and a half year. He was also found
guilty of the offences punishable under Sections 13(1) (c ) and 13(1) (d) read
with Section 13(2) of the Prevention of Corruption Act and for this offence he
was sentenced to undergo rigorous imprisonment for a period of five years and a
fine of Rs. 50,000, in default of payment of fine, sentence for a period of one
year. He was also found guilty of the offence punishable under Section 411 read
with Section 120B IPC and sentenced to undergo two years RI and a fine of Rs.
50,000/- and in default sentence for six months. The appellant in Criminal
Appeal No. 910 of 1998 (fourth accused- Hiten P. Dalal) was found guilty of
offences 3 punishable under Section 409 read with Section 120B IPC and
sentenced to undergo seven years rigorous imprisonment and a fine of Rupees 1
lakh and with default, sentence for a period of one and half years. He was also
found guilty of an offence punishable under Section 411 IPC and was sentenced
to undergo imprisonment for a period of two years and a fine of Rs, 50,000/-,
and in default, sentence for a period of six months. The sentences were to run
concurrently. The special court acquitted accused 1 and 2.
3. In the year 1992, certain
irregularities were detected in various security transactions that had taken
place between certain financial institutions. The Reserve Bank of India
constituted a Committee known as "Janakiraman Committee" to look into
the real nature of these transactions and to find out if any fraud or financial
irregularities had taken place in these transactions. It appears that in the
course of the enquiry by the "Janakiraman Committee", it was found
that large scale irregularities and malpractices were noticed in transactions 4
both in the Government and other securities, indulged in by some brokers in
collusion with the employees of various banks and financial institutions. It was
noticed that these irregularities and malpractices had led to the diversion of
funds from banks and financial institutions to the individual accounts of
certain brokers. The Central Bureau of Investigation(CBI) made enquiries
generally regarding all security transactions and it seems that the CBI after
investigation of the case filed a report against four accused before the
Special Court alleging that these accused were responsible for causing loss of
Rs. 33 crores to Canara Bank and various other allegations were also made
against these accused. Accused No. 1 was the Executive Vice President and Chief
Dealer, Accused No. 2 was the Asst.
Vice President and Accused No. 3
was the Asstt. Vice President and Dealer, of Canbank Financial Services Ltd. at
the relevant point of time. Accused No. 4 was a Share and Securities Broker.
5
4. Andhra Bank is a nationalized
Bank and Andhra Bank Financial Services Limited is a company wholly owned by
the Andhra Bank. Canara Bank is also a nationalized bank and Canara Bank Mutual
Fund (CBMF) is a Trust created by the Canara Bank. The Canara Bank was the
chief trustee of the trust-CBMF. Canbank Financial Services Limited(`CANFINA'
for short) is a subsidiary company of Canara Bank. The Chairman and the
Managing Director of Canara Bank was also the Chairman of Canbank Financial
Services Limited. The Managing Director of CANFINA was a person deputed by
Canara Bank and the Executive Director also was appointed by Canara Bank. The
trust, namely, Canbank Mutual Fund under a scheme prepared by it issued units
known by the name "CANCIGO" in the shape of credit sheets which
provided a fixed rate of interest with a stipulation that these credit sheets
may not be transferred for a period of one year. The CANCIGO Units could be
encashed only after the completion of this lock-in period of one year from the
date of issue. The scheme was operated under the Rules framed by Canbank Mutual
Fund. One of the rules so framed imposed a restriction on the transfer of 6
these units but it permitted transfer of units to the heirs in case of death of
the holder and also in special circumstances.
5. On August 28, 1991, Accused No.
4 wrote to Andhra Bank enclosing an application form for CANCIGO Units worth
Rs. 11 crores requesting the Bank to sign the application on his behalf. On
August 29, 1991, Andhra Bank Ltd. applied to the Canbank Mutual Fund, at the
request of the appellant Hiten P. Dalal, for the purchase of CANCIGO Units of
the face value of Rs. 11 crores. A cheque drawn by the appellant Hiten P. Dalal
for the sum of Rs. 11 crores was sent alongwith the application. The
application was signed by one Dhankumar on behalf of Andhra Bank Ltd.
Similarly, on Sepetember 14, 1991, the same appellant Hiten P. Dalal through
Andhra Bank Financial Services Limited requested for purchase of CANCIGO Units
of the face value of Rs. 22 crores alongwith the application and a cheque drawn
by appellant Hiten P. Dalal for Rs. 22 crores on his account with Andhra Bank.
On the basis of these two applications, Canbank Mutual Fund issued two credit 7
sheets of the units of CANCIGO one in the name of Andhra Bank for Rs. 11 crores
and the other in the name of Andhra Bank Financial Services Limited for Rs. 22
crores. Though these two credit sheets were issued on the basis of the cheques
drawn by the appellant Hiten P. Dalal, the credit sheets were issued in the
name of Andhra Bank and Andhra Bank Financial Services Limited, respectively as
they had signed the application forms.
6. According to the prosecution,
the appellant Hiten P.
Dalal who was a stocks and
securities broker was indebted to CANFINA in a sum of Rs. 25,01,67,129/-. It
appears that the appellant Hiten P. Dalal offered to sell the CANCIGO Units of
the face value of Rs. 33 crores to CANFINA to square up his dues in the sum of
Rs.
25,01,67,129/-. According to the
presecution, accused 1 to 3 entered into a transaction with the appellant Hiten
P.
Dalal who was the fourth accused,
to purchase the CANCIGO Units of the face value of Rs. 33 crores standing in
the name of Andhra Bank and Andhra Bank Financial Services Limited though there
was no letter of authority or 8 consent for such sale from either Andhra Bank
or Andhra Bank Financial Services Limited. The prosecution alleged that these
transactions were entered into by accused 1 to 3 on behalf of CANFINA knowing
fully well that these CANCIGO Units were not transferable and the appellant
Hiten P. Dalal was not competent to deal with them. The prosecution alleged
that after adjusting the amount due from the appellant Hiten P. Dalal, a cheque
was issued for the balance amount of Rs. 7,98,32,871/- drawn in the name of
Andhra Bank with a letter to the Andhra Bank to credit the proceeds of the
cheque to the account of Hiten P.
Dalal. The prosecution alleged
that by this method the appellant Hiten P. Dalal thus got his debt to the tune
of Rs, 25,01,67,129/- due to CANFINA wiped out and got a sum of Rs.
7,98,32,871/- from CANFINA, even though CANCIGO Units were not transferable and
could not be transferred to the name of CANFINA.
7. It is in this background all
the four accused were charged with having entered into a criminal conspiracy
for committing the offence of cheating and criminal breach of 9 trust and
falsification of accounts and the offences under Section 13(1)(c) and 13(1)(d)
read with 13(2) of the Prevention of the Corruption Act.
8. Under the Special Courts (Trial
of Offences Relating to Transactions in Securities) Act, 1992, Special Court
was established for the speedy trial of cases relating to transactions in
securities and disposal of properties attached. The Special Court declared
accused Hiten P.
Dalal as a "notified
person" under this Act. Before the Special Court, the Custodian made an
application that CANFINA be ordered to handover to him, the CANCIGO Units worth
Rs. 33 crores with accrued interest thereon.
The Custodian contended that
Accused No. 4 could not have transferred the CANCIGO Units which were not
standing in his name and the entire transaction was tainted with illegality. He
contended that therefore, no title was transferred to CANFINA; and that as
title remained with Accused No. 4, he was entitled to the said CANCIGO Units.
Before the Special Court, the
appellant Hiten P. Dalal and the Andhra Bank and the Andhra Bank Financial
Services 10 Limited did not make any claim in regard to the CANCIGO Units. The
Canbank Financial Services Limited claimed before the Special Court that the
CANCIGO Units covered under the two certificates issued by CBMF were properties
belonging to them. The Special Court by order dated 22.9.1993, allowed an
application filed by the custodian and that Order was challenged before this
Court. By the judgment of this Court reported as Canbank Financial finally held
that the CANFINA was entitled to succeed on the transfer of CANCIGO Units of
the value of Rs. 33 crores in favour of CANFINA was legal and valid. It was
also held that CBMF must be presumed to have issued the CANCIGO Units in the
names of Andhra Bank and Andhra Bank Financial Services with full knowledge that
they would enure to the benefit of Hiten P. Dalal; and therefore, the transfer
of CANCIGO Units in favour of CANFINA was valid and legal as by reason of the
transfer of possession of CANCIGO Units in favour of CANFINA, a valid right has
been created therein and the same could not be attached in terms of Section
3(3) of the said Act. The entire finding of 11 the Special Court in this case
is to be appreciated in the light of the decision rendered by this Court in
Canbank Financial Services Ltd. case(supra).
9. These two appellants were found
guilty by the Special Court mainly on the ground that the CANCIGO Units issued
by CBMF of the face value of Rs. 33 crores stood in the name of the Andhra Bank
and Andhra Bank Financial Services Limited and the appellant Hiten P. Dalal was
not entitled to get transfer of these CANCIGO Units and that the appellant S.
Mohan (in Criminal Appeal No. 906 of 1998) was instrumental in such transaction
and thus entered into a conspiracy with the accused no. 4. Both the appellants have
been found guilty of offences punishable under Section 406 namely, Criminal
Breach of Trust. It is important to note that, in the instant case, there was
no complaint either by the Andhra Bank or the Andhra Bank Financial Services
Limited that these appellants committed any criminal breach of trust.
"Criminal Breach of Trust"
has been defined under Section 405
Indian Penal Code as under:
12 "Whoever, being in any
manner entrusted with property, or with any dominion over property, dishonestly
misappropriates or converts to his own use that property, or dishonestly uses
or disposes of 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 discharge of such trust, or
willfully suffers any other person so to do, commits "criminal breach of
trust.
XXXX Section 409 IPC deals with
criminal breach of trust by public servant, or by banker, merchant or agent.
10. Here, the CANCIGO Units stood
in the name of the Andhra Bank and Andhra Bank Financial Services Limited.
They apparently entrusted this
property to accused no. 4 and allowed him to encash the same. In fact, Accused
No. 4 had paid the consideration for purchasing the CANCIGO Units in the names
of Andhra Bank and Andhra Bank Financial Services Ltd. It is true that if a
person entrusted with property dishonestly misappropriates that property, such
misappropriation in violation of any direction of law prescribing the mode in
which such trust is to be 13 discharged, or of any legal contract which the
person has made in regard to discharge of such trust, will be guilty of
criminal breach of trust. According to the prosecution, both these appellants
acted contrary to the express condition that these CANCIGO Units were not
liable to be transferred within a period of one year and in spite of this, the
Andhra Bank as well as Andhra Bank Financial Services Limited transferred the
units in favour of the appellant Hiten P.
Dalal and enabled him to encash
the CANCIGO Units with the connivance of appellant S. Mohan and that
constituted the offence of Criminal Breach of Trust. It was alleged that
Accused No. 3 while employed by CANFINA, obtained for Accused No. 4, a
pecuniary advantage of Rs. 33 crores by illegally purchasing CANCIGO Units and
committed criminal breach of trust in regard to the employer's funds of Rs. 33
crores. It is important to note that these Units were issued by CBMF. They had
imposed restrictions regarding transfer of CANCIGO Units. They have not filed
any complaint alleging that transfer of these Units by appellant Hiten P. Dalal
was contrary to rules. There is no express law or statutory rules prohibiting
the transfer of CANCIGO 14 Units except the terms of the scheme framed by CBMF.
They are not statutory rules and
purely contractual. It is also pertinent to note that neither the Andhra Bank
nor the Andhra Bank Financial Services Limited filed any complaint alleging
that the appellant Hiten P. Dalal acted contrary to their directions. Nor did
CANFINA complain that appellant S. Mohan had committed criminal breach of trust
in regard to these transactions of CANCIGO Units. This Court in Canbank
Financial Services Ltd. case(supra) held (at para 38, 39, 40 and 41) as follows:
The Rules and Regulations framed
by Canbank Mutual Fund in relation to the issuance of CANCIGO certificates do
not have any statutory backing. The CANCIGOs had a lock-in period of one year
which means that the holder thereof must not encash the securities within the
aforementioned period. The question as regards the non-transferability of the
units will have to be construed upon reading the Scheme in its entirety and in
particular Condition 22 thereof, inn terms whereof the trustees were not required
to maintain any register of CANCIGO-holders. In terms of Condition 24, the
person whose name is shown in a CANCIGO certificate would be the only person to
be recognized by the trustees as the holder of such CANCIGO and as having any
right, title or interest in or to such securities. No trust created was also to
be recognized.
Condition 19 creating a bar on
transfer has to be construed in the aforementioned context. The bar on 15
transfer created was to have the effect that the same would not be binding on
Canbank Mutual Fund as it was not bound to take any notice thereof and only the
holder shall be recognized as having the right, title or interest on the
CANCIGO............ CANCIGOs indisputably are valuable securities. They are
otherwise capable of being transferred in terms of the established business
practice, the Sale of Goods Act or the Transfer of Property Act. No legal bar
has been created in transfer of the said securities. The scheme, thus, does not
and could not have created an absolute legal bar on transfer of the CANCIGOs so
as to invalidate the same.
The rules and regulations framed
by Canbank Mutual Fund and the notes appended to the CANCIGO credit sheet
differ in material particulars. Rules and regulations explain as to why an
embargo on transfer has been placed i.e. not to recognize Respondent 2 for the
dividends or for other liabilities arising out of transfer. A transfer
violating the rules and regulations would only have the effect of the same
being not binding on Canbank Mutual Fund. No other legal consequence flows
therefrom. We have also noticed that the brochure merely states that the
transfer is not permitted but provisions exist for grant of such permission.
The appellant Bank as well as Canbank Mutual Fund are the subsidiaries of Canara
Bank.
The appellant cannot be estopped
from raising either a limited or absolute title in them keeping in view the
fact that they had paid a sum of 33 crores of rupees by way of consideration
for transfer of interest of Respondent 2 herein in the said CANCIGOs."
(The respondent 2 referred to as the present appellant Hiten P. Dalal)
11. It is not disputed that
CANCIGO Units worth Rs. 33 crores were purchased by Andhra Bank or Andhra Bank
16 Financial Services Limited by making use of the money owned by the appellant
Hiten P. Dalal. These two financial institutions impliedly agreed to lend their
name and allowed the appellant Hiten P. Dalal to purchase CANCIGO Units in
their name. It is also important to note that interest due on the CANCIGO Units
worth Rs. 33 crores received from CBMF by Andhra Bank and Andhra Bank Financial
Services Ltd. were credited to the account of the appellant Hiten P. Dalal.
Therefore, it is clear for all practical purposes that the CANCIGO Units worth
Rs. 33 crores were purchased by the appellant Hiten P. Dalal and he transferred
these units to CANFINA and CBMF did not raise any objection in respect of
transfer of the CANCIGO Units by the appellant Hiten P. Dalal. If at all, it
was for the CBMF to raise any objection but they did not raise any objection
for the transfer of the CANCIGO Units. It has been held by this Court in
Canbank Financial Services Ltd.
(supra) that the custodian was not
entitled to get the value of the CANCIGO Units and that the CANFINA had a just
right to possess the CANCIGO Units to the exclusion of Hiten P. Dalal. It is
also not in dispute that CANFINA had 17 succeeded in getting the proceeds of
these CANCIGO Units.
Therefore, no offence of Criminal
Breach of Trust is committed by the appellant Hiten P. Dalal. He has not acted
contrary to the direction of any person who has entrusted these units to him
and it is proved that it was the appellant Hiten P. Dalal himself who was the
apparent owner of these units.
12. As regards appellant S. Mohan
who was one of the Asst. Vice- Presidents of CANFINA, the prosecution case is
that he had telephonically informed PW 6 Mr. Vernekar to accept the CANCIGO
Units. PW 6 Vernekar is an Officer of the Canara Bank who had been authorized
by the Board Resolution to deal in Securities/Bonds and execute securities
transactions on behalf of CANFINA. He deposed that he used to receive
telephonic instructions from Bangalore and recorded these instructions in rough
transaction sheets. He has proved the rough transaction sheets including the
rough transaction sheet on which Ex- 51A has been noted. PW-6 deposed that the
Entry pertaining to purchase of CANCIGO Units of the face value 18 of Rs. 33
crores from accused No. 4 was made on the basis of the instructions received
from accused no. 3, namely, appellant S. Mohan. He also deposed that the
appellant S.
Mohan sent an Inter Branch Advice
No. 32894 by which the funds were transferred from Bangalore to Bombay in order
to facilitate the payment. He deposed that the date 6th February 1992 was
written because CANFINA Bangalore had purchased CANCIGO Units of face value of
Rs. 33 crores on 6th February 1992. He also deposed that appellant S. Mohan had
told him that a sum of Rs.
25,01,67,129/- was recoverable
from accused no. 4 against some transactions and that this amount was to be
adjusted against the transaction of purchase of CANCIGO Units of face value of
Rs. 33 crores. All these evidence would only show that the appellant S. Mohan
was involved in the transaction. The prosecution could not prove that there was
any illegality in these transactions. The only illegality pointed out by the
learned Counsel for the CBI is that these CANCIGO Units were not liable to be
transferred and the Andhra Bank and Andhra Bank Financial Services Limited could
not have transferred it to the appellant Hiten P. Dalal.
19 So long as the CANFINA has no
grievance or complaint against the appellant S. Mohan that he acted contrary to
their directions and accepted the CANCIGO Units and paid the money to the appellant
Hiten P. Dalal, no offence is made out against the appellant S. Mohan either of
Criminal Breach of Trust or conspiracy. In fact, PW 1 (Mr. Kini, Executive Vice
President) has admitted that CANFINA used to regularly deal in CANCIGO Units,
that neither the Audit nor RBI made any remarks regarding transactions relating
to CANCIGO Units and all the transactions relating to CANCIGO Units were in the
ordinary course of business.
Neither Canara Bank nor CANFINA
had initiated any disciplinary proceedings against him. They have also not
disputed the genuineness of the CANCIGO Units which were got encashed by the
appellant Hiten P. Dalal.
13. The Managing Director of
CANFINA (K.N. Kamath) was examined as PW 16. He admitted that CANFINA did not
file any complaint with CBI regarding purchase of CANCIGO Units of Rs. 33
crores; that according to CANFINA, the CANCIGO Units were purchased for
valuable consideration 20 in the normal course of business; that CANFINA stood
by the transactions of purchase of CANCIGO Units of Rs. 33 crores; that CANFINA
was not induced to purchase the CANCIGO Units of Rs. 33 crores by any false
representation.
14. In the circumstances, no
ingredient of criminal breach of trust is made out against either of the
appellants.
15. The prosecution also could not
prove any conspiracy by these accused persons to commit any criminal acts. So
long as there was no such evidence, the offence of conspiracy is not proved
against these appellants.
16. The appellant Hiten P. Dalal
has been found guilty for the offence punishable under Section 411 alleging
that he dishonestly received the stolen property or retained the same. No
ingredients of this offence have been proved against him. So long as the
prosecution admits that the CANCIGO Units worth Rs. 33 crores were purchased by
making use of the money owned by him, they were not 21 stolen property in the
hands of the appellant Hiten P. Dalal.
Neither, the Andhra Bank nor the
Andhra Bank Financial Services Limited has any case that these CANCIGO Units
were stolen by the appellant Hiten P. Dalal. As the offence of Criminal Breach
of Trust is also not made, the conviction of the appellant under Section 411 is
not sustainable and is liable to be quashed. So also, the appellant S. Mohan is
not liable for the conspiracy to commit offence under Section 411 IPC.
17. The appellant S. Mohan has
been found guilty of offence punishable under Section 13(1) ( c) and 13 (1) (d)
read with Section 13(2) of the Prevention of Corruption Act.
This appellant was one of the Asstt.
Vice-Presidents of the CANFINA dealing with CANCIGO Units. There is no
allegation that he committed any illegality. The allegation against him is to
the extent that he accepted the CANCIGO Units though they stood in the name of
the Andhra Bank and Andhra Bank Financial Services Limited. These CANCIGO Units
were worth Rs. 33 crores and they were accepted with the proper authorization
by the higher 22 authorities in the CANFINA. It is highly improbable to believe
that appellant S. Mohan on his own decided to accept CANCIGO Units worth Rs. 33
crores without any instructions. CANFINA did not file any complaint alleging
any unauthorized transaction carried out by him. Now it has been held by this
Court that the entire transaction was legal and the CANFINA was entitled to the
proceeds of these CANCIGO Units and not the "Custodian" under the
Act.
Therefore, the appellant S. Mohan
is not guilty of the offence punishable under Section 13(1) (c ) and 13(1) (d)
read with Section 13(2) of the Prevention of Corruption Act.
18. The appeals filed by both the
appellants are allowed.
The accused are not liable for any
other offences and they are acquitted of all the offences charged against them.
Their bail bonds stand cancelled.
...........................CJI
(K.G. BALAKRISHNAN) ...............................J.
(R.V. RAVEENDRAN) 23
...............................J.
(J.M. PANCHAL) New Delhi May 16, 2008.
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