Sudhir
Shantilal Mehta Vs. C.B.I. [2009] INSC 1421 (7 August 2009)
Judgment
IN THE
SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 905
OF 2005 SUDHIR SHANTILAL MEHTA ... APPELLANT Versus [WITH CRIMINAL APPEAL NOS.
945/2005, 925/2005, 922/2005 AND 965/2005]
S.B.
Sinha, J.
INTRODUCTION
These appeals arise out of a judgment and order dated 9.6.2005 passed by the
learned Judge, Special Court, Bombay constituted under the Special Court (Trial
of Offences Relating to Transactions in Securities) Act, 1992 (for short,
"the said Act") in Special Case No. 1 of 1993 whereby and whereunder
appellants herein with accused Munipally Subramanium Eshwar 2 Chandra (Accused
No. 6), Sunil Samtani (Accused No. 7) and Pankaj Brijlal Shah (Accused No. 9)
were convicted for commission of offences punishable under Sections 409 and
120B amongst others and sentenced as under:
(a)
Accused No. 1, K. Margabanthu was sentenced 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, Ramaiya Venkatkrishnan was sentenced to undergo R.I. for three
months and to pay fine of Rs.50,000/-, in default S.I. for 15 days.
(c)
Accused No. 4, Ashwin Mehta was sentenced to undergo R.I. for a period of three
months and to pay fine of Rs. 2,00,000/-, in default S.I. for one month.
(d)
Accused No. 5, Sudhir Mehta was sentenced to undergo R.I. for a period of three
months and to pay fine of Rs.2,00,000/-, in default S.I. for one month.
(e)
Accused Nos. 6, Munipally Subramanium Eshwar Chandra, Accused No. 7 Sunil
Samtani, Accused No. 9 Pankaj Brijlal Shah were directed to pay fine in the
amount of Rs.25,000/- each, in default S.I. for 15 days.
3 (f)
Accused No. 8, S.V. Ramanathan was sentenced to undergo R.I. for a period of
one month and to pay fine of Rs. 25,000/- in default R.I. for 15 days.
Before
proceeding further, we may place on record that Harshad Shantilal Mehta
(Original Accused No. 3) expired during the pendency of the criminal
proceedings and the case against him, thus, abated. Accused Nos. 1, 2 and 8 who
are appellants in Criminal Appeal Nos. 945, 965 and 922 of 2005 respectively
were the Chairman-cum-Managing Director, the General Manager and the Divisional
Manager of UCO Bank respectively.
Whereas
Accused No. 1 and 2 have been found guilty of committing both Criminal Breach
of Trust as well as Criminal Conspiracy, Accused No 8, being a Scale IV Bank
employee was found guilty only for commission of the offence of criminal
conspiracy. Accused Nos. 4 and 5 (hereinafter referred to as, "the private
accused") were found guilty of commission of offences only under Section
120B of the Indian Penal Code being related to an otherwise connected with the
activities of the original accused No. 3.
Accused
Nos. 6, 7 and 9 on whom only a punishment of fine was imposed accepted the
judgment and have not preferred any appeal before this Court.
BACKGROUND
FACTS
The
prosecution case centers around transactions, of discounting and rediscounting
of Bills of Exchange and two Pay Orders issued by the State Bank of Patiala and
Syndicate Bank, in favour of the UCO Bank. This was said to be at the instance
of the private accused.
Harshad
Mehta was a dealer in the money and securities market. The Reserve Bank of
India had found that Harshad Mehta along with his other associates had diverted
a huge amount of public fund belonging to Public Sector Banks and Financial
Institutions for short term investment in the securities market, and thus
defrauded the banks of a huge amount.
An
Inquiry Committee was thereafter constituted under the Chairmanship of Shri
Janakiraman. The Committee submitted its report;
pursuant
to and in furtherance whereof the said Act was enacted providing inter alia for
the constitution of a Special Court for trial of the criminal offences, as also
civil disputes arising therefrom during the period between 1.4.1991 and
6.6.1992. The said Act provides for the appointment of a Custodian for
attaching the properties of notified parties to prevent diversion of such
properties. The properties which were attached included shares of 5 various
companies as well as moveable and immoveable properties of the private parties
herein.
Accused
No. 1 being Chairman-cum-Managing Director of the UCO Bank used to sit in the
Head Office of the Bank situated at Calcutta. The Bank has an office and a
guest house at Bombay as well.
On or
about 14th March 1992, Accused No. 1 visited Harshad Mehta.
Thereafter
he came back to his office and called a meeting in which, inter alia, four
Prosecution Witnesses being Shri S.V. Prabhu, Assistant General Manager (PW
44), Shri Bhaskar Roy Choudhary, Dy. General Manager (PW-45), Shri Ramanathan,
Divisional Manager (Accused No. 8) and Shri R.L. Joshi, Public Relations
Officer (PW 7) participated.
Accused
No. 1 allegedly informed others that he had met Harshad Mehta who had suggested
that it would be in the interest of the Bank to undertake the business of
discounting and rediscounting of Bills of Exchange. The officers present were
assured by him that the business could be transacted without involving the banks'
funds. He furthermore insisted that the said business be undertaken through the
Nariman Point Branch of the Bank though such transactions were generally not
undertaken therefrom.
6 In
course of the meeting, Accused No. 1 contacted Accused No. 2 R. Venkatkrishnan
at Calcutta and informed him about the transactions which had to be carried
out. On the other officers of the Bank objecting thereto, Accused No. 1 assured
them that the business of discounting and rediscounting of Bills of Exchange
would be personally looked after by Harshad Mehta himself.
On the
same day, that is, on 14.3.1992, a resolution was passed by M/s Growmore
Research and Asset Management Ltd. (for short, "Growmore") to open an
account in UCO Bank, Nariman Point so as to enable it to avail Bill Discounting
facility provided by UCO Bank limited to Rs.50 crores. Harshad Mehta (the
Original Accused No. 3), Ashwin Mehta (Accused No. 4) and/or Sudhir Mehta
(Accused No. 5) had been authorized by the said resolution to execute necessary
documents on behalf of the Company. A similar resolution was also passed by M/s
Mazda Industries & Leasing Ltd. (for short, "Mazda") (Accused No.
7), which is a public limited company for the purpose of opening up of a
current account in UCO Bank, so that it too could avail the Bill discounting
facilities from the Bank .
Two or
three days thereafter, Sunil Samtani, the Vice President of Mazda and Pankaj
Shah, the Vice President of Growmore (Accused No. 9) 7 met Shri Prabhu (PW 44)
with Ramanathan (Accused No. 8). They procured two forms for opening current
accounts with the Bank. They were introduced by Accused No. 8, who were also
invited for attending the Annual General Meeting of Mazda as also a cocktail
party which was to be held on 18.3.1992 at Hotel Oberoi.
The party
was attended by Ramanathan (Accused No. 8), Prabhu (PW 44), Roy Choudhary (PW
45), Pankaj Brijlal Shah (Accused No. 9) and Harshad Mehta.
On
24.3.1992, at about 2.30 P.M., Sunil Samtani (Accused No. 7) and Pankaj Shah
(Accused No. 9) came to the Nariman Point Branch of the UCO Bank. They had
brought with them two banker's cheques; one cheque was from Syndicate Bank
dated 24.3.1992 for a sum of Rs.24,63,01,370/- drawn in favour of UCO Bank
(Exh. 24); and the other from State Bank of Patiala dated 24.3.1992 for a sum
of Rs.25,00,53,636/-.
They had
also brought with them the application forms for opening Current Accounts in
the Bank. The same were handed over to Prabhu (PW 44). The two cheques that
they had brought were handed over to Ranjit Mukherjee (PW 1) for clearance.
8 Two
Bills of Exchange for a sum of Rs.14,41,44,000/- and Rs.35,95,24,000/- drawn by
J.H. Mehta which were accepted by Ashwin Mehta (Accused No. 4) on behalf of
Growmore (Exhibit 154) and by Sunil Samtani (Accused No. 7) on behalf of Mazda
respectively were brought by Accused Nos. 7 and 9. Both the Bills of Exchange
were executed by Sudhir Mehta (Accused No. 5), authorized signatory of M/s J.H.
Mehta. It is not in dispute that original contract note with respect to the underlying
security transaction had not been produced and only a photocopy thereof had
been produced.
Letters
were also issued by Mazda and Growmore to the effect that the said amount would
be repaid by them on or before 24.4.1992. They had asked the Bank in writing to
issue cheques in the name of ANZ Grindlays Bank.
For the
said two cheques receipts were obtained from Syndicate Bank and State Bank of
Patiala. The two usance promissory notes were handed over to Accused No. 7 and
Accused No. 9. Indisputably, J.H. Mehta, the drawer of the Bills of Exchange
did not have any account in his name. The 9 acceptors, namely, Mazda and
Growmore also did not have any account at the said branch.
Two draft
promissory notes were handed over to Mr.Prabhu (PW 44) by Accused Nos. 7 and 9;
one issued in favour of Syndicate Bank and the other in favour of State Bank of
Patiala to be executed by UCO Bank in relation to the said cheques. Those
usance promissory notes were signed by Mr. Prabhu (PW 44) and Ranjit Mukherjee
(PW 1), pursuant whereto the Bank issued two pay orders on the same day in
favour of ANZ Grindlays Bank for a sum of Rs.25,27,00,000/- and Rs.
14,14,00,000/-.
An
account in the name of M/s J.H. Mehta was opened on the same day; the amount of
Bill of Exchange was credited into that account; three accounts were opened in
the Bank for carrying on transactions in the name of the aforementioned three
entities bearing Nos. 1705, 1706 and 1708. The Account Nos. 1705 and 1706 were
introduced by Ashwin Mehta (Accused No. 4) and Account No. 1708 was introduced
by Sudhir Mehta (Accused No. 5). Two Bills of Exchange were drawn by M/s J.H.
Mehta. The same were signed by Sudhir Mehta (Accused No. 5) as the Constituted
Attorney of Mrs. Jyoti Mehta, the proprietor of M/s J.H. Mehta. On behalf of
Mazda, 10 the bill was accepted by Ashwin Mehta (Accused No. 4). The amount of
Bills of Exchange were credited to the account of M/s J.H. Mehta and thereafter
they were transferred to the account of Mazda and Growmore.
The Bills
of Exchange in relation to Growmore was accepted by Ashwin Mehta (Accused
No.4).
On
25.3.1992, the account of J.H. Mehta in Grindlays Bank credited the said amount
and the amount was promptly transferred to Harshad Mehta's Account. On
26.3.1992, Prabhu (PW 44) asked Ranjit Mukherjee (PW 1) to prepare a note for
the Chairman so as to enable him to seek approval from the Board for the
transaction pursuant whereto the said note was prepared and it was shown to
accused No. 1. On the same date, PW 1 was asked by Prabhu (PW 44) to collect
the Balance Sheets from Mazda and Growmore. Whether the Balance Sheets and
Annual Reports of the said two Companies were ultimately collected or not is
unknown. A proposal for ratification of the Bill Discounting transaction was
sent to the Head office on 3.4.1992. On 24.4.1992, i.e., the due date for
retiring the Bills of Exchange, the payments were not made either by the drawer
or by the acceptors.
Accused
No. 1 allegedly agreed to the suggestion of Harshad Mehta for 11 rolling over
the same for one more month. PW 44 allegedly did not agree thereto and insisted
on prompt payment.
As the
funds had not been received, UCO Bank made payments to Syndicate Bank and State
Bank of Patiala out of its own funds. There being a shortfall in the funds
available with UCO Bank, the requisite call money to meet the deficient had to
be borrowed by it from the Corporation Bank and the Oriental Bank of Commerce
to the tune of Rs. 50 crores for three days.
Officers
of UCO Bank thereafter visited the offices of Mazda and Growmore for
realization of the payments due. Two cheques were handed over by M/s J.H. Mehta
with a request that the same not be encashed and that the cheques of Growmore
and Mazda would be given at a later date. Mazda and Growmore also issued two
cheques. They were not sent for clearing as the requisite funds there for were
admittedly not available in their accounts in Grindlays Bank. The said two
Bills of Exchange, for want of fund, were not retired either by M/s J.H. Mehta
or Growmore or Mazda.
Subsequent
thereto, a formal meeting of the Investment Committee consisting of Accused
Nos. 1 and 3 and PW 45 was held. At the instance of Accused Nos. 1 and 3,
shares of Gujarat Ambuja Cement worth Rs. 50 crores were purchased by UCO Bank.
It was routed through V.B. Desai a 12 broker and an amount of commission for a
sum of Rs. 9.53 lakhs was paid to him. The amount received by J.H. Mehta from
UCO Bank under the said transaction was transferred by him to Mazda and
Growmore so as to facilitate encashment of the said cheques for retiring the
Bills of Exchange.
Payment
towards purchase of shares was made by UCO Bank before delivery thereof. The
amount due to the Bank was sought to be realized in that manner.
However
Mr. VB. Desai, could not deliver all the shares of Gujarat Ambuja Cement. It
was agreed that in place of 3 lakhs shares of Gujarat Ambuja Cement, 77150
shares of `CASTROL' would be delivered at the rate of Rs.1750/- per share.
Mr.
Prabhu thereafter contacted accused No. 2 and informed him about the
transactions, which according to him, had to be gone through at the Nariman
Point Branch as had been directed by accused No. 1.
CHARGES
Several charges were framed against the accused persons by the learned Judge,
Special Court on or about 9.10.1995. A Special Leave Petition was preferred
thereagainst. Although the order of the Special Court 13 dated 9.10.1995 was
not interfered with, this Court recorded a statement made by the Additional
Solicitor General of India that charges No. 10 to 13 and 16 would not be
pressed. We may also place on record that the prosecution at a later stage did
not press charges No.2, 4 and 6. The charges which were, thus, framed and
pressed against the accused persons were charge Nos. 1, 3, 5, 7, 8, 9, 14 and
15 as also charge No. 12 and 13 (Exhibit - 228). As charges No. 14 and 15
related to the deceased accused No. 3- Harshad Mehta, the same stood abated.
The charges which survived were charges No. 1, 3, 5, 7, 8, 12 and 13.
In the
words of the learned Special Court, the said charges read as under:
"2.
By charge No.1, it is alleged that the accused nos.
1, 2 and
8 being public servants and being entrusted with public funds entered into a
criminal conspiracy to commit offences punishable under Section 409 of the
Indian Penal Code. It is also alleged that accused nos. 1, 2, and 8 being
public servant entered into a criminal conspiracy and thereby committed offence
punishable under Section 120B of the Indian Penal Code. It is further alleged
that accused nos. 1, 2 and 8 are also guilty of the offence of criminal
misconduct under Section 13(1)(d) and Section 13(2) of the Prevention of
Corruption Act.
3. By
charge nos. 2, 4, 6 and 9, it is alleged that accused nos. 4, 5, 6, 7 and 9
acted in furtherance of the criminal conspiracy and abetted accused nos. 1, 2
and 8 in committing offence of criminal breach of trust. It is 14 thus, clear
that basically the offences with which the accused nos. 1, 2 and 8 are charged
are offences of committing criminal breach of trust and entering into a
criminal conspiracy, and the accused nos.4, 5, 6, 7 and 9 are charged with the
offence of criminal conspiracy."
EVIDENCE
The prosecution in support of its case examined a large number of witnesses.
The defence also examined some witnesses. Ashwin Mehta (Accused No. 4) also
examined himself in defence.
A large
number of documents were also brought on record by the parties. We would refer
to some of them at an appropriate stage.
PROCEEDINGS
BEFORE THE SPECIAL COURT Before the special court it was alleged that the
original contract note with respect to the underlying security transaction for
the discounting of Bills had not been produced at the time of entering into the
said transactions and only a photocopy thereof was produced. It was furthermore
alleged that no security was insisted upon for discounting the Bills of
Exchange and before signing the promissory notes, the Bank did not have with it
the shares in relation to which the Bills of Exchange were drawn. The said acts
of 15 omission and commission on the part of Accused Nos. 1, 2 and 8 are said
to be in violation of the UCO Bank Manual of Instructions on Bill Discounting
(Exhibit-239) as also the Circular letter dated 5.9.1988 issued by the Reserve
Bank of India (Exhibit-247).
The
prosecution alleged that the transaction of discounting and rediscounting of
the two Bills of Exchange was bogus and that the said modus operandi was
adopted for siphoning of the public funds wherewith accused Nos. 1, 2 and 8
were entrusted. It was furthermore alleged that the said Bills of Exchange were
not issued by way of any bona fide commercial transaction and were prepared
only to secure financial accommodation for the deceased Harshad Mehta and his
group.
The
prosecution further alleged that as the deceased Harshad Mehta was not in a
position to pay the amount due to the Bank on 24.4.1992; only with a view to
facilitate the payment of amount to the Bank against the two Bills of Exchange,
accused Nos. 1 and 2 decided to purchase shares of Gujarat Ambuja Cement and
the amount of purchase price of the shares was paid to M/s J.H. Mehta. Growmore
and Mazda thereafter issued cheques in favour of the Bank in discharge of the
liability in relation to the said two 16 Bills of Exchange. The authority on
the part of the accused Nos.1, 2 and 8 to enter into the said transactions
without obtaining sanction from the Board of Directors was also questioned.
The
defence of the accused persons had been a mere denial of the allegations.
Before
proceeding further, we may notice that Bhaskar Roy Choudhary (PW 45) and S.V.
Prabhu (P.W. 44) were initially made accused in the case. They were arrested
and later on released on bail. Applications were filed on their behalf
purported to be in terms of Section 307 of the Code of Criminal Procedure,
1973, which were allowed by the learned Special Judge by order dated 22.6.1993,
inter alia, on the condition that they would give evidence during the trial and
make a full-and true disclosure of the circumstances within their knowledge
relating to the said offences.
The
learned Special Judge upon consideration of the entire materials brought on
record by the parties, in a very detailed and well considered judgment, held:
17 i. The
offence of criminal breach of trust on the part of the accused Nos. 1 and 2 was
proved beyond all reasonable doubts as they had been entrusted with the funds
of UCO Bank, they had discounted two Bills of Exchange drawn by M/s J.H. Mehta
and accepted by two corporate entities, Growmore and Mazda.
ii. The
said discounting of bills was illegal as it violated the Circular issued by the
Reserve Bank of India dated 5.9.1988 (Exhibit 247); and by reason thereof, a
sum of Rs. 50 crores was transferred to the deceased accused No. 3 Harshad
Mehta and/or his groups.
iii. The
transactions having been carried out in violation of the aforementioned
Circular dated 5.9.1988 issued by the Reserve Bank of India, the accused Nos.
1, 2 & 8 having acted contrary thereto or inconsistent therewith, the same
constituted an offence within the meaning of Section 405 of the Indian Penal
Code.
iv. The
said transactions having been carried out to benefit Harshad Mehta Group of
Companies by the accused in conspiracy with each other, the prosecution has
proved its case. The private accused as well as Accused No.8 were convicted
only for commission of the offence of criminal conspiracy.
18
SUBMISSIONS The learned counsel appearing on behalf of the appellants, inter
alia, would urge:
i. The
transactions being related to discounting and rediscounting of Bills of
Exchange and not to securities, the Special Court had no jurisdiction to pass
the impugned judgment of conviction and sentence.
ii. The
purported Circular Letter dated 5.9.1988 not being law within the meaning of
Section 405 of the Indian Penal Code read with Section 43 thereof, the
prosecution of the appellants ex facie was illegal and without jurisdiction. In
any event, the said Circular Letter not being in the public domain having not
been published cannot have any force of law as is ordinarily understood.
iii. The
said Circular in any event being not binding on the private accused, they could
not be said to have been a party to the offence of conspiracy.
iv. The
Circular Letter being confined to rediscounting and a separate procedure having
been laid down for discounting of Bills of Exchange permitting the house
loan/accommodation loan for some time as provided for in Exhibit 299; the
impugned judgment cannot be 19 sustained. No money, thus, having been
transferred in violation of any law, the question of commission of any offence
under Section 409 did not arise.
v. The
transactions having been entered into bona fide by the officials of the Bank
and with the accused in order to earn profit for the bank and in that view of
the matter, the prosecution cannot be said to have proved any dishonest
intention on their part as envisaged under Section 24 of the Indian Penal Code.
vi. The
prosecution has not been able to prove that any wrongful loss or wrongful gain
was caused to any person. In view of the admitted case that Harshad Mehta or
his group had not made any default in payment of the amount due and only
because now a purported scam is said to have been committed, all the private
accused who were connected with Harshad Mehta Group of Companies are alleged to
have committed the offence of conspiracy, although the prosecution had failed
to prove any of the charges levied against them.
vii. The
deposition of S.V. Prabhu (PW 44), Bhaskar Roy Choudhary (PW 45) should not
have been relied upon by the learned Special Judge without any material
corroboration having regard to the fact that they were approvers.
20 viii.
The judgment of the learned Special Judge being full of speculative inferences
and surmises, is wholly unsustainable.
ix. No
witness having been examined by the prosecution to show that the action on the
part of the official accused was not bona fide, the learned Special Judge
committed a serious error in passing the impugned judgment. It suffers not only
from misreading and misconstruction of the evidences but also in taking note of
the deposition of the witnesses examined on behalf of the defence.
x.
Accused No. 1 being the Chairman-cum-Managing Director of the Bank having taken
a decision to transact business with Harshad Mehta in the interest of the Bank
whose reputation and creditworthiness in those days being unquestionable and
particularly in view of the fact that even the prosecution witness accepted
that he was respected by all concerned, the inference that the transaction was
not entered into bona fide is wholly unsustainable.
xi. The
learned Special Judge committed a serious error in arriving at a finding that
no contract had been entered into by and between the Banks as it has
categorically been accepted by Shri Prashant D. Patel, (P.W. 17) that a
contract was entered into. In any event, a contract, it is well known, can be
entered into by necessary implication.
21 xii.
The learned Special Judge committed a serious error in holding that accused No.
5 was Director of the Company although in fact he was merely an employee.
xiii.
Even assuming that Jyoti Mehta, Mazda and Growmore belonged to one group but in
terms of the Manual issued by the UCO Bank itself, house loan transactions in
favour of persons having the same identity and belonging to a group being
permissible; the transactions were not violative of the directions issued by
the Reserve Bank of India.
xiv. In
any event, the Reserve Bank of India's directions being confined to
rediscounting and UCO Bank having knowledge thereof entered into the
transaction for discounting, the said Circular was not applicable to the case
at hand. The decision to enter into the said transaction having been taken in a
meeting and not by Accused No. 1 alone, he cannot be said to have any mens rea
particularly when the Bank had earned a huge amount by way of interest.
xv.
Purchase of shares of Gujarat Ambuja Cement having been recommended by the
Investment Committee which was a separate Department in a meeting held on
27.4.1992; purchase was not in violation of any law.
22 xvi.
The learned Special Judge committed a serious error in recording the judgment
of conviction against each of the appellants herein without considering their
individual involvement.
Mr.
Mariarputham learned counsel appearing on behalf of the C.B.I., on the other
hand, urged:
i.
Conspiracy amongst the accused had clearly been established by the evidence of
S.V. Prabhu (PW 44), Bhaskar Roy Choudhary (PW 45) and R.L. Joshi (PW 7).
ii. The
manner in which the transactions had been carried through and in particular
accused No. 1's meeting with Harshad Mehta on 13.3.1992 as also the
transactions taking place in quick succession thereafter clearly establish that
all the accused were parties to the conspiracy, which would appear from the
following:
a. The
decision was taken to make available a sum of Rs. 50 crores to Harshad Mehta by
way of Bill Discounting.
b. A
branch which had not been dealing with Bill Discounting of such high value had
been chosen which demonstratively proved that the transactions in question were
not ordinary commercial transactions as the branch which had been dealing with
such bill discounting transactions was D.N. Road branch and not the Nariman
Point 23 Branch. The said branch was purposely chosen as the officers working
there were not familiar with Bill discounting transactions.
c.
Immediately after the meeting between accused No. 1 and Harshad Mehta on
13.3.1992, resolutions were passed by Growmore and Mazda for opening accounts
with a view to obtaining Rs. 50 crores from the Bank. Transactions were shown to
have been entered into between M/s J.H. Mehta on the one hand and Mazda and
Growmore on the other, purporting to sell shares worth Rs. 50 crores on
20.3.1992; on the strength whereof two Bills of exchange were prepared by M/s
J.H. Mehta and purported to have been accepted by Growmore and Mazda. The same
were presented to UCO Bank, Nariman Point branch for discounting. The said
Bills of Exchange were not accompanied by the original credit note relating to
the alleged sale transaction of share securities. The Bills of Exchange were
discounted and payment of Rs.50 crores was made. The accounts for facilitating
the said bill discounting had been opened on the same day. No verification as
per the required procedure was undertaken.
d. No
security was taken even before the Bills of Exchange were discounted, although
rediscounting had been carried out by two other 24 Banks. Even the we ance
promissory notes for rediscounting was issued by the UCO Bank much later.
e. When
there was default in retiring the Bills of Exchange with a view to cover up the
matter, shares worth Rs. 49.50 crores were purchased from J.H. Mehta; as a
result whereof, the said amount was made available to it for the purpose of
retiring the Bills of Exchange.
The
acquisition of shares was neither bona fide nor in the interest of the Bank.
f. Mazda
had approached Hamam Street Branch of UCO Bank for bill discounting facility
upto the limit of Rs. 50 crores. However the same had not been granted as it
had been found that Mazda did not satisfy the eligibility criterion, as would
appear from the evidence of PW 2, Mazda would have been entitled to a maximum
credit limit only of Rs. 2.76 crores; but even then transactions worth Rs. 50
crores were undertaken with J.H. Mehta, Growmore and Mazda.
g. Guidelines
laid down in the Manual of UCO Bank (Exhibit 239) and directions of the Reserve
Bank of India dated 5.9.1988, which have statutory force, stipulated that the
credit limit be fixed only after verifying the creditworthiness of the customer
wherefor it was necessary to compile the credit reports and accordingly the
credit 25 limit should have been sanctioned only thereafter. In terms of the
said directions, if the Bills of Exchange exceeded Rs. 25,000/-, credit report
on the drawee on whom the Bill was drawn was required to be obtained. Security
was also required to be taken and it was the duty of the Manager to satisfy
himself that the Bills of Exchange were a result of genuine trade transactions.
But in the instant case, the said procedures were given a complete go by.
h.
Accused No. 1 and Accused No. 2 being the officers of the Bank and having
dominion over the funds thereof could not part with the same in favour of any
person without complying with the statutory requirements. Even if the Manual of
the UCO Bank and the Circular of Reserve Bank of India were not statutory in
nature, the transactions having dishonestly been carried out, the same would
satisfy the requirements of Section 405 read with Section 24 of the Indian
Penal Code.
i. By
reason of such transaction wrongful loss was caused to the Bank and wrongful
gain was made by the Harshad Mehta group.
Money of
a Public Sector Bank was diverted to share/securities market transactions in
violation of law and the prosecution therefore must be held to have proved the
charges made against the accused.
26 The
two banker's cheque issued by the Syndicate Bank and State Bank of Patiala,
although were not per se securities but as by reason thereof liability to pay
interest had been cast on UCO Bank.
j. Accused
No. 6 being Chief Executive of Mazda, Accused No. 7 being Vice President of
Mazda and Accused No. 9 being Vice President of Growmore, they were also party
to the conspiracy for commission of the offence of criminal breach of trust.
JURISDICTION
OF THE SPECIAL COURT The history as regards constitution of the Special Courts
has been noticed by us heretobefore. Its jurisdiction, inter alia, is confined
to trial of offence relating to transactions in securities and for matters
connected therewith or incidental thereto committed during the period between
1.4.1991 and 6.6.1992. The alleged offence had been committed admittedly during
the staid period.
Section
2(c) of the 1992 Act defines "securities" to mean :- "(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;"
27
Sub-section (1) of Section 3 of the 1992 Act provides for appointment and
functions of custodian. Sub-section (2) of Section 3 enables the custodian, on
being satisfied on information being received that any person had 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, to notify the name of such
person in the Official Gazette. Section 4 provides for cancellation of
contracts entered into fraudulently. Section 5 provides for the establishment
of the Special Court. Section 6 empowers the Special Court to take cognizance
of or try such cases which are instituted before it or transferred to it.
Jurisdiction of the Special Court is provided for in Section 7 of the 1992 Act.
It starts with a non obstante clause providing that any prosecution in respect
of any offence referred to in sub-section (2) of Section 3 shall be instituted
only in the Special Court and any prosecution in respect of such offence
pending in any Court shall stand transferred to the Special Court. Section 9
provides for the procedure and powers of the Special Court.
Let us,
at the outset, deal with contention of learned counsel for the appellant that
having regard to the definition of `securities' as contained in 28 Section 2(c)
of the 1992 Act which does not involve `bill discounting and rediscounting',
the Special Court had no jurisdiction to try the accused for the offences
alleged against them.
The
definition of `securities' 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. The term `securities', thus, should
be given an expansive meaning.
In 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 held as under:- "It is obvious that the words used is
an inclusive definition denote extension and cannot be treated as restricted in
any sense. (Vide : Stroud;s Judicial Dictionary", Vol. , p. 1415). Where
we are dealing with an inclusive definition it would be inappropriate to put a
restrictive interpretation upon terms of wider denotation"
(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).
29 In
Commercial Taxation Officer, Udaipur v. Rajasthan Taxchem Ltd.[(2007) 3 SCC
124, this Court stated:
"22.
We have already extracted the definition of raw material under Section 2(34)
which specifically includes fuel required for the purpose of manufacture as raw
material. The word includes gives a wider meaning to the words or phrases in
the statute. The word includes is usually used in the interpretation clause in
order to enlarge the meaning of the words in the statute. When the word include
is used in the words or phrases, it must be construed as comprehending not only
such things as they signify according to their nature and impact but also those
things which the interpretation clause declares they shall include."
This
jurisdiction of the Special Court is not confined to the scam relating to
securities alone but utilization of any amount relating to transactions in
securities and for matters connected therewith or incidental thereto.
The
jurisdiction of the Special Court is exclusive one. It exercises original
jurisdiction to try offences relating to security scam. The said Act having
regard to the peculiar nature of offence sought to be dealt with, should
receive a liberal construction.
In
Harshad S. Mehta and others v. State of Maharashtra, [(2001) 8 SCC 257], this
Court held:
30
"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."
We may
also notice another decision of this Court in L.S. Synthetics Ltd. v.
Fairgrowth Financial Services Ltd. and another, [(2004) 11 SCC 456] wherein it
was held as under:- "18. The jurisdiction of the Special Court is of wide
amplitude. Subject to a decision in appeal there from, its decision is
final."
Jurisdiction
of the Special Court is required to be determined with regard to the provisions
of Section 6 of the Code of Criminal Procedure, 1973. The Act is a special Act.
It contains a non obstante clause. It shall, thus, prevail over any other Act.
[See - Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. and others,
[(2001) 3 SCC 71].
An
offence is committed with a view to circumvent the law. An apparent state of
affairs need not be the real state of affairs. A simple transaction of
discounting and rediscounting on its face may appear to be genuine and lawful
but there may be underlying purposes behind it. It has not been disputed that
Harshad Mehta was dealing in the money market and 31 securities market and that
Growmore although being a public limited company, was controlled by Harshad
Mehta. Both Mazda as also Growmore indisputably were dealing in the business of
selling and buying of shares.
Further
M/s J.H. Mehta, was the proprietary concern of the wife of Harshad Mehta. She
used to execute business through her constituted attorney.
General
Power of Attorney had also been issued by the aforementioned Companies in
favour of the accused persons. The Harshad Mehta Group of Companies were
therefore dealing in securities.
The
method of siphoning of the funds of UCO Bank through discounting of two bills
of exchange was unlawful. Both the bills of exchange were shown to have been
issued in relation to transaction in shares between M/s JH Mehta, Growmore and
Mazda.
For the
purpose of arranging repayment of the amount, shares were purchased by UCO Bank
through M/s VB Desai and Co. The offence of conspiracy to commit the offence of
Breach of trust, thus, related to the transaction in securities.
32 It is
therefore not a case where it can be said that the Special Court lacked
inherent jurisdiction in trying the offence said to have been committed by the
accused.
RBI
CIRCULAR Banking business is controlled by several Acts of Parliament. We need
not go into the history relating thereto in great details being not necessary.
Suffice
it to say that UCO Bank is a Nationalized Bank having been taken over under the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. It has
various branches in Bombay; its main Branch being at D.N. Road. Its Nariman
Point Branch was mainly dealing with foreign exchanges. The business as regards
discounting and rediscounting usually used to be carried out at the main
branch.
The Bank,
inter alia, is regulated under the provisions of the Reserve Bank of India Act,
1934 as also the Banking Regulation Act, 1949 (for short, "the 1949
Act") Its directions are statutory in character.
33 In
terms of Section 35A of the 1949 Act, the Reserve Bank of India is empowered to
issue directions to the Banks in public interest; or in the interest of Banking
policy; or to prevent the affairs of any banking company being conducted in a
manner detrimental to the interests of the depositors or in a manner
prejudicial to the interest of the Banking Company; or to secure the proper
management of any Banking company generally. The Reserve Bank of India in terms
of Section 21 of the 1949 Act is empowered to control advances by banking
companies and issue necessary directions in this behalf.
The
Reserve Bank of India, therefore, has the requisite power to issue direction to
Banks in relation to discounting and rediscounting of bills of exchange and
those directions issued by the Reserve Bank of India have statutory force and,
thus, can be termed as law in force. {See also Corporation Bank vs. D.S. Gowda
& Anr. [(1994) 5 SCC 213] & Central Bank of India vs. Ravindra &
Ors. [(2002) 1 SCC 367]} All public sector banks are bound thereby.
Pursuant
to or in furtherance of the said power, the Reserve Bank of India issued a
Circular dated 5.9.1988 titled "BILLS REDISCOUNTING 34 SCHEME --
INTRODUCTION OF USANCE PROMISSORY NOTES - PROCEDURE THEREFOR", clauses
2(iii) and 2(v) whereof read as under "2(iii) The usance promissory note
should be backed by unencumbered usance Bills of Exchange of at least equal
value not fallen due for payment, drawn or endorsed in its favour, arising out
of bonafide commercial or trade transactions on which the required stamp duty
has been paid. The discounting bank will hold and continue to hold such
unencumbered usance bills till the date of maturity of the usance promissory
note.
2(v) It
would be desirable to centralize the function and confine the authority to draw
the usance promissory notes etc. at the bank's main Funds Management
Centre."
We may
also notice that the Bank had issued a Manual, known as the "UCO Bank
Manual of Instructions on Bill Discounting" relating to discounting of
Bills of Exchange, laying down the procedure there for, relevant portions
whereof (marked as Exhibit 239) read as under:
"2.5
The attention of the Sanctioning Authority should be specifically drawn:
(a) If
bills drawn on places where the bank does not have branch are to be purchased.
(b) If
house bills are to be purchased under the limit.
House
bills are bills where drawer and drawee are identical or connected persons.
Purchase of house bills obviously involves greater risk than the purchaser of
bills drawn on unconnected, independent drawees. Purchase of house bills should
be recommended for sanction only when the credit rating, business integrity,
past dealings and business methods of the customer are highly 35 satisfactory
and he is considered good for the limit on his single signature."
THE
EFFECT OF THE CIRCULAR LETTER Accused Nos. 1, 2 and 8 being public servants,
they were bound by the aforementioned Circulars having been issued by the
Reserve Bank of India.
Mr.
Jethmalani, however, has relied upon the decision in B.O.I.
Finance
Ltd. v. Custodian & ors. 1997 (10) SCC 488, wherein this Court while
dealing with a Circular letter which had been marked confidential opined that
such a Circular did not bind third parties, stating:
"22.
With regard to the finding of the Special Court that the transactions in
question were illegal, as they were in contravention of the circulars which
were issued by the Reserve Bank of India under the provision of the Act, it was
contended by Mr. Cooper, learned Counsel, that the circulars issued were no
more than guidelines which were required to be followed by the Bank and they
were not mandatory in nature. Elaborating this contention, Mr. Cooper submitted
that the Banking Companies Act contains provisions which enable the Reserve
Bank of India to issue directions which were mandatory and also give advice to
the banks. Our attention was drawn to Sections 21 and 35A of the said Act and
it was contended that the directions which are issued by the Reserve Bank of
India under these two provisions are clearly mandatory. On the other hand,
Section 36(1)(a) & (1)(b) gives power to the Reserve Bank of India to give
advice 36 or lend assistance and any action taken there under cannot be
regarded as mandatory. It was submitted that the language of the circulars
dated 14.4.1987 and 1.12.1987, which prohibit the banks from entering into
buying back arrangements, clearly shows that the said circulars were only in
the nature of advice and must be regarded as having been issued under Section
36(1)(a) and (1)(b) of the Act."
Having
regard to the provisions of Section 36(1)(a) and (b) of the Banking Regulation
Act, it was held that they were only in the nature of an advice and not binding
on the third parties.
The
distinction between exercise of jurisdiction under the enabling provisions
contained in Section 36(1) and the ones under Sections 21 and 35A of the
Banking Regulation Act and the provisions contained in Section 45L of the Reserve Bank of India
Act, 1934 is absolutely clear and unambiguous.
In terms
of Section 36, the Reserve Bank of India may caution or prohibit the Banking
Companies but in terms of Sections 21 and 35A of 1949 Act it can issue binding
directions. The directions have been issued by the Reserve Bank of India in
regard to rediscounting.
37 The
said decision therefore is not applicable to the facts and circumstances of this
case.
Whether a
circular letter issued by a statutory authority would be binding or not or
whether the same has a statutory force, would depend upon the nature of the
statute. For the said purpose, the intention of the legislature must be
considered. Having regard to the fact that the Reserve Bank of India exercises
control over the Banking Companies, we are of the opinion that the said
Circular letter was binding on the Banking Companies.
The
officials of UCO Bank were, therefore, bound by the said circular letter.
The
Madhya Pradesh High Court in The State of Madhya Pradesh v. Ramcharan [AIR 1977
MP 68] held:
"6.
Although the Constitution does not contain any generic definition of law, it
defines "law" for purposes of Article 13 to include "any Ordinance,
order, bye-law, rule, regulation, notification, custom or usage having in the
territory of India the force of law". Article 366(10) of the Constitution
also defines the expression "existing law" to mean "any law,
Ordinance, Order, bye-law, rule or regulation passed or made before the
commencement of this Constitution by any legislature authority or person having
power to make such law, Ordinance, order, bye- law, rule or regulation".
Another definition which is relevant here is the definition of the expression
"Indian law" in the General Clauses Act, 1897.
Section 3(29) of this Act defines "Indian Law" to mean "any Act,
38 Ordinance, regulation, rule, order or bye-law, which before the commencement
of the Constitution had the force of law in any Province of India or part
thereof and hereafter has the force of law in any Part A State or Part C State
or part thereof, but does not include any Act of Parliament of the United
Kingdom or any Order in Council, rule or other instrument made under such
Act".
These
definitions go to confirm that under our legal order "law" does not
include only legislative enactments but it also includes rules, orders,
notifications etc. made or issued by the Government or any subordinate
authority in the exercise of delegated legislative power.
... 7.
The question relating to a post-constitution order or notification in the
context whether it amounts to law was considered by the Supreme Court in
Jayantilal Amratlal v F. N. Rana, AIR 1964 SC 648 = 1964-5 SCR 294. ...The
Court further observed as follows:
"This
is not to say that every order issued by an executive authority has the force
of law. If the order is purely administrative, or is not issued in exercise of
any statutory authority it may not have the force of law. But where a general
order is issued even by an executive authority which confers power exercisable
under a statute, and which thereby in substance modifies or adds to the
statute, such conferment of powers must be regarded as having the force of
law." ..."
It
therefore stands established from the above that UCO Bank could only have
discounted the bills of exchange out of bonafide commercial transactions as had
been provided under the RBI circulars which were statutorily binding on UCO
Bank.
So far as
the submission of the learned counsel that they had no knowledge of the
circulars issued by RBI is concerned, we would affirm the 39 findings of the
special judge that the conduct of the accused clearly shows to the contrary
that they in fact did have knowledge of the RBI Circulars in question. They
otherwise would not have gone to the length of creating documents to show that
the bills of exchange had been issued because of a sale of shares of M/s JH
Mehta to Growmore and Mazda. If they did not have the knowledge of the said
circulars and if the bank had been willing to discount the bills of exchange, a
simple accommodation Bill of Exchange could have been executed. In order that
the bank could discount a bill of exchange, it was necessary that it related to
a bonafide or genuine commercial transaction and it was because of this
requirement that the accused persons had gone to the extent of preparing false
documents to give an appearance that the discounting related to bona fide
commercial transaction.
CRIMINAL
BREACH OF TRUST Section 405 of the Indian Penal Code defines Criminal Breach of
Trust in the following terms:
"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, or dishonestly uses or disposes of that property in
violation of any direction of law 40 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".
An
offence of criminal breach of trust by a public servant attracts the penal
provision of Section 409 of the Indian Penal Code. Indisputably, the Bank
entrusted its funds to its officers; they had the dominion over the said
property; they were holding the said money in trust which is an comprehensive
expression, inter alia, to denote a relationship of master and servant. The act
of Criminal Breach of Trust per se may involve a civil wrong but a breach of
trust with an ingredient of mens rea would give rise to a criminal prosecution
as well. The ingredients of Section 409 are:
1.
Accused must be a Public servant, merchant, agent, a factor, broker or an
attorney.
2. In his
such capacity he must be entrusted with some property or must have gained
dominion there over.
3. He
must have committed criminal breach of trust.
The
criminal breach of trust would, inter alia, mean using or disposing of the
property by a person who is entrusted with or has otherwise dominion there over.
Such an act must not only be done dishonestly but also in 41 violation of any
direction of law or any contract express or implied relating to carrying out
the trust. It is one thing to say that any Circular Letter issued by the
Reserve Bank of India being not within the public domain would not be law but
it would be another thing to say that it did not contain any direction of law
so as to attract the liability in terms of Section 405 of the Indian Penal
Code. Lawful directions were issued by the Reserve Bank of India. The Circular
Letter was meant for all Scheduled Banks. The authorities and/or officers
running the affairs of the Scheduled Banks therefore were aware thereof. If it
is binding on the Banks, it would be binding on the officers. Any act of
omission or commission on the part of any authority of the Bank would amount to
acting in violation of any direction of law. A direction of law need not be a
law made by the Parliament or a Legislature; it may be made by an authority
having the power therefor; the law could be a subordinate legislation, a
notification or even a custom.
Indisputably,
the higher authorities of the bank were entrusted with or otherwise had
dominion over the properties of the bank. They were dealing with public funds.
Indisputably again they were required to apply the same in terms of the
Circulars issued by the Bank as also the Reserve Bank of India. It has been
accepted at the Bar that failure on the part of the officers 42 of the Bank to
abide by the directives issued under the Circulars would result in civil
action. Subjecting the bank to a civil liability would thus attract one of the
ingredients of criminal breach of trust. There cannot be, however, any doubt
whatsoever that a mere error of judgment would not attract the penal provision
contained in Section 409 of the Indian Penal Code.
The
materials brought on record by the parties must be judged keeping in view of
the aforesaid legal position.
The
primary question is whether the property of the bank was dishonestly used or
disposed of in violation of any direction of law prescribing the mode therefor.
The mode of disposal of the public money is prescribed in terms of the UCO Bank
Manual and the Circulars issued by the Reserve Bank of India. It was, however,
necessary for the prosecution to prove that the same was done with requisite
mens rea.
Before
proceeding further, we may notice some basic facts which have been proved by
the prosecution and in respect whereof there is not much controversy.
43 All
the accused were working as full-time employees. On 13.3.1992, Margabanthu
(Accused No.1) Chairman-cum-Managing Director of the Bank met Harshad Mehta,
the prime accused. This has been proved by Joglekar PW-6 the Driver and R.L.
Joshi, PW-7.
What
transpired in the said meeting although is not known, the purport thereof can
be found out from the representation made by Accused No. 1 in the meeting held
on 14.3.1992, which was attended by PW 44 - Prabhu, Assistant General Manager
of the Nariman Point Branch, PW 45 - Bhaskar Roy Choudhary, Dy. General
Manager, Accused No. 8 - Ramanathan, Division Manager and PW 7 - R.L. Joshi,
Market Promotion Officer, that the bank may earn some profit without investing
its own money. Ex facie, the offer appeared to be attractive as it was for the
benefit of the Bank but the process involved therein was a complex one.
It was
insisted that the transaction of such magnitude be carried out from the Nariman
Point Branch of the Bank which was not the main branch and was not otherwise
well equipped to deal with such transactions. The private accused did not have
any account in the said branch. The employees of the said branch did not have
enough experience to carry out transaction of 44 such high values. Despite
objection made by Prabhu (PW-44), the same was insisted upon.
It had
not been disclosed that a similar offer made by Mazda to carry the transactions
at the Hamam Street Branch of the Bank had yielded no results. An assessment of
creditworthiness of Mazda was made and it was found that their creditworthiness
was only to the extent of Rs. 2.76 crores and not beyond the same. This appears
to be the prime reason why the transactions were shifted from Hamam Street
Branch to Nariman Point Branch.
The
officers of the main branch of the Bank at Bombay were not taken into confidence
at all. One of the officers who was asked to attend the meeting was Ramanathan,
Divisional Manager (Accused No.8). Why he was involved had not been explained?
He might not have participated in the meeting as contended but then his
subsequent role speaks of volumes. We would refer thereto a little later. It
must be noticed that during the said meeting itself the Accused No. 1 spoke to
Accused No. 2 over phone. This has been proved by PW-7 in his deposition,
stating:
"When
I was in the chamber, Mr. Margabanthu had spoken to Mr. R. Venkatakrishnan i.e.
Accused No. 2.
45
"When the person on the other side of the telephone picked up the phone
Mr. Margabanthu said `Venkit'. Then Mr. Margabanthu informed about this bill
transaction and added that this would not affect the outflow of the funds from
the Bank. At that time Mr. Venkatakrishnan, Accused No.2 was looking after the
Investments & Treasurer Division of the Bank that is why I know that the
conversation was with Mr. Venkatakrishnan"
The fact
that Accused No.1 spoke to Accused 2 over phone was also stated by PW-44 and
PW-45 in their statements. The reason why consent of Accused No. 2 or at least
the necessity of keeping him informed about the transaction appears to be that
he used to handle the call money. If a large chunk of money goes out of the
coffer of the bank, it would have been probably necessary to arrange for call
money in future.
Although,
it is not the case of the prosecution that Nariman Point Branch of the Bank had
not been dealing with discounting/rediscounting of the Bills of Exchange; what
was pointed out was that from the said Branch such a huge transaction had never
been carried out. Objection of PW 44 was over ruled on the premise that Harshad
Mehta who had vast experience in the field himself would be taking care of the
transaction.
46
Indisputably, thus, the person for whose benefit the transactions were sought
to be carried out, was involved in the internal functioning of the Bank. This
aspect of the matter has been proved by PW-7 - R.L. Joshi, PW- 44 - S.V. Prabhu
and PW-45 - Bhaskar Roy Choudhary.
On the
same day, Growmore passed a resolution to open an account at the Nariman Point
Branch of the UCO Bank for the purpose of availing Bill Discounting limit of
Rs. 50 crores. Harshad Mehta (accused No. 3), Ashwin Mehta (accused No. 4) and
Sudhir Mehta (accused No. 5) were authorized to execute necessary documents on
behalf of the company. Although we do not know the exact time of holding of the
meeting of the Bank Authorities vis-`-vis the time when the Resolution was
passed but the fact remains that both took place on the same date. Only a few
days later, Sunil Samtani (accused No.7), the Vice President of Mazda and
Pankaj Shah (accused No.9), the Vice President of Growmore came to the Bank and
met Prabhu (PW-44). They did not come alone; they were accompanied by
Ramanathan (accused No.8). Admittedly, they obtained two forms for opening
Current Accounts. At the same time, the Officers were invited for attending a
cocktail party on 18.3.1992, i.e. on the same day.
47 We
would presume that before accused No. 7 and accused No. 9 came to the Bank, a
resolution was also passed by Mazda. Although no documentary evidence in this
behalf is available on record but it was spoken of by PW 4 Prakash V. Bhat. The
learned special judge also has referred thereabout in his judgment. We may, for
this purpose also, take into consideration that a dinner was held at Hotel
Oberoi on the same day. It was attended by Ramanathan (Accused No. 8), Prabhu (PW-44),
Roy Choudhary (PW-45). Accused No. 7, Accused No.9 and Harshad Mehta (Accused
No.3) were also present. It is crucial that on 24.3.1992, at about 2.30 P.M.,
Samtani (accused No. 7) and Pankaj Shah (accused No.9) came to the Nariman
Point Branch of the UCO Bank; they brought with them two cheques marked Exhibit
24 and Exhibit 26; the first having been drawn by Syndicate Bank on the same
date for a sum of Rs.24,63,01,370/- in favour of UCO Bank, and second from the
State Bank of Patiala of the same date for a sum of Rs.25,00,53,636/-. The
application forms for opening `Current Accounts' were handed over to Prabhu
(PW-44). The cheques were handed over to Ranjit Mukherjee (PW 1) for clearance.
PW-44 testified that the account opening forms were given to the Current
Account Department. At the same time, two draft promissory notes were brought,
on the basis whereof usance promissory notes were prepared and signed by Prabhu
(PW- 48 44) and Ranjit Mukherjee (PW-1). Bank's functions of preparing draft
promissory notes were therefore taken over by the borrower.
The
promissory notes were issued (Exhibit 28 and Exhibit 29) in favour of Syndicate
Bank for a sum of Rs. 25 crores and in favour of State Bank of Patiala for a
sum of Rs. 25,36,64,000/-. They also brought two Bills of Exchange (Exhibit 154
and Exhibit 155) one of which was drawn by M/s J.H. Mehta for a sum of Rs.
14,41,44,000/- signed by Ashwin Mehta (Accused No.4) and the other for a sum of
Rs.35,95,24,000/- signed by Sunil Samtani (Accused No.7). Whereas former
(Exhibit 154) was accepted by Growmore and the later (Exhibit 155) by Mazda.
Both the Bills of Exchange were executed by Sudhir Mehta (accused No. 5).
Ranjit
Mukherjee (PW-1) who was supported by PW-44 - Prabhu categorically stated that
no original contract note with regard to the underlying security transactions
had been produced, only a photocopy was produced. No security was received for
discounting the Bills of Exchange.
Banks
also did not have the shares in relation to which the Bills of Exchange were
drawn before the promissory notes were executed.
49 As is
customary, having regard to the nature of the promissory notes being usance,
Mazda and Growmore were to repay the amount on 24.4.1992.
They
issued letters promising to do so (Exhibit 35 and Exhibit 36).
Letters
were also issued asking the Bank to issue cheques in the name of ANZ Grindlays
Bank. The same was complied with. Accused No. 7 and Accused No. 9 were handed
over: (i) two pay orders in favour of ANZ Grindlays Bank; (ii) receipts for the
two cheques received from Syndicate Bank and State Bank of Patiala; and (iii)
two usance promissory notes.
Indisputably,
as on the said date, M/s J.H. Mehta did not have any account at the Nariman
Point Branch. Accounts of Mazda being Account No. 1705 (Exhibit 86), Growmore
being Account No. 1706 (Exhibit 89) and M/s J.H. Mehta being Account No. 1708
(Exhibit 93) were opened later.
The
transactions took place in a post haste manner.
Accounts
of Growmore and Mazda were credited and pay orders were issued. Thereafter, M/s
J.H. Mehta's Account was credited and the amount was transferred to the
accounts of Growmore and Mazda. When certain irregularities in regard to the
Bill discounting were pointed out, PW 44 and PW-1 admitted that confusion was
prevailing in the matter. The Bills were rediscounted by State Bank of Patiala
before they had been discounted by 50 UCO Bank. PW-19 I.B. Gupta, who is an
employee of State Bank of Patiala categorically stated that Sunil Samtani
(accused No.7) had contacted the Bank in the morning about the bill
rediscounting. Similarly, S.K. Jindal (PW-21), an officer of the State Bank of
Patiala testified that Prakash Shah (PW-9) had given an offer on behalf of
Harshad Mehta for investment in bill rediscounting. Money was credited in the
account of M/s J.H. Mehta with ANZ Grindlays Bank. This has been proved by
Cheque dated 25.3.1992 (Exhibit 267) and the deposit slip (Exhibit 268). This
was the route of transferring the money agreed to by all the players.
The
submission of the learned counsel for the appellants that there has been no
violation of the RBI Guidelines and/or the UCO Bank Manual cannot be accepted.
It may be true that Shri Veeraraghwan Rangarajan (PW 40), Executive Director,
RBI, Bombay had stated that technically the RBI Circular referred to the Bill
rediscounting and not discounting, but it is not disputed at the Bar that Bill
rediscounting must be preceded by Bill discounting. UCO Bank had issued usance
promissory notes; it was required to be backed by encumbered usance Bills of
Exchange of at least equal value not due for payment; the transactions were
required to be bona fide commercial transaction. UCO Bank Manual although
permits advances as against house bills but it stipulates that for the said
purpose, 51 creditworthiness of the customer was required to be verified.
Credit limit was also to be fixed. For the said purpose, credit reports were to
be compiled; limits were to be sanctioned. The jurisdiction of Chairman-cum-
Managing Director and other Authorities are fixed if the Bill of Exchange
exceeds Rs. 25,000/-, credit report on drawees on whom the bill is drawn is
also required to be obtained. The Manual mandates that security be also taken.
The duty had been cast on the Manager to satisfy himself that Bill of Exchange
is the result of genuine trade transaction.
ILLEGALITY
Section 43 defines the terms `Illegal' or `Legally bound to do" in the
following terms.
"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.
It
carries a very wide meaning. If any ground for civil action can be founded on
the basis of any act of omission or commission on the part of a person, his act
may be held to be illegal or it may be held that he was legally bound to do an
act which he had omitted to do. If a person is guilty of 52 breach of a
departmental order, he may be held to be guilty as he was legally bound to act
in terms thereof.
It does
not matter whether the violation was in relation to the Circular issued by the
Reserve Bank of India or whether it was in violation of the guidelines issued
by the Bank itself.
The
question as to whether the directions are statutory in character and binding in
law may not depend upon the nature of the powers to be exercised by the Reserve
Bank of India. Discounting and rediscounting of Bills of Exchange is an
integral part of banking transactions. Purchase and sale of securities is also
a part of the banking transactions as would appear from Section 6(1)(a) of the
Banking Regulations Act.
Harshad
Mehta was having a very good customers credit rating which was even spoken of
by PW 7. The Bills of Exchange being usance Bills of Exchange in terms of
Section 32 of the Negotiable Instruments Act on their maturity, only the
acceptors, namely, Growmore and Mazda were responsible for clearance thereof
and not M/s J.H. Mehta.
53
Further we must take note of the fact that the bills had been drawn by M/s JH
Mehta and were accepted by M/s Growmorw and M/s Mazda. The payment on
rediscounting by the Bank should therefore have been made to M/s JH Mehta, but
the payment had in fact been made to M/s Growmore and M/s Mazda Industries. If
the Bills of Exchange had been drawn because M/s JH Mehta had sold the shares
to Mazda and Growmore, it would have been M/s JH Mehta which would have been
entitled to the purchase price of the shares which it had been sold to M/s
Growmore and M/s Mazda. In the present case the Bank had first made a credit
entry in the account of JH Mehta and then the amount had been transferred to
Growmore and Mazda by issuing cheques in favour of ANZ Grindleys Bank favouring
Mazda and Growmore. Thus the ultimate payment on the rediscounting of the two
bills of exchange went to Growmore and Mazda who had been shown as the
purchasers of the shares from M/s JH Mehta and were therefore to make payment
of the price of the share to JH Mehta. It must moreover be noted that even the
cheques for repayment to the Bank on 27.04.1992 had been issued by M/s Growmore
and M/s Mazda. As the amount paid under the Bills of exchange by the Bank was
returned to the Bank, it is beyond the purview of any explanation why the bills
of exchange had been drawn in the 54 first place. Obviously the discounting of
the Bills of exchange in our opinion did not represent a bonafide commercial
transaction.
It has
been brought to our notice by the learned counsel for the appellants that
Harshad Mehta was behind all the entities. Apart from his individual capacity,
he was acting on behalf of M/s J.H. Mehta, Mazda and Growmore. This fact was
not unknown to the officers of the Bank. Each one of the private accused was
connected in one way or the other with each of the said entities. Sudhir
Shantilal Mehta (Accused No. 5) held the Power of Attorney and was the
authorized signatory of M/s J.H. Mehta. In a situation of this nature, in terms
of the Manual if house bills were to be purchased where the drawer and the
drawee were closely interconnected, the following requirements were to be
satisfied, namely, (i) if the credit rating is high, (ii) business integrity and
(iii) past dealings and the business methods of the customer were highly
satisfactory and he was considered good for the limit on his single signature.
None of the aforementioned ingredients of Para 2.5 (b) of the Manual were
satisfied. None of them were customers of the said Branch; the Authorities,
namely, PW-44, PW-45 as also PW-1 did know them. Although the past dealings of
the accused with the Bank took place at Hamam Street Branch, its records were
not called for. So far as J.H. Mehta, 55 Mazda and Growmore are concerned, they
were new customers. It was therefore beyond anybody's comprehension as to how
an account was opened on the same day as the Bill of Exchange was presented for
discounting. It is also beyond any doubt or dispute that the power to sanction
advance so far as the Chairman is concerned is limited to Rs.5 crores. Prior
sanction of the Board of Director was necessary if the Bill discounting exceeds
Rs.5 crores.
PW-44 in
his evidence stated:
"The
limit upto which Shri Margabanthu was authorized to sanction was Rs. 5 crores.
If business was to be in excess of Rs.5 crores, the authority to sanction was
with the Board of Directors."
To the
same effect is the evidence of Varanadi Subrahmanyam (PW- 43), who testified:
"According
to me a transaction of discounting or rediscounting of Bills of Exchange in a
sum of Rs. 50 crores could not be undertaken without previous sanction of the
Board of Directors.
The
Manual, therefore, prescribes exercise of greater caution in the cases where
the drawer and drawee of the Bill are identical or connected persons. It
provides for the meeting of safeguards by way of making an 56 enquiry as
regards the creditworthiness, a satisfaction of which was required to be
arrived at by the Manager. Thereabout, having regard to the credit rating,
business integrity and past dealing, the Manual provides that those borrowers
who do not satisfy the said tests laid down would not be eligible for any loan.
Evidently, all these procedural requirements necessary for safeguarding the
interests of the Bank were thrown to the winds.
The
submission of Mr. Mohta, however, is that all such transactions of the past had
been ratified by the Board of Directors. It may be or it may not be but the
fact remains that the law requires prior sanction of the Board of Directors and
not ratification. Admittedly, even the Board of Directors did not ratify the
said transaction although in terms of the Manual it was necessary that prior
sanction should be obtained. At least, none has been produced before us.
Strong
reliance has been placed on a resolution of the Board of Directors dated
12.5.1992 whereby all support was extended to Accused No.1. The same, in our
opinion, is of no significance as even on that day the Board of Directors did
not ratify the transaction.
57 We may
notice that the Officers of the Bank were aware of the fact that the Bank
finances were not utilized for speculative purposes. The Banking business is
governed by sound practice. Any advance exceeding Rs. 5 lakhs against shares
and debentures was to be sanctioned by the Board/Committee of Directors. As it
is stated:
"12.
Advances exceeding Rs. 5 lakhs against shares and debentures should be
sanctioned by the Board/Committee of Directors. Suitable powers may be
delegated to the Chief Executive and others for sanctioning advances for lesser
amounts.
Advances
against securities/shares/debentures in terms of explanatory note included all
types of advances. The Executive Director of UCO Bank Biswajit Choudhari
(PW-37) accepted that the discounting of bills is a method of advancing credit
to a party. Evidently, therefore, the prudent lending norms were required to be
observed. One of the contentions raised by the learned counsel for the
appellants was that further security was not necessary as two cheques had been
issued by two scheduled Banks. The cheques were issued for the purpose of
earning interest by way of rediscounting. It may be true that whereas the
Syndicate Bank and State Bank of Patiala were to get 17.5% of interest, the UCO
Bank was to receive interest from Harshad Mehta at the rate of 21% per month.
This itself shows the speculative nature of the transaction. Syndicate Bank and
State Bank of 58 Patiala or even the banker of Harshad Mehta and his group ANZ
Grindlays Bank were of the opinion that they proceeded with so much amount even
for a short period. We fail to see any reasons as to why the usual good credit
was not taken recourse to. The underlying object of such transaction is that
the same should be a genuine/bonafide commercial transaction. It was for the
said purpose procedural requirements were required to be complied with.
Even if
the words `directions of law' are to be given literal meaning, it would include
a direction issued by the authorities in exercise of their statutory power as
also the power of supervision. We have opined heretobefore that it has been
accepted at the Bar that both the RBI Circulars as also the Manual of UCO Bank
were binding on the authorities. Our attention, however was drawn to the statement
of Srinivas Padiyar (PW-20) of the Syndicate Bank to show that a contract was
entered into on phone. It was furthermore submitted that the contract was an
implied one. Apart from the fact that no sufficient and reliable evidence has
come on record to show that the competent authorities of the UCO Bank and the
other Banks in question, namely, Syndicate Bank and State Bank of Patiala had
entered into such transactions but we would assume the same for the sake of
argument.
We will
also assume that the transaction was otherwise permissible in law in 59 terms
of the provisions of the Contract Act or any other Parliamentary Act for the
time being in force.
The
prosecution case, however, is that it has been done in a manner not known to
law and/or in violation of the directions of law. If it has been able to prove
the ingredients of Section 405 of the Indian Penal Code that the transaction
had been carried out for the purpose of disposing of the property belonging to
the Bank or having used dishonestly and/or in violation of the direction of
law, the prosecution must succeed. The entire transaction was undertaken with
one motive that the funds of UCO Bank should be made available to Harshad Mehta
who was the stock broker.
Evidently,
UCO Bank was approached as a conduit as it had no money of its own. Whereas
other banks were secured as they had issued cheques in the name of Nationalized
Bank; UCO Bank did not obtain any security or pledge. The fact that it had
undertaken a grave risk is not in dispute. Money was to be returned by a fixed
date, namely, 24.4.1992.
Even the
balance sheet and annual reports of the two banks were not sought for far less
scrutinized for arriving at a satisfaction as regards the capability of the
borrower to repay the amount within the stipulated time.
60 Only
after advances were made i.e. on 26.3.1992, PW-44 asked PW-1 to collect the
balance sheet from Mazda and Growmore for forwarding them to the Head Office
for seeking approval of the Bill Discounting already done.
PW-1 in
his evidence stated:
"Round
about 26th March, 1992, Mr. Prabhu also asked me to collect the balance-sheet
of Mazda and Growmore. He told me that it was necessary to send the balance
sheets to the Head Office. He had asked me to go to their offices. On 27th or
28th March, 1992, I visited the office of Mazda. Over there I met Mr. Samtani.
I requested him to give me the Balance Sheets and the Annual Reports for the
last three years. Mr. Samtani told me that he would send the same. I also asked
him about the Balance Sheets of Growmore.
Mr.
Samtani stated that he would collect these and send them to the bank. As Mr. Samtani
did not give the Balance Sheets and the Annual Reports, I again contacted Mr. Samtani.
Mr. Samtani gave me two Annual Reports for the years 1988 to 1990 and for the
year 1991"
Thus, all
attempts to procure the balance sheet, etc. were undertaken at a later date. As
the date of repayment was coming closer, UCO Bank sent letters to Mazda and
Growmore for arranging funds to retire the Bill of Exchange on due date.
Evidently, they were unable to fulfill their promise.
61 For
the said purpose, Harshad Mehta had already spoken to Accused No.1 and he
agreed that the Bills would be rolled over for one more month. PW- 44 was
informed thereabout by Pankaj Shah (Accused No.9). Naturally, as the entire
blame would be put on him, he did not agree thereto and insisted on payment. In
his evidence, he stated:
"The
due date of both the bills of exchange was 24th April, 1992. On 22nd March
1992, the Bank addressed letters to Mazda Leasing Co. and Growmore Finance Ltd.
to retire the bills on due date. On 22nd April 1992 I was informed by Mr. Pankaj
Shah that Mr. Harshad Mehta has talked to the Chairman of the Bank and that the
bills are not to be retired on 24th April 1992 but are to be rolled over. (The
witness is shown documents at Exhs. 58 and 59). This were the letters sent to
the above referred Companies on 22nd April, 1992. I told Mr.Pankaj Shah that I
do not agree to the re-rolling and that payment of both the bills should be
made on due date. I also informed Shri Roy Chowdhari, Zonal Manager that I do
not agree to any re-rolling and that payment has to be made on due date. I also
informed the same to Shri Ramnathan. I remember that I also gave the same
information to Shri Venkatkrishnan at Kolkata on telephone."
He was
corroborated by PW-45 who stated:
"Shri
Harshad Mehta told us that he and Mr. Margabanthu had already decided that the
period of discounting will be extended by one month."
62 From
the aforementioned evidence, it is evident that PW-44 informed about his
decision for insistence of payment to Accused No. 2 and PW-45 also informed of
the same to Accused No. 1. We can understand that Accused No. 2 being a
high-ranking Officer was informed particularly in view of the fact that if the
Bank does not get back the money, it has to take loan for the purposes of
having call money, but the very fact that the high- ranking officers also
informed the Accused No. 8, speaks a volume. We would consider this aspect of
the matter a little later.
Admittedly,
even on 24.4.1992 payments were not made either by the drawer or by the
acceptors. At this stage, it may not be necessary to consider the submission of
Mr. Bhattacharyya that in terms of Section 32 of the Negotiable Instruments
Act, it was the acceptor's liability and not the drawer's liability, for the
simple reason that whosoever's liability it was, the fact remained that the
money had not been re-deposited. Indisputably, UCO bank had to make payment out
of its own funds. As by reason thereof a shortfall occurred, call money was
borrowed from two other banks, namely, Corporation Bank and Oriental Bank of Commerce
to the tune of Rs. 50 crores for three days. The evidence of PW-44 in this
regard is relevant, which is as under:
63
"In view of the promissory notes executed by the Bank in favour of
Syndicate Bank and Bank of Patiala, on due date our Bank made payments to the
two Banks in whose favour promissory notes were signed. The Bank made these
payments from its own funds. The Mazda Industries and Leasing Ltd. and Grow more
Finance Ltd. did not retire the bills of exchange on due date i.e. 24th April,
1992"
To the
same effect is the evidence of PW-1:
"These
Promissory Notes were due for payment on 24th April, 1992. In the morning I had
discussed this with Mr. Prabhu. He asked me to make payments in respect of
these Promissory Notes.
We had
therefore made payments to the Syndicate Bank and to the State Bank of Patiala
respectively."
We are,
therefore, of the opinion that the charge of criminal breach of trust stands
established against Accused 1, and 2. The role played by Accused No. 2 in the
entire chain of events is significant. The decision to discount the two bills
of exchange at Nariman Point Branch had been taken by Accused No. 1 only after
consulting Accused No. 2. Accussed No. 2 had full details of the transaction.
He had also played a key role in the purchase of shares by UCO Bank to provide
for repayment of the amount advanced by UCO Bank itself. He had also similarly
made an endorsement for issuing a cheque in favour of ANZ Grindley's Bank on
account of JH Mehta.
64
However we may notice that the role played by Accused No. 2 was subsidiary to
that played by Accused No. 1. The entire transaction appears to have been gone
through because of a deal struck between deceased Harshad Mehta and Accused No.
1. We would take note of this aspect of the case while considering the quantum
of sentence so far as Accused No. 2 is concerned.
We agree
with the observations of the learned Special Judge that Accused No. 8 was not
in a position to issue any directions; he being a Scale IV employee. He
therefore could not be said to be guilty of the offence of Criminal Breach of
trust. We find no justification advanced by the prosecution to interfere with
the judgment of acquittal recorded by the learned Special Judge as regards the
Accused No. 8.
CRIMINAL
CONSPIRACY Criminal conspiracy is an independent offence. It is punishable
independent of other offences; its ingredients being:- (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.
65 It is
now, however, well settled that a conspiracy ordinarily is hatched in secrecy.
The court for the purpose of arriving at a finding as to whether the said
offence has been committed or not may take into consideration the
circumstantial evidence. While however doing so, it must bear in mind that
meeting of the minds is essential; mere knowledge or discussion would not be.
As the
question has been dealt with in some detail in Criminal Appeal No. 76 of 2004
(R. Venkatakrishnan vs. Central Bureau of Investigation), it is not necessary
for us to dilate thereupon any further.
We may,
however, notice that 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 to 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 66 offence and renders the mere agreement to commit
an offence punishable even if an offence does not take place pursuant to the illegal
agreement."
Yet again
in Nirmal Singh Kahlon vs. State of Punjab & Ors. [(2008) 14 SCALE 639],
this Court following Ram Lal Narang vs. State (Delhi Administration [(1979) 2
SCC 322] held that a conspiracy may be a general one and a separate one meaning
thereby a larger conspiracy and a smaller which may develop in successive
stages. For the aforementioned purpose, the conduct of the parties also assumes
some relevance. {See also Chaman Lal & Ors. v. State of Punjab & Ors.
[JT 2009 (4) SC 662]} In K.R. Purushothaman vs. State of Kerala [(2005) 12 SCC
631], this Court held:
"11.
Section 120A of I.P.C. defines 'criminal conspiracy.' According to this Section
when two or more persons agree to do, or cause to be done (i) an illegal act,
or (ii) an act which is not illegal by illegal means, such an agreement is
designed a criminal conspiracy. In Major E.G. Barsay v. State of Bombay, (1962)
2 SCR 195, Subba Rao J., speaking for the Court has said:
"The
gist of the offence is an agreement to break the law. The parties to such an
agreement will be guilty of criminal conspiracy, though the illegal act agreed
to be done has not been done. So too, it is not an ingredient of the offence
that all the parties should agree to do a single 67 illegal act, It may comprise
the commission of a number of acts."
xxx xxx
xxx
13. To
constitute a conspiracy, meeting of mind of two or more persons for doing an
illegal act or an act by illegal means is the first and primary condition and
it is not necessary that all the conspirators must know each and every detail
of conspiracy. Neither it is necessary that every one of the conspirators takes
active part in the commission of each and every conspiratorial acts.
The
agreement amongst the conspirators can be inferred by necessary implications.
In most of the cases, the conspiracies are proved by the circumstantial
evidence, as the conspiracy is seldom an open affair, The existence of
conspiracy and its objects are usually deducted from the circumstances of the
case and the conduct of the accused involved in the conspiracy. While
appreciating the evidence of the conspiracy, it is incumbent on the Court to
keep in mind the well- known rule governing circumstantial evidence viz., each
and every incriminating circumstance must be clearly established by reliable
evidence and the circumstances proved must form a chain of events from which
the only irresistible conclusion about the guilt of the accused can be safely
drawn, and no other hypothesis against the guilt is possible.
The
criminal conspiracy is an independent offence in Indian Penal Code. The
unlawful agreement is sine quo non for constituting offence under Indian Penal
Code and not an accomplishment.
Conspiracy
consists of the scheme or adjustment between two or more persons which may be
express or implied or partly express and partly implied. Mere knowledge, even
discussion, of the Plan would not per se constitute conspiracy. The offence of
conspiracy shall continue till the termination of agreement."
68 {See
also P.K. Narayanan vs. State of Kerala [(1995) 1 SCC 142]}:
Offence
had been committed purely for the benefit of Harshad Mehta.
He was
the prime beneficiary. He appears to have made elaborate plans to obtain liquid
cash for a short period with a view to enable him to make investments in the
security market so that he could obtain quick returns. He involved a few
Nationalized Banks in the process. Prosecution seeks to establish the offence
of conspiracy from the evidence of Shri S.V. Prabhu (P.W. 44), Shri Bhaskar Roy
Choudhary (P.W. 45) and Shri R.L. Joshi (P.W. 7). If the story unfolded by the
prosecution through several witnesses is taken to its logical conclusion, the
following would emerge:
The
transactions in relation to which the two bills of exchange were drawn are
dated 20th March, 1992. Growmore and Mazda opened the account with Nariman
Point Branch of the UCO Bank on the same date on which the bills of exchange
were presented to the Bank on 24 March 1992, but a resolution for the purpose
of opening the account with the UCO Bank was passed by Growmore on 14. 03.1992
and by Mazda on 18.03.1992. The conduct of Growmore and Mazda in passing the
resolution for opening the accounts even before the alleged purchase of shares
by them from JH Mehta 69 who had drawn the bills of exchange raise doubt about
the bonafide of the entire transaction.
Accused
No. 4 appearing as a witness made a statement that the transaction had been
settled and executed by Harshad Mehta. For the said purpose, it may be
necessary to take into consideration the mode and manner in which the same was
completed. Indisputably, a large sum, namely, Rs.50 crore was made available to
Harshad Mehta through the process of bill discounting. Evidences have been
clearly brought on record to show that the business of bill discounting was not
being carried out in the Nariman Point Branch. The said branch, therefore, was
chosen so as to enable Harshad Mehta to open and operate account therein.
Accused No. 1 met Harshad Mehta at about 1.00 p.m. on 1.3.1992. Accused No.8
was present in the said meeting. After meeting Harshad Mehta, Accused No.1 came
back to the Bank. He asked the officers to undertake bill discounting for
Harshad Mehta.
He,
however, did not disclose that for the aforementioned purpose he had met
Harshad Mehta earlier. Accused No. 8 was present in the said meeting.
He,
however, is said to have not taken any part therein. During the said meeting
itself, Accused No. 1 spoke to Accused No. 2. Possibility of having
transactions relating to bill discounting was disclosed. Accused No. 2 was 70
consulted. Accused No. 2 did not deny or dispute receipt of the telephonic call
but merely took a plea that according to him details thereof had not been
furnished to him. As a follow up of the decision taken in the meeting held by
Accused No.1, resolutions were passed by Mazda and Growmore.
However,
a note in relation to the aforementioned meeting was prepared which related to
the aforementioned discussions. Why Nariman Point Branch was chosen for
carrying out the said transaction is not known. P.W.
44 raised
objection stating that only the D.N. Road Branch used to deal with the matter
relating to bill discounting. It is now no longer in dispute that Mazda had
approached D.N. Road Branch for getting the facility of discounting upto 50
crore of rupees but the same was not granted as it did not satisfy the
eligibility requirements. The fact had not been disclosed.
On the
strength of the opening of the account Mazda and Growmore in the said Branch,
two bills were presented. It is, however, of some significance to notice that
the original credit note relating to the alleged sale transactions of shares
had not been presented, only a photocopy thereof had been presented. A sum of
Rs. 50 crore is made available on the same day; no verification or assessment
as per procedure is carried out; no security was taken. Yet again, before the
bills of exchange were discounted, rediscounting had already been done by two
other branches. The usuance 71 promissory notes, however, were issued by UCO
Bank later. Rediscounting is permissible only when the transaction of
discounting is taken first. P.W.
40 said
so in no uncertain terms in the following manner:
"There
can be no Bills Re-discounting unless there is a first Bill Discounting. This
Circular is only laying down the revised procedure for rediscounting. According
to me, in that sense this is covering Bills Discounting but it is correct that
it does not directly deal with Bills Discounting."
For the
purpose of covering default in retiring the bills of exchange, shares were
purchased from J.H. Mehta by UCO Bank and a sum of Rs. 49.50 crore were made
available to it by retiring the same. J.H. Mehta in turn transferred the
accounts to Mazda and Growmore Purchase of shares of J.H. Mehta is neither
denied nor disputed. It was projected as a bona fide acquisition of shares in
the interest of the Bank.
However,
the very fact that the principal accused made a default of repayment of Rs. 50
crores, the purchase of shares by the Bank itself assumes significance. Even
Accused No. 2 took prominent part in the matter of purchase of shares. We have
already noted that both Accused 1 and Accused 2 played a major role in
arranging the entire transaction. In fact had it not been for Accused No. 1, in
our opinion it would not have been 72 possible for Harshad Mehta or his
associates to take the Bank for a ride and unlawfully utilize the funds of the
bank.
With a
view to achieve the said object, neither the RBI directions requiring bills of
exchange to satisfy the tests of bona fide commercial or cash transactions were
complied with nor the procedure laid down under the UCO Bank Manual were
followed. The power of the Chairman for investment in shares is upto Rs. 10
crore. His power in regard to bill discounting is only upto Rs.5 crore. So far
as other accused are concerned, namely Accused No.3, Accused No. 4 and Accused
5, they were not only residing at the same place but Accused No. 4 and Accused
5 were men of trust of Harshad Mehta. A power of attorney had been executed in
their favour.
The Board
of Directors of Growmore had by their resolution dated 14th March, 1992
authorized Accused 4 and 5 to seek bill discounting facility from UCO Bank to
the limit of Rs. 50 crores. The application for opening the account of Growmore
at Nariman point had been signed by Accused No. 4. Further on behalf of
Growmore the Bill of exchange had been accepted by Accused No. 4. Not only this
but the letter dated 24th March,1992 addressed to UCO Bank by Growmore undertaking
to repay the amount by 24th April, 73 1992 had also been signed by Accused No.
4. Legally the Bank would have been concerned only with M/s JH Mehta. But the
letter of Growmore signed by Accused No. 4 clerly indicates his involvement in
the Criminal conspiracy.
So far as
Accused No. 5 is concerned, it is he who had signed the Bill of Exchange as the
Power of attorney of the proprietors of of M/s JH Mehta.
It is he
who had signed the forms for opening the account with the Nariman Point Branch
of UCO Bank. He had signed the letter dated 23.3.1992 requesting the Bank to
discount the two bills of Exchange. The relationship between the parties both
personal and professional clearly establishes criminal conspiracy on the Part
of Accused No. 5. We therefore affirm the decision of the special judge finding
Accused No. 5 guilty of the offence of Criminal Conspiracy.
As we
have already mentioned Accused Nos. 6, 7 and 9 have not preferred appeals
before us challenging their conviction. We find no reason to interfere with the
judgment of conviction arrived at by the learned Special Judge with respect to
the said accused.
We
however disagree with the conclusions arrived at by the learned Special Judge
with regard to the guilt of Accused No. 8 for the offence of 74 Criminal
Conspiracy. The mere fact that he might have been present at the meeting dated
14.3.1992 of the officers of UCO Bank by itself does not in our opinion
conclusively prove his involvement in the conspiracy hatched by the other
officers of the Bank. Something more was needed to be shown that he was a party
thereto.
In
conclusion we hold Accused No. 1 (K. Margabanthu), Accused No. 2 (Ramaiya
Venkatkrishnan), Accused No. 4 (Ashwin Mehta) and Accused No. 5 (Sudhir Mehta)
guilty of the offence of Criminal conspiracy. We need not interfere with the
conviction of Accused 6, 7 and 9. Accused No 8 (S.V. Ramanathan) is acquitted
of the charge of Criminal Conspiracy.
SENTENCING
We must, while pronouncing on the sentence to be passed on the accused make
note of the fact that the CBI has not preferred any appeals for enhancement
against the impugned judgment of the Special Court. This Court, therefore,
cannot impose a higher sentence.
Accused
No. 1, K Margabanthu had been sentenced to undergo RI for a period of six
months and to pay a fine of Rs.1,00,000/- in default to 75 undergo SI for two
months, by the learned Special Judge. We find no reason to interfere therewith.
Accused
No. 2, Ramaiya Venkatkrishnan had been sentenced to undergo rigorous
imprisonment (RI) for three months and to pay a fine of Rs. 50,000/- in default
simple imprisonment (SI) for 15 days, by the learned Special Judge. We set
aside the sentence of the special judge and sentence him to imprisonment for a
period of one month of RI and to pay a fine of Rs.1,00,000/- and in default
thereof Simple Imprisonment for 15 days.
Accused
No. 4 Ashwin Mehta is sentenced to undergo RI for a period of one month and to
pay a fine of Rs.1,00,000/- in default Simple Imprisonment for 15 days.
Accused
No. 5 (Sudhir Mehta) is sentenced to undergo Rigorous Imprisonment for a period
of one month and to pay a fine of Rs.1,00,000/- in default Simple Imprisonment
for 15 days.
All the
accused should be entitled to set off for the period of imprisonment undergone
by them in this case.
.....................................J. [S.B. Sinha]
.....................................J. [Cyriac Joseph]
New Delhi;
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