State Rep. by Cbi, Hyderabad  INSC 972 (6 May 2009)
IN THE SUPREME COURT
OF INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 942 OF 2009
[Arising out of SLP (Criminal) No. 7125 of 2007 S.V.L. MURTHY ... APPELLANT
Versus WITH CRIMINAL APPEAL NO. 945 OF 2009 [Arising out of SLP (Criminal) No.
7145 of 2007 P. JAYAKUMAR ... APPELLANT Versus WITH CRIMINAL APPEAL NOS.
943-944 OF 2009 [Arising out of SLP (Criminal) Nos. 7313-7314 of 2007 2
VENUGOPAL LOYA & ORS. ... APPELLANTS Versus
S.B. SINHA, J.
appeals arising out of a common judgment and order dated 17.07.2007 passed by
the High Court of Andhra Pradesh at Hyderabad were taken up for hearing
together and are being disposed of by this common judgment.
No. 4 - S.V.L. Murthy was the Branch Manager of Begum Bazar Branch of State
Bank of India (for short, "SBI"). Accused No. 1 - Venugopal Loya was
proprietor of some business concerns, namely, M/s Shobhachand Shivijiram
("SS"), M/s Sreeji Industries ("SI") and M/s Harikrishan
Roopchand ("HR"). Whereas SS and HR used to deal in wholesale trade
in grains and spices, SI was a plastic manufacturing concern.
Accused No. 2 -
Gopaldas Dharak was a partner of M/s Gayatri Traders 3 ("GT"). He
used to operate current account in the same Branch. Accused No. 3 - Radheshyam
Dharak, partner of GT, an Accountant working in the firms of Accused No.1.
Accused No. 5 - P. Jayakumar was the Accountant in the Begam Bazar Branch of
the State Bank of India. Accused No. 6 - Y. Narahari Murthy was the Charge
was established in the year 1860. It opened current account with Begum Bazar
Branch of the State Bank of India on or about 5.12.1979.
Accused No. 1 opened
Current Account with SBI on behalf of SI in his capacity as a Managing Partner
on or about 10.5.1988. He was granted cheque discounting facility. For the said
purpose, he deposited his title deeds on or about 6.9.1988
Rao (P.W. 22), the then Branch Manager of the SBI by a letter dated 10.1.1989
addressed to the Regional Manager sought for his advice as to whether levy of 5
paise per thousand per day instead of 10 paise as commission should be relaxed.
Indisputably, collateral securities were furnished by the appellants for
availing cheque discounting facility.
No. 4 - S.V.L. Murthy, however, stopped this discounting facility with SS.
inter alia on the premise that three bills purchased by the Bank and sent to
Salem Branch for collection had been returned unpaid. So far as the bill limit
due in account of SS was concerned, the same stood at 4 Rs.20,18,240/- out of
which Accused No. 1 is said to have made payment of Rs.5,00,314/- for returned
bills with interest within 2 hrs. It is stated that on or about 7.4.1989, a
meeting was held at the residence of the Regional Manager (P.W. 20 - V. Ramamurthy).
Accused No. 1 is alleged to have complained that Accused No. 4 had stopped
discounting of cheques to him whereupon Regional Manager (P.W. 20) allegedly
instructed Accused No. 4 to continue the practice of discounting cheques to
Accused No. 1 on the premise that he was a reputed customer of the Bank.
Pursuant thereto, the discounting facility was made available with Accused No.1
upon obtaining sufficient collateral security, i.e., title deeds of moveable
and immoveable properties of Accused No.1 worth Rs.1.09 lacs.
Bank allegedly sanctioned discounting facility to the extent of Rs.30 lacs on
the basis of collateral securities furnished on or about 15.4.1989. However,
ten cheques aggregating to Rs.29,86,219/- were discounted and sent for clearing
by Bank, which were returned unpaid from clearing house. Appellants contended
that they were sent for clearing without proper stamping/endorsement; they did
not reach drawer bank at all.
however, the Regional Office issued instructions for stopping cheque
discounting facility without notice. It is stated that the appellants paid a
sum of Rs.29,90,941/-, which covered the discounting amount together with
interest on or about 25.4.1989. The Bank seized office-cum- 5 godown and
stocks of SS at about 11.45 a.m. on the same day. On or about 26.4.1989, 26
account payee cheques were presented in various banks across the counter which
should have been presented through clearing. However, Rs.1,28,63,441/- was said
to have remained outstanding.
No. 1 is stated to have made payment of Rs.38,84,000/- through pay order on or
about 27.4.1989. On the said date, liability is said to have stood at
No. 4 proceeded on leave from 19.4.1989 and handed over the charge of his
office to Mr. Y. Narahari Murthy (Accused No. 6). Accused No. 1 furthermore
applied for grant of overdraft facility to the limit of Rs.90 lacs against
collateral security. It was granted. Sufficient securities were also furnished.
The Regional Manager was informed by the Branch that Accused No. 1 has promised
to pay a sum of Rs.15 lacs within a week. However, a suit was filed in the
court of 4th Additional Judge, City Civil Court at Hyderabad being CSOS No. 827
of 1989 for recovery of a sum of Rs.90,19,789.11 with interest on or about
10.5.1989. On or about 10.5.1989, City Civil Court passed interim direction
ordering attachment before judgment.
21.6.1989, a criminal complaint was lodged by the Bank before the III
Metropolitan Magistrate at Hyderabad under Sections 120B, 420, 467, 471 of
Indian Penal Code (IPC) and under Section 138 of the Negotiable Instrument Act
inter alia alleging that cheques issued to SI were fraudulently discounted and
amounts were drawn between 14.2.1989 and 1.5.1989.
It is not in dispute
that in the said complaint no allegation was made against the officers of the
Bank. On or about 17.7.1989, the Metropolitan Magistrate directed the Central
Bureau of Investigation (CBI) to investigate into the case pursuant whereto a
First Information Report was lodged under Sections 120B, 420 of IPC read with
Section 13(1)(d) of the Prevention of Corruption Act on or about 5.9.1989.
may, however, place on record that P.W. 22 - Srinivasa Rao took over charge as
Branch Manager on the oral instructions of P.W. 20 - V. Ramamurthy, on or about
disciplinary proceedings were initiated against the Accused No. 4, Accused No.
5 as also P.W. 20.
the said disciplinary proceedings, they were placed under suspension. They
were, however, reinstated in service. Whereas P.W. 20 was censured, Accused No.
4 was inflicted with a punishment of stoppage of five increments. Some minor
punishments was also imposed on the Accused No. 5.
Indisputably, a vigilance
enquiry was conducted on or about 26.4.1989 at Begum Bazaar Branch of the SBI
wherein a report dated 18.1.1990 was submitted indicating that there has been a
technical violation on the part of the Bank Officer, inter alia, arriving at
the following conclusions:
Murthy, who had succeeded Shri Vijaya Kumar has apparently also passed on
pecuniary advantage to Shri Loya and his group of concerns, a. By continuing
the irregular practice of purchasing local cheques and that too for large
amounts. It was his period the liability on account of local cheque purchased
touched one crore mark in March 1989.
b. By not collecting
the applicable interest as laid down, he had caused considerable loss of income
to the Bank.
c. He also did not
report the LOIT facility being extended to the firms to the Controlling
Authority directly. He had, however, made a reference to the Controlling
Authority in January 1989.
d. Although, it came
to his knowledge that the firms are indulging in irregular and objectionable
transactions, he did not adequately safeguard the Bank's interests nor
initiated location as is necessary to avoid loss to the Bank.
e. He did not ensure
that the local cheques purchased were promptly presented in clearing and
Similarly, he did not
ensure prompt recovery on return of cheques in clearing."
Both his predecessor
as also successor in office were found guilty of some negligence on their part.
Some laxity on the part of office of the Controlling Authority was also pointed
charge sheet was filed on or about 8.9.1993 under Sections 120B, 420 IPC read
with Section 13(1)(d) of the Prevention of Corruption Act, 1988 alleging inter
alia that there was criminal conspiracy between the accused persons during
1988-89 to cheat SBI.
or about 7.2.1994, learned Special Judge for CBI Cases, Hyderabad framed
charges against the accused persons under Sections 120B, 420 IPC read with
Section 138 of the Negotiable Instruments Act.
However, Accused Nos.
4 to 6 were additionally charged with Section 13(1)(2) of the Prevention of
the learned Special Judge, a large number of witnesses were examined. They
included P.W. 1 - Sh. R. Vijay Kumar, Branch Manager, State Bank of India,
Karimnagar Branch, who was holding the post of Manager, in the Begum Bazaar of
the State Bank of India, Hyderabad from 31.8.1987 to 9.8.1988, i.e., prior to
Accused No.4. P.W. 19 - S.V. Panchapakesan, Dy. General Manager, SBI Capital
Market Bombay, who 9 worked as Administrative Officer Advances in the Regional
Office and P.W.
20 - V. Ramamurthy,
the Additional Manager-cum-Deputy General Manager of the Regional Offices.
Special Judge for CBI Cases, Hyderabad by reason of judgment and order
"84. The prosecution
has failed to establish the Charge U/s 138 of N.I. Act against A1 to A3. Hence
I found them not guilty for the offence U/s 138 of N.I. Act against A1 to A3.
85. Admittedly A4 to
A6 are the employees working in Begumbazar branch at Hyderabad and they are
They abused their
positions as public servants. They purchased local cheques which are totally
irregular and against the establishment norms of the bank and therefore they
have committed an offence of criminal misconduct. A4 to A6 purchased local
cheques upto Rs.90 lakhs. There cannot be any evidence that A4 to A6 had
pecuniary advantage due to their misconduct but due to their misconduct they
obtained benefit to A1 to A3. Hence I found A4 to A6 guilty for the offence U/s
13(2) r/w 13(1)(d) of P.C. Act, 1988.
86. In the result, A1
to A6 are found guilty for the offence U/s 120-B, A1 to A6 are found guilty for
the offence U/s 420 I.P.C. A4 to A6 are found guilty for the offence U/s 13(2)
r/w 13(1)(d) of P.C. Act, 1988."
He convicted and
sentenced the accused persons as under:
" A1 is
convicted and sentenced to suffer R.I. for THREE YEARS and to pay a fine of
Rs.10,000/-. In default S.I. for ONE YEAR for offence U/S 420 IPC.
A1 is sentenced to
suffer R.I. for THREE YEARS and to pay a fine of Rs.10,000/-. In default S.I.
for ONE YEAR for offence U/s 120-B IPC.
A2 is sentenced to
suffer R.I. for THREE YEARS and to pay a fine of Rs.5000/- for offence U/S.
120-B IPC. In default S.I. for ONE YEAR.
A2 is sentenced to
suffer R.I. for THREE YEARS and to pay a fine of Rs.5000/-. In default S.I. for
ONE YEAR for offence U/S. 420 IPC.
A3 is convicted and
sentenced to suffer R.I.
for THREE YEARS and
to pay a fine of Rs.5000/- In default S.I. for ONE YEAR for offence U/s.
A3 is convicted and
sentenced to suffer R.I.
for THREE YEARS and
to pay a fine of Rs.
5000/-. In default
S.I. for ONE YEAR for offence U/s. 420 I.P.C.
A4 to A6 are
convicted and sentenced to suffer R.I. for THREE YEARS each and to pay a fine
of Rs.5000/- each. In default S.I. for ONE YEAR for offence U/s. 120-B I.P.C.
A4 to A6 are
convicted and sentenced to suffer R.I. for THREE YEARS each and to pay a fine
of Rs.5000/- each. In default S.I. for ONE YEAR for offence U/s 420 I.P.C.
A4 to A6 are
convicted and sentenced to suffer R.I. for TWO YEARS for offence U/s. 13(2) r/w
13(1)(d) of P.C. Act, 1988 and to pay a fine of Rs.5000/- each. In default,
S.I. for SIX MONTHS each.
11 A1 to A3 are not
found guilty for offence U/s. 138 of Negotiable Instruments Act and they are
acquitted for the same offence.
All the sentences of
imprisonment shall run concurrently. Accused are entitled to set off for the
remand period if any."
aggrieved and dissatisfied with the aforesaid judgment, appellants preferred
The High Court by
reason of the impugned judgment in dismissing the appeals of the appellant,
counsel appearing for the accused contended in chorus that the practice of
discounting cheques was in existence even prior to A4 taking charge as the
Branch Manager of Begum Bazar Branch, State Bank of India, Hyderabad and the
said practice was a part of accepted norms. I do not find any substance in
their contention. A practice even if it was prevailing, if wrong, is not to be
approved. The subsequent clarifications do not in any way put seal of approval
on the practices adopted in the past, on the other hand it condemns it.
58. When the factual
background highlighted is considered in the light of the various provisions, it
is clear that the alleged offences under Sections 120-B and 420 IPC against A1
to A5 and under Section 13(1)(c) r/w. 13(2) of the Prevention of Corruption Act,
198 against A4 and A5 are clearly established."
However, accused No.
6 was acquitted.
K.T.S. Tulsi, learned Senior Counsel appearing on behalf of Accused Nos. 1 to 3
i. Accused Nos. 1 to
3 having not been charged for conspiracy with the Bank officials under the
Prevention of Corruption Act, the impugned judgment is wholly unsustainable.
ii. One of the
principal ingredients of cheating as envisaged under Sections 415 of the IPC
being dishonest intention at the inception of contract being wholly absent,
appellants could not have been convicted under Section 420 of the IPC.
iii. Admittedly, the
Bank had not suffered any financial loss and in fact having received interest
to the extent of Rs.44 lakhs from the appellants, the impugned judgment holding
that they had entered into a criminal conspiracy for cheating the Bank must be
held to be wholly untenable.
Ravindra Shrivastava, learned Senior Counsel appearing on behalf of Accused
No.4 would urge:
13 i. Bill
discounting facility which is accepted as a normal banking practice wherefor
even Reserve Bank of India had issued guidelines, the High Court committed a
serious error in passing the impugned judgment.
ii. Accused No. 4
having merely followed the practice for the purpose of said banking practice
and acted for the promotion of the business of the Bank by granting discounting
facility to Accused Nos. 1 to 3 which had been initiated by his predecessor,
namely, P.W. 1, it will be incorrect to contend that the appellant had any
wrongful intention or had any mens rea to commit the offence.
iii. Accused No. 4
having himself stopped discounting of cheque facility to Accused No.1 in April
1989, the courts below acted illegally in opining that he was a party to the
iv. No evidence
having been brought on record whether oral or documentary to establish that
Accused No. 4 had acted for the purpose of obtaining any wrongful gain for
himself, the provisions of the Prevention of Corruption Act have no application.
14 v. Accused No.4
being the Branch Manager of the Bank for a short time, i.e., from April 1988 to
18.4.1989 and the similar facility having been granted to the other accused
persons even by Accused No. 6 who have since been acquitted, the prosecution
must be held to have failed in proving his case.
K.V. Mohan, learned counsel appearing on behalf of the Accused No. 5 would
i. As an Accountant,
the job of the accused was merely to make necessary entries in the books of
accounts and in view of the practice prevailing that the entry into the
customers' account should be made only after return of the cheque, IBIT (Inter
Branch Items in Transit A/c) and LIT (Local Items in Transit) Registers were
being maintained, in view of the evidence of P.W. 2 that whatever was in
practice having been followed, it is incorrect to contend that the Accused No.5
was a party to the conspiracy.
ii. The learned
special judge as also the High Court having relied upon the letter purported to
have been issued by the Accused No. 4 to Accused Nos. 5 and 6 that the practice
should not be 15 discontinued, the appellant cannot be treated differently
vis-`- vis the Accused No. 6 as he had been acquitted.
B. Datta, learned Additional Solicitor General appearing on behalf of CBI, on
the other hand, would submit:
i. The offences
against the appellants having been found to have been proved by two courts,
this Court in exercise of its jurisdiction under Article 136 of the
Constitution of India should not interfere therewith.
ii. As from a perusal
of the judgment and order passed by the learned Special Judge as also the High
Court, it would be evident that the appellants had entered into a conspiracy to
cause wrongful loss to the Bank and to cause wrongful gain for themselves by
using the public fund for their own benefit, there is absolutely no reason why
the impugned judgment should be interfered with.
iii. Accused No. 4
and Accused No.5 being the Officers of the Bank, they had domain over the
public fund and in that view of the matter, the courts below have rightly found
them guilty for commission of offences.
have noticed hereinbefore the charges leveled against the appellants. So far as
the principal accused, namely, Accused Nos. 1 to 3 are concerned, they having
not been charged for entering into a criminal conspiracy with the Bank
officials for commission of offences under the Prevention of Corruption Act, it
was necessary only to see as to whether a case of cheating has been made out.
The fact that Accused
No. 1 had a long standing business relationship with the Bank is not in
dispute. The Officers of the Bank particularly P.W.
2, P.W.19 and P.W.20
in their deposition clearly stated that the banking practice allows grant of
such discounting facility. In fact, the Reserve Bank of India Circular
whereupon reliance has been placed by the courts below clearly points out
existence of such a practice. The Reserve Bank of India, however, laid down
certain guidelines with a view to safeguarding the interest of the Bank.
It is also not in
dispute that for the said purpose, a Circular has also been issued.
The proposal of the
Branch to grant such discounting facility to Accused Nos. 1 to 3 had not been
accepted in its entirety. An ad hoc limit of Rs.35 lakhs has been fixed.
17 P.W. 1 - R.
Vijaykumar, in his evidence categorically admitted that the bill discounting
facility had started during his tenure as Branch Manager.
It is, furthermore,
accepted that said facility was extended to Accused Nos. 1 to 3 having regard
to the business potentiality they had. He furthermore accepted that the weekly
statements used to be prepared and placed before the higher authorities who had
also not objected to grant thereof. The said witness, in fact, in his
deposition stated that the Regional Manager wanted Accused No.1 to carry on all
his business only through this branch. In his cross- examination on behalf of
A1 to A3, he stated:
"I know A1 since
1988. I know Harinarayana Kakani, who is the father of A1. It is to my
knowledge that they were operating firms which are reputed. Before forwarding
any proposal for sanctioning limits, the branch will make appraisal of the
creditworthiness of the party. I have sent the proposals in favour of the firms
of A1. The credit limit for the firms of A1 were duly sanctioned by the
Regional Office. The credit limits were sanctioned by the Regional office in
favour of M/s Sobhachand Shivaji Ram. A1 was representing Shobhachand Shivaji
were utilized by the firm Shobhachand Shivaji Ram have permanent sanction. All
the cheques that were presented during my tenure, were duly honoured. To my
knowledge the firms Shri Jee Industries and Shobhachand Shivaji Ram Industries
were having substantial deposit potentials and were also resources."
18 He in his
cross-examination on behalf of A4 to A6 stated:
"The practice in
our Begum Bazar Branch SBI was to debit LOIT account, the amount of local
cheques purchased. Auditing was done during my tenure and no objection was
taken for debiting to LOIT account by the auditor. It is true that when a local
cheque was returned unpaid for want of sufficient fund, then only such cheques
will be debited the account of the party. If the cheques is returned with an
endorsement `effects not cleared, present again', it will not be debited to the
account of the party.
xxx xxx xxx I know
that our Regional Manager and A.O.
impressing A1 to confine all the business dealings of all the firms to SBI
Begum Bazar. A1 agreed with a stipulation that all his credit requirements must
be met by the branch. I was in receipt of a letter from A1 requesting for
sanction of ad hoc limits to Shri Jee Industries.
Regional office never
objected to negotiations of local cheques in favour of Shri Jee Industries. I
do not remember whether I presented cheques with a delay of three or four days
in clearance. From February 1986 to August 1987 there was no permanent Branch
Manager to Begum Bazar Branch."
P.W. 19 - R.V.
Panchapakesan - who worked as an Administrative Officer (Advances) in the
Regional Office, in his deposition, stated as under:
"It is true the
transaction is of civil nature and we can approach the civil courts for
recovery of the 19 liability from A1. It is not true to suggest that we
intentionally taken up the criminal forum also in prosecuting A1 in order to
harass him because the cheques were bounced there is criminal liability of A1
hence we have complaint. The bank also filed civil suit against A1.
I do not admit the
suggestion that A1 V.G.Loya had not committed any fraud in the bank. It is not
true to suggest that I gave false statement before CBI in order to save my
He, in his
cross-examination by A4 to A6, stated:
" At the
instructions of D.G.M. I was looking after deposit mobilization and market
instruction were given to me.
It is true even
before A4 S.V.L. Murthy took charge as Bank Manager, Begumbazar branch, I am
acquainted with A1 V.G. Loya.
I do not remember
whether myself or our R.M. have approached Sri V.G. Loya seeking deposits to
It is true after
ascertaining the worthiness of parties Sri VG Loya (A1) we have sanctioned the
I do not know A4
S.V.L. Murthy addressing a letter dt. 24.3.89 hearing No: F/20-75 to the Regnl.
Office expressing some suspicion about the bills discounted on behalf of
Sobachand Sivajiram, as I was not working as A.O. at that time.
xxx xxx xxx 20 I
learnt that the then Branch Manager i.e. A4 SVL Murthy has stopped discounting
any bills on the a/c Sobachand Sivajiram before the receipt of my confidential
As A.O. Advances I
agree that A4 SVL Murthy has taken a correct stand of not discounting the bills
pertaining to Sobachand Sivajiram Indus.
I do agree that the
bank has not suffered any loss on bills returned as the amount has been
recovered from the party.
xxx xxx xxx The R.M.
has to visit the branch periodically and it is his duty to scrutinize the
ledgers of the Bank branch A.O. advances I do not go for such inspection.
It is not true to
suggest that the discounting of local cheques is a part of lending activity of
falls under lending activity.
It is true during the
customers relations meeting A1 and other customers have complained to R.M.
about delay in relations of cheques by the Begumbazar branch and our R.M.
advised replying customers that the delays can be avoided if the clearing cheques
are presented by the branch to the services branch on the same day.
xxx xxx xxx I
remember the original limit proposed for Rs.85 lakhs and the ad hoc limit (in
principal limit) was Rs.35 lakhs. The party requires ad hoc limits in urgency
pending sanction of regular limit.
21 xxx xxx xxx The
weekly abstracts of branches cannot be scrutinized by A.O. branch they go to
General Manager. The
weekly abstracts contain expenses of bills discounted and balance of bills
The Electronic Data
processing (BDP) of local head office generates weekly outputs from the weekly
abstracts from the banks giving figures of deposits and advances. These are
received by A.O. advances for enabling scrutiny of branch figures of advances
and their variations."
aforementioned statements, it is evident that all transactions were being
carried on in a transparent manner having regard to the prevalent practice. In
fact, as noticed hereinbefore, Shri Vijay Kumar not only started granting the
said facility to the principal accused, some amount of laxity on his part was
P.W. 20 - V.
Ramamurthy in his deposition, stated:
"I took charge
as Dvnl. Manager Region 1 during the August 1987 when I visited Begumbazar
branch the then branch manager PW1 Vijaykumar took me to A1 Loya's house and
introduced him as bank customer. We have sanctioned loan limits to A1 Sri V.G.
Loya in the name of the company M/s Shobachand Shivajirao and A1 was the
Managing Partner of the company, the connection of that loan A1 visited my
Part of the limits
was sanctioned by me for Shobchand Shivajiram and part of limits was sanctioned
by Dy. General Manager. The D.D. purchased documentary bills is for Rs.20 lakhs
and D.D. purchased for bill discounting facility is for Rs.5 lakhs. Cash Credit
hundi typed limit of Rs.20 lakhs was sanctioned by the D.G.M., Sri Seshasahi.
The sanctioned was communicated to the branch.
xxx xxx xxx After
processing the proposals we found out quite a few gaps in their proposal so we
wrote to the branch for clarifications on certain points vide our letter dated
28.8.1988 bearing No. 009104-1-
80. The same letter
is marked as Ex. P. 674. We have not received any clarifications and we did not
attend to this proposal. There are specific guidelines by R.B.I., to all the
banks in regard to purchase of local cheques. These guidelines are contained in
this circular no. ADV No. 2, dated 24.1.1984, the bank communicated these
guidelines to all the branches. The said circular is marked as Ex. P.675, with
enclosures (6 folio). I now identify the circular dated 24.6.1983 (Ex.
P.11) regarding local
offices clearing account and local offices clearing items in transit accounts.
I visited the branch (Begumbazar) once in September, 1988 and another time in November,
1988. My first visit for development of business where I talked to Branch
Manager about the advances and deposits and second visits if for the
inauguration of lockers. A small customers meet was conducted on the occasion
of inauguration of lockers. A1 Venugopal Loya was present at the customers
meet. At that time A4 C.S. Murthy was the branch manager. The discussion of
purchase of cheques by the branch on behalf of A1 Venugopal Loya did not arise
in this customers meet. However, the customers including A1 wanted the branch
to purchase the local cheques as there was some delay in clearing these
cheques. I told them that R.B.I. prohibits us from allowing such purchase of
local cheques and we will instruct the branch to present these instruments received
23 from the customers quickly on the same day in the clearing so that the delay
can be avoided.
xxx xxx xxx On
7.4.80, while at my house on sick leave, A1 Venugopal Loya, and A4 S.V.L.
Murthy met me at my house. I requested Mr. Panchapakesan to come and join me in
the meeting. In this meeting, A1 Loya complained that the branch has
discontinued purchase of bills and he wanted this ban to be lifted. Sri
Panchapakesan questioned Loya about the genuineness of the bills he could not
give satisfactory answers. We told Shri Loya, A1, that unless the full-scale
investigation into this matter is over we cannot resume purchase of bills in
this account. This disturbed Shri Loya, A1. We requested A4 to visit Sailam or
Madurai, if necessary, and enquire into the matter to find out whether any
movement of any goods in regard to these bills and submit a report to us. I
resumed duty on 17.4.1989.
xxx xxx xxx The
branch of the bank used to send periodical abstract to Regional Office Ex. P.
623 to 666 are the weekly abstract sent by Begumbazar Branch to Regional
Office. The purpose of weekly abstract is to furnish information to Regional
Office for communicating RBI about time liabilities of the bank branch as the
bank is to maintain certain reserves as per RBI Rules. The weekly abstract
reflects total of various transaction such as advances, deposits etc. They
won't reflect the details. The abstract will not come to Regional Manager the
Desk Officer shall sent statement in routine course.
He in his cross
examination on behalf of A4 to A6, stated:
24 "It is a
fact as a Regional Manager, it is my duty to control advances, deposits and
other miscellaneous transaction including house keeping of the branch.
cheques fall under advances of portfolio of the branch.
It is a fact our Bank
Manager initiated departmental enquiry against me pertaining to the Begumbazar
transaction in respect of Sriji Industries.
It is a fact in this
transaction I was issued a charge sheet, I submitted my explanation and on that
basis the bank management given me punishment of `Censure'.
xxx xxx xxx It is a
fact that A1 V.G. Loya is a resourceful and potential customer in attracting
deposits and introducing new cliental to the branch.
A1 Loya might have
given some deposits to Begumbazar Branch.
I might have asked
for deposits A1 Loya and he might have promised me to secure NRI deposits upto
25 Lakhs. I cannot exactly recall at this length of time.
xxx xxx xxx Before
sanctioning limits to A1 Loya under the A/c. Shobchand Shivajiram, I took into
consideration of the Branch Manager's Report about credit worthiness, integrity
When the such credit
facilities provided for A1 Loya the Branch Manager was Sri R.
25 It is a fact that
the precautions taken by A4 as Branch Manager while discounting the bills
(purchasing bills) as narrated under Ex. P.670 are proper and sufficient.
xxx xxx xxx It is a
fact Ex.D.11 letter A4 SVL Murthy mentioned that Sri V.G. Loya has been
presenting demand /usance bills for purchase/discounting supported by Lorry
Receipts which are originating from a place called Jaora (M.P.). The
consignments are booked from Jaora and sent to different destinations etc. The
relevant portion is marked as Ex. D.11 (a). It was also mentioned by A4 that
"I am of the view that this practice is fraught with risks and not in the
interest of the Bank, this is also against the terms of sanction of bill
limits". The relevant portion is marked as Ex.
D. 11(b) in (EX.
D.11) xxx xxx xxx It is a fact the bank has earned appropriate interest on this
Such income arrived
by way of interest by the bank will be reflected in the banks monthly
I had no occasion to
ask the Branch Manager how it happened to get such huge income by way of
At no point of time I
have gone through the weekly statements of Begumbazar branch sent during the
period of A4 SVL Murthy. The witness adds that "I cannot say I have not
seen the weekly statement, there may be occasions for me to go through the
weekly statements, if they are placed before me by my staff.
26 It is a fact the
weekly abstract is statutory return and very important return and it is
submitted as per the guidelines of RBI.
It is true the weekly
statement abstract will give the entire picture about performance of the
xxx xxx xxx I learnt
subsequently that there was purchase of local cheques Begumbazar branch even
prior to assumption of office as Branch Manager A4 SVL Murthy. The predecessor
of A4 is one R. Vijaykumar (P.W.1) To my knowledge even the said R. Vijaykumar
when he discounted cheques for A1 to the tune of Rs.15 to 20 lakhs he has not
obtained any sanction or permission from Regional Office.
xxx xxx xxx Whenever
there were customer relations programmes conducted by the branch, the minutes
of the programe will be sent to Regional Office.
Ex. D. 39 is such
Xerox copy of such minutes for the quarter ending March 89 dt. 17.3.89.
It is true in Ex.
D.39 it was reported by A4 that LOIC facility was extended to 21.3.89 on local
cheques purchases. The witness volunteers "The customer relationship will
be held with a purpose of bringing customer together and also cultivating, so
the minutes will be sent to inform Regional Office that branches doing in
Customer Relations Meetings. The comment with regard to LOIT facility customer
etc. is not warranted to incorporate in Minutes. This is done intentionally by
A4 involving Regional Office.
27 xxx xxx xxx I am
not aware whether other branches in Twincities situate in my region like
Osmangunj, Charminar, Gowliguda, Old MLA Quarters branches were also
discounting local cheques. I am not acquainted with the initials of Mr.
Srinivas (LW.1). It is not true to suggest that the circular in Ex. P.675 were
sent to the Begumbazar in May 1989 after completion of disputed transaction. It
is a fact that the R.B.I. did not prohibit totally the discounting of local
xxx xxx xxx I do not
know whether A4 Branch Manager stopped purchasing local cheques from A1 from
31.3.89 onwards and restored the facility only from 7.4.89. It is not true to
suggest that the above said restoration of facility and its continuation was
done by A4, only after I accorded permission to him.
Generally I do not
entertain my bank customers at my house. On 7.4.89, I was on sick leave. By
7.4.89 the purchase of bills under the A/c of M/s Sobchand Shivji Ram was
already stopped. I entertained A1 at my residence on repeated requests made by
him on Telephone on condition of his bringing the Branch Manager along with
him. I did not inform the branch manager to come along with A1. It is not true
to suggest that A1 complained on 7.4.89 at my residence against Branch Manager
(A4) that he is rigid in his approach of stopping discounting of local cheques
particularly after receiving telex message from Sailam Branch. It is not true
to suggest that the meeting on 7.4.89 was held at the instance of A1 only for
the purpose of seeking my permission to resume purchase of local cheques and I
instructed A4 to restore the facility to discounting of local cheques at the
rate of Rs.30 lakhs per day and asked A1 to reduce the limits 28 gradually. It
is not true to suggest that A4 asked me whether he could report the matter in
writing to me before restoration of facility and in instructed him not to do
xxx xxx xxx But the
facility to A1 was continued till myself and D.G.M. visited Begumbazar branch
on 25.7.89. It is not true to suggest that my office instructing Begumbazar
branch on 18.4.89 to discontinue the facility is false. It is a fact that I
orally instructed A6 Narahari Murthy on 25.4.89 to stop the facility. I did not
give those instructions in writing. It must be a fact that all the cheques that
were purchased till 18.4.89 by A4 were cleared."
The said witness
accepted that he used to receive oral instructions from the A.O.
P.W.22 - S. Srinivas
Rao in his cross examination stated as under:
"The practice of
purchase of local cheques was in vogue at Begambazar branch prior to August
1988 also. I did not happen to go through the spot audit report Ex. P. 683
submitted by Sri G.L. Joseph Branch Inspector, as it was directly submitted to
Regional Office. No copy was send to our branch.
Since April, 1987 the
practice of local purchase of cheques was in vogue at the branch, so also
debiting of the cheques thus purchased to L.O.I.T.
xxx xxx xxx It might
be that interest earned by the bank on the local cheques purchase extended to
Sree Industries was to the tune of about Rs. 44 lakhs. I 29 didn't come across
any letter written either by Administrative Officer or Regional Manager seeking
clarification from Branch manager as to how there is substantial increase in
the earnings of the branch beyond the targets prescribed.
Thus, he quantified
the interest earned. He was the successor of Accused No. 4.
Having noticed the
evidence adduced on behalf of the prosecution, we are of the opinion that no
evidence was brought on record to show that Accused No. 4 or for that matter
Accused No. 5 entered into any conspiracy with others. Accused No. 4, in fact,
had stopped grant of the said facility and only at the instance of P.W. 20, the
said facility was restored. It is true that said witness had denied a
suggestion made by the Accused No. 4 but the fact that the oral instructions
used to be given to the Officers concerned have not only been accepted by P.W.
19 but also by P.W. 20.
Criminal breach of
trust is defined in Section 405 of IPC. The ingredients of an offence of the
criminal breach of trust are:
any person with property or with any dominion over property.
2. That person entrusted
(a) dishonestly misappropriating or converting to his own use that property; or
(b) dishonestly using or disposing of that property or willfully suffering any
other person so to do in violation-- 30 (i) of any direction of law
prescribing the mode in which such trust is to be discharged, or (ii) of any
legal contract made touching the discharge of such trust."
Section 409 of IPC read as under :
"(i) The accused
must be a public servant;
(ii) He must have
been entrusted, in such capacity, with property.
(iii) He must have
committed breach of trust in respect of such property."
Section 415 of the
Indian Penal Code defines cheating as under :
415.--Cheating--Whoever, by deceiving any person, fraudulently or dishonestly
induces the person so deceived to deliver any property to any person, or to
consent that any person shall retain any property, or intentionally induces the
person so deceived to do or omit to do anything which he would not do or omit
if he were not so deceived, and which act or omission causes or is likely to
cause damage or harm to that person in body, mind, reputation or property, is
said to `cheat'."
An offence of
cheating cannot be said to have been made out unless the following ingredients
are satisfied :
"i) deception of
a person either by making a false or misleading representation or by other
action or omission;
31 (ii) fraudulently
or dishonestly inducing any person to deliver any property; or (iii) to consent
that any person shall retain any property and finally intentionally inducing
that person to do or omit to do anything which he would not do or omit."
For the purpose of
constituting an offence of cheating, the complainant is required to show that
the accused had fraudulent or dishonest intention at the time of making promise
or representation. Even in a case where allegations are made in regard to
failure on the part of the accused to keep his promise, in absence of a
culpable intention at the time of making initial promise being absent, no offence
under Section 420 of the Indian Penal Code can be said to have been made out.
We may reiterate that
one of the ingredients of cheating as defined in Section 415 of the Indian
Penal Code is existence of an intention of making initial promise or existence
thereof from the very beginning of formation of contract.
In Hira Lal Hari Lal
Bhagwati v. CBI [(2003) 5 SCC 257], this Court held :
"40. It is
settled law, by a catena of decisions, that for establishing the offence of
cheating, the complainant is required to show that the accused had fraudulent
or dishonest intention at the time of making promise or representation. From
his making failure to keep promise subsequently, such a culpable intention
right at the beginning that is at the time when the promise was made cannot be presumed.
It is seen from the records that the exemption certificate contained necessary
conditions which were required to be complied with after importation of the
machine. Since the GCS could not comply with it, therefore, it rightly paid the
necessary duties without taking advantage of the exemption certificate. The
conduct of the GCS clearly indicates that there was no fraudulent or dishonest
intention of either the GCS or the appellants in their capacities as
office-bearers right at the time of making application for exemption."
[See also Indian Oil
Corporation v. NEPC India Ltd. & Ors. [(2006) 6 SCC 736] In Vir Prakash
Sharma v. Anil Kumar Agarwal [(2007) 7 SCC 373], noticing, inter alia, the
aforementioned decisions, this Court held:
ingredients of Section 420 of the Penal Code are as follows:
(i) Deception of any
(ii) Fraudulently or
dishonestly inducing any person to deliver any property; or (iii) To consent
that any person shall retain any property and finally intentionally inducing
that person to do or omit to do anything which he would not do or omit.
No act of inducement
on the part of the appellant has been alleged by the respondent. No allegation
has been made that he had an intention to cheat the respondent from the very
14. What has been
alleged in the complaint petition as also the statement of the complainant and
his witnesses relate to his subsequent conduct.
The date when such
statements were allegedly made by the appellant had not been disclosed by 33
the witnesses of the complainant. It is really absurd to opine that any such
statement would be made by the appellant before all of them at the same time
and that too in his own district. They, thus, appear to be wholly unnatural.
15. In law, only
because he had issued cheques which were dishonoured, the same by itself would
not mean that he had cheated the complainant.
Assuming that such a
statement had been made, the same, in our opinion, does not exhibit that there
had been any intention on the part of the appellant herein to commit an offence
under Section 417 of the Penal Code."
The said principle
has been reiterated in All Carogo Movers (I) Pvt.
Ltd. v. Dhanesh
Badarmal Jain & Anr. [2007 (12) SCALE 391], stating:
"For the said
purpose, allegations in the complaint petition must disclose the necessary
ingredients therefor. Where a civil suit is pending and the complaint petition
has been filed one year after filing of the civil suit, we may for the purpose
of finding out as to whether the said allegations are prima facie cannot notice
the correspondences exchanged by the parties and other admitted documents. It
is one thing to say that the Court at this juncture would not consider the
defence of the accused but it is another thing to say that for exercising the
inherent jurisdiction of this Court, it is impermissible also to look to the
admitted documents. Criminal proceedings should not be encouraged, when it is
found to be mala fide or otherwise an abuse of the process of the Court.
Superior Courts while
exercising this power should also strive to serve the ends of justice."
34 In R. Kalyani v.
Janak C. Mehta & Ors. [2008 (14) SCALE 85], this Court held:
"24. As there
had never been any interaction between the appellant and them, the question of
any representation which is one of the main ingredients for constituting an
offence of cheating, as contained in Section 415 of the Indian Penal Code, did
not and could not arise.
25. Similarly, it has
not been alleged that they were entrusted with or otherwise had dominion over
the property of the appellant or they have committed any criminal breach of
(See also Sharon
Michael & ors. vs. State of Tamil Nadu & Anr.
[2009 (1) SCALE 627]
22. It may be that
there had been certain procedural irregularities in the transaction.
evidence is available on record to show that the Officers had done so for the
purpose of promoting the business of the Bank.
In relation whereto
or in respect whereof, initiatives had been taken by P.Ws. 19 and 20. It is
furthermore not denied or disputed that after the cheque discounting facility
was stopped in April, 1989 by Accused No. 4, there has been a meeting at the
residence of P.W. 20. In his deposition, the said witness categorically
admitted that the said meeting was arranged at the instance of Accsued No. 1.
It is incomprehensible that a meeting has been arranged at his residence on the
day he was on leave at the instance of Accused No.1. He must have developed
grievance against the Accused No.
4 as regards the
stoppage of the said facility. If immediately thereafter the said facility had
been restored by the Accused No. 4, a stand taken by him that it was done under
the oral instructions of the higher authorities appears to be plausible.
23. The prosecution
apart from the fact that it had utterly failed to bring on record any evidence
of conspiracy must also be held to have failed to bring on record any evidence
of wrongful gain so as to attract the provisions of the Prevention of
Corruption Act, 1988 or otherwise.
24. The entire
argument of Mr. B. Datta, learned Additional Solicitor General as also the
findings arrived at by the learned Special Judge as also the High Court proved
the ingredients of offence under Section 409 of the IPC. The accused persons,
however, have not been charged for commission of the said offence. Conspiracy
by and between the Bank officials and the Accused Nos. 1 to 3 has been stated
to be for commission of the offence of cheating for the purpose of arriving at
a finding that there has been a conspiracy so as to cheat the Bank. It was
necessary for the prosecution to establish that there had been a meeting of
mind at the time when the facility had been granted. Such meeting of mind on
the part of the accused persons has not been proved. Furthermore, the
prosecution case even if given face 36 value and taken to be correct in its
entirety does not lead to a finding that even Accused Nos. 1 to 3 had any
wrongful intention at the time when the contract was initiated.
25. We do not mean to
suggest that in the matter of operating the account, no offence might have been
committed by them. The offence, if any, it will be bear repetition to state,
was committed under Section 409 of the IPC.
26. The learned
Special Judge as also the High court unfortunately proceeded on the basis that
the cheque discounting facility could under no circumstances be made available
27. We do not think
that, that was a correct approach. The RBI guidelines categorically show that
it was not a wrong practice. It is one thing to say that there has been an
abuse of a prevalent banking practice for the purpose of causing wrongful loss
to the Bank and causing wrongful gain to others but it is another thing to say
that by reason thereof, the ingredients of cheating are attracted.
28. We have noticed
hereinbefore that learned Additional Solicitor General merely took us through
the judgment of the learned Special Judge as also the High court. His entire
contention revolved around the commission of criminal breach of trust.
Unfortunately, they have not been charged therewith. It would bear repetition
to state that accused persons have not 37 been charged under Section 409 of
the IPC; even the Accused Nos. 1 to 3 have not been charged for entering into a
conspiracy with Accused Nos. 4, 5 and 6 in respect of commission of offences
under the Prevention of Corruption Act.
29. It is in the
aforementioned situation, we are of the opinion that the judgment of conviction
and sentence cannot be upheld. So far as the submission of learned Additional
Solicitor General that this Court, having regard to the concurrent findings of
fact as regards the commission of offence arrived at by the learned Special
Judge as also the High Court, should not exercise its discretionary
jurisdiction under Article 136 of the Constitution of India is concerned, we do
not find any substance therein.
Appellants have been
charged under wrong provisions. Proper charges have not been framed against them.
30. In Lala Ram &
Ors. vs. State of U.P. (1990) 2 SCC 113, whereupon strong reliance has been
placed by the learned Additional Solicitor General, this Court noticing various
decisions opined that when there are various infirmities, the Supreme Court can
It is, therefore, a
case which comes within the purview of the dicta laid down therein. It is
significant to notice that in that case itself this Court 38 keeping in view
the findings arrived at therein allowed the appeal preferred by the accused
persons and set aside the judgment of conviction.
It is one thing to
say that ordinarily a concurrent finding of fact shall not be interfered with
by this Court in exercise of its jurisdiction under Article 136 of the
Constitution of India but it is another thing to say that despite opining that
accused are entitled to acquittal, a judgment of conviction passed against them
should be upheld. In fact, the jurisdiction of this Court must be exercised
wherever it is required to do so for securing the ends of justice and to avoid
31. The upshot of our
discussions is:- (a) The prosecution did not lay down any foundational facts to
arrive at a finding of dishonest intention on the part of the appellants, nor
any such finding has been arrived at by the trial court or the High Court.
(b) The circumstances
which were considered sufficient to bring home the charges against the
appellant were: the cheques of accused Nos. 1, 2 and 3 were discounted after
purchasing cheques; cheques were deposited after a gap of 1 to 4 days; only
later the amounts were deposited in the account which circumstances, in our
opinion, are not sufficient to hold the appellants guilty for commission of
offence 39 under Section 420 of the IPC as all the actions on the part of the
bank officers were in consonance with the long standing banking practice.
(c) Accused No. 4 had
taken care of having adequate security to ensure that the bank does not suffer
any loss, the gain if any was caused to the Bank.
(d) Appellants acted
on instructions by the higher authority.
(e) The prosecution
evidence does not establish any conspiracy on their part vis-`-vis Accused Nos.
1, 2 and 3.
32. For the
aforementioned reasons, the impugned judgment and order of the High Court,
being unsustainable, is set aside. The appeals are allowed.
Appellants are are on
bail. Their bail bonds shall stand discharged.
[Dr. Mukundakam Sharma]
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