R. Venkatakrishnan Vs. Central Bureau of Investigation [2009] INSC 1416 (7 August 2009)
Judgment
IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDCITION CRIMINAL APPEAL NO. 76 OF 2004 R. Venkatakrishnan .... Appellant Versus Central Bureau of Investigation .... Respondent [With Criminal Appeal No. 164 of 2004, Criminal Appeal No. 92 of 2004, Criminal Appeal No. 101 of 2004, Criminal Appeal No. 90 of 2004, Criminal Appeal No. 147 of 2004]
S.B. SINHA, J.
INTRODUCTION These six appeals are directed against a judgment and order dated 4th December, 2003 passed by the Special Court in Case No.2 of 1993 whereby and whereunder the appellants herein were convicted and sentenced in the following terms :- "(a) Accused No. 1, K. Margabanthu is sentenced for the offence punishable under Section 120-B read 1 with Section 409 of the Indian Penal Code read with Section 13(1)[d](iii) read with Section 13(2) of the Prevention of Corruption Act to undergo R.I. for a period of six months and to pay fine of Rs.1,00,000/- in default S.I. for two months.
(b) Accused No. 2, R. Venkatkirshnan is sentenced for the offence punishable under Section 120-B read with Section 409 of the Indian Penal Code read with Section 13(1)[d](iii) read with Section 13(2) of the Prevention of Corruption Act, to undergo R.I. for a period of six months and to pay a fine of Rs.1,00,000/- in default S.I. for two months.
(c) Accused No. 3, S.V. Ramnathan is sentenced for the offence punishable under Section 120-B read with Section 409 of the Indian Penal Code read with Section 13(1)[d](iii) read with Section 13(2) of the Prevention of Corruption Act to undergo R.I. for a period of one month and to pay fine of Rs.10,000/- in default S.I. for 15 days.
(d) Accused No. 5, Atul M.Parekh is sentenced for the offence punishable under Section 120B of the Indian Penal Code to undergo R.I. for a period of 15 days and to pay fine of Rs.10,000/-, in default S.I. for 15 days.
(e) Accused No. 6, C. Ravikumar is sentenced for the offence punishable under Section 120-B read with section 409 of the Indian Penal Code read with Section 13(1)[d](iii) read with Section 13(2) of the Prevention of Corruption Act to undergo R.I. for a period of three years and to pay fine of Rs.1,00,000/- in default S.I. for three months.
(f) Accused No. 7, S. Suresh Babu is sentenced for the offence punishable under Section 120-B read with section 409 of the Indian Penal Code read with Section 13(1)[d](iii) read with Section 13(2) of the 2 Prevention of Corruption Act to undergo R.I. for a period of one year and to pay fine of Rs.50,000/- in default S.I. for three months."
BACKGROUND FACTS
While accused No.1, K. Margabandhu, at the relevant time, was the Chairman and Managing Director of United Commercial Bank (UCO Bank), (a public sector bank), accused No.2, Ramaiya Venkatkrishnan was the General Manager and accused No.3, S.V. Ramnathan was the Divisional Manager thereof of the Bombay Branch.
accused No.4, Harshad Shantilal Mehta (Harshad Mehta) is said to be the kingpin of the whole operation. He is no more.
accused No.5, Atul Manubhai Parekh was working as Asst. Vice President in M/s. Growmore Research and Assets Management Ltd. Bombay and representing Harshad Mehta in the matter of undertaking security transactions.
accused No.6 Coodli Ravi Kumar was Assistant General Manager of National Housing Bank (NHB), Bombay and was in charge of its Funds Department. accused No.7, Seethapathy Suresh Babu was the Assistant Manager of National Housing Bank. He used to report to Accused No.6, 3 Shri Coodli Ravi Kumar in regard to his function and worked under his instructions.
The basic allegation against the appellants and Late Harshad Mehta was that some transactions were carried out in connivance with the officials of the Financial Institutions, Banks illegally as a result whereof Late Harshad Mehta was allowed to obtain a sum of Rs.40 crores which was actually `Call Money' given as a loan by the National Housing Bank to the UCO Bank.
Similar illegal transactions relating to government securities and other nongovernmental securities came to the notice of the Central Government.
A Committee commonly known as `Janakiraman Committee' was thereafter constituted, Shri R. Janakiraman, the then Deputy Governor of Reserve Bank of India was appointed as its Chairman. The Committee submitted its report between May, 1992 and April, 1993. On the basis of the report of the said Committee, Special Courts were constituted in terms of The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1993.
Allegations against the appellants and late Harshad Mehta were as under:- 4 On 6th April, 1992 National Housing Bank lent a sum of Rs.40 crores `at call' to UCO Bank. However they said amount was credited to Harshad Mehta's account in UCO Bank, Hamam Street Branch, Mumbai. This was allegedly done under the instructions of the Head Office in Calcutta and its Zonal Office at Bombay. The Fund Dealing Officer at D.N. Road, Bombay, Branch had alleged that a letter was received from National Housing Bank enclosing the cheque but it was not traceable either in UCO Bank or in National Housing Bank. On the date of credit, the account of Harshad Mehta in UCO Bank, Hamam Street Branch showed an overdraft of Rs.39.07 crores. Harshad Mehta allegedly repaid the said amount with interest amounting to Rs.27 lakhs through Grindlays Banks which had debited Harshad Mehta's account.
It is stated that National Housing Bank could not have advanced loans directly to the brokers. The recording of the transactions as call money transactions through other banks was a subterfuge meant only to ensure grant of loans to Harshad Mehta. It was also alleged that all the funds management operations at the National Housing Bank (the lending bank) were centralized with C. Ravikumar, Assistant General Manager (accused No.6). He was not only the dealer but was also one of the signatories to the cheques. The backup functions were conducted by S. Suresh Prabhu, 5 Assistant Manager, who used to report to C. Ravikumar and acted under his instructions. These two officers, between themselves, were responsible for all functions including (i) making the deal; (ii) recording the same ; (iii) preparing the vouchers; (iv) preparing the cheques; (v) signing the cheques (as one of the two signatories); preparing and signing BRs; (vii) custody of BRs received from counter-parties; (viii) issuing and receiving SGL transfer forms and lodging the same with the RBI; and (ix) maintaining the account with the RBI and reconciling the same.
The incident having come to light, an investigation was conducted whereafter Charge Sheets were filed against the accused persons. Charges were framed by the Special Court on or about 31st October, 2001 which were as many as fourteen in number. We need not advert thereto.
PROCEEDINGS BEFORE THE TRIAL COURT With a view to prove the charges against the accused persons the prosecutions examined twenty witnesses, viz :-
1. Shri Bishwajit Choudhuri, Chairman and Managing Director, United Commercial Bank of India. Sanctioning Authority
2. Shri P. Arvindak Shah 6 General Manager, Reserve Bank of India, Production Witness
3. Ravi Vira Gupta Chairman, National Housing Bank, Sanctioning Authority
4. Shri B.L. Sachdeva, Under Secretary in the Ministry of Finance in Banking Division
5. Shri Hiten D. Mehta, Employee of late Shri Harshad S. Mehta
6. Shri N.A. Shivraman, Assistant, Funds Department, National Housing Bank
7. Shri Sunil Pandurang Gondhale, Peon, National Housing Bank
8. Jeroo Dalal, Management Trainee, ANZ Grindlays Bank
9. Shri Satish D. Hosangadi, Chief General Manager, National Housing Bank.
10. Mrs. Jyoti R. Patankar, Officer, Reserve Bank of India Production Witness
11. Sujata Milind Nimbalkar, ANZ Grindlays Bank Production Witness 7
12. Shri Sunil Kakkar, Assistant Chief Officer, UCO Bank, Head Office, Kolkata.
13. Shri Chinmoykumar Mukherjee, Assistant Chief Officer, UCO Bank, Kolkata
14. Shri K. Vijayan, Manager, Accounts Department, D.N. Road Branch, UCO Bank
15. Shri Manohar C. Rupani Assistant Manager, D.N. Road Branch, UCO Bank
16. Neelam P. Kini Clerk, Hamam Street Branch, UCO Bank.
17. Shri K. Mallikarjunan, Officer, UCO Bank, Head Office, Kolkata
18. Shri Pradeep A. Karkhanis, Senior Manager, UCO Bank, Hamam Street Branch
19. Shri Sitaram Premaram Paladia, Supdt. Of Police, C.B.I.
20. Shri P.K. Mankar, Dy. S.P. C.B.I.
8 For proving charges against accused No.1, evidence of P.W. No. 4 Shri B.L. Sachdeva, PW-12, Shri Sunil Kakkar; PW-13, Shri Chinkmoykumar Mukehrjee and PW-17, Shri K. Mallkarjunan are relevant.
Accused No.1 also examined defence witnesses inter alia contending that on 6th April, 1992 he was not present at the Head Office till 3.30 p.m. It was furthermore contended that the transactions in question were held by and between NHB and accused No.4 and the officers of UCO Bank had nothing to do therewith. The depositions of the said witnesses are also relevant for proving the charges so far as accused No.2 is concerned. His defence was that the offence of conspiracy has not been proved. It is his case that the purported decision to arrange for call money had not been taken by him alone as per the statement of PW-3, P. Arvindk Shah and PW-17, K. Mallikaarjunan, but by the Chairman-cum-Managing Director of UCO Bank.
With a view to prove the charges against accused No.3 the learned Special Court relied upon the evidence of PW-1, Shri Bishwajit Choudhuri, PW-13, Shri Chinmoykumar Mukherjee, PW-16, Neelam P. Kini and PW- 18, Pradeep A. Karkhanis. His defence was that on the basis of the documentary as well as oral evidence, the prosecution had not been able to prove his involvement either for commission of the offence in conspiracy or 9 in commission of any other offence. The only evidence against him being that on 6th April, 1992 he had gone to Hamam Street Branch of the UCO Bank and at that time accused No.5 was also present and the fact that he had sent a letter for reviving the transaction with broker Late Harshad Mehta from the Hamam Street Branch by itself does not prove the offence.
So far as accused No.5 is concerned, the prosecution had relied upon the evidence of PW-5, Shri Hiten D. Metha, who was an employee of Late Harshad Mehta. He in his deposition stated that he used to make telephone calls the documents were prepared for repayment of Rs.40 crores on instructions from accused No.5, Atul M. Parekh. The defence of the said accused was that he was merely an employee and had been looking after the execution of the transactions after the deal had been finalized under the instructions of Harshad Metha. He being an employee could not be a party to the conspiracy nor the prosecution had been able to show that he had any role to play in the transaction.
Admittedly accused No.6, C. Ravikumar, was a dealer with NHB.
The prosecution relied upon the deposition of PW-3, Ravi Vira Gupta to prove the order of sanction, validity whereof is in question. The prosecution for proving charge against him relied upon the deposition of PW-5, Hiten D. Mehta, who was working with Late Harshad Mehta. Reliance by the prosecution has also been placed on the evidence of PW-6, Shri N.A. Shivraman, who was working as Assistant, Funds Department, NHB from 27th January, 1991 to 31st December, 1991. Reliance has also been placed in this behalf on the deposition of PW-9, Shri Satish D. Hosangadi, who at the relevant time was the Chief General Manager of NHB.
For proving the charges against accused No.7, the prosecution has relied upon the depositions of PW-6, Shri N.A. Shivraman and PW-9, Shri Satish D. Hosangadi.
Accused Nos. 1 to 3 and 6 & 7 were public servants.
Orders of sanction for their prosecution were passed by the competent authorities. Accused Nos. 6 and 7 challenged the validity of the said orders of sanction before the courts below.
All the accused persons had been charged for commission of offences punishable under Section 120-B read with Section 409 and Section 34 of the Indian Penal Code and Section 13(1)(d)(iii) r/w Sections 13(2) of the Prevention of Corruption Act, 1988.
The learned Special Court in its impugned judgment referred to the decision of Ram Narayan Popli v. Central Bureau of Investigation, [(2003) 3 SCC 641 ] in extenso so as to note the ingredients for commission of the offence of conspiracy to conclude :- "It is thus well established that the transaction of call money which was shown to be between the National Housing Bank and the UCO Bank was not a real transaction of call money between the National Housing Bank and the UCO Bank. It was really a transaction between the National Housing Bank and Harshad Mehta and the officers of the UCO Bank permitted the name of the UCO Bank to be used to facilitate the transactions between the National Housing Bank and UCO Bank.
Therefore, about the nature of the transaction, there is no dispute."
Referring to the statement of accused No.1 it was furthermore held :- "From the submissions of accused No. 1 it is clear that even according to him in this transaction, the UCO Bank allowed itself to be used by Harshad Mehta pursuant to the routing facility that was extended by it to Harshad Mehta. Accused No. 1 also relies on the deposition of P.W. 5 Hiten Mehta in relation to this facility."
Yet again upon referring to the deposition of PW-5, Hiten D. Mehta and PW-18, Pradeep A. Karkhanis, the learned court held :- 12 "Now, so far as the aspect of conspiracy is concerned, P.W. 18 Karkhanis has stated that on 6.4.1992 at 12 - '12.30 Ramnathan accused No. 3 and Atul Parekh accused No. 5 had come to the Hamam Street Branch and before he received call from Vijayan, Atul Parekh told him that he is expecting a cheque of Rs.40 crores from the NHB. This clearly indicates that it was already settled between the officers of the NHB and the UCO Bank that on that day the NHB was to route Rs.40 crores to Harshad Mehta through the UCO Bank and that Ramnathan and Atul Parekh knew about it. It has come on record that the transactions with the brokers were stopped in the year 1991 from the Hamam Street Branch.
The accused No. 3 Ramnathan wrote a letter dated 17.3.1992 on instruction from accused No. 1 K. Margabanthu for starting of the transactions again. P.W. ]
18 Karkhanis has stated that on 6.4.1992 accused No. 3 Ramnathan came to the Hamam Street Branch and insisted on starting the transactions immediately. He also states that accused No. 3 said that he is saying so on instructions from accused No. 1. This shows that accused No. 3 knew that on that day N.H.B. was to route Rs. 40 crores to Harshad Mehta through the UCO Bank and he had gone to the UCO Bank Hamam Street Branch to see that the transaction goes through and that he did so on instruction from the accused No. 1, K. Margabanthu.
The Supreme Court has clearly laid it down in the case of Somnath Thapa referred to above that for establishing conspiracy knowledge about indulgence in illegal act is necessary. So far as accused No. 1 is concerned, from the statements that he made in the meeting on 6.4.1992 it is clear that he knew about the transaction. (The dispute about the time of the meeting raised by accused No. 1 is really not relevant considering the means of communication available and the written submissions filed by him, where he says that this was a routine routing transaction). So far as accused No.2 is concerned, it is he who authorized the call money transaction though the amount of Rs.40 crores was not needed by the UCO bank on that day. Therefore, his 13 knowledge about the nature of the transaction is well established. So far as accused No. 3 Ramnathan is concerned, his presence at the Hamam Street Branch on 6.4.1992 at 12 - 12.30 with Atul Parekh and his insistence that the transaction with the broker should be started immediately show that he was also aware of the transaction. It is pertinent to note that cross-examination of P.W. 18 by accused No. 3 shows that even an attempt is not made to dispute the above referred statement of P.W. 18. So far as accused No.5 Atul Parekh is concerned, above referred statement of P.W. 18 clearly establishes his knowledge of the transaction. The statement of P.W. 8 Jeroo Dalal also shows that at his instruction pay order for repayment to the NHB was prepared."
Referring to the other cases vis-`-vis accused Nos. 6 and 7, it was opined :- "Thus, the evidence on record clearly shows that all the accused persons had knowledge of the transaction and that all of them have some part in the transaction."
The learned Special Court thereafter considered the question as to whether the `transfer' was illegal within the meaning of Section 43 of the Indian Penal Code in the light of the provisions of Section 14 of the NHB Act, holding :- "It is thus clear that the National Housing Bank in terms of Section 14 of the Act can only make loans and advances to housing finance institutions and scheduled banks or slum clearance authority constituted under the 14 Central or State Legislation. Sub-section (4) of Section 49 of the National Housing Bank Act lays down that if any other provision of this Act is contravened or if any default is made in complying with any other requirement of this Act, or of any order, regulation or direction made or given or condition imposed there under, any person found guilty of such contravention or default shall be punishable with fine."
So far as the purported offence in regard to criminal breach of trust is concerned, the learned Judge held that the same stood proved against the officers of the Bank. However, so far as accused No.5 is concerned, the same was held to have not been proved, although it was held that he was guilty of commission of offence of conspiracy.
So far as the offences under the Prevention of Corruption Act, 1988 is concerned, a finding has also been arrived at that the charges under the said provisions have been proved.
The learned Special Court also negated the contention of accused Nos.6 and 7 that the order of sanction passed against them are not valid.
SUBMISSIONS The principal contentions raised on behalf of the appellants are :- 15 1) That the prosecution case even if taken to be correct in its entirety does not disclose any offence of conspiracy.
2) So far as accused No. 1 and 2 are concerned they were stationed at Kolkata. Only because they had held a meeting in the Chamber of accused No.1 in presence of PWs 12 and 13, the same by itself does not prove that they were party to a larger conspiracy, namely use of call money for causing unlawful gain to Late Harshad Mehta.
3) The charges of conspiracy vis-`-vis criminal breach of trust cannot be said to have been proved as even in terms of Section 14 of the National Housing Bank Act, such a transaction was legally permissible.
4) Only because the accused No.3 was present at the Bank and wrote a letter for reviving the account of Late Harshad Mehta, the same by itself does not prove that he was a party to the conspiracy.
5) If the prosecution case that there had been a larger conspiracy because of unlawful favour shown to Harshad Mehta is correct, the other officers of the UCO Bank, concerned officers of Reserve 16 Bank of India and ANZ Grindlays Bank should have also been prosecuted.
6) The orders of sanction for prosecuting accused Nos. 6 and 7 were illegal.
7) The evidences of PWs. 5, 7, 12, 13 and 17 should not have been relied upon by the learned Special Court as they were accomplices to the crime.
8) Accused No.1 having come to his office at about 3.00 - 3.30 p.m.
from Chennai and the entire transaction having been completed by 2 O' clock, he cannot be said to be a party to a decision either to obtain call money from NHB or the cancellation thereof.
9) The documents proved on behalf of the prosecution do not disclose that the accused and in particular accused Nos. 1 and 2 had any intention to commit the alleged offence.
10) Accused No.2 having signed only two documents and accused No.1 having put his initials only on one document, they could not be held to be a party to the alleged conspiracy.
17 11) Witnesses, PW No. 5 - Hiten D. Mehta; PW No.12 Sunil Kakkar;
PW No. 13 - Chinmoykumar Mukherjee; PW No. 17 - K. Mallikaarjunan and PW No. 18 - Pradeep A. Karkhanis, having regard to Section 163 of the Evidence Act, 1872 read with illustrations appended to clause VIII of Section 114 of the Evidence Act, 1872, could not have been relied upon by the learned Special Court without any corroboration of their statements. In any view of the matter, evidence of one accomplice cannot be taken into consideration for the purpose of corroboration of the evidence of another alleged accomplice.
12) In a case of this nature, where the conspiracy was alleged in regard to a legal act by illegal means, active participation by each one of them must have been held to be imperative in character and in its absence, they could not be held guilty of commission of any offence.
13) Accused No.3, who was only Scale IV officer and posted at Hamam Street Branch of UCO Bank, visited D.N. Road Branch and he had issued a circular for reviving account of three brokers 18 including Late Harshad Mehta, the same by itself does not lead to a conclusion that he had committed the offence.
14) On behalf of accused No.5, it was submitted that being an employee of Late Harshad Mehta and having acted on his instructions, he cannot be held to have committed an offence of conspiracy only because he had visited the banks and /or was in touch with some of their officers for the purpose of ascertaining the position of accounts of Mehta.
15) Accused No.6 merely being signatory to the cheque of Rs. 40 crores issued in favour of UCO Bank which has been cleared by the Reserve Bank of India cannot be presumed to have any knowledge of diversion of the said amount by the officers of UCO Bank in the account of Late Harshad Mehta and the purported refund of the said amount with interest by him through ANZ Grindlays Bank, and as such he cannot be said to have committed the offence of conspiracy. .
16) Accused No.7 merely being an Assistant Manager and having discharged his functions acting under the directions of accused 19 No.6 and other higher officers cannot be said to have committed any offence as alleged or at all.
17) Departmental proceedings having not been initiated by the employers and neither the UCO Bank nor the NHB having suffered any loss, the judgment of conviction for criminal breach of trust is wholly unsustainable.
18) The learned Special Court having not assigned any reason and having not discussed the materials brought on record in details, must be held to have acted illegally and without jurisdiction in passing the impugned judgment.
19) The transfer of money being not `securities' within the meaning of the provisions of Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1993, the Special Court had no jurisdiction to try the offences there under.
20) Accused No.5 having been acquitted from the charges of criminal breach of trust, could not have been held to be guilty of being a party to the conspiracy as alleged by the prosecution on the basis of the materials brought on record.
20 Mr. Mohan Prasaran, learned Additional Solicitor General appearing on behalf of the Central Bureau of Investigation, on the other hand, urged:- 1) The prosecution case that NHB had diverted its funds in violation of the provisions of the National Housing Bank Act, 1987 must be held to have been proved as the accused persons including Late Harshad Mehta and his associates utilized the officers of UCO Bank as a conduit, having regard to the fact that it stands admitted that a ready forward deal was entered into by and between UCO Bank and NHB Bank, in terms whereof a sum of Rs.40 crores was credited to the account of Late Harshad Mehta.
2) An offence of conspiracy need not be proved by adducing direct evidence of meeting of mind but the same can be established by cumulative consideration of various facts and several events which had taken place in quick succession to facilitate the routing of the amount.
3) From the evidence of PW-17, K. Mallikarjunan it has clearly been established that both accused Nos. 1 and 2 had closely monitored the purchases and sales of securities in tandem with Late Harshad Mehta 21 and they in conspiracy with each other had caused huge losses to the Bank.
4) Accused No.3 although a Divisional Manager of UCO Bank, issued a letter to the Zonal Manager, UCO Bank, Bombay, on 17th March, 1992, purported to be containing guidelines issued on BR transactions whereby recommendations were made to deal with only three brokers, including late Harshad Mehta, in terms of the purported instructions of the Chairman-cum-Managing Director and as a copy of the said letter was, inter alia. forwarded to accused No.2, showed that he had also been a party to the said conspiracy which has also been proved by reason of the fact that he had visited the D.N. Road Branch of UCO Bank along with accused No.5 on the date of the said transaction.
5) Accused Nos. 6 and 7 had not only been a party to the entire transaction but also manipulated other documents, and in particular, the vouchers, which clearly show that they not only had the requisite knowledge that the amount of Rs.40 crores had to be diverted to the account of Late Harshad Mehta but also the fact that the said amount would be returned with interest by him through ANZ Grindlays Bank.
22 6) The purported contradiction in regard to absence of accused No. 1 from the office of UCO Bank on 6th April, 1992, and also the timing of meeting the same does not affect the prosecution case, namely the commission of offence of conspiracy by all of them, as it has been established that the cheque issued by the NHB was never intended to be utilised as call money.
7) Accused No.2, in fact, in his written statement in unequivocal terms admitted before the Special Court that the transaction involved was a routing transaction, absolutely transparent and clear transaction in ordinary course of nature, stated that had the scam not been attributed to Harshad Mehta, nobody would have raised eye brows thereabout and, thus, admitted that the routing of a sum of Rs.40 crores belonging to NHB through UCO Bank to the account of Harshad Mehta was carried out for unknown consideration.
8) The entire transaction being illegal would come within the purview of Section 120-A and Section 120-B of Indian Penal Code and, thus, no exception can be taken to the judgment of the learned Special Court.
23 OVER VIEW NATIONAL HOUSING BANK NHB is a Bank constituted under the National Housing Bank Act, 1987 (in short NHB Act). The Act was enacted to establish a bank to be known as the National Housing Bank (NHB) to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for matters connected therewith or incidental thereto. It is a financial institution.
It is also a Bank within the meaning of the provisions of the Banking (Regulation) Act, 1949.
The nature of business of the NHB is contained in Chapter IV of the Act.
`Housing finance institution' has been defined in Section 2(d), (as it then stood) to mean - "2. (d) "housing finance institution" includes every institution, whether incorporated or not, which primarily transacts or has as its principal object, the transacting of the business of providing finance for housing, whether directly or indirectly;"
24 NHB was established with a view to give effect to the object and purpose of the said Act. It is a subsidiary of Reserve Bank of India.
Provisions of Section 14 of NHB Act, as they are relevant for our purpose may be noticed:- "Section 14 - Business of the National Housing Bank Subject to the provisions of this Act, the National Housing Bank may transact all or any of the following kinds of business, namely:-- (a) promoting, establishing, supporting or aiding in the promotion, establishment and support of housing finance institutions;
(b) making of loans and advances or rendering any other form of financial assistance whatsoever to housing finance institutions and scheduled banks, (c) subscribing to or purchasing stocks, shares, bonds, debentures and securities of every other description;"
The Hierarchy of NHB is as under:
1. Chairman-cum-Managing Director
2. Executive Director
3. Chief General Manager/s
4. General Manager/s
5. Deputy General Manager/s
6. Assistant General Manager/s 25
7. Regional General Manager/s
8. Manager/s
9. Deputy Manager/s
10. Assistant Manager UCO BANK UCO Bank is a nationalized bank having been taken over in terms of the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Its head office is at Calcutta. Amongst others it has two branches in Bombay - one at D.N. Road and other at Hamam Street, Functions of the scheduled banks are governed by the provisions of the Banking Companies Act, 1936. UCO Bank is one of the fourteen banks which was nationalized. The administrative hierarchy of UCO Bank is as under:
1. Chairman & Managing Director
2. Executive Director
3. General Manager (Scale VII)
4. Dy. General Manager (Scale VI)
5. Asstt. General Manager (Scale V)
6. Officer in (Scale IV) 26
7. Officer in (Scale III)
8. Officer in (Scale II)
9. Officer in (Scale I) CALL MONEY - THE LEGAL HISTORY The statute relating to business in Banking was the Bankers Book Evidence Act, 1891. In 1936 Banking Companies Act, 1936 was enacted which was also known as Indian Companies (Amendment) Act, 1936 wherein Part XA was inserted providing for far reaching effects on the banking legislations. Subsequently, the Banking Regulation Act, 1949 (1949 Act) was enacted to consolidate and amend the law relating to banking. It repealed and replaced Part XA of the Banking Companies Act, 1936.
In the meanwhile, however, Reserve Bank of India Act, 1934 came into force. Section 42 of the 1934 Act provided for "cash reserves" to be kept with the Bank, relevant provisions whereof read as under:- "Section 42 - Cash reserves of scheduled banks to be kept with the Bank (1) Every bank included in the Second Schedule shall maintain with the Bank an average daily balance the amount of which shall not be less than such per cent. of the total of the demand and time liabilities in India of 27 such bank as shown in the return referred to in sub- section (2), as the Bank may from time to time, having regard to the needs of securing the monetary stability in the country, notify in the Gazette of India Explanation.-For the purposes of this section,- (a) "average daily balance" shall mean the average of the balances held at the close of business of each day of a fortnight;
... (1A) Notwithstanding anything contained in sub- section (1), the Bank may, by notification in the Gazette of India, direct that every scheduled bank shall, with effect from such date as may be specified in the notification, maintain with the Bank, in addition to the balance prescribed by or under sub-section (1), an additional average daily balance the amount of which shall not be less than the rate specified in the notification, such additional balance being calculated with reference to the excess of the total of the demand and time liabilities of the bank as shown in the return referred to in sub-section (2) over the total of its demand and time liabilities at the close of business on the date specified in the notification as shown by such return so however, that the additional balance shall, in no case, be more than such excess:
Provided that the Bank may, by a separate notification in the Gazette of India, specify different dates in respect of a Bank subsequently included in the Second Schedule.
...(3) If the average daily balance held at the Bank by a scheduled bank during any fortnight is below the minimum prescribed by or under sub-section (1) or sub- section (1A), such scheduled bank shall be liable to pay to the Bank in respect of that fortnight penal interest at a rate of three per cent, above the bank rate on the amount by which such balance with the Bank falls short of the prescribed minimum, and if during the next succeeding 28 fortnight, such average daily balance is still below the prescribed minimum, the rates of penal interest shall be increased to a rate of five per cent, above the bank rate in respect of that fortnight and each subsequent fortnight during which the default continues on the amount by which such balance at the Bank falls short of the prescribed minimum."
Section 42 also provides for penalties. It is, thus, mandatory in character.
Maintenance of `cash reserve ratio' is, therefore, a statutory requirement. The consequence of non compliance thereof has been provided for in sub-section 3 and 3A of Section 42 which was brought into the statute book by Act 38 of 1956 which came into force from 6th October, 1956.
In terms of the said provision each bank is to maintain, what is known as, `cash reserve ratio' (CRR) every day. It is accepted at the bar that where a bank having an excess amount would like to invest the same so as to enable it to earn interest, those who fall short of `cash reserve ratio' would be under a statutory obligation to borrow the same so as to maintain the `cash reserve ratio' on such interest, as may be mutually agreed upon.
The Banks which are governed under the aforementioned Act being in the business of banking, besides other purposes, may grant loans not only to individuals or private persons or body corporates but also to another bank.
29 Control of Banking Companies is vested in the Reserve Bank of India as would appear from Section 35 of the 1949 Act. Section 35A empowers the Reserve Bank of India to issue direction, which the banks are bound to carry out; on their failure to do so the penal clause contained in Section 46 would be attracted, sub-section (4) whereof reads as under :- "Section 46 - Penalties (4) If any other provision of this Act is contravened or if any default is made in- (i) complying with any requirement of this Act or of any order, rule or direction made or condition imposed there under, or (ii) carrying out the terms of, or the obligations under, a scheme sanctioned under sub-section (7) of section 45, by any person, such person shall be punishable with fine which may extend to fifty thousand rupees or twice the amount involved in such contravention or default where such amount is quantifiable, whichever is more, and where a contravention or default is a continuing one with a further fine which may extend to two thousand and five hundred rupees for every day, during which the contravention or default continues."
In view of the aforementioned provision the `cash reserve ratio' as specified in the statutes, is mandatorily required to kept with Reserve Bank 30 of India. Such average daily balance is not to be less than 3% of the total demand and time liabilities of such Bank in India.
Liabilities of a Bank may be in the form of demand or time deposits or borrowings or other miscellaneous items of liabilities. Liabilities of the Banks may be towards banking system (as defined under Section 42 of RBI Act, 1934) or towards others in the form of Demand and Time deposits or borrowings or other miscellaneous items of liabilities. Reserve Bank of India has been authorized in terms of Section 42 (1C) of the RBI Act, 1934 to classify any particular liability as either a demand or a time liability.
'Demand Liabilities' include all liabilities which are payable on demand. `Time Liabilities' are those which are payable otherwise than on demand and they include fixed deposits, cash certificates etc.
"Call money" transactions are thus indisputably banking transactions.
It is no doubt true that in the event any irregularity is committed, the Reserve Bank of India would be entitled to take action against the erring Bank.
JURISDICTION OF THE SPECIAL COURTS.
31 During the period April, 1992 and June, 1992 certain large scale irregularities and malpractices were detected in transactions of both governmental and other securities, carried out by some brokers in collusion with the employees of various Banks and Financial Institutions. To have a more close look into the matter the RBI appointed a committee under the chairmanship of the then Deputy Governor of RBI, Shri R. Jankiraman ("the Jankiraman Committee"). The committee submitted its report between May, 1992 and April 1993. On the basis of the said report and to deal with the situation as also to ensure the speedy recovery of the huge amount involved the Parliament enacted the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992 ("the Special Courts Act"), establishing the Special Court, from whose judgment this appeal arises.
The learned counsel for the appellants contend before us that the special court so constituted did not have the jurisdiction to try this matter.
They argue that Section 7 read with Sub Section 2 of Section 3, of the Special Court Act, limiting the jurisdiction of the Special Court only to `offences relating to transaction in securities' would not attract the transactions which have been attributed to the appellants in the present case.
It is argued that the definition of the term `Securities', as provided for in Section 2 (c) of the Act does not bring within its ambit `call money 32 transactions' for which they are being tried. It must be noted that the order passed by the learned Special judge is silent on the issue of jurisdiction even though the issue is said to have been raised at the trial.
The Special Courts under the Act were established `for the trial of offences relating to transaction in securities and for matters connected therewith or incidental thereto.' Section 3 of the Act deals with the appointment of, and the functions of custodians under the Act. Section 3 (2) empowers the Custodians to notify the name of any person who are involved `in any offence relating to transaction in securities'. The relevant part thereof reads as under:
"3. Appointment and functions of custodians.- ...(2) The Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transaction in securities after the 1st day of April, 1991 and on and before the 6th June, 1992 notify the name of such person in the official gazette." [Emphasis supplied] Section 3, it must be noted, deals only with offences relating to transaction in securities within the period of time specified in the Act. The time period of carrying out the call money transactions is not in dispute before us, for those transactions admittedly took place within the time period 33 referred to in the section. What is disputed however is whether the said transactions do not relate to transactions in securities, as is required by the section. The definition of the term `securities' as provided for in section 2 (c) of the Act, reads as under:
"...(c) "securities" includes - (i) shares, scrips, stocks, bonds, debentures, debenture stock, units of the Unit Trust of India or any other mutual fund or other marketable securities of a like nature in or of any incorporated company or other body corporate;
(ii) Government securities; and (iii) rights or interests in securities;"[Emphasis added] Section 4 of the Act gives the Custodians the requisite power to cancel certain contracts entered into fraudulently and/or to defeat the provisions therein. Section 5 of the Act provides for the establishment of a special Court with a sitting judge of a High Court for speedy trial of such offences.
Section 6 empowers the Special Court to take cognizance or try such cases as are instituted before it.
Section 7, which is of relevance in determining the present issues before us, defines the jurisdiction of the Special Courts in criminal matters.
It reads as under:
34 "7. Jurisdiction of Special Court.- Notwithstanding anything contained in any other law, any prosecution in respect of any offence referred to in sub section (2) of section 3 shall be instituted only in the Special Court ...." [Emphasis supplied] The said section begins with a non obstante clause providing that the Special Court shall have jurisdiction to try matters in respect of the offences referred to in Section 3 (2) of the Act.
The definition of `securities' in the Act is an inclusive one. It is not exhaustive. It takes within its purview not only the matters specified therein but also all other types of securities as commonly understood.
In the State of Bombay and others v. The Hospital Mazoor Sabha and others, [AIR 1960 SC 610] this Court while interpreting the definition of "industry" as contained in Section 2(j) of the Industrial Disputes Act, 1947 noted as under:- "It is obvious that the words used is an inclusive definition denote extension and cannot be treated as restricted in any sense. Where we are dealing with an inclusive definition it would be inappropriate to put a restrictive interpretation upon terms of wider denotation" [Internal citations omitted] 35 {See also Regional Director, Employees State Insurance Corporation v.
High Land Coffee Works of P.X.S. Saldanha and sons and another, [(1991) 3 SCC 617) and Commercial Taxation Officer, Udaipur v. Rajasthan Taxchem Ltd.. [2007 (2) SCALE 120]. Karnataka Power Transmission Corpn. & Anr. v. Ashok Iron Works Pvt. Ltd. [(2009) 3 SCC 240]} However, even if we hold call money transactions not to be within the scope and ambit of the definition of the term `securities', it must still be remembered that the jurisdiction of the Special Court extends even to offences relating to transaction in securities. Therefore, the jurisdiction of the Special Court could be invoked even in cases where the transaction is somehow related to securities. It would extend also to the utilization of any amount relating to transactions in securities and for matters connected therewith or incidental thereto.
The jurisdiction of the Special Court is an exclusive one. It exercises original jurisdiction to try offences relating to the securities scam. It, having regard, to the peculiar nature of the offences sought to be dealt with, should receive a liberal construction.
It was so held in Harshad S. Mehta and others v. State of Maharashtra, [(2001) 8 SCC 257].
36 "The use of different words in Sections 6 and 7 of the Act as already noticed earlier also show that the words in Section 7 that the prosecution for any offence shall be instituted only in Special Court deserve a liberal and wider construction."
Similarly the court in L.S. Synthetics Ltd. v. Fairgrowth Financial Services Ltd. and another, [(2004) 11 SCC 456] also noted that `[t]he jurisdiction of the Special Court is of wide amplitude. Subject to a decision in appeal therefrom, its decision is final.' Further Section 4 of the Code of Criminal Procedure provides that all offences under the Indian Penal Code shall be investigated and tried as per the provisions of the Code. The same, however, would be subject to special provisions to the contrary. Section 5 of the Code of Criminal Procedure contains a saving clause in terms of which the jurisdiction of special legislations is saved. The Jurisdiction of the Special Court was required to be determined with reference to the said provision. The Act is a special Act.
The section conferring jurisdiction on the Special Courts under the Act contains a `Non Obstante' clause. It, thus, prevails over any other Law.
[See Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. and others, [(2001) 3 SCC 71 ].
37 The Jurisdiction of the Special Court may be invoked when an offence committed relate to transactions in securities; the logical corollary whereof would be that all parties connected in diverting the funds of the public sectors and/or financial institutions would also come within the purview thereof. For considering the provisions of the said Act, it has to be borne in mind the object and purport thereof. We have noticed heretobefore that the Reserve Bank of India constituted Janakiraman Committee for the purpose of looking in to the Securities Scam of the early 90's. A report pursuant thereto was submitted. It was on the basis of that report that the said Act was enacted and the Special Court was constituted. These background facts, in our opinion, would be relevant for determining the issue.
For the purpose of determining the question as to whether the Special Court had the jurisdiction to try the offences in question or not, in our opinion, the principle of purposive construction must be resorted to. The rule which is also known as the `mischief rule' enables consideration of four matters in construing an Act: (i) What was the law before the making of the Act, (ii) What was the mischief or defect for which the law did not provide (iii) What is the remedy that the Act has provided, and (iv) What is the reason of the remedy. The rule then directs the courts to adopt that construction which suppresses the mischief and advances the remedy. [See 38 Bengal Immunity Co. v. State of Bihar, AIR 1955 SC 661, Zile Singh v.
State of Haryana, AIR 2000 SC 5100]. Simply stated `the courts should identify the mischief which existed before passing of the statute and then if more than one construction is possible, favour that which will eliminate the mischief so identified.' [Anderton v. Ryan, (1985) 2 All ER 355, per Lord Roskill].
The phrase `offence relating to transaction in securities' as used in section 3 (2) is clearly subject to more than one meaning. It is anything but clear. For the aforementioned purpose we may notice the meaning of the word `in relation to'.
In M/s. Doypack Systems (Pvt.) Ltd. v. Union of India & ors., [(1988) 2 SCC 299], it was observed :- "In view of the language used in the relevant provisions, it appears to us that Section 3 has two limbs: (i) textile undertakings: and (ii) right, title and interest of the company in relation to every such textile undertaking.... The expressions "pertaining to", "in relation to" and "arising out of" , used in the deeming provision, are used in the expansive sense, as per decisions of courts, meanings found in a standard dictionaries, and the principles of broad and liberal interpretation ....
We are of the opinion that the words "pertaining to" and "in relation to" have the same wide meaning and have been used interchangeably....
The expression "in relation to" (so also "pertaining 39 to"), is a very broad expression which pre- supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context.... In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 521 where it is stated that the term "relate" is also defined as meaning to ring into association or connection with. It has been clearly mentioned that "relating to" has been held to be equivalent to or synonymous with as to "concerning with" and "pertaining to". The expression "pertaining to" is an expression of expansion and not of contraction." [Emphasis supplied] These lines were also quoted with approval in T.N. Kalyane Mandapam Association v. Union of India, [(2004) 5 SCC 632]. (See also Bismag v. Amblins (Chemists), [1970] 3 All ER 1053 (QB) and Re National Federation of Retail Newsagents', Booksellers' and Stationers Agreement) (Nos. 3 & 4), [1971] 1 WLR 408.) Regard, therefore, in the matter of establishing and constitution of the Special Court must also be had to the object of creating the Special Courts.
In Minoo Mehta v. Shavak D. Mehta, [ AIR 1998 SC 831), this Court held:
"As the Preamble of the Act shows, the Act is to provide for the establishment of a Special Court for the trial of offences relating to transactions in 40 securities and for matters connected therewith or incidental thereto. Therefore, every offence pertaining to any transaction in securities which is covered by the sweep of the Act, that is, if such transaction has taken place between 1-4-1991 and on or before 6-6-1992 would be subjected to the provisions of the Act regarding trial of such an offence."
If the purport and object of the Act was to bring home an offence of the nature discussed heretobefore, in our opinion, the Special Court would have jurisdiction to try that offence. The money belonging to National Housing Bank had been diverted to Harshad Mehta's account who was a broker dealing in securities so as to enable him to enter into transactions in securities during the period 1st April, 1991 and on or before 6th June, 1992, which was an offence triable exclusively by the Special Court. The Special Court, therefore, rightly exercised the jurisdiction vested in it.
VALIDITY OF THE SANCTION ORDERS.
All the appellants before us, except accused No. 5 Atul M Parekh, were at the relevant point o
