2009 Supreme(SC) 1417

Supreme Court of India
THE HONOURABLE MR. JUSTICE S.B. SINHA & THE HONOURABLE MR. JUSTICE CYRIAC JOSEPH
R. Venkatakrishnan
Versus
Central Bureau of Investigation
CRIMINAL APPEAL NO.76 OF 2004 [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]
Decided On : 07-08-2009

IMPORTANT POINTS
Sections 42 and 46 of the Reserve Bank of India Act, 1934 are mandatory.
Special Court rightly exercised its jurisdiction.
Purposive interpretation – mischief rule.
Section 3(2) of the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992 covers any transaction pertaining to or in relation to transaction in securities.
Even if the sanction order has been passed by an incompetent authority, it can be acted upon if it does not occasion failure of justice.
Contents of a report cannot be admitted in evidence without formal proof.
Conspiracy may be general or separate and it may develop in successive stages. A smaller conspiracy may be a part of a larger conspiracy.
Accused A1 to A3, A5 and A6 held guilty of criminal breach of trust, conspiracy and criminal misconduct.

Headnote:(a) Reserve Bank of India Act, 1934 – Section 42 and 46 – Are mandatory – Therefore maintenance of ‘cash reserve ratio’ (CRR) is a statutory requirement – Applies to NHB also – Failure to maintain CRR attracting penal provisions u/s 46. (Para 36, 37, 40, 41)

       Reserve Bank of India Act, 1934 – Section 42 and 46 – Call money transactions are banking transactions – Commission of any irregularity would attract sections 42 and 46. (Para 44)

       (b) Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992 – Section 2(c) r/w section 3(2) and 7 – Securities – Call money transactions – Occurring during 1st day of April, 1991 to 6th June, 1992 – Definition of securities inclusive and includes transactions relating to securities – Instantly, call money transactions related to transactions in securities – Jurisdiction of Special court is exclusive – Section 7 should receive a liberal construction – Section 7 shall prevail over any other law – Code of Criminal Procedure, 1973 – Section 5 – Money belonging to National Housing Bank diverted to account of Harshad Mehta helping him in transactions in securities during the specified period – An offence triable exclusively by the Special Court – Special Court rightly exercised its jurisdiction. (Para 46, 53, 56, 58, 59, 66)

       AIR 1960 SC 610; (1991) 3 SCC 617; 2007 (2) SCALE 120; (2009) 3 SCC 240; (2001) 8 SCC 257; (2004) 11 SCC 456; (2001) 3 SCC 71; AIR 1955 SC 661; AIR 2000 SC 5100; (1985) 2 All ER 355 – Relied upon

       (c) Interpretation of statute – Purposive interpretation – Mischief rule – Matters to be considered while construing a statute – (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 – In other words, 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. (Para 60)

       AIR 1955 SC 661; AIR 2000 SC 5100; (1985) 2 All ER 355 – Relied upon

       (d) Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992 – Section 3(2) – The phrase ‘offence relating to transaction in securities’ – Ambiguous –‘Relating to’ or ‘in relation to’ or ‘pertaining to’ – Wide expression – Shall include any transaction pertaining to or in relation to transaction in securities. [Para 62]

       (1988) 2 SCC 299; (2004) 5 SCC 632; [1970] 3 All ER 1053 (QB); [1971] 1 WLR 408; AIR 1998 SC 831 – Relied upon

       (e) Prevention of Corruption Act, 1988 – Section 19(1)(c) and 19(3) – Sanction orders passed in respect of all accused – Accused 6 and 7 challenging validity thereof – Accused 6 and 7 serving NHB on deputation from RBI – Sanction order passed by Chairman, NHB – Competency – Accused 6 getting permanently absorbed in NHB in 1992 and order of sanction passed in 1993 – No infirmity – Further in terms of section 19(3) even if sanction order has been passed by an incompetent authority, it can be acted upon if it does not occasion failure of justice. (Para 72, 75)

       (f) Service law – Conditions of service – NHB adopting RBI regulations till framing of its own service rules – Does not mean that jurisdiction to order sanction for prosecution of NHB employees would rest with RBI. (Para 73)

       (g) Criminal trial – Evidence – Special court taking contents of Jankiraman Committee as evidence to indict accused 6 – Committee not a court, merely a fact finding committee – Contents of the report could not be admitted in evidence without formal proof. (Para 77, 80)

       [1955] S.C.R. 955 – Relied upon

       AIR 1954 Nag 71 – Cited with approval

       (1905) 31 IA 239; 1959 SCR 279; (1968) MPLJ 629; 1992 Suppl. (2) SCC 521 – Referred

       (h) Indian Penal Code, 1860 – Section 120B – Criminal conspiracy – Independent offence punishable separately – Must be proved independently – Ingredients – Prosecution must establish meeting point of two or more persons for doing or causing to be done an illegal act or an act by illegal means – Conspiracy may be general or separate – May develop in successive stages – A smaller conspiracy may be a part of a larger conspiracy. (Para 82, 84, 85, 94)

       (1981) 2 SCC 443; (1988) 3 SCC 609; (1996) 4 SCC 659; (2005) 11 SCC 600; Ram Narayan Popli; (2004) 11 SCC 585; (2008) 6 SCALE 469; 2008 (14) SCALE 639 – Relied upon

       (2005) 12 SCC 631 – Referred

       (i) Indian Penal Code, 1860 – Section 120B r/w section 43 – A2 a General manager in UCO Bank authorised to take decisions about call money transactions – As per the hierarchy it is inconceivable that such transactions were conducted without knowledge or approval of the Managing Director, A1 – Call money obtained by UCO Bank from NHB credited in account of Harshad Mehta – A sort of arrangement by and between NHB and Harshad Mehta stood established – Money routed through UCO bank – Established that SV Ramanathan (A3) also played an important role in ensuring transfer of call money from NHB meant from UCO bank to Harshad Mehta’s Account – Harshad Mehta repaying the call money amount directly to NHB through his account in ANZ Grindlays Bank – Entire transaction could not have been possible without involvement of NHB officials – C. Ravi Kumar (A6) held responsible for extension of call money transaction from 1 day to 9 days and the reduction of the interest from 26% to 25% – Involvement of all accused except A7 established. (Para 100, 101, 138, 139, 143, 144, 148, 150, 152)

       (j) Criminal trial – Evidence – Witnesses examined ten years after the incidence – Minor discrepancies occurring – Not of much significance. (Para 119)

       (k) Indian Penal Code, 1860 – Section 43 – Illegal – What is? – Everything constituting an offence; everything prohibited by law; and everything furnishing ground for civil action. (Para 156)

       (l) National Housing Bank Act, 1987 – Section 14 – Scope of NHB loans – NHB cannot, advance loans to anybody except housing finance institutions, scheduled banks and statutory slum clearance body – Any loan advanced to any individual would amount to an offence – Section 49(4) – Advancement of loan to Harshad Mehta by NHB under the guise of call money transaction was illegal – Held, accused A1 to A3, A5 and A6 committed the offence of conspiracy u/s 120B, IPC. (Para 161, 163, 164)

       (2003) 3 SCC 641 – Relied upon impliedly

       (m) Indian Penal Code, 1860 – Section 405 – Criminal breach of trust – where a person acquires dominion or control over a property and an obligation is created in relation to that property and that person misappropriates or dishonestly deals with the property, he commits breach of trust (Para 168)

       (2008) 2 SCC 561; AIR 1960 SC 889 – Relied upon

       (n) Indian Penal Code, 1860 – Section 409 and 406 – Criminal breach of trust by public servant – Section 409 classifies public servants, bankers, merchants, factors, brokers, attorneys and agents together – Offence punishable under Section 406 committed by public servant attracts section 409. (Para 172, 174)

       2008 (2) SCALE 303; (1974) 4 SCC 230; AIR 1953 SC 478; (2003) 3 SCC 641 – Relied upon

       (o) Indian Penal Code, 1860 – Section 409 – CBI initiating action on basis of Janakiraman Committee report – Concerned Banks are not required by law to make a complaint – It is also not the requirement that the Banks must have ultimately suffer some loss – Commission of criminal breach of trust attracts section 409 – That apart, such act may amount to temporary embezzlement of public money. (Para 179, 180, 181, 182)

       (p) Indian Penal Code, 1860 – Section 409 – Rs.40 crores of NHB entrusted to accused A2 for purposes of NHB – A2 handing over the money to UCO Bank knowing full well that it will be credited to account of accused A4 – A2 misappropriated money entrusted to him creating a cover-up of call money transaction with UCO bank. (Para 183)

       (q) Criminal and civil breach of trust – Breach of trust simpliciter involves civil wrong – Can be redressed by damages – Breach of trust with mens rea is criminal breach of trust giving rise to criminal prosecution as well – Misappropriation with a dishonest intention, even temporary misappropriation – Most essential ingredient of proof of criminal breach of trust – Indian Penal Code, 1860 – Section 24 and 23 – Accused No. 6 parted with NHB money entrusted to him for wrongful gain to Harshad Mehta – Accused no. 6 acted dishonestly – Held guilty of criminal breach of trust. (Para 184, 188, 190)

       (2002) 1 SCC 241 – Relied upon

       1996 Cr.L.J. 2253 – Cited with approval

       (r) Indian Penal Code, 1860 – Section 409 – Accused A1 to A3 permitting transfer of Rs.40 crores received from NHB to account of Harshad Mehta, not entitled to it – All three held guilty of criminal breach of trust. (Para 191)

       (2003) 3 SCC 641 – Relied upon

       (s) Prevention of Corruption Act, 1988 – Section 13 – Public servant obtaining any valuable thing or pecuniary advantage for anybody will be guilty u/s 13 (1) (d)(iii) punishable u/s 13(2) – Accused A1 to A3 & A6 held guilty of criminal misconduct (Para 194, 195, 198)

       AIR 1997 SC 551; AIR 1969 SC 17 – Relied upon

       Crl. A. No. 553 of 2000 (Mad) – Cited with approval

       Facts of the case:

       While accused No.1, K. Margabandhu, at the relevant time, was the Chairman and Managing Director of United Commercial Bank (UCO 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, 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.

       Allegations against the appellants and late Harshad Mehta were as under:-

       On 6th April, 1992 National Housing Bank lent a sum of Rs.40 crores `at call to UCO Bank. However the said amount was credited to Harshad Mehtas 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.

       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 Special Court held 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.

       The offence of conspiracy was also held proved.

       The appellants 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 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 issentenced 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 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.

       Finding of the Court:

       There is sufficient evidence to hold all accused A1 to A3, all official of UCO Bank & A5 who was working under Harshad Mehta and A6, official of NHB guilty of criminal conspiracy. But there is not sufficient evidence to show the involvement of A7, NHB in the said transactions.

       Result:

       A7 acquitted. Conviction of all other accused upheld. Sentences modified.