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Supreme Court of India
THE HONOURABLE MR. JUSTICE S.B. SINHA & THE HONOURABLE MR. JUSTICE CYRIAC JOSEPH
Sudhir Shantilal Mehta
Versus
C.B.I.
CRIMINAL APPEAL NO.905 OF 2005 [WITH CRIMINAL APPEAL NOS.945 of 2005, 925 of 2005, 922 of 2005 AND 965 of 2005]
Decided on : 07-08-2009
AIR 1960 SC 610; (1991) 3 SCC 617; (2007) 3 SCC 124 – Relied upon
(b) Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 – Section 7 r/w section 6, Code of Criminal Procedure, 1973 – Jurisdiction of Special court is exclusive – Provision should receive a liberal construction – Act being a special Act shall; prevail over all other Acts – The two bills of exchange were issued in relation to transaction in shares between M/s JH Mehta, Growmore and Mazda – As part of conspiracy UCO Bank purchasing shares for arranging money for repayment of Bills of Exchange by the accused persons – The whole transaction related to the transaction in securities – Special court had jurisdiction. (Para 46, 49, 51, 53)
(2001) 8 SCC 257; (2004) 11 SCC 456; (2001) 3 SCC 71 – Relied upon
(c) Banking Regulation Act, 1949 – Section 35A r/w section 21 – Section 35A empowering Reserve Bank to issue directions to Banks – RBI also empowered by section 21 to control advances by banking companies and issue necessary directions in this behalf – RBI thus having requisite power to issue direction to Banks in relation to discounting and rediscounting of bills of exchange – Such directions have statutory force and can be termed as law in force. (Para 57, 58, 69)
(1994) 5 SCC 213; (2002) 1 SCC 367 – Relied upon
AIR 1977 MP 68 – Cited with approval
(1997) 10 SCC 488 – Distinguished
(d) Indian Penal Code, 1860 – Section 120B – Accused having knowledge of RBI circular laying down principles and procedures for Bill discounting – The Circular requiring discounting only if the bills related to bona fide or genuine commercial transactions – Accused creating false documents to fulfill this requirement. (Para 70)
(e) Indian Pena Code, 1860 – Sections 405 and 409 – Mere error of judgment would not attract section 409 – Bank officers entrusted with the public money – Applying it in contravention of RBI circular – Making Bank liable for civil action – Bank officers liable for criminal breach of trust. (Para 73)
(f) Indian Penal Code, 1860 – Section 409 – Accused no. 1 the CMD of UCO Bank meeting accused no. 3 Harshad Mehta – Accused no. 1 deciding to undertake discounting and rediscounting of Bill of Exchange – Knowing that the amount involved may require call money informing and involving accused no. 2 who was dealing with call money – Roping in accused no. 8 also – Such transactions normally handled by D.N. Road branch which found Majda not to be credit worthy for more than 2.16 crores – Transaction shifted to Nariman Point branch not having enough experience to carry out transaction of such high values – Private parties opening accounts in Nariman Point branch and preparinmg documents – Accuesd no. 1 overruling objections of PW 44 on the premise that Harshad Mehta having vast experience in the field himself would be taking care of the transaction – A private person, beneficiary of the transactions, was involved in the internal functioning of the Bank – Transactions taking place in a post haste manner – Section 409 clearly attracted. (Para 79, 80, 83, 84)
(g) Indian Penal Code, 1860 – Section 409 – Criminal breach of trust – Accused no.1 roping in accused no. 2 for transactions to benefit accused no. 3 – Deciding on Nariman Point branch to handle the transactions because it did not enough experience of such transactions – Private parties new to the branch – Accounts opened, Bills of Exchange for Rs.50 crores presented and sanctioned the same day – Parties having account and transactions with Hamam branch – Their creditworthiness etc. not ascertained from that branch – Accused no. 1 having powers up to Rs.5 crores only – Any amount more than that required prior sanction of Board of Directors which did not ratify the transaction even later – RBI circular and UCO Bank Manual not followed – Accused no. 1 and 2 held, guilty of criminal breach of trust. (Para 120)
(h) Indian Penal Code, 1860 –Section 120B – Criminal conspiracy – Conspiracy may be general and separate – A smaller conspiracy may develop into larger conspiracy in successive stages – Harshad Mehta making elaborate plans to obtain liquid cash for a short period for investing in security market for quick returns – His group companies Growmore and Mazda passing resolution for opening account with the UCO Bank on 14. 03.1992 and 18.03.1992 respectively – Growmore and Mazda opening account and presenting bills of exchange on the same date, 24 March 1992 – UCO Bank making available Rs.50 crore to Harshad Mehta through bill discounting – Retirement of bills defaulted – Bank purchasing shares from M/s J.H. Mehta for covering default and making a sum of Rs. 49.50 crore available to it by retiring the bills – J.H. Mehta transferring the accounts to Mazda and Growmore – Accused no. 1 Chairman UCO Bank exceeding his power upto Rs. 10 crore for investment in shares and upto Rs.5 crore for bill discounting – Accused No.3, 4 and 5 men of trust of Harshad Mehta and his power of attorney holder of Growmore and Mazda – Accused 4 and 5 acceptors of Bills of Exchange and signatory of undertaking for repaying the amount – Personal and professional relationship – Establishing criminal conspiracy – Accused no. 1, 2, 4 and 5 held guilty of criminal conspiracy – Accused no. 6, 7 and 9 rightly convicted u/s 120B – Accused no. 8 acquitted of charge u/s 120B. (Para 134)
Criminal Appeal No. 76 of 2004; (2008) 6 SCALE 469; (2008) 14 SCALE 639; (1979) 2 SCC 322; JT 2009 (4) SC 662; (2005) 12 SCC 631; (1995) 1 SCC 142 – Relied upon
(i) Criminal trial – Sentencing – CBI not preferring appeal for enhancement of sentence – Court cannot impose a sentence higher than that imposed by the special court. (Para 135)
Facts of the case:
This case is a fall-out of the Harshad Mehta capital market scam.
Appellants herein with accused Munipally Subramanium Eshwar Chandra (Accused No. 6), Sunil Samtani (Accused No. 7) and Pankaj Brijlal Shah (Accused No. 9) were convicted by the Special Court for commission of offences punishable under Sections 409 and 120B.
The prosecution case centers around transactions of discounting and rediscounting of Bills of Exchange and two Pay Orders issued by the State Bank of Patiala and Syndicate Bank, in favour of the UCO Bank. This was said to be at the instance of the private accused.
Harshad Mehta induced the Chairman-cum-Managing Director of the UCO Bank (A-1) to undertake the business of discounting and rediscounting of Bills of Exchange by the Bank.
On 14.3.1992, a resolution was passed by M/s Growmore Research and Asset Management Ltd. to open an account in UCO Bank, Nariman Point so as to enable it to avail Bill Discounting facility provided by UCO Bank limited to Rs.50 crores.
A similar resolution was also passed by M/s Mazda Industries & Leasing Ltd. which is a public limited company for the purpose of opening up of a current account in UCO Bank, so that it too could avail the Bill discounting facilities from the Bank.
On 24.3.1992, at about 2.30 P.M., Sunil Samtani (Accused No. 7) and Pankaj Shah (Accused No. 9) came to the Nariman Point Branch of the UCO Bank. They had brought with them two bankers cheques; one cheque was from Syndicate Bank dated 24.3.1992 for a sum of Rs.24,63,01,370/-drawn in favour of UCO Bank (Exh. 24); and the other from State Bank of Patiala dated 24.3.1992 for a sum of Rs.25,00,53,636/-. They had also brought with them the application forms for opening Current Accounts in the Bank. The same were handed over to Prabhu (PW 44). The two cheques that they had brought were handed over to Ranjit Mukherjee (PW 1) for clearance.
Two Bills of Exchange for a sum of Rs.14,41,44,000/- and Rs.35,95,24,000/- drawn by J.H. Mehta which were accepted by Ashwin Mehta (Accused No. 4) on behalf of Growmore (Exhibit 154) and by Sunil Samtani (Accused No. 7) on behalf of Mazda respectively were brought by Accused Nos. 7 and 9. Both the Bills of Exchange were executed by Sudhir Mehta (Accused No. 5), authorized signatory of M/s J.H. Mehta.
The said amount was promised to be repaid on or before 24.4.1992. The Bank was asked in writing to issue cheques in the name of ANZ Grindlays Bank.
For the said two cheques receipts were obtained from Syndicate Bank and State Bank of Patiala. The two usance promissory notes were handed over to Accused No. 7 and Accused No. 9. The acceptors, namely, Mazda and Growmore also did not have any account at the said branch.
Two promissory notes one issued in favour of Syndicate Bank and the other in favour of State Bank of Patiala were signed by Mr. Prabhu (PW 44) and Ranjit Mukherjee (PW 1), pursuant whereto the Bank issued two pay orders on the same day in favour of ANZ Grindlays Bank for a sum of Rs.25,27,00,000/- and Rs. 14,14,00,000/-.
Three accounts were opened in the Bank for carrying on transactions in the name of the aforementioned three entities bearing Nos. 1705, 1706 and 1708. The Account Nos. 1705 and 1706 were introduced by Ashwin Mehta (Accused No. 4) and Account No. 1708 was introduced by Sudhir Mehta (Accused No. 5). Two Bills of Exchange were drawn by M/s J.H. Mehta. The same were signed by Sudhir Mehta (Accused No. 5) as the Constituted Attorney of Mrs. Jyoti Mehta, the proprietor of M/s J.H. Mehta. On behalf of Mazda, the bill was accepted by Ashwin Mehta (Accused No. 4). The amount of Bills of Exchange were credited to the account of M/s J.H. Mehta and thereafter they were transferred to the account of Mazda and Growmore. The Bills of Exchange in relation to Growmore was accepted by Ashwin Mehta (Accused No.4).
On 25.3.1992, the account of J.H. Mehta in Grindlays Bank credited the said amount and the amount was promptly transferred to Harshad Mehtas Account. On 24.4.1992, i.e., the due date for retiring the Bills of Exchange, the payments were not made either by the drawer or by the acceptors. Accused No. 1 allegedly agreed to the suggestion of Harshad Mehta for rolling over the same for one more month. PW 44 allegedly did not agree thereto and insisted on prompt payment.
As the funds had not been received, UCO Bank made payments to Syndicate Bank and State Bank of Patiala out of its own funds. There being a shortfall in the funds available with UCO Bank, the requisite call money to meet the deficient had to be borrowed by it from the Corporation Bank and the Oriental Bank of Commerce to the tune of Rs. 50 crores for three days.
The said two Bills of Exchange, for want of fund, were not retired either by M/s J.H. Mehta or Growmore or Mazda.
Subsequent thereto, a formal meeting of the Investment Committee consisting of Accused Nos. 1 and 3 and PW 45 was held. At the instance of Accused Nos. 1 and 3, shares of Gujarat Ambuja Cement worth Rs. 50 crores were purchased by UCO Bank. It was routed through V.B. Desai a broker and an amount of commission for a sum of Rs. 9.53 lakhs was paid to him. The amount received by J.H. Mehta from UCO Bank under the said transaction was transferred by him to Mazda and Growmore so as to facilitate encashment of the said cheques for retiring the Bills of Exchange. Payment towards purchase of shares was made by UCO Bank before delivery thereof.
However Mr. VB. Desai could not deliver all the shares of Gujarat Ambuja Cement. It was agreed that in place of 3 lakhs shares of Gujarat Ambuja Cement, 77150 shares of `CASTROL would be delivered at the rate of Rs.1750/- per share.
Accused no 1, 2 and 8 were charged u/s 409 and 120B,IPC and u/s 13, PC Act, 1988. Accused no. 4, 5, 6, 7 and 9 were charged u/s 120B, IPC. The Special court convicted all the for charges leveled against them.
Finding of the Court:
Special court rightly held the accused persons guilty of criminal breach of trust and conspiracy.
Result:
Appeal dismissed.
Certainly. Based on the provided legal document, here are the key legal points:
The definition of "securities" in the relevant Act is inclusive and expansive, encompassing not only the specifically listed financial instruments but also all other types of securities as generally understood. This broad interpretation ensures that transactions related to bills of exchange, such as discounting and rediscounting, fall within the jurisdiction of the special court established under the Act (!) (!) .
The jurisdiction of the special court is exclusive and wide-ranging, covering cases related to transactions in securities during the specified period. The court's authority includes trying offences arising from such transactions, and its decisions are final, provided they are within the scope of the law (!) (!) (!) .
Circulars issued by statutory authorities, such as the Reserve Bank of India, which are backed by statutory powers and issued in exercise of those powers, are binding and have the force of law. These circulars govern the conduct of banking transactions, including discounting and rediscounting of bills, and violations of such directions constitute illegal acts under the law (!) (!) (!) (!) .
The concept of "illegal" or "legally bound to do" in the context of banking transactions includes acts that are prohibited by law, or which violate statutory directions, regulations, or guidelines issued by competent authorities. Such violations, especially when involving dishonesty or breach of prescribed procedures, can lead to criminal liability, including offences under the Indian Penal Code relating to criminal breach of trust and conspiracy (!) (!) (!) .
The elements of criminal breach of trust involve being entrusted with property or having dominion over it, dishonestly misappropriating or converting it, or using it in violation of law or contractual directions. Officers entrusted with public funds or bank property are liable if they act dishonestly or in contravention of lawful directions, and mere errors of judgment do not amount to criminal breach of trust (!) (!) .
Criminal conspiracy requires an agreement between two or more persons to commit an illegal act or an act by illegal means. The existence of conspiracy can be inferred from circumstantial evidence, conduct, and surrounding circumstances, and need not be proved through direct evidence. The offence is substantive and continues until the agreement is terminated (!) (!) (!) .
The law recognizes that acts undertaken in good faith, with genuine intent, and in accordance with lawful directions, do not amount to criminal offences. In cases where transactions are carried out in accordance with statutory guidelines and proper procedures, and without dishonest intent, criminal liability may not be established (!) (!) (!) .
Prior sanction from the Board of Directors is necessary for transactions exceeding prescribed limits, and failure to obtain such approval can render the transactions illegal and subject to criminal liability. However, subsequent ratification does not substitute for prior approval, and the absence of prior sanction is a significant factor in assessing legality (!) (!) .
The use of false documents, misrepresentation, or violation of procedural safeguards, especially when involving large sums and interconnected entities, indicates a conspiracy and dishonest intent. Such conduct can establish criminal conspiracy and breach of trust under the law (!) (!) (!) .
The conduct of officers and employees in handling public funds must adhere to statutory and procedural guidelines. Violations that result in wrongful loss to the bank or wrongful gain to others, especially when done dishonestly and in violation of directions, constitute criminal breach of trust (!) (!) (!) .
The decision-making process involving high-ranking officers must be transparent and in accordance with prescribed limits and procedures. Unauthorized transactions, especially those involving connected entities and without proper security or approval, are unlawful and can lead to criminal charges (!) (!) .
The court emphasizes that the law considers the intent, conduct, and procedural compliance in determining criminal liability. Acts done in good faith, following statutory directions, and without dishonest intent, do not constitute offences, whereas acts involving dishonesty, falsehood, or violation of statutory directives do (!) (!) .
In cases of conspiracy, the existence of a meeting of minds, circumstantial evidence, and conduct of the accused are crucial in establishing the offence. Mere knowledge or discussion without an agreement does not suffice; an unlawful agreement must be inferred from the circumstances (!) (!) .
The law also recognizes that acts performed in the course of banking operations, if in violation of statutory directions or guidelines, can be criminally liable if they involve dishonesty or breach of trust, especially when public funds are involved (!) (!) .
The penalties and sentences are proportionate to the offences proved, and in the absence of an appeal for enhancement by the prosecution, the court cannot impose a higher sentence than that awarded by the trial court (!) (!) .
These points collectively reflect the legal principles underlying the case regarding jurisdiction, the scope of securities, the binding nature of statutory directions, elements of criminal breach of trust and conspiracy, procedural requirements, and the importance of honest conduct in banking transactions.
Judgment :-
S.B. Sinha, J.
INTRODUCTION
These appeals arise out of a judgment and order dated 9.6.2005 passed by the learned Judge, Special Court, Bombay constituted under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (for short, "the said Act") in Special Case No. 1 of 1993 whereby and whereunder appellants herein with accused Munipally Subramanium Eshwar Chandra (Accused No. 6), Sunil Samtani (Accused No. 7) and Pankaj Brijlal Shah (Accused No. 9) were convicted for commission of offences punishable under Sections 409 and 120B amongst others and sentenced as under:
.(a) Accused No. 1, K. Margabanthu was sentenced to undergo R.I. for a period of six months and to pay fine of Rs.1,00,000/-, in default S.I. for two months.
.(b) Accused No. 2, Ramaiya Venkatkrishnan was sentenced to undergo R.I. for three months and to pay fine of Rs.50,000/-, in default S.I. for 15 days.
.(c) Accused No. 4, Ashwin Mehta was sentenced to undergo R.I. for a period of three months and to pay fine of Rs. 2,00,000/-, in default S.I. for one month.
(d) Accused No. 5, Sudhir Mehta was sentenced to undergo R.I. for a period of three
months and to pay fine of Rs.2,00,000/-, in default S.I. for one month.
.(e) Accused Nos. 6, Munipally Subramanium Eshwar Chandra, Accused No. 7 Sunil Samtani, Accused No. 9 Pankaj Brijlal Shah were directed to pay fine in the amount of Rs.25,000/- each, in default S.I. for 15 days.
.(f) Accused No. 8, S.V. Ramanathan was sentenced to undergo R.I. for a period of one month and to pay fine of Rs. 25,000/- in default R.I. for 15 days.
Before proceeding further, we may place on record that Harshad Shantilal Mehta (Original Accused No. 3) expired during the pendency of the criminal proceedings and the case against him, thus, abated. Accused Nos. 1, 2 and 8 who are appellants in Criminal Appeal Nos. 945, 965 and 922 of 2005 respectively were the Chairman-cum-Managing Director, the General Manager and the Divisional Manager of UCO Bank respectively.
Whereas Accused No. 1 and 2 have been found guilty of committing both Criminal Breach of Trust as well as Criminal Conspiracy, Accused No 8, being a Scale IV Bank employee was found guilty only for commission of the offence of criminal conspiracy. Accused Nos. 4 and 5 (hereinafter referred to as, "the private accused") were found guilty of commission of offences only under Section 120B of the Indian Penal Code being related to and otherwise connected with the activities of the original accused No.
3. Accused Nos. 6, 7 and 9 on whom only a punishment of fine was imposed accepted the judgment and have not preferred any appeal before this Court.
BACKGROUND FACTS
The prosecution case centers around transactions, of discounting and rediscounting of Bills of Exchange and two Pay Orders issued by the State Bank of Patiala and Syndicate Bank, in favour of the UCO Bank. This was said to be at the instance of the private accused.
Harshad Mehta was a dealer in the money and securities market. The Reserve Bank of India had found that Harshad Mehta along with his other associates had diverted a huge amount of public fund belonging to Public Sector Banks and Financial Institutions for short term investment in the securities market, and thus defrauded the banks of a huge amount.
An Inquiry Committee was thereafter constituted under the Chairmanship of Shri Janakiraman. The Committee submitted its report; pursuant to and in furtherance whereof the said Act was enacted providing inter alia for the constitution of a Special Court for trial of the criminal offences, as also civil disputes arising therefrom during the period between 1.4.1991 and 6.6.1992. The said Act provides for the appointment of a Custodian for attaching the properties of notified parties to prevent diversion of such properties. The properties which were attached included shares of various companies as well as moveable and immoveable properties of the private parties herein.
Accused No. 1 b
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