IMPORTANT POINT
Fraud on bank by a customer is not merely breach of terms of a civil contract or agreement. Criminal proceedings in such cases should not be interfered with.

Headnote:(a) Banking Laws - Banking fraud - Practice of the bank to permit overdraft facility to credit worthy customers - Cannot be equated with simple civil contracts and agreements - In civil contracts a party cannot initiate criminal proceeding merely on breach of terms and conditions of the contract - Customer of Bank committing fraud on Bank stands on a different footing. (Para 7)
        (b) Code of criminal Procedure, 1973 - Section 482 - Inherent power - Exercise of - Principles restated - In case of Bank fraud possibility of recovering money through DRT etc. is no ground to quash criminal proceeding - Unless a dispute is purely civil in nature, criminal proceeding can proceed simultaneously. (Paras 9 and 10)
        (2009) 6 SCC 351; (2008) 8 SCC 781 - Relied upon
        (2010) 8 SCC 442 - Distinguished
        (c) Code of Criminal Procedure, 1973 - Section 482 - Bank fraud - Facts most likely to make out criminal offence as alleged - High Court itself refusing to exercise its power u/s 482 on two previous occasions - Quashing criminal proceedings not proper. (Para 12)
       Facts of the case:
        This case relates to bank fraud of 2.51 crores.
        According to the allegations, the fraud was based upon a simple modus operandi. The accused presented cheques drawn in their favour to the Tamil Nadu Mercantile Bank Ltd. Tiruppur Branch for encashment knowing well that there was not enough balance in the accounts of the drawers because the cheques were drawn by parties known to them. Thereafter, the Branch Manager, in the garb of understanding or arrangement known as 'Local Bill Discounting' credited the accounts of the accused presenting such cheques before they were sent to the drawee bank for clearance. Immediately on the account being credited with the cheque amount, such amount was withdrawn. Later, when the cheques returned unhonoured on account of insufficient balance, the accused, for clearing the debt used to deposit similar cheques for even higher amounts. Against such cheques also the accounts of the accused were credited with higher amounts and the money used to be withdrawn. Due to repeat of such trick several times, by the time the fraud was discovered, the Trippur Branch had been defrauded to the tune of appoximately Rs.2.51 crores. Altogether 1476 cheques were encahsed.
        FIR was lodged and charge sheet was filed against 10 persons. But in the meantime the accused persons approached the High Court in 2004 u/s 482, CrPC for quashing of the FIR. This was not allowed in view of the charge sheet.
        Accused persons again approached the High Court in 2007 for quashing of criminal proceedings. This was also not allowed and the High Court directed to complete the trial expeditiously.
        Accused persons again approached the High Court in 2009 for quashing of the criminal proceedings and this has been allowed.
       Finding of the Court:
        High Court erred in quashing the criminal proceedings.
       Result : Appeal allowed.

JUDGMENT

SHIVA KIRTI SINGH, J

Leave granted.

2. By the common judgment and order dated 17.9.2009 in CRLOP No.12646/2007 and 18297/2009, the learned Single Judge of the Madras High Court has allowed two petitions both under Section 482 of the Code of Criminal Procedure (for brevity.P.C.) preferred by the respondents and quashed criminal proceedings against some of the accused in Criminal Case No. 462 of 2004 pending before the learned Magistrate-II Tiruppur for offences punishable under Sections 406, 409, 420 and 120(b) IPC.

3. Before granting relief to the five petitioners out of ten accused, the High Court noted the relevant facts in brief which disclose that out of ten accused in the charge-sheet dated 20th September 2004, the first five accused are Managing Director/Managing Partner/Director/Proprietor of different private limited companies, partnership firms/proprietary firms. Some of them are related to each other and some are family friends. Accused nos. 6 to 10 are Managers and Officials of Tamil Nadu Mercantile Bank Limited (hereinafter referred to as ‘Bank’), Tiruppur alleged to have colluded with the respondents in perpetration of a fraud against the bank. They are not the parties before this Court.

4. Considering the stage of the proceedings, it is not necessary or desirable to go into the facts of the criminal case in detail. It is sufficient to notice that the respondents accused were operating current accounts with the bank from the year 2000. Allegedly a fraud was perpetrated by them in collusion with the Branch Manager of the appellant Bank and other accused during the period September, 2002 and May, 2003 to the tune of Rs.2.51 crores approximately. The fraud was discovered in June, 2003 after the erstwhile Branch Manager of the appellant Bank was transferred and a new Branch Manager took over. On discovering the fraud the new Branch Manager lodged a complaint with police station, Central Crime Branch, Coimbatore leading to First Information Report dated 20th June 2003 bearing Crime No.13 of 2003 against the accused respondents and concerned officers of the Bank. According to the allegations, the fraud was based upon a simple modus operandi. The accused presented cheques drawn in their favour to the Tiruppur Branch of the Bank for encashment knowing well that there was not enough balance in the accounts of the drawers because the cheques were drawn by parties known to them. Thereafter, the Branch Manager, in the garb of understanding or arrangement known as ‘Local Bill Discounting’ credited the accounts of the accused presenting such cheques before they were sent to the drawee bank for clearance. Immediately on the account being credited with the cheque amount, such amount was withdrawn. Later, when the cheques returned unhonoured on account of insufficient balance, the accused, for clearing the debt used to deposit similar cheques for even higher amounts. Against such cheques also the accounts of the accused were credited with higher amounts and the money used to be withdrawn. Due to repeat of such trick several times, by the time the fraud was discovered, the Trippur Branch had been defrauded to the tune of appoximately Rs.2.51 crores. According to the charge-sheet, accused Senthil Kumar presented 1278 cheques during the period, accused Sanjay presented 99 cheques, accused Murugananthan presented 90 cheques, accused K.M.M. Murali presented 6 cheques and accused Mahamuni presented 3 cheques.

5. On the basis of FIR, Police initiated investigation and ultimately filed a charge-sheet on 20th September, 2004 against ten persons as noted earlier. But prior to that, the accused respondent and some others filed a petition under Section 482 Cr.P.C. for quashing of the FIR. On filing of reply by the informant that petition filed on 7.6.2004 was withdrawn. After the charge-sheet, on 18.10.2004 the accused respondents along with other accused filed another petition under Section 482 Cr.P.C for quashing of the FIR. That was

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2013 Supreme(SC) 1046

IMPORTANT POINT Fraud on bank by a customer is not merely breach of terms of a civil contract or agreement. Criminal proceedings in such cases should not be interfered with.

Cases Referred (3)

IMPORTANT POINT
Fraud on bank by a customer is not merely breach of terms of a civil contract or agreement. Criminal proceedings in such cases should not be interfered with.