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SUPREME COURT OF INDIA
S. RAVINDRA BHAT, ARAVIND KUMAR, JJ.
Religare Finvest Limited – Appellant
Versus
State of NCT of Delhi and Another – Respondents
Criminal Appeal Nos. 2242, 2243 of 2023
Decided On : 11-09-2023
Criminal Procedure Code, 1973 – Section 482 – Corporate criminal liability – Summoning order – Every scheme of amalgamation is statutory and sanctioned under Banking Act – Such amalgamation is to ensure that interests of depositors, creditors and others who had invested, or given credit to in erstwhile bank, before its sickness and that general public are protected – It aims at securing larger public interest and health of banking industry – Late intervention into affairs of a bank can result in a “run” on it, resulting in serious loss of confidence in intricately woven banking and financial system – There is no involvement of DBS Bank, revealed in charge-sheet filed by Delhi Police – Power to quash a criminal investigation or proceedings should not be lightly exercised – Yet, to refuse recourse to that power, in cases that require or may demand it, is being blind to justice which courts can scant afford to be – In present context, public’s confidence in banking industry was at stake when RBI stepped in, imposed moratorium and asked DBS to take over entire functioning, management assets and liabilities of erstwhile LVB – To permit prosecution of DBS for acts of LVB officials who are in fact, facing criminal charges, would result in travesty of justice – Impugned Judgment set aside. (Paras 32, 34, 35 and 36)
Facts of the case:
Present appeals arise from a final order of Delhi High Court rejecting a petition for quashing criminal proceedings, filed by DBS Bank India Limited (“DBS”). In two appeals, Religare Finvest Limited (“RFL”) and DBS have challenged impugned order. To be more specific, they are also impleaded as second respondents in each other’s appeal.
Findings of Court:
Pending criminal proceedings (arising out of FIR – 189/2019 registered at P.S. Economic Affairs Wing, New Delhi), to the extent it involves DBS, which was the subject matter of the impugned judgment and all consequent proceedings arising therefrom (to the extent of involvement of DBS), are hereby quashed.
Result : Appeals Partly allowed.
JUDGMENT :
S. RAVINDRA BHAT, J.
1. These appeals1 [Crl. Appeal No. 2242/2023 and Crl. Appeal No. 2243/2023] arise from a final order2 [Dated 24.3.2023 in Crl. M.C. No. 3173 of 2021] of the Delhi High Court rejecting a petition for quashing criminal proceedings, filed by the DBS Bank India Limited (second respondent in the first appeal/appellant in second the appeal) (hereafter “DBS”). In the two appeals, Religare Finvest Limited (hereafter “complainant” or “RFL”) and DBS have challenged the impugned order. To be more specific, they are also impleaded as second respondents in each other’s appeal.
2. RFL filed a commercial suit3 [Comm. No. 940/2018] seeking to recover Rs. 791 Crores from (the erstwhile) Laxmi Vilas Bank (hereafter “LVB”). The claim was based on the allegations that LVB misappropriated Fixed Deposits (“FDs”) furnished as security by RFL and its group companies, namely RHC Holding Pvt. Ltd. (hereafter “RHC Holding”) and Ranchem Pvt. Ltd. (hereafter “Ranchem”) to secure short-term loans.
3. Subsequently, on 23.9.2019, RFL lodged a criminal complaint asserting that officials of LVB had conspired with RHC Holding and Ranchem. This led to the registration of FIR4 [FIR No. 189/2019] by the Economic Offences Wing under Sections 409 and 120B of the Indian Penal Code, 1860 (IPC) (registered as Crime No. 1534/2020). The contents of the FIR alleged that RFL had placed four FDs with a combined value of Rs. 750 Crores as security for short-term loans. LVB extended loans to RHC Holding and Ranchem, utilizing these FDs as security. When RHC Holding and Ranchem defaulted on their loan payments, LVB debited an amount of Rs. 723.71 crores from RFL's current account without obtaining proper authorization or prior notice.
4. Meanwhile, due to high net levels of Non-Performing Assets, inadequate Capital to Risk (Weighted) Average Ratio and Common Equity Tier-I Capital, two years of negative Return on Assets, and high leverage, the Reserve Bank of India (hereafter “RBI”) placed LVB under “Prompt Corrective Action.”5 [Prompt Corrective Action (PCA) Framework is to enable Supervisory intervention at appropriate time and require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health. The PCA Framework is also intended to act as a tool for effective market discipline. The PCA Framework does not preclude the Reserve Bank of India from taking any other action as it deems fit at any time in addition to the corrective actions prescribed in the Framework]
5. A charge-sheet was filed against ten bank officials of LVB; however, LVB itself was not implicated as an accused. The Chief Metropolitan Magistrate took cognizance of these offenses on September 17, 2020 [State vs. Malvinder Mohan Singh, Crime Case No. 1534/2020].
6. On November 17, 2020, RBI imposed a moratorium6 [Moratorium order dated 17.11.2020] on LVB in terms of Section 45(2) of the Banking Regulation Act, 1949 [hereafter “the Banking Act”]. On November 25, 2020, due to LVB's unstable financial condition, the Central Government directed its non-voluntary amalgamation to DBS7 [under section 45(7) of the Banking Regulation Act, 1949].
7. On February 12, 2021, a supplementary charge-sheet or final report was filed, to implead LVB, represented through its director, (now DBS Bank India Limited after amalgamation), as an accused8 [in Crime No. 1534/2020] along with bank officials and the companies RHC Holding and Ranchem. It was alleged that LVB and other accused parties conspired to siphon off funds that were lent, and belonged to RFL. LVB stood to make substantial profits from this lending, as it obtained the FDs at a 4.5% interest rate and then ostensibly lent the money at a rate of 10% p.a. Investigation revealed that LVB's actions were based on the premise that RFL, RHC Holding, and Ranchem were group companies under the same promoters. LVB created security against FDs of RFL. However, proper authorization from RFL was not s
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Vicarious liability cannot be imposed on directors solely by virtue of their positions; specific allegations of wrongdoing must exist for criminal liability to be established.
The amalgamation of banks under financial distress requires proper valuation and procedural transparency; the writing down of shares and bonds must comply with statutory provisions.
Settlement of monetary disputes does not automatically justify the quashing of criminal proceedings in cases involving serious allegations of criminality.
A corporation can be prosecuted for criminal offences requiring mens rea, as the intent of its directors can be attributed to the company.
Section 32A of the IB Code, 2016 provides immunity to corporate debtors from prosecution for prior offences upon approval of a resolution plan, ensuring a clean slate for new management.
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