2009 (8) TMI 693 - SC - Companies Law

Supreme Court affirms convictions for criminal conspiracy, modifies sentences, emphasizes RBI Circular violations. Acquittal for Accused No. 8.

Sudhir Shantilal Mehta Versus Central Bureau of Investigation

The Supreme Court upheld the convictions of Accused Nos. 1, 2, 4, and 5 for criminal conspiracy and criminal breach of trust, modifying their sentences. ... Whether the property of the bank was dishonestly used or disposed of in violation of any direction of law prescribing the mode therefor? Held that:- Legally the Bank would have been concerned only with M/s. J.H. Mehta. But the letter of Growmore signed by accused No. 4 clearly indicates his involvement in the Criminal conspiracy. So far as accused No. 5 is concerned, it is he who had signed the Bill of Exchange as the Power of Attorney of the proprietors of M/s. J.H. Mehta. It is he who had signed the forms for opening the account with the Nariman Point Branch of UCO Bank. He had signed the letter dated 23-3-1992 requesting the Bank to discount the two Bills of Exchange. The relationship between the parties both personal and professional clearly establishes criminal conspiracy on the part of accused No. 5. We therefore affirm the decision of the Special Judge finding accused No. 5 guilty of the offence of Criminal Conspiracy. As already mentioned accused Nos. 6, 7 and 9 have not preferred appeals before us challenging their conviction. We find no reason to interfere with the judgment of conviction arrived at by the learned Special Judge with respect to the said accused. We however disagree with the conclusions arrived at by the learned Special Judge with regard to the guilt of accused No. 8 for the offence of Criminal Conspiracy. The mere fact that he might have been present at the meeting dated 14-3-1992 of the officers of UCO Bank by itself does not in our opinion conclusively prove his involvement in the conspiracy hatched by the other officers of the Bank. Something more was needed to be shown that he was a party thereto. In conclusion we hold accused No. 1 (K. Margabanthu), accused No. 2 (Ramaiya Venkatakrishnan), accused No. 4 (Ashwin Mehta) and accused No. 5 (Sudhir Mehta) guilty of the offence of Criminal Conspiracy. We need not interfere with the conviction of accused Nos. 6, 7 and 9, accused No 8 (S.V. Ramanathan) is acquitted of the charge of Criminal Conspiracy. Issues Involved:1. Criminal Breach of Trust2. Criminal Conspiracy3. Jurisdiction of the Special Court4. Applicability and Binding Nature of RBI Circulars5. Violation of UCO Bank Manual and RBI Circulars6. SentencingDetailed Analysis:1. Criminal Breach of Trust:The Special Court convicted Accused Nos. 1 and 2 for criminal breach of trust, finding that they had been entrusted with UCO Bank's funds and had discounted two Bills of Exchange drawn by M/s. J.H. Mehta and accepted by Growmore and Mazda. The transactions violated the RBI Circular dated 5-9-1988, resulting in a transfer of Rs. 50 crores to Harshad Mehta and his associates. The Court held that the actions of Accused Nos. 1 and 2, in violation of the Circular, constituted an offence under Section 405 of the Indian Penal Code.2. Criminal Conspiracy:The Court found that Accused Nos. 1, 2, 4, and 5 conspired to benefit Harshad Mehta and his group, thus proving the charge of criminal conspiracy. The evidence showed that Accused No. 1 met Harshad Mehta and subsequently initiated the bill discounting transactions through the Nariman Point Branch, despite objections and without following due procedures. The transactions were carried out in a manner that facilitated the unlawful transfer of funds to Harshad Mehta's entities.3. Jurisdiction of the Special Court:The Supreme Court upheld the jurisdiction of the Special Court, stating that the definition of 'securities' under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, is inclusive and should be given an expansive meaning. The Court held that the Special Court's jurisdiction is not confined to securities alone but extends to any amount relating to transactions in securities and matters connected therewith or incidental thereto.4. Applicability and Binding Nature of RBI Circulars:The Court held that the RBI Circulars issued under Sections 21 and 35A of the Banking Regulation Act have statutory force and are binding on all public sector banks. The Circular dated 5-9-1988, which laid down the procedure for rediscounting bills, was applicable to UCO Bank and its officials. The Court rejected the argument that the Circular was merely advisory and not binding.5. Violation of UCO Bank Manual and RBI Circulars:The Court found that the transactions violated the UCO Bank Manual and the RBI Circulars. The Manual required verification of creditworthiness and obtaining security before discounting bills, which was not done. The transactions were carried out without the necessary approvals and in a manner that bypassed established procedures, indicating a lack of bona fide commercial intent.6. Sentencing:The Supreme Court modified the sentences imposed by the Special Court. Accused No. 1 (K. Margabanthu) was sentenced to six months' RI and a fine of Rs. 1,00,000. Accused No. 2 (Ramaiya Venkatakrishnan) had his sentence reduced to one month of RI and a fine of Rs. 1,00,000. Accused Nos. 4 (Ashwin Mehta) and 5 (Sudhir Mehta) were each sentenced to one month of RI and a fine of Rs. 1,00,000. Accused No. 8 (S.V. Ramanathan) was acquitted of the charge of criminal conspiracy. All accused were entitled to set off for the period of imprisonment already undergone.Conclusion:The Supreme Court upheld the convictions of Accused Nos. 1, 2, 4, and 5 for criminal conspiracy and criminal breach of trust, while modifying the sentences. The Court affirmed the jurisdiction of the Special Court and the binding nature of the RBI Circulars, highlighting the violations of established banking procedures and regulations.