Banking directions and criminal liability: bill discounting departures can sustain breach of trust and conspiracy findings.

Special Court jurisdiction extended to offences arising from bill discounting and rediscounting transactions because the statutory definition of securities was inclusive and the enactment was to receive a liberal construction. RBI directions binding on scheduled banks and the bank's internal manual required bona fide commercial bills, proper documentation, security and caution; the transactions violated those safeguards. On that basis, deliberate use of bank funds in disregard of mandatory banking norms amounted to criminal breach of trust, and the coordinated conduct, account opening, fund routing and meetings supported criminal conspiracy. Liability was sustained for the principal accused, while the Scale IV officer was not proved guilty of conspiracy and was also not liable for breach of trust.

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Issues: (i) Whether the Special Court had jurisdiction to try offences arising from the bill discounting and rediscounting transactions under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992; (ii) Whether the Reserve Bank of India circular and the bank's internal manual were binding and whether the transactions violated them so as to attract criminal liability; (iii) Whether the conduct of the bank officers amounted to criminal breach of trust; (iv) Whether the accused shared a criminal conspiracy in relation to the transactions.

Issue (i): Whether the Special Court had jurisdiction to try offences arising from the bill discounting and rediscounting transactions under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992

Analysis: The definition of securities in the special statute was inclusive and not exhaustive. The transactions, though structured as bill discounting, were found to be part of a broader scheme involving deployment of bank funds in relation to securities and connected dealings. The Special Court's jurisdiction extended to offences relating to transactions in securities and matters connected therewith or incidental thereto, and the statute was required to receive a liberal construction in view of its special purpose and non obstante framework.

Conclusion: The Special Court had jurisdiction.

Issue (ii): Whether the Reserve Bank of India circular and the bank's internal manual were binding and whether the transactions violated them so as to attract criminal liability

Analysis: Directions issued by the Reserve Bank of India under its statutory powers were held to have binding force on scheduled banks. The circular governing rediscounting required bona fide commercial bills backed by proper documentation, and the bank manual also required verification of creditworthiness, security and caution in house-bill transactions. The facts showed that the bills were not supported by the original contract note, no adequate security was taken, the accounts were opened and routed in a hurried manner, and the transactions did not satisfy the safeguards required by the circular and the manual.

Conclusion: The circular and the manual were binding, and the transactions were in violation of them.

Issue (iii): Whether the conduct of the bank officers amounted to criminal breach of trust

Analysis: Criminal breach of trust under section 405 requires entrustment or dominion over property and dishonest use or disposal in violation of a direction of law or legal contract. The bank officers were entrusted with public funds and were bound to act within the prescribed banking norms. The Court found that the funds were made available in disregard of the mandatory safeguards, without prior sanction required for the magnitude of the transaction, and in a manner that was not a mere error of judgment but a dishonest use of bank funds in violation of binding directions.

Conclusion: Criminal breach of trust was proved against the concerned bank officers, except that the Scale IV officer was not guilty of that charge.

Issue (iv): Whether the accused shared a criminal conspiracy in relation to the transactions

Analysis: Criminal conspiracy was inferred from the sequence of events, coordinated conduct, rapid creation of accounts and resolutions, participation in meetings, telephone communications, routing of funds, and the absence of bona fide commercial basis. The evidence showed a concerted arrangement to make bank funds available for the benefit of the Mehta group. However, mere presence at a meeting was held insufficient to establish conspiracy against the Scale IV officer without further incriminating material.

Conclusion: Conspiracy was proved against the principal bank officers and the private accused involved, but not against the Scale IV officer.

Final Conclusion: The convictions for criminal breach of trust and conspiracy were substantially sustained, one accused was acquitted of conspiracy, and the sentences were modified only to the limited extent ordered.

Ratio Decidendi: Statutory banking directions governing bill discounting are binding on public sector banks, and deliberate deviation from them in a coordinated scheme to divert bank funds can constitute criminal breach of trust and criminal conspiracy even where the transaction is outwardly structured as a commercial bill arrangement.

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