CASE NO.:
Appeal (crl.) 1097 of 1999
PETITIONER:
RAM NARAIN POPLI
RESPONDENT:
CENTRAL BUREAU OF INVESTIGATION
DATE OF JUDGMENT: 14/01/2003
BENCH:
M.B. SHAH & B.N. AGRAWAL & ARIJIT PASAYAT
JUDGMENT:
JUDGMENT 2003(1) SCR 119 The Judgments/Order of the Court were delivered SHAH, J. The entire prosecution version is around the following five transactions entered into by Maruti Udyog Limited (hereinafter referred to as 'MUL'), through United Commercial Bank (hereinafter referred to as "UCO Bank') wherein Harshad S. Mehta A-5 is payee or recipient of the amount, which are mentioned hereunder:-
___________________________________________________________________________ __ Trans. A-5 Dates Days Rate of Amt. Rs. Interest Amount No. From To % Rs. Repaid (Rs)
01. Lent 24.01.91 25.02.91 32 12.75 4,99,45,000 5,58,250 5,05,03,250 to MUL Remarks-MUL delivered 35 lacs Units of UTI to A5.
02. Borrow-13.03.91 25.03.91 12 16.75 10,11,50,000 5.56,995 10,17,06,200
-ed Remarks-UCO gave BR to MUL for 70 lacs Units.
03. Borrow- 18.03.91 22.03.91 5 21.00 10,83,75,000 3,11,775 10,86,86,775
-ed Remarks-UCO gave BR to MUL for 75 lacs Units.
04. Borrow- 24.04.91 26.04.91 2 26.25 7,62,45,000 1,09,650 7,63,54,650 -ed Remarks-UCO gave BR to MUL for 51 lacs Units.
-05. Borrow- 02.05.91 07.05.91 5 25.00 10,39,50,000 2,99,090 10,42,49,090 - ed ___________________________________________________________________________ __________ Remarks-Number of Units not known but only value stated in chargehseet.
Undisputedly, (a) the receipt and the payment of amount was for a fixed period; (b) interest rate was fixed and was received or paid as agreed; (c) for the first transaction, before receiving the money, MUL gave UTI units as a security; for 2nd, 3rd and 4th transactions UCO bank issued Banks Receipts (BRs); (d) the transactions are squared-up on fixed date i.e. the amount is repaid on date fixed; (e) commission/brokerage is received and credited by the UCO Bank for which there are credit entries in the account books; (f) there is no loss to the MUL and the UCO Bank; (g) accounts of UCO Bank are audited, no objection is raised by internal or external auditors; and (h) accounts of MUL are also audited and there is no objection raised by the internal or external auditors to such transactions;
(i) no suggestion that any accused gained by such transactions except that A-5 got loan.
On the basis of the aforesaid special features of the prosecution story, the Special Court, Bombay under Special Court (Trial of Offences Relating to Transactions In Securities) Act, 1992, (hereinafter referred to as the "SCAM Act") in Special Case No.6 of 1994 [RC.2(A)/93-ACU-VII] tried five accused for the offences of cheating, criminal breach of trust, forgery by using forged documents, abuse of public offices and dishonest misappropriation of the public funds under Section 120B read with Sections 420, 409, 467 and 471 of the Indian Penal Code (IPC) and Section 13(lXc) read with Section 13(2) of the Prevention of Corruption Act, 1988 (hereinafter referred to as "the PC Act"). A-l Pramod Kumar Pritam Lal Manocha, A-2 Ambuj Sushil Kumar Jain and A-3 Vinayak Narayan Deosthali were separately charged under Section 13(1)(c) read with Section 13(2) of the PC Act as also under Section 489 of IPC. For being a Bank employee, A-4 Ram Narayan Popli was also charged under Section 409 of IPC. A-3 in addition was charged for the offence punishable under Section 420 IPC for cheating MUL and was also charged under Section 471 read with Sections 467 and 468 of IPC for fradulently and dishonestly using letter-heads and BRs of UCO Bank, Hamam Street Branch, Bombay knowing the same to be false and forged documents as also forging certain documents to be used as valuable securities. A-5 Harshad Shantilal Mehta was also charged for the offence punishable under Section 403 of IPC.
By judgment and order dated 27th/28th September, 1999, the learned Special Judge acquitted accused No.2 and convicted accused Nos.l, 3, 4 and 5 as under:-
1. "A-l Pramod Kumar Pritam Lal Manocha, A-3 Vinayak Narayan Deosthali, A-4 Ram Narayan Popli and A-5 Harshad Shantilal Mehta are convicted being the parties to criminal conspiracy alongwith Mr. Mohan D. Khandelwal (PW23) between the period of April - May, 1989 to May, 1991 in Bombay and Delhi, the object of which was to divert the surplus funds of MUL lying with its account in Canara Bank, Sansad Marg, New Delhi branch to the account of A-5 HSM with ANZ Grindlays Bank, Sansad Marg, New Delhi branch and thereby committing offences of criminal breach of trust fraudulently using forged documents, abuse of public offices, dishonest appropriation of the amount of Rs.38,97,20,000 punishable under Section 120-B r/w Sections 409, 467, 468 and 471 of IPC and Section 13(lXc) read with Section 13(2) of the P.C. Act, 1988.
2. ACCUSED NO.l Pramod Kumar Pritamlal Manocha-
(i) A-l is convicted for furtherance of criminal conspiracy in his capacity as a public servant viz. being Deputy Manager (Finance) of MUL at the relevant time, for causing and/or allowing MUL's fund wrongfully to be gained by A-5 HSM, being an offence punishable under Section 13(l)(c) read with 13(2) of the PC Act, 1988;
(ii) A-l is convicted for offence punishable under Section 409 of IPC for committing criminal breach of trust in respect of property of Maruti Udyog Limited, Delhi, then Government company of 35 lakhs Units of UTI, valued at Rs.4,99,45,000 by dishonestly and in violation of specific directions of the Board of Directors of MUL, delivering the same to Mr. Mohan D. Khandelwal (PW23) in knowing that Mr. Khandelwal was an Attorney of accused no.5 Harshad S. Mehta;
(iii) A-l is convicted for offence under Section 409 of IPC for committing criminal breach of trust in respect of MUL's property viz. Canara bank's bankers cheque no.645585 dated 13.3.1999 (Ex.13) for a sum of Rs.l 0,11,50,000 drawn in favour of Grindlays Bank and made payees A/c only, by dishonestly delivering the same to Mr. Anuj Kalia (PW16) knowing that the said Mr. Anuj Kalia was an employee of accused no.5-HSM;
(iv) A-l is convicted for offence under Section 409 of IPC for committing criminal breach of trust in respect of MUL's property viz. Canara Bank's Bankers Cheque No.863260 dated 2.5.1991 (Ex.36) for a sum of Rs.l0,39,50,000 drawn in favour of Grindlays Bank and made payees A/c only by dishonestly delivering the same to Mr. Anuj Kalia (PW-16) knowing that the said Mr. Anuj Kalia was an employee of accused no.5 - HSM;
3. ACCUSED NO.3 Vinayak Narayan Deosthali-
(i) A-3 is convicted for an offence under Section 13(lXc) read with Section 13(2) of PC Act in furtherance of criminal conspiracy, in his capacity as a public servant viz. being Asstt. Manager of UCO Bank, Hamam Street Branch, Bombay which is the Government of India undertaking being a nationalised bank for abusing his position as a public servant and allowing use of funds of MUL to be wrongfully gained by A-5;
(ii) A-3 is convicted under Section 467 of IPC in furtherance of criminal conspiracy, he on or about 23.1.1991 at Bombay having forged a letter dated 23.1.1991 (Ex.58) with the dishonest intent of authorizing remittance of MUL's funds of Rs.4,99,45,000 to Bank of America, New Delhi by accused No.5 to MUL, Delhi and further dishonestly authorizing the delivery of valuable securities of 35 lacs of units of UTI belonging to MUL to Mr. Mohan D. Khandelwal, an attorney of A-5;
(iii) A-3 is convicted under Section 468 IPC for having forged letter dated 23.1.1991 of UCO Bank, Hamam Street Branch, Bombay intending that the same could be used for cheating;
(iv) A-3 is convicted under section 471 r/w section 467 and 468 of IPC for having forged a letter dated 23.1.1991 (Ex.58) of UCO Bank, Hamam Street Branch, Bombay knowing it to be a false and forged document;
(v) A-3 is convicted under Section 467 of IPC for having forged on or about 13.1.1991 the document to be a valuable security with the banker receipt No.1121 dated 13.3.1991 (Ex.38) for Rs.l0,11,50,000 with intent to make MUL believe the UCO Bank, Hamam Street Branch, Bombay was holding 70 lacs units of UTI for the face value of 7 crores and which UCO Bank was to deliver to MUL;
(vi) A-3 is convicted under Section 468 of IPC for forging valuable security with Bankers Receipt No.l 121 dated 13.3.1991 (Ex.38) of UCO Bank for the sum of Rs.l0,11,50,000 in the name of MUL with the intent that the said document should be used for cheating;
(vii) A-3 is convicted under Section 471 r/w sections 467 and 468 of IPC for dishonestly using forged bankers receipt No.1121 for the sum of Rs.10,11,50,000 (Ex.38) as genuine;
(viii) A-3 is convicted under Section 467 of IPC for having forged at Bombay the letter dated 13.3.1991 (Ex.60) on the letter head of UCO Bank, Hamam Street Branch, Bombay with the intent to dishonestly authorize remittance of funds of MUL amounting to Rs.l0,11,50,000 to Grindlays Bank knowing that the said remittance was meant to cause wrongful gain to A-5;
(ix) A-3 is convicted under Section 468 of IPC for having forged the letter dated 13.3.1991 (Ex.60) intending that it should be used for cheating;
(x) A-3 is convicted under Section 471 r/w Sections 467 and 468 of IPC for having fraudulently and dishonestly used the letter dated 13.3.1991 (Ex.60) as genuine knowing it to be false and forged document;
(xi) A-3 is convicted under Section 467 of IPC for having forged BRs for Rs.l0,83,75,000 (Ex.39) with the intent to make MUL believe that UCO Bank was holding 75 lacs units of UTI of the face value of Rs.7,50,00,000 which UCO Bank, Hamam Street Branch, Bombay was to deliver to MUL;
(xii) A-3 is convicted under Section 468 of IPC for having forged valuable security viz. BR No.1132 dated 18.3.1991 for Rs.l0,83,75,000 (Ex.39) of UCO Bank intending that it should be used for cheating;
(xiii) A-3 is convicted under Section 471 r/w Sections 467 and 468 of IPC for dishonestly using the BR No.l 132 dated 18.3.1991 for Rs. 10,83,75,000 (Ex.39) as genuine;
(xiv)A-3 is convicted under Section 467 of IPC for having forged valuable security of UCO Bank, Hamam Street Branch, Bombay viz. BR No.166 dated 24.4.1991 for Rs.7,62,45,000 (Ex.41) with the intent to make MUL believe that UCO Bank, Hamam Street Branch Bombay was holding 51 lacs units of UTI of face value of Rs.5,10,00,000 with UCO Bank to be delivered to MUL;
(xv) A-3 is convicted under Section 468 of IPC for having forged valuable security being BR No. 166 dated 24.4.1991 for Rs.7,62,45,000 (Ex.41) with the intent to make MUL believe that it should be used for cheating;
(xvi)A-3 is convicted under Section 471 r/w Sections 467 and 468 of IPC for having fraudulently and dishonestly used the said BR dated 24.4.1991 (Ex.41) as genuine knowing it to be a false and forged document;
4. ACCUSED NO.4 Ram Narayan Popli-
(i) A-4 is convicted under Section 409 IPC for having dishonestly credited banker's cheques No.645532 dated 25.2.1991 for sum of Rs.5,05,03,250 (Ex.28), 646402 dated 18.3.1991 for Rs. 10,83,75,000 (Ex.32) and 863237 dated 24.4.1991 for Rs.7,62,45,000 favouring Grindlays Bank into the account of accused no.5 HSM with Grindlays Bank, New Delhi instead of crediting the said Cheque into the account of Grindlays Bank, New Delhi;
5. ACCUSED NO.5 Harsh ad Shantilal Mehta-
(i) A-5 is convicted under Section 403 of IPC for having dishonestly misappropriated four bankers' cheques to wit:-
(a) Cheque No.645585 dated 13.3.1991 for Rs.l0,11,50,000, (ii) cheque no.646402 dated 18.3.1991 for Rs. 10,83,75,000, (iii) cheque no.863237 dated 24.4.1991 for Rs.7,62,45,000, (iv) Cheque no.863260 dated 2.5.1991 for Rs. 10,39,50,000 [Exs. 30, 32, 34 and 36] aggregating to Rs.38,97,20,000 drawn by MUL on its bankers viz. Canara Bank, Sansad Marg Branch, New Delhi in favour of Grindlays Banks.' Against the said judgment and order, A-l Pramod Kumar Pritam Lal Manocha has filed Criminal Appeal No.l 117 of 1999, A-3 Vinayak Narayan Deosthali has filed Criminal Appeal No. 1141 of 1999, A-4 Ram Narayan Popli has filed Criminal Appeal No. 1097 of 1999 and A-5 Harshad Shantilal Mehta has filed Criminal Appeal No. 1150 of 1999. Against the acquittal order of A-2 Ambuj Sushil Kumar Jain, Central Bureau of Investigation has filed Criminal Appeal No.521 of 2000.
It is to be stated that pending hearing and disposal of these appeals A-5 expired on 31.12.2001. Normally, appeal would have abated against him. However, his wife filed Criminal Misc. Petition No.574 of 2002 on 16.1.2002 for continuing the said appeal. By order dated 24.1.2002, we granted such permission and appeal is heard on merits.
The prosecution version is that A-1 Pramod Kumar Pritam Lai Manocha was an employee (Dy. Manager) of MUL-a government Company as provided under Section 6(l)(vii) of the Companies Act; A-2 Ambuj Sushilkumar Jain was also an employee (Senior Executive) of MUL, who joined MUL on 19.4.1989; A-3 Vinayak Narayan Deosthali was an employee (Assistant Manager) of UCO Bank at Hamam Street Branch, Mumbai; A-4 Ram Narayan Popli was an employee (Officer attached to the Remittance/ Clearance Section) of ANZ Grindlays Bank, Delhi Branch; and A-5 Harshad Shantilal Mehta was a financial broker operating in money market and securities. In short, it is the prosecution version that A-1 to A-5 entered into a criminal conspiracy to siphon off the funds of MUL in favour of A-5 for which afore-quoted five transactions took place, even though there was prohibition on granting loan by MUL to individuals. It is stated that A-l and A-2 were working closely and they had dominion over the property of MUL. A-1 used to place the proposal before the Board and obtain approval for the investments. A-l and A-2 used to give instructions on the basis of which letters addressed to banks were prepared. It is alleged that they misappropriated the property in violation of the law as well as their duty (express and implied) by making it available for use of A-5. This is on account of the fact that they were authorised to invest the money in the defined securities in a transaction with Public Sector Undertakings only. They, however, knowingly entered into a series of transactions, which had the result of making the funds of MUL available to A-5. It is also the prosecution version that they [Al, A2 and A3] being public servants during the material time, abused their position and thereby conferred a pecuniary advantage upon A-5 and in any event while holding office as a public servant obtained a pecuniary advantage for A-5 against public interest. Thus, they were charged with an offence u/s 13(1)
(c) of the PC Act.
It is further stated by the prosecution that A-l alongwith A-3, A-4 and A-5 conspired to obtain funds from MUL under the pretence that the funds were being drawn for purchasing securities from UCO Bank but diverted these funds to the accounts of A-5 for which A-l and A-2 played the role of misrepresenting to MUL and withdrawing the funds. A-3 forged documents which helped A-l to secure the release of monies from MUL. A-l conspired alongwith A-3 and A-4 for making money available to A-5, who became the prime beneficiary of the money. The bankers' cheques were handed over, on the instructions of A-l and A-2, to Anuj Kalia an employee of A-5.
SUBMISSIONS -
Learned senior counsel Mr. Ram Jethmalani appearing for A-5 at the outset submitted that from the aforesaid five transactions, it is apparent that the investment/loan was for a short period. Yield - interest is at a higher rate. According to him, the amount is received and paid on due dates. There is no loss to MUL or to the UCO Bank and the Bank has received commission for the said commercial transactions. First transaction is loan taken by the MUL through UCO Bank from A-5 on the basis of 35 lacs of UTI units given by MUL to A5 through UCO Bank. It is his submission that in view of these facts it is apparent that prosecution is motivated and the conviction of the accused requires to be set aside.
For the prosecution, it is the contention of the learned Solicitor General Mr. Harish N. Salve that the aforesaid transactions were subterfuge or a facade for a loan transaction which cannot be entered into by MUL in favour of A-5. It is his contention mat in the background of the resolutions passed by the Board of Directors of MUL and on the basis of the guidelines issued by the RBI, MUL could not give loan to A-5 and, therefore, there was a conspiracy between A-l and A-5 for diverting the funds of MUL by having subterfuge of sale or purchase of units of UTI by the UCO Bank to MUL. In furtherance of the said conspiracy, for 2nd to 5th transactions, A-l got issued cheques by the Canara Bank in favour of Grindlays Bank which in turn transferred the said amount in account of A-5, first at Delhi and thereafter at Bombay. ANZ Grindlays Bank's Bombay Branch issued cheque to UCO Bank at Hamam Street and from there the amount was paid to A-5.
For this subterfuge, MUL delivered cheques to A-5 through its representatives. If the transaction was between MUL and UCO Bank, the cheque would have been delivered to the representative of UCO Bank either at Delhi or at Bombay. If there was a loan transaction between the MUL and A-5 then there was no necessity of issuing cheque in favour of Grindlays Bank at New Delhi and transferring the said amount to UCO Bank. It is the prosecution version that as the transactions were not genuine and as loan could not be given to A-5 in his individual capacity, it was given to A-5 by creating forged documents.
He pointed out that after receiving the cheques issued by Canara Bank on behalf of MUL in favour of Grindlays Bank, the same were immediately encashed on the same day and thereafter Grindlays Bank, New Delhi again transferred the same to its Bombay branch in favour of A-5. Thereafter, A-5 gave cheques to UCO bank. This itself indicates that as the transactions were not genuine, irregular and illegal procedure was adopted for encashing the cheques. Therefore, this is a case of misappropriation and forgery. Further, if there was genuine sale of units by UCO Bank to MUL, the transactions would have been straight forward between UCO Bank and MUL. It is the prosecution version that brokering by bank is not allowed and, therefore, to contend that commission was paid to UCO Bank is not a just ground for holding that there was no misappropriation or forgery. If there was a genuine transaction then the cheques would not have been issued in favour of Grindlays Bank for so-called expeditious movement of funds. If a person acts in a manner which is sinister or contrary to law then it cannot be said that the transaction was as per the commercial practice. It is a case of forgery because certain sets of documents are created where there is no real or genuine transaction. It is also contended that A-3 was not having any authority to purchase or sell units on behalf of the Bank. Secondly, he got letters. Exs.58, 60 and 61 typed outside the office and nobody knows wherefrom the said letters were got typed and this would not be in normal course of business. This would be a most relevant factor for judging whether his act was dishonest or not. A-3 wrote a document, which he had no authority to write, with a specific motive to enable the transaction to be completed and money pulled out of MUL and he issued Bank Receipts (hereinafter referred to as 'BRs') without having security, namely, having UTI units. The learned counsel admits that there is no direct evidence on record to establish that BRs were issued without possessing the units but inference can be drawn that the same were issued without holding units as A-3 has not maintained any record for this purpose.
Contra, Mr. Jethmalani, learned senior counsel submitted that despite the voluminous record consisting of 40 massive volumes, the case remains a simple one. Admittedly, five transactions took place between MUL and A-5 during the period from end of January to beginning of May, 1991. As per the first transaction, A-5 lent money to MUL. Loan period was for a period of 32 days and the interest rate was 12.75%. MUL returned the loan amount on due date with agreed interest. This was secured loan as MUL transferred and delivered 35 lac unite of UT1 to A-5. Though, formally it was an out and out sale by MUL to A-5, it was understood that this was only to secure repayment of the loan on due date.
It is the case of A-5 that except for first transaction he borrowed money from the MUL because MUL had surplus funds which MUL were to invest and make substantial profits out of investment. A-5 returned the borrowed amount on due date with interest in each transaction. All the said four transactions were backed by BRs as collateral security and the BRs were backed by requisite number of units. Loan was for a short period e.g. 2nd transaction was for 12 days, 3rd was for five days, 4th was for two days and 5th for five days. Interest rate was also high i.e. 16.75%, 21%, 26.25% and 25% respectively.
It is his submission that it is absurd to suggest that A-5 committed any offence or offences, but the prosecution is a piece of political revenge against A-5 for disclosing certain facts to the press against the political leaders. He contends that transactions were loan transactions because in all these transactions the rate of interest and number ;f days for which the loan was being advanced was settled before die money and the units changed hands. This is consistent only with the transaction being a loan transaction. He also submitted that mainly the prosecution case in the FIR dated 15.4.1993 which was lodged after preliminary enquiry which started from 15.9.1992 as well as in the charge-sheet submitted by the CBE on 15.12.1994 was that MUL gave loan to A-5 at a lower rate of interest and suffered toss.
The learned senior counsel submitted that FIR was lodged after investigation for seven months and charge-sheet was submitted after more than one year and eight months, which itself indicates mat CBI knew that there was no case to be put up before a Court and the investigation was kept alive for sordid and dishonest motive. He pointed out that-(I) the CBI itself understood that the FIR was based upon the one single allegation that MUL should have received more interest than it actually received. The charge-sheet nowhere states that at the time of the FIR the nature of these five transactions was misunderstood or that they changed their mind after investigation; (2) paragraph 4 of the charge-sheet expressly confirms that the first transaction was loan transaction inasmuch as it is averred that MUL borrowed the amount at a higher rate of interest at 12,75% per annum for 32 days against physical delivery of 35 lacs Units of the UTI; (3) paragraph 5 of the charge-sheet refers to the transaction of 13th March, 1991 which describes it as an investment of 10 crores and odd from MUL for a period of 12 days at the interest rate of 16,75% per annum. This is nothing but a loan to Harshad S Mehta; (4) paragraphs 6,7 and 8 contain similar descriptions of the remaining transactions.
He further submitted that cheques were drawn in favour of Grindlays bank for expeditious transmission of amounts to A-5, the loan transactions were only for a few days and if couple of days are lost in realising the amounts through normal banking practice, the accused was to lose lacs of rupees. For this, he relied on evidence of prosecution witnesses that such facilities were available only in foreign banks, He contended that there is no evidence on record that Grindlays bank or the Canara bank had any objection to this course of dealing. He further contends that there is no question of conspiracy to siphon off the surplus funds of MUL as the amount was lent on security and repaid with interest on due dates. He contends that prosecution has tried to prove the theory of so-called absurd conspiracy by the sole evidence of approver PW23 and has failed to prove the same miserably. He pointed out that before taking loan, units of UTI were deposited or were with the UCO Bank and there is no evidence on record to establish that units were not with the UCO bank at the time when the BRs were issued. It is his submission that in a criminal prosecution it is absurd to suggest that defence has to prove that BRs were obtained without sufficient security. The prosecution witnesses of the UCO Bank have admitted that necessary record was not maintained by the bank because of heavy pressure of work.
It is a!so submitted that for similar transactions RC.8(BSC)/94/Bom, was lodged and a report was submitted before the Court stating that there was no case against the accused. After investigation, it was discovered that the BRs were indeed backed up by the securities, hence the CBI filed closure report dated 11.11.1994 Ex.A-S-116 before the High Court and the said report was accepted on 17.3.1997. That order was upheld by this Court. However, the CBI proceeded with this prosecution for an oblique motive.
In written submissions filed on behalf of A-5, it has been further stated that the charge against A-5 reads as under: -
"That you accused no.5 in furtherance of the aforesaid conspiracy did dishonestly misappropriate 4 banker's cheques to wit. Cheque No.645585 dated 13.3.1991, cheque no.646402 dated 18.3.1991, cheque no.863237 dated 24.4.1991 and cheque no.863260, dated 2.5.1991 aggregating to Rs.38,97,20,000 drawn by MUL on its bank to wit the Canara Bank, Connaught Place Branch in favour of the ANZ Grindlays Bank and you thereby committed an offence under Section 403 of the IPC."
It is contended that the point of determination is - whether this charge is legally sustainable. In other words whether borrowing money on four occasions and returning it on the due date with interest is an offence under Section 403 of the IPC? The answer to this point is - a resounding No.
The learned senior counsel further submitted that following are the ingredients of the offence charged above: -
(i) that the accused appropriated the cheques to himself; (ii) that the appropriation was a misappropriation; (iii) that it was dishonest He submits that the first ingredient is satisfied-A-5 appropriated the cheques or their proceeds to himself. A person misappropriates only when he appropriates property to himself which in fact belongs to somebody else and he does so without that person's consent. Grindlays bank had not negotiated the loan for itself. Cheques were being issued for the purpose of lending money by MUL to A3. The cheques and their proceeds were meant for the accused and it was the accused who was receiving it by a pay order in the name of Grindlays Bank. It is not the prosecution case that the amount was in fact meant for Grindlays bank but it is the prosecution case that the amount was meant only for A-5.
It is argued that when in the four transaction the loan was advanced by MUL to A-5, it was done every time by a pay order. Under that pay order issued by the Canara Bank, it was to pay a sum of money to Grindlays bank. Grindlays bank acknowledged the receipt. This pay order had been given by the Canara Bank to an employee of A-5. The very fact that this was so handed over shows that Canara Bank must have received instructions from their own customer that the cheque be handed over not to an employee of Grindlays bank but to some other person.
Further, it is submitted that the contention of the prosecution that the Grindlays bank should have first credited the amount to itself and then after some interval paid to its customer A-5, is without any substance as what has been done was only to expedite the payment so that the large amount of interest which was to be paid by A-5 may not go waste. What the Grindlays bank did was to provide a laudable legitimate banking service. In any event, every trifling departure from practice does not make the transaction illegal. At worst it is unusual, but not irregular. For this, it is submitted that PW12 Ashok Monga, Asstt. Manager, ANZ Grindlays Bank has fully supported the existence and propriety of this practice. The kind of pay order like Ex.30 has never been held to be a cheque. To hold it to be a cheque would lead to some absurdity. Section 128 of the Negotiable Instruments Act lays down that when a cheque is crossed, the banker on whom it is drawn shall not pay it otherwise than to banker. It is obvious that if the payee is itself a banker he cannot be expected to present it to another banker for collection. Grindlays Bank cannot open an account with some other bank and cash its Pay orders in that account. Even paying a crossed cheque otherwise than through a bank only renders the bank liable for negligence if somebody suffers a loss. If the banker is certain who the beneficiary of the cheque is, it may well pay out in the certain belief that no loss will occur. It is a manifestly untenable proposition that a criminal breach of trust or misappropriation thereby takes place. Even if it is assumed that the cheque was property of Grindlays bank, the bank cannot be said to have committed any offence by passing on its property to anybody it likes. By allowing the proceeds to be credited to the account of its true customer, the Bank is neither guilty of negligence nor of any criminality. Similarly, no officer of the bank could be held liable for the same and there is no question of any liability for A-5. There is no evidence that Grindlays bank or the Canara bank had any objection to this course of dealings. Certainly there was no intention to cause wrongful loss to anybody because no loss has been caused and no unlawful means were used.
Learned senior counsel referred to the decision in Dr. Vimla v. Delhi Administration, [1963] Suppl. 2 SCR 585 and submitted that unlike the above case, every thing in the present case is above board, there is no deceit, there is no falsehood and suppression of truth.
It is contended that an approver's evidence cannot be accepted without corroboration and certainly not when it is in conflict with the unchallenged testimony of another prosecution witness. There was no justification for the Court to come to the conclusion that it is accused no.5 who is responsible for these pay orders being credited directly in his account. Of course, it is without prejudice to the arguments that the amount is not directly put into his account.
It is contended that even though it was necessary to recall PW16 for the cross-examination on the new falsehoods which were introduced through the examination-in-chief and cross-examination of PW23, but the learned Judge dismissed the application filed on behalf of A-5 and it has caused incalculable damage. The illegality is of such vital importance that it vitiates the entire trial and judgment.
The charge of conspiracy against A-5 is legally and factually absurd, false and frivolous. The alleged conspiracy is supposed to have originated in April/May, 1989. The sole prosecution witness who deposed about the alleged meeting of April/May, 1989 is approver PW23. The evidence discloses that PW23 had stated a willful falsehood in deposing about the said meeting. His own sworn testimony unambiguously establishes that the meeting alleged by him to have taken place could not and did not take place. According to him, the alleged meeting took place either in April or May, 1989 at the office premises of MUL, K.G. Marg, New Delhi. He is categorical that A-5 visited New Delhi once in April or May, 1989. In his cross examination on behalf of Al and A-2, he states that: "I cannot say about the frequency of visits of A-5, but I recollect he having visited Delhi once sometime in April, May, 1989."
PW23 makes passing reference to A-2's presence at the alleged meeting so that it could be said that it was a condonable lapse of memory on his part. On appreciation of his evidence, it cannot be said that he had an understandably vague memory regarding A-2's presence; on the contrary, his deposition evidences vivid details about the role and participation of A-2 at the said meeting. Since A-2 could not even be present at the meeting as he was not employed with MUL on that date, it is abundantly clear that PW23 has deposed falsely about the meeting. If A-2 could not have been present at the meeting, PW23's insistence that A-2 was so present, leads to the irresistible inference that his deposition regarding the alleged meeting is totally concocted.
It has come on record that PW23 disclosed regarding the alleged meeting, only on 10.8.1994. Indeed, the very suggestion by PW23 that a police officer who interrogated him would not question him about the circumstances of five transactions is absurd and incredible. The said meeting being a crucial aspect of the instant prosecution ought to have been referred to in the very first statement of PW23. The fact that it was not so referred to conclusively established that the meeting never took place and reference to it in PW23's later statement of 10.8.1994 and in his judicial confession recorded u/s 164 CrPC was at the instance of the CBI to whose suggestions he readily acceded in view of an agreement to make him an approver. It is further contended by the learned counsel for the appellant that in fact no such meeting ever took place and consequently, the conspiracy charge insofar as it is alleged to have commenced from April/May, 1989 is unsubstantiated by any evidence and in fact falsified by it as-
(a) the veracity of PW23 has been destroyed in cross examination. He denied his taped conversation and feigned ignorance of police statement. He suppressed truth from the JPC.
(b) Para 160 at page 294 of the impugned judgment, contains a legal error. The learned Judge treats as corroborative evidence what in law and common sense is not corroborative evidence at all. Learned Judge has held that evidence of Khandelwal is corroborated from what followed thereafter in the form of various transactions between MUL and A-5. It is contended that the conspiracy of 1989 cannot be corroborated by transaction in 1991.
(c) In charge no.l, one of the objects of the conspiracy is alleged to be 'dishonest misappropriation'. This has obviously reference to the 34th charge against A-5. On the facts this charge cannot be established. For the same reason the charge u/s 409 IPC against A-5 cannot stand. The other section mentioned is 420. The learned Judge has recorded no conviction under this charge and all the accused against whom this charge was framed are deemed to be acquitted of this charge.
The charge of conspiracy is cooked up to cover first three transactions which were prior to 1st April, 1991. Further, the RBI's Circular dated 09.9.1992 Ex.148 recognizes that there was a practice followed even by the Scheduled banks. When tanks follow a particular practice they do so at least in the bonafide belief that the practice did not violate any law. If a practice is illegal, it may not convert that which is illegal into legal but it certainly provides for bonafides and absence of dishonesty. From this circular, it is clear that the scheduled banks were being advised against a practice which might put them in difficulty. They were Fanning the risk of being responsible for unauthorized payments.
MOTIVATION BEHIND THE INSTANT CASE:
There are several salient features of the instant prosecution which clearly show that the entire investigation has been dishonest.
it is almost Me to suggest that the SCAM Act was promlgated with a view to recover public monies lost by certain banks and financial institutions in securities where such losses arose as a result of such transactions. It is equally trite to state the contrary proposition that where there were no losses at all, the institution of the Special Court was wholly unnecessary and the Special Court was not to try such transactions even if they amounted to some technical offences. If the aforesaid two propositions are correct, then, there is simply no justification for the instant prosecution.
The Joint Parliamentary Committee (IPC) succinctly set out the dimensions of the scam in its report. The Committee highlighted various irregularities and fraudulent transactions undertaken by the Banks and Financial Institutions etc. in the six reports submitted by it Yet, inspite of all the above mentioned features peculiar to the instant case, the charge sheet m the present case was one of the earliest to be filed against A-5. to view of the palpable lack of nexus between fee instant prosecution and legislative intent in enacting the SCAM Act the question can arise as to why the CBI chose to investigate and prosecute the instant case, This question has a clear answer that the CBI cheose to pursue the instant case and other cases in which PW23 had acted on behalf of A-5 in New Delhi in transactions with public sector undertaking to intimidate and blackmail PW23 for not supporting A-5's public declaration from June, 1993 onwards that he had paid the sum of Rs.1 crore to the then Prime Minister at his residence in Delhi. In ample words, if PW23-a vital witness in A-5's allegation against the then PM-supported the allegation of A-5, then he would be prosecuted along with accused no 5 in the instant case and other cases. If he cooperated and did not support A-5, he would be granted a pardon in the said cases. The forum in which the cooperation of PW23 was sought for was in proceedings before the JPC which inter alia was to inquire into A-5 's allegation against Shri Narsimharao. the then Prime Minister. Following consequences of events conclusively establish the quid pro quo referred to between the CBI and PW23.
(a) in June, 1992, PW23 met the then Director CBI. This is admitted by PW23. The Director told him that if he wanted to disclose something, he should meet Mr PC Sharma, the then DIG Special Investigation Wing
(b) PW23 met Mr. Sharma on a number of occasions thereafter.
(c) JPC was informed by Mr, Sharma that PW23 was sent to him as a 'source'. What was the source disclosed to Mr. Sharma has not been revealed by the latter to the JPC as he did not want to betray his source,
(d) Notwithstanding the fact that PW23 first met the CBI as a source, a preliminary enquiry was registered in the instant case on 15.9.1992.
(e) 13 members of the JPC in a separate note have described this change in status of PW23.
(f) On 17th February, 1993. A-5's advocate addressed a letter to CBI about 4 cash withdrawals from banks in Bombay and Delhi between 2nd and 4th November, 1991 which according to him were politically sensitive in the extreme and stated that details of these would be revealed if A-5 was given assurance of complete protection from political harassment or persecution.
(g) Although the CBI replied A-5's letter on 25.2.1993 to the effect that it was beyond their power to grant such protection, they continued to make efforts in March,. 1993 to obtain A-5's narration on the said cash withdrawals. It is only after they failed to obtain such a narration that the FIR in the instant case was filed on 15.4.1993.
(h) The FIR of dated 15.4.1993 did not cite PW23 as an accused, despite the fact that PW16 was cited as an accused in the FIR. (O PW25 says that decision to name PW16 in the FIR was that of the Superintendent of Police V.D. Maheshwari and the investigating agency and that he had to agree with that decision. Further, they decided not to cite PW23 as an accused in the FIR, (I) The evidence of VD Maheshwari as a court witness completely corroborates the fact that the FIR was registered not because the investigating agency had applied its mind and such application had revealed to it that the case prima facie disclosed offences which deserved to be investigated but was to extort PW23's support in connection with the conditional disclosures that A-5 offered to make. Thus in his cross- examination on behalf of A-5, he does not even remember the following-
(5) whether he questioned A-5 before the FIR was registered;
(ii) whether he interrogated any of the other accused in the instant case before the FIR was registered;
(Hi) whether he interrogated PW23;
(iv) whether he discussed the matter with the IO;
(v) whether me IO submitted any written report on the outcome of the preliminary enquiry;
(vi) whether at the time of registration of the FIR he had determined the role of PW16;
(vii) why PW23 was not named as an accused in the FIR which came to be registered;
(viii) whether he personally referred to any documents before deciding to register the FIR.
All the above circumstances reveal the non- application of mind which the investigating agency displayed in filing the FIR. The only circumstance that Maheshwari recalls is that the decision to lodge the FIR was a unanimous one.
(j) The investigation concluded on 4.11,93 when the IO PW2S recommended the prosecution of all die accused including PW23. Although the investigation had ostensibly concluded, no charge sheet was filed. Obviously, the CBI was awaiting the outcome of the event.
(k) The JPC prepared its report in December 1993. In January 1994, the said report was made public. The report disclosed that PW23 fulfilled his part of the bargain with the CBI refusing to support A-5's public claim that the cash withdrawals made by him in November 91 were utilized for paying a sum of Rs.l crore to the PM, which claim became public by virtue of a press conference held on 16.6.1993.
(1) In the very next month after the publication of JPC report, a charge- sheet was filed in a case dealing with the funds of Power Finance Corporation in which A-5 and PW23 were cited as accused.
(m) On 26.5.1994 PW23 made an application u/s 306 read with S.164 Cr.P.C. that his judicial confession be recorded and that he be made an approver in the instant case before the Ld. Special Judge, New Delhi who was seized of the charge-sheet in the PFC case. That application was rejected.
Thereafter, on second attempt, after his arrest on 10.8.1994, his confessional statement was recorded by another Magistrate and not by the Special Judge who rejected the application for pardon in PFC case.
(n) Ld. CMM assigned the case for recording of confession to PW20 Dr. Ramkrishna Yadav, M.M., New Delhi who ultimately recorded the judicial confession (Ex.139) of PW23 on 21.10.1994.
Ultimately, the application for grant of pardon was accepted by the same Magistrate.
Very soon, after the said pardon was granted, the charge sheet was filed on 6.12.1994 i.e. within a period of six weeks from the pardon being granted.
(o) The absence of any loss to MUL in the instant case, the absence of proof whether A-5 made any gain in the instant case; the fact that the transactions took place at a time in which three of them were beyond the time period for which the Special Court exercises jurisdiction; the fact that all five transactions were prior to the RBI circular of 26.7.1991; the allegation of A-5 against the then PM; the abdication by the IO of the powers and discretion vested in him by the CrPC to his superiors in the CBI in the matter of proceeding with this case; the total non-application of mind of those superiors in lodging the FIR on 15.4.1993; the untenability of the charges both in law and in fact against all the accused, the manifest incompetence and negligence in investigation on the part of the CBI and the attempt to wilfully suppress material and politically sensitive documents in the case all indicate that the present case far from sub- serving the objects for which the Special Court was established, is a colossal waste of public time and money, a travesty of justice and an unfortunate reminder of how individuals subvert our criminal justice system by causing institutions like the CBI to file cases which are only vehicles to subserve their own private interests.
Lastly, the learned senior counsel for A-5 submitted that not only A-5 and others charged alongwith him be acquitted of all charges, but strictures against the investigating agency for bringing the system of criminal justice administration into disrepute be passed.
Before dealing with the contentions raised by the learned counsel for A-S and CBI and before narrating submissions made by the counsel for rest of the accused, we would first refer to: -
A. Allegations in the FIR and charge-sheet
B. Relevant Part of the Report of the Joint Parliamentary Committee
(JPC).
A. ALLEGATIONS IN THE FIR AND CHARGE-SHEET.
The FIR was recorded on 15.4.1993 by the CBI after Preliminary inquiry which started on 15.9.1992, wherein it is inter alia stated as under:-
(i) During Jan., 1991 to May, 1991 Shri Pramod Kumar was functioning as Dy. Manager (Finance) and Shri Ambhuj Jain was functioning as Sr. Executive in the Corporate Finance Cell at the Corporate Office of MUL, New Delhi, and they were having control and dominion over the surplus funds of MUL which they were handling for investments with various agencies. These investments were being made in each case with the specific approval of a Sub Committee for investments consisting of Shri R.C. Bhargava then CMD MUL and S. Natrajan, then Director (Finance) MUL. During this period MUL was a public sector undertaking and these officials were public servants.
(ii) S/Shri Promod Kumar and Ambhuj Jain entered into a criminal conspiracy during the period from January 1991 to May 1991 at Delhi and Bombay with V.N. Deosthali an officer of UCO Bank, Hamam Street Branch, Bombay, R.N. Popli of ANZ Grindlays Bank, Delhi and Sh. Harshad S. Mehta a broker, his employee Anuj Kalia and certain other unknown persons with the object to misappropriate the said surplus funds of MUL and to provide pecuniary advantage to Sh. Harshad S. Mehta out of the funds to be invested by MUL by abusing their official position as public servants.
(iii) In pursuance to the said criminal conspiracy, Shri V.N. Deosthali wrote a letter on 24.1.91 to MUL to effect physical delivery of 35 lacs units of UTI to Sh. Mohan Khandelwal, the attorney of Sh. Harshad S. Mehta and an amount of Rs.4,99,45,000 was credited to the account of MUL in Bank of America at Delhi out of the account of Sh. Harshad S. Mehta. This amount was borrowed by MUL at higher interest rate of 12.75% per annum for 32 days against physical delivery of 35 lac units of UTI. The physical delivery of 35 lac units was taken by Sh. Anuj Kalia on the basis of receipt given by Sh. Mohan Khandelwal on the letter head of Sh. Harshad S. Mehta. After expiry of 32 days the principal amount together with interest totalling to Rs.5,05,03,250 was refunded by MUL on 2.5.91 for this refund Sh. Ambhuj Jain obtained banker's cheque in favour of ANZ Grindlays Bank out of the account of MUL in Canara Bank, Sansad Marg, New Delhi and the cheque was delivered to Sh. Anuj Kalia, an employee of Sh. Harshad S. Mehta. Although the said cheque was in the name of ANZ Grindlays Bank, Shri R.N. Popli, officer of ANZ Grindlays Bank, Sansad Marg, New Delhi with oblique motive credited the same into the account of Shri Harshad S. Mehta and then transferred it to his account in Bombay.
(iv) The transactions of 13th March, 18th March, 1991 and 24th April, 1991 are referred to in para 5. The said paragraph itself recites the number of days and the rate of interest. For these investments, Banker's cheques were obtained by SI Shri Pramod Kumar and Ambhuj Jain from the account of MUL in Canara Bank, Sansad Marg, New Delhi in the name of ANZ Grindlays Bank and the same were collected by Shri Anuj Kalia who deposited the same into the account of Shri Harshad S. Mehta in ANZ Grindlays Bank, Sansad Marg, New Delhi. As these Banker's cheques were in the name of ANZ Grindlays Bank, they should have been credited into the account of the bank but Shri R.N. Popli in connivance with his co-conspirators, credited the same into the account of Shri Harshad S. Mehta unauthorisedly. On reversal of these investments the amounts were credited in the account of MUL from the account of Shri Harshad S. Mehta.
For the above investments, Shri V.N. Deosthali issued bogus bank receipts unauthorisedly in pursuance of the said conspiracy.
With regard to the 5th transaction dated 2.5.1991, similar averments are made in paragraph 7.
(v) The enquiry into the said PE disclosed that MUL, Delhi during the said period had invested its huge surplus amounts with other banks and public sector undertakings on higher rate of interest. Similarly, during the same period other public sector undertakings had invested their funds at much higher rates then the rate of interest on which MUL had made aforesaid four investments.
(vi) S/Shri Pramod Kumar and Ambhuj Jain in pursuance of said conspiracy misappropriated funds of MUL by abusing their official position as public servants in as much as they invested the funds of MUL at lower rate of interest and thereby caused pecuniary advantage to the co-conspirators and corresponding loss to the MUL.
In the charge-sheet submitted on 15.12.1994, similar allegations are reiterated. Learned senior counsel Mr. Jethmalani pointed out that-(1) Paragraph 4 of the charge-sheet expressly confirms that the first transaction v. as loan transaction inasmuch as it is averred that MUL borrowed the amount at a higher rate of interest i.e. at 12.75% per annum for 32 days against physical delivery of 35 lacs Units of the UTI; (2) paragraph 5 of the charge-sheet referring to the transaction of 13th March, 1991 describes it as an investment of 10 crores and odd from MUL for a period of 12 days at the interest rate of 16.75% per annum. (3) paragraphs 6, 7 and 8 contain similar descriptions of the remaining transactions. (4) Para 3 of the FIR is the basis for conspiracy during the period from January 1991 to May 1991.
From the contents of the FIR it appears that A-l and A-2 were investing surplus funds of MUL with various agencies. These investments were made in each case with the specific approval of Sub-committee for Investment consisting of Mr. RC Bhargava, the then Chairman and Managing Director (CMD), MUL and S. Natrajan then Director (Finance), MUL. Allegation in the FIR is that for the First transaction MUL borrowed the amount at higher rate of interest of 12.75%. With regard to the remaining transactions it is alleged that MUL gave funds to A-5 at a lower rate of interest and thereby pecuniary advantage accrued to the borrowers and MUL suffered corresponding loss. Same is the position in the charge-sheet.
Further, there cannot be any dispute that the FIR and the charge-sheet is the basis in a warrant triable case. Charges were also framed on the basis of FIR as well as other material produced by the investigating agency. The CBI itself understood that MUL should have received more interest than it actually received. The charge-sheet nowhere states that at the time of lodging of the FIR the nature of these five transactions was misunderstood.
Further, in the FIR as well as in the charge-sheet it is stated that conspiracy between the accused for the alleged transaction took place during the period from January 1991 to May 1991.
B. RELEVANT PART OF THE REPORT OF JOINT PARLIAMENTARY COMMITTEE (JPC).
JPC noticed the findings of Janakiraman Committee's Report submitted in May 1992 that unscrupulous brokers in collusion with certain bank officials had manipulated securities transactions of banks and financial institutions for their own purpose in a variety of ways and in clear violation of the established rules, guidelines and prudent business practices. Parliamentary Committee also noticed (i) number of irregularities including extensive use of BRs for ready forward transactions, (ii) issuance of number of BRs on the basis of one outstanding BR and issue of BRs having no backing of securities, (iii) facilitating the brokers to take temporary position in Government securities without involvement of their funds by putting the transactions through brokers account and issuing BRs on behalf of brokers. For the BRs, the Committee observed as under:
4.6 "The three instruments widely misused in the irregular transactions were (1) Bank Receipts (BRs); (2) Subsidiary General Ledger (SGL) transfer forms; and (3) Bankers cheques. BR is a non-transferable unstamped trust receipt issued by a bank selling securities when it is not able to effect physical delivery of the securities sold even after the receipt of the purchase consideration for reasons such as the securities are lying at another centre. In terms of the B.R., the seller bank undertakes to hold the security on trust for the purchaser for the short period till delivery and it is generally considered valid for 90 days or till delivery is effected whichever is earlier. In the inter bank market, a large number of transactions in securities were being concluded by means of BR deliveries (instead of physical delivery of securities sold); however, there was no uniformity in the format of the BR and there were also not set guidelines for its usage. B.R. does not find a place in the Banking Regulation Act, 1949. It was only on the 6th May, 1991 that IBA issued a circular prescribing a format and laying down certain broad guidelines and recommending its adoption by member banks and other financial institutions like IDBI/IFCI/ ICCI/NABARD etc. The RBI for the first time inter alia issued instructions to banks in this regard in their Circular of 26.7.1991 (Appendix-IX). A similar receipt issued by a non-banking financial company is termed 'Security Receipt' (SR) and such receipts also came to be freely used in security transactions.
4.32 The Committee is led to the conclusion that the BR system has been considerably misused. Every step should, therefore, be taken to prevent recurrence of such things in future. There is need for reforms of the BR system, for example, by way of reduction in the period of its validity and imposing of severe penalties for its misuse.
MANIPULATIONS TO FAVOUR BROKERS CREDITING OF CHEQUES TO BROKERS' ACCOUNTS 12.14 The scrutiny of securities transactions in a number of banks revealed that some banks were even handing over Account payee cheques drawn in favour of other banks to the brokers who got them credited to their account ostensibly to assist the latter in transferring funds quickly to meet their obligations. As per informal understanding and in the name of market practice, the payee-bank used to credit the proceeds to the accounts of the broker constituents who brought the cheque to it for collection. These practices were in gross violation of the instruction that the accounts of banks with RBI, should be utilised only for genuine inter bank transactions and not for transfer of funds to their clients. The total amount diverted to the brokers accounts and the ultimate disposal of funds has not been determined. Some instances are however given below.
12.15 In respect of investment transactions between PFC and UCO Bank during the period July, 1990 to May, 1991, 16 bankers cheques totalling Rs.394.23 crores were unauthorisedly issued in favour of ANZ Grindlays which were irregularly credited to the account of HSM.
ROUTING OF TRANSACTIONS 12.24 Many brokers e.g. HSM, HPD, ADN, Excel & Co., NKA etc. used some of the banks as 'routing' banks which carried large volume of securities transactions for them. Thus Andhra Bank, UCO Bank, BOK, Bank of Madura and ABFSL carried transactions of the value of over Rs.77,000 crores for brokers and others during April, 1991 to May, 1992. These banks, thus, provided special privilege to a select few brokers by lending their names to the transactions of these brokers totally disproportionate to the income derived and exposed themselves to great risk by irregularly issuing their own BR or SGL transfer forms against BR received or to be received in their favour.
SINGLE POINT CLEARANCE 12.28 In the case of SBI, it was noticed that HSM had been unauthorisedly given the facility of collection and credit of the bankers cheques by SBI as per his instructions. The Bombay Main Branch of SBI acting as the agent of SBI Caps had debited SBI Caps account and unauthorisedly credited funds to the account of HSM instead of making payments to named banks/ institutions. Cheques drawn on UCO Bank had been credited to the current account of the same broker.
12.29 The Committee noticed in this connection that HSM had requested the Bombay Main Branch twice by his letter dated 19.8.91 and 10.01.92 for acceptance of bankers cheques from banks/organisations brought by him or his representative and issuance of bankers cheques there against. In fact, the broker wanted that the facility of 'single point clearance' whereby the activities of issuance and acceptance of bankers cheques in their account may be conducted through the Securities Division of the SBI Main Branch Bombay instead of the Personal Banking Division in the same branch where he had the account. This facility had enabled HSM to put through the transactions through the Securities Division itself and also to get bankers cheques in favour of SBI credited to his account and issue of cheques against the credits. The SBI in a note furnished to the Committee stated that the letter dated 19.8.91 was not traceable but the letter dated 10.01.92 did make a reference of the same. The Committee, however, obtained a copy of the letter dated 19.8.91 from HSM. In this letter, HSM while requesting for the facility of obtaining bankers cheques against presentation of bankers cheques in bank's favour argued that there would be no outlay of any funds by the bank. On the contrary, a good amount of sum will be left in current account for the bank to enjoy the float.
12.30 In his letter dated 10.01.92, ine broker repeated his request and stated:
"to facilitate a single point clearance, we have to request you to let the activities of issuance and acceptance of Banker's Cheques be conducted by the Securities Division. This will facilitate us to meet the deadlines of inter-bank clearing timings."
14.21 The Committee note that the PSUs were the single largest source of surplus investible funds around Rs.36,000 crores between April 1990 and December 1992 only. In the investment of these funds guidelines and instructions were routinely flouted and no norms were observed. Neither DPE nor the Ministries concerned took any steps to ensure the compliance of their guidelines. Even the Ministry of Petroleum and Natural Gas which had made a review of investment of surplus funds by the PSUs under its administrative control in May 1990 closed its eyes knowing fully well that PSUs were investing with the foreign banks despite the guidelines of DPE that PSUs could have normal banking transactions only with nationalised banks.
PLACEMENT OF FUNDS FOR SHORT PERIODS-
14,98 The PSUs have placed funds with banks and finance companies for very short periods, sometimes for only a few days and even for one day implying supply of funds for speculative purposes to earn higher return. These banks/finance companies issued BRs for the amount received. The PSUs after the maturity of investments returned the BRs and got their moneys along with the yield which was agreed to at the time of placement of funds. Thus these transactions were in the nature of ready forward deals instead of genuine investment transactions which was in contravention of RBI guidelines issued on 11.4.1988 which stated that sale and purchase of securities with the same party and for identical or similar amounts were construed as tacit arrangements which was in contravention of the instructions prohibiting buy back arrangements with non-bank clients.
DIVERSION OF FUNDS TO BROKERS-
14.114 While most of the PSUs/Organisations denied before the Committee about utilising the services of brokers, the Committee found that in some cases inquiries/investigations by CBl/internal auditors clearly established nexus between brokers, officers of PSUs/ banks resulting in syphoning of funds of PSUs to brokers. !t is reported that 22 PSUs had placed funds to the extent of over Rs. 12,000 crores through Harshad S. Mehta which were syphoned of to him and his groups of Companies. Some instances are given below; -
(ii) In the case of Maruti Udyog Limited, it was found, that funds of MUL meant for purchase of units from UCO bank were credited into the individual accounts of HSM. There is a financial involvement of Rs 33.63 crores.
(iii) ........
(iv) ........
17.48 On 16th June, 1993 Shri Harshad Mehta held a press conference in which he issued a copy of an affidavit of 24th February, 1993 and briefed the press of the details of the 4 specific withdrawals of 2nd and 4th November, 1991 and its subsequent disbursement. In a press conference held on the same day he released a copy of an affidavit dated 24th February, 1993 alleging that these were in connection with payment of Rs. 1 crore to the P.M. on 4.11.1991.
18.5 HSM was summoned by the Committee again on 30.6.1993. During evidence when his attention was drawn to the inherent contradictions between what he had deposed before the Committee earlier and that given in the press conference he stated that he had been 'discrete' about the information given by him to the Committee.
From the aforesaid part of the report, it is apparent that-
(a) Some banks were even handing over account payee cheques drawn in favour of other banks to the brokers who got them credited to their account ostensibly to artist the latter in transferring funds quickly to meet their obligations. As per informal understanding and in the name of market practice, the payee bank used to credit the proceeds to the accounts of the broker constituents who brought the cheque to it for collection.
(b) Routing of transactions facility was given to many brokers including A-5.
(c) Single Point Clearance claimed by A-5 and given by SBI.
(d) PSUs were investing the funds against the guidelines and instructions.
(c) PSUs were investing funds for short periods for few days and even for one day implying supply of funds for speculative purposes to earn higher return.
(f) In the investment of these funds guidelines and instructions were routinely flouted and no norms were observed. Neither DPE nor the Ministries concerned took any steps to ensure the compliance of their guidelines.
RELEVANT PART OF EVIDENCE-
In the present case, the evidence runs into more than 40 volumes. However, at the time of hearing of this matter, on behalf of A-5, five transactions in question are admitted. Hence, it is not necessary to refer to or consider the evidence pertaining to the transactions in question. If the prosecution and defence had concentrated on the real issues for determination before the Special Court, it would have saved the Court's time in recording evidence at such a length. Unfortunately, a practice is developed in criminal/ civil cases not to admit any document and thereby to prolong the litigation with impunity. For the purpose of deciding these appeals, it is necessary to only refer to relevant part of evidence which learned counsel for the parties have relied upon.
For this purpose, we would divide the evidence and submissions as under:- [On behalf of] -
(a) MUL;
(b) UCO Bank;
(c) ANZ Grindlays Bank;
(d) other relevant witnesses, such as. PW16 Anuj Kalia, PW23 Mohan D.
Khandelwal (Approver) and PW25 1.0. etc.
(a) WITNESSES FROM MUL [PW1, PW3 and PW4]
PW1 Brijendra Singh Bhargava stated that he was Legal Advisor of MUL and at the relevant time Company Secretary and also internal legal advisor for the Company. It is his say that during May, 1989 to May, 1991 Mr. R.C. Bhargava was the Managing Director and Shri S. Natrajan was the Director (Finance). During the said period, MUL had several bankers, such as, Canara Bank, Bank of America and Bank of Tokyo. At that time, A-l Pritam Lai Manocha was Deputy Manager, Corporate Finance and one of his duties was deployment of funds of MUL. He had power and authority to sign cheques on behalf of MUL and to operate its account. Mr. S. Natrajan was superior officer to A-l.
A-2 was also an employee of MUL since 1989. It is his say that surplus funds available with MUL used to be invested with the public sector undertakings and the Board of Directors had delegated the powers of deployment of funds to the sub-committee constituted by it. Such sub- committee comprised of Managing Director and Director (Finance), which would have final say in the deployment o
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