Karnataka High Court
Sri C Nagarajaiah vs The C B I on 13 December, 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF DECEMBER, 2022
BEFORE
THE HON'BLE MR. JUSTICE SREENIVAS HARISH KUMAR
CRIMINAL APPEAL NO.298 OF 2011
BETWEEN:
Sri C.Nagarajaiah,
S/o. Chinnappa,
Aged 58 years,
Residing at No.97,
10th 'D' Cross,
West of Chord Road,
Mahalakshmipuram,
Bengaluru-560086.
...Appellant
(By Sri H.Ramachandra, Advocate)
AND:
1. The CBI.,
Represented by
The Superintendent of Police,
C.B.I .,
2. Sri A.Seshagiri Rao,
S/o Late A.Ashwath
Narayana Rao,
Age 61 years,
Residing at No.1,
Meenakshi Nilaya,
Main Bank Colony,
2nd Cross, Konanakunte,
Bengaluru-560062.
...Respondents
(By Sri Madhav Kashyap, Advocate for
Sri P.Prasanna Kumar, Advocate, for R1)
:: 2 ::
This Criminal Appeal is filed under Section 374(2) Cr.P.C.
praying to set aside the order dated 26.02.2011 passed by the
XXI Additional City Civil and Sessions Judge and Special Judge
for CBI Cases, Bengaluru in Spl.C.C.No.59/2003 convicting the
appellant/accused for the offence punishable under Section
120B read with 420 IPC and etc.
This Criminal Appeal having been heard & reserved on
22.11.2022, coming on for pronouncement this day, the
Court pronounced the following:
JUDGMENT
This appeal is by second accused in Spl. C.C. 59/2003 on the file of XXI Additional City Civil and Sessions Judge and Special Judge for CBI Cases, Bengaluru (for short hereinafter referred to as 'trial court'). By judgment dated 26.2.2011, the trial court convicted accused No.2 for the offences punishable under sections 120B and 420 IPC and sentenced him to simple imprisonment for three years and fine of Rs.25,000/- for each of the offences. Hence, this appeal by second accused.
2. The first accused was also convicted and sentenced for the above offences besides the offence under section 13(2) read with section 13(1)(d) of the :: 3 ::
Prevention of Corruption Act as he was the Bank Manager. It was submitted by both the counsel that accused No.1 died after the disposal of the case by the trial court.
3. The prosecution case in simple is that there was conspiracy between accused 1 and 2 and pursuant to the same, accused No.1 in the capacity of the Manager of Canara Bank, Basavanagudi, Bengaluru, facilitated financial transactions to take place illegally for the benefit of accused No.2 and consequently the bank incurred wrongful loss of Rs.83.63 lakhs. The details of the transactions will be referred to while discussing the evidence.
4. The prosecution in all examined 12 witnesses and relied on 176 documents to prove its case. While cross- examining some of the prosecution witnesses the defence marked three documents as per Exs.D1 to D3.
5. At the conclusion of trial, the trial court recorded findings that the charge of conspiracy would stand :: 4 ::
established on the basis of recorded evidence which reveals the overt acts of benefactor and the beneficiary in the fraudulent scheme. The testimony of PW2 would unfailingly point to the overt act of accused No.1 in suppressing the relevant information bearing on the adverse features like dishonour of cheques and liabilities to KSFC by the unit owned by accused No.2 and diversion of funds of OCC account to some other accounts. It has been further held by the trial court that the testimony of PW2 is reflective of the nexus between accused No.1 and 2 to defraud the bank. The proposal sent by accused No.1 to the Regional Office for enhancement of credit facilities to accused No.2 smacks of active connivance of accused No.1 with accused No.2 to grant undue favours. There is satisfactory evidence on record to substantiate that there was no sufficient stock of accused No.2 to cover the liability and accused No.1 was typically unconcerned about the interest of the branch in the matter of recovery of amount lent to accused No.2 by transgressing the limits.
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5.1. It has been further observed by the trial court that there is no merit in the contention that the evidence of PW4 does not satisfactorily establish the allegation that accused No.2 issued cheques marked Ex.P15 and P16 in favour of PW4 and his father Muniraju respectively. The evidence of PW6 has substantial bearing on the conspiracy between accused No.1 and 2. His evidence would satisfactorily establish the fact that accused No.2 approached him for financial help on the assurance of repayment within 15 days and accused No.2 also assured that he would get 32 distributors belonging to SC/ST Corporation for establishing agencies and they would require 10% of the initial deposit as margin money. Then the cheque issued by accused No.2 towards repayment of balance of Rs.3.60 Lakhs was dishonoured, but accused No.1 as Branch Manager, Basavanagudi, intervened to persuade PW6 to extend financial help of Rs.7.75 Lakhs to accused No.2 in order to enable him to increase the loan limit and get back the balance amount of Rs.3.60 Lakhs from accused No.2. Thus the fraudulent act of accused :: 6 ::
No.1 in facilitating transfer of the account of accused No.2 from Mahalaxmi Layout Branch to Basavanagudi Branch is writ large on the face of the record.
5.2. Another finding of the trial court is that the testimony of PW7 has substantial bearing on the ploy employed by accused No.1 and 2 in the execution of the conspiratorial agreement. The funds diverted by accused No.2 is also substantiated by testimony of PW7. There is satisfactory evidence on record to establish that accused No.2 without having any office in Hanumanthnagar lying within the limits of Basavanagudi Branch manouevered to get his account transferred from Mahalaxmi Layout Branch to Basavanagudi Branch. The illegal opening of suspense account is another circumstance that can be keyed to the complicity of accused. Therefore the trial court observed thus, 'Suffice it to say that the acts of malversation are discernible from the record and the material on record is not compatible with the innocence of the accused.' :: 7 ::
6. Assailing the findings of the trial court, Sri H.Ramachandra, learned counsel for the appellant, argued that the trial court has erred in convicting accused No.2 for the offences under sections 120B and 420 IPC. Elaborating the argument, he submitted that discounting of cheque is not an offence and the trial court has erred in coming to conclusion that accused No.2 got his cheque discounted illegally. Then referring to evidence of witnesses, he submitted that evidence of PW6 was wrongly assessed by the trial court. The evidence of PW8 discloses that security was created for the loan extended to accused No.2. The trial court has not at all given reasons for not accepting the evidence of PW8. PW10 who was a retired bank employee turned hostile. Actually there are no materials against accused No.2 and his conviction therefore is not sustainable. In support of his argument, he placed reliance on the judgment of the Supreme Court in the case of S.V.L Murthy vs State represented by CBI :: 8 ::
[2009 AIR SCW 4165]. He argued for allowing the appeal and acquitting the appellant.
7. Sri Madhav Kashyap, learned counsel appearing on behalf of Sri P.Prasanna Kumar, submitted that accused No.2 has been rightly convicted for the offences under sections 120B and 420 IPC. Referring to the evidence of the witnesses, he submitted that PW2 has narrated various irregularities committed by accused No.1 for helping accused No.2. Accused No.1 exceeded the discretionary power given to the Branch Manager. The cross-examination on behalf of accused No.2 is to the effect that entire dues were settled by him and this does not help in any way to seek exoneration of the crime. The evidence of PW3 discloses that there was no sufficient stock maintained by accused No.2 for the credit facilities obtained by him. Accused No.1 did not take any coercive steps to recover money from accused No.2. PW5 noticed the discrepancies and he has not been discredited in the cross-examination. The evidence of PW6 indicates that :: 9 ::
loan account was used for funding others. PW7 is the main witness and he has not been discredited in the cross- examination. He has deposed in detail about the entire transaction and corroborates the testimony of PW6. Accused No.2 introduced his son and wife for opening of accounts in their name which was not permitted. Therefore the entire evidence led by the prosecution shows violation of procedure to benefit accused No.2. In this view, he argued that the judgment of the trial court cannot be interfered with and hence the appeal deserves dismissal.
8. I have considered the arguments and perused the records. The main witnesses are PWs2, 3, and 5 to 8. It can be discernible from the evidence of PW2 that the inspection branch noticed lot of irregularities and deviations while sanctioning loan to M/s Vishnu Gas LPG Bottling Unit. Accused No.1 was the Senior Manager of Basavanagudi Branch at that time and he facilitated accused No.2 to open a current account at Basavanagudi :: 10 ::
Branch although he was maintaining a current account in the name of Vishnu Gas LPG Bottling Unit at Mahalaxmi Layout Branch of Canara Bank. Accused No.1 also allowed accused No.2 to avail Temporary Overdraft Facility (for short 'TOD') and local cheque discounting facility although accused No.2 had those facilities at Mahalaxmi Layout Branch. Subsequently the bank accounts that accused No.2 had at Mahalaxmi Layout Branch were transferred to Basavanagudi Branch and thereafter accused No.1 allowed the accused No.2 to make use of TOD facilities beyond his financial powers. In respect of OCC facility, accused No.1 had the permitted limit of Rs.5 Lakhs, but he gave adhoc additional facility of Rs.5.50 Lakhs to accused No.2. Accused No.1 allowed accused No.2 to continuously avail OD facility to the extent of Rs.27.50 Lakhs to cover up all the previous over drawings although the latter was not eligible. Accused No.1 did not inform all these transactions to the Regional Office. The adverse features relating to accused No.2 like dishonour of cheques, liability to KSFC and diversion of funds from OCC accounts were :: 11 ::
suppressed by accused No.1. The Bottling Unit was not prompt in submitting its stock report and on many occasions it had inflated the stock in order to claim higher limit. Proper books of accounts were not shown to the inspection team. As a result of all these violations of rules and procedure and irregularities, bank suffered loss of Rs.83.63 Lakhs and therefore he lodged complaint with the CBI as per Ex.P3.
9. If the cross-examination of PW2 is perused, it appears that the counsel for accused No.1 made an attempt to elicit from him that accused No.1 had not committed any irregularity in order to favour accused No.2 and that he had reported all the transactions to the Regional Office. But PW2 has denied all these suggestions, and rather asserted that accused No.1 failed to disclose the transactions to the Regional Office. When the counsel for accused No.2 cross-examined PW2, he gave a suggestion to him that a customer could open any number of current accounts, but PW2 made it very clear :: 12 ::
opening of current account was regulated by the rules framed by the bank. An attempt was also made that PW2 had no basis to arrive at a conclusion in his report that Rs.83.63 Lakhs was loan liability of accused No.2, and that he borrowed that figure from the decree passed by the DRT in O.A.No. 447/2002. But PW2 denies this suggestion. Except suggestions to this effect, PW2 is otherwise not discredited.
10. PW3 worked as Senior Manager, Canara Bank, Basavanagudi Branch, from 1999 to 2004. Accused No.1 was the First Line Senior Manager of the branch at that time. Later on Basavanagudi Branch was upgraded as Very Large Branch and thereafter PW3 became the Credit Manager and accused No.1 was entrusted with the overall charge of the branch. The evidence of PW3 is to the effect that when he visited Vishnu Gas LPG Bottling plant with accused No.1 on three occasions, he found only on one occasion sufficient stock being maintained and on two other occasions he did not find sufficient stock to cover :: 13 ::
the liability. Accused No.2 did not make available the invoices and the accounts books for inspection. He has stated that when the performance of the account of a customer in a bank is not satisfactory, he cannot be given further facilities. His specific evidence is that accused No.1 did not take any coercive steps for recovery of the amount. He stated that loan was granted on the security of stock. It was the duty of the Manager to get the stocks verified based on the purchase invoices and sales invoices and to verify the stock book. In the cross-examination the witness was not questioned on the evidence he deposed in the examination-in-chief; he was only questioned on certain documents which are not at all helpful to come to conclusion that the evidence of PW3 cannot be acted upon.
11. PW5 worked as Senior Manager at Mahalaxmi Layout Branch at Canara Bank and accused No.1 was working as Senior Manager at Basavanagudi Branch. His evidence is that Vishnu Gas LPG Bottling Plant had an :: 14 ::
account at Mahalaxmi Layout Branch and there was a proposal to transfer the said account to Basavanagudi Branch. In that regard he along with accused No.1 conducted stock inspection in the premises of Vishnu Gas LPG Bottling Plant. During inspection, they noticed certain discrepancies namely, (1) the hypothecation board of the branch was not displayed in the premises, (2) the stock available in the premises did not match with the stock statement and (3) the books of accounts were not made available. After inspection he made a detailed report as per Ex.P8. It is needless to say that this witness was not discredited in the cross-examination.
12. PWs7 and 8 have given a vivid account of irregularities committed by accused No.1 for showing financial favour to accused No.2. PW7 succeeded accused No.1 as Senior Manager of Basavanagudi Branch of Canara Bank. PW8 worked as Manager of Bidadi Branch of Canara Bank from 1999 till 2002. PW8 was directed to investigate the irregularities relating to facilities granted to :: 15 ::
Vishnu Gas Bottling Plant and accordingly he went to Basavanagudi Branch and conducted investigation. Thereafter he submitted a report on 15.11.2001. They both have stated that accused No.1 was found to have permitted accused No.2 to open a current account at Basavanagudi Branch even though he had a current account at Mahaxami Layout Branch. In order to open the account at Basavanagudi Branch, accused No.2 gave his address as No.66, 4th Cross, 2nd Main, Hanumanthnagar, Bengaluru. But that address was found to be wrong, it was neither the residential address or office address of accused No.2.
13. It is forthcoming from their evidence that the person who introduced accused No.2 to Basavanagudi Branch did not mention his name or the name of partnership firm or proprietary concern on the application form made by accused No.2, but accused No.1 put his signature on the permit accused No.2 to open the account.
Accused No.2 opened his account on 22.1.1999. He was :: 16 ::
allowed to discount the cheques on 28.1.1999. The evidence in this regard is that after opening of the account, for about six months one should not be permitted to discount the cheques and avail loan. For about six months the performance of the account holder must be observed, but in the case of accused No.2 this rule was not followed at all. Even before extending credit facilities to accused No.2, the Basavanagudi Branch should have obtained OPL (Opinion Seeking Letter) from Mahalaxmi Layout Branch, but this was not obtained. Whenever loan is granted on security of stocks, the branch official should visit the godown and inspect whether stocks were available or not. In this case accused No.2 was granted working capital, but stock was not available. Like this they have given evidence of various irregularities. These two witnesses are also not discredited in the cross- examination.
14. PW6-Sudhakar Pai, a Chartered Accountant was a customer of Basavanagudi Branch. He deposed that he :: 17 ::
knew C.Nagarajaiah-accused No.2 and also one Shenoy of Badiadka village. Shenoy requested him to introduce accused No.2 of Vishnu Gas LPG Bottling Plant to Basavanagudi Branch of Canara Bank. He was told at that time that accused No.2 had already a current account at Mahalaxmi Layout Branch. He then asked one Mr.Ganesh Kamath who was Director of Sudhakar Pai Corporate Services to introduce Nagarajaiah-accused No.2 on his behalf to Canara Bank, Basavanagudi Branch. Thus Nagarajaiah was introduced and then he opened a current account there. Further evidence of PW6 is that, six months after he opened at Basavanagudi, he met him and told that he would bring 32 distributors belonging to scheduled caste/scheduled tribe community who would be getting Rs.3,00,000/- each from Scheduled Caste and Scheduled Tribe Corporation for establishing agencies. Each one of them was required to keep 10% of the initial deposits as margin money and therefore he, i.e., accused No.2 requested PW6 for financial help of Rs.9,60,000/-. Then PW6 gave Rs.9,60,000/- to him on the promise that :: 18 ::
it would be returned within 15 days. He stated that accused No.2 issued two cheques for Rs.2,00,000/- each and gave cash of Rs.2,00,000/- in order to return Rs.6,00,000/- out of Rs.9,60,000/-. There remained balance of Rs.3,60,000/- and to repay the same he issued one more cheque. But this cheque was dishonoured. Then accused No.1 told him that, if he would lend Rs.7,75,000/- to accused No.2, the loan limit of the latter would be increased and then he i.e., PW6 would get back his amount. Therefore PW6 issued the cheque for Rs.7,75,000/- in favour of Vishnu Gas LPG Bottling Plant belonging to accused No.2. Some time later he received two cheques for Rs.2,00,000/- and Rs.1,00,000/- and cash of Rs.80,000/- from accused No.2 and thereby received Rs.3,80,000/-. There was due of Rs.7,55,000/- for repayment of which accused No.2 issued him a cheque, but it was dishonoured. PW6 has not been cross- examined effectively.
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15. PW12 is the investigating officer. Now if the entire evidence of the above witnesses is scrutinized, as has been rightly held by the trial court, their evidence discloses the connivance between accused No.1 and 2.
Though the witnesses speak about the irregularities committed by accused No.1, it is possible to draw an inference that accused No.1 did so only to extend financial benefit to accused No.2. Learned counsel for the appellant has argued that the witnesses have not spoken anything against accused No.2 and therefore he should not have been convicted. It is not possible to accept his argument. The irregularities that the witnesses have spoken are in connection with the transactions pertaining to accused No.2. Therefore a clear inference can be drawn from their evidence that there was conspiracy between them. The beneficiary of the conspiracy was accused No.2. Though it is not forthcoming what benefit accused No.1 derived, because of conspiracy, it is possible to draw an inference that accused No.1 should also have been benefited. The evidence of PW6 reflects on the :: 20 ::
conduct of accused No.1 and accused No.2. In fact his evidence supplements the evidence of prominent witnesses PWs2, 3, 5, 7 and 8. Appellant-accused No.2 might have repaid the money to the bank, it is altogether a different aspect. Because of irregularities, the bank had to suffer loss at a particular point of time. The bank was cheated. It has been held by the Supreme Court in the case of CBI vs Hari Singh Ranka [(2019) 16 SCC 687] that satisfaction of civil liability does not wipe out criminal liability. In paras 16 and 17, the clear observations are, "16. In the aforesaid backdrop of facts, we take into consideration the effect of OTS. It is apparent that a large number of documents were filed by CBI along with the charge sheet.
There are serious allegations in the instant case leveled against the accused persons of using fabricated documents whereas there was no supply or no such transactions took place. The letter head of M/s.Modern Denim Ltd.- Accused 13 had also been used. It passes comprehension how the trial court has given a clean chit that offence falls short of constituting :: 21 ::
the conspiracy under Section 120B IPC. The trial court has not cared to refer to the aforesaid various materials which have been alleged to be fabricated /forged and as to how the misuse of bank funds was made. In our considered opinion, in the facts of the instant case, the manner in which the trial court has discharged the accused persons, in spite of the overwhelming materials on record, could not be said to be legally justified order at all. The OTS merely deals with the civil liability that too by making of payment of Rs.25 crores whereas outstanding liability was Rs.44 crores though it was submitted that loss caused was approx. 13 crores. Be that as it may, we are not on the civil liability. Ultimately, the amount which has been settled in OTS Scheme cannot be legally sufficient to wipe out the criminal liability of the accused persons. The OTS could wipe off only the civil liability of the accused not the criminal one. However, this may not be taken to be the ultimate conclusion on merits of the case, it would be open to the trial court to record any finding after the trial of the case.
17. In Rumi Dhar's case (supra), this court has observed that when settlement is :: 22 ::
arrived at between the creditors and the debtor, the offence, if committed, as such does not come to an end. Even a judgment rendered in the civil proceedings, when it is rendered on the basis of a settlement entered into between the parties, would not be of large relevance as per criminal offence required of Section 43 of the Evidence Act. The judgment of the civil court is admissible only for limited purposes."
(Emphasis supplied)
16. Therefore merely because accused No.2 repaid the money to the bank, he cannot claim acquittal.
17. Learned counsel for the appellant has relied on the judgment of the Supreme court in S.V.L Murthy (supra) probably for the reason that if cheque discounting facilities were extended by the bank to a customer, it would not amount to offence under section 420 IPC. In para 27 it is observed thus :
"27. We do not think that, that was a correct approach. The RBI guidelines categorically show that it was not a wrong practice. It is one thing to say that there has :: 23 ::
been an abuse of a prevalent banking practice for the purpose of causing wrongful loss to the Bank and causing wrongful gain to others but it is another thing to say that by reason thereof, the ingredients of cheating are attracted."
18. As has been observed above extending cheque discounting facilities is not an offence, but if the prescribed rules and procedure are floated for benefiting a particular person and thereby the funds of the bank are misused, it amounts to an offence. In this case, the evidence clearly discloses that accused No.1 did not follow the procedure and rules for extending financial benefit to accused No.2 who was not otherwise entitled to. In this view, ultimate loser was the bank. Therefore I do not find a good ground to interfere with the judgment of the trial court. Conviction cannot be set aside.
19. However, I find a case for reducing sentence having regard to the present age of accused No.2. The trial court has imposed imprisonment of three years. When the appellant filed the appeal his age was 58 years :: 24 ::
and now his age may be around 70 years. If he is made to spend three years in the jail in his old age, certainly it affects his health. Section 420 IPC states that the maximum sentence of imprisonment may extend up to seven years. That means minimum imprisonment period is not prescribed. So far as offence under section 120B IPC is concerned, its sub-section (1) is not applicable, rather accused No.2 can be punished according to sub- section (2) which states that accused may be punished with imprisonment of either description for a term not exceeding six months or with fine or with both. Therefore keeping in mind the sentencing structure, the sentence imposed by the trial court can be reduced further and therefore the following:
ORDER
(a) Appeal is partly allowed.
(b) Judgment of conviction against accused No.2 is sustained.
(c) For the offence under section 420 IPC, accused No.2 is directed to undergo simple :: 25 ::
imprisonment for one year and for the offence under section 120B IPC, he is directed to undergo simple imprisonment for six months.
(d) Fine of Rs.25,000/- each imposed by the trial court for both the offences is not altered. In case of default in payment of fine, accused No.2 shall undergo further imprisonment for a period of three months for the offence under section 420 IPC and fifteen days for the offence under section 120B IPC.
(e) The substantive sentence of imprisonment for both the offences run concurrently and accused No.2 is entitled to claim set off for the imprisonment period, if any, undergone by him already.
Sd/-
JUDGE ckl/-