Bangalore District Court
R.B.I vs And Others Ms. S.N. Finance Limited on 22 January, 2024
1 CC No.9165/2002
KABC0D0000022002
IN THE COURT OF METROPOLITAN MAGISTRATE TRAFFIC COURT-I
AT MAYOHALL, BANGALORE.
Present : Neelam Nitin Rao
Metropolitan Magistrate
Traffic Court-I Bengaluru
DATED 22nd DAY OF JANUARY 2024
C.C. No. 9165/2002
Complainant: The Reserve Bank of India
Represented by Authorized officer
Shri Sibgathulla Hussain
Aged about 50 years
Designation: Asst. Manager
Department of Non Banking Supervision
Regional office, Office at: No.10/3/8
Nrapatunga road, Bengaluru-560001
(Represented by Adv. Sri. DSA)
V/s
Accused : 1. M/s SN Finance Limited
Sri Lakshmi, 180, 9th cross
Raghavendra Temple Street
Indiranagar, Bengaluru-38
Represented by its Executive
Director, Shri. P.S Murali
S/o Late P.R.S Rao
2. Shri. P.S Murali S/o Late P.R.S Rao
Age Major, No.25, 14th corss
Vyalikaval, Bengaluru-560003
(Represented by Adv. Sri.ARK)
2 CC No.9165/2002
3. Shri. R.N Kamat
Age Major, Dwaraka Maycc
Michigan Compound, Saptapur
Dharwad-580001
4. Shri. G.H Patil
Age: Major, Mathru Krupa
No.40, Indira colony, Nagashetti Koppa
Keshwapur, Hubli-580028
5. Shri. S. Harikrishna S/o S.Madhava
Age: Major, Srilaksmi, No.4000, 100ft road
HAL 2nd stage, Indiranagar
Bengaluru-560008
6. Shri. V.R Gundannavar
Age: Major, No.3062, 11th main, 11th cross
HAL 2nd Stage, Indiranagar
Bengaluru-560008
7. Shri. M.A Pai
Age: Major, No.756, Indiranagar
1st stage, Bengaluru-560038
8. Shri. C. S Pani
Age: Major, Prashanthi
D-301, Adarsh, 4th cross, 8th block
Jayanagar, Bengaluru-560082
9. Shri. K.S Shetty
Age: Major No. 1154, 12th main
HAL 2nd stage, Indiranager
Benglauru-560008
10. Shri. R.Hthomas
Age: Major, No.150-A, 4th cross
6th main, Postal colony, Sanjay nagar
Bengaluru-560094
11. Shri. S.G Deshpande, S/o G.N Deshpande
Age: Major, No.2203/Q, 5th main, 24th cross
Banashankari, 2nd stage, Bengaluru-560070
12. Shri. A.S Pattabiraman
S/o A.B Subramanyam
3 CC No.9165/2002
Age: Major, No.607, 1st main, 2nd stage
Rajajinagar, Bengaluru-560010
(Represented by party in person)
13. Basavaraja Pattannashetty
Age: Major, Basavajyothi
I main, III cross, Jayanagara post
Dharwar-580001
(Case against accused No.3 to 11 and 13 is
split up)
1. Date of commission of offence : 31.03.2001
2. Offence alleged :P/U/S. 58B(1), 58B(4A)
58B(5)(a), 58B(5)(aa) and 58B(6)
read with Section 58 C of the
Reserve Bank of India Act, 1934.
3. Date of recording of evidence : 16.09.2006
4. Date of Judgment : 22.01.2024
JUDGMENT
This case is arising out of the complaint filed by The Reserve Bank of India against the accused No.1 to 13 P/U/S. 58B(1), 58B(4A),58B(5)(a), 58B(5)(aa) and 58B(6) read with Section 58 C of the Reserve Bank of India Act, 1934.
2. Sum of substance of the complaint as follows:
The complainant is a statutory corporation established by the Reserve Bank of India Act, 1934 having its central office at Mumbai and offices at various places 4 CC No.9165/2002 including Bengaluru.
The accused No.1 is a non-banking financial company having its registered office, carrying on the business of non banking financial institution. The bank issued a Certificate of Registration No.02.00098 to the accused No.1 company on October 16, 1998, subject to certain conditions specified therein. The accused No.1 company has been classified as a loan company by the bank. The certificate of registration issued to the accused No.1 company was canceled by the bank by an order dated April 10, 2002 in accordance with Sec. 45-IA(6) of the Act, as the accused No.1 company had failed to fulfill the conditions prescribed under sub-section (4) of section 45-IA and the conditions of certificate of Registration was granted to it. Accused No.1 company is a non banking financial company is bound by the provisions of the acts and the directions issued thereunder. Accused No.3, 4 and 6 to 12 were in charge of and were responsible to the accused No.1 company for the conduct of the business. Accused No.2 is the present executive director and accused No.4,5,6 and 13 are the present directors of the accused No.1 company. Accused No.2,4,5,6 and 13 are in charge of and are responsible to the accused No.1 company for the conduct of its business at present.
3. Two scrutinies were carried out by the bank in April 2002 and May 2002 and some of the contraventions/violations/default have come to the notice of the bank.
a) The accused No.1 company had reported to the bank in its returns (Form NBS 2) dated 31, 2001 that 5 CC No.9165/2002 its net owned fund(NOF) was Rs.658.77 lakhs. The assessed NOF of the company as on the date of the inspection was at (-)Rs.39.10 Lakhs. Hence the company has made false statement with respect to its NOF.
b) In terms of Section 45(I)(b) of the act, Accused No.1 company was not entitled to carry on the business of a non-banking financial institutions without having minimum required NOF of Rs.25 lakhs, thereby contravened the provisions of section 45-IA(1)
(b) of the act.
c) In terms of Sec.45-IB of the act, the accused No.1 company was required to invest in
unencumbered approved securities of Rs.163.81 lakhs during the quarter ended July- September 2001 was Rs.121.10 lakhs only resulting in a shortfall of Rs.42.71 lakhs and failed to submit return. Thereby accused No.1 company violated the provisions of section 45-IB of the act.
d) Accused No.1 company has not complied with the provisions of paragraph 4(6) of APD directions till date. The company has thereby contravened the provisions of paragraphs of 4(4) and 4(6) of the APD directions.
e) Accused No.1 company's application from for acceptance of deposits does not contain the exact credit rating assigned for its fixed deposits and thereby violated the provisions of paragraph 4(2)(ii)
(a) of the APD Directions.
f) Accused No.1 company's application form for 6 CC No.9165/2002 acceptance of deposits does not contain a statement of financial position of the company and thereby the company violated the provisions of paragraph 4(12)
(ii)(d) of the APD Directions.
g) The accused No.1 company had paid to its brokers expenses by way of reimbursements in excess of the stipulated 0.5% of the deposits collected by them and thereby violated the provisions of paragraph 4(8)(ii) of the APD Directions.
h) The accused No.1 company has not paid any interest in some cases on premature repayment of deposits, even though the deposits have run for more than the minimum stipulated period of six months and thereby violated the provisions of paragraph 4(14)(ii)
(b) of the APD directions.
i) The accused No.1 company has granted loans in excess of 75% of the deposits, in some cases, thereby violating the provisions of paragraph 4(14)(iii) of APD directions.
j) The accused No.1 company has withdrawn an amount of Rs.13lakhs entrusted with state bank of India for the purpose maintaining unencumbered approved securities required to be maintained by it in pursuance of Sec. 45-IB of the act, without the prior approval of the bank and without entrusting substitute securities of equal value and thereby violated the provisions of paragraph 6 of the APD directions.
k) The accused No.1 company failed to make necessary provisions on non-performing assets to the 7 CC No.9165/2002 extent of Rs.415.04 lakhs and thereby violated the provisions of paragraph 8(1) and (2) of the prudential norms directions.
l) The accused No.1 company failed to maintain a minimum capital ration of 12% of the aggregate risk weighted assets and thereby violating the provisions of paragraph 10(1)(ii) of the Prudential Norms Directions.
m) The accused No.1 company failed to follow the accounting standards and guideline notes issued by the institution of chartered accounts of India by maintaining fictitious accounts and not opening accounts in the name of the depositors in the book of the company. Thereby contravened the provisions of paragraph 5 of the Prudential Norms Directions.
4. The accused No.12 after his alleged resignation as the Managing Director of the company on March 20, 2002 withdrew from Vijaya Bank, Indiaranagar a sum of Rs.7,66,667/- on 4 different occasions between March 20, 2002 and March 30, 2002. It clearly shows that accused No.12 is still in charge and responsible to the affairs of the accused No.1 company. Accused have admitted the commission of the violations pointed out by the bank in the show cause notice dated May 23, 2002. the accused No.1 and 2 to 13 are liable to be proceed against and punished in terms of sec.58C of the Act. Hence the complaint.
5. Complainant is a public servant, hence recording of sworn statement is exempted. Cognizance of the alleged 8 CC No.9165/2002 offenses P/U/S. 58B(1), 58B(4A),58B(5)(a),58B(5)(aa) and 58B(6) read with Section 58 C of the Reserve Bank of India Act, 1934 taken. Case is registered against accused No.1 to 12 and summons was issued. Pursuant to summons accused No.1 to 12 appeared before this court and availed bail. Only accused no 2 and accused no 12 regularly appeared before the court. Accused no 3 to 11 and 13 remained absent and no steps were taken by complainant bank to secure their presence. Hence case is split against them. A split up case in CC No.35/2022 is registered against accused No.3 to 11 and 13 on 03.01.2022.
6. Complaint copy is furnished to the accused No.2 and 12. The substances of the accusation read over and explained to accused persons in the language known to them. They denied the substance of accusation. they pleaded not guilty and claimed to be tried. Hence case was posted for complainant evidence.
7. In order to prove the allegations, complainant examined himself as PW1 and got marked 13 documents as Ex.P1 to P13 and fully cross examined by the complainant counsel. After completion of complainant evidence, statement under sec 313 Cr P C was recorded, read over and explained to accused No.2 and 12 in the language known to them. They denied all incrimination circumstances appeared against them in complainant evidence. However, they did not chosen to lead defense evidence.
8. Heard arguments of learned counsel for 9 CC No.9165/2002 complainant and learned counsel for accused no.2, meticulously perused documents placed on record and written arguments.
9. Complainant relied on following authorities.
1. Reserve Bank of India v.Shetty leasing ltd and others reported in ILR 2006 KAR 4099
2. M/s Dinesh Supari Traders and others v. Agricultural produce marketing (Regulations) committee, Kadur reported in ILR 2005 KAR 5804.
3. Kamil v. State of Uttar pradesh reported in (2019) 12 SCC
600.
4. Y.S Jagan Mohan Reddy v.Central Bureau of Investigation reported in (2013) 7 SCC 439.
10. Accused No.12 relied on following authorities.
1. Judgment of 3 judges bench AIR 1982 Supreme court 673, V.C Tulzapurkar, J and Baharul Islam, J and A, Varadarajan, J in J.D Jain v. State Bank of India.
2. Judgment of AIR 2011 Supreme court 760, J.M Panchal J and Mrs. Gyan Sudha Misra J in Kalyan kumar Gogoi v. Ashutosh Agnihotri.
3. Judgment (2016) 3 SCC 525, M Usuf eqbal J and Chokallingam Nagappa J in Reserve Bank of India v. Jayantilaal N.Mstry
4. Judgment of the Hon'ble Madras High Court in 2018 CRI.L.J 2377, Dr.G Jayachandran, J, in G.Subbaraman vs. State,
5. AIR 2011 SC 1492, H. Siddiqui (D) by L.Rs v. A. Ramalingam (2011) 4 SCC 240.
10 CC No.9165/20026. Judgment om AIR 2010 Supreme court 1812, Satya Brata Sinha, J and Cyriac joseph, J in R.Venkatakrishnan v.Central Bureau of Investigation.
7. Constitutional Bench Judgment on documentary evidence:
Judgment in(2014) 3 Supreme court cases, 92 in Hardeep Singh vs. State of Panjab.
7a. Sunil Mehta v. State of Gujarat (SCC p.217)
8. AIR 1958 S.C 448 N.H Bhagwati J ad J.L Kapur J and P.B Gajendragadkar.J in Bai Hira Devi vs. Official Assignee of Bombay.
9. (2003) 8 SCC 752 (Before R C Lahoti and Ashok Bhan, JJ in R V E Venkatachal Gounder vs. Arulmigu Visweswaraswami & V P tempe, the apex court
10. Constitution bench judgement Roman Catholic Mission v. State of Madras (AIR 1966 SC 1457).
11. Manu/SC/0170/2010 B.Sudershan Reddy and Deepak Verma. J.J in LIC of India vs. Ram pal Singh Bisen
12. 2018 Crl. L.J 4314 Karnataka High Court, K.N Phaneendra J, S Ravichandra vs M/s Elements Development Consultants, Bengaluru.
13. AIR 1971 SC 1949 J.M Shelat J and v.Bhargava J Civil appeal no.233 of 1970 dt. 07.05.1971, Bishwanath Rai vs Sachhidanand Singh.
14. AIR 1984 SC 911, 1 crimes 675 (Madh Pra)S Murtaza Fazal Ali, J and Ranganath Misra.J in Vinod Chaturvedi vs state of M.P
15. Threee judges Bench 2023 SCC online SC 1023. Sanjay Kishan Kaul, Abhay S. Okay and Vikram Nath. JJ in Harendra Rai vs. State of bihar) 11 CC No.9165/2002
16. Constitution Bench Judgement (2014) 3 Supreme court cases 92, (Before P.Sathasivam, C.J and Dr.B.S Chauhan, Ranjana P Desai, Ranjan Gogoi and S.A Bobde, JJ in Hardeep singh vs. State of Punjab.
17. 2021 SCC onlie SC 1012 (before R.Subbash Reddy and Sanjiv Khanna JJ in Dayle Desouza vs GOI.
18. (2020)16 SCC 561 in Shailendra Swarup vs Enforcement directorate.
19. AIR 1971 supreme court 1295, K.S Hegde, J and A.N Grover J in Magraj Patodia Appellant v.R.K Birla
20. Dr.M.Chenna Reddy v. V Ramachandra Rao, civil appeal No.1449 of Dr.17.12.1968(SC)
21. AIR 1964 Supreme court 1625 M. Hidayatullah, J an dK.C das gupta, J, in Mohd. Ikram Hussain vs. The state of U.P.
22. AIR 1986 Supreme ocurt 3, S Murtaza Fazal Ali, J an dA Varadarajan J and Sabyasachi Mukharji, J Civil Appeal No.6623 of 1983 dated 07.08.1985, Ram Singh vs. Col Ram Singh
23. (1975) 4 SCC 272 Before M.H Beg and Y.V chandrachud JJ in Datar Singh vs. The State of Punjab
24. AIR 2017 Supreme court 5364 N.V Ramana J and Amitava Roy, in Kuna alia Sanjaya Behera v. State of Odisha.
25. Constitution Bench Judgment 2023 (1) Supreme 691 S. Abdul Nazeer, B.R Gavai, A.S Bopanna v.
Ramasubramania, B.V Nagarathan JJ in Neeraj Datta v/s State (Govt. Of N.C.T of Delhi)
26. AIR 2023 Supreme court 1677 Hon'ble Abhay S Oka, Rajesh Bindal, JJ in Anwar alias Bhugra v/s State of Hariyana
27. Judgmetn of Three judges bench 2023 (7) supreme 381, Supreme court of India 12 CC No.9165/2002 Sanjay Kishan Kaul, C.T Ravikumar, Suchanshudhulia. JJ
28. SC (2021) 5 SCC 435
29. 2010 (7) Supreme 144.
11. The following points arise for my consideration;
Point No.1: Whether the complainant Reserve bank of India proves beyond reasonable doubt that after- coming in to force of directions as per Non-Banking Financial Companies Acceptances of Public Deposits (Reserve Bank) Directions, 1998, accused No.1 company and its directors accused no2 and 12 have violated directions as mentioned in paragraph 6(i) to (iv) of complaint, which were found during the inspection and thereby accused committed an offense P/U/S. 58B(1), 58B(4A) 58B(5)(a), 58B(5)(aa) and 58B(6)read with Section 58 C of the Reserve Bank of India Act, 1934. ?
Point No.2: What order?
12. My findings on the above points are as follows:
Point No.1 : In the Negative.
Point No.2 : As per final order for the following:
REASONS
13. Point No.1 : The Reserve bank of India has filed instant complaint against accused No.1, a non banking 13 CC No.9165/2002 financial company represented by the 12 directors who are the accused no 2 to 13 herein. It is the case of the complainant bank that, it canceled the certificate of registration of the accused no 1 company vide order dated 10.04.2022 as per section 45 1(a) (6) of the Act. The accused No.1 company failed to comply the conditions prescribed u/s 4 of the Sec.41 1(a) also the conditions under which the certificate of registration was granted. The order canceling the registration was communicated to the accused No.1 and its directors on 10.04.2002 and it was also published in newspapers. The accused No.1 company and its directors are bound to follow the provisions of the act. it is important to note here that accused No.3, 4, 6 to 12 were the directors responsible for the conduct of business when the alleged contraventions occurred, while the accused No.2, 4, 5, 6 and 13 are responsible for business of the accused No.1 and its contraventions subsequent period. The present directors have not taken any steps to correct the alleged contraventions. As such they are also responsible for the alleged offenses.
14. The RBI has alleged that on inspection it was revealed that accused No.1 company had not maintained net owned fund as per provisions and therefore, it was not entitled to carry on business. It was also noticed by complainant bank that, the approved securities held by accused No.1 at the time of inspection was less. After cancellation of registration the accused No.1 company could not accept or renew any deposit as it was having NOF of less than Rs.25 lakhs. However, the accused No.1 company, public deposit had was less than the required security.
14 CC No.9165/2002Therefore, on 10th April 2002, RBI canceled the registration of the accused no 1. As such the accused no 1 company had no authority to accept or renew any deposits. Owing to NOF being less than RS 25 lakhs. Despite the same, raised its, public deposits from Rs.1048.40 lakhs as on March 21st 2001 to Rs.1263.70 lakhs as on 16 th July 2001, which indicates that company continued to accept public deposits though not entitled to do so. Further, the accused No.1 company's application form for acceptance of deposit did not contain extra credit rating assigned for its fixed deposits and thereby it violated the provisions of paragraph 4(12)(II)
(a) of APD directions. Even the accused No.1 company's application for acceptance of deposits did not contain a statement that the financial position of the company, as disclosed and the representations made in the application form are true and correct. Hence, the company and its board of directors are responsible for the violation of the provision of paragraph 4(12)(II)(a) of APD directions.
15. It is also alleged that the accused No.1 company had paid its brokers expenses by way of reimbursement in excess of stipulated 0.5% of the deposits collected by them. The accused No.1 company failed to pay any interest to the depositors even though the deposits have continued for more than minimum stipulated period of 06 months. Apart from this accused No.1 company has also granted loan in excess of 75% of the deposits in some cases. It withdrew 13 lakhs amount entrusted with SBI for the purpose of maintaining unencumbered approved securities required to be maintained by it as per sec. 45(1)(B). it has not obtained 15 CC No.9165/2002 prior approval of the complainant bank and also not entrusted substitute of equal value. Accused no 1 company failed to make necessary provisions in respect of non- performing assets which amounting to of Rs.415.04lakhs and failed to maintain minimum capital ratio of 12% of the aggregate risk weighted assets. It also failed to follow the accounting standards and guideline notes issued by the institution of chartered accountants of India, by maintaining fractious accounts and not opening accounts in the name of depositors in the book of the company. It has maintained kachcha book and recorded certain deposit transactions, which portrays an incorrect picture in the balance sheet. The complainant has issued a letter point out these violations and irregularities.
16. Accused No.12 after his alleged resignation, from the managing directorship of the company, withdrew a total sum of Rs.7,66,667/- on 04 occasions ,from Vijaya Bank, Indiranagar. The very withdrawal of the said amount indicates that the accused no 12 was still in charge and responsible for the affairs of the accused no.1 company. Accused persons admitted the violations and contravention in the reply issued to the show cause notice issued by the complainant bank. For all these reasons the accused No.1 to 13 were held and prosecuted by the RBI u/s 58B(1), 58B(4A)58B(5)(a), 58B(5)(aa) and 58B(6) read with Section 58 C of the Reserve Bank of India Act, 1934
17. the learned counsel for complainant vehemently argues that the accused No.1 and its director No.2 to 13 16 CC No.9165/2002 have violated the provisions and directions. His main argument is that as per sec. 58 C RBI Act proviso, burden lies on accused to prove his innocence. It is for the accused to prove that no contraventions during his term have committed. Even the director subsequently assumed charge are also responsible for the contravention. He draw attention of this court towards para 7 of complaint where the alleged contravention were elaborated. Further by drawing attention of this court towards sec.58 D, 45 1(A). 45 (N) and other provisions he argued that accused have violated these provisions. The show cause notice were issued and accused No.2 by admitting the same has given reply. Even after default accused accepted deposits when registration canceled. The accused has not challenged the cancellation order. The allegations are not disputed. The deposits were not repaid. As per Sec.13 of Indian Evidence Act admission of co-accused binding on other accused. He relied on authority of Hon'ble Apex court and Hon'ble High Court of Karnataka and prayed for conviction of accused.
18. On the other hand, learned counsel for accused No.2 vociferously argued that Accused No.1 is non banking institution required to be governed by RBI guideline. He argued that what can not be expressly intended can not be impliedly intended. Offense can not be impliedly drawn. He argued on sec.58 B, C Sec.58 B, 4 (A). He stressed that as per Sec.45 N it at all inspection conducted, the said report not produced. No document are produced to show the contravention of accused No.2. the PW1 admitted that there is no contravention be accused No.2. the complainant relied 17 CC No.9165/2002 on Ex.P6 which is base for complaint and not inspection report. As no default on the part of accused No.2 proved by complainant bank he prayed for acquittal of accused No.2.
19. It is pertinent to note that on 08.03.2022 accused No.12 filed application seeking permission to appear as party in person. However, at the stage of arguments one counsel by name Ajay appeared and addressed argument without any authorization. It is the argument of accused No.12 that the memo of appearance or vakalath is not required to appear in Criminal cases. He produced authorities of Hon'ble High courts. Perused the ratio led down with due respect to the same they are not applicable to the facts and circumstances of the case. Rule VI (1)of Criminal rules of practice provides that person appearing to represent a person shall file memo of appearance or power as such. Later, as per request of accused No.12 and in the interest of justice and equity an opportunity is granted to accused No.12. He filed his written arguments. He relied on 29 authorities of Hon'ble Apex court. I have carefully considered the ration laid down by Hon'ble apex court. The Hon'ble Apex Court elaborated the importance of direct evidence and secondary evidence and hear say witnesses. The main argument of accused No.12 is that PW1 neither a member of inspection team nor he is having any knowledge about inspecting. Hence he is a hear say witness. The RBI has not produced the relevant documents and no authorized persons was examined. Hence, he sought acquittal.
20. I have given my thoughtful consideration to the 18 CC No.9165/2002 submissions of learned counsel for complainant. Learned counsel for accused no.2 and accused No.12. Let me examine the documentary evidence along with oral evidence placed on record. The authorized officer of the RBI bank has examined himself as PW1. He has produced 13 documents which were marked as EX P 1 to 13. EX P1 is the letter of authority, Ex.P2 is the form No.32, Ex.P3 is the letter of appointment of directors, Ex.P4&5 are the notifications, Ex.P6 is the letter, Ex.P7 is the cancellation of certificate of registration, Ex.P8&9 paper publications, Ex.P10 is the letter and Ex.P11 is the reply, Ex.P12&13 letter and advertisement.
21. Let me appreciate the evidence placed on record by complainant bank in order to prove the alleged contravention and violations by the accused no 1 and its directors. As the case was split against the other accused, in the instant case, the case is decided and the evidence appreciated only against the accused no 2 and 12. Ex P1 is the letter of authority issued by the Executive director of the complainant bank, wherein shri V Reveendran is substituted in the place of shri. Sibgathulla Hussain who had filed this complaint. At present shri V Raveendran has been authorized to prosecute the case on behalf of the complainant bank.
22. Ex P.2 is the form no 32. This document reflects the particulars of appointment of directors , manager and changes among them. According to it, accused No 1, S N finance limited Bangalore, is represented by accused no 12 A S Pattabhiram who was the managing director. EX P2 demonstrates that accused no2 was appointed additional 19 CC No.9165/2002 director but was entrusted with the work of an executive director. It is also revealed from the contents of EX.P2 that the accused no 12 the then managing director resigned from his post on 20-3-2002 on health grounds. As per complaint averments and the chief evidence of the PW1, the certificate of registration was canceled on 10-4-2002, acting under sec 45-IA (6) of the Act. it is evidence by the documents produced by the complainant bank. It is the say of the complainant bank that it communicated order of cancellation to the accused no 1 vide its order dated 10-4-2002. The inspection of the books of account of the accused no 1 company carried out by the complainant bank under sec 45 N of the act during the period 20-8-2001 to Sept 1-9 2002 with reference to its financial position as on 31-3-2001. Further two scrutinies were conducted on April and May 2002. It is worth mentioning here that scrutinies are not identical to the inspection as the nature and scope of the same are distinct. Though PW1 avers that bank is exempted from producing the inspection report, what is pertinent to note here that there is no exemption to produce scrutiny reports along with the relevant documents. The complainant bases its case on the scrutiny reports which for reasons best known only to the complainant have not been placed before the court. In other words, there is nothing before the court in respect of which the basis on which the complainant set the law in motion against the accused.
23. As per EX P3, R N Kamat and G H Patil were appointed whole time directors by the registrar of the companies. Ex P4 is the notification no DFC. 118/DG (SPT)-98 20 CC No.9165/2002 dated 31-1-1998 issued by the reserve Bank of India. The RBI has issued directions to the non-banking financial companies. In respect of the acceptance of public deposits, (Reserve Bank) directions 1998. As per these directions, sec 2(x) Net owned fund means net owned fund as defined under sec 45IA of the Reserve Bank of India Act 1934 (2 of 1934) including the paid up preference shares which are compulsorily convertible into equity.
24. Ex.P5 is the notification No DFC.119/DG (SPT)-98 dated 31-1-1998. These are also directions issued to the non banking financial company. Ex P 6 is the letter addressed to the managing director of the accused no.1 by the complainant bank dated 15-11-2001, in respect of the inspection under sec 45N of the reserve Bank of India 1934. As per complainant bank Ex P6 and 7 assume much significance as they go long way in proving the alleged violations by the accused persons.
25. On perusal of the Ex P6 it is noticed that, complainant bank has mentioned that, the assessed net owned fund (NOF) of the company (tier I capital) as on the date of inspection was (-) Rs 39.10 lakh as against the reported NOF as Rs 658.77 lakh. It was mentioned in view of the default in repayment of matured public deposits the company should have stopped advancing loans and investments soon after it defaulted in repayment. However, the company continued to grant loans till July 7 2001 in violation of paragraph 11 A of the prudential norms' directions. Accused No.1 defaulted in the maintenance of SLR subsequent to the date of the inspection. It is 21 CC No.9165/2002 mentioned that the accused No.1 violated the public deposits norms and collected deposits in excess of stipulated level. The application forms soliciting deposits from public did not contain a statement that the financial position of the company as disclosed and the representations made in the application from were true and correct. As such the directors are responsible for the same. It is further mentioned as the accused no 1 has violated the paragraph 4 (12)(ii)(a) and 4(4) (iii) of the directions. Also there were violation in regard to the renewal of deposits. It is also demonstrated that several application forms do not bear the signature of the applicants. violations in respect of payment of brokerage also pointed out as the same was found to be in excess of the stipulated 0.5% of the deposit amount. which were violative of provisions of paragraph 4 (8)(ii) of the directions.
26. the further allegations are ,The accused no 1 company has not paid any interest. It has sanctioned loan in excess of 75% of the deposits in few cases. The complainant bank has indicated 6 cases of such violation. It is also put forth that the accused no 1 has accepted substantial deposits from the erstwhile promoters Bellary steels and alloys limited (BSAL) on a running account basis from 14-8- 1995 to 30-10-2000. No deposit was outstanding as on the date of inspection. It was no inter corporate deposits were noticed as no documents were issued by the company and no particular date was fixed. It was not in a nature of a current account as the BSAL could not draw a cheques on the account on day to day basis. The violation in regard to Earning and profitability, liquidity, system and control and 22 CC No.9165/2002 board of directors were also pointed out without producing a single document before court.
27. The accused No.1 was asked to comply with the directions and submit report to the complainant within 30 days from the receipt of the letter. Complainant bank has also provided a list of loss accounts, substandard accounts and doubtful accounts. Ex.P7 is the cancellation of certificate of registration dated 10-4-2002. The complainant bank by exercising authority under sec 45-IA, canceled the certificate of registration. The cancellation of certificate of registration was notified in two news papers and the same is evidence by Ex P8 and Ex P9. Thus, the cancellation was notified to the general public.
28. Ex.P10 is the letter dated 23-5-2002 issued by the complainant bank to the accused No.1. In this letter the complainant bank has specified the contravention and the violations which were allegedly unearthed during the inspection.. Ex P11 is the reply issued by the accused no 2 to the show cause issued by the complainant bank. The complainant has heavily relied upon the said Ex P 11 reply letter and prayed to convict the accused and its directors. It is the say of the complainant that, by way of Ex P11, The accused no 2 admitted the contraventions and violations committed in the accused no 1 company. It is pertinent to note that the accused no 2 assumed charge as an executive director in the accused no 1 company only after the conclusion of the inspection and the consequent cancellation of the registration certificate. The accused no 2 albeit admits the default in the reply letter marked at Ex.P11, what is 23 CC No.9165/2002 pertinent to note here is that the contraventions and the violations specified in EX P10 show cause letter occurred before, the said accused no 2 assumed charge of as executive director in the accused no 1 company.
29. The learned counsel for complainant bank argued that the evidence of one accused is binding on other accused. The Hon'ble Supreme Court in the case of Pancho v. State of Haryana (2001) held that confessions of a co- accused aren't the substantive piece of evidence and that it can only be used to confirm the conclusion drawn from other evidence in a criminal trial. Thus even though accused no.2 and 12 are jointly tried the allegations levelled against them are distinct. At the tenure of accused No.12, accused No.2 has not assumed charge. Under such a circumstances his reply to the show cause notice issued by complainant bank can not be considered as an admission by accused No.12 also. The complainant bank asserts that it has issued show cause to accused No.1 and its directors, but did not place on record copy of the show cause notice and so also the reply of the other accused persons. It is relevant to mention here that, though the complainant asserts that the accused no 12 issued his reply it did not produced any document in that regard.
30. Section 30. of the Indian Evidence Act provides that, Consideration of proved confession affecting person making it and others jointly under trial for same offence. It reads as follows, "When more persons than one are being tried jointly for the same offence, and a confession made by 24 CC No.9165/2002 one of such persons affecting himself and some other of such persons is proved, the Court may take into consideration such confession as against such other person as well as against the person who makes such confession." Expl*
31. In the case in hand though accused No.2 and Accused no 12 are jointly tried by complainant bank, but the allegations leveled against them are different. The case of complainant bank that the contravention occurred at the term of accused no 12 when he was managing director. On the other hand it is the allegation against the accused no 2, after he assumed charge he failed to correct the contravention which are continued. The PW1 categorically admitted that show cause notice had issued to accused no 12 also and he has replied the same. Under such circumstances there should not be any hurdle to complainant bank to produce the very reply of accused no 12 himself, rather replying on the reply of the accused no 2.
32. In Shiv Kumar v. State of M.P., (2022) 9 SCC 676, wherein the Hon'ble Apex Court declined to place undue reliance solely on the disclosure statements of the co- accused. Thus the complainant without producing the corroborative evidence can not seek the conviction merely on the admissions of accused no 2.
33. Ex.P12 is the letter addressed to the complainant bank and issued by the accused no 12 in respect of the advertisements as Ex.P13.
34. PW1 was thoroughly cross examined by Accused 25 CC No.9165/2002 no 2 and 12. When it was suggested to PW1 that he was not the member of the inspection team, the said PW1 categorically admitted the same. PW1 further admitted that the inspection team has prepared the report of the alleged violations and contraventions allegedly made by the accused no 1 company and the said report is very much in the custody of the inspecting team. However, no such report is placed on record by the complainant. Admittedly, PW1 was neither member of the team which conducted inspection nor does he have personal knowledge about the same. When question was posed as to the production of inspection report, PW1 admits that the inspection report was not produced. He volunteered to further submit that there is statutory protection for non production of the inspection report. It is the specific and main defense of the accused that the inspection report on the basis of which the complainant bank canceled the certificate of registration and initiated the legal proceedings against the accused persons is not before the court. It is also contended that the complainant bank for reasons best known to it alone , has not produced a single document to show that show cause notice was issued to accused no 12 and that he replied to the same. PW1 very interestingly further submitted that he has no personal knowledge about the documents produced before the court. He deposed that the reply of accused No.12 and the documents so produced are in the custody of the complainant, however for the reasons best known to the complainant bank the reply of the accused No.12 and the documents have not produced. He admits that he is having no personal knowledge about the documents produced 26 CC No.9165/2002 before the court. He deposed thus, " ಭರತತಯ ರಸರರ ಬಬ ಬಕ ವವಧ ವಷಯಗಳನನ ನತಡಕಳಳ ಲ ಬರ ಬರ ವಭಗಗಳ ಇವ ಎನನ ವದ ಸರ. ಪಪ ತಯಬದ ವಭಗಗಳನನ ನತಡಕಳಳ ಲ ಪಪ ತಬ ತಕ ಅಧಕರಗಳ ಇರತತ ರ ಎನನ ವದ ಸರ. ನನ ಬಬ ಬಕಬಗಗ ಸಬದಪಟಟ ವಷಯಗಳನನ ನತಡಕಳಳ ಲ ಪಪ ತಬ ತಕ ವಭಗ ಇದ ಎನನ ವದ ಸರ. ಸದರ ವಭಗಕಕ ಸಹಯಕ ಮಬ ನಜರ, ಮಬ ನಜರ ಅಥವ ಅವರಗಬತ ಮಲಲ ಟಟ ವರ ಪಪ ಭರವನನ ಹಬದರತತ ರ ಎನನ ವದ ಸರ . ನನ 2002 ಕಕ ಮಬಚ ತರವನತಪರದಲಲ ರವ ರಸವರ ಬಬ ಬಕ ಬಪ ಬಚನಲಲ ಕಲಸಮಡತತ ದದ . ನನ 1 ನ ಆರತಪ ಸಸಸ ಯನನ ಇನನ ಪಕನ ಮಡದ ತಡದಲಲ ಇರಲಲಲ ಎನನ ವದ ಸರ. 1 ನ ಆರತಪ ಸಸಸ ಯನನ ಇನನ ಪಕನ ಮಡದ ತಡದಲಲ ಮಬ ನಜರ ಅಥವ ಸಹಯಕ ಜನರಲ ಮಬ ನಜರ ಮಖಬ ಸಸ ರಗದದ ರ ಎನನ ವದ ಸರ . ಇನನ ಪಕನಟತಮರವರ 1 ನ ಆರತಪ ಸಸಸ ಯಲಲ ನಡದರವ ತಪಲ ಗಳ, ಉಲಲ ಬಘನಗಳ, ಅವಬ ವಹರಗಳ ಬಗಗ ದಖಲಗಳನನ ಸಗಪ ಹಸ ತಮಮ ವಶಕಕ ತಗದಕಬಡದದ ರ ಎನನ ವದ ಸರ .
ಸದರ ದಖಲಗಳನನ ಭರತತಯ ರಸವರ ಬಬ ಬಕನ ಇನನ ಪಕನ ತಡದ ವಶದಲಲ ಇವ ಎನನ ವದ ಸರ. ಇನನ ಪಕನ ತಡವ 1 ನ ಆರತಪ
ಸಸಸ ಯನನ ಇನನ ಪಕಟ ಮಡ ವರದಯನನ ಮಲಧಕರಗಳಗ ಸಲಲ ಸದದ ರ ಎನನ ವದ ಸರ . ನನ ವರದಯನನ ಸಲಲ ಸದಗ ತರವನತಪರದಲಲ ಇದದ ಕರಣ ನನಗ ಆ ವರದಯನನ ಸಲಲ ಸರವದಲಲ . ನನ ತರವನತಪರದಲಲ ಇದದ ದರಬದ ತನಖ ತಡದವರ 1 ನ ಆರತಪ ಸಸಸ ಗ ಸಬಧಪಟಟ ದಖಲತಗಳನನ ನನಗ ಕಟಟ ರವದಲಲ . 1 ನ ಆರತಪ ಸಸಸ ಯಲಲ ನಡದರವ ಅವಬ ವಹರಗಳ ಬಗಗ ನನ ವಯಕತ ಕವಗ ತಪಸಣ ತಡದಬದಗ ಹತಗ ತಪಸಣ ಮಡರವದಲಲ ಮತತ ಆ ಬಗಗ ನನಗ ಯವದ ವಯಕತ ಕ ಮಹತ ಇಲಲ ಎನನ ವದ ಸರ. ತನಖ ತಡದವರ ಸಗಪ ಹಸದ ಸಕಬ , ದಖಲತಗಳ ಮತತ ವರದಯನನ ನಬ ಯಲಯಕಕ ಹಜರಪಡಸಲಲ ಎನನ ವದ ಸರ, ಅದಕಕ ಕರಣ ಅವಗಳನನ ಹಜರಪಡಸದ ಇರಲ ಸಟ ಚಟರ ಪಟ ಟಕನ ಇದ ಎಬದ ಸಕಕ ಯ ಹಳತತ ರ . ಮಚರ 2002 ರಬದ 12 ನ ಆರತಪ, 1 ನ ಆರತಪ ಸಸಸ ಯ ನದರಶಕರಗರಲಲಲ ಎನನ ವದ ಸರ . 1 ನ ಆರತಪ ಸಸಸ ಯ ಆಡಳತ ಮಡಳಯ ಸದಸಬ ರಗ ವಯಕತ ಕವಗ ಕರಣ ಕಳವ ನತಟಸನನ ಕಟಟ ದದ ವ ಎನನ ವದ ಸರ . ನವ 12 ನ ಆರತಪಗ ಕರಣ ಕಳವ ನತಟಸ ಕಟಟ ಬಗಗ ಹಗ ಆ ನತಟಸನನ 12 ನ ಆರತಪ ಪಡದ ಬಗಗ 27 CC No.9165/2002 ದಖಲತಗಳ ನನನ ಲಲ ಇವ, ಅವಗಳನನ ನಬ ಯಲಯಕಕ ಹಜರ ಮಡರವದಲಲ , ನನ ನಬ ಯಲಯಕಕ ಹಜರಪಡಸದ ದಖಲಗಳ ಬಗಗ ವಯಕತ ಕವಗ ಯವದ ಮಹತ ಇಲಲ ಎನನ ವದ ಸರ . 12 ನ ಆರತಪಯ ಮಲ ಯವದ ಕರಣ ಕಳವ ನತಟಸನನ ಜರ ಮಡಲಲ ಎನನ ವದ ಸರಯಲಲ .
35. PW1 pleads ignorance about the letter dated 9-7- 2001. He however admits that the accused no 12 surrendered registration certificate on 14-11-2001. A photocopy of the said letter was confronted to the PW1. He admits the same. PW1 further admitted that EX P7 was issued on 10-4-2002,. i.e after surrender of the certificate of registration on 14-11-2001. Thus, as per admission of the complainant bank, after the certificate of registration was surrendered by the accused no 12, it has issued a cancellation of registration in the year 2002. PW1 admits thus, this very admission given by PW1, clearly goes to how that the certificate of registration was surrendered by the accused no 12 before the complainant bank issued a cancellation of registration order in the year 2002." ನನಗ ಈಗ ತತರಸತತ ರವ ದ.09.07.2001 ರ ಪತಪ ದ ಬಗಗ ಮಹತ ಇರವದಲಲ .
ಆರತಪ ಮತತ ದರದರರ ಮದದಬ ಬಹಳಷಟ ಪತಪ ವಬ ವಹರಗಳ ಇದದ ನನಗ ಈ ಬಗಗ ಹಳಲ ಆಗವದಲಲ . 12 ನ ಆರತಪ ಕಪನಯ ಪರವಗ ನಬದಣ ಪಪ ಮಣ ಪತಪ ವನನ ದ.14.11.2001 ರದ ಸರಬಡರ ಮಡದದ ರ ಎನನ ವದ ಸರ. ದ.10.04.2002 ಕಕ ನವ ನ.ಪ.7 ನನ ನತಡದದ ತವ ಎನನ ವದ ಸರ. ನನ ನ.ಪ.7 ದಖಲಗ ಸಬಧಪಟಟ ಎಲಲ ದಖಲಗಳನನ ಪರಶತಲನ ಮಡದದ ತನ. ನ.ಪ.7 ರಲಲ ಆರತಪ ಕಪನ ಪತಪ ಬರದರವದನನ ಉಲಲ ತಖಸರತತ ತನ ಎಬಬ ಬಗಗ ನ.ಪ.7 ನನ ನತಡ ಹಳಬಕಗತತ ದ. ನನ ದರ ಸಲಲ ಸವ ಮದಲ ನಮಮ ಮತತ ಆರತಪ ಕಪನಯ ಮಧಬ ಇದದ ಎಲಲ ಪತಪ ವಬ ವಹರಗಳನನ ಪರಶತಲನ ಮಡದದ ನ.
ಈಗ ತತರಸಲದ ದ.14.11.2001 ರ ಆರತಪಯ ಪಪ ಮಣ ಪತಪ ದ
28 CC No.9165/2002
ಸರಬಡರ ದಖಲತಯನನ ಹಜರಪಡಸಲ ನಮಗ ಯವದ ತಬದರ
ಇತತ ತ ಎಬದರ ಅದನನ ದರನಬದಗ ಹಜರಪಡಸವ ಅವಶಬ ಕತ ನಮಗ
ಕಡಬದರವದಲಲ .
36. During cross examination by accused No.2, PW1 admitted that accused No.2 was never the managing director of the accused no 1. when PW1 was further probed with regard to the surrendering of the certificate of registration, PW1 submitted that the certificate of registration was not surrendered. It is very much apposite to state here that, the very same PW1 during his earlier cross examination had stated that the accused No.12 has surrendered the certificate of registration. There are these inconsistencies in the testimony of PW1 which create certain doubt in respect of the complainant's case. Interestingly, PW1 further submitted that he is not aware about the receipt of deposits from the public by the accused no 1 company after the cancellation of the certificate of the registration. PW1 who is the authorized officer of the complainant bank is expected to be aware of all the relevant facts and documents pertaining to the case in hand.
37. Admittedly, the accused No.1 company had authority to receive the deposits before cancellation of certificate of registration. However, the act of the accused no 1 company in receiving the public deposits after the cancellation of the registration certificate would amount to contraventions of the norms. But the complainant bank merely alleged that the accused No.1 continued to accept the public deposits even after the cancellation of the 29 CC No.9165/2002 certificate of registration, without producing any documents to substantiate its claims.
38. It is apposite to note here that the PW1 himself admitted during the cross examination that the accused no 1 company did not receive public deposits subsequent to the cancellation of the certificate of the registration, also it has not sanctioned any loan. When it was suggested to PW1 that that accused no 1 company not only recovered the loans but also returned the depositors money, PW1 submitted that he is unaware of the same. However, he further submitted that the accused no 1 has given a statement to the RBI in that regard. The relevant part of PW1's deposition is as follows, ಕಪನಯ ರಜಿಸಟ ಸತಷನ ರದದ ಪಡಸದ ಮಲ ಯವದ ಠೇವಣಯನನ ಪಡದಲಲ ಹಗ ಸಲವನನ ನತಡಲಲ ಎನನ ವದ ಸರ. ಸಲ ಪಡದವರಬದ ಸಲವನನ ವಸೂಲತಯನನ ಮಡ ಎಷಟ ಸಧಬ ಮತ ಅಷಟ ನನ ಠೇವಣದರರಗ ವಪಸ್ ಮಡದದ ರ ಎನನ ವದ ನನಗ ಗೊತತ ಲಲ . ಕಪನಯ ಸಲದ ವಸೂಲತ ಮತತ ಠೇವಣಯನನ ವಪಸ್ ಮಡದ ಬಗಗ 1 ನ ಆರತಪ ಆರ.ಬ.ಐ ಗ ಸಟ ತಟಮಬಟ ಸಲಲ ಸದದ ರ ಎನನ ವದ ಸರ . 2 ನ ಆರತಪಯನನ ತಪಲ ಗ ಈ ಪಪ ಕರಣದಲಲ ಸಲಲ ಸದದ ತನ ಎನನ ವದ ಸರಯಲಲ .
39. It is also pertinent to note that when it was suggested to PW1 that, inspection was conducted for the year 2000-2001, and therefore, accused no. 2 is not liable as he joined the accused No.1 company only on 20-4-2002, PW1 deposed that as the violations continued unabatedly during the accused no 2's tenure he is to be held liable. At the time of arguments, it was contended that the persons who joined the accused no 1 company subsequently are 30 CC No.9165/2002 also liable as it's an continuing offense. In support of its contention the complainant relied on the authority of the Hon'ble high court of Karnataka in reserve bank of India Vs settee leasing ltd and others reported in ILR 2006 KAR 4099, a complaint under sec 58C (1) R/W 45QA, 58 B and 58C where in the trial court has taken cognizance against the accused No.1 and 2 there and discharged accused No. 3. It was held that, as per sec 58 C of the RBI act, which stated that every person who at the time if contravention or default was in charge or is responsible for the company and for conduct of the business of the company shall be deemed to be guilty of the contravention. On the facts, it was held that, respondent No. 2 and 4 are persons to be in charge and responsible for the conduct of the business of the company along with respondent No. 2 who is the managing director. It is for the respondents to make out that they are not responsible for the conduct of the business of the company and in spite of due diligence and without their knowledge the act of default committed.
40. Having meticulously gone through the afore cited decision of the Hon'ble High court and with due respect to the same , this court is of the humble opinion that , it is not applicable to the facts and circumstances of this case, as in this case the complainant bank failed to produce the relevant documents to bring home the guilt of the accused . In order to shift the burden on accused, the complainant bank should establish its case with convincing corroborative evidence. There is absolutely nothing on record which prove that the accused No. 2 after assuming charge has continued 31 CC No.9165/2002 the contraventions and violations. Interestingly PW1 himself admitted that the accused no 2 assumed charge only after the inspection and the cancellation of certificate of registration. Pw1 nowhere whispered the sanctioning of loan or acceptance of deposits by the accused no 2. therefore, in the present scheme of things, this court is not inclined to hold that the accused no 2 did not exercised the due diligence and willfully continue allowed the alleged the contraventions and violations to continue.
41. Complainant relied on the authority of the Hon'ble high court of Karnataka in ILR 2005 KAR 5804 between M/s Dinesh Suprai Traders and others v. Agricultural produce marketing(Regulations) committee, Kadur. According to Black's law dictionary " continuing offenses means type of rime which is committed over a span of time. As to period of statute of limitation, the last act of the offence control for commencement of the period. A continuing offense such that only the last act thereof within the period of the stature of limitations need be alleged in the indictment or information, is one which may consist of separate acts or a course of conduct but which arises from that singleness of thought, purpose or action which may be deemed a single impulse. The Hon'ble Apex court in the state of Bihar Vs Deokaran Nenshi and another has explained that continuing offenses is one which is susceptible of continuance and distinguishable from the one which is committed once and for all. It is one of those of fences which arises out of a failure to observe or comply with rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirements is obeyed or complied with.
32 CC No.9165/2002On every occasion that such obedience or non compliance occurs and recurs, there is the offense committed. The distinction between the two kinds of offenses is between an act or omission, which constitutes an offense once and for all, and an act or omission, which continues and therefore, constitutes a fresh offense every time or occasion on which it continues. In the case of continuing offense, there is thus, the ingredients of continuance of the offenses, there is thus the ingredients of continuance of the offenses which is absent in the case of an offense which takes place when an act or omission is committed once and for all. I have carefully considered the ratio laid down by the Hon'ble Apex court in these authorities.
42. It is the specific defense of the accused that as the complainant bank did not conduct any inspection, and therefore it did not produce the inspection report. In the cross examination dated 17-6-2023, PW1 stated that there is a difference between the inspection and scrutiny and that On 1-9-2001 the complainant bank conduced scrutiny and not the inspection. However, as per the the complaint recitals , the scrutinies were conducted in the month of April and May 2002.
43. The other important aspect that draws attention of this court, s with regard to one of the grounds urged by the complainant in respect of non payment of interest to the depositors. It is not disputed that even after cancellation of the certificate of registration, the NBFC is governed by RBI provision and the NBFC is bound to return the deposits and 33 CC No.9165/2002 the interest accrued therein. However, to establish that no interest was paid to the depositors the complainant bank did not placed on record any corroborative evidence. interestingly PW1 submitted that in the event of cancellation of the registration certificate, the accused no 1 and its directors have no power to sanction loans. Though the complainant bank strenuously argued that there were continuing violations and contraventions , it did not adduce any evidence either oral or documentary.
44. It is also the case of the complainant bank that the accused no.1 company did not have the requisite net owned fund, when inspection was conducted it revealed that it has - 39 lakh net owned fund and the accused no1 has falsely stated amount its funds. Owned Fund means aggregate of the paid-up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, after deducting therefrom accumulated balance of loss, deferred revenue expenditure and other intangible assets. 'Net Owned Fund' is the amount as arrived at above, minus the amount of investments of such company in shares of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group, to the extent it exceeds 10% of the owned fund.
34 CC No.9165/200245. It is worth to note that there is absolutely nothing placed on record to show the investment of the NBFC, shares of its subsidiaries, value of debentures, bonds, outstanding loans, advances, hire purchase and lease finance. These data/statistics are relevant to consider the actual violation if at all committed. Further the NBFC's registered with RBI are bound to submits, quarterly returns on deposits in first schedule, quarterly return on prudential norms which accept the public deposits. It has to submit the quarterly return on liquid assets, annual return, monthly return on exposure to capital market, half yearly ALM return by the NBFC holding public deposits of more than Rs 20 crore or asset size of more than Rs 100 crore needs to be submitted to RBI. The audited balance sheet and auditor's report, branch information return, A Quarterly statement of capital funds, risk weighted assets, risk asset ratio etc, ALM returns: Statement of short term dynamic liquidity in format ALM -Monthly, Statement of structural liquidity in format ALM Half yearly, Statement of Interest Rate Sensitivity in format ALM, Half yearly, apart from these documents the NBFC;'s have to follow the master circulars issued by the RBI. The complainant bank which claims the privilege in non-production of an Inspection report, ought to have produced these aforementioned documents before this court, to establish the alleged violations. It is neither the case of the complainant bank that the accused no1 company failed to submit the aforementioned periodic reports and documents to the RBI nor has it produced the aforementioned documents to show the alleged contraventions and violations.
35 CC No.9165/2002Complainant bank claiming the conviction of accused no 1 and its directors on the basis of the letter addressed by it and the reply of accused no2. These vital documents for the reason best known to the complainant bank not placed on record. As far withdrawal of the amount by the Accused no 12 in four different occasions are concerned, PW1 himself admitted that Accused no 12 had withdrew the amount on his independent capacity. To show that even after his resignation, he continued as an managing director of the accused no 1 company and that he has withdrew that amount on a capacity of MD of accused o 1 company, there is nothing placed on record.
46. On overall perusal of the oral submission of the PW1 and the documents placed on record, it could be seen that he being an authorized person, has made inconsistent statements. As accused No.2 assumes charge as an executive director of the company after cancellation of the certificate of registration, he can only be held liable if the alleged contraventions and violations continued during his tenure. The complainant bank has not produced supportive documents to prove the alleged violation by the accused no1. Without there being anything on record which disclose the violation or contravention by accused no 1, complainant bank can not seek conviction on its own letter issued to the accused no 1. There is a non-disclosure of the information relating to procedure and rules of inspections conducted by the RBI, inspection reports, records of actions taken against directors/managers for the recovery of public funds, etc. 36 CC No.9165/2002
47. In the case of Reserve Bank of India vs Jayantilal N. Mistry reported in.. (2021), the RBI filed a petition to recall the order passed by the Court in 2015. However, the hon'ble Apex Court observed that the RBI was trying to file a petition for review in the guise of an application for recall and held that the RBI should comply with the order passed in 2015. It was held that, RBI does not have a fiduciary relationship with banks and financial institutions. The inspection conducted by the RBI is in furtherance of its statutory duty and the inspection reports that are prepared by the RBI are also part of its statutory duty. By providing the information for the purpose of inspection and by collecting this information, neither the RBI nor the banks and financial institutions are acting out of generosity or in the best interests of each other but are only performing the duties mandated by law. In the instant case Hon'ble apex court directed to provide inspection report under RTI.
48. As the plea of wrong framing of charge has been raised, Complaint bank relied on the authority of the hon'ble Apex court in Kamil vs state of Uttar Pradesh reported in (2019) 12 SCC 600, where in it was mad clear that, when the charge framed does not prejudice the accused and if he was having knowledge of the facts. It is for the accused to show that the prejudice as caused and there is a failure of justice because of mis framing of the charge. It is pertinent to note that the accused are facing trail past 02 decades being well aware about the facts and allegations leveled against them at the time of final argument this argument can not be sustained as the accused, if prejudiced then only it will affect 37 CC No.9165/2002 the proceedings and not otherwise. This court at the time of framing of the charge, kept the essentials of Sec.211 of Cr.P.C and informed the accusation to the accused, all the particulars in the language known to them. Thus, the argument of accused No.2 in respect of charge holds no water.
49. As far as the authority of hon'ble Apex court in Y S Jagan Mohan Reddy vs central bureau of investigation anti- corruption branch reported in (2013)7 SCC 450, the aspects of public accountability, vigilance and prevention of corruption and factors to be considered while granting bail in such case has been elaborated and it is not applicable to the case in hand.
50. Accused No. 12 in order to establish his innocence argued that the evidence of PW1 is a hearsay evidence. he relied on sec 60, 157 and sec 6 of the Indian Evidence Act and the 29 authorities of the Hon'ble Apex court and High Courts. I have carefully considered the ration led down by the Hon'ble courts. The main defence of the accused no12 is that he cease to be a managing director of the accused no 1 hence he can not be held liable. The evidence of PW1 is a hearsay witness. Hence it can not be relied on. The inspection report not produced.
51. As the case is filed by a RBI bank which is the legal entity, it should be represented by authorized person. While complaint filed whether the complainant had any such authorization not forth coming, as EX P1 reflects the authorization given to shri Raveendran. The complainant 38 CC No.9165/2002 claimed privilege to inspection report and refrained from production of the same. As per statutory provision, the court shall not compel the production of inspection report, however, this privilege is not absolute. There is no impediment to produce such inspection report, in the public interest, the Hon'ble apex court has directed the RBI to disclose the inspection reports under RTI. When the complainant bank claims such privilege of non-production of inspection, then it would be prudent for the complainant bank to produce the relevant documents. Because, the allegations leveled against the accused no 1and its directors shall be proved only on the basis of production of documents in question. No such attempts for past two decades made by complainant bank.
52. This court is well aware that economic offences should be dealt with an iron hand, as offences of this nature affect the society at large and also the economy of the country. However, the courts can only convict the accused when corroboratory and supportive documents are placed before it, that go a long way in establishing the guilt of the accused. However, in the case on hands, as observed supra, the complainant bank failed to adduce cogent convincing and reliable evidence to bring home the guilt of the accused no 2 and 12 beyond reasonable doubt. There may be some violations and contravention committed by the accused no 1 company, but there is no concrete evidence, which was the responsibility of the complainant bank to place before this court. Therefore, this court is of the considered opinion that the ends of justice would meet, if benefit of doubt is 39 CC No.9165/2002 extended to the accused no 2 and 12 in view of the dearth of evidence. accordingly I answer point no 1 in the negative. Point no 2: having meticulous consideration of the settled principles, provisions of the act, authorities of the Hon'ble high courts and the Hon'ble Apex court, after through consideration of the facts and circumstances of the case, for myriad reasons discussed supra, I proceed to pass the following;
53. Point No.2: For myriad reasons discussed supra, and on the basis of the oral, documentary evidence and statutory provisions, I proceed to pass the following:
ORDER Accused No.2 and 12 are not found guilty of the offense P/U/S. 58B(1), 58B(4A),58B(5)(a), 58B(5)(aa) and 58B(6) read with Section 58 C of the Reserve Bank of India Act, 1934.
Acting U/sec 248(1) of Criminal Procedure Code, the accused No.2 and 12 are hereby acquitted of the offences alleged against them P/U/S. 58B(1), 58B(4A),58B(5)(a), 58B(5)(aa) and 58B(6) read with Section 58 C of the Reserve Bank of India Act, 1934.
Bail bond and surety bonds of accused No.2 and 12 stands cancelled forthwith.
(Dictated to stenographer, transcribed by her, corrected by myself and then pronounced by me in the open court on this the 22 nd day of January 2024.) NEELAM Digitally signed by NEELAM NITIN NITIN RAO Date: 2024.01.29 RAO 16:52:46 +0530 (Neelam Rao) MMTC-I, MAYOHALL UNIT, BANGALORE.40 CC No.9165/2002
ANNEXURE LIST OF WITNESS EXAMINED ON PROSECUSION SIDE:
PW.1 : Raveendran LIST OF DOCUMENTS MARKED ON PROSECUSION SIDE:
EX P1 : Letter of authority Ex.P2 : Form No.32 Ex.P3 : Letter of appointment Ex.P4&5 : Notifications Ex.P6 : Letter Ex.P7 : Cancellation of certificate of registration Ex.P8&9 : Paper publications Ex.P10 : Letter Ex.P11 : Reply Ex.P12&13 : Letter and advertisement copy.
LIST OF WITNESS EXAMINED AND DOCUMENTS MARKED ON DEFENCE SIDE: NIL NEELAM Digitally by NEELAM signed NITIN NITIN RAO Date: 2024.01.29 RAO 16:53:04 +0530 (Neelam Rao) MMTC-I, MAYOHALL UNIT BANGALORE.41 CC No.9165/2002