Delhi District Court
Cc No.04/2015 Cbi vs . M.K. Menon & Ors. Page 1 Of 76 on 4 June, 2016
IN THE COURT OF SH. SANJAY GARG-I :
SPECIAL JUDGE-IV, (PC ACT) CBI: DELHI.
ID No: 02401R0051542002
CC No.04/2015
RC No. 2(E)/99-BS&FC/DLI
C.B.I.
Versus
M.K. Menon & Ors.
Order on Charge
1. This case was registered on 28.10.1999 on the basis of source
information against Shri Rashid Jilani, the then Chairman and Managing
Director of Punjab National Bank and Chairman of PNB CAPS Ltd., Shri
M.K. Menon, the then Managing Director, PNB CAPS New Delhi, Shri
K.K. Bajoria, Shri K.C. Aggarwal, Chairman and the then Director
(Finance) respectively of M/s. Solarson Industries Ltd. (hereinafter
mentioned as SIL) and M/s. Willard India Ltd. (hereinafter mentioned as
WIL) U/s. 120-B r/w Section 420 IPC & 13 (2) r/w 13 (1) (d) of
Prevention of Corruption Act, 1988 on the allegations that the accused
persons in conspiracy with each other fraudulently sanctioned Short
Term Deposits (STD) of Rs.3.00 Crores and RS.10.00 Crores to M/s.
Solarson Industries Ltd. & M/s. Willard India Ltd. respectively and
thereby caused wrongful loss to PNB Capital Services Ltd.
2. During the relevant period, Shri M.K. Menon (A-1) worked as
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Managing Director of PNB Capital Services New Delhi on deputation
from Punjab National Bank. Shri L.K. Sinha (A-6) worked as Executive
Vice President of PNB Capital Services Ltd., New Delhi on deputation
from Punjab National Bank and Shri Yashpal Narang (A-10) worked as
Senior Executive Vice President of PNB Capital Services Ltd. New
Delhi on deputation from PNB. Investigation revealed that during the
relevant period, Shri Vivek Gautam (A-8) was working as Sr. Vice
President of PNB Capital Services, also on deputation from Punjab
National Bank. Shri Lalit Virmani (A-7) and Shri Sanjeev Shroff (A-9)
worked as Project Executives of PNB Capital Services Ltd. during
relevant period.
3. Investigation revealed that PNB CAPS is wholly owned
subsidiary of Punjab National Bank and set up in the year 1988 after
obtaining No Objection Certificate from Reserve Bank of India vide
letter dated 09.03.1988 and registered with Registrar of Companies,
Delhi & Haryana. It has been authorized to invest their surplus funds
from time to time in deposits etc. , as per Clause 18 of the Objects
Incidental or Ancilliary of Attainment of Main Objectives of
Memorandum of Association. The main objective of PNB Caps
included merchant banking business for which the Company was
authorized to carry on this business in all its aspects, to act as
Managers to issue and offers, whether by way of public offer or
otherwise of shares, stocks, debentures, bonds, units, etc.
4. Investigation revealed that PNB CAPS formed a policy known as
'Placement of Short Term Deposits - Policy Guidelines (as per Board
Note dated 18.12.1989), which was approved by Board of Directors on
28.12.1989. PNB CAPS also formed a Policy related to Merchant
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 2 of 76
Banking business, which was approved by the Board of Directors in the
meeting held on 12.05.1993.
5. Investigation further revealed that as per Circular Nos.
IECD.64/08.12-01/91-92 dated 15.05.1992 and IECD..36/08.12.01/93-
94 dated 17.03.1994 issued by Reserve Bank of India , Industrial and
Export Control Department, Mumbai, the public issue /market
borrowings should have the approval of relevant authorities. The
Controller of Capital Issues was the competent authority for being
eligible to be considered for sanction of Bridge Loan. Consequently, to
repeal of the Capital issues (Control) Act, 1947 w.e.f. 29.05.1992, the
need for obtaining prior approval of Controller of Capital Issues for
issuance of equity to public was dispensed with and the consent from
the necessary authorities for being eligible was considered to be suffice.
SEBI was the authority competent to give clearance of consent in this
connection.
6. Investigation revealed that these two Circulars dated 15.05.1992
& 17.03.1994 were not addressed to Subsidiaries of the Bank, yet same
were received by PNB CAPS and on receipt of the same a note dated
13.04.1994 was prepared as submitted under signatures of A-10 and
Shri J.K. Arora, Vice President, to A-1. The portion of the Note is as
follows: -
"RBI has clarified that public issue/market
borrowings should have the approval of relevant
authorities for being eligible to be considered for
sanction of Bridge Loan/Interim Finance. We are of
the view that relevant authority means SEBI in this
case and we should consider sanction/release of
Bridge Loan only after approval of the Public Issue
by SEBI i.e. receipt of Acknowledgment Card.
Both the above said Circulars are addressed to all
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scheduled commercial banks and nowhere it has
been stated that the guidelines apply to the
subsidiaries of commercial banks as well. We may
seek a clarification from RBI whether the guidelines
apply to subsidiaries of commercial banks. Copies of
both the Circulars are placed below for your
information. "
7. The investigation revealed that A-1 wanted discussion with A-10
& they discussed about this note on 18.04.1994. Remarks of A-10
indicate that he had discussed the matter and decided that they will not
seek any clarification regarding Circulars and shall keep the Circulars in
mind. Accordingly, these two Circulars alongwith the aforesaid note
were forwarded to all Offices of PNB CPS as well as Merchant Banking
Group From these facts, it is clear that A-1, A-10 & all other Officers of
PNB CAPS were fully aware of the instructions that sanction/placement
of STDs by PNB CAPS against public issues should be done only after
the receipt of SEBI Acknowledgment Card.
8. Investigation further revealed that RBI IECD Mumbai issued
Circular NO. IECD.6/06.12.01/94-95 dated 10.08.1994 on the subject of
Sanction of Bridge Loans. Vide this Circular, RBI imposed various terms
& conditions for sanction of Bridge Loans which include the time
schedule for repayment and also disbursed loan is used for the
purpose intended. The said Circular also contains checklist for Bridge
Loan. Although, the said Circular was not addressed to the subsidiaries
of the Banks, but it was received by PNB CAPS and A-10 made a
reference to RBI, Mumbai on 06.09.1994 to seek clarification whether
the said Circular is applicable to PNB CAPS or not. In reply, RBI
Mumbai vide letter dated 28.10.1994 received by PNB CAPS on
05.11.1994 informed PNB CAPS that the said Circular is not applicable
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to PNB CAPS.
9. The Merchant Banking business include acceptance of Issue
Management, to act as Lead Manager, Co- Manager, Advisor to the
Issues. The Lead Manager has to file offer documents after obtaining
necessary information from the Issuer Company, to obtain SEBI
Acknowledgment Card. To accept the assignment of Lead Manager,
the Issuer Company is to give an appointment letter to Lead Manager to
their proposed Public or Rights Issues.
10. Investigation revealed that Short Term Deposits against Public
/Rights Issues are covered under Merchant Banking Business. The
STDs are placed with the Companies against the Public or Rights
Issues where PNB CAPS are acting as Managers/Advisors to issue.
The STDs placed against a Public issue or Rights issue implies that the
amount of the same shall be repaid out of the proceeds of the Public or
Rights Issue. Similarly, Bridge Loans against Public /Rights Issue is
also required to be repaid out of the proceeds of Public/Right Issues.
Before sanction/placement of STD against Public/Rights Issue, the
Financial Institution was required to ensure that the issue in question
will come in the market .
11. Investigation revealed that A-4 belongs to B.P. Bajoria Group of
Companies located at UPSIDC Industrial Area, Bhimtal, Distt. Nainital
engaged in manufacture of Poly Crystalline Alumina Tubes and HPSV
Lamps. The Company was promoted by M/s. Willard India Ltd. (A-5).
A-2 is the Chairman of the Company. A-4 SIL was banking with State
Bank of India, Bhimtal. A-5 WIL also belongs to B.P. Bajoria Group of
Companies located at Sikandarabad, Distt. Bulandhshahar was
engaged in production of Jute & Sugar. A-2 is Chairman of this
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Company. The Jute division of the Company namely Chitavalshah Jute
Mills Vishakhapattanam was banking with State Bank of India, Calcutta
and Battery Division of the Company was banking with PNB Industrial
Finance Branch, New Delhi. A-3 during 1992-1997, worked as Director
(Finance) of A-4 & A-5. The Battery Division of the Company separated
w.e.f. 01.12.1993 and a new Company on the name & Style of M/s.
Willard Storage Battery Ltd. came into existence. Its accounts continued
to be maintained with PNB Industrial Finance Branch, New Delhi. It
came to light during investigation that Battery Division of A-5 which
subsequently became Willard Storage Battery Ltd. was maintaining
various accounts with PNB IFB, New Delhi since long and same were
irregular and unsatisfactory with outstandings. This fact was in the
knowledge of Officers of PNB CAPS. The Vice President of PNB CAPS
has required PNB, IFB vide letter dated 23.06.1992 to send Confidential
Report regarding A-5. The said Company had approached PNB CAPS
for Merchant banking. In reply, PNB IFB, New Delhi informed PNB
CAPS vide letter dated 03.07.1992 that conduct of the account of A-5
had not been satisfactory and remained irregular throughout and was
still irregular. Letter dated 20.01.1992 PNB, IFB informed PNB CAPS
regarding irregular running of accounts of A-5.
12. Investigation revealed that A-4 had earlier came out with a Public
Issue, against which a STD of Rs.4.00 Crores was placed with the
Company by PNB CAPS vide Board Notes dated 14.01.992 &
25.03.1992. STD was obtained for the implementation of project for the
manufacture of Burners/HPSV and PCA Tubes. The Public Issue in
question was considerably delayed and STD was to be rolled over
thrice and finally repaid on 25.01.1994. The dealings and the past
performance of Company with PNB/PNB CAPS was not satisfactory.
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Allegations against M/s. Solarson Industries Ltd. (A-4)
13. A-3 on behalf of A-4 requested PNB Caps vide letter dated
17.01.1994 for placing of STD of Rs.3.00 Crores against their proposed
Rights Issue of Fully Convertible Debentures totaling Rs.10.00 Crores,
for the extension of and diversification of their activities for manufacture
of Halogen Auto Lamps and Compact Fluorescent Lamps. The
Company had projected a total cost of the project to the tune of
Rs.31.00 Cores and also informed that GIIC, ICICI & UTI have agreed
to participate in the said Project and to provide Rupee Turn Loan worth
Rs.200 Lacs, Rs.300 Lacs & Rs.300 Lacs respectively. It has also
informed that SCICI and SBI/ICICI have also agreed to provide the
foreign currency loan of Rs.315 Lacs. The agreement letters of these
Institutions were neither enclosed with the proposal nor were obtained
by the Officers of PNB Caps. Investigation has revealed that these
Institutions were not agreed to provide Rupee Term Loans or Foreign
Currency Loans for the projects of A-4. On the date of application of
proposal i.e. 17.01.1994, the STD of Rs.4.00 Crores placed by PNB
Caps with A-4 was still outstanding. A-3 also informed PNB Caps vide
letter dated 28.01.1994 that the Company desired to appoint PNB Caps
for the proposed Rights Issue. No formal letter in this regard was either
issued to A-4 or obtained by PNB Caps. A-3 vide his letter dated
03.02.1994 also furnished to PNB Caps, the details of Group
Companies of A-4 but in these details, there is no mention about
outstanding dues, Credit Reports of bankers of these Companies and
past performance of these Group Companies with PNB/PNB Caps.
14. Without any verification and based on information furnished, by
A-3, A-9, A-8 & A-6 prepared a a Board Note dated 04.02.1994
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recommending placement of STD of Rs.300 Crores against the
proposed Right Issue for which PNB Caps was to act as Lead Manager,
at the interest rate of 18 % p.a. For the period of six months after
obtaining personal guarantee of A-2. The Board Notes was submitted
to the Board on 07.02.1994 by A-1. Same was approved by the Board
of Directors consisting of A-12, A-11 & A-1 in the Board meeting held on
10.02.1994 . Accordingly, STD of Rs.3.00 Crores was placed with A-4
vide Cheque dated 12.02.1994 for Rs.2,98,50,000.00.
15. As per investigation, the Board Note dated 04.02.1994 was not in
conformity with the format prescribed by PNB Caps in the Policy of
Merchant Backing Assignments. The details of the Group Companies,
their dealings with PNB/PNB Caps, any outstanding with equity parking,
STD etc. as required vide column No. 10 of the format, were
intentionally suppressed from the Board because the fact regarding
irregular and unsatisfactory accounts with outstandings of Group
Companies i.e. M/s. Willard India Ltd. (A-5) & M/s. Willard Storage
Batter Ltd. with PNB, IFB, New Delhi. Was very much in the
knowledge of the Officers of the PNB Caps. The information regarding
past performance of the Company as mentioned in Column No. 8 was
also not fully correct. The STD of Rs.4.00 Crores placed on 14.01.1992
& 25.03.1992 by PNB Caps with A-4 was not repaid on due date and
same was rolled over thrice and could be repaid on 25.01.1994. These
facts were suppressed intentionally in the Board Note dated
04.02.1994. Even no confirmation was sought from GIIC, ICICI & UTI as
to whether they actually agreed to provide Rupee Term Loan and
SCICI, SBI/ICICI to provide Foreign currency loan to A-4 for the said
project. Investigation has revealed that these Institutions have never
agreed to provide loans in question for the said project. No Credit
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Report from SBI, Bhimtal, from the Bankers of A-4 was obtained. No
appointment letter in favour of PNB Caps as Lead Manager to the Issue
was was either issued by A-4 or obtained by PNB Caps. A STD of
Rs.2,98,50,000.00 was credited in the Account of A-4 with the Union
Bank of India, Nehru Place, New Delhi on 14.02.1994. Thereafter, A-4
diverted the entire amount to M/s. B.S.K. Brothers, Mumbai, M/s.
Khurana Constructions, Vadodara, Collector of Customs, Mumbai, M/s.
Pressmen Advertising and Marketing Pvt. and to its sister concerns
namely A-5 M/s. Willard India Ltd. Chittavalsa Jute Mills and Mobar
India Ltd. No amount was invested by A-4 for the purpose of
expansion and diversification of project of HAL & CFL for which STD in
question was obtained. STD of Rs.3.00 Crores placed with A-4 was
matured for repayment on 12.08.1994 but the Company failed to repay
and to bring any Rights Issue in the market. A-4 had requested vide
letter dated 30.08.1994 to grant extension of STD for a further period of
six months on the ground that the Company had revised the proposed
project of expansion and diversification for which a project report was to
be submitted to ICICI for appraisal. This request of the Company was
accepted out-rightly by PNB Caps and recommended for roll over of the
same vide Board Note dated 31.10.1994 prepared under the signatures
of A-7, A-8, A-6 & A-10. The Board Note was submitted to the Board by
circulation on 01.11.1994 by A-1. The same was subsequently
approved by Board of Directors consisting of A-11, A-12 & A-1 despite
the fact that the Rights Issue in question against which STD was placed
was still nowhere. The accused Officers ignored that the borrower had
not appointed them as Lead Manager to the issue through whom only
SEBI acknowledgment card could be obtained to bring in the market the
propose Right Issue. Submission of Board Note to the Board by
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circulation was also fraudulent and intentional. The Board Note can be
submitted to the Board by circulation only when the matter is so urgent
and the same could not be kept pending till next regular board meeting
and when the next Board Meeting was not going to be held in near
future. None of these exigencies existed because next Board meeting
was held on 04.11.1994. Rs.3.00 Crores matured for repayment on
12.02.1995 but A-4 again failed to replay the same and also failed to
bring the Right Issue in question in the market. A-4 through A-3 vide
letter dated 13.03.1995 requested for extension of STD for a further
period of six months on the pretext that the Company was in the
process of syndicating the Rupee Term Loan and Foreign Currency
Loan. This request of A-4 was also accepted outrightly and a Board
Note dated 18.03.1995 was prepared under the signatures of Mrs.
Deba Zaheer, A-8, A-6 and A-10 recommending roll over for the period
of six months. Same were approved by Board of Directors consisting of
A-12 and A-1 despite the fact that Rights Issue in question against
which STD was placed was still nowhere. Ultimately, the Company
failed to repay the amount of Rs.3.00 Crores and the same was written
off in the Books of account of PNB Caps on 23.08.1996 & 05.07.1997.
16. Since the recommendations or placement of STD was against the
proceeds of proposed Rights Issue and the personal guarantee of A-2,
therefore, it is mandatory for the Officers of PNB Caps to ensure that
the STD in question will come up in the market and also to ensure that
the net worth/means of A-2 should be to the extent to enable him to
repay the amount of STD if A-4 failed to do so. But no such steps were
taken by the Officers of PNB CAPS. Investigation has revealed that no
worth/means of A-2 were to the extent of Rs.13.48 Lacs on 31.05.1995.
As per policy of PNB CAPS, consent of Competent Authority i.e. SEBI
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was pre-conditioned to sanction of STD but no such consent was
obtained and even offered. The documents were not filed with SEBI. A-
4 inspite of rolling over, failed to repay the amount of STD and also
failed to bring Rights Issue in the market. On 29.03.1996, a note was
submitted to Managing Director of PNB CAPS recommending servicing
of legal notices threatening filing of winding up petitions and also asked
to deposit sufficient securities collateral shares/ mortgage of immovable
property to recover the dues. Since no collateral security was available
and further chances of recovery of these amounts were very remote.
Therefore, the entire amount of both the STDs were written off by the
Board in Board meetings on 23.08.1996 & 05.07.1997. PNB CAPS filed
winding up petition against A-4 & A-5 in the Hon'ble High Court of
Judicature at Allahabad.
17. Investigation has revealed that PNB CAPS had been maintaining
Overdraft account of PNB, IFB, New Delhi. At the time of placement of
STD of Rs.3.00 Crores by A-4, the OD Account is also running in debit
of Rs.13,29,63,675.78 and on this amount, PNB CAPS was paying
interest @ 15% p.a. Similarly, at the time of release of first installment
of STD of Rs.6.00 Crores to A-5 on 21.11.1994, the said OD account
was in debit of Rs.23,17,37,811.16. At the time of disbursement of
second installment of Rs.4.00 Crores on 06.12.1994, the OD account
was running in debit 11,94,83,152.17. Thus placement of STD of
Rs.3.00 Crores @ 18% with A-4 with a margin of only 3% and
placement of STD for Rs.10.00 Crores with A-5 at the interest of 16%
with margin of 1 % was not a healthy decision. It is alleged that A-1, A-
6 to A-10 were aware of the guidelines/instructions issued by RBI vide
Circular dated 15.05.1992, 17.03.1994 & 10.08.1994 for sanction of
STD against Public Issue for which the approval of Competent Authority
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SEBI was a pre-conditioned for sanction /disbursement of Bridge Loan
or STDS against Public Issue. They were also aware of the conditions
of the maximum exposure of Rs.3.00 Crores to single client and
minimum rate of interest @ 16 ½ % p.a. to be charged on STDs as
stipulated in the Policies. In addition to other facts, they were also
aware of the fact that board Notes recommending placement of STD
should have been in conformity with the prescribed proforma. These
Officials prepared Board Notes and recommended placements of STDs
in question only on the basis of information furnished by the accused
Companies and without any verification. Even the material facts have
been intentionally suppressed in the Board Notes. Investigation has
also revealed that Board Note dated 31.10.1994 pertaining to
placement of STD of Rs.10.00 Crores with A-5 is full of
misrepresentation. On the basis of these allegations, CBI has filed
Charge Sheet against A-1, A-2, A-3, A-6 to A-10 for the commission of
the offences U/s. 120B r/w 420 IPC and Section 13(2) r/w 13(1) (d) of
PC Act. Against A-4 & A-5 through A-2 for the commission of offence
U/s. 420 IPC. A-12 was not sent for trial because investigation did not
reveal any incriminating material against him As it was responsibility of
the Officers of PNB CAPS to ensure fulfillment of necessary guidelines
and conditions before placement of funds. Vide order dated
24.12.2003 accused Harbhajan Singh (A-11) & Rashid Jilani (A-12)
were summoned as additional accused persons.
18. Heard arguments of Sh. Anil Tanwar, Ld. PP for CBI addressed
arguments. Sh. P. K. Sharma; Ld. Counsel for A-1, Sh. Madhav
Khurana, Ld. Counsel for A-2 and companies A-4 & A-5; Sh. P.K.
Dubey, Ld. Counsel for A-3, Sh. G. K. Seth, Ld. Counsel for A-6, A-7
and A-8; Sh. Anil Bhardwaj, Ld. Counsel for A-9; Sh. Pawan Narang,
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Ld. Counsel for A-11 and Sh. Amit Sharma, Ld. Counsel for A-12
addressed arguments.
19. Ld. PP for CBI and all accused filed separate written
submissions.
20. Ld. PP for CBI has submitted arguments specifying the evidence
each accused and role payed by him in this case as follows:
(i) A-1 being MD of PNB CAPS and Executive Member of Board
was having full knowledge about irregular and heavily overdrawn
account of WIL but despite that approved the Board Note of SIL and
WIL regarding facility of STD. It has been stated that A-1 was also
aware of the fact that WIL was maintaining account with PNB and the
same was highly unsatisfactory and irregular but he did not obtain
confidential report of PNB in respect of WIL as well as M/s Willard
Storage Battery Ltd. (WSBL). He was also fully aware of the
requirement of placement of STD against public issue and also
existence of Merchant Banking Assignments as per policies in question.
It has been stated that A-1 intentionally submitted board note to the
Board pertaining to rolling over of STD and placement of fresh STD with
WIL and also without ensuring the right issue in question in the market
resulting in wrongful loss to PNB CAPS and wrongful gain for WIL &
SIL.
(ii) Regarding A-2, it has been stated that he being chairman of WIL
& SIL remained beneficiary of the total defrauded amount of Rs. 13
crores. He has signed letter of agreement of guarantee in respect of
STD of Rs. 10 crores with WIL and he being chairman of these
companies was fully aware that WIL and its bifurcated company M/s
Willard Storage Battery Ltd. (WSBL) were maintaining account with
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PNB which were irregular with huge outstanding.
(iii) Regarding A-3, it has been stated that he being Director
(Finance) of WIL and SIL misrepresented the facts in the proposal
pertaining to placement of STDs of both these companies. He also
submitted incorrect information for GIIC, ICICI & UTI had agreed to
provide term loan and that SCICI, SBI/ICICI agreed to provide foreign
currency loan to the project of SIL. It has been stated that there was no
intention to bring right issue in question against which STDs were
obtained as no basic steps to bring such right issue were taken by the
company. The amount of STD was not utilized for the purpose for
which same were obtained instead, same was utilized to clear earlier
liabilities of the companies of diverted funds to other sister concerns.
(iv) Regarding A-6, it has been stated that although RBI circular dated
15.5.1992 and 17.3.1994 were addressed to scheduled commercial
banks only but the guidelines contained in the circulars were very much
applicable to PNB CAPS. It has been stated that RBI has clarified that
circulars were not applicable to PNB CAPS, this clarification was
received by PNB CAPS on 5.11.1994, therefore, till 5.11.1994, same
were applicable to PNB CAPS. It has been stated that A-1, A-8 and A-9
recommended placement of STD of Rs. 3 crores with SIL vide Board
Note dated 4.2.1994. This note was prepared without any verification
with regard to the net worth and Board Note was not in conformity with
the prescribed format and various vital informations. It has been stated
that Board Note was prepared without any verification with regard to the
net worth/means of A-2 and also without ensuring that the right issue in
question will come up in the market. It has been stated that at the time
of recommendation/placement of STD of Rs. 3 crores, right issue
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against which said STD was recommended, was no where as the
condition to bring any public/right issue in the market, i.e. obtaining of
SEBI acknowledgment card was not even fulfilled. It has been stated
that STD of Rs. 3 crores placed with SIL from 12.2.1994 for six months
matured for payment on 12.8.1994 but no action by issuing demand
letter to SIL was taken by PNB CAPS. However, on the request of SIL,
Board Note dated 31.10.1994 was prepared under the signature of A-6
and others recommending roll over of STD for further period of six
months without any verification and without ensuring that right issue in
question will come up in the market. It has been stated that roll over
was approved by Board of Directors by circulation on 2.11.1994
instead of regular Board Meeting held on 4.11.1994 but again without
verification, the request of the company was accepted outrightly and
Board Notre dated 18.3.1995 was prepared and submitted under the
signature of this accused and others. The Board Note also contained
misleading fact that PNB CAPS has also been appointed as lead
manager to the right issue of SIL which was not correct.
(v) Regarding A-7, it has been submitted that he was project
executive of PNB CAPS and has prepared Board Note in question. It
was his prime duty to verify the data furnished by the company and
mention all correct facts in the Board Note.
(vi) Regarding A-8, it has been stated that he was Senior Vice
President of PNB CAPS. It was his duty to verify the contents of the
Board Note prepared by the project executive and also to examine that
all requirements of the policies concerned are fulfilled. Board Note
dated 4.2.1994 bearing his signature as well as signature of A-6, A-1
and A-9 recommending placement of STD of Rs. 3 crores with SIL was
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prepared without any verification with regard to net worth of A-2, who
gave personal guarantee.
(vii) Regarding A-9, it has been submitted that he was then project
executive and had prepared Board Note in question. It was his duty to
verify the data furnished by the company and mention all correct facts
in the Board Note. Board Note dated 4.9.1994 was signed by him along
with other co-accused A-6, A-1 and A-8 recommending placement of
Rs. 3 crores with SIL, the same was prepared without any verification
with regard to the net worth of A-2 who gave personal guarantee. It has
been stated that Board Note was also not in conformity with the
prescribed format.
(viii) Regarding A-10, it has been stated that he was then Senior
Executive Vice President of PNB CAPS. He had signed Board Note
pertaining to placement of STD with WIL and also roll over of STD with
SIL. At the time of putting signature on these Board Note, he should
have got the clarifications and see that all the requirement of the
policies are fulfilled which he did not do.
(ix) Regarding A-11, it has been contended that he was chairman of
Board of Directors of PNB CAPS with full authority to raise queries to
get clarifications but no querry was raised by him at the time of sanction
of STD in question.
(x) Regarding A-12, it has been submitted that he was Executive
Director of PNB CAPS and has knowledge of the poor performance of
M/s WIL and M/s Willard Storage Battery Ltd. (WSBL) and also
requirements of policy of Merchant Banking Assignment which were not
fulfilled with fraudulent intention to show undue favour to accused
without any pubic interest by abusing official position.
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 16 of 76
21. Sh. P. K. Sharma, Ld. Counsel for A-1 contended that one of the
main allegation against accused persons is that A-2 and A-3 and their
companies A-4 and A-5 have cheated PNB CAPS to the tune of Rs. 13
crores but factual position is otherwise. Rs. 10 crores out of 13 crores
have already stands paid to PNB CAPS by accused and for remaining
amount winding up proceedings for recovery stands initiated in the year
1996 which are subjudice before Allahbad High Court. It has been
stated that CBI has made out a criminal case out of the proceedings
which are purely of civil nature. PNB CAPS or PNB has not even filed
any complaint against accused persons. It has been stated A-4 and A-5
was unable to repay the STD in scheduled time on account of over all
recession and collapse of capital market. It has been stated that this
accused is a highly reputed professional and has been falsely
implicated in this case. There is no malafide or dishonest intention on
the part of this accused in putting the proposal presented on behalf of A-
4 and A-5 before the Board of Directors who gave final approval. It has
been stated that the said proposal was put before him by its subordinate
officers and he had put the same before the Board of Directors of PNB
CAPS and they after considering pros and cons of the said proposal
duly approved the same. It has been stated that even as per case of
the prosecution this accused has not derived any pecuniary advantage
by forwarding the proposals before the Board of Directors. It has been
stated that prosecution has mainly relied upon two circulars purportedly
issued by RBI but these circulars were not applicable to the subsidiaries
of Banks. PNB CAPS is fully owned by PNB having its own Article of
Association and Memorandum of Association. It has been stated that
even RBI had clarified that these circulars are not applicable to PNB
CAPS. It has been stated that basic ingredients of offence under
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 17 of 76
Section 420 IPC are totally lacking in the charge sheet. It has been
stated that law is settled that mere carelessness, negligence in not
following rules cannot make out the case of offences under P. C. Act.
Prosecution has to lead positive evidence to prove dishonest intention
on the part of the public servant. It has been stated that prosecution
has failed to bring any such evidence on record. Regarding sanction it
has been submitted that same was required under Section 197 Cr.P.C.
but was not taken by CBI. In support of his submissions, Ld. Counsel
has relied upon the following judgments:-
(i) N. K. Ganguly (Prof.) Vs. CBI New Delhi [2016 I
AD(CRI)(SC) 289],
(ii) Nita Deep Rastogi Vs. CBI [Crl. Rev. No. 77/2008
decided by Hon'ble High Court of Delhi vide
jugdment dated 21.01.2009],
(iii) State of Orissa Vs. Debendra Nath Padhi [(2005) 1
SCC 568],
(iv) Romesh Lal Jain Vs. Naginder Singh Rana & ors.
[(2006) 1 SCC 294],
(v) S. Mohan Vs. CBI [(2008) 7 SCC 1],
(vi) Rukmini Narvekar Vs. Vijaya Stardekar & ors.
[(2008) 14 SCC 1],
(vii) Samadhan Dhudaka Koli Vs. State of Maharashtra
[(2008) 16 SCC 705],
(viii) State of Madhya Pradesh Vs. Sheetla Sahai & ors
[(2009) 8 SCC 617],
(ix) CBI Vs. K. Narayana Rao [(2012) 9 SCC 512],
(x) Om Prakash & ors Vs. State of Jharkhand [(2012) 12
SCC 72],
(xi) Manohar Nath Kaur Vs. State of Jammu & Kashmir
[1983 LawSuit (SC) 12], &
(xii) Vinay Tyagi Vs. Irshad Ali @ Deepak & ors. [(2013)
5 SCC 762].
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 18 of 76
22. Sh. Madav Khurana, Ld. counsel for accused no. 2, 4 & 5
has submitted that as per prosecution Short Term Deposits (STD) and
Bridge Loans are the same but both are not same and the circular
issued by RBI are applicable to STD only and not to the Bridge Loans.
It has been stated that vide its letter dated 6.9.1994, PNB CAPS had
sought clarification whether the guidelines mentioned in circular dated
10.8.1984 are applicable to subsidiaries of commercial banks or not
and the RBI vide its reply dated 28.10.1984 had categorically stated
that said circular does not apply to PNB CAPS. It has been stated that
PNB CAPS is not a scheduled commercial bank and even otherwise
criminality cannot be inferred from the violation of a circular.
23. In reference to SIL, Ld. counsel has submitted that as per the
prosecution allegations, SIL in its application has stated that GIIC, ICICI
and UTI agreed to participate in the project but later on they did not
participate and SIL has concealed this fact. It has been stated that it is
a false allegation. UIT had given principal approval, SBI CAPS had
given indicate offer. SIL in its application stated that ICICI will submit its
approval report in 1994. It has been stated that another allegation
made by prosecution against SIL that it has never appointed PNB
CAPS as its lead manager. It has been stated that the occasion never
arose to appoint PNB CAPS as its lead manager because SIL never
came out with the right issue. It has been stated that even SIL vide its
letter dated 12.2.1994 undertook to appoint PNB CAPS as the lead
manager and this fact was also recorded in the sanction issued by PNB
CAPS. It has been stated that other allegation made by prosecution is
that past performance of SIL was not satisfactory but this is incorrect,
not supported by any evidence. It has been stated that past
performance was not criteria for sanction of STDs and PNB CAPS in its
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 19 of 76
own approval records has mentioned that they along with ICICI were
lead manager to the issue in 1993 which was over subscribed
approximately three times. It has been further contended that other
allegation of prosecution that money sanctioned by PNB CAPS was not
used for expansion of SIL is also false. It has been stated that SIL in its
application has three heads under which it needed money and this
money was covered by "Over run of existing project". It has been stated
that sum of Rs. 3 crores was never meant for expansion. It has been
stated that other allegations made by prosecution is that PNB CAPS
conspired to write off the loan. It has been submitted that writing off is
only accounting policy which enabled PNB CAPS not to pay tax on the
money due from SIL and WIL. It has been stated that PNB CAPS has
filed winding up petition on the legal advice, as court fee payable in
winding up petition is negligible.
24. Regarding WIL, Ld. counsel has submitted that for the offence of
cheating the intention to cheat must be from the inception. It has been
stated that as per CBI WIL has falsely stated that its banker was SBI
Calcutta whereas actually it was PNB Delhi. It has been stated that
WIL used to have two divisions, i.e. Jute, whose banker was SBI
Calcutta and Battery, whose banker was PNB Delhi. With effect from
1.12.1993, the Battery division went to a separate company called
Willard Storage Battery Ltd. (WSBL) and jute division was retained by
WIL. Accordingly, on the date of application by WIL, its banker was SBI
Calcutta. It has been stated that PW-12 has stated in his statement
under Section 161 Cr.P.C. that WSBL came into existence when
Battery division was transferred to it. It has been stated that other
allegations made by prosecution is that WIL never appointed PNB
CAPS as its lead manager but the same is factually incorrect as
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 20 of 76
occasion never arose because WIL never came out with the rights
issue. It has been stated that WIL vide its letter dated 25.10.1994 had
undertaken to appoint PNB CAPS as its lead manager and this was
recorded in the sanction issued by PNB CAPS. It has been submitted
that WIL did not use money for expansion and used it for other purpose.
It has been stated that WIL in its application has specified various
heads for which it needed money. It has been stated that other
allegations made by prosecution is that WIL did not pay back the STD.
It has been stated that vigilance report confirms WIL could not repay as
it did not come out with rights issue because of depressed market
conditions. WIL had voluntarily entered into a compromise with PNB
CAPS and repaid money to it.
25. Regarding A-2, Ld. counsel has submitted that there is no
material against A-2 in the charge sheet. He has not signed any
document and it is not the case of prosecution that he had made any
representation to PNB CAPS. It has been stated that there is no
concept of vicarious liability in criminal law, hence, A-2 cannot be
prosecution simply because of his association with SIL & WIL. It has
been stated that to substantiate the intention to cheat and the
conspiracy, the personal guarantee of A-2 was not sufficient or
commensurate with the loans given to SIL and WIL. It has been stated
that A-2 has not tried to exaggerate his net worth and stated what his
net worth was at the relevant time. It has been stated that personal
guarantee given by A-2 included his direct holding, his assets, bank
accounts etc. but it is urged that included his indirect holdings also. It
has been stated that indirect share holding of A-2 in these two
companies was much larger then the loan amount.
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 21 of 76
26. Ld. counsel for A-2, A-4 and A-5 has also placed on record a
volume of documents submitting that these documents contain the
necessary material to support his contention and most of the documents
are part of the prosecution record itself. Ld. counsel has also invited my
attention to the following case law:-
(i) Dr. P. Madan Mohan Rao Vs. The State of Andhra
Pradesh rep. By CBI/SPE [MANU/AP/0838/2006];
(ii) Mahaluxmi Bank Ltd. Vs. Registrar of Companies
[AIR 1961 Calcutta 666];
(iii) Acto Vs. Eicher Ltd. [MANU/RH/0210/2011];
(iv) C. Chenga Reddy & ors. Vs. State of A.P. [(1996)
10 SCC 193];
(v) Anil Kohli Vs. State (NCT of Delhi) [95(2002) DLT
173];
(vi)Hridaya Ranjan Prasad Verma Vs. State of Bihar &
ors. [(2000) 4 SCC 168];
(vii) Union of India & ors. Vs. N.K. (P) Ltd. & ors.
[7(1971) DLT 406];
(viii) Maksud Saiyed Vs. State of Gujarat & ors. [(2008)
5 SCC 668];
(ix) S. K. Alagh Vs. State of Uttar Pradesh & ors.
[(2008) 5 SCC 662];
(x) Raymond Ltd. & ors. Vs. Rameshwar Das
Dwarkadas P. Ltd. [2013(2) JCC 1227];
(xi) Chief Education Officer, Salem & anr. Vs. K.S.
Palanichamy [2012 Crl.L.J. 2543];
(xii) Sunil Chandra Banerjee Vs. Krishna Chandra Nath
[AIR 1949 Cal 689];
(xiii) Zee Telefilms Ltd. Vs. M/s Sahara India
Commercial Corporation
Ltd. & anr. [(2001) CALLT 262(HC)]; &
(xiv) Dilawar Balu Kurane Vs. State of Maharashtra
[2002 (2) SCC 193].
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 22 of 76
27. Sh. P.K. Dubey, Ld. counsel for A-3 has submitted that there is
mis-joinder of charge qua Section120-B IPC in this case. It has been
stated that alleged conspiracy with regard to SIL is alleged to have
started on 17.1.1994 and culminated on 10.2.1994 when STD was
sanctioned. With regard to WIL alleged conspiracy started on
25.10.1994 and culminated on 4.11.1994, hence, there is no proximity
of time between the two alleged conspiracies. It has been stated that
main allegations against this accused is that he had allegedly sent letter
dated 17.1.1994 but none of the information contained in the letter
dated 17.1.1994, 28.1.1994 and 3.2.1994 is incorrect or false. It has
been stated that in respect of tie up of term loan, it was mentioned that
"project to be financed as under" but in the charge sheet it is
misrepresented by CBI as "agreed to participate". It has been stated
that letters of GIIC, ICICI, UTI Bank Ltd. and SBI CAP confirm the loan
request/consideration by SIL. It has been stated that sanction of STD
was against right issue and not against these loans and there is nothing
on record to demonstrate any dishonest dishonest or fraudulent intent
on the part of A-3. It has been urged that CBI has failed to bring any
material to the effect that SIL was not entitled for STD. It has been
further submitted that all the documents of SIL STD as required by PNB
CAP STD policy were not signed by this accused and same were
signed by other persons and CBI has not arraigned those persons in
this case, hence, on parity this accused also should not have been
made accused in this case. It has been submitted that mere
failure/inability to repay loan would not accord criminal intent and there
is no evidence to show that he was ever in criminal intent/mens rea or
intention to cheat at the beginning of the transaction and thereafter. It
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 23 of 76
has been contended that auditors M/s Lodha & Company has given
their certificate after verifying books and records of the company that
the funds raised by SIL by STD had been utilized in connection with
expansion and diversification of the project.
28. It has been further submitted that appointment of PNB CAP as
lead manager was contingent to bringing of right issue and as per
letter dated 3.12.1996 of SIL to PNB CAPS, it is mentioned that due to
unforeseen developments in the capital market, the right issue has
inordinately delayed. Regarding request of loan and name of the
banker, Ld. counsel has submitted that request for loan vide letter dated
25.10.1994 was not signed by this accused. It has been stated that all
the submission was correct and no wrong information was furnished. It
has been stated that Battery Division got separate w.e.f. 1.12.1993 and
Willard Storage Battery Ltd. (WSBL), therefore, in October, 1994, PNB
was not the banker of WIL but of WSBL. It has been submitted that CA
certificate submitted by WIL stating that STD of Rs. 10 crores have
been utilized in connection with expansion of sugar project along with
co-generation of power. It has been stated that Board Resolution
authorising to avail company to avail STD of Rs. 10 crores against right
issue which shows intention of Board and the company to bring right
issue. It has been urged that as per knowledge of the accused
subsequently WIL has paid full amount and SIL has paid the amount as
per settlement and NOC to both the companies have been issued by
PNB CAPS. It has been submitted that law is settled that where two
views are equally possible and the court is satisfied that the evidence
produce give rise to some suspicion but not grave suspicion against
the accused, court will be fully within its right to discharge the accused.
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 24 of 76
29. Ld. counsel for A-3 has also placed on record a volume of
documents submitting that these documents contain the necessary
material to support his contention and most of the documents are part of
the prosecution record itself. Ld. counsel has also invited my attention
to the following case law:-
(i) Anil Mahajan Vs. Bhor Industries Ltd. & anr. [(2005)
10 SCC 228];
(ii) Alpic Finance Ltd. Vs. P. Sadasivan & anr.
[(2001) 3 SCC 513];
(iii) S. V. L. Murthy Vs. State Rep. by CBI Hyderabad
[AIR 2009 SC 2717];
(iv) Iridium India Telecom Ltd. Vs. Motorola
Incorporated & ors. [(2011) 1 SCC 74]; &
(v)Shapurji Sorabji Vs. Emperor [1935 ILR 148 Vol.
LX].
30. Sh. G.K. Seth, Ld. counsel for A-6 has submitted that this
accused was honourably released from PNB CAPS, thereafter, he was
promoted as Assistant General Manager and retired from PNB on
31.12.2003 honourably. It has been stated that it has to be kept in mind
that PNB CAPS was not permitted to engage in banking and business
incidental thereto. The PNB CAPS was in all together different business
than its promoter PNB. Ld. counsel has submitted that as per police
dated 28.12.1989 and one of the main activity of PNB CAPS was to
place deposit with corporate houses and placement of STD without
obtaining security was not prohibited. It has been stated that placement
of STD to SIL & WIL were normal business transactions and this
accused being middle level officer had counter signed and put up the
Board note to the superiors. It has been stated that one of the allegation
against accused persons is that SEBI acknowledgement card was not
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 25 of 76
received before placement of STD but as per guidelines of PNB CAPS,
SEBI acknowledgement card was not mandatory for placement of STD
against public/right issue. It has been stated that PNB CAPS was not
sanctioning any bridge loans. As per guidelines applicable to the bank
for bridge loans and for STD were not applicable to subsidiaries as
confirmed by RBI vide its letter dated 28.10.1994. It has been argued
that in August, 1993 SIL had come out with public issue which was
jointly lead and managed by PNB CAPS along with ICICI Securities Ltd.
which issue was over subscribed and STD of Rs. 4 crores placed with
the company was duly repaid out of the proceed of this issue and PNB
CAPS earned a substantial interest income in this case, besides lead
manager fee and underwriting fee. It has been further contended that
as per the practice in the market as well as in PNB CAPS, a certificate
from auditor of the company was required that funds taken by the
company against STD were utilized for the purpose of the project as
officers of PNB CAPS has no control or access to the accounts of the
company where cheques of STD amounts were credited. It has been
alleged that roll over of STD was a normal practice with the issuer
company as the issue coming to the market was decided by the market
conditions as well as by SEBI clearance. The brining of issue was not
in control of PNB CAPS officers. It has been stated that the company
could not come out with the right issue due to depressed market
conditions since early 1995. It has been stated that giving STD and
interests lower than 16.5% was within the discretion of Board of
Directors of PNB CAPS. This was not only the case but there were
many cases where Board of Directors sanctioned STD at the rate lower
than 16.5%. It has been stated that in case of WIL entire principal
amount of Rs. 10 crores and part amount in case of SIL was recovered
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 26 of 76
by PNB CAPS before filing the charge sheet. It has been stated that
there is neither any allegation nor proved that officers of PNB CAPS
followed any corrupt practice to obtain any pecuniary advantage for
themselves directly or indirectly or for any other person to gain any
pecuniary advantage.
31. Sh. G.K. Seth, Ld. counsel for A-7 submitted that this accused
was working as project executive for PNB CAPS at the relevant time.
He was not bank employee but a direct recruit of PNB CAPS. His main
duties were to compile the various data/information and documents
received from the parties, under the supervision of senior officers. It
has been stated that policy of PNB CAPS were only executive
instructions for accomplishment of day to day business of the company.
These policy/guidelines were were framed for smooth functioning of the
company. It has been stated that violation if any would not constitute
any offence as there is no force of law. It has been stated that charges
leveled in the charge sheet are merely allegations of violation of such
administrative guidelines. It has been submitted that this accused was
not even signatory in the proposal of SIL nor he was signatory to the roll
over note of WIL. It has been stated that STD policy of the company
was framed in December 1989 when net worth of the company was
Rs. 12 crores. As per guidelines of RBI any subsidiary of the bank could
have exposer to the extent of 25% of net worth of that subsidiary to a
single client. Accordingly, on the basis of net worth, the exposer of STD
was Rs. 3 crores per client. In the case of WIL, at that time net worth of
PNB CAPS was over Rs. 40 crores and accordingly, STD of Rs. 10
crores was sanctioned. It has been stated that PNB CAPS had entered
into compromise for STD with both SIL and WIL and dues have been
settled by these companies.
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 27 of 76
32. Sh. G. K. Seth, Ld. counsel for A-8 has submitted that this
accused was working as Sr. Vice President (on deputation from PNB)
since August 1991. He being middle level officer had no power to
accept merchant banking assignment or sanction any placement of
STD with clients. Ld. counsel has reiterated that policies of PNB CAPS
are only executive directions for accomplishment of day to day
business. It has been stated that placement of STD with SIL and WIL
were normal business transactions. It has been stated that allegations
of violation of RBI guidelines and non-receipt of SEBI acknowledgement
card are without any basis. It has been stated that Board note for
placement of STD to SIL was processed by the concerned project
officer. This accused has signed the said note which was as per STD
police and as well as past practice of the company. It has been further
submitted that certificate of auditor by M/s Lodha & Co. were there
certifying that the amount raised by STD has been used in connection
with expansion project for which it was given. It has been stated that
regrading personal guarantee point no. 9 of Guidelines dated
28.12.1989 mentions that corporate guarantee or personal guarantee
from promotes/directors where ever possible be obtained. It has been
submitted that Board of PNB CAPS had entered into compromise with
WIL & SIL much before the charge sheet.
33. Ld. counsel for A-6 to A-8 has also placed on record a volume of
documents submitting that these documents contain the necessary
material to support his contention and most of the documents are part of
the prosecution record itself. Ld. counsel has also invited my attention
to the following case law:-
(i) Assistant Commercial Taxes Officer, Anti Evasion
Zone-I Commercial Taxes, Jaipur Vs. Eicher Limited
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 28 of 76
[(2011) 46 VST 229] &
(ii)S. Ram Yadav Vs. CBI & ors. [2013(137) DRJ 131].
34. Sh. Anil Bhardwaj, Ld. counsel for A-9 has submitted that STD &
bridge loans are different financial products and cannot be equated. It
has been stated that Board of PNB CAPS was aware that STD was an
unsecured and highly risky product to earn higher interest income and
there was no requirement of any security and obtaining of any personal
guarantee was not compulsory. It has been stated that a regular and
normal business transaction has been given a colour of criminal
conspiracy just because there was delay/default in repayment which
was primarily due to depressed capital market during the relevant
period. It has been stated that PW-7 who was MD of PNB CAPS during
1996-2000, has confirmed to PNB Vigilance Department as well as
Ministry of Finance that both STD transactions of SIL & WIL were like
any other transactions and no deviation was made. It has been stated
that sole basis of involving this accused is his signature on one Board
Note. One colleague of this accused had played a similar role in the
case but was not included for trial, hence, his inclusion was arbitrary. It
has been stated that due to largely unsecured nature of the product, a
STD generally carried a higher rate of interest than other general
secured bank loans. In case of SIL, interest rate was 18% P.A., which
was higher than prevailing rate of interest for normal bank loans. It has
been stated that accused was just trainee/junior officer and on the
instructions had prepared Board Note. From the statement of PW-14 it
stands established that it is not necessary for the Board to approve the
note, it is not necessary for the Board to approve the Note in total, if
any discrepancy or short coming is found, Board can refuse or can
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 29 of 76
send it back to PNB CAPS. It has been stated that accused has not
played any role in both the roll overs. It has been stated that PW-22
M.K. Goswami, Statutory Auditors of PNB CAPS has stated that income
tax is paid on income earned by the company including on income
earned but not received under the mercantile system. In such cases
where no interest is likely to be received by PNB CAPS, in order to
avoid payment of income tax such loans may be written off. In support
of his submissions, Ld. counsel has relied upon J. lexander Vs. CBI
[ILR 2000 KAR 1418].
35. Sh. Pavan Narang, Ld. counsel for A-11 has submitted that this
accused had distinguished and illustrious carrier with various banks. It
has been stated that he joined Punjab & Sind Bank in 1961 and rose to
the bank of General Manager. In the year 1988, he was appointed as
Executive Director in UCO Bank by Government of India and thereafter
in April, 1992, he joined PNB as Executive Director. From 1.12.1994,
he was elevated as Chairman of Allahabad Bank and finally retired as
Chairman-cum-Managing Director on 31.3.2000. It has been stated
that for recognition of excellent contribution, he was appointed by
Government of India as member of the Insurance Regulatory &
Development Authority. It has been stated that there was investigation
by RBI in 1998 and on that basis CBI started a preliminary enquiry into
certain transactions of PNB CAPS. During this period, PIL petition was
filed in the High Court of Delhi and no allegations were made against
this accused. The present proceedings are out come of the said PIL. It
has been stated that on 19.4.2002, charge sheet under Section 173
Cr.P.C. was filed by CBI showing 10 accused in column no. 1 and
Rashid Jilani was shown in column no. 2, but without mentioning the
name of this accused. It was vide order dated 13.9.2002, cognizance
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 30 of 76
was taken by this court against this accused as well as Rashid Jilani
for all the offences alleged. It has been stated that this accused had
neither worked in PNB nor in PNB CAPS prior to this period or after this
period in any capacity and did not handled or dealt with the accounts of
SIL and WIL except when the notes of these companies were placed in
the Board as a part of board agenda. It has been stated that he was
one of the members of the Board of Directors in the meeting dated
10.2.1994 and 4.11.1994. when STD to SIL and WIL was
recommended and because of limited period posting, had no past
knowledge of these accounts except what was stated in the notes. It
has been stated that A-1 was full time Managing Director of PNB
CAPS. He was looking after day to day affairs of the said company. A-1
was fully aware of the facts and a duty cast upon him to verify each
and every information and bring complete and correct facts before the
Board. It has been stated that Board had to rely on truthfulness and
completeness of the information placed before it. It has been urged that
it is apparent from the minutes of meeting 10.2.1994 that there was 60
to 70 items which were considered in the said board meeting. Besides
granting of loan of Rs. 3 cores to SIL, it was not possible to get into
detailed investigation for each of the items as this accused was only
part time Director of PNB CAPS and full time Executive Director of
PNB. It has been stated that this accused was not looking after day to
day affairs of PNB CAPS. It has been stated that policy of placement of
funds was approved on 18.12.1989 was not placed before this accused
and he had no knowledge of this policy and even there is no mention of
this policy in the note for Board. It has been stated that rate of interest
is variable factor and is not constant for the entire period of time. It
changes from time to time and, thus, therefore was no irregularity and
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 31 of 76
variation. It has been stated that no involvement of this accused in the
case, due to this reason, he was exonerated CBI.
36. Ld. counsel for A-9 has also placed on record a volume of
documents submitting that these documents contain the necessary
material to support his contention and most of the documents are part
of the prosecution record itself. It has been stated that CBI has failed to
establish prima facie case against him. Ld. counsel has also invited my
attention to the following case law:-
(i) P.A. Tendolkar & ors Vs. The Official Liquidator,
Supreme Bank of India in Liquidation & ors. [1966
ILR(Mysore) 800];
(ii) Abdulla Mohammed Pagarkar Vs. State (Union
Territory of Goa, Daman & DIU) [(1980) 3 SCC 110];
(iii) C. Chenga Reddy & ors Vs. State of A.P. [(1996)
10 SCC 193];
(iv) State of Madhya Pradesh Vs. Sheetla Sahai &
ors. [(2009) 8 SCC 617];
37. Sh. Amit Sharma, Ld. counsel for A-12 has contended that after
investigation of allegations CBI had come to the conclusion that no
material existed against this accused, as a result of that his name was
placed in column no. 2. It has been stated that Ld. predecessor of this
court took cognizance against him. It has been stated that accused
had distinguished tenure having served in PNB for 37 years which
included two consecutive five year terms as Chairman and Managing
Director. He was also ex-officio & Non-executive Chairman of Board of
Directors of PNB CAPS, PNB Housing Finance Ltd. and PNB Gilts Ltd.
He also served as trustee on the Board of Trustees, Unit Trust of India
(UTI) Ltd. Bombay and other government organizations at much higher
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 32 of 76
position. It has been stated that being Chairman and Managing
Director of PNB, he was also serving as Ex-officio Chairman of the
Board of Directors of PNB CAPS and was not involved in day to day
functioning of PNB CAPS. It has been stated that being ex-officio non
executive Chairman of Board of Directors of PNB CAPS he had no
executive powers or role in the functioning of the company, therefore,
no question of abusing of official position arises against him. It has
been stated that this accused in no way was responsible for the
drafting, preparation, making, finalizing or in any other way responsible
for the Board Notes those were put before the Board. It has been
stated that there is no material on record to infer that this accused was
part of any conspiracy or there was any meeting of mind amongst the
accused persons. It has been stated that only document having any
reference to this accused in the charge sheet is an unsigned note dated
10.10.1994 and this document does not form the basis of any
allegations of criminality. It has been stated that RBI circulars dated
15.5.1992, 17.3.1994 and 10.8.1994 were addressed to scheduled
commercial banks and demanded adherence only from Banks and it
was not applicable to non-banking finance company like PNB CAPS. It
has been stated that this court has summoned this accused on one of
the ground that account of WIL with PNB was highly irregular and this
accused being Chairman of PNB was well aware of the same. It has
been stated that this court has relied upon the statement of PW-3 but
statement of PW-3 is factually incorrect. It has been stated that CBI
has failed to establish existence of prima facie case against him. In
support of his submissions, he has drawn my attention to the following
judgments:-
(i) Dr. Anup Kumar Srivastava Vs. State through CBI
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 33 of 76
[Crl. M.C. 4360/2012 of Delhi High Court. Decided on
21.11.2013];
(ii) C.K. Jaffar Sharief Vs. State (Through CBI)
[2012(11) SCALE 71];
(iii) Subramanian Swamy Vs. A. Raja [2012(7)
SCALE 520];
(iv) R. Kalyai Vs. Janak C. Mehta & ors. [JT 2008(12)
SC 279];
(v) Radhey Shyam Khemka Vs. State of Bihar,
[(1993) 3 SCC 54];
(vi) Dovey & the Metropolitan Bank (of England &
Wales) Limited [1901 And Privy Council (House of
Lords) 477];
(vii) Yash Ahuja & ors. Vs. Medical Council of India &
ors. [(2009) 10 SCC 313];
38. Law on framing of charge is settled that court is required to see
only prima facie case. The court is not required to minutely sift and
weigh the prosecution case. The law on framing of charge has been
exhaustively laid down by the Apex Court in Union of India Vs. Prafulla
Kumar Samal, [(1979) 3 SCC] wherein Apex Court has observed as
follows:-
"1) That the Judge while considering the question of
framing the charges under Section 227 of the Code has
the undoubted power to sift and weigh the evidence for
the limited purpose of finding out whether or not a prima
facie case against the accused had been made out.
2) Whether the materials placed before the court disclose
grave suspicion against the accused which has not been
properly explained the Court will be fully justified in
framing as charge and proceeding with the trial.
3) The test to determine a prima facie case would
naturally depend upon the facts of each case and it is
difficult to lay down a rule of universal application. By and
large, however if two views are equally possible and the
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 34 of 76
Judge is satisfied that the evidence produced before him
while giving rise to some suspicion but not grave
suspicion against the accused, he will be fully within his
right to discharge the accused.
4)That in exercising his jurisdiction under Section 227 of
the Code the Judge which under the present Code is a
senior and experienced Court cannot act merely as a post
office or a mouthpiece of the Prosecution, but has to
consider the broad probabilities of the case the total effect
of the evidence and the documents produced before the
Court, any basic infirmities appearing in the case and so
on. This however does not mean that the Judge should
make a roving enquiry into the pros and cons of the matter
and weigh the evidence as if he was conducting a trial".
39. In the case of Niranjan Singh Karam Singh Punjabi etc. Vs.
Jitendra Bhimraj Bijjayya & Ors etc. [MANU/SC/0337/1990 : 1990
CRLJ 1869], after considering the provisions of Section 227 & 228
Cr.P.C. court posed a question, whether at the stage of framing the
charge, trial court should marshal the materials on the record of the
case as he would do on the conclusion of trial. The court held as under:-
"At the stage of framing the charge inquiry must
necessarily be limited to deciding if the facts
emerging from such materials constitute the offence
with which the accused could be charged. The Court
may peruse the records for that limited purpose, but it
is not required to marshal it with a view to decide the
reliability thereof. The court referred to earlier
decisions in State of Bihar V. Ramesh Singh
MANU/SC/0139/1977: 1977 CriLJ 1606, Union of
India V. Prafulla Kumar Samal Manu/SC/0414/1978:
1979 CriLJ 154 and Supdt. & Remembrancer of
Legal Affairs, West Bengal V. Anil Kumar Bhunja
MANU/SC/0266/1979 : 1979 CrlLJ 1390, and held
thus:-
From the above discussion it seems well settled that
at the Sections 227-228 stage the court is required to
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 35 of 76
evaluate the material and documents on record with
a view to finding out if the facts emerging there from
taken at their face value disclose the existence of all
the ingredients constituting the alleged offence. The
court may for this limited purpose sift the evidence as
it cannot be expected even at the initial stage to
accept all that the prosecution states as gospel truth
even if it is opposed to common sense or the broad
probabilities of the case."
40. In Dr. Anoop Kumar Srivastava Vs. State through CBI
(supra), the court has discussed the yard stick to be applied by the
court on the facts of the case to evaluate the existence of prima facie
case. The relevant para no. 13 & 14 runs as follows:-
"13. The need for independent application of mind has
been stressed upon by Apex Court in Sajan Kumar
(supra). In Prafulla Kumar (supra), relied upon by
respondent, Apex Court has ruled that except the cases
of grave suspicion, which the accused is unable to explain, trial court is empowered to discharge the accused. In Soma Chakravarty (supra), Apex Court has reiterated that suspicion alone cannot be the basis for framing of charge and there must exist some material therefore to justify framing of charge. In Amit Kapoor (supra), Apex Court has clarified that the suspicion ought to be strong enough to justify framing of charges.
14. No doubt final test of guilt is not to be applied at the stage of framing of charge, but when two views are possible, on the basis of material on record, then trial court is empowered to discharge the accused provided one of the two views, gives rise to grave suspicion regarding complicity of accused in the commission of the offence. It has been so ruled by Apex Court in its recent decision in Central Bureau of Investigation Hyderabad V. K. Narain Rao (supra). The ratio of the decision relied upon by learned Senior Counsel for petitioner is that inference of criminal conspiracy may CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 36 of 76 be drawn only when such circumstances are incapable of any other reasonable explanation."
41. It is equally well settled that hearing as contemplated by Section 227 Cr.P.C. 1973 only means the submissions about the material filed by the prosecution on record. At the time of framing of charge or taking of cognizance accused has no right to file any defence/material. Reliance is placed on State Anti-Corruption Bureau, Hyderabad & another Vs. P. Suryaprakasham 1999 SCC (Crl.) 373. At this stage a reference may also be made to a judgment of Hon'ble Supreme Court in the case of Kanti Bhadra Shah & another Vs. The State of West Bengal JT 2000 (1) SC 13 wherein it was held as follows:-
"..... If there is no legal requirement that the trial court should write an order showing the reasons for framing a charge, why should the already burdened trial courts be further burdened with such an extra work. The time has reached to adopt all possible means to expedite the court procedures and to chalk out measures to avert all road blocks causing avoidable delays. If a magistrate is to write detailed orders at different stages merely because the counsel would address arguments at all stage, the snail paced progress of proceedings in trial court would further be slowed down."
42. As per settled legal position, the prosecution is required to establish prima facie case that in view of the allegations made against accused persons in the charge sheet, there exists strong suspicion against them that they might have committed the offence alleged. Before considering the material brought on record by prosecution to substantiate its allegations, rules and regulations under which PNB CAPS was required to function are considered first. Thereafter, various CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 37 of 76 allegations made in the charge sheet and evidence supporting these allegations will be discussed.
43. The policies, guidelines, the rules and regulations under which PNB CAPS as subsidiary of PNB was required to function and process the applications requiring funds, is required to be seen first.
44. As per the certificate of incorporation of PNB CAPS its main object was to carry on the business of merchant banking in all its aspects, to act as managers to issue and offers, whether by way of public offer or otherwise of shares, stocks, debentures etc. and to provide financial and investments assistance for the purposes herein.
45. PNB CAPS formed policy known as placing of Placement of Short Term Deposits - Policy Guidelines which was approved by Board of Directors on 28.12.1989. The salient features of the policy relevant for the purpose of this case are that it may place the deposits against public / rights issues where PNB CAPS is acting as Managers / Advisors to issue. In view of RBI guidelines,for subsidiaries, sealing of Rs. 3 crores per client was fixed which was approximately 25% of paid up capital and reserves of PNB CAPS, period of such deposits will be placed for 3 to 6 months at the rate of interest to be charged was at the rate of 17½ % to 18% p.a. and for the deserving cases the same could be reduced up to 16½% p.a.
46. Some salient features of the policy of PNB CAPS relating to merchant banking business are as follows:-
(i) For ensuring satisfactory track record of promoters, a report be called from existing bankers of the promoters and same should be satisfactory.CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 38 of 76
(ii) An appraisal report from financial institution / bank / operating agency.
(iii) Preferably to accept Lead Manager's assignment.
(iv) Standard format prescribed for the note to be put up for accepting the assignment of public issue which contains various information (prescribed therein).
(v) MOU (memorandum of understanding) between PNB CAPS as Lead Manager to the issue and the issuer company as a first step after the issue is accepted.
47. PNB CAPS approved the policy matters related to merchant banking in Board Meeting on 12.05.1993. The salient feature of the same are as follows:-
(i) Wherever they are working acting as Lead Managers taking pre-issue responsibilities, they should generally insist on an appraisal before submitting the prospectus / letter of offer to SEBI wherever possible.
(ii) For ensuring satisfactory track record of promoters, report be called from existing bankers of the promoters.
48. For better appreciation of fact, details of processing of applications of SIL(A-4) and WIL(A-5) with PNB CAPS in the chronological manner are discussed as follows:-
49. SIL (M/s Solarson Industries Ltd.)
1. A-3 as President - CORP. Finance, on behalf of SIL moved an application dated 17.1.1994 for short term loan of Rs. 3 crores to meet the ongoing project requirements, i.e. for setting up an integrated project for manufacture of CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 39 of 76 HPSV Lamps at Bhimtal and Baroda, and PCA at Baroda, which is to be paid out of the proposed right issue, to be brought some time in April 1994.
2. A-3 wrote letters dated 28.1.1994 and 3.2.1994 to PNB CAPS giving details of the project as well as details of the group companies.
3. Vide Note dated 4.2.1994, A-9 as Project Executive, A-8 as Sr. VP, and A-6 as Executive VP, had recommended placement of STD of Rs. 3 crores with the hope that PNB CAPS shall get lead manager ship assignment. They have also specified the period as six months and personal guarantee of A-2 as other condition.
4. Vide copy of the minutes of 78th Board Meeting of PNB CAPS held on 10.2.1994, attended by A-12 as Chairman, A-11 as Director and A-1 as Managing Director of PNB CAPS, the placement of STD of Rs. 3 crores against the proceeds of right-cum-public issue of FCDs, was approved.
5. Vide letter dated 12.2.1994 STD of Rs. 3 crores was disbursed to SIL. A-2 had executed agreement of guarantee on 12.2.1994 in favour of PNB CAPS.
6. Vide FAX dated 14.7.1994 PNB CAPS had demanded status of appraisal of the project of SIL by ICICI as well as submissions of the documents of public issue.
7. Vide letters dated 16.07.1994 and 30.8.1994 SIL informed PNB CAPS regarding upgradation of technology and increase of capacity etc. and being in the process of CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 40 of 76 making revised application and submitting the same to ICICI for appraisal.
8. Vide letter dated 31.10.1994 SIL has sought roll over for six months submitting that they have submitted appraisal application to ICICI, which is likely to be completed in one to one & half month.
9. Vide note dated 31.10.1994 of PNB CAPS, signed by A-
7, A-8, A-6, & A-10, roll over for six months was
recommended. This note was put before the Board by
circulation on 1.11.1994. The same was approved by A-1, A-11 and A-12. This roll over was approved in 85th Board Meeting by A-1, A-11 and A-12 on the terms and condition of the Board Note dated 31.10.1994.
10.Vide letter dated 13.3.1995 SIL had submitted project appraisal of SBI CAPITAL MARKET LIMITED dated 2.3.1995 for their project. SIL also sought of sanction of validity of bridge loan for a period of six months.
11.Vide Note dated 18.3.1995 signed by A-8, A-6, A-10 and one D. Zaheer, further roll over for six months w.e.f. 12.2.1995 was recommended.
12.Vide 96th Board Meeting dated 22.3.1995, A-1, A-12 and one Romesh Lal, Director approved further roll over for six months w.e.f. 12.2.1995 at an interest rate of 20% plus.
13.Vide letter dated 22.8.1995, 27.9.1995, 10.10.1995, PNB CAPS asked SIL to repay STD along with upto date CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 41 of 76 interest and auditor report to the effect that funds paid have been utilized towards expansion-cum-diversification project and details of assets thereof.
14.Proposal for write off of STD amount was made by PNB CAPS vide its letter dated 5.8.1996. This was approved by 8th Board Meeting of 1996 of PNB CAPS dated 23.8.1996 attended by A-12 & other Directors.
50. Various facts regarding processing of the application of WIL (M/s Willard India Ltd.) with PNB CAPS are as follows:
1. An undated, unnamed and unsigned application of A-5 for expansion and diversification plan of WIL is there on record (Volume 5, D-31) requiring funds to the tune of Rs. 10 crores in Oct. 1994 by way of bridge loan or any other form as company contemplating expansion/diversification of sugar and jute division.
2. There is noting "urgent MD PNB CAPS /PNB CAPS Pl. examine and report sd/- 10.10.94" on it by A-12 (as per PW-2 Sh. S. K. Gupta, Sr. Inspector in his statement dated 6.3.2000).
3. A-3 has sent details of their expansion and diversification proposal to A-6 vide his letter dated 11.10.1994.
4. Vide letter dated 25.10.1994 written by A-3 addressed to A-8, it is mentioned that project is proposed to be funded by rights issue of PCDs for which the company will get the necessary rating done as required under SEBI CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 42 of 76 guidelines. It is mentioned that "we are prepared to appoint you as lead manager for the proposed rights issue.
5. Vide letter dated 26.10.1994 (sent by FAX) addressed to A-8 it is mentioned that they proposed to get the credit rating done from ICRA for their PCDs, they expect that there PCDs would be rated either LAAA or LAA since it is an existing profit making an dividend paying company. Vide letter dated 27.10.1994 addressed to A-8, the company has given the price of their share in Jan. 94 to May 94 at Bombay Stock Exchange.
6. Vide letter dated 29.10.1994 addressed to A-8, the company has informed that premium will be in the band of Rs. 25/- to Rs. 40/- based upon the prevailing market price.
7. Vide letter dated 25.10.1994, A-8 has sought from Chief Manager, SBI Calcutta details of limits/facilities availed by WIL and status of their account.
8. Vide letter dated 28.10.1994 of Dy. GM SBI to PNB CAPS it is mentioned that WIL has 2 divisions namely Chitavalsah Jute Mills (CJM) and Agauta Sugar & Chemicals, WIL presently enjoy credit facilities for CJM with them and CJM is awarded health code no. 01 and credit rating as B+.
9. Vide Note dated 31.10.1994, A-7 as Project Executive, A-8 as Sr. VP, and A-6 as Executive VP, and A- 10 Sr. Executive VP (who had signed on 1.11.94) had recommended acceptance of merchant banking assignment to act as lead manager to the proposed rights CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 43 of 76 issue of PCDS of Rs. 100 each aggregating Rs. 101.90 crores and placement of STD to the extent of Rs.10 crores against the proceeds of the above proposed Rights issue of WIL. They have also specified the period as six months and personal guarantee of A-2 as other condition. The rate of interest recommended on the STD placement at the rate of 16% p.a. Plus interest with quarterly rest. It is mentioned that company is in the process of approaching an approved credit rating agency for rating of its PCDs. The expected date of opening of issue is mentioned in the recommendation is April, 1995.
10. As per copy of the minutes of 84th Board Meeting of PNB CAPS held on 4.11.1994, attended by A-12 as Chairman, A-11 as Director and A-1 as Managing Director of PNB CAPS is mentioned as "resolved that acceptance of merchant banking assignment to act as lead manager to the proposed rights issue of PCDs aggregating Rs.101.90 crores by Willard India Ltd. be and is hereby approved on the terms and conditions contained in the Board Note dated 31.10.1994", and also resolved that placement of short term deposit to the extent of Rs. 10 crores against the proposed rights issue of PCDs aggregating Rs. 101.90 crores by Willard India Ltd. be and is hereby approved on the terms and conditions contained in the Board Note dated October 31, 1994".
11. A-2 had executed agreement of guarantee, for A-5 WIL on 19.11.1994 in favour of PNB CAPS. A-3 K.C. CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 44 of 76 Aggarwal as Director (Finance) of A-5, on behalf of A-5 had also executed agreement/undertaking to PNB CAPS for repayment of the said deposit on demand to the lender and also undertake to pay the interest as per the recommendations and also agreed to pay the penal interest besides other undertaking.
12. Vide letter dated 6.1.1995 PNB CAPS had demanded status of issue and arrange to remit the interest on the short term deposit upto 31.12.94 from WIL. (Page 89 of D-31).
13. Vide letter dated 13.3.1995 WIL informed PNB CAPS that it has prepared the project report for expansion and diversification project and further informed vide the said letter that for NCD & PCD they have discussed with ICRA for getting the same rated and rating exercise is to be commenced soon.
51. One of the contentious issue is if the amount advanced by PNB CAPS to SIL & WIL was bridge loan or STD. All the accused have raised contention that it was bridge loan and was not STD and there are considerable difference in both these terms. However, as per prosecution there are some difference between two terms but from the point of view of this case, both conveys one and the same meaning. As per PW-1 K.V.S. Mani, Company Secretary of PNB CAPS various features namely meeting requirement of short term mismatch and adjustment of loan by way of proceeds of public/right issue are essentially the same as that of bridge loan where the finance is given for tiding over the requirement of the company to meet their short term CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 45 of 76 mismatch for timely execution of public/right issue. This witness has specifically stated that in nutshell STD have been placed against any public/right issue and bridge loan against any public/right issue are one and the same thing. Similarly, PW-7 V. Nagaraja, Managing Director of PNB CAPS has stated that bridge loans are sanctioned by banks whereas STDs are sanctioned by subsidiaries of the bank, otherwise, both are one and the same thing and the guidelines applicable for sanction of bridge loan are also applicable for sanction of STD against public/right issue.
52. The other main contention raised on behalf of prosecution is that two circulars dated 15.5.1992 and 17.3.1994 of RBI were for all Scheduled Commercial Banks and on receipt of the same a note dated 13.4.1994 was prepared and submitted by A-10 and J.K. Arora, Vice President to A-1. It has been stated that as per this note, he has taken these guidelines to be applicable to subsidiary of all banks also. It has been stated that in the light of these circulars, A-1, A-10 and other officials of PNB CAPS were fully aware that placement of STD against public issue should be done only after the receipt of SEBI Acknowledgement card.
53. On the other hand, the other contention raised on behalf of accused persons, especially by A-2 to A-5 is that because of the depressed market conditions, A-4 and A-5 could not go for right issue. The RBI vide its letter dated 28.10.1994 has clarified that the circulars dated 15.5.1992 and 17.4.1994 were not applicable to PNB CAPS. Except these circulars the policy documents of PNB CAPS regarding merchant banking are silent on this aspect.
54. It is admitted case of CBI that in reply to reference letter dated CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 46 of 76 6.9.1994 sent by PNB CAPS to RBI Mumbai seeking clarification regarding applicability of these circulars, RBI Mumbai vide its letter dated 28.10.1994 received by PNB CAPS on 5.11.1994 has informed that these circulars were not applicable to PNB CAPS.
55. The relevant para of the letter of RBI dated 15.5.1992 (D-6) is 4
(a), which is as follows:-
"4(a) The public issue/market borrowing has the approval of the relevant authorities"
56. The relevant para of the letter of RBI dated 17.3.1994 (D-7) is as follows:-
"(a) The public issue and/or market borrowing should have the approval of the relevant authority for being eligible to be considered for sanction of bridge loans/interim finances."
57. D-8 is a letter dated 13.4.1994 of PNB CAPS regarding RBI circular regarding bridge loan/interim finance. Vide this letter it is proposed to MD of PNB CAPS that clarification be taken from RBI whether the guidelines apply to subsidiaries of commercial banks. There is a note on the bottom of this letter in the hand of A-10 (as stated by PW S. K.Gupta), which runs as follows:
"Discussed with MD on 18/4. We may not seek any clarification and keep circular in mind."
58. D-9 is another letter of RBI addressed to Chairman/Chief Executives of all commercial banks dated 10.8.1994 mentioning that consequent to repeal of the Capital Issues (Control) Act, 1947, w.e.f. 29.5.1992, the need for obtaining prior approval of the Controller of CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 47 of 76 Capital Issues for issuance of equity to public has been dispensed with and it would now be suffice if the public issue and/or market borrowing have the clearance and consent from necessary authorities, for being eligible to be considered for sanction of bridge loans/interim finance.
59. D-10 is the letter written by A-10 to RBI dated 6.9.1994 seeking clarification whether guidelines mentioned in circular of RBI dated 10.8.1994 are applicable to subsidiaries of commercial banks also.
60. D-11 is reply of RBI dated 28.10.1994 received by PNB CAPS 5.11.1994 that circular under reference is not applicable to PNB CAPS.
61. It is admitted case of the prosecution that A-4 had come with a public issue of equity shares which opened on 5.8.1993. Similarly, A-5 had come with a secured fully convertible debentures on right basis and this issue opened on 5.1.1993. As per the prospectus of the public issue of A-4 (D-34) PNB CAPS was lead manager to this issue. SEBI had come into operation after Controller of Capital Issues was abolished w.e.f. 29.5.1992. What procedure was followed by A-4 and A-5 in getting SEBI Acknowledgement card vis-a-vis taking finance from the various financial institutions, no evidence in this regard has been taken by CBI.
62. The contention raised on behalf of accused persons is that prevalent practice at the relevant time was that if the issuer company decided to come out with a public issue, it will appoint a bank or some financial institution with which it has loan agreement as its lead manager, who will apply with SEBI seeking its permission in this regard. It has been stated that during the relevant period there were number of companies with whom PNB CAPS has placed short term CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 48 of 76 deposits before SEBI approval was obtained and it was subsequently the requisite application was moved with SEBI and approval was obtained to act as lead manager/co-manager to the public issue. It has been stated that PW V. Nagaraja, Managing Director of PNB CAPS has written a confidential letter dated 20.7.1998 to Chief Vigilance Officer, PNB detailing such cases and it throw light on various other important aspect of this case.
63. This letter written by Sh. V. Nagaraja Managing Director of PNB CAPS is part of D-32. It is a detailed letter written by this witness in response to earlier correspondence with Vigilance cell of PNB.
64. Before SEBI (Security Exchange Board of India), the prior approval of Controller of Capital Issues was required to bring a public issue/right issue etc. in the market. Vide Capital Issues (Controller) Act, 1947, w.e.f. 29.5.1992, the need for obtaining of prior approval of Controller of Capital Issues to bring public issues was dispensed with and SEBI was substituted as the competent authority to give clearance or consent in this connection. As per the policy of PNB CAPS relating to merchant banking business which was approved in Board meeting dated 12.5.1993 where PNB CAPS was advancing finance, it was supposed to act, preferably as lead manager of the ensuing public/rights issue. The issuer company is required to give appointment letter to lead manager to their propose public/right issue. As per the procedure, lead manager has to file offer document with SEBI, after obtaining necessary information from the issuer company and on this SEBI issues the acknowledgement card. PW V. Nagaraja, Managing Director of PNB CAPS has elaborated the requirement to bring any public/rights issue in the market. As per him, consent of SEBI, i.e. CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 49 of 76 obtaining of SEBI acknowledgement card is mandatory condition to bring public/rights issue in the market. Such card is obtained by merchant bank/lead manager to the issue after obtaining necessary information from the issuer company. Consent of SEBI or SEBI acknowledgement card are required to be obtained before disbursement of STD/bridge loan against the public issue.
65. In view of this settled procedure after the approval of Controller of Capital Issue was abolished and SEBI came into existence, SEBI acknowledgement card was the first step of the issuer company towards public/right issues. It is not the plea of any party that the rules and regulations governing SEBI are making any distinction if lead manager or the finance giving institution is scheduled bank or its subsidiary. Therefore, in view of this court, the rival contention of prosecution and accused persons regarding applicability of these two circulars dated 15.5.1992 and 17.3.1994 of RBI get irrelevant.
66. One of the pivotal allegations against accused persons is that since beginning A-2 to A-5 in conspiracy with other accused persons were not having any intention to come out with the rights issues as claimed by them in their applications.
67. The Ld. PP for CBI has contended that there is absolutely no evidence to infer from the record seized by CBI during investigation, if any step was taken by A-4 and A-5 towards bringing the rights issue as claimed by them in their applications seeking loan from PNB CAPS. It has been urged that to sub serve the fraudulent intention of A-4 and A-5 the various officers of PNB CAPS conspired with them and accordingly they recommended and approved the loan requirements of A-4 and A-5 in the form of STDs for the amount of Rs. 3 crores and Rs. 10 crores CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 50 of 76 respectively.
68. This allegation has been vehemently opposed by all the accused persons submitting that A-4 and A-5 were two existing companies, having good financial track record and were earning profits. It has been further submitted that in 1993 both A-4 and A-5 had come with their public/rights issue, same were oversubscribed and shares of both these companies were quoting at premium at the stock exchange. It has been contended that subsequent to the disbursement of loan amount, the market sentiment got depressed and environment was not conducive to come out with rights issue, due to this reason both A-4 and A-5 could not come out with their proposed rights issues.
69. It has been further contended on behalf of accused persons that since A-4 and A-5 failed to repay the loan, due to this reason, the civil liability of these companies was given criminal colour and this case was registered by CBI. It is also one of the main contention raised by all the accused persons that one of the essential requirement of offence of cheating as defined under Section 415 IPC is that there should have been fraudulent and dishonest intention from the very beginning of the transaction; from mere failure to keep the promise at a subsequent stage, the offence of cheating cannot be made out; the distinction between offence of cheating and mere breach of contract should be kept in mind. Ld. counsel for accused persons have cited various judicial pronouncement of the superior courts in this regard. This court agree with these submissions that to bring home allegations of cheating, prosecution is required to prove that accused had fraudulent and dishonest intention from the beginning of the transaction and the court should keep distinction between offence of cheating and mere CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 51 of 76 breach of contract in mind.
70. From the evidence on record, it appears that processing of both the applications of A-4 and A-5 for sanction of STD, though technically different, but were considered by various officers of PNB CAPS, who are arrayed, as accused together and under the same agreement.
71. One of the contention raised by prosecution is that as per the merchant policy of PNB CAPS, both A-4 and A-5 were required to appoint PNB CAPS as their lead manager but same was not done. Perusal of the documents contained in D-34 regarding loan application and of A-4 and its processing and documents D-29 to D-31 regarding loan application of A-5 and its processing, there is talk regarding appointment of PNB CAPS as lead manager but the formal letter appointing PNB CAPS as its lead manager is conspicuous by its absence.
72. As already discussed since PNB CAPS or for that matter any other institution was not appointed as lead manager, therefore, no one approached the SEBI for acknowledgement card for their rights issues.
73. The point to be pondered here is that why A-4 did not take steps to come out with right issue in April, 1994 as promised in their application dated 17.1.1994 seeking STD of Rs. 3 crores and there is no material on record to infer if A-4 had taken any steps to come out with the right issue after disbursement of STD of Rs. 3 crores. The contention raised by accused persons that because of the depressed market conditions A-4 could not come out with the right issue cannot be appreciated at this stage and this fact needs to be proved on record. The subsequent letters written by A-3 on behalf of A-4 dated 16.07.1994 and 30.8.1994 are also silent regarding inability of A-4 to CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 52 of 76 come out with the right issue due to depressed market conditions. Moreover, the letter dated 31.10.1994 requesting PNB CAPS for renewal of above short term deposit for the further period of six months is also silent about the reasons due to which A-4 could not come out with the right issue as promised by them in their application in April, 1994. This letter only talks about signing of technical agreement and submission of appraisal with ICICI. Even the recommendation dated dated 31.10.1994 for first rollover of six month only talks about changes in expansion and diversification programme of A-4. There is no whisper if any steps were taken by A-4 to come out with the rights issue. The 2nd roll over application dated 13.3.1995 by A-4 talks about the offer given by SBI Capital Market Ltd. for foreign currency loan equivalent to Rs. 20 crores and it is mentioned that the company will finalize the issue of rights offer after getting foreign currency loan and Govt. of India approved the same. Without verifying the status of the expansion and diversification, as promised by A-4 in his initial application even the 2nd roll over was recommended on 18.3.1995 and same was approved by Board meeting dated 22.3.1995.
74. The material on record reveals that PNB CAPS recommended and approved both the rollovers sought by A-4 without questioning and verifying from A-4 regarding the appointment as lead manager and demanding supporting documents to their claim made extension of loan and without verifying that how the amount of loan has been spent by A-4.
75. Other major allegations against A-2 to A-5 is that appraisals of the project before making an issue which is also one of the salient feature of the policy matter of PNB CAPS relating to merchant banking CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 53 of 76 was not complied with. The merchant banking policy of PNB CAPS dated 12.5.1993 in its beginning talks about approval of the project before submitting the proposal/letter of approval of SEBI, wherever is possible. In these cases at the time of sanction of STD appraisal of the project were not there and appraisals were filed by A-4 and A-5 at much later stage.
76. It is pertinent to mention here that recommendation of STD to the extent of Rs. 10 crores to WIL dated 31.10.1994 signed by A-7, A-8, A- 6 and A-10 specifically mentions that it is unappraised project. As per this recommendation this company is mentioned as profit making and dividend paying.
77. The contention raised on behalf of accused persons is that PNB CAPS had advanced loan to various unappraised projects during that period. It has been further stated that the report of PW V. Nagaraja dated 20.7.1998 is relevant in this regard. This report being relied upon document, certainly can be considered. It talks about appraisal reports by A-4 and A-5 subsequently and also talks about annexure-5 (part of the report containing name of list of 16 cases) wherein STDs were placed, though, projects were unappraised by any institution.
78. The other contention raised on behalf of accused persons is that various policies and guidelines of PNB CAPS were simply executive instructions which are flexible and sheer, non-compliance of these instructions do not involve any criminality. Under what circumstances in the cases mentioned in annexure-5, STDs were sanctioned on unappraised projects. It is not possible for the court to appreciate it at this stage. To get appraisal report about the project is first and foremost requirement of merchant banking policy of PNB CAPS and CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 54 of 76 same was flouted by accused persons with impunity in both the cases pertaining to A-4 and A-5.
79. The rate of interest on which this STD was given to A-5 is another important aspect of this case to be looked into. As per the recommendation dated 31.10.1994 for sanction of STD to A-5, rate of interest charged is 16% p.a. with quarterly rest. Whereas, as per recommendation of STD of Rs. 3 crores dated 4.2.1994 to SIL, rate of interest is mentioned as 18% p.a. with quarterly rest.
80. As per policy of PNB CAPS rate of interest to be charged at the rate of 18 to 18.5% p.a. and in deserving cases, same can be reduced upto 16.5% p.a. In this case STD of A-5 was recommended at the rate of 16 % p.a whereas to A-4 at the rate of 18% p.a.
81. One of the contentions raised on behalf of the accused persons is that PNB CAPS had advanced loan to various companies at the relevant time at the rate of 16% p.a. and no favour had been shown by the officers of PNB CAPS to A-4 and A-5 in this regard. Again the attention of this court has been drawn to the report of PW V. Nagaraja dated 20.07.1998 in this regard. The attention of this court has been drawn to the report where it is mentioned that the policy of PNB CAPS was approved in 1989 but thereafter interest rate had under gone many changes. He has mentioned that when STD placement with A-5 was approved in Nov. 1994, then rate of interest charged by various banks was in the range of 13 to 17.5% and in case of PNB minimum lending rate was 14%.What is the credibility of his observation in this report regarding rate of interest cannot be appreciated without any material being put before the court. This witness has filed annexure-9 along with his report giving list of 13 cases where interest rate of STD was CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 55 of 76 charged from 14 to 16.5%. What is the credibility of this report, same cannot be evaluated at this stage. What were the reasons in other cases, for not following police guidelines of PNB CAPS regarding rate of interest. Again it cannot be seen by the court at this stage. Moreover, if some officers with vested interest have flouted the guidelines to the detriment of PNB CAPS, solely on this ground that same has happened in number of cases,deviation of serious nature cannot be ignored.
82. The other allegations against A-4 and A-5 is that though policy guidelines of PNB CAPS for advancing STD of Rs. 3 crores per client was fixed, which was approximately 25% of the paid up capital and reserves of PNB CAPS but contrary to these guidelines, STD of Rs. 10 crores was approved to A-5.
83. It has been contended on behalf of accused persons that as per balance sheet dated 31.3.1993 of PNB CAPS, its capital was Rs. 20 crores and it was having reserve and surplus to the tune of Rs. 21 cores, therefore, advancing Rs. 10 crores to A-5 was as per its guidelines.
84. Ld. PP for CBI has contended that as per the policy of PNB CAPS dated 18.12.1989 funding based commitment of subsidiaries of Bank should not exceed from 25% of net owned fund of subsidiary and further advised that commitment to be made in such a manner that in any single issue it is not more than 15% of the net owned fund of the bank/subsidiary.
85. It has been urged on behalf of the accused persons to consider the report of PW V. Nagaraja in this aspect of the case also. This witness in annexure-7 of his report has provided list of 58 such cases where STD for more than Rs. 10 crores has been given by PNB CAPS.
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 56 of 76Again what is the credibility of this report given by this witness cannot be assessed at this stage. As already discussed, it is one of the important policy guidelines of PNB CAPS dated 18.12.1989 that funding based commitment of subsidiaries of bank does not exceed 25% of the net worth of the subsidiary. Accused have relied upon balance sheet dated 31.3.1993 of PNB CAPS wherein it is shown that in addition to capital of Rs. 20 crores, it was having reserve and surplus to the tune of Rs. 21 crores also. It has been urged that total capital and reserve being 41 crores, hence, STD of 10 crores was within the policy guidelines. This balance sheet dated 31.3.1993 of PNB CAPS filed on record by some of the accused persons, is not a relied upon documents and same cannot be considered. The credibility of this document also needs to be established and only thereafter court can consider this document. As per the material on record at the time of placement of STD of Rs. 3 crores to A-4, the OD account of PNB CAP was running in debit of Rs. 13,29,63,675.78 on which it was paying interest at the rate of 15% p.a. and at the time of release of first instalment of STD of Rs. 6 crores, OD account was in debit of Rs. 23,17,37,811.16. At the time of disbursement of 2nd installment of Rs. 4 crores, the OD account was running in debit of Rs. 11,94,83,152.17 on which PNB CAPS was paying interest at the rate of 15% per annum.
86. The other allegations against A-2, A-4 and A-5 is that Board Note in the case of A-4 and A-5 were prepared without verifying the net worth/means of A-2. The other allegation is that only on personal guarantee STD was sanctioned and no collateral was taken.
87. As per policy of PNB CAPS dated 18.12.1989 corporate guarantee or personal guarantee from promoters/directors wherever CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 57 of 76 possible is required to be obtained. STD in both these cases were recommended and approved on the personal guarantee of A-2. Again, it has been urged on behalf of accused persons that as per report of PW V. Nagaraja, no exception has been made in these cases and in various other cases PNB CAPS had placed STDs of more than Rs. 10 crores or more then that without taking any additional collateral securities. As per material on record, net worth of A-2 was only to the extent of 13.98 lacs on 31.5.1995 but against his personal guarantee STD of Rs.3 and 10 crores was given to A-4 and A-5. On behalf of A-2, it has been submitted that net worth of A-2 comprises his assets, shareholding in different companies, amount lying in his accounts etc. It has been stated that while calculating net worth of A-2, all these facts needs to be considered. There is no material on record to infer if net worth of A-2 was comparable to the amount of STDs amount advanced to the companies. Moreover, the previous record of A-2 and A-4 in their financial dealing with PNB CAPS was irregular and was not satisfactory.
88. Even as per the statement of PW Rajesh Kumar Singh, Manager Scale-II PNB who also remained posted in the Industrial Finance Branch at New Delhi of PNB, it is apparent that account of A-5 was running irregular since the beginning. Ld. PP has taken this court to the various Board Notes starting from 12.5.1980 to 9.7.1994, reference of which had come in the statement of this witness to establish that since beginning A-5 who is the promoter of A-4 was indulging in financial indiscipline and its accounts were irregular. As per statement of this witness Board Notes dated 11.10.1983, 11.4.1986 and thereafter all Board Notes (approximately 10-12) talks about the irregularity of the account of WIL with PNB. Ld. PP has further pointed out that starting CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 58 of 76 from 11.4.1986 presence of A-12, who was working as General Manager at that time and as Executive Director thereafter and of A-1 who also worked in different capacities, is apparent in all these Board Notes. It has been stated that since the beginning both A-1 and A-2 were aware about the irregularities of the accounts of A-5 which is the promoter company of A-4. No doubt from the statement of this witness, it appears that account of A-5 was having some irregularities of financial indiscipline regarding their accounts with PNB. Moreover, as already discussed, PW S.K. Zutshi has stated that even STDs sanctioned to A-4 and A-5 in 1992 were not repaid within the stipulated time but were repaid only before the approval of these 2 STDs, which are subject matter of this case.
89. Other allegations as per charge sheet is that the funds were not used for expansion and were diverted to sister concerns, etc.
90. PW V. Subramanium, officer of New Bank of India has detailed the debit of various amounts from the current account no. 29164 of A-4 during the period from October, 1993 to July, 1994. As per him amount of Rs. 2,98,50,000/- was credited in this account of A-4 on 14.2.1994.
91. PW Rajesh Chopra, Officer Customer Service Division, DEUTSCHE bank, Tolstoy Marg, has stated that A-5 was managing account no. 1040500000 with the branch. Rs. 5.95 crores were credited to their account on 21.11.1994 by depositing cheque drawn on PNB, thereafter, various amount were debited from this account to different companies in favour of A-4 and others. He has further stated that on 6.12.1994, amount of Rs. 4 crores was credited in this account vide cheque drawn on PNB. Thereafter, various amounts were debited from this account to different accounts of A-5, A-4 and others.
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 59 of 7692. It has been stated on behalf of all accused persons that as per prevailing practice both A-4 and A-5 had filed certificates of Chartered Accountants, i.e. dated 21.11.1995 of SIL (issued by Lodha & Company Chartered Accountants) and dated 16.10.1996 of WIL (issued by Ajay Raj Gupta & Company Chartered Accountants) certifying that amount of STD has been utilized in connection with expansion and diversification of the project.
93. But this fact was not verified by officials of PNB CAPS which they were duty bound to do.
94. As per charge sheet allegations against the accused persons is that officials of PNB CAPS have sought no confirmation from GIIC, ICICI & UTI as to whether they actually agreed to provide rupee term loan and SCICI, SBI/ICICI to provide foreign currency loan to A-4 for the said project. It is alleged that in this connection investigation revealed that these institutions never provided any loan to the said project in question. Ld. counsel for A-2, A-4 and A-5 has filed letters of UTI and SBI Capital Market for considering proposals for participation in the proposal of expansion-cum-diversification project and sanction of foreign currency loan to A-4. But in State of Orissa Vs. Devender Nath Padhi [2005(1) SCC 568), the Apex court has observed that at the stage of framing of charge, the court can only consider the material produced by the prosecution. No provision in Cr.P.C. grants to the accused any right to file any material or document at this stage and that has been granted only at the stage of trial.
95. A-4 in its letter dated 17.1.1994 had mentioned as follows:
"Rupee Term Loan As per the discussion, the following institutions CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 60 of 76 have agreed to participate in the above project and provide rupees Loan Assistance as under:
-GIIC Rs. 200 lacs
-ICICI Rs. 300 lacs
-UTI Rs. 300 lacs
Foreign Currency Loan
The following institutions are agreeable to provide Foreign Currency Loan:
-SCICI Rs. 315 lacs (1 Million US $)
-SBI/ICICI Rs. 315 lacs (1 Million US $)
The balance Rupee Loan will be arranged from
other institutions like IDBI and Banks like SBI with whom we are discussing the matter."
96. Ld. PP CBI has drawn attention of this court to statement of PW Swazi Samaria, Deputy Manager (Credit), UTI Bank Ltd. Bombay. She has stated that A-4 had approached their Ahmadabad office in November, 1994 for sanction of term loan facility to meet the part of the cost of their expansion cum diversification scheme. Their Ahmadabad office recommended for the same but the Central Office, Bombay rejected these recommendations on 25.11.1994. A-4 had also approached their Ahmadabad office for sanction of various credit facilities for their PCA tubes project. Their Ahmadabad office recommended for sanction of the facility vide their letter dated 7.4.1994 and the Central Office, Mumbai sanctioned the various facilities vide letter dated 4.8.1994, i.e. cash credit of Rs. 450 lacs, bills discounting for Rs. 100 lacs, letter of credit of Rs. 150 lacs and bank guarantee for Rs. 50 lacs.
97. PW Ms. Indianian Hanuka, Dy. Manager, ICICI Ltd. has stated that A-4 had requested ICICI New Delhi vide their application dated 1.11.1993 for sanction of term loan of Rs. 300 lacs for the project for manufacture of Halogen lamps and compact florescent lamps but no such loan was granted by ICICI Ltd. to A-4. She has further stated CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 61 of 76 SCICI Ltd. was merged with ICICI in 1997. She has stated that as per record, no agreement for rupee term loan or foreign currency was entered between ICICI/ SCICI Ltd and A-4.
98. No document was filed by A-4 in support of his claim that some institutions have agreed to participate in the project and provide rupee loan assistance and some institutions are agreeable to provide foreign currency loan. Strangely, officers of PNB CAPS who recommended sanction of STD did not verify/cross check this claim on the part of A-4 which they were supposed to do as per rules and regulations.
99. Other allegations against accused persons is that while repayment of STD by A-4 and A-5 was due on 29.3.1996, vide Board meeting held on 23.8.1996 and 5.7.1997, both these STDs were written off. It has been stated that on behalf of accused persons that writing off of STD is only accounting policy which enable the PNB CAPS not to pay tax on dues from A-4 and A-5. It has been stated on behalf of accused persons that PW-1 and PW-12 of prosecution have thrown light on this concept. PW-1 Sh. K.V.S. Mani of PNB CAPS has stated that in terms of RBI circular no. DBC.COC.1707.-174-93-94 dated 13.6.1994 and as per advice of inspecting officers, the entire amount of STDs along with upto date interest was written off vide Board Note dated 5.8.1996 and 30.6.1997. He has stated that written off amount does not mean that PNB CAPS has stopped the process of recovery of its dues. It is only to avoid payment of tax on the income which has not been actually earned. He has further stated that entire amount of STD was written off as per guidelines and winding up petition was filed in Allahabad High Court which is pending.
100. All the accused persons except A-4 and A-5 are facing charges for the offences punishable under Section 120-B/420 IPC and 13(2) CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 62 of 76 read with Section 13(1)(d) of P.C. Act and substantive offences under Section 420 IPC and Section 13(2) read with Section 13(1)(d) of P. C. Act. Whereas, allegations against A-4 and A-5 through A-2 are for offences punishable under Section 420 IPC. The law of cheating as defined under Section 415 IPC is settled that fraudulent and dishonest intention of accused must be shown to be existing from the very beginning of the transaction. From mere failure of a person to keep a promise subsequently, the culpable intention right at the beginning, i.e. when he made the promise cannot be presumed. A distinction has to be kept in mind between mere breach of contract and offence of cheating. It depends on the intention of the accused at the time of inducement. Subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent, dishonest intention is shown at the beginning of the transaction. (Reliance is placed on Anil Mahajan V. Bhor Industries Ltd. supra).
101. The culpable intention of accused persons to cheat from the beginning has to be gathered from the circumstances. The reckless way in which ignoring policies and guidelines, the applications of A-4 and A-5 for sanction of STDs were processed speak volumes about the conduct of the accused persons and their meeting of mind to achieve the desired result.
102. One of the contention raised on behalf of A-3 is that there is mis- joinder of charge as the two applications submitted by A-4 and A-5 for sanctioning of STDs are separate, both STDs have no connection with each other and there is substantive time gap between STD to SIL and STD to WIL. It has been stated that under Section 120-B IPC both offences cannot be part of the same conspiracy. On the other hand, Ld. PP has submitted that both A-4 and A-5 were having the same CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 63 of 76 promoters, their applications for sanction of STDs were processed by same banking officers and the evidence which has come on record in the form of recommendation of Board notes, application for roll over etc. prove that all the accused were under the same conspiracy to cheat PNB CAPS by sanctioning of STDs.
103. No doubt applications for sanction of STDs of A-4 and A-5 are dated 17.1.1994 and 25.10.1994 and both were recommended and sanctioned by separate Board notes. The law of conspiracy is settled that criminal conspiracy is often hatched in secrecy and for proving the offence, substantial direct evidence may not be available. The essence of conspiracy is unlawful combination and the complicity of the accused has to be decided after considering all the circumstances proved, before, during and after occurrence. Agreement between the conspirators may also be proved by necessary implication. It is not necessary that each member of a conspiracy must know all the details of the conspiracy. Facts established should be consistent only with the hypothesis of guilt of the accused. It does not mean that each and every hypothesis suggested by accused must be excluded by proved facts. In this regard, reference can be made to Chaman Lal Vs. State of Punjab, AIR 2009 SC 2972, R. K. Dalmia Vs. The Delhi Administration, AIR 1962 SC 1821, Muriappan Vs. State of Tamil Nadu, AIR 2010 SC 3718 and Firozuddin Basheeruddin Vs. State of Kerala, (2001) 7 SCC 596.
104. The statement of PW-2 S. K. Gupta, Sr. Inspector of PNB CAPS throw light on the process followed by officials of PNB CAPS in processing the loan applications and roll over applications of A-4 and A-
5. The relevant portion of his statement is as follows:
"First of all there is no provision of roll over mentioned in CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 64 of 76 the policy of PNB CAPS relating to placement of STD. Generally Board Note are submitted to the board by circulation in case of some exigency or in near future when there may not be any Board Meeting. There was no exigency because the STD matured on 12.08.94 and the note was prepared on 31.19.94 , i.e. more than 2½ months. Further there was a Board Meeting scheduled on 04.11.94, i.e. after 2 days from the submission of this note by way of circulation. I may further mention that during my enquiries relating to his company as well as its sister concern M/s Willard India Ltd. it came to my notice that by the time i.e. 31.10.94 a request of M/s Willard India Ltd. was also received for grant of short- term deposit of Rs. 10 crores and Board note recommending placement of Rs. 10 crores with M/s Willard India Ltd. was also prepared n 31.10.94 itself which was put up in Board Meeting held on 04.11.94. If both these board notes, i.e. one for roll over of STD pertaining to M/s Solarson Industries Ltd. and the other pertaining to placement of STD with M/s Willard India Ltd. would have been put up together in one Board Meeting this would not have been possible for the Board of Directors of PNB CAPS to sanction placement of STD with M/s Willard India Ltd. because the group of company as well as promoter of M/s Willard India Ltd, i.e. M/s Solarson Industries Ltd. had become defaulter in repayment of STD. Therefore, that can be one of the reason of submission of Board note pertaining to M/s Solarson Industries Ltd. to the Board by circulation so that the Board Directors can accommodate M/s Willard India Ltd. also. "
105. It is apparent from the statement of PW S. K. Gupta and from the material on record that Board note for rollover of STD to A-4 and other Board note pertaining to placement of STD to A-5 deliberately were not put together by the concerned officers of PNB CAPS. Obvious inference from these facts is that the concerned officers of the PNB CAPS wanted to favour A-4 and A-5 in this regard.
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 65 of 76106. One of the allegations against accused is that though STD of A-4 was outstanding but despite that in recommendation of the Board Note dated 31.10.1994 of A-5, this fact is not found mentioned. Para 11 of this recommendation dated 31.10.1994 for sanction of STD for A-5 contained information regarding past issue (for the past period by the company and group company). Regarding SIL the following information is lying mentioned:
"11. Past Issues (in the past three years) by the Company & Group Companies.
Solarson Industries Ltd.
The company had come out with a Public Issue of equity shares at par in August, 1993. The issue was lead managed by PNB CAPS which was oversubscribed by approx. 3 times. The present market price of the share is around Rs 35/-. The short term deposit of Rs. 400 lacs against the public issue of the company has since been repaid alongwith outstanding interest. The company is now expanding its existing activities of specially lighting and is proposing to go for manufacture of Halogen Auto Lamps and Compact Florescent lamps. The project is being appraised by ICICI. A short term deposit of Rs. 300 lacs has been placed with the company against the proceeds of the issue which is likely to open in Feb./March, 1995."
107. From this, it is clear that factual position of A-4 not coming out with the right issue as mentioned in their loan application and non- payment of STD amount is not found mentioned. To be fair and prudent these facts were required to be mentioned in this recommendation for A-5.
108. The law is settled that the blame worthiness for a completely indefensible act of a public servant is to be of such degree CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 66 of 76 that it is something that no reasonable man would have done, if he were placed in that position, having regard to all the circumstances. [Reliance is placed on Runu Ghosh V. P. Rama Rao (2001 Legal Eagle (Del) 1757]. Relevant para 79 is reproduced as follows:
"What then is the behaviour or act which attracts such opprobrium as to result in criminal responsibility? It is not every act which results in loss of public interest, or that is contrary to public interest, that is a prosecutable offence. There can be no doubt that all acts prejudicial to public interest, can be the subject matter of judicial review. In those cases, courts consider whether the decision maker transgressed the zone of reasonableness, or breached the law, in his action. However, it is only those acts done with complete and manifest disregard to the norms, and manifestly injurious to public interest, which were avoidable, but for the public servant's overlooking or disregarding precautions and not heeding the safeguards he or she was expected to, and which result in pecuniary advantage to another that are prosecutable under Section 13(1)(d)(iii). In other words, if the public servant is able to show that he followed all the safeguards, and exercised all reasonable precautions having regard to the circumstances, despite which there was loss of public interest, he would not be guilty of the offence. The provision aims at ensuring efficiency, and responsible behaviour, as much as it seeks to outlaw irresponsibility in public servant's functioning which would otherwise go unpunished. The blameworthiness for a completely indefensible act, of a public servant, is to be of such degree that it is something that no reasonable man would have done, if he were placed in that position, having regard to all the circumstances. It is not merely a case of making a wrong choice; the decision should be one such as no one would have taken."
109. As discussed above, ignoring past record and in flagrant violation of policies and guidelines, STDs of Rs. 3 crores and 10 crores CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 67 of 76 in favour of A-4 and A-5, were recommended and approved by officials of PNB CAPS. These decisions no where reflects financial prudence. Deviations from policies and guidelines in such a way prima facie establishes that agreement was there to help A-4 and A-5 to the detriment of PNB CAPS. Such a decision could not be expected from the persons of financial background as accused persons who are official of PNB CAPS.
Sanction for prosecution of A-1
110. Ld. counsel for A-1 has submitted that whatever decision was taken by A-1, same was taken by him in his official capacity. He further submitted that no sanction for prosecution under Section 19 of P. C. Act was not taken as he had retired from service but sanction under Section 197 Cr.P.C. was required to be taken, which prosecution has has failed to take, hence his prosecution should fail for want of sanction. In support of his submissions, Ld. counsel has drawn attention of this court to N.K. Ganguly Vs. CBI New Delhi (supra).
111. On the other hand, Ld. PP CBI has submitted that allegations against accused for commission of offence under Sections 120-B IPC read with Section 420 IPC and 13(1)(d) P. C. Act by no stretch of imagination, it can be said that accused has committed these offences in discharge of his official functions. Ld. PP has drawn attention of this court to the observations made by Apex Court in Devinder Singh & ors. Vs. State of Punjab through CBI [Crl. Appeal No. 190 of 2003 decided on 25.4.2016].
112. Section 197 provides that in case of a public servant not removable from his office except by the sanction of the government that if a public servant is accused of any offence alleged to have been committed by him while act in or purporting to act in discharge of his CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 68 of 76 official duty, no court shall take cognizance of such offence except with the previous sanction of appropriate government.
113. In N.K. Ganguli (supra) appellants were senior officers of Indian Council of Medical Research (ICMR) and its one of the institutions namely Institute of Cytology & Preventive Oncology (ICPO). They were facing allegations that under criminal conspiracy by abusing their official position they illegally transferred plot no. 119 Sector 35, Noida measuring 9712.62 sq. meters from ICPO Noida to ICPO-ICMR Cooperative Group Housing Society Ltd. Noida. All the appellants were charge sheeted for the offences punishable under Section 120-B IPC read with Section 13(1)(d) nd 13(2) P. C. Act. The court took cognizance and summoned the appellants to face the trial. Being aggrieved with this order, they moved High Court under Section 482 Cr.P.C. but their petition was dismissed. Against this order of the High Court, they filed appeal before the Apex court. The point for consideration before the court was that whether an offence under Section 120-B IPC is made out against the appellants and if so weather previous sanction of the Central Government is required to prosecute them for the same. The contention raised by the appellant was that transfer of the plot in question occurred when the appellant were holding public office and the alleged offences were committed by them, if at all, in discharge of their official duty. Hence, prior sanction from Central Government under Section 197 Cr.P.C. was mandatory. Apex court after discussing its various judicial pronouncements concluded that provision of Section 197 Cr.P.C. is squarely applicable to the facts of this case, prior sanction of the Central Government was required to be taken, hence, accordingly the impugned order was set aside.
114. The facts of the present case are distinguishable from the facts of CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 69 of 76 that case. Here A-1 is facing accusation for the commission of offences under Section1 20-B IPC read with Section 420 IPC and Section 13(2) read with Section 13 (1)(d) P. C. Act. In this judgment, Apex court discussed its two previous decisions in case of Satwant Singh Vs. State of Punjab [AIR 1960 SC 266] and Prakash Singh Badal Vs. Union of India [16(2007) 1 SCC 1]. In these 2 cases Apex court has observed that act of cheating or abetment thereof has no reasonable connection with the discharge of official duty. The relevant portion of para 22 of the judgment is as follows:-
"In the case of Satwant Singh v. State, AIR 1960 SC 266, a constitution bench of this court while examining the scope of Section 197 of CrPC, observed as follows:
"It appears to us to be clear that some offences cannot by their very nature be regarded as having been committed by public servants while acting or purporting to act in the discharge of their official duty For instance, acceptance of a bribe, an offence punishable under s. 161 of IPC, is one of them and the offence of cheating or abetment thereof is another... where a public servant commits the offence of cheating or abets another so to cheat, the offence committed by him is not one while he is acting or purporting to act in the discharge of his official duty, as such offence have no necessary connection between them and the performance of the duties of a public servant, the official status furnishing only the occasion or opportunity for the commission of the offence....
... the Act of cheating or abetment thereof has no reasonable connection with the discharge of official duty. The act must bear such relation to the duty that the public servant could lay a reasonable but not a pretended or fanciful claim, that he did it in the course of the performance of his duty. "
115. The relevant para in Prakash Singh Badal (supra) is as CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 70 of 76 follows:-
"50. The offence of cheating under Section 420 or for that matter offences relatable to Sections 467, 468, 471 and 120B can by no stretch of imagination by their very nature be regarded as having been committed by any public servant while acting or purporting to act in discharge of official duty. In such cases, official status only provides an opportunity for commission of the offence. "
116. As already discussed, one of the offence for which A-1 has been charge sheeted along with other accused persons is substantive offence under Section 420 IPC. In view of the observations of the Apex Court discussed above, ratio of this case is not applicable to the facts of the present case. I thereby do not agree with the contention raised by A-1 that CBI was required to take sanction under Section 197 Cr.P.C. for his prosecution.
Conclusion
117. In view of the aforesaid reasons, prima facie there exists strong suspicion that A-4 and A-5 were lacking any intention to come out with the right issue as promised by them in their respective applications seeking sanction of STDs of Rs. 3 crores and Rs. 10 crores respectively. The proposal for sanction of STDs by both these companies without any verification of the contents of these applications, which the officers of PNB CAPS were required to do, same were recommended and put before the Board for sanction. As per material on record, A-5 was having past poor financial record and even STD of Rs. 4 crores sanctioned in 1992 could not be repaid on time, was rolled over thrice and was finally paid on 25.1.194. The point to be considered is if the decision taken by PNB CAPS officers recommending and sanctioning the STD to A-4 and A-5 can be said to CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 71 of 76 be wrong situation based managerial decision involving no dishonest intention and criminal misconduct. As already discussed, PNB CAPS was having clear guidelines and merchant banking policy but in flagrant disregard of the relevant rules, without verifying the fact that A-4 and A- 5 had any plan to do expansion and diversification and for this purpose they wanted to come out with the right issue, STDs were recommended and sanctioned. There is material on record that both these companies never came out with their Rights Issues as proposed by them in their respective applications at the time of sanctioning STDs. The PNB CAPS officers dealing with the processing and sanctioning of the STDs were senior professionals dealing with finance, were expected to verify the various claims made by both these companies in their respective applications, they were required to be extra cautious as huge public money was involved. Deviation from rules and negligence in following the rules on one or two counts certainly does not attract any adverse inference of dishonesty on their part but flagrant violation of main rules and regulations, prima facie establishes that they were having dishonest intention since the beginning and being public servant they committed criminal misconduct by abusing their position and obtained pecuniary advantage for A-4 and A-5.
118. A-1 being full time managing director of PNB CAPS, main officer responsible for its decisions. As per the material on record, he was aware about the highly unsatisfactory and irregular accounts of A-5 but despite that he sanctioned STDs of A-4 and A-5 and two roll overs being one of the members of the Board. Hence, prima facie evidence is there against him for commission of offences under Section 120-B read with Section 420 IPC and 13(1)(d) of P.C. Act, as well as for commission of substantive offence under Section 420 IPC and Section CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 72 of 76 13(1)(d) of P. C. Act.
119. A-2 was chairman of A-4 and A-5. He was the promoter and beneficiary of these 2 companies. He had given personal guarantee being chairman of both these companies as security against STDs. Hence, prima facie evidence is there against him for comission of offences under Section 120-B read with Section 420 IPC and 13(1(d) of P.C. Act, as well as for commission of substantive offence under Section 420 IPC.
120. A-3 being director Finance of A-4 and A-5 was also in the middle of this entire conspiracy. He has done all correspondence with PNB CAPS, i.e. initial applications for sanction of STD, thereafter, submitting various applications seeking rollover of STD for A-4 and submitting other information. Hence, prima facie evidence is there against him for commission of offences under Section 120-B read with Section 420 IPC and 13(1(d) of P.C. Act, as well as for commission of substantive offence under Section 420 IPC.
121. A-4 and A-5 being Companies were independent legal entities. Being just legal entities, they cannot be held liable for entering into criminal conspiracy with anyone. But prima facie there is evidence against them for commission of offences under Section 420 IPC through A-2.
122. A-6 being Executive Vice President of PNB CAPS was senior officer. He is signatory of all the four recommendations, i.e. three in case of A-4 including two roll overs and one in case of A-5. He was part of this alleged conspiracy throughout, starting from recommendation of A-4 to recommendation for second roll over to A-4. Hence, prima facie evidence is there against him for commission of offences under Section 120-B read with Section 420 IPC and 13(1)(d) of P.C. Act, as well as for CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 73 of 76 commission of substantive offence under Section 420 IPC and Section 13(1)(d) of P. C. Act.
123. A-7 was project executive of PNB CAPS. As per PW Sh. K. V. S. Mani, on receipt of request letter for loan same is marked to concerned departmental head for processing. There are several officers working under departmental head to assist him in processing the proposal, generally such proposals are processed by project executive and he is required to see that the company has furnished the genuine details in the proposal. Before preparing an appraisal report or board note, the information furnished by the party are required to be verified. As per record, he is signatory of recommendation note regarding first roll over for A-4 and recommendation note for sanction of STD for A-5. As per the material on record he being the first officer in hierarchy, who prepared the board note, the departmental head, who is the senior officer, is supposed to vet the recommendation and then put his signature on it. Except the signing of these two board notes, there is absolutely no other material against him on record. Keeping in view his limited role, prima facie there is no inference against him if he was part of the conspiracy. Accordingly, this accused is discharged from this case.
124. A-8 was working as senior vice president of PNB CAPS like A-6 he has signed all the recommendations, i.e. three recommendations of A-4 including the two roll overs and one recommendation of sanction of STD for A-5. Hence, prima facie evidence is there against him for commission of offences under Section 120-B read with Section 420 IPC and 13(1)(d) of P.C. Act, as well as for commission of substantive offence under Section 420 IPC and Section 13(1)(d) of P. C. Act.
125. A-9 was working as project executive of PNB CAPS. He is CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 74 of 76 signatory to only one recommendation, i.e. STD of A-4. As per material on record, he being the first officer in hierarchy has prepared the board note, departmental head who was senior officer was supposed to vet the recommendation and then put his signature on it. There is absolutely no other material against him on record. In view of the material on record, there is absolutely no evidence on record to infer if he was part of the conspiracy. Accordingly, this accused is discharged from this case.
126. A-10, who was senior executive vice president, is reported to have died and proceedings against are abated.
127. A-11 was director of PNB CAPS. Out of the four board meetings in which the proposals of A-4 and A-5 regarding sanction of STDs and two roll overs (in case of A-4) were approved he is signatory to the three. He is not signatory to the board not regarding 2 nd roll over. As per material on record he was having knowledge of irregular accounts of A-5 and M/s Willard Storage Battery Ltd. with PNB. Hence, prima facie evidence is there against him for commission of offences under Section 120-B read with Section 420 IPC and 13(1)(d) of P.C. Act, as well as for commission of substantive offence under Section 420 IPC and Section 13(1)(d) of P. C. Act.
128. A-12 was vice chairman of PNB CAPS. He was signatory of all the four board meetings. As per statement of PW Rakesh Kumar Singh, Manager Scale-II, PNB, A-5 was maintaining its account with PNB since 1974 and as per the various board notes starting from 1986 till 1994, he (A-12) was one of the signatory wherein the irregular running of accounts of A-5 with huge outstanding were discussed. Moreover, being aware with the financial record of A-5, on undated, unnamed and unsigned application of A-5 vide his order dated CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 75 of 76 10.10.1994, he had sought urgent report from MD PNB CAPS on said application. Hence, prima facie evidence is there against him for commission of offences under Section 120-B read with Section 420 IPC and 13(1)(d) of P.C. Act, as well as for commission of substantive offence under Section 420 IPC and Section 13(1)(d) of P. C. Act.
129. Charge for the respective offences mentioned above be given to the accused persons. A-7 and A-9 are required to furnish PB/SB for sum of Rs. 20,000/- each in compliance of Section 437-A Cr.P.C.
Announced in open court ( SANJAY GARG-I )
on 4th June, 2016 SPECIAL JUDGE-IV, CBI (PC Act)
TIS HAZARI COURTS,DELHI
CC No.04/2015 CBI Vs. M.K. Menon & ors. Page 76 of 76