Delhi District Court
Cbi vs . (1) T. O. Joseph on 30 July, 2013
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IN THE COURT OF MS. POONAM A. BAMBA :
SPECIAL JUDGE-CBI(03): PATIALA HOUSE COURT:
NEW DELHI
In re :
Unique ID No. 02403R0075262011
CC No. 73/11
RC No. 10E/2010/BD1/BS&FC Delhi
u/Ss 120B & 420 IPC
& Sec. 13(2) r/w Sec. 13 (1) (d) of PC Act.
CBI Versus. (1) T. O. Joseph
S/o Late O. J. Thomas
R/o A-201, Vardhman Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
(2) Sophy Joseph
W/o T.O. Joseph
R/o A-201, Vardhman Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
(3) Placid Sam
S/o Sh. K. J. Thomas
R/o C-53, IFS Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
(4) M/s Creative Home Fashion
Pvt. Ltd. (CHFL)
Regd. Office at:
A-201, Vardhman Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
Corp. Office at :
B-44/45, Sector - 58, NOIDA (UP).
(5) N. Sitaram Rao
Sh. Satyanarayan
R/o Flat No. 483, Sector-2C,
Vasundhara, Ghaziabad (UP)
(6) P. Janardhan Rao
S/o Late Sh. P. L. Narsimha Rao
Plot No. 34, Gandhi Enclave,
Ravindra Nagar, Turangi,
Kakinada, Dist East Godavari (A.P.)
(Discharged vide order dt. 09.05.2012)
CBI Vs. T.O. Joseph Page 1-A of 141
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IN THE COURT OF MS. POONAM A. BAMBA :
SPECIAL JUDGE-CBI(03): PATIALA HOUSE COURT:
NEW DELHI
In re :
CC No. 73/11
RC No. 10E/2010/BD1/BS&FC Delhi
u/Ss 120B & 420 IPC
& Sec. 13(2) r/w Sec. 13 (1) (d) of PC Act.
CBI Versus. (1) T. O. Joseph
(2) Sophy Joseph
(3) Placid Sam
(4) M/s Creative Home Fashion
Pvt. Ltd. (CHFL)
(5) N. Sitaram Rao
Date on which charge-sheet filed : 30.09.2011
Date of conclusion of Arguments : 24.07.2013
Date of Judgment : 30.07.2013
1.0 Criminal justice system was set into motion on a
written complaint dated 08.11.2010 of CVO, Vijaya Bank,
Vigilance Department, HO, Bangalore regarding cheating of
the bank to the tune of Rs.14,68,24,164/- by accused nos. 1
(T.O. Joseph), no. 2 (Sophy Joseph), Elizabeth Thomas and
some bank officials. After investigation, on 30.09.2011, the
charge sheet was filed against the accused persons u/Ss 120B
r/w Sec. 420 Indian Penal Code (IPC) and u/Ss 13 (2) r/w 13
(1) (d) of Prevention of Corruption Act, 1988 (PC Act).
2.0 Briefly stating, the CBI's case is that the accused
CBI Vs. T.O. Joseph Page 2-A of 141
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no. 4, M/s Creative Home Fashions Ltd. (A-4) was dealing with
Vijaya Bank, Branch Office Barakhamba Road (The Branch)
since 01.11.2000; A-4 had been availing various credit
facilities from the Bank like Packing Credit Limit (PCL),
FDEP/FUDBP/Term Loan etc. which were renewed from time to
time. A-4 was doing well till 2005-06, but, subsequently, it
incurred losses. In the year 2006-07, it incurred loss of Rs.4.65
crores as against the turn over of Rs.39.57 crores; in the year
2007-08, the loss incurred by A-4 was Rs.23.43 crores as
against turn over of Rs.21.80 crores; A-4 was thus, going
through acute liquidity crunch. To overcome the same, A-4
engaged the services of accused no. 3 (A-3) Placid Sam
(cousin of A-2 Sohpy Joseph), who was an MBA, as Director
(Finance). During August, 2006, to arrange finances for A-4,
Placid Sam (A-3) approached one N. Subramania Bhat alias N.
S. Bhat, a Bangalore based Chartered Accountant, engaged in
financial consultancy, introducing himself as a Director of A-4;
N. S. Bhat, after scrutinizing the financial statements/ balance
sheets of the A-4 apprised A-3 that bank finance was not
possible; on which, Placid Sam (A-3) requested him to arrange
for funds from private source. N. S. Bhatt then contacted
Srikant Bhassi, an agent of M/s Bunge India Pvt. Ltd. (an
CBI Vs. T.O. Joseph Page 3-A of 141
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Indian entity of M/s Bunge, S.A., Geneva) for funding A-4. After
going through the financial statements/ balance sheets of A-4,
Srikant Bhassi informed that they will not be in a position to
fund A-4; but, it further suggested that it can get an export
order for the CHFL (A-4) against which advance could be
provided to A-4, with a condition that the Performance Bank
Guarantee (PBG) from a bank was provided; N. S. Bhat
informed A-3 Placid Sam about information received from M/s.
Bunge India Pvt. Ltd. Placid Sam (A-3) agreed to the same on
behalf of A-4 CHFL. As per this, the export order was required
to be executed within 12 months; and A-4 could use the funds
for 12 months.
2.1 To avail that opportunity of immediate finance and
pursuant to criminal conspiracy and with dishonest intention
& to take advantage of their good reputation, A-1 T.O. Joseph
and A-3 Placid Sam, visited the Branch, in order to get an
additional non-fund based facility in the form of PBG; and with
an intention to get an advance against PBG, for liquidation of
their liabilities and for other purposes; in September, 2006,
Sophy Joseph (A-2), who was the authorised signatory of A-4
CHFL, addressed a letter dated 16.09.2006 to AGM, of the
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Branch, submitting a fresh proposal for sanction of Foreign
Bank Guarantee [(FBG) - it is the same as PBG, asked for by
the foreign buyer. "PBG" and "FBG" are used inter
changeably.) of Rs.15 crores for executing an export order,
which they were negotiating with M/s Bunge, S. A., Geneva of
8,90,000 pieces of Cargo Shorts, to be supplied within a
period of 12 months and to enable them to receive an
advance payment against said order. The FBG of Rs.15 crores
was sanctioned by the Head Office of the Bank vide letter
dated 20.11.2006 with additional conditions inter alia, that
stocks procured out of advance payment received against
Performance Bank Guarantee should be segregated from
stock procured out of PCL by first appropriating the drawing
power arrived on stock to these limits and the balance only to
PCL and account be closely monitored. The Sanction letter
dated 24.11.2006 was issued by the Branch to A-4, CHFL. On
05.12.2006, A-1 T. O. Joseph, A-2 Sophy Joseph andA-3 Placid
Sam visited the Branch; A-2 Sophy Joseph executed the loan
documents for new FBG facility on behalf of A-4 M/s CHFL and
M/s Well Computers Exim Pvt. Ltd. and M/s G. K. Products Pvt.
Ltd., as per Sanction; FBG/ SWIFT message in that regard was
issued on 06.12.2006 by the Branch for JPY 394,737,300
CBI Vs. T.O. Joseph Page 5-A of 141
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(equivalent to Rs.14,68,24,168/-) to be operative from the
date of receipt of advance payment from M/s Bunge S.A.,
Geneva.
2.2 After issuance of FBG by the Branch, advance
payment of Rs.14,68,24,164/- was received on 18.12.2006
from buyer M/s Bunge S.A. Geneva and credited in A-4's
current account, bearing No. 6637. The entire advance
amount was utilized by A-4 within 2 days i.e. on 18.12.2006
and 19.12.2006 for the purposes as indicated in Para no. 2.2.1
(infra) and not for executing the export order. As the export
order was not executed by A-4, FBG was invoked by the buyer
and devolved on the bank on 12.12.2007; A-4 did not repay
the loan and its account became Non-Performing Asset (NPA)
w.e.f. 30.06.2008. This resulted in wrongful loss to the Bank to
the tune of Rs.12,18,67,410/-.
2.2.1 The advance payment of Rs.14,68,24,164/-
received from buyer M/s Bunge S.A., Geneva was utilized by
A-4 as under :
Dated Amount Particulars
(Rs. In
lacs)
18.12.2006 298 Recovery of cash margin on Bank Guarantee
CBI Vs. T.O. Joseph Page 6-A of 141
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18.12.2006 702.35 Adjusted towards PCL liquidation.
18.12.2006 65.7 Foreign Remittance (payment for import bill)
19.12.2006 62.57 Chq.195918 issued for remitting the funds in the
A/c of M/s CHFL with HSBC through TRGS
19.12.2006 20 Chq.195993 issued on self for cash withdrawal
19.12.2006 31.78 Chq.195998 issued for issue of DD in F/o M/s DNB
Associates
19.12.2006 7.95 Cheq.195998 issued for issue of DD in f/o M/s
Insurance Inc
19.12.2006 115 Chq.195920 issued for transfer of funds to the a/c
of M/s CHFL with HSBC
19.12.2006 125 Cheq.195922 issued for transfer of funds to the a/c
of M/s CHFL with Standard Chartered Bank.
2.3 It is alleged that an amount of Rs.7,02,24,871/-
crores was diverted towards adjusting/ liquidating existing
overdue 51 Packing Credit Loans (PCLs), availed by A-4
during 24.05.2006 to 14.09.2006, which was authorized by A-5
N. Sitaram Rao; and
2.3.1 Rs.3 crores out of advance amount, was invested
in associate company M/s. Morian Apparels P. Ltd. during
2006-07. A-5 N. Sitaram Rao, Manager, Forex of the Branch,
also authorized adjusting of required cash margin of 20% i.e.
Rs.2.98 crores on FBG by debiting the same to the current
account of A-4 bearing no. 6637. Other debit of Rs.65.70 lacs
was also authorized by A-5 N. Sitaram Rao.
CBI Vs. T.O. Joseph Page 7-A of 141
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2.4 It is also alleged that the bank could produce only
21 PCL applications out of 51 PCL applications and the
remaining applications could not be located by them. It was
also found that no export orders/ purchase contracts or any
other supporting documents were submitted with those 21
PCL release applications; PCLs were released to A-4 in a very
casual manner without authorization/ approval of the Chief
Manager/ Branch Head as required under Para 5.4 of Manual
of Advances Vol.1 at Page 106.
2.4.1 It is further alleged that as per Vijaya Bank's
guidelines in Manual of FOREX Vol.I, para 26.16.5, Manual of
Advances, Vol-III, Para 40.4.16.2 - D -"General Terms &
conditions" (b)-Packing Credit Limits - (iii) & (ii) and RBI
Master Circular on Rupee Export Credit - DBOD No. DIR.
(Exp.).BC.01/04.02.02/2006-07 dtd. 01.07.2006, the Packing
Credit Loan was required to be liquidated out of actual export
proceeds and not from any foreign remittance through other
sources. Further, PCL is given to exporters at a concessional
rate for promoting export. In case, the exports do not
materialize for any reason, the penal rate of interest as
applicable to Cash Credit Limit, as stipulated by the bank from
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time to time, is required to be charged for the entire duration
of the loan. But, this norm was not properly adhered to. The
PCL release was handled by Shyamal Samaddar, Manish
Dave, Rajesh Kumar Sinha, Assistant Managers and A-5 N.
Sitaram Rao, Manager, Forex.
2.4.2 It is also alleged that A-5 N. Sitaram Rao in
connivance with A-1, T. O. Joseph allowed liquidation of 51
PCLs out of funds received against FBG for execution of export
order of M/s Bunge S.A., Geneva, which was in violation of
guidelines of Vijaya Bank and RBI. A-5 N. Sitaram Rao
knowingly and dishonestly and in conspiracy with A-1 T. O.
Joseph allowed diversion of funds for liquidation of PCLs. Thus,
end use of funds was not ensured by bank official in
connivance and conspiracy with accused persons. A-5
N.Sitaram Rao even collected the interest of adjusted 51 PCLs
at concessional rates as against the penal rate, which was
applicable to the cash credit limit, which caused further
wrongful loss of Rs.14,85,468/- towards interest income to the
bank. Not only this, by liquidating these PCLs, A-4 became
entitled to avail further PCL to the tune of sanctioned limit; no
export bill was submitted against these 51 PCLs, which shows
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that no export was actually made against these PCLs and the
PCL funds were used for other purposes, of which A-4 is the
beneficiary. It is also alleged that A-4 applied for further PCLs
during a short span of eight days between 20.12.2006 to
28.12.2006 and availed PCL to the tune of Rs.6,08,50,000/-
and the outstanding PCL as on 28.12.2006 reached Rs.
11,69,61,455/-.
3.0 Charge was framed by the Ld. Predecessor Court
on 10.05.2012 against all the accused persons u/Ss 120B r/w
Sec. 420 IPC and u/Ss 13 (2) r/w 13 (1)(d) of Prevention of
Corruption Act, 1988 (PC Act). Further, separate charge
u/Sec. 420 IPC was framed against accused persons A-1, A-2,
A-3 and A-4.
3.1 A-5 N. Sita Ram Rao being a public servant during
the relevant period was also charged u/Sec. 13 (1) (d) r/w S.
13 (2) of PC Act.
4.0 CBI cited 24 witnesses. Out of which 17 are bank
officials; examination of two bank officials i.e., PW8 Sh. Amit
Kumar and PW9 Sh. Sarvesh Sharma was dispensed with.
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Other Bank officials, who were examined as witnesses, are
PW4 Sh. Shyamal Samaddar, who was working as Asst.
Manager in the Branch during the relevant period; PW5 Sh.
Shambu Rai, was DGM, who remained posted in the Branch
from October 2005 to November 2006; PW6 Sh. P. Vasanth
was posted as AGM in the Branch w.e.f. 22.11.2006 and had
taken over charge from PW-7; PW7 Sh. V. T. Naik was posted
as AGM in the Branch during the relevant period; PW10 Vikas
Arora from Standard Chartered Bank deposed about A-4's
account with their Bank; PW11 Satyapal Sapra was posted in
the Branch during relevant period and deposed about various
withdrawals made from A-4's current account no. 6637 on
18.12.2006 and thereafter; PW12 Sh. Gopalakrishna Bhat
worked in International Division; PW13 Sh. Karan Singh Byce
was from HSBC, Barakhamba Branch and deposed about A-4's
account with them; PW14 Sh. Prakash S. Shiroor, conducted
internal investigation after A-4's account became NPA; PW15
Sh. k. M. Shekar, AGM was posted in the Branch in 2011 and
supplied information to IO w.r.t. staff attendance and A-4's
various loan accounts and 51 PCLs; PW16 Sh. Inder Mohan
Singh joined the branch w.e.f. 16.08.2007 as Chief Manager
and deposed about A-4's account with the Branch; PW17 Sh.
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C. R. Chandramouli is the CVO who made a complaint
(Ex.PW17/A) to CBI on 08.11.2010 w.r.t. irregularities in A-4's
account; PW18 Sh. Pradeep Kumar Yadav was witness to
taking of specimen signatures of A-1 and A-2 by IO; PW20 Sh.
Bidhan Chandra Sinha was posted as Sr Manager in the
Branch in 2009 and deposed about the procedure of PCL
release and PW21 Sh. Debarshi Roy Bardhan was posted in
the Branch as Asstt. Manager during the relevant period.
4.1 Besides above bank officials, CBI also examined
PW1 Sh. N. Subramaniya Bhat, the Bangalore based Chartered
Accountant, who was contacted by A-3, PW2 Sh. Madan Lal
Gupta, the Chartered Accountant of A-4 CHFL and PW23 Sh.
Pradeep Agarwal, an employee of A-4 CHFL. CBI also
examined PW3 Ms. Niranjan Nagpal, the Manager, ECGC of
India Ltd., PW19 Sh. Prem Lal Malik, Dy. Registrar of
Companies. PW22 Sh. Deepak R. Handa, Sr. Scientific Officer
from DFSL, New Delhi. PW24 is IO/Insp. D. J. Bajpei.
5.0 Statements of accused persons under Section 313
Cr. P.C. were recorded. Accused nos. 1, 2, 3 and 5 also filed
written submissions u/Sec. 313 (5) Cr.PC. A1 to A-4 did not
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lead any defence evidence. A-5 led defence evidence and
examined DW1 G. N. Mishra, Senior Manager, Vijaya Bank,
Barakhamba Road, New Delhi, w.r.t. his leave record and DW2
Sh. Murleedharan K. S., Senior Manager, Vijaya Bank, ARMB,
Delhi w.r.t. letters of credit/ export order of certain foreign
buyers.
6.0 I have heard Sh. S. C. Sharma, Ld. PP for CBI, Sh.
Vikas Pahwa, Sr. Advocate alongwith Sh. Arshdeep Singh,
Advocate for A-1 T. O. Joseph, A-2 Sophy Joseph and A-4 CHFL,
Sh. Sushil Bajaj, Advocate and Sh. Akshay Bipin, Advocate, Ld.
Counsel for A-3 Placid Sam and Sh. Simon Benjamin, Ld.
Counsel for A-5 N. Sitaram. I have also perused the record
carefully.
7.0 Let me mention at the outset, the facts
which are not in dispute. Same are as under -
7.1 A-4 was maintaining current account no. 6637 with
the Branch since 26.12.2000; T. O. Joseph (A-1), Sophy Joseph
(A-2), Smt. Elizabeth Thomas and Smt. Geeta Adwani were the
Directors of A-4; A-4 was availing various credit facilities from
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the Branch; Sophy Joseph (A-2) and Elizabeth Thomas were
the authorized signatories.
7.2 A-4 was going through liquidity crunch during the
relevant period; it had suffered loss of Rs.4.65 crores as
against the turn over of Rs.39.57 crores in the year
2006-2007; and loss of Rs.23.43 crores as against the turn
over of Rs.21.80 crores in the year 2007-2008;
7.3 In Sept., 2006, A-4 approached the Branch for
issuance of Foreign Bank Guarantee (FBG) of Rs. 15 crores.
A-2, as authorized signatory of A-4 vide Ex.PW5/A i.e. letter
dated 16.09.2006, submitted a proposal to the Branch
conveying that they were in advance stage of discussion with
Swiss company M/s Bunge S.A., Geneva for procuring an
export order; and that the Swiss company had agreed in
principal to provide advance (amount) alongwith the order
subject to A-4's banker providing a FBG; and a request was
made to the Branch for issuing PBG, to enable them to receive
advance payment from M/s Bunge S.A., Geneva for executing
export order within a period of 12 months;
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7.4 Vide process note Ex.PW5/C, the Branch
recommended the proposal of issuance of FBG limit of Rs.15
crores to A-4, to its Regional Office, which recommended it to
Head Office of the Bank. The Head Office of the Bank
sanctioned the same subject to certain terms and conditions;
the Sanction letter / Memo dated 20.11.2006 issued by the
Head Office is Ex.PW6/A. The Sanction Memo was addressed
to Regional Manager; the said sanction was conveyed to A-4
by the Branch vide letter dated 24.11.2006, which is
Ex.PW4/C;
7.4.1 A-4 accepted the terms and conditions stipulated
in the Sanction Memo dated 20.11.2006 vide resolution
passed by A-4 in the Board meeting held on 28.11.2006. Vide
Ex.PW6/G, the copy of Resolution passed in the Board meeting
of A-4 held on 01.12.2006, A-2 Sophy Joseph, Director, was
authorized to sign necessary (loan) documents on behalf of
A-4; A-2 as Director and authorized signatory executed
various documents including Ex.PW6/H-3 an undertaking to
abide by the terms and conditions of Sanction Memo dated
20.11.2006;
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7.4.2 FBG on behalf of A-4 subject to terms and
conditions as stipulated in Sanction Memo (Ex.PW6/A) was
issued by the Branch for JPY 394, 737,300 (equivalent to Rs.
14,68,24,164/-) in favour of M/s Bunge S.A., Geneva; SWIFT
message to this effect dated 06.12.2006 Ex.PW6/J was issued
to M/s Bunge S.A., Geneva; FBG was to be operative from the
date of receipt of advance from M/s Bange S. A., Geneva;
7.5 Pursuant to issuance of Bank Guarantee, M/s
Bunge S.A., Geneva remitted advance amount equivalent to
Rs. 14,68,24,164/- on 18.12.2006, which was credited in A-4's
current account no. 6637;
7.6 On the same day, i.e. 18.12.2006, out of the
advance amount received from M/s Bunge S. A., Geneva, Rs.
7,02,24,871/- (7.02 crores) was utilized towards adjustment of
51 PCLs availed by A-4 during the period 24.05.2006 to
14.09.2006;
7.6.1 The remaining advance amount was also utilized
as reflected in Para 2.2.1 (supra) inter alia, for liquidation of
A4's outstanding liabilities towards other bankers, personal
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use etc;
7.7 Thus, total advance amount of Rs. 14,68,24,164/-
was utilized by A-4 within two days, that is, on 18.12.2006 and
19.12.2006;
7.8 The export order (for the performance of which
the FBG issued) was not executed by A-4; FBG was invoked by
M/s Bunge S.A., Geneva;
7.9 A-4 did not pay the amount; the Branch was
compelled to honour the FBG and pay an amount equivalent
to Rs.14,65,24,164/- to M/s Bunge S.A., Geneva.
8.0 The charge against the accused persons is, that to
tide over financial loss and liquidity crunch faced by A-4 CHFL,
A-1, A-2 and A-3 taking advantage of A-4's reputation, induced
the Branch/ Bank to issue FBG; on the basis of said FBG they
received an advance amount equivalent to Rs.14,68,24,164/-
from M/s Bunge, S.A., Geneva. On receipt of advance amount/
remittance, on 18.12.2006, A-5 on instructions of A-2 and
pursuant to criminal conspiracy between him and other
accused persons, liquidated 51 outstanding PCLs to the tune
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of Rs.7,02,24,871/-; thus, wiping out the existing liability of
A-4 in a mala fide and wrongful manner. Further, pursuant to
the said conspiracy, the export order was not executed by A-4
for a period of one year. Consequently, the FBG was invoked;
the Branch was compelled to pay the guarantee amount,
causing wrongful loss of Rs.12,18,67,410/- to the Bank.
8.1 Accused are also charged that A-5, Manager, In-
charge (Forex), in criminal conspiracy with A-1 to A-4 allowed
release of 51 PCLs amounting to Rs.7.02 crores during May
2006 to September 2006 in respect of which there were no
genuine export orders or commitments.
9.0 Let me first deal with, utilization of advance
amount received from M/s Bunge S. A. Geneva towards
liquidation of outstanding 51 PCLs/ adjusting other liabilities/
instead of executing the export order. Ld. PP argued that the
entire transaction of export with M/s Bunge S.A., Geneva was
a sham. As A-4 was in dire need of funds, it managed funding
(under the guise of export order), by securing the buyer's
interest by way of FBG; A-1 to A-4 in connivance with bank
officials A-5 and A-6 utilized the entire advance amount within
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two days, diverting the same for adjustment of different
liabilities/personal gain, thus cheating the Bank. The advance
amount could not have been utilized for adjusting earlier
PCLs/other purposes. End use of funds was not ensured by A-5
pursuant to criminal conspiracy. Ultimately FBG was invoked
and had to be honoured, causing wrongful loss to the bank to
the tune of Rs. 12,18,67,410/-.
9.1 Same was controverted by the Ld. defence
counsel for A-1, A-2 and A-4. He contended that A-4 was the
star customer of the Branch having outstanding track record.
There was no question of inducement because the credit
facilities were extended and FBG was issued by the Branch
only after thorough scrutiny of A-4's proposal till Head Office
and its approval by them. It was further submitted that there
was no diversion of funds; and there was no illegality in
adjustment of fifty one PCLs out of advance amount received
from M/s Bunge S.A., Geneva. Learned counsel also argued
that the accused company A-4 was availing running PCL
facility (RPCL); same is not order specific and it can be
adjusted on the basis of "First In First Out" (FIFO). The
advance received from the buyer M/s Bunge, S.A. Geneva for
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export by A-4, was in the nature of export proceeds; and as
per RBI guidelines, the same could be used for liquidating
PCLs, already outstanding. He also argued that even the Bank
officials, PW5, PW6, PW7, PW12, PW16 and PW20 have
deposed that PCLs could be adjusted from advance received
by A-4 from the buyer. Thus, no illegality was committed.
Further, the money did not go out of the system; no undue
advantage was obtained by A-4.
9.1.1 It was also argued by the Ld. defence counsel that
even otherwise, the Branch suo motu adjusted 51 PCLs, as
soon as the advance amount was credited in A-4's account.
The prosecution has failed to place on record the request
made by A-4 in this regard.
9.1.2 Ld. Counsel for A-3, Placid Sam argued that A-3
was simply an employee and not the director of A-4. CBI has
failed to place on record any documentary evidence to show
that A-3 was the Director of A-4. Rather, CBI admits that he
was never on the Board of Directors; and designation of
Director (finance) to A-3 was assigned by CBI itself. It was also
submitted that even PW-1, who helped in arranging business
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order did not refer to A-3 as Director (Finance); A-3 was
looking after marketing; it was PW-23 Pradip Aggarwal, who
was actually dealing with the Branch, being the Manager
(Finance/ Accounts) of A-4. Thus, A-3 Placid Sam had nothing
to do either with release of PCLs or subsequent utilization of
advance amount received by A-4 against FBG. Therefore, no
criminal liability can be fastened upon him.
10.0 As already mentioned in para no. 7.2 (supra)
admittedly, A-4 was going through liquidity crunch in the year
2006. It has also come in the testimony of PW1 Subramaniya
Bhat that in the month of August, 2006, he was approached
by A-3 P. Sam, in the capacity of Director of A-4, telling
that A-4 was in need of finance, as they wanted to revive
their company and regularize their accounts with their
bankers. PW1 has further deposed that he forwarded A-3's
request to the office of M/s Bunge India (P) Ltd. at Mumbai
requesting for making available a sum of Rs.15 Crores as a
loan. M/s Bunge India (P) Ltd. however expressed its inability
to extend any loan but told that they could place an export
order of Rs.15 crores subject to certain terms and conditions
and would provide an advance for the same. PW1 in his cross-
CBI Vs. T.O. Joseph Page 21-A of 141
- 22 -
examination has stood by his testimony and denied that A-3
never approached him for any loan or finance from the Bank.
PW1 although admitted that their common friend Ananta
Krishnan had told A-3 that he (PW1) could get them an export
order. But, PW1 clarified that from his discussion with A-3, he
found that they were actually in need of finance.
10.0.1 PW1's testimony is corroborated by his statement
u/Sec. 164 Cr.PC, Ex.PW1/G. PW1 was not cross-examined with
respect to his statement u/Sec. 164 Cr.PC by A-3. Even on
behalf of other accused persons, only a general suggestion
was put to PW1 in his cross-examination, that he gave that
statement under pressure of CBI/ at their instance. Same was
denied by PW1. It is noted that in his statement u/Sec. 164
Cr.PC, PW1 has stated that A-3 was essentially looking for
funds to be arranged for A-4 for regularizing its Bank credit
limits and for meeting its working capital requirements; after
going through the financials of the company (A-4), he
informed A-3 that it may not be possible for him to arrange
funds from banks. On which, A-3 told him that he is okay with
the funding from private source; he then informed A-3 about
Bunge India in Mumbai, which did funding for corporates; he
CBI Vs. T.O. Joseph Page 22-A of 141
- 23 -
(PW1) then forwarded the A-4's financials to Bunge India, who
in turn conveyed that they will not be in a position to fund the
company, however, they would be able to get an export
order, against which advance could be paid to A-4, if PBG was
furnished by their Bank.
10.1 It has also come in the testimony of PW2 Madan
Lal Gupta, (a Chartered Accountant, who had been working as
a Statutory Auditor of A-4 since its incorporation in the year
2000 till 2008) that the company (A-4) suffered heavy losses
on account of heavy expenditure in the nature of interest on
loan etc.; on the basis of analysis of audited reports prepared
by him for the years 2005 -06 to 2007-08, he could say that
A-4 posted net profit of Rs.1.76 crores against the sales turn
over of Rs.65.33 crores in 2005-06. However, in the year
2006-07, the company incurred a loss of Rs.4.65 crores as
against the turn over of Rs.39.57 crores. Thus, there was a
drastic fall of 40% in the turn over as compared with
the previous year. In the year 2007-08, the company
incurred losses of Rs.23.43 crores as against turn over of Rs.
21.80 crores. These facts are not in dispute, even otherwise.
CBI Vs. T.O. Joseph Page 23-A of 141
- 24 -
10.2 The fact that A-4 was looking for funds at that
juncture is also evident from its own letter dated 26.10.2007
addressed to AGM of the Branch, which is Ex.PW6/V-5. Vide
said letter A-2 (as a director of A-4) communicated to the
Branch that "The only attraction of accepting this order
(from M/s Bange S.A. Geneva) was getting the amount
as advance payment, as we were desperately in need
of funds to offset our losses. We accepted the order in a
situation where otherwise our production capacity was fully
available. We were also not in a position to accept any major
order because of financial paucity."
10.3 In view of the above, it is established that A-4 was
in desperate need of funds to offset its losses/ tide over
severe liquidity crunch/ for meeting its working capital
requirements and to regularize its bank loans.
11.0 As mentioned in para no. 7.3 (supra) admittedly,
on the strength of FBG issued by the Branch, A-4 received
much needed funds i.e., an advance amount equivalent to Rs.
14,68,24,164/- from M/s Bunge S.A., Geneva on 18.12.2006;
and the entire amount was utilized by A-4 within 2 days i.e.,
CBI Vs. T.O. Joseph Page 24-A of 141
- 25 -
on 18.12.2006 and 19.12.2006 towards liquidating various
liabilities/ investments/ personal withdrawals, as detailed in
Para 2.2.1 (supra) including an amount of Rs.7,02,24,871/-
towards adjustment of 51 PCLs.
11.1 Ld. defence Counsel (on behalf of A-1, A-2 & A-4)
argued that there was no illegality in adjustment of 51 PCLs
out of the advance amount received from M/s Bunge S.A.,
Geneva; same was permissible as per RBI/ Bank guidelines. A
reference in this regard is made to the testimony of CBI's
witnesses as well as to Master Circular dated 01.07.2006, No.
RBI/2006-07/07 DBOD No. DIR. (Exp).BC. 01/04.02.02/ 2006-07,
issued by Department of Banking Operations and
Development, RBI, Central Office Mumbai, on Rupee Export
Credit (updated upto June 30, 2006) ("RBI Master Circular"
in short).
11.1.1 The relevant clauses of RBI Master Circular are
reproduced hereunder -
"1.1.4 - Liquidation of Packing Credit
(i) General
The packing credit/ pre-shipment credit
granted to an exporter may be liquidated out
CBI Vs. T.O. Joseph Page 25-A of 141
- 26 -
of proceeds of bills drawn for the exported
commodities on its purchase, discount etc.
thereby converting pre-shipment credit into
post-shipment credit. Further, subject to
mutual agreement between the exporter and
the banker it can also be repaid/prepaid out
of balances in Exchange Earners Foreign
Currency A/c (EEFC A/c) as also from rupee
resources of the exporter to the extent
exports have actually taken place. If not so
liquidated/ repaid, banks are free to decide the
rate of interest as indicated in paragraph 5.2.1
from the date of advance."
From the above clause, it is evident that PCL can
be adjusted from the proceeds of Bills drawn etc. for export/
EEFC/ rupee resources, to the extent exports have actually
taken place. Thus, it contemplates that the export has
already been carried out.
Further, Clause 1.1.5 reads as under :
"1.1.5 "Running Account" Facility
(i)
(a).............
CBI Vs. T.O. Joseph Page 26-A of 141
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(b)....
(c) Banks should mark off individual
export bills, as and when they are received
for negotiation/ collection, against the
earliest outstanding pre-shipment on 'First
In First Out' (FIO) basis. Needless to add that,
while marking off the pre-shipment credit in the
manner indicated above, banks should ensure
that concessive credit available in respect of
individual pre-shipment credit does not go
beyond the period of sanction or 360 days
from the date of advance, whichever is earlier.
(d) Packing credit can also be marked-off
with proceeds of export documents against
which no packing credit has been drawn by the
exporter."
11.1.2 From the above it is clear that Clause 1.1.5 deals
with the manner of adjustment of running PCL. As per sub
clause (i) (c), the Bank should mark off the individual export
bills, as and when received for negotiation/ collection, against
the earliest outstanding pre-shipment credit i.e. on FIFO basis.
Clause (d) further says that Packing Credit can be marked
off even with proceeds of export documents against
which no Packing Credit has been drawn by the exporter.
Thus, both the situations contemplate export having already
CBI Vs. T.O. Joseph Page 27-A of 141
- 28 -
taken place. Whereas, in the instant case, the export was yet
to be carried out.
11.1.3 The above clauses do not cover the situation,
where any amount has been received in advance, (for export,
which is yet to be carried out) against the bank guarantee, as
in the instant case.
11.2 The fact that the above clauses of RBI Master
Circular do not cover the situation as in the instant case, is
also evident from the testimony of witnesses PW5, PW7 and
PW12, who have stated that there were no specific guidelines
with respect to parking/ utilization of advance amount
received against FBG.
12.0 Ld. defence counsel further argued that it has
come in the testimony of bank officials that there was nothing
wrong in liquidation of 51 PCLs out of advance amount
received by A-4 from M/s Bange S.A., Geneva.
12.1 Let me examine the testimony of bank officials.
PW5 has deposed that there were no clear guidelines to
CBI Vs. T.O. Joseph Page 28-A of 141
- 29 -
ensure the end use of funds in a case of present nature, since
here the bank had not given any loan which would have been
otherwise payable to the concerned party. Regarding
utilization of advance to clear the existing PCL liabilities, PW5
stated that the advance received either should have been
kept in the current account of the borrower/ customer for
which no interest would have been payable; or in case any
existing PCL liability was cleared, the branch should
have ensured that the export bills generated out of the
proceeds of the earlier PCLs were utilized to execute
the export order, for which the advance was received. PW5
in his cross-examination stated that the Operating Officer at
the Branch should have ensured end use of the funds on
receipt of foreign remittance on execution of FBG.
12.1.1 Even PW12 Gopalakrishna Bhat, AGM deposed
that there are no specific guidelines with regard to use of
funds or the parking of funds, which are received as advance
from a foreign buyer against FBG. He has further deposed that
normally, the funds received are credited in the account of
the borrower and it is for the borrower to utilize the amount as
per the needs of his business. The Branch officials, where the
CBI Vs. T.O. Joseph Page 29-A of 141
- 30 -
account is maintained, are not supposed to monitor the
account or the borrower on receipt of funds, unless there is
a specific condition to that effect in the sanction order
or any directive from the head Office.
12.1.2 PW7 V. T. Naik has testified that as per Banking
practice, whenever an advance is received from a foreign
buyer, as in this case, it is allowed to be appropriated towards
any overdue PCLs. The advance is normally credited in the
current account and overdues are adjusted. The residual
amount, if any, is allowed to be used by the customer/
borrower and further PCLs, if any allowed, are debited in the
(PCL) account and the remittance again credited. It is a
continuous process.
12.1.3 PW16 deposed that outstanding PCLs are
required to be liquidated out of the proceeds of the
export bills. If there are more than one or several exports, in
the ordinary course of business, as and when the remittance
is received from the foreign buyer, the same are adjusted
against outstanding PCLs as a running account, but, in such
case it must be shown that export has actually taken
CBI Vs. T.O. Joseph Page 30-A of 141
- 31 -
place.
12.1.4 PW20 has deposed that in a running PCL,
whenever foreign remittances are received, they are adjusted
on a first-cum-first-served basis against the outstanding debit
in PCL account. He has further deposed that the advance
received by an exporter (customer of the bank) against export
to be made, is treated as a foreign remittance.
12.2 The deposition of PW7 that advance as in the
instant case (received against FBG) could be utilized to adjust
the over-dues; and that of PW-12 that the Branch officials are
not supposed to monitor the account or the borrower on
receipt of funds/ advance (as against FBG), is not only
contrary to the guidelines laid down by RBI/ Vijaya Bank and
business prudence, but also to the other evidence on record,
as would be discussed in subsequent paras. Further, in the
instant case, Head Office while sanctioning A-4's proposal/
issuance of FBG, had imposed specific/ additional terms
and conditions; and PW-12 himself deposed that unless
there is a specific direction from Head Office, such funds
could be utilized by the borrower as per his business needs
CBI Vs. T.O. Joseph Page 31-A of 141
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and the bank is not supposed to monitor said utilization.
Meaning thereby, that in view of the specific directions of the
Head Office, the funds (advance amount) were to be used
accordingly; and the Branch was under an obligation to
monitor its utilization. It would be pertinent to refer here to
the Sanction Memo (Ex.PW6/A). The relevant portion of the
same containing terms and conditions is reproduced
hereunder :
"The Regional Manager Dept : Credit(Operations)
RO - Delhi Date : 20.11.2006
Account M/s Creative Home Fashions Pvt. Ltd.
Branch Barakhamba Road-Delhi
--------------
Sanction Memo
1. Name of Borrower M/s Creative Home Fashions P. Ltd.
2. Name of the 1) Smt. Sophy Joseph Guarantor/s 2) Smt. Elizabeth Thomas
3) Smt. Geeta S. Advani
4) Shri T.O. Joseph
5) shri T. O. Thomas
6) M/s G. K. Products Pvt. Limited
7) M/s Well Computer Exim P. Ltd.
..........
..........
............
6 Additional terms & conditions :
a) The entire Export proceeds should be routed CBI Vs. T.O. Joseph Page 32-A of 141
- 33 -
through the PCL amount.
............
...........
e) FBG limit should be covered under ECGC cover for Guarantees and Policy held on record (to be obtained by the borrower).
f) Stocks procured out of the Bank Guarantee and ILC/FLC limits should be segregated from the Stocks procured under PCL, by first appropriating the Drawing Power arrived on Stock to these limits and the balance only to PCL.
g) All other terms and conditions proposed by RO and those stipulated by other Banks in the Multiple Lending.
h) Borrower should undertake not to borrow further from other Banks without consent from our Bank.
i) Before issue of the Foreign Bank Guarantee, the Company should chalk out and inform a definite time frame by which the anamolies in Current and Debt Equity Ration and the mode through which they will be set right.
j) Account should be closely monitored. You may communicate to the Branch concerned with a copy to us, the full details of sanction incorporating the conditions stipulated by HO as above and the conditions proposed in your appraisal CBI Vs. T.O. Joseph Page 33-A of 141
- 34 -
note. Also include all the relevant standard covenants as per HOC 104/2000 and ensure compliance of the same. In the sanction communication to the Branch, please clearly advise them to forward to HO, the Certificate of Loan Papers obtained (DOC-54) as well as the Legal Audit Report without any delay.
Compliance with all the terms and conditions as also end use of funds should be closely supervised and ensured by your office.
Dy. GENERAL MANAGER CREDIT [OPERATIONS] CC : Barakhamba Road - Delhi Branch - For information"
12.2.1 Clause (f) specifically enjoined upon the Branch to ensure segregation of stocks procured out of the advance received against the FBG from the stocks procured under PCL.
It also directed that on the basis of the stocks purchased out of advance amount, the drawing power should first be appropriated towards limit under bank guarantee and only balance be provided under PCL. As per clause-(J), there were specific directions to the Branch to closely monitor the account. Not only this, the Head Office even directed Regional Office that "end use of funds should be closely CBI Vs. T.O. Joseph Page 34-A of 141
- 35 -
supervised and ensured". Copy of the said sanction memo was also sent to the Branch.
12.3 In view of the above direction of Head Office, utilization of funds (advance amount) was required to be closely monitored.
12.4 Further, it would be pertinent to refer here to Clauses-5.4 and 23.1.7 of Manual of Instructions on Foreign Exchange, 2002-2003 of Vijaya Bank (D-180), which read as under:-
"5.4 The Branch Manager is ultimately responsible for supervision of advances of his branch. He has to keep a close watch over the business activities of the borrowers by meeting them periodically and discussing their problem, if any, while examining the status and behaviour of their accounts. Operations in a borrower's account in the bank's book can throw indications about the difficulties, if any experienced by the borrower. Instances such as poor turnover in the account, sudden fall in the volume of transactions, excess drawings over the limit/ drawing power, dishonour of cheques for want of sufficient balances etc., are indicators requiring CBI Vs. T.O. Joseph Page 35-A of 141
- 36 -
the Branch Manager to take up the matter with the borrower to find out the reasons and to analyse/ assess the future effects and too initiate corrective steps."
12.4.1 In the instant case, although strictly speaking, it was not a loan/ advance made by the Branch. But, as the non- performance/ execution of export order by A-4 would have resulted in absolute liability of the Branch under FBG to pay the Buyer/ Bunge S.A., Geneva, it called for close watch/ supervision of utilization of advance amount/ performance of contract (by A-4), as directed vide this clause. More so, as A-4's financials were already dwindling.
Further, Clause 23.1.7 reads as under :
"23.1.7 The RBI has laid down certain norms as under, and these guidelines are to be kept in view, when guarantees are considered on behalf of constituents:
As regards the performance guarantees, banks should, as a general rule, limit themselves to the provision of financial guarantees and exercise due caution with regard to their performance guarantee business."
CBI Vs. T.O. Joseph Page 36-A of 141
- 37 -
12.4.2 If the bank is required to be cautious about the
business covered under performance guarantee (PBG), at the time of considering issuance of PBG. It was all the more required to be cautious to see that the contract covered by PBG/ FBG was duly executed/ funds were utilized properly, keeping in mind the liability, which might have devolved upon the Branch, in case of failure of the exporter, as it ultimately did happen in the instant case.
12.4.3 How were A-4 to purchase stocks out of advance received against FBG, (as contemplated by Head Office vide Sanction Memo) when A-4 utilized/ was permitted to utilize, the entire amount towards adjustment of 51 PCLs and other liabilities/ other purposes, has remained unexplained. How would have the Branch ensured seggregation of stocks (to be purchased out of advance), in such a situation? No doubt, in the instant case, the Head Office did not specify the account in which the advance amount received from M/s Bunge S.A., Geneva, should be credited and the modalities of its release.
Still, the condition of seggregation of stocks and close monitoring of such funds/ account, imposed by Head Office required that the purchase of stock/ export under FBG needed CBI Vs. T.O. Joseph Page 37-A of 141
- 38 -
to be monitored separately. Adjustment of 51 PCLs to the tune of Rs.7.02 crores out of advance amount was not only against terms of sanction but also against business prudence. It made no business sense to allow such en bloc utilization, when the FBG was issued by the Branch against such advance/ remittance, knowing fully well that non-performance of contract by A-4, would lead to devolvement of absolute liability on the Branch.
12.4.4 For the aforesaid reasons, the Ld. defence counsel's argument that there was no illegality in adjustment of 51 PCLs out of advance amount and that the same was as per RBI Guidelines, is untenable. The situation in the instant case was more akin to performance guarantees issued by Bank. Moreover, advance amount (received on the strength of FBG) was to be utilized strictly as per terms of sanction of Heard Office.
12.5 Ld. counsel for A1, A2 and A4 also argued that although, normally the PCLs are adjusted out of export proceeds. But, the same could also be adjusted out of the advance amount, as received in the instant case. Much CBI Vs. T.O. Joseph Page 38-A of 141
- 39 -
emphasis was laid on the fact that PW12 in his cross- examination has admitted that PCL can be adjusted from any other source subject to charging of higher rate of interest. 12.5.1 Let me refer to the relevant portion of PW12's testimony (in cross-examination) which reads as under :
"It is correct that in my statement to CBI I stated that PCL should normally be liquidated out of the proceeds of the export bills submitted by the party. In such case, the PCL will be eligible for concessional rate of interest as per RBI Guidelines, but, where the customer fails to export after availing PCL, the Bank may recover the amount from any other sources of the customer and charge higher rate of interest on such PCL, as per the Bank guidelines."
12.5.2 Reference to the above is totally out of context. It is clear from the above deposition that in case of failure of the exporter, bank can recover its PCL dues by appropriating any funds (other than export proceeds) of the borrower. Thus, the reference to any other 'source' by PW12, is to the "source of the borrower/ exporter". In the instant case, the advance amount was received by A-4 on the strength of FBG, liability for repayment of which (in case of failure of A-4 CBI Vs. T.O. Joseph Page 39-A of 141
- 40 -
to export) was absolutely of the Branch. The said funds/ advance amount, therefore, could not be considered as the borrower's source in the context, as referred to by PW12. 12.6 Ld. Counsel for accused persons 1, 2 and 4 also argued that even PW-20 deposed that the advance received by an exporter being a foreign remittance, could be utilized for adjusting outstanding PCLs. Reference to PW20's testimony, as detailed in Para 12.1.4 (supra) reveals that he was talking about the advance received by the exporter against the export to be made. He did not state anything about the situation where the advance was secured by FBG, as in the instant case. The situation in the instant case was very different, as any non-compliance by the exporter/ A-4 would have resulted in absolute liability of the Branch, as it ultimately did.
12.7 It was further argued by Ld. defence counsel on behalf of A-1, A-2 and A-4 that even PW6 admitted in his cross-examination that had the 51 outstanding PCLs not been liquidated on 18th and 19th December, 2006, the same would have been liquidated out of the remittances or proceeds from CBI Vs. T.O. Joseph Page 40-A of 141
- 41 -
the export already made or proposed to be made in future. This argument also lacks merit for the reasons that gradual adjustment of PCLs out of export proceeds/ remittances would have accordingly entitled A-4 to avail further PCL within the sanctioned PCL limit. Whereas, en-bloc adjustment of 51 PCLs out of advance amount, entitled A-4 to avail fresh PCL. It is a matter of record (vide Ex.PW6/Z-5) that after adjustment of 51 PCLs, A-4 availed PCL to the tune of more than six crores during a short span of eight days between 20.12.2006 to 28.12.2006 and the outstanding PCL as on 28.12.2006 reached Rs.11,69,61,455/-.
12.7.1 Further, the advance amount received from M/s Bunge S.A., Geneva, was to be utilized for purchase of stock etc. for execution of the export order, as per terms of the sanction. The utilization of a substantial amount of Rs.7.02 crores towards adjustment of outstanding 51 PCLs and the balance amount towards other outstanding liabilities of A-4/ personal use, resulted in non-availability of funds for executing the export order. A-4 in its letter Ex.PW6/V-5 dated 26.10.2007 itself has stated that they were facing working capital problems and export order could not be executed due to CBI Vs. T.O. Joseph Page 41-A of 141
- 42 -
financial paucity.
12.8 The fact that monitoring of utilization of advance amount was required, is also reflected from the testimony of PW6. PW6 has stated that he followed up with A-4 regarding the status of the export to M/s Bange S.A., Geneva, same shall be discussed in detail, a little later.
12.9 The Branch's failure to ensure compliance of terms and conditions imposed by the Head Office and that it lacked in its duty to monitor A-4's account, has also come out in the testimony of PW14, Prakash S. Shiroor, Investigating Officer of the Bank. PW14 was assigned the task of internal investigation (after A-4's account became NPA on 30.06.2008) inter alia, into irregularities in post sanction supervision and control of credit limits of A-4 and other reasons contributing to A-4's account turning NPA. PW14 has deposed that the Branch even failed to take credit report/ verify the capacity of the foreign buyer from any credit rating agency, while considering A-4's proposal. It may not be out of place to mention here that even PW7, V. T. Naik, in his deposition admitted that normally they carry out inquiries with regard to capacity of the foreign CBI Vs. T.O. Joseph Page 42-A of 141
- 43 -
buyer to meet its obligations in regard to remittances/ payment, through various credit rating agencies in India such as ECGC (India) Limited. But, he further stated that in this case, no inquiries were conducted, as the foreign buyer was willing to pay the advance towards the proposed contract/ consignment. The explanation given by PW-7 can hardly be bought, particularly in view of the fact that foreign buyer was remitting a huge amount; confidential report (CR) should have been called to verify the line of activity of the buyer and to ensure the source of funds; CR should have been the part of Branch's proposal. Head office also did not comment on the same. Be that as it may.
12.9.1 PW14 after investigation had furnished his investigation report dated 25.03.2009, Ex.PW14/A, recording the lapses found with respect to appraisal of credit limit, disbursement and post disbursement monitoring and other aspects. The relevant portion of the said report Ex.PW14/A is reproduced hereunder :
"STUDY REPORT FORMING PART OF INVESTIGATION REPORT M/s Creative Home Fashions Pvt. Ltd.:
CBI Vs. T.O. Joseph Page 43-A of 141
- 44 -
...Though there were short term overdues, operations in the limits were conducted satisfactorily and one of the established customers of the branch till 2006 (till November 2006 - to be more specific).
Reasons for downfall:
...During September 2006, company came with a request for issue of Foreign Bank Guarantee to receive advance payment against the guarantee to be utilized for executing an order procured from M/s S. A. Bange, Geneva, Switzerland, for export of 8,90,000 pieces of "Cargo Shorts" to be supplied within a period of 12 months.
...In accordance with the sanction, the Foreign Bank Guarantee was issued by the branch on 18.12.2006, for JPY 394737300.00 and on receipt of the advance payment, branch credited the amount of Rs. 14,68,24,164/- received, to the party's operative Current Account on 18.12.2006 in the absence of any specific sanction terms. The amount credited was allowed to be withdrawn by the company on 18.12.2006 and 19.12.2006, without ensuring end use of the funds and also not complying certain sanction stipulations i.e., (i) non-obtention of personal guarantee from Smt. Geetha S. Advani, one CBI Vs. T.O. Joseph Page 44-A of 141
- 45 -
of the Directors of the company and (ii) non- obtention of export performance guarantee cover from ECGC in respect of FBG issued. On 26.12.2006, Smt. Geetha S. Advani, .......
resigned from directorship of the company and continued as a share holder of the company, who has not executed her personal guarantee for the FBG facility.
.............
During December 2006, Company submitted a letter requesting waiver of personal guarantee of Smt. Geetha S. Advani, the Competent Authority vide HO sanction No. CD:ED:76:06-07 dated 24.03.2007 and request for waiver of personal guarantee was declined.
As informed by the Company vide its letter dated 20th October, 2007 that M/s S. A. Bange, Geneva, Switzerland, in whose favour, the FBG was issued, is neither a merchant exporter nor a importer in textile items and it is a commodity trading house. It is rather strange that a commodity trading house has placed an order for import of 8,90,000 pieces Cargo Shorts to be supplied within a period of 12 months. Apparently, this seems to be tailor made order/ disguised method of funding with the alibi by way of CBI Vs. T.O. Joseph Page 45-A of 141
- 46 -
FBG, may be at a higher premium with certainty to be devolved on the issuing Bank. The FBG became operational on receipt of the guaranteed amount remitted as advance payment.
Though the branch was reminding regarding the exports at the initial stages, company stated that the material is under process. Subsequently, it was informed to the branch by the Exporter that the samples sent to the buyer was rejected and buyer is insisting that the materials should be manufactured in griege fabrics in sixteen shades and sixteen styles and if this order is to be executed in the now given specifications, the company would incur an additional expenditure of Rs. 300.00 lakhs, resulting executing order uneconomical and at an exorbitant loss. Accordingly, the company has not executed the order and the FBG issued devolved on 12.12.2007, as expected during Oct/ Nov/ Dec 2007. Branch after appropriating the margin amount remitted the guaranteed amount on 17.12.2007.
Following reasons be cited for downfall of the operation of the company:
(i) The company was over financed with a result diversion of funds took place.
CBI Vs. T.O. Joseph Page 46-A of 141
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(ii) In the absence of mechanism to monitor the Advance Payment Receipt, the company deployed the funds for the purpose other than the same was meant to be utilized.
(iii) Financial indiscipline and mismanagement of the company's operations during the relevant period.
(iv) Lack of follow up and monitoring such as periodical stock inspection/ unit inspection and monitoring the withdrawals in the account.
(v) Though the turnover/ sales of the company was on the decreasing trend and financials started deteriorating and working results were unsatisfactory commencing from FY 2006, as can be seen from the company's audited financials, higher limits/ additional limits were recommended:
...............
(vi) In respect of order of M/s S. A. Bange under "Advance Payment Receipt" against the Foreign Bank Guarantees issued, it is reported by the company that the sample products manufactured by the company are not accepted by the buyer, demanding that the fabric used must be of Chinese made "Griege fabric" which was not spelt out in the original purchase contract.
...................
CBI Vs. T.O. Joseph Page 47-A of 141
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(x) Concurrent Audit exercise at the branch was most ineffective and it was rather a ritual wherein, nothing was pointed out in the exports referred by me. Even the unit/ stock inspection was not periodically conducted by the Concurrent Auditors as per their assignment.
...............
Place: Ahmedabad Date: 25.03.2009 Signature of the Investigating Officer"
12.9.2 PW14 also deposed that an amount of Rs.
7,02,24,781/- was wrongly appropriated towards outstanding PCLs while the same should have been retained for the purposes of the end use i.e. export of garments to M/s Bange S.A., Geneva. After the adjustment of the said amount fresh PCLs were allowed to A-4 from time to time; the advance amount was credited in the current account, whereas it should have been put in escrow account to ensure its end use i.e. to meet the export obligation; even other debits carried out of the advance amount should not have been allowed.
12.9.3 It is also worthwhile to note that PW14 in his cross-
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examination stated that although there are no guidelines/ practice/ procedure prescribed anywhere in the banking manual about how the advance amount, as received in this case, should be monitored. But, as a matter of banking practice and prudence, the borrower - A-4 as well as the Branch Manager should have ensured that the advance amount was kept separately to ensure its end use. The monitoring of the account by the Branch, for the purpose of end use of the advance amount received towards execution of export order was indicated in the sanction order itself. It was the duty of the Bank officials to monitor the account and ensure that the amount credited in the account was used for the purpose for which it was given.
12.9.4 PW14 also stated that it was revealed that M/s Bunge S.A., Geneva had cheated several other banks, but admitted that it was not mentioned in his report. CBI has also not placed on record any material in this regard.
12.9.5 PW14 has also deposed that in his opinion, the export order was tailor made order just to get an advance from the so-called buyer by A-4 in collusion with CBI Vs. T.O. Joseph Page 49-A of 141
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bank officials; he found the purchase order as defective as it did not reflect the specification of the product. PW7, (who signed/ recommended the proposal of A-4 , dated 10.10.2006 at the Branch) has himself deposed that no specification of the export item was made or detailed in Purchase Contract Number P910183 dated 13.10.2006 Mark XY-2 (Ex.PW1/C) or in the Addendum Mark XY-1, which were executed between A-4 and S. A. Bunge, Geneva.
12.9.6 PW14 also deposed about laxity in stock inspection of A-4 etc. He has stated that in his report Ex.PW14/A, he had looked into the report of M/s Virender and Associates, Chartered Accountants dated 05.10.2006 and had indicated that such exercise was ritualistic one and most ineffective. He has testified that no periodical stock inspection or stock valuation was conducted by the bank officials. In response to a court question, PW-14 stated that it was enjoined upon even A-5 to carry out stock inspection periodically. He denied in his cross-examination that A-5 did not commit any irregularities in liquidation of 51 PCLs.
12.9.7 So far as stock Inspection is concerned, it has
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come in the testimony of PW14 that stock inspection is supposed to be carried out by different officers on rotation basis. PW16 Inder Mohan Singh has also deposed on the same lines. Thus, the stock inspection was to be carried out by different officials in forex department including A-5, on rotation basis. It has come in the testimony of PW6 that A-5 had carried out stock inspection of A-4 and had furnished stock inspection reports dated 20.03.2007 and 15.11.2007, which are Ex.PW6/X-1 & Ex.PW6/X-2, respectively. But, these inspection reports are wanting; they do not comment on seggregation of stock.
12.10 As mentioned in Para 12.8 (supra), the fact that the end use of funds (advance amount received from the M/s Bunge S.A., Geneva ) needed to be monitored is also reflected in the testimony of PW-6 P. Vasanth. PW6 has deposed that he followed up with A-4 regarding the status of export to M/s Bunge S. A., Geneva vide letters Ex.PW6/U-1 to U-4 (D-142, D-145, D-147). He also stated that in response, (to his letters) A-4 through A-2 Sophie Joseph sent replies from time to time, which are Ex.PW6/V-1 to. Ex.PW6/V-5 (D-143, D-144, D-146, D-148 and D-149). He has also stated that the Bank through CBI Vs. T.O. Joseph Page 51-A of 141
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Chief Manager, Sh. Inder Mohan Singh (PW-16) vide letter dated 29.10.2007 (Ex.PW6/W), had sent response to A-4's letter Ex.PW6/V-5.
12.10.1 The perusal of Ex.PW6/U-2 to U-4 (D-142, D-145, D-147), that is, bank's letters dated 10.05.2007, 06.09.2007 (issued under the signatures of PW-6) and letter dated 15.10.2007, issued by the Regional Manager reveals that the inquiries were made with A-4 to apprise about the status of production/ steps taken for fulfillment of export obligation with respect to advance payment received by them. A-4 vide Ex.PW6/V-1 i.e. dated 14.05.2007 communicated that -
"To start production we nee(d) to get approval from the buyer... The shipment was originally scheduled to begin... by the month of February 2007 and since the buyer did not approve the sample due to quality and GSM variation, we forced to postpone the shipment to end of May 2007. On this basis, we were to start and complete production of the three styles from 18th May 2007 to 28th May 2007... But, this time also, the buyer did not give approval for fabric in time... and (r)equested to M/s Bunge S.A. For post postponing shipment of 5 styles to July. They have also accepted the same.
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We hope... and its shipment has been scheduled between 20th July to 28th July 2007. The buyer has agreed to new shipment schedule".
12.10.2 In view of the above response of A-4, the Bank should have closely monitored further progress including stock position of raw material, sample, if any, prepared etc. The above situation also called for taking up the matter with A-4 soon after 28th July 2007. But, the matter was followed up only in September, 2007 vide next letter dated 06.09.2007 (Ex.PW6/U-3). It would be pertinent to reproduce the relevant portion of the said letter, which reads as under:-
"We refer to your letter dated 14.05.2007 advising that the shipment of 5 style of fabrics would be made during 18.05.2007 to 28.05.2007. We now request you to advise as under:
1. The shipment made till date against the advance payment received from M/s Bungs S. A..
If no shipment is made then advise reasons for the same and how the advance receipt of Rs. 1512 lakhs is utilized by the Company.
2. Present status of order and detailed schedule of payment for the full order of Rs. 1514 lakh.
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3. The sales of the company for the Current Year.
4. Present outstanding PCs/ Credit facilities from other Banks".
12.10.3 To above letter, A-4 CHFL responded vide letter dated 22.09.2007 Ex.PW6/V-3 inter alia submitting "4. Reason for not executing M/s Bunge S. A. Order :- The purchase order quantity of M/s Bunge S. A. is 8,90,000 Pcs of Cargo Shorts and these consist of 16 styles of shorts in 16 shades. To start production, we needed to get approval from the buyer against fabric quality in each shade.......... The shipment was originally scheduled to begin with 3 styles by the month of February 2007 and since the buyer did not approve the sample fabric due to quality and GSM variation,we were forced to postpone the shipment to the end of May 2007. We planned to start and complete production of the 3 styles from 18th May 2007 to 28th May 2007. But, this time also, the buyer did not give approval for fabric in time. We suggested Bunge S.A. to accept shipment for 5 styles from July onwards. At this time, the buyer insisted on embossed button to be used in the shorts. We were unable to develop embossed button as desired by M/s Bunge S.A., within the originally quoted button cost. Still, we CBI Vs. T.O. Joseph Page 54-A of 141
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agreed to source the buttons from China. We planned to start bulk production from 1st week of August to complete this order and its shipment for the entire lot has been scheduled between September '07 and December '07. However, approval has not so far come for commencing the production. Total griege fabric held by us for Bunge S.A. Order is 2.80 Crores."
12.10.4 This should have made the Branch sit up and take charge, as hardly three months' time was left for execution of order by A-4, failing which FBG would have devolved. 12.10.5 To the above letter dated 22.09.2007 of A-4, the Branch vide its letter dated 15.10.2007 Ex.PW6/U-4 responded as under:
"... The total amount of liability under the Guarantee shall be progressively and cumulatively reduced by the amount of goods shipped or payments made by the seller under the contract upon receipt of an authenticated Swift Message stating that in connection with the said FBG, Bunge S. A. hereby consents to the the reduction of Guarantee amount reflecting shipment of goods equivalent value by the Seller within the validity period of FBG i.e. on or before CBI Vs. T.O. Joseph Page 55-A of 141
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24th December, 2007.
In view of the above, our Controlling Authorities at RO/ HO observed/ called for the following:-
1.Further to your letter dated 14.05.2007, details of goods shipped or payments made, till date, to progressively and cumulatively towards the reduction of FBG liability in terms of Contract No. P 91083 dated 13.10.2006 to supply Cargo Shorts or any other goods as agreed upon.
(i)Details of stock finished products, raw materials, stock-in-progress etc. kept segregated and specifically marked for the purpose of the said contract/ FBG/ Export Performance on or before 24.12.2007, alongwith the tentative shipment schedule.
(ii)Also, inform the reasons for not utilizing the sub-limit of ILC/ FLC limit within the sanction PCL (H) limit.
(iii)Further, it is observed from your Trial Balance as on 31.03.2007 that a sum of Rs. 6.86 crores is invested outside the business and the same need to be brought-back immediately to improve the liquidity position of the company.
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(v) Details of outstanding liabilities with
Standard Chartered Bank and HSBC securities charged thereto, asset status and send and early reply".
12.10.6 The above communication shows that the matter was being looked into even by Regional Office/ Head Office. The information sought vide said letter regarding seggregation of stock and expression of bank's concern about investments made by A-4 outside the business to the tune of 6.86 crores, itself indicates as to how the end use of funds was to be monitored. The same belies the version of PW5 and PW7 that the advance amount could be utilized by A-4 for liquidation of PCLs/ as per his business requirements and that there were no guidelines for utilization of advance amount/ monitoring of end use of funds. Said emergent situation also called for physical monitoring by visiting A-4, checking stock etc. 13.0 Coming to Ld. PP's argument that the export order was nothing but a funding transaction. It may be mentioned that in response to the above letter of the Branch dated 15.10.2007, A-4 wrote to the bank vide letter dated CBI Vs. T.O. Joseph Page 57-A of 141
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18.10.2007 Ex.PW6/V-5 (D-148) as under:
"We hereby submit you the following
information....
(iv)We have not so far executed any part of the export order till date towards the reduction of FBG liability in terms of Contract No. P 91083...
1.We are still negotiating with the buyer for acceptance of griege fabric instead of imported fabric from China. If we accept the proposal of Bunge S. A. and got for imported fabric, we may incur a loss of Rs. 3.00 crores, which we want to avoid. We enclose herewith statement showing the economy of executing Bunge S. A. order. We are hopeful that we may get their approval for acceptance of Indian fabric instead of imported fabric.
2. ...
3. ...
4. The Investments as on 31/03/07 represents the companies investments in G.K. Products Pvt. Ltd., Well Computers Exim Pvt Ltd., Harsh Netweb Solution Pvt. Ltd. and Maryan Apparel Pvt. Ltd. These investments were made by the company at a time when it has having a sound financial position. All of a sudden, these investments cannot be disposed off and money cannot be CBI Vs. T.O. Joseph Page 58-A of 141
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brought into the business overnight. We shall, however, endeavor our level best to do the needful as suggested by you...".
13.1 A-4 further wrote to the bank vide its letter dated 26.10.2007 Ex.PW6/V-5 (D-149) as under:
"We hereby submit the following information which is called for by you in respect of the above FBG.
We accepted an export order from Bunge S. A. for a value of JPY 304737300. The main attraction of getting this order was that we were getting the entire money as advance. The time required to execute this order was 90 days. But since we received the money one year in advance and were having surplus time of around 9 months to execute this order, we utilized the money as follows.
The value of money received in India as per the FIRC is Rs. 1468.24 lakhs. .............. So, the net amount which we received in hand is Rs. 1095 lakhs only. We usually purchase griege fabric and issue it for outside processing as per the specification of the buyer. We did the same in this case also and towards current purchase as well as previous outstanding bills we paid Rs. 700 lakhs to the creditors for purchases.
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Our Griege stock was increased by Rs. 295 lakhs by making this payment. The packing credit balance outstanding in Vijaya Bank was reduced to the tune of Rs. 50 lakhs, HSBC Packing Credit was reduced to the tune of Rs. 215 lakhs and Standard Chartered Bank was paid Rs. 130 lakhs. We suffered losses in the years ended 2005 and 2006. The situation was worse for the year ended March 2007. This has happened mainly because our major client cancelled orders worth 1.5 million dollars due to poor sales in the U.S. ............To a certain extent, financial paucity also affected our shipment schedule adding up further losses.
M/s Bunge S. A. is a commodity trading house. The only attraction of accepting this order was getting the amount as advance payment, as we were desperately in need of funds to offset our losses.......
In the meantime, we submitted our renewal proposal on 27th April, 2007 with enhancement in working capital. Had we got our limits revised, we could have started processing the order at least from Oct beginning. But our proposal is still pending at the Regional Office.
Our Production Plan was to commence production from Oct and to send the entire CBI Vs. T.O. Joseph Page 60-A of 141
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shipment by December 2007. Meanwhile were expecting to get our limits revised. We could have utilized the enhanced working capital we sought for to produce the goods.
Since in the present situation it is difficult to execute the order, we requested Bunge SA for an extension of 3 months time, which they did not accept. They informed us that they will get this order produced in a third country on our behalf and will send the original documents for making payment to our Bank. We will have to honour this document, otherwise the bank guarantee will be invoked.
In the present scenario, we will may lose about Rs. 3 crores if we execute the order. Alternatively, we will save a close to a similar amount on account of exchange rate variation, if we do not execute the order".
13.2 As per the above letters of A-4, the buyer M/s Bunge S.A., Geneva, did not approve the quality of fabric and insisted upon Chinese fabric and embossed button. To see as to what was agreed between A-4 and M/s Bunge S.A., Geneva, a reference is made to the agreements entered into between them, which are not in dispute. Relevant portion of PW1/C (Mark XY-2) (the original agreement dated 13.10.2006), CBI Vs. T.O. Joseph Page 61-A of 141
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between A-4 and Bunge S.A., Geneva, is reproduced hereunder : -
MARK XY-2 "PURCHASE CONTRACT NO. P91083 DATE 13th OCTOBER 2006 ........
GOODS: CARGO SHORTS
QUANTITY: 890,000.00
PACKING: IN BULK
LATEST SHIPMENT 20th SEPTEMBER 2007 DATE:
.........
PROVISIONAL JPY 478.12 PER PIECE MAKING A TOTAL OF PRICE: JPY 425,526,800.00 WORTH OF CARGO SHORTS, IN BULK PAYMENT : ...........
...........
(4)THE SELLER EXPRESSLY AGREES TO SHIP GOODS EQUAL IN VALUE TO THE PROVISIONAL PRICE IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
...............
OTHER TERMS AND CONDITIONS ............
............
(3)SELLER MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS UNDER THIS CONTRACT WITHOUT THE WRITTEN APPROVAL OF THE BUYER.
(4)THIS CONTRACT SHALL BE GOVERNED BY THE LAWS OF ENGLAND AND WALES WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF. THE PARTIES AGREE THAT ANY DISPUTE SHALL BE SUBMITTED TO THE EXCLUSIVE JURISDICTION OF A MUTUALLY AGREED ARBITRATOR. IF THE PARTIES ARE UNABLE TO AGREE ON AN ARBITRATOR, EACH SIDE SHALL SELECT AN ARBITRATOR WHO SHALL THEN JOINTLY SELECT A THIRD ARBITRATOR. THE DECISION OF THE ARBITRATOR(S) SHALL BE FINAL AND BINDING ON THE PARTIES.
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(5)THESE TERMS AND CONDITIONS ARE FINAL AND CANNOT BE SUBSEQUENTLY REVISED/ AMENDED EXCEPT BY WRITTEN AGREEMENT OF THE PARTIES.
.................
................"
13.3 Subsequent agreement between the parties, dated 27.11.2006 i.e. Mark XY-1, was an addendum to earlier agreement Ex.PW1/C, only extending the date of shipment to December 2007, instead of September 2007. All other terms and conditions of Ex.PW1/C remaining the same.
13.4 From the bare perusal of Ex.PW1/C (Mark XY-2), it is evident that except the nature of product (cargo shorts) and its quantum, the said Agreement did not contain any specification of nature, quality of fabric, shades, other details like pockets, if any, its type and number and accessories etc. of the shorts to be exported. Strangely, it did not even specify port of delivery/ country of export. Whether the entire consignment of 8,90,000 pieces was to be delivered at one port. It would not be out of place mention here that only after approval of quality of fabric, its colour/ shades, finalization of specifications of the apparel/ accessories and other terms and conditions, the price of the article to be exported, can be CBI Vs. T.O. Joseph Page 63-A of 141
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worked out; and only thereafter, an agreement between the importer and the exporter is entered into and the order for import is placed by the buyer. But, no such details are mentioned in the Agreement Ex.PW1/C between A-4 and M/s Bunge S.A., Geneva.
13.4.1 A-1 in his statement u/Sec. 313 Cr.PC. has admitted that the purchase contract contained only name and description of the product to be exported and did not contain specifications. He however stated that the specifications were not relevant for bank and were not provided; the bank official at Regional Office and Head Office also did not ask for the same. But, the specifications were discussed and approved by the parties.
13.5 Thus, as per A-1's statement under Section 313 Cr. P.C., the detailed specifications were available, but he has not stated as to in what form they were available. Whether it was by way of a separate agreement? Rather, from A-1's statement, it appears that the said terms were orally discussed. Even A-3 in his statement u/Sec. 313 Cr.PC, (in response to the evidence put to him to the effect that the CBI Vs. T.O. Joseph Page 64-A of 141
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purchase contract did not contain the specifications of the export item) stated that the detailed specifications of the goods were discussed with N. Subramania Bhat and the same were confirmed through e-mail. From the A-3's statement also it appears that only a discussion was held that too not with M/s Bunge S.A., Geneva or its representative in India, but, between A-3 (on behalf of A-4) and N. Subramania Bhat. Further, it is not clear from A-3's statement, as to whom the confirmation was sent through e-mail, whether to N.Subramania Bhat or to the buyer M/s Bunge S.A., Geneva. 13.6 It is also noteworthy that A-1 in his written statement u/Sec. 313 (5) Cr.PC has submitted that A-3 had informed him that M/s Bunge S.A., Geneva would be giving them the order for 890,000 pcs in various colours of River Cargo Shorts in 30 x 30 fine quality twill fabric. He has not stated anything about colours and shades, in which such shorts were to be supplied and the quantum of each shade etc. A-1 has also stated that in October 2006 he received purchase order dated 13.10.2006 from M/s Bunge S.A., Geneva (i.e. Ex.PW1/C / Mark XY-2) through A-3 and the same was forwarded to the bank through his wife. Same CBI Vs. T.O. Joseph Page 65-A of 141
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was accepted by the bank. A-1 has made no mention of any further agreement vide which the detailed specifications were finalized. The above product details were mentioned by A-1 for the first time in his written statement u/Sec. 313 (5); these were not mentioned by him in his statement u/Sec. 313 Cr.PC. Nor do these details find any mention in Ex.PW1/C, which was executed on 13.10.2006, i.e. subsequent to information given by A-3.
13.7 Even if, A-1 were to be believed for a while that the specifications did exist, then how even the fabric quality was being questioned/ rejected by M/s Bunge S.A., Geneva, after execution of agreement. It has also remained unexplained as to how was M/s Bunge S.A., Geneva rejecting the fabric and was insisting upon imported fabric and was even asking for embossed buttons, which were not even part of original contract (as is evident from A-4's letter dated 22.09.2007, Ex.PW6/V-3) till as late as September 2007, when originally the entire export order was to be executed by September 2007. Another fact which has remained unexplained is, how did M/s Bunge S.A., Geneva remit a huge amount of more than Rs. Fourteen Crores, even before CBI Vs. T.O. Joseph Page 66-A of 141
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finalization of the fabric etc.? Same could not have been possible. This entire exercise seems intriguing. 13.8 As already mentioned above, that all the details are worked out/ fabric quality etc. is approved, before entering into an agreement by the buyer/ importer and the exporter. Thus, the specifications of fabric, buttons and other details of the cargo shorts to be exported had to be pre- determined and approved, before signing of contract between the A-4 and the buyer M/s Bunge S.A., Geneva. More so, as the buyer was not the regular customer of A-4 and was not dealing in textile/ garments, being a commodity trading house; and also because it was making an advance payment of such a huge amount.
13.8.1 Further, if as per the accused, the detailed specifications were available, where was the occasion for the buyer/ M/s Bunge S.A., Geneva to change the specifications and insist upon the fabric quality/ buttons at variance with the agreement entered into between them. Moreso, as Ex.PW1/C itself mentions that "THE TERMS AND CONDITIONS ARE FINAL CBI Vs. T.O. Joseph Page 67-A of 141
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AND CANNOT BE SUBSEQUENTLY REVISED/ AMENDED EXCEPT BY WRITTEN AGREEMENT OF THE PARTIES". No such subsequent agreement is either pleaded or placed on record except Mark XY-1, which only extends the period of shipment; there is no other amendment to original agreement Ex.PW1/C. 13.8.2 As per Sections 103 and 106 of Indian Evidence Act, 1872 (Evidence Act) when any fact is within the special knowledge of any person, the burden of proving such fact lies on the person, who wishes the Court to believe in its existence. Thus, the burden was upon A-1 to A-4, to place on record, the agreement containing such specifications, as pleaded by them. But, the accused persons chose not to produce the said specifications/ agreement either during investigation or during the trial or at the time of recording of their statement under Section 313 Cr.P.C. or with written statement u/Sec. 313 (5) Cr.PC or even thereafter by way of defence evidence, in order to demonstrate that there was a contract between A-4 and M/s Bunge S.A., Geneva containing detailed specifications.
13.9 In view of the above facts & circumstances and
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considering the evidence on record in entirety, it is
established that the only agreement between A-4 and M/s Bunge S.A., Geneva was Ex.PW1/C (Mark XY-2) followed by Mark XY-1 extending the time for execution of order to December 2007. No agreement between the parties i.e. A-4 and M/s Bunge S.A., Geneva containing detailed specifications existed.
14.0 It may be mentioned that to espouse his argument that the transaction between A-4 and Bunge S.A., Geneva was genuine and the specifications of cargo shorts did exist. Ld. counsel for A-1, A-2 and A-4, during the course of arguments, referred to e-mails, which are part of Mark X-1 (collectively) (at pages 713 and 719 of D-160). Reference to the said e- mails dated 16.09.2006 (at page-713 - D-160) sent by A-3 P. Sam to Srikanthan/ Bhat and dated 18.09.2006 (page-719 - D-160) sent by Bhat, Subramanya (to Shrikant Bhasi of Bunge India Pvt. Ltd.), is made. Same read as under :
"e-mail dated 16.09.2006 ....
16 September, 2006 06:27 AM Dear M/s Srikanthan/Bhat, The product description may be as given CBI Vs. T.O. Joseph Page 69-A of 141
- 70 -
below:
Product : River cargo shorts
Fabric : 30's twill in 56" width
FOB value : USD $4.00 per piece
Quantity : 1 million pieces.
Please revert in case you need any further clarifications.
Regards P. Sam"
e-mail dated 18.09.2006 :
"....
Sep 18 ...
Dear Mr. Shrikant, We have already forwarded all the documents of Creative Home Fashions Private Limited by courier.
Please find attached a letter from Mr. Sam, the director of the company, which give details of product to be dealt and the value thereof.
The company has requested for a letter from BUNGE S.A. giving brief details of order to be placed with value in order to CBI Vs. T.O. Joseph Page 70-A of 141
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move formal application with their Banker for performance BG.
Thanks & Regards.
N. Subramanya Bhat."
14.1 From the plain reading of above e-mails, it is evident that it was A-3, who requested Subramanya Bhat (PW1 - who was approached for funding) to mention the product description/ its value in a particular manner; and on A-3's request, Subramanya Bhat (PW-1) forwarded the above details to Srikant (of Bunge India Pvt. Ltd.) requesting them to ask Bunge S.A., (Geneva) to issue a letter incorporating the details of the product/ its value (as provided by A-3 vide his e- mail) to enable them to move an application with their banker for issuance of PBG. Thus, the product/ price details were not being provided by the buyer Bunge S.A., Geneva. Rather, the said details were provided by A-3 (on behalf of A-4) requesting for issuance of a letter on those lines by Bunge S.A. Geneva, to enable the company - A-4 to make an application with their banker for issuance of PBG. Further, the above mail hardly has any details of the product, as discussed in preceding paras.
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14.2 It may be mentioned that abovesaid e-mails (as
referred to by Ld. counsel for A-1, A-2 & A-4) form part of Mark X-1 (collectively) [D-160 - Pages - 710 to 755], copies of the details/ documents/ correspondence supplied by PW1 to IO during investigation vide his letter 07.03.2011, Ex.PW1/F. During his testimony, PW1 testified that Mark X-1 (Colly) are the true copies of record available with them; and that the said copies were authenticated by him by putting his initials at point A on each such copy. PW-1 was not cross-examined in this regard by any of the accused persons. Further, as learned defence counsel for A-1, A-2 and A-4 himself has made references to copies of abovesaid e-mails, a reference is made to the copies of other mails/ other information/ documents (which are part of Mark X-1) exchanged between PW-1 and A-4/ CHFL, and are reproduced hereunder :
[e-mails at Pages-710, 711 (D-160)] :
"Trade Structured Finance Sep 7 ........
Dear Mr. Sam Please forward the following at your earliest:
1. Promoter Profile.
.....
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3. Letter from the Company addressed to M/s Bunge SA, Geneva Stating that you are aggreable to do merchanting Trade with Bunge and also to give details of the Branch/ Bank where the funds are required.
4. The letter from the Company to also mention the name of the Authorized Signatory alongwith the Signature Verification from the Bank.
Thanks & Regards, N.S. Bhat"
Other e-mail dated 08.09.2006 sent by A-3 to PW1 reads:
"Trade Structured Finance ...
08 September 2006 08:24 AM Dear M/s Bhat/ Srikanthan This is further to our discussions on he 6th of Sep'06 at your office. We confirm that we are interested in pursuing the option of trade structured finance ....
.....
With Regards
CBI Vs. T.O. Joseph Page 73-A of 141
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P. Sam
Director
Creative Homefashions Pvt. Ltd."
14.2.1 Reference may also be made to the Term-Sheet in
relation to the structure (of such funding) and Appendix-1 thereto (pages-724A, 725, 727 and 728, D-160), Mark X-1 (colly.) sent by Bunge India Pvt. Ltd. to Sophie Joseph, A-2. The relevant portion, which reflects the nature of arrangement entered into between the parties, is reproduced hereunder:
"BUNGE To: Mrs. Sophy Joseph From: Bunge India Pvt. Ltd.
.... .....
Date: 25th September 2006
.......................................... Re: TERM SHEET IN RELATION TO STRUCTURE (attached) Dear Sirs, Mandate Upon acceptance of our terms herein ("Indicative Terms & Conditions" enclosed), you hereby give us a mandate, on a best effort basis, to structure trade finance transactions in form and substance acceptable to both of us....
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Terms and Conditions of our offer
....The terms in the Appendix are intended for discussion purposes only and do not in any way represent a commitment.....
.....................
Taxes & Duties
All payments made by you to us
pursuant to this agreement shall be paid to us free and clear of an without witholding or deduction for any taxes or duties of whatsoever nature imposed, levied, collected, withheld or assessed by any authority......"
"Appendix 1"
.......
1. Contract Seller: Creative Home Fashions Pvt. Ltd.
("Creative)
Buyer: Bunge offshore (to
include affiliates in
NY, Geneva and
Singapore) ("Bunge")
Value: USD 3.20 mln (Eqv
JPY) (United States
Dollar Three Million
Two Hundred
Thousand Only)
Goods: Textile Products or
CBI Vs. T.O. Joseph Page 75-A of 141
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Any Such Other
Products at buyer's
option
Tenure: BG Tenure Approx 360
days.
Structure: Bunge shall fund
CREATIVE against
the acceptable BG
from Indian
nationalised bank.
CREATIVE will
offset the advance
either by routing
their exports
through Bunge or
through
merchanting trade
by sourcing the
product through
another Bunge
entity. In either of
the above cases,
Bunge will discharge
the bank Guarantee
only on receipt of
funds.
.........
4. Interest 1. CREATIVE shall pay
interest at Libor plus
CBI Vs. T.O. Joseph Page 76-A of 141
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100.00 bps as
spread.
..............."
14.2.2 From the above e-mails exchanged between A-3
(on behalf of A-4 and N.S. Bhat (PW1) and the Term-Sheet sent by Bunge, it is evident that what was being discussed and finalised was finance/ funding; and that A-3 P. Sam was dealing on behalf of A-4, as its director and was instrumental in procuring the said funding.
14.2.3 Further, the offer of the buyer M/s Bunge S.A., Geneva, (as referred to by A-4 in its letter dated 26.10.2010 Ex.PW6/V-5) to get the order executed in a third country and to then send the Bills to A-4, is also strange. If it was actually an export order and the buyer were to get its order prepared from someone else (in case of failure of exporter i.e. A-4) it was his decision. But doing it on A-4's behalf and then sending bills to A-4 was also a peculiar proposition and has remained unexplained. From the above e-mails/ documents, it is evident that the said offer was more in line with the funding arrangement (being) worked out between the parties.
CBI Vs. T.O. Joseph Page 77-A of 141
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14.3 The above facts and circumstances/ documents
lend credence to PW-14's observation in his report Ex.PW14/A and to his testimony that the export order was tailor made and was nothing but a disguised method of funding. As discussed in preceding paras that the onus to dispel the same had shifted to A-1 to A-4. But, they have failed to discharge the same.
15.0 It is also noteworthy that in above letters of A-4 (Ex.PW6/V-1 to Ex.PW6/V-5) the main reason for non-execution of export order was mentioned as non-approval of fabric and demand of embossed buttons by the buyer M/s Bange S.A., Geneva. Whereas, in his written statement u/Sec. 313 (5) Cr.PC, A-1 has stated that A-4 could not fulfill the order due to reasons stated in above letters. But, the primary reason was that the bank neither enhanced their PCL limit from Rs.10 crores to 15 crores nor communicated that the said proposal has been declined. It is also stated that the bank on its own and without their authorization adjusted Rs. 7.02 crores (although the entire PCL was not even overdue); it also made them repay HSBC and Standard Chartered Bank; the same resulted in severe working capital crunch; despite CBI Vs. T.O. Joseph Page 78-A of 141
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this they would have executed order, had PCL been enhanced.
15.1 Thus, as per A-1 lack of working capital was the main reason of non-execution of order by A-4, which is quite contrary to the reasons given by A-4 in its aforesaid letters dated 10.05.2007, 06.09.2007 and 18.10.2007. The plea that bank made them repay HSBC and Standard Chartered Bank, also smacks of audacity to shift the burden. Needless to mention that it was one of terms and conditions of sanction of A-4's proposal for issuance of FBG, to deal exclusively with Vijaya Bank; and to adjust its liabilities with other banks. If the said term was not acceptable to A-4, it had the option not to go ahead. Further, liquidation of A-4's liabilities was contemplated out of A-4's funds and not out of advance amount, which was meant for executing export order. But, the same was used/ allowed to be used by the Branch in a blatant manner, for liquidation of 51 PCLs and other liabilities of A-4 including 51 PCLs without caring for the consequences.
15.2 A-4 has pleaded that 51 PCLs were liquidated by
CBI Vs. T.O. Joseph Page 79-A of 141
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the Branch without A-4's consent/ authorization. If that was so, did A-4 raise any objection to the same? Nothing has been placed on record by A-4/ accused persons in this regard. Further, learned PP argued that from the testimony of PW4, it is clear that a discussion between A-3, (on A-4's behalf), A-5 and B. A. Sriniwasan, Branch Head, had taken place on 18.12.2006 for liquidation of 51 PCLs (7,02,24,781/-) out of advance remittance. On the other hand, learned defence counsel argued that PW-4's testimony in this regard is of no avail as in his cross-examination, he has admitted that he was not present in the said meeting.
15.2.1 It is noted that PW4 in his examination in chief stated that on 18.12.2006, while he was on duty, for the purposes of liquidation of 51 PCLs to the tune of Rs. 7,02,24,781/-, a discussion had taken place, in which, to his recollection, A-3 from CHFL (A-4), A-5 and their Branch Head Srinivasan were present. In his cross-examination, PW4 stated that he was not present in the meeting amongst A-3, A-5 and Srinivasan. As pleaded by Ld. defence counsel for A-3, PW-4's deposition can not be ignored merely because PW-4 was not part of the said meeting. Ld. counsel for A-3 further argued CBI Vs. T.O. Joseph Page 80-A of 141
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that PW4 could not even recall whether he had disclosed about presence of A-3 during that discussion, to CBI during investigation. It is seen that in his statement u/Sec. 161 Cr.PC, PW4 has stated that during the discussion on 18.12.2006, representative of the company (A-4), A-5 and Chief Manager, Srinivasan was present; he has however, not named the said representative. Be that at it may. Even if, A-3's plea that he was never a part of any discussion for liquidation of 51 PCLs out of advance amount, is accepted, same is not of much assistance to him, as would be discussed in subsequent paras.
15.3 It is also significant to note that A-4 chose not to suffer any loss itself as mentioned in its letter dated 18.10.2007 and rather, allowed invocation of FBG. 15.4 In view of the above facts and circumstances and evidence on record, it can be concluded that the advance remittance received by A-4, from M/s Bunge S.A., Geneva was actually a funding arrangement. Encashing on its past track record and good reputation, A-4 acting through A1, A2 and A3, induced the bank to issue FBG to secure advance CBI Vs. T.O. Joseph Page 81-A of 141
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remittance. Its sole purpose was to arrange for funds (by way of advance amount) to liquidate its outstanding liabilities and to tide over working capital crunch; it never intended to execute the export order. Within two days of receipt of the advance amount, same was utilized for offsetting various liabilities including liquidation of 51 PCLs to the tune of Rs. 7.02 crores approximately, in contravention of the terms and conditions of sanction of FBG and Manual of Instructions of Vijaya Bank, RBI's Guidelines in general, Banking prudential norms. No export was carried out leading to invocation of FBG; bank had no option but to honour the same and pay the guarantee amount to M/s Bunge S.A., Geneva; A-4 did not pay the said amount; thus, causing wrongful loss to the bank to the tune of Rs.12,18,67,410/-.
15.4.1 Ld. counsel for A-1, A-2 and A-4 argued that the culpable intention must exist at the beginning of the transaction, for the offence of cheating; the distinction between mere breach of contract and the offence of cheating has to be kept in mind; there was no dishonest intention on the part of A-4, when it applied for FBG or even thereafter; no such intent can be presumed merely because of A-4's CBI Vs. T.O. Joseph Page 82-A of 141
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subsequent failure to meet its export obligation. It was further submitted that A-4 could not meet the export obligation despite best of its efforts. Therefore, offence of cheating is not made out. The proposition of law as argued by Ld. defence counsel cannot be disputed. However, in view of the findings recorded in the preceding paras, the argument of Ld. defence counsel for A-1, A-2 and A-4 is stated only to be rejected. Accordingly, the case law i.e. Hari Prasad Chamaria v Bishnu Kumar Surekha & Ors., (1973)2 SCC 832; Hridaya Ranjan Prasad Verma & Ors. v State of Bihar & Anr., (2004)2 SCC 168; Alpic Finance v P Sadasivan, (2001)2 SCC 513; S.W. Palanitkar & Ors v State of Bihar, (2002)1 SCC 241; Ajay Mitra v State of M.P., (2003)3 SCC 11; Anil Mahajan v. Bhor Industries Ltd. & Anr., (2005)10 SCC 228; B. Suresh Yadav v Sharifa Bee, (2007)13 SCC 107 and Suryalakshmi Cotton Mills Ltd. v Rajvir Industries Ltd. & Ors., (2008)13 SCC 678, etc., as relied upon by these accused persons, is of no assistance to them. 15.5 It may further be mentioned that Ld. defence counsel for A-3 also argued that A-3 cannot be held liable for the acts of the company/ A-4 as he was merely an employee. Learned defence counsel further argued that there was no CBI Vs. T.O. Joseph Page 83-A of 141
- 84 -
occasion for A-3 to deal with the finance of A-4, as Pradeep Aggarwal was the person, who was looking after the finance of A-4 CHFL, which has come in the testimony of PW-2 Madan Lal Gupta, Statutory Auditor of A-4. It was also argued that even PW23 Pradeep Aggarwal has admitted that A-3 was not on the Board of Directors. Further, A-3 had nothing to do with liquidation of 51 PCLs out of advance amount. 15.5.1 It has come in the testimony of PW-1 that, A-3 Placid Sam had approached him, for finance to regularize A-4's account with its Bankers, representing himself to be the Director of A-4. PW1 has also testified that a Term Sheet containing necessary conditions for export and advance was accepted by A-4 through A-3 P. Sam. PW-1 has stood by his deposition in his cross-examination. He has stated that he was informed by A-3 himself that he was one of the Directors of A-4, but, PW-1 admitted that he had not verified the said fact. It has also come in PW-1's cross-examination that except A-3 P. Sam, no other person on behalf of CHFL (A-4), had contacted him in this regard.
15.5.2 PW1's testimony is corroborated by e-mails [Mark
CBI Vs. T.O. Joseph Page 84-A of 141
- 85 -
X-1 (colly.)], as reproduced above in para no. 14.0 (supra), wherein A-3 has been referred to as the director of A-4. It may also be mentioned that PW-1 vide his letter dated 16.09.2006, Ex.PW1/E sent to Shrikant Bhassi of Bunge India Pvt. Ltd., the proposal of A-4 alongwith documents, as desired by them. Said letter Ex.PW1/E mentions enclosure of "Details of Key Personnel" of CHFL. In the said enclosure [Mark-X1 (Colly.) at Page-716 (D-160)], name of P. Sam as "Director" of the company (A-4) is mentioned amongst the "Key Personnel" of A-4.
15.5.3 So far as PW-2 Madan Lal Gupta, Chartered Accountant, (who had been working as Statutory Auditor) is concerned, it is also noted that he, in his cross-examination (by learned counsel for A-3 Placid Sam) has simply stated that during the relevant time, Pradeep Aggarwal, Manager (Finance & Accounts) of A-4, met him for audit purpose. The same does not in any manner show that A-3 had nothing to do with finances of the company or that he was not the Director. 15.5.4 PW-23 Pradeep Aggarwal, who joined A-4 in September, 2004 as Vice President (Finance) deposed that CBI Vs. T.O. Joseph Page 85-A of 141
- 86 -
when he joined A-4, A-3 P. Sam was the Director (Finance) in the company, but, was not on the Board of Directors. From the suggestion put on behalf of A-3 to PW-23 in cross- examination, it stands admitted that A-3 was designated as Director of A-4. The relevant portion of PW23's cross- examination is reproduced - "It is wrong to suggest that accused P. Sam was merely designated as Director but he was not designated and working as Director (Finance)". PW23 categorically denied that he has made false statement with respect to A-3 being Director (Finance) under the pressure from CBI. PW23 admitted that A-3 looked after Sales and Marketing but then further (voluntarily) stated that A-3 was also looking after Finance. PW23 has also deposed that A-1 and A-3 P. Sam were following up with Vijaya Bank for issuing PCLs. Ld. defence counsel argued that the said fact was not mentioned by PW23 in his statement u/Sec. 161 Cr.PC (Ex.PW23/DA) and is being stated before this court at the instance of CBI. PW23 was confronted with his statement u/Sec. 161 Cr.PC Ex.PW23/DA, where it is not so recorded. 15.5.5 Be that as it may. It has come in the testimony of PW-7 V. T. Nair that during the relevant time period, A-1 in the CBI Vs. T.O. Joseph Page 86-A of 141
- 87 -
capacity of Chairman and A-3 in the capacity of Director of A-4 had been meeting him during the negotiation of proposal of A-4; it was conveyed that they were contemplating an export order from foreign company. PW-7 in his cross-examination stood by the same and denied that A-3 was not the director of A-4.
15.5.6 It may also be mentioned that even A-1 in his statement under Section 313 Cr. P.C. admitted that he as a Chairman and co-accused Placid Sam in the capacity of Director of A-4 had met PW-7 after submitting their proposal dated 16.09.2006 and that they were also following up with Branch for issuance of PCL limits. A-1 in his written statement u/Sec. 313 (5) Cr.PC has stated that A-3 joined A-4 in 2004 and at that time he had informed A-1 that he shall revamp the entire company (A-4) and will increase its turn-over. A-1 has further stated that as on Sept., 2006 A-3 was responsible for matters relating to marketing and procuring export orders for A-4, as he had expertise in these fields, being an MBA; in Sept., 2006, A-3 informed him that he was in a position to obtain a big export order of Cargo Shorts from a company based in Geneva namely M/s SA Bunge which was also willing CBI Vs. T.O. Joseph Page 87-A of 141
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to give an advance against the export order. The fact that A-3 (on behalf of A-4) dealt with PW1 in this regard, is also borne out from PW1's testimony, as discussed above. 15.5.7 The fact that A-3 was following up with the Branch is not in dispute as Ld. counsel for A-3 during arguments on charge herself contended that A-3 Placid Sam had approached the Bank being an employee of A-1 and A-2; entire negotiations took place with the bank officials in a very transparent and legal manner.
15.6 Ld. counsel for A-3 argued that the CBI has not placed on record any documentary evidence to show that A-3 was the director of A-4. A-3 himself has stated that he was designated as director. From the above evidence on record, it is established that A-3 was representing himself as the Director of A-4; he was the officer of the company (A-4), who dealt with Bunge India Pvt. Ltd./ Bunge S.A. Geneva, through PW1 and also with the Branch/ others, on A-4's behalf. It is also established that A-3 was assigned the task of turning the company (A-4), around/ procuring funds for it; and that he consented to the same. Thus, A-3 was the Officer-in-default within the meaning of the Section 5 of The Companies Act, CBI Vs. T.O. Joseph Page 88-A of 141
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1956. It is further established that A-3 was instrumental in procuring the so called export order; he followed up A-4's proposal for issuance of FBG with the Branch. He also followed up with the Branch with respect to release of PCL limits. Even if, A-3's argument that his personal presence during discussion regarding liquidation of 51 PCLs is not conclusively established, is accepted, the same does not in any manner exonerate A-3, in view of the law as laid down in Section 10 Evidence Act.
15.6.1 Ld. defence counsel for A-3 further argued that when the factum of conspiracy is sought to be inferred from circumstances, the prosecution has to show that the circumstances give rise to conclusive or irresistible inference of an agreement between two or more persons to commit an offence. A few bits here and few bits there, as relied upon by prosecution cannot be held to be adequate for connecting A-3 with the commission of crime of criminal conspiracy. Ld. counsel placed reliance upon the judgments of the Hon'ble Supreme Court in Bakshish Singh V. State of Punjab, AIR 1971 SC 2016, Sharad V. State of Maharashtra, AIR 1984 SC 1922 and Esher Singh V. State of Andhra Pradesh, JT 2004 (3) SC CBI Vs. T.O. Joseph Page 89-A of 141
- 90 -
391, in support.
15.6.2 The proposition of law as laid down in these cases is undoubtedly, unassailable. But, in view of above the facts and circumstances and from the evidence on record, it is established that A-3 was very much a part of the conspiracy to induce the Branch/ Bank to issue FBG as against so called export order, which was actually a funding arrangement; and utilization of advance amount for liquidation of outstanding 51 PCLs/ offsetting various liabilities of A-4. Thus, the case law relied upon by the Ld. counsel is of no assistance to A-3. 15.7 In view of the above, it is concluded that A-4 CHFL (through A-1, A-2 and A-3), A-1 T. O. Joseph, A-2 Sophy Joseph and A-3 P. Sam in conspiracy with each other cheated the bank.
15.8 In view of the evidence on record, it is also established that it was the bounden duty of the Branch/ Forex Department to exercise due care in monitoring the account of A-4 w.r.t. utilization of advance, not only to protect bank's interest but also the public interest, as banks deal with public CBI Vs. T.O. Joseph Page 90-A of 141
- 91 -
money.
15.8.1 The charge against A-5 is that he in conspiracy with the other accused persons allowed utilization of advance amount to the tune of Rs.7.02 crores for liquidation of 51 PCLs. A-5 has admitted in his statement u/Sec 313 Cr.PC that the debit of the said amount was authorised by him/ the debit voucher Ex.PW4/B bears his Employee Code No. 2736. But, he has further stated that the advance amount was utilized for liquidation of the said liability by him as per the instructions of B. A. Sriniwasan, the then Chief Manager. No such instructions are placed on record by A-5. Although, A-5 led defence evidence, but he did not summon any record/ witness in this regard.
15.8.2 During the course of arguments, it was submitted by learned counsel for A-5 that A-5 was directed verbally by Chief Manager, B.A. Srinivasan and that he simply carried out the said instructions. It was further argued that A-5 did not receive any pecuniary benefit by liquidation of 51 PCLs out of the advance amount,, as the said amount was recovered by the Bank by way of deposit in the PCL account.
CBI Vs. T.O. Joseph Page 91-A of 141
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15.8.3 The possibility of B.A. Srinivasan having verbally
directed A-5 (with respect to adjustment of 51 PCLs) cannot be ruled out, in view of the testimony of PW-4. PW-4 has stated that on 18.12.2006, a discussion regarding liquidation of 51 PCLs of A-4, had taken place between B.A. Srinivasan, A-5 and P. Sam, A-3 on behalf of A-4. Further, the said amount of 7.02 crores approximately was credited in A-4's PCL account with Bank; and there is nothing on record to conclusively demonstrate that A-5 derived any pecuniary benefit. However, A-5 being forex In-charge, was duty bound to act as per terms of sanction/ Bank's guidelines, while permitting utilization of the said amount. 15.8.4 Considering the above facts and circumstances in totality, I find that the evidence placed on record by prosecution is not sufficient to conclude beyond reasonable doubt, that A-5 N. Sitaram Rao acted in conspiracy with other accused persons; and that A-5 permitted such utilization for any illegal gratification/ pecuniary or other benefit. However, from the evidence on record, it is established that by adjusting 51 PCLs out of advance remittance, A-5 being Forex In-charge, lacked in due discharge of his duty to monitor/ CBI Vs. T.O. Joseph Page 92-A of 141
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ensure proper utilization of advance remittance; A-5's act might at the most, have attracted departmental action. 15.9 In view of the above, charge u/Sec. 120B r/w Sec. 420 IPC r/w Sec. 13 (1)(d)/ 13 (2) PC Act against A-5 N. Sitaram Rao, is not proved beyond reasonable doubt. Release of 51 PCLs amounting to Rs.7.02 crores during May 2006 to September 2006.
16.0 Another charge against the accused persons is that A-5, Manager, Forex, pursuant to criminal conspiracy with A-1 to A-4, allowed release of 51 PCLs amounting to Rs.7.02 crores during the period May 2006 to September 2006, in respect of which there were no genuine export orders or commitments.
16.1 It was argued by Ld. defence counsel on behalf of A1, A2 & A4 that PCLs were released on proper applications as per rules; export orders were duly filed; CBI's own witness has deposed that all the applications were accompanied by export orders. Ld counsel also argued that merely because the bank CBI Vs. T.O. Joseph Page 93-A of 141
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could not trace those export orders/ other record, does not mean that they did not exist; accused cannot be held liable for the failure of the Bank to trace and produce the record. It was also submitted that the export was carried out by A-4 even after the year 2006; the very next year export worth Rs. 40 crores was made; accused persons A-1, A-2 and A-4 continued to deal with the Branch and route all their transactions through the Branch. Had there been any dishonest intention on the part of the accused persons, they would have shut shop and vanished.
16.2 Ld. defence counsel for A-3 argued that A-3 had nothing to do with release of PCLs.
16.3 Ld. defence counsel for A-5 argued that PCL release could be authorized by minimum two officials. PW-4 Shyamal Samaddar and other two officials/ Asst. Managers, Manish Dubey and Rajesh Kumar Singh were also involved in release of PCL. All of them were performing same functions; A-5 has been made an accused; PW-4 as a witness; and other two officials have not even been made a witness. CBI adopted a pick and choose policy.
CBI Vs. T.O. Joseph Page 94-A of 141
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16.4 Before appreciating the evidence which has come
on record in this regard, let me refer at the outset, to the relevant RBI guidelines and Vijaya Bank's guidelines with respect to PCLs. That is, as to how the PCL requests are to be considered. Clauses 1.1.2 and 1.1.5 of RBI Master Circular read as under :
"1. PRE-SHIPMENT EXPORT CREDIT ...........
1.1.2 Period of Advance .........
(ii) If pre-shipment advances are not adjusted by submission of export documents within 60 days from the date of advance, the advances will cease to qualify for concessive rate of interest to the exporter ab initio."
Clause 1.1.5 reads as under :
"1.1.5 "Running Account" Facility (Page-864)
(i) As stated above, pre-shipment credit to exporters is normally provided on lodgement of L/Cs or firm export orders. ........ Having regard to difficulties being faced by the exporters in availing of adequate pre-shipment credit in CBI Vs. T.O. Joseph Page 95-A of 141
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such cases, banks have been authorized to extend Pre-shipment Credit 'Running Account' facility in respect of any commodity, without insisting on prior lodgement of letters of credit/ firm export orders, depending on the bank's judgment regarding the need to extend such a facility and subject to the following conditions:
(a).............
(b) In all cases where Pre-shipment Credit 'Running Account' facility has been extended, letters of credit/firm orders should be produced within a reasonable period of time to be decided by the banks.
(c) .........
(d) .........
(iii) In cases where exporters have not
complied with the terms and conditions, the advance will attract commercial lending rate ab initio. ........"
16.5 Clauses 26.15.3 and 27.5.4 of MANUAL OF INSTRUCTIONS ON FOREIGN EXCHANGE 2002-2003, VIJAYA BANK with respect to PCL read as under :
"26.15.3 - PCL should be granted only against a specific written request from the party furnishing the details of the CBI Vs. T.O. Joseph Page 96-A of 141
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contract/LC against which the advance is required, supported by a stock statement indicating the availability of adequate paid stocks to secure the advance, after taking into account the prescribed margin. The request received is to be processed to ensure compliance with the sanction terms and before release, prior approval of the Branch Manger in form FED II-90 should be sought in all cases. The advance should be released only on approval by the Branch Manager. Further Packing Credit Loans should be granted only for such period (but not exceeding 180 days, in any case), depending on the shipping schedule and the time required to procure/ manufacture and ship the relative goods. It should also be ensured that the LC/ Contract is valid for shipment/ negotiation as long as the Packing Credit Loan is outstanding."
"27.5.4 - PCFC should normally be extended only on lodgement of confirmed/ firm export orders or irrevocable L/Cs. However "Running Account" facility can also be extended under the PCFC Scheme on the same lines available under Rupee credit subject to the following conditions :-
(a).......
CBI Vs. T.O. Joseph Page 97-A of 141
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(b)......
(c) In all cases, where Pre-shipment
Credit 'Running Account' facility has
been extended, the L/Cs or firm orders should be produced within a reasonable period of time. Branches should closely monitor the production of firm order or L/Cs subsequently by exporters.
.........
........
(g) It has to be ensured that no diversion of funds is made for domestic use. In case of non-utilization of PCFC drawals for export purposes, the penal provisions as stated under para 27.9.2 below should be made applicable and the 'Running Account' facility should be withdrawn for the concerned exporter."
16.6 Let me now refer to the testimony of prosecution witnesses PW-7, PW-12, PW-16 and PW-20, who also deposed about the procedure with respect to PCL release. PW12 Gopalakrishna Bhat deposed that for PCL release, the borrower has to submit an application in the prescribed form, giving details of the underlying export commitment and the amount of PCL required to meet that commitment. Alongwith the application, the borrower is required to submit CBI Vs. T.O. Joseph Page 98-A of 141
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copies of the underlying Export Orders/ Letter of Credit, evidencing existence of such commitment. PW4 Shyamal Samaddar, the then Asst. Manager, PW16 Inder Mohan Singh, Chief Manager as well as PW20 Bidhan Chandra Sinha, Sr. Manager, have also deposed on the same lines that the PCL application has to be accompanied by the export order by the foreign buyer. PW16 and PW20 also stated that the stock statement with respect to raw material, semi-finished and finished goods, is also to be submitted. 16.6.1 PW12 as well as PW20 deposed that subject to the fulfillment of the said requirements and on compliance of sanctioned terms and conditions and there being no other irregularity in the conduct of the account, the PCL would be released by the Branch.
16.7 Thus, as per the RBI Guidelines/ Vijaya Bank's own Manual of Instructions on Foreign Exchange and testimony of CBI's witnesses, there has to be a written request/ application for grant of PCL. Every PCL application has to be supported by firm export order/ LCs. The applicant/ exporter is also required to submit stock statement. However, in case of Running CBI Vs. T.O. Joseph Page 99-A of 141
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Account Facility of PCL, keeping in mind the difficulties faced by the exporters, the RBI vide Clause 1.1.5, has laid-down that PCL may be provided without insisting upon prior lodgement of firm export orders/ LCs. In such a situation, firm order should be produced within a reasonable period of time to be decided by the bank. Same instructions have been incorporated by the Vijaya Bank in sub clause (c) of Clause 27.5.4 of its Manual of Instructions. It may be mentioned that the said reasonable period has been prescribed as thirty days (maximum) in Vijaya Bank, as has come in the cross- examination of PW12 Gopalakrishna Bhat by A-1, A-2 and A-4. This fact also remained undisputed by A-3 and A-5 as they did not cross-examine PW-12 , in this regard. 16.8 In view of the above, A-4 was required to submit written request/ application for availing PCL. Further, as A-4 was availing RPCL facility, it was not mandatory for A-4 to file copy of the firm export order/ LC alongwith the PCL application; A-4 could have submitted the firm export orders, within 30 days of filing of application for PCL. A-4 was however required to furnish stock statement alongwith each application. Further, as A-4 was availing RPCL, PCL first CBI Vs. T.O. Joseph Page 100-A of 141
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availed by it could have been adjusted by any export documents lodged first; it was not necessarily to be adjusted by export documents of the same transaction for which PCL was granted.
16.9 It needs to be examined whether 51 PCLs in question were released to A-4 as per above norms/ guidelines and who was responsible for release/ ensuring compliance. 16.9.1 PW12 has deposed that for PCL release, Manager, Forex is supposed to prepare a process note, in which he is supposed to mention all the details of the borrower's export orders, Letter of Credit (LC), etc. and also to report about the irregularities, if any, and put up the process note before the Branch Head. The Manager, Forex cannot release PCL on his own without the approval of Branch Head. PW20 deposed that the Senior Manager (Forex) is supposed to process the PCL release application and if the documents are found in order, after taking permission from the superior officer, he may grant the necessary credit facility.
16.9.2 It may be mentioned that PW7 V. T. Naik, AGM,
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who was posted in the Branch during the relevant period i.e. from May 2005 to Oct. 2006, deposed that as per procedure, the PCL requests were sanctioned by In-charge, Forex Department, if there was no irregularity and the withdrawal was as per the limit; and that the accused A-5 was the Manager In-charge, Forex, during the relevant period when 51 PCL bills were released. In his cross-examination by Ld. defence counsel for A-1, A-2 and A-4, PW7 admitted that as per Manual of Instructions, the PCL release has to be approved by the Branch Manager. He then clarified that as Barakhamba Road Branch was a very big Branch, the release of PCL was within the domain of In-charge, Forex, once the limit was sanctioned; no suggestion to the contrary was put to PW7 in this regard on behalf of A-5, who was In-charge, Forex during the relevant time. Thus, the said fact remained uncontroverted.
16.9.3 PW4 Sh. Shyamal Samaddar, Asst. Manager, who worked under A-5 N. Sitaram Rao in the Branch at the relevant time, deposed that PCLs were released from time to time on approval of A-5 N. Sitaram Rao, In-charge, Forex; his (PW4's) job was only to take the applications and make necessary CBI Vs. T.O. Joseph Page 102-A of 141
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entries in the system; documents used to be forwarded to A-5 for further processing and the task of approval of release of PCL vested with A-5 N. Sitaram Rao. In his cross-examination, PW4 stated that the applications for release used to be submitted to the In-charge, Forex; only after the approval for release, the application used to come to them for the purposes of making data entries in the system. PW4 was confronted with his statement u/Sec. 161 Cr.PC Ex.PW4/DA. PW4's version that the PCL applications came to him only after approval for release is contrary to his version u/Sec. 161 Cr.PC.
16.9.4 In his statement u/Sec. 161 Cr.PC Ex.PW4/DA, PW4 stated that - ".....whenever a request for PCL release received in Forex Department, it was processed by me or other Asst. Manager and if the documents were found in order, the same were put up to Sh. N. Sitaram Rao, Forex In-charge. He used to instruct us to release the PCL. On receipt of his instructions, I used to make entry in the computer for crediting the current account of the customer by debiting borrower's PCL account. Minimum two officers' authorization was required to complete the transaction, hence, any two available officers working in CBI Vs. T.O. Joseph Page 103-A of 141
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Forex Department used to put their authorization in the system." When confronted with the same, PW4 in his cross- examination stated that the processing used to be done only on the instructions of In-charge, Forex, after his approval for release of PCL. Said explanation appears to be an after thought and an effort on PW4's part to somehow disassociate himself from the decision making process of PCL release. Moreso, as PW4 has himself stated that his duties were to attend to the requests sent by the customer for release of PCL, Bill Discounting, foreign remittance, etc. and such other work as was assigned to him by the In-charge, Forex. 16.9.5 Further, PW4 when confronted by Ld. defence counsel on behalf of A-5 with Ex.PW4/DB i.e. the job allocation for officers w.e.f. 07.08.2006 to 30.04.2007, admitted that it provided for his job allocation. He did not state that his job profile as reflected in Ex.PW4/DB was not correct. As per Ex.PW4/DB, "Release of PCLs/PCFC", is included in the job allocation of PW4. PW4 also testified that A-5 was the In- charge, Forex and was being assisted by him (PW4), Sh. Manish Dubey and Rajesh Kumar Singh, Assistant Managers. In view of the same, PW4's deposition that his job was only to CBI Vs. T.O. Joseph Page 104-A of 141
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receive PCL applications and make data entries; and that PCL applications/ documents were examined and approved by A-5 only, simply appears to be an attempt to wriggle out. 16.10 In view of the above evidence it can be concluded that on receipt of PCL applications, PW4 processed the PCL applications and put up the same to A-5, Manager (Forex) for approval, if found in order; PW4 was, therefore, examining the application/ requisite compliances. A-5 being In-charge (Forex) was responsible for approving/ authorizing release of PCL after ensuring that there was no irregularity and the withdrawal was within the sanctioned limit. Thereafter, the entries in the computer for release of PCL account i.e. debiting borrower's PCL account and crediting borrower's current account were made; the fact that such entries were made by minimum two officials is borne out not only from the testimony of PW4 but, also from the release vouchers. 16.11 Perusal of 51 PCL release vouchers, Ex.PW7/E-1 to Ex.PW7/E-21, Ex.PW7/E-23 to Ex.PW7/E-35 Ex.PW7/H-1 to Ex.PW7/H-3, Ex.PW7/H-5 to Ex.PW7/H-15, Ex.PW7/H-18, Ex.PW7/H-19 and Ex.PW7/H-26 (which were proved by PW7) CBI Vs. T.O. Joseph Page 105-A of 141
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reveals that each such voucher reflects three stages i.e., -
"Entered By", "Posted By" and "Verified By". PW4 in his testimony in response to Court Question explained that "Entered By" contemplates entry of customer's name, account number and the amount of PCL applied for, in the computer. Vide second stage "Posted By", the amount of PCL is credited in the account of borrower/ customer. Third stage i.e. "Verified By", is to check whether the amount has been correctly credited in the borrower's account. From the above 51 release vouchers, it is noted that the relevant entries with respect to 51 applications were made/ the same were dealt with, as under :
Sr. NAME ENTERED POSTED VERIFIED No. BY BY BY 1. A-5 A. Sitaram Rao 31 32 04 2. PW-4 Shayamal Sammadar 15 15 25 3. Manish Dubey (not 05 04 20 produced as a witness) 16.12 From the above release vouchers, it is also
evident that after processing and approval of release, necessary entries were made in A-4's accounts, by the above officials interchangeably and that the entries with respect to each application, were made by minimum two officials. A-5 in CBI Vs. T.O. Joseph Page 106-A of 141
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his statement u/Sec. 313 Cr.PC has himself stated that he was involved in the process for release of 35 PCLs out of 51 PLCs.
PW4 in his cross-examination admitted that out of 51 PCLs, he handled as many as 40 PCLs; 25 out of those 40 PCLs were verified by him.
17.0 Admittedly, A-4 availed above 51 PCLs during the period 24.05.2006 to 14.09.2006. Above vouchers [detailed in para 16.7 (supra)] pertaining to 51 PCLs in question, show that PCL requests of the A-4 for different amounts were allowed and the PCLs were credited to A-4's current account bearing no. 600400300006637 (6637 in brief) and debited to A-4's PCL account bearing no. 600406510500259 (259 in brief).
17.1 It is also a matter of record that out of 51 PCL applications only 21 PCL applications could be traced by CBI. Ld. PP argued that remaining 30 applications could not be traced despite best efforts of the Investigating Officer (IO)/ bank. He further contended that 30 applications could not be traced because no such applications were ever filed; the PCLs were being released by the Branch/ A-5 to A-4 without even CBI Vs. T.O. Joseph Page 107-A of 141
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obtaining applications. Even no export orders were traced pertaining to any of these 51 PCLs. Ld. PP also argued that even accused persons' efforts u/Sec. 91 Cr.PC to call for the relevant record did not bear any fruit. Despite directions of the Ld. Predecessor Court, the relevant record i.e. remaining 30 PCL applications and export orders/ with respect to 51 PCLs etc. could not be traced by the bank, which shows that no such record existed. Bank even filed an affidavit in this regard, before the Ld. Predecessor Court; the evidence on record thus proves that PCLs to A-4 were released without following proper procedure and without even PCL applications (on 30 occasions); and that these 51 PCLs were not backed by any export order.
17.1.1 Ld. Counsel for the accused persons A-1, A-2, A-4 & A-5, on the other hand, argued that IO utterly failed in discharge of his duty. IO did not take the trouble of properly collecting the documents and did not even bother to visit the Record Room of the Branch, to check for himself whether the said applications were available or not. Accused can not be held guilty just because bank failed to trace the relevant record. Ld. defence counsel further argued that the export CBI Vs. T.O. Joseph Page 108-A of 141
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orders/ stock details with respect to these PCLs were duly filed, as has come in the testimony of PW4. It was also argued by Ld. defence counsel that even if the export orders were not traceable, the IO could have verified with the counter-parties/ buyers, whose names were duly mentioned in each PCL application. He could have even verified with Insurance companies, mentioned in PCL applications, to find out whether exports were made by A-4. But, IO/ PW24 utterly failed to investigate the matter properly and to collect relevant details, to verify genuineness of such transactions. 17.2 Let me first refer to the 21 PCL applications, which have been placed on record. It is noted that 8 applications out of these 21 applications, which are Ex.PW7/E-28A, Ex.PW7/E-29A, Ex.PW7/E-30A, Ex.PW7/E-31A, Ex.PW7/E-32A, Ex.PW7/E-33A, Ex.PW7/E-34A and Ex.PW7/E-35A, do not even mention the name of the importer/ buyer, what to talk of filing of export order. Thus, in absence of any such details, no verification with respect to exporter/ export commitment could have been carried out with respect to these eight applications. Remaining 13 applications do contain the names of the buyer/ exporter. But, none of these 21 PCL applications CBI Vs. T.O. Joseph Page 109-A of 141
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indicate that any export order was filed alongwith the application. Neither is there any mention of enclosure or any pin marks on these applications to suggest filing of export order alongwith these applications. These facts create doubt about the PW4's version (as relied upon by Ld. defence counsel) that he (PW4) had examined documents/ export order at the time of making entries in the computer and had found that export orders were in order. Moreso, it has already been noted above that PW-4 has made every effort to somehow wriggle out. His response in cross-examination that everything was in order, evidently is again in the same direction. But, I hasten to mention here that as A-4 was availing RPCL, it could have filed export orders within 30 days of PCL application/ its release. Whether the export orders were subsequently filed with respect to these 13 applications, within the given period, shall be examined a little later. 17.3 With respect to 8 blank applications, Ld. Counsel for the A-1, A-2 and A-4 argued that A-4 used to keep with the bank, duly signed blank applications, for emergent situation, as the A-4 was having multiple transactions every day. He also argued that actually no amount was released against these CBI Vs. T.O. Joseph Page 110-A of 141
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eight blank applications, which is clear from the fact that no ID number is mentioned on these applications. Ld. defence counsel's argument is contrary to the record . Vouchers Ex.PW7/E-28 to Ex.PW7/E-35 show release of the same amount as prayed for vide respective PCL applications, which are Ex.PW7/E-28A to Ex.PW7/E-35A; all the vouchers bear transaction date, which is same as the date of application. This belies the Ld. counsel's plea that no amount was actually released against these applications. Same is also belied by the fact that each of the above applications even bears signatures of A-2 on Revenue Stamp, in acknowledgement of receipt of requested amount on the same date. 17.3.1 It is also noteworthy that none of the 21 PCL applications bear any noting, vide which such PCL applications were examined by the Asst. Managers and put up for approval for release of PCL. Nor do they bear any approval note of A-5. Nor are these applications accompanied by any separate process note. From the same it appears that the PCLs were being released to A-4 without any formal note/ examination of applications. Same reflects on the functioning of bank officials including A-5.
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17.3.2 Now reverting to the existence/ non-existence of
remaining 30 PCL applications and export orders with respect to 51 PCL applications. PW24/ IO testified that details of 51 PCLs were provided by the AGM, Vijaya Bank vide letter dt. 27.07.2011, Ex.PW24/M (D-163). In his cross-examination, PW24 denied that he did not make any efforts to collect the documents or that he deliberately left some documents to give colour to the case and stated that during investigation he had visited the Branch and had examined all available documents concerning accused i.e. A-4. PW-24 though, admitted that he did not visit the record room but, further stated that need did not arise, as documents were made available by the bank officials.
17.3.3 Ld. PP argued that Ex.PW24/M, i.e., the branch's letter dated 27.07.2011 (in response to IO's letter dated 04.07.2011) clearly shows that no applications were filed for 30 PCLs; and that no export orders with respect to any of the 51 PCLs availed by A-4, were filed; the branch has categorically mentioned in Ex.PW24/M that they have thoroughly searched the records available with them, but, they could not trace the PCL applications for the remaining 30 CBI Vs. T.O. Joseph Page 112-A of 141
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PCLs and the order copies of all the 51 PCLs for the period 24.05.2006 to 14.09.2006; they have also specified that there is no record showing that the said record has been weeded out by way of destruction of old records; whatever record was available, has already been supplied.
17.3.4 Ld. counsel for A-5 argued that Ex.PW24/M is inadmissible in evidence. It was submitted that this letter addressed to the IO during investigation amounts to statement u/Sec. 161 Cr.PC and is hit by bar of Sec. 162 Cr.PC Learned counsel has placed reliance upon the judgment of Hon'ble Supreme Court in Kali Ram V. State of Himachal Pradesh, (1973) 2 SCC 808, in support. I am inclined to accept the argument advanced by Ld. defence counsel. From the plain reading of Sections 161 & 162 Cr.P.C., it is apparent that the letter written by the Bank (Ex.PW24/M) to the IO during the course of investigation, constitutes statement under Section 161 Cr.P.C.. Thus, it can be used only for the purpose as permitted under Sec. 162 Cr.PC., that is, to contradict such person/ witness, who made the statement.
17.4 It may be mentioned that even accused A-1 & A-4
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and A-5 filed applications u/Sec 91 Cr.PC for issuance of summons to DGM, Vijaya Bank, Barakhamba Road Branch to produce certain documents including PCL applications and export order/ LCs of relevant period. In response thereto, Bank vide its reply dated 30.07.2012 filed certain documents before the Ld. Predecessor Court, which did not include missing 30 applications and export orders etc. of the relevant period. It was informed by the bank that the said documents are not traceable despite best of their efforts as well as the efforts made by their ARMB officials, where the account stood transferred.
17.5 From the above response of the bank and facts & circumstances, it appears that no such record of (30 PCL applications and export orders pertaining to 51 PCLs) was ever available with the Bank. It is noted that pursuant to directions of the Ld. Predecessor Court u/Sec. 91 Cr.PC, the bank vide its letter dated 20.07.2012 had sought some time for tracing the record. While seeking time to search for documents, the Bank vide said letter submitted that the account of A-4 was transferred to ARMB in the year 2009. Further, during June, 2012, the basement portion of the CBI Vs. T.O. Joseph Page 114-A of 141
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Branch was sealed by NDMC without any prior notice. As a result of which, they had to hurriedly remove their old records to another available room; same resulted in keeping of the record in a haphazard manner, making it very difficult to trace the desired record. The said letter also mentioned that the old records of their Branch, Regional Office and Regional Inspectorate are stored in three - four locations in the city; and getting the desired record has become a very time consuming exercise. It also mentioned that despite their best efforts they could not locate/ trace out some of the documents as desired.
17.5.1 It may be mentioned that the documents in the instant case pertained to the year 2006. In view of the fact that Branch record was shifted/ placed at 2 - 3 places and difficulties as explained by the Branch in tracing of the same, possibility of existence of such record though not traceable, can not be ruled out. In view of these facts and circumstances, it is not proved beyond reasonable doubt that no applications for 30 PCLs/ export orders for 51 PCLs, ever existed/ filed.
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17.6 Be that as it may. Non-filing of export orders, no
doubt, is a serious lapse but, it does not per se lead to the conclusion that no export was carried out with respect to the 51 PCLs released to A-4, or that these PCLs were not backed by any export commitment. Perusal of Ex.PW6/Z5 i.e. statement of PCL account of A-4 reveals that the export proceeds were being received/ credited in the said account after 26.05.2006/ 14.09.2006 and till much later i.e., till 24.10.2008. Further, PW7 in his cross-examination admitted that the foreign buyer mentioned in applications for PCL i.e. Ex.PW7/E-17A, Ex.PW7/H-13 and Ex.PW7/E-23A, sent remittances in the account of A-4 on various dates. Same belies PW-16's deposition that no (export) proceeds came to be credited to A-4's account. For the said reason, PW-16's version that the non-receipt of export proceeds indicated that no export order existed with respect to 51 PCLs, or that A-4 routed its exports through some other bank, is also of no consequence.
17.7 It may also be mentioned that from Ex.PW6/Z-5/ statement of A-4's PCL account, it cannot be ascertained, as to which PCL, the proceeds credited in the said account, CBI Vs. T.O. Joseph Page 116-A of 141
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pertained. There is no way of finding out from the material available on record, whether the export proceeds received in the A-4's PCL account pertained to 51 PCLS or not. Moreover, as per RBI/ Vijaya Bank Guidelines, any export proceeds received soon after the PCL release, would have adjusted the PCLs on FIFO basis, it being an RPCL account. Thus, as long as A-4 made shipments/ exported goods and export bills were realised/ advance remittance was received, non-filing of export order/ LCs though certainly was a procedural violation/ irregularity; but, from the same, it cannot be concluded that A-4 did not have any export order/ purchase order/ LC underlying 51 PCLs in question.
18.0 In view of the above, CBI has failed to prove beyond reasonable doubt, that the abovesaid 51 PCLs (released to A-4 during 24.05.2006 to 14.09.2006) were not backed by any genuine export order or commitment. Thus, the charge against the accused persons in this regard, is not proved beyond reasonable doubt.
18.1 But, the manner of dealing with PCL applications, absence of written notes vide which such applications were CBI Vs. T.O. Joseph Page 117-A of 141
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put up for approval, absence of approval/ sanction note, stock statement and lack of periodical unit inspection, lack of proper maintenance of stock Register/ DP Register and the manner of maintenance of record at the Branch, leaves much to be desired.
18.2 I shall also be failing in my duty, if I do not mention here that the evidence on record points towards the fact that the bank, at all levels i.e. Branch, Regional Office as well as Head Office level, failed to discharge its duty with due diligence. Firstly, while appraising the A-4's proposal for issuance of FBG, it was absolutely necessary for the Branch to closely examine the underlying contract/ export agreement and the terms of bank guarantee, before recommending the issuance of FBG to the higher authorities. Branch even failed to obtain the confidential report of the foreign buyer/ M/s Bunge S.A.,Geneva. It has also come on record that even the Regional Office failed to look into these aspects. The Head Office also did not examine the contract between the parties, for due performance of which, the bank guarantee was issued. Head Office even failed to clearly instruct the Branch about seggregation of funds to be received in advance, the account CBI Vs. T.O. Joseph Page 118-A of 141
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in which such advance against FBG, should be kept and the manner of its release/ utilization.
18.3 Even the Branch, without applying its mind and in utter disregard of the bank guidelines and prudential norms, allowed credit of the advance amount in current account and its utilization by A-4 for liquidation of 51 PCLs, its other liabilities/ personal withdrawal. The Branch even failed to ensure compliance of the terms and conditions as stipulated by the Head Office in its Sanction Memo. It has also come on record that even regular stock inspection was not carried out; inspections which were carried out were mere ritual; seggregation of stock as per sanction, was not ensured. The Branch even failed to maintain stock register/ DP Register, leaving it unexplained as to how the drawing power of A-4 was being calculated/ monitored.
19.0 In view of the above findings :-
(i) A-1 T.O. Joseph, A-2 Sophy Joseph, A-3 P. Sam and A-4 CHFL are found guilty of offence punishable u/Sec. 120B r/w Sec. 420 IPC;
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(ii) Further, A-1 T.O. Joseph, A-2 Sophy Joseph, A-3
P. Sam and A-4 CHFL are also found guilty of substantive offence punishable u/Sec. 420 IPC;
A-1 T.O. Joseph, A-2 Sophy Joseph, A-3 P.Sam and A-4 CHFL are convicted accordingly.
(iii) A-5 N. Sitaram Rao is acquitted of charges framed against him. His bail-bond and surety bond stand discharged.
Announced in the open Court on this 30th July 2013. (POONAM A. BAMBA) Special Judge (PC Act):
CBI-03 :PHC :New Delhi CBI Vs. T.O. Joseph Page 120-A of 141
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IN THE COURT OF MS. POONAM A. BAMBA :
SPECIAL JUDGE-CBI(03): PATIALA HOUSE COURT:
NEW DELHI In re :
Unique ID No. 02403R0075262011 CC No. 73/11 RC No. 10E/2010/BD1/BS&FC Delhi u/Ss 120B & 420 IPC & Sec. 13(2) r/w Sec. 13 (1) (d) of PC Act.
CBI Versus. (1) T. O. Joseph
S/o Late O. J. Thomas
R/o A-201, Vardhman Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
(2) Sophy Joseph
W/o T.O. Joseph
R/o A-201, Vardhman Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
(3) Placid Sam
S/o Sh. K. J. Thomas
R/o C-53, IFS Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
(4) M/s Creative Home Fashion
Pvt. Ltd. (CHFL)
Regd. Office at:
A-201, Vardhman Apartment,
Mayur Vihar Phase-I,
New Delhi-110091.
Corp. Office at :
B-44/45, Sector - 58, NOIDA (UP).
Date of pronouncement of Judgment :30.07.2013
Date of Order on Sentence :06.08.2013
CBI Vs. T.O. Joseph Page 121-A of 141
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ORDER ON SENTENCE :
1.0 The convicts no. 1 to 4 have been found guilty
of offences punishable under Section 120-B IPC r/w Section 420 IPC and for substantive offence punishable under Section 420-B IPC.
2.0 I have heard learned PP Sh. S.C. Sharma as well as Sh. Rajshekhar Rao and Sh. Arshdeep Singh, Advocates for convicts 1, 2 and 4; and Sh. Sushil Bajaj on behalf of convict Placid Sam on the point of sentence as well as on application under Sections 3 & 4 of the Probation of Offenders Act, 1958 (PO Act) r/w Section 360 Cr.P.C. filed on behalf of convicts T.O. Joseph & Ms. Sophy Joseph and application under Section 4 of PO Act r/w Section 360 Cr.P.C on behalf of convict Placid Sam. I have also perused the record carefully.
3.0 It was submitted by learned PP that the convicts 1 to 4 dishonestly induced the Bank to issue a performance bank guarantee (PBG). On the strength of said PBG, they received an advance amount equivalent to CBI Vs. T.O. Joseph Page 122-A of 141
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Rs. 14,68,24,164/- from M/s Bunge S.A, Geneva; within two days of receipt of the said advance amount, the same was utilized by convict M/s CHFL for liquidating 51 overdue PCLs and other liabilities/ purposes; the export, for which the advance amount was meant, was not carried out. Same resulted in invocation of bank guarantee, compelling the bank to honor the same and pay an amount equivalent to Rs. 14,68,24,164/-; convict CHFL did not pay any amount, causing wrongful loss to the tune of Rs. 12,18,67,410/- to the Bank. The convicts therefore, deserve no leniency and should be met with maximum prescribed punishment.
Convicts : T.O. Joseph, Sophy Joseph and M/s CHFL 4.0 On the other hand, it was submitted on behalf of the convicts T.O. Joseph (A-1), Sophy Joseph (A-2) and M/s CHFL (A-4) that they had no criminal intent. Same is evident from the fact that M/s CHFL continued to do business with bank even after the devolvement of bank guarantee. Same shows that M/s CHFL was not a fly by night operator, which diverted its funds and closed its CBI Vs. T.O. Joseph Page 123-A of 141
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business. It was also argued that M/s CHFL did not make any personal gain; ninety per cent of the funds received from M/s Bunge S.A., Geneva were paid to the complainant bank/ other banks namely HSBC and Standard Chartered. 4.1 This argument looks attractive at the first blush but, has no substance. As has been found that en bloc liquidation of 51 outstanding PCLs, entitled the convict CHFL, to avail further PCLs within the sanctioned limit. It has come on record that after adjustment of 51 PCLs out of advance amount on 18.12.2006, further PCLs to the tune of Rs.6,08,50,000/- were availed by CHFL during a short span of 20.12.2006 to 28.12.2006; and the outstanding PCLs as on 28.12.2006 reached Rs. 11,69,61,455/-. So far as adjustment of liabilities of HSBC and Standard Chartered Banks are concerned, the same was one of the terms and conditions of the sanction of credit facility/ PBG to M/s CHFL; the liquidation of other banks' liabilities was contemplated out of M/s CHFL's own funds and not out of advance amount, which was meant for executing export order.
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4.2 It was further pleaded that convict Ms. Sophy
Joseph was a mere signatory and had acted only on the instructions of her husband T.O. Joseph. No such plea was taken during trial. Even otherwise, it lacks merit in view of the fact that convict Ms. Sophy Joseph was the authorized signatory of M/s CHFL; she only made a proposal to the bank for issuance of FBG; she signed all the loan documents; she was the one, who corresponded with the bank regarding non-execution of the export order etc. 4.3 Learned counsel also argued that Vijaya Bank has been adequately compensated; on 14.11.2011, the bank has already taken possession of the two industrial units of M/s CHFL at Plot No. 44 and 45, Block-B, Sec-58, Phase No. 3, Noida ad measuring 1117.6 and 1108 sq. meters, respectively alongwith all its plant, machinery and other movables like raw materials. The market rate of these units at the time, the bank took possession of the same was around Rs. Fifteen Crores, which is equivalent to the FBG amount devolved upon the bank.
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4.3.1 It may be mentioned that it is not as if M/s
CHFL came forward to adjust bank's dues by sale of its properties. Rather, the bank was compelled to resort legal remedy for recovery of its dues, pursuant to M/s CHFL's failure to pay.
5.0 It was further submitted that convicts T.O. Joseph and Ms. Sophy Joseph are husband and wife and they are 65 years and 59 years old, respectively; they have two daughters. They have clean antecedents; they have never been convicted for any offence ever; they have deep roots in the society; convicts have been regularly appearing for trial and have utmost respect for law. It was also emphasized that convicts are responsible citizens and have been regularly participating in social work for last about twenty years; they have been sponsoring the education of twenty-five needy and under privileged children. Copies of certificates issued by two such charities with whom the convicts have been associated, are filed.
5.1 It was also submitted that convicts T.O. Joseph
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and Ms. Sophy Joseph have already undergone pre-trial custody for a period of six months and twenty two days; the convicts have already learnt the lesson and no fruitful purpose would be served by further incarceration. Ld. counsel further submitted that in case this court is not inclined to grant any relief to the convicts under PO Act, in that eventuality, the sentence of the convicts may be limited to the sentence already undergone by them. Learned counsel placed reliance upon judgments in State of Punjab Vs. Prem Sagar and Others, (2008) 7 SCC 550 and Mohammad Giasuddin Vs. State of Andhra Pradesh (1977) 3 SCC 287, in support of his plea.
6.0 I have given my thoughtful consideration to the submissions made by both the sides and the case law relied upon by convicts. It may be mentioned at the outset that the economic offences constitute a class apart and involve progressing at the expense of public money by the persons belonging to respectable section of the society. In Prem Kumar Parmar Vs. State (CBI) 1989 RLR 131, the Hon'ble Court noted that these offences are worse CBI Vs. T.O. Joseph Page 127-A of 141
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than murders. In R. Venkatakrishnan Vs. Central Bureau of Investigation, AIR 2010 SC 1812, the Hon'ble Supreme Court observed in para 186, (though in a slightly different context) as under:-
"186. We must also make reference to the following observations of the Supreme Court in Ram Narayan Popli (AIR 2003 SC 2748: 2003 AIR SCW 3119) (supra) which was a case arising from the connected securities market scam, to bring home the point as to the impact of the transactions:
100. The offence in these cases were not of the conventional or traditional type. The ultimate objective was to use public money in a carefully planned manner for personal use with no right to do it.
101. Funds of the public bodies were utilized as if they were private funds. There was no legitimacy in the transactions. ...Their acts had serious repercussions on the economic system of the country, and the magnitude of financial impact involved in the present appeal is only tip of the iceberg....
102. the cause of the community deserves better treatment at the hands of the Court in the discharge of its CBI Vs. T.O. Joseph Page 128-A of 141
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judicial functions. The
Community or the State is not
persona non grata whose cause
may be treated with disdain.
The entire community is
aggrieved if economic
offenders who ruin the economy
of the State are not brought to
book. A murder may be
committed in the heat of moment
upon passions being aroused.
An economic offence is
committed with cool
calculation and deliberate
design with an eye on
personal profit regardless of
the consequence to the
community."
6.1 Similar views were expressed by the Hon'ble
Supreme Court in Gujarat Vs. Mohanlal Jitamalji Porwal and Anr. AIR 1987 SC 1321.
6.2 Reference here may also be made to Hon'ble Delhi High Court's recent judgment in Mukesh Jain Vs. CBI, 2010 AD (Delhi) 443. In the said case, the accused were charged with defrauding Punjab National Bank to the extent of Rs. 1,46,71,000/- and an attempt to further defraud the bank of Rs. 2,72,38,000/-, was made by using forged cheques. In those facts, the Hon'ble Court while CBI Vs. T.O. Joseph Page 129-A of 141
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rejecting the bail application of the accused noted in para-9 as under:-
"9. ....The economic offences having deep rooted conspiracies and involving huge loss of public funds whether of nationalized banks or of the State and its instrumentalities need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of our country.
Therefore, the persons involved in such offences ...do not deserve any indulgence and any sympathy to them would not only be entirely misplaced but also against the larger interest of the society... If a person knows that even after misappropriating huge public funds, he can come out on bail after spending a few months in jail and thereafter ... that would only encourage many others to commit similar crimes ... A strong message therefore, needs to be sent to these white collared criminals and those who are waiting in the wings, that in the long run, it does not pay to be on the wrong side of the law".
6.3 From the above, it is evident that the Hon'ble Supreme Court/ High Court, has distinguished economic offences from other offences like murder etc. Hon'ble Courts have observed that white collar criminals do not CBI Vs. T.O. Joseph Page 130-A of 141
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deserve any indulgence of the court.
6.4 Now reverting to the case law relied upon by the convicts. Same is not of much assistance to them, though the proposition of law as laid down therein, is unassailable. In Prem Sagar's case (supra), the accused was held guilty for the offence u/Sec. 61 (1) Punjab Excise Act for carrying 2,000 litres of rectified spirit. Hon'ble Supreme Court while setting aside the judgment of High Court, releasing the accused on probation, noted that :
"5. Whether the Court while awarding a sentence would take recourse to the principle of deterrence or reform or invoke the doctrine of proportionality, would no doubt depend upon the facts and circumstances of each case. While doing so, however, the nature of the offence said to have been committed by the accused plays an important role. The offences which affect public health must be dealt with severely. For the said purpose, the courts must notice the object for enacting Article 47 of the Constitution of India."
6.4.1 Ld. counsel argued that the Hon'ble Court has held that unless the offence committed affects the public health, the convicts could be released on probation. He further submitted that offence in the instant case, does not in any manner affect public health.
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6.4.2 As has already been mentioned above that the
economic offences seriously affect the financial health of the nation and impacts the entire community; that such offences need to be viewed seriously and strong message need to be sent. Further, while referring to Andrew Ashworth: Sentencing and Criminal Justice, 2005, 4th Edn., the Hon'ble Supreme Court in Prem Sagar's case (supra) also noted that it is the duty of every court to award proper sentence having regard to the nature of offence and the manner in which it was executed; what interests are violated or threatened; effect of violation of those interests; culpability of the offender etc. In the instant case, convicts in conspiracy with each other procured the huge advance amount on the basis of FBG, which was got deceptively issued by them by projecting the funding arrangement as export order. They benefited at the cost of public money.
6.5 Ld. counsel for the convicts also referred to Mohd. Giasuddin's case (supra) impressing that the factors CBI Vs. T.O. Joseph Page 132-A of 141
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as noted by the Hon'ble Supreme Court need to be kept in mind while sentencing. Same cannot be disputed. 6.6 Taking into account the facts & circumstances of this case in entirety and the settled position of law, I am of the considered opinion that the convicts T.O. Joseph and Ms. Sophy Joseph do not deserve the benefit of Probation. Convict Placid Sam 7.0 On behalf of convict Placid Sam, it was argued that convict had left the company M/s CHFL in January 2007. Whereas, the contract (export order) was to be completed by the company CHFL in December 2007. Therefore, he had no role in non-execution of the export order and its fall out, that is, invocation of the bank guarantee.
7.1 It has already been found that it was convict Placid Sam, who was instrumental in procuring funds under the guise of export order and in inducing the bank into issuance of performance bank guarantee to secure advance amount.
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8.0 It was further submitted that convict Placid Sam
has clean antecedents; he has never been convicted for any offence whatsoever; he has deep roots in the society; he has been regularly appearing during trial and has utmost respect for law; he comes from a respectable family; he has two brothers, one of whom is a Commander in Indian Navy and other, a Senior Manager. The present case is an isolated aberration in his life and convict deeply regrets the circumstances which led to his implication in the present case; there is no likelihood of the convict ever repeating the offence.
8.1 It was also submitted that convict is an established professional, who has worked in a number of national and multi national companies; he is presently working in a company in South Africa; he is the only earning member in his nuclear family consisting of his wife and two daughters. His elder daughter is to commence her post-school studies in New York, shortly. It was argued by Ld. counsel that there shall be serious collateral damage CBI Vs. T.O. Joseph Page 134-A of 141
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in case of incarceration of the convict; he would lose his job and would have to relocate his family; the entire family shall be destablised; his incarceration would also seriously affect his daughter's education & future prospects and well being of his wife and 13 year old younger daughter. 8.2 It was further submitted on behalf of convict Placid that he has been advised surgery of spinal cord and the convict was awaiting the outcome of this case before undergoing the said surgery. It was prayed that in view of these facts and circumstances, convict Placid Sam may be released on probation of good conduct. Reliance by Ld. counsel was placed upon the judgments in Hari Kishan & Anr. Vs. Sukhbir Singh & Ors, 1988 AIR 2127, Varshaben Dashrathlal Trivedi Vs. State of Gujarat, R/CR.RA/71/2008, Arvind Mohan Sinha Vs. Amulya Kumar Biswas & Ors., (1974) 4 SCC 222, N.M. Parthasarathy Vs. State By S.P.E, (1992) 2 SCCC 198, etc., in support.
9.0 Let me mention that the case law as relied upon by learned counsel for convict Placid Sam is not of much assistance to him, in view of the facts in the instant CBI Vs. T.O. Joseph Page 135-A of 141
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case being very distinct.
9.1 Hari Kishan's case (supra) pertained to conviction under Section 307 IPC. In Varshaben D. Trivedi's case, the accused had submitted a forged certificate of SCC Board, while getting the job of a teacher; the accused was released on executing a bond of good behaviour, taking into account her willingness to deposit the amount as may be ordered by the court and various other factors; and also that she had already undergone 12 days imprisonment.
9.1.1 Further, so far as Arvind Mohan Sinha's (supra) case is concerned, there can be no two opinions that the objectives of PO Act, as discussed by Hon'ble Court therein, have to be kept in mind while considering any such plea. In that case the Hon'ble Supreme Court observed that the accused were young boys engaged in agriculture and seemed to be just the carriers of gold bars for a small tip; and that they had pleaded guilty of the charges against them. In that situation the court did not interfere with the concurrent factual evaluation of the CBI Vs. T.O. Joseph Page 136-A of 141
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circumstances by the courts below to release of accused on probation. The facts in the instant case are very different.
9.1.2 Even the facts of N. M. Parthasarthy's case (supra), in which the accused was held guilty of offences punishable u/Sec. 120-B IPC r/w 420 IPC and Sec. 5 (1) (b) r/w 5(2) P. C. Act, were very different. In that case the Hon'ble Supreme Court upheld the benefit given u/Sec. 360 Cr.PC on the ground that the accused had achieved several milestones in the industrial field like manufacturing the largest Hot-Air Kiln in India for Ministry of Railways, largest Degreasing plant for Nuclear Fuel complex, sintering furnace for anti-tank missiles and various other items for the Ministry of Defence and other departments of the Government of India. 9.2 Considering the facts and circumstances of the instant case in entirety and in the light of settled position of law as discussed in paras 6.0, 6.1, 6.2 (supra), the convict Placid Sam does not deserve benefit of PO CBI Vs. T.O. Joseph Page 137-A of 141
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Act.
SENTENCE 10.0 Taking into account the facts and circumstances of this case, keeping in mind the guidelines as laid down in judgments Mohd. Giasuddin and Prem Sagar's cases (supra) as referred to by convicts and taking into account the mitigating factors, that is, the clean antecedents of the convicts, T. O. Joseph, Sophy Joseph and their education, their roots in society, they being family persons, age of the convicts and also their involvement in social causes, etc., I am of the considered opinion that following punishment shall meet the ends of justice.
10.1 I hereby sentence as under :
(i) Convicts T. O. Joseph and Sophy Joseph shall undergo rigorous imprisonment for a period of three years u/Sec. 120 B IPC r/w Sec. 420 IPC. They shall pay a fine of Rs.3,00,000/- (Rs. Three Lacs) each; and in default, to further undergo RI for a period of six months.
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(ii) Convicts T. O. Joseph and Sophy Joseph are
also sentenced to undergo rigorous imprisonment for a period of three years u/Sec. 420 IPC. They shall also pay fine of Rs.3,00,000/- (Rs. Three Lacs) each; and in default, to further undergo RI for a period of six months.
The above sentences shall run concurrently. Benefit of Section 428 Cr.PC be given to the convicts.
Convict Placid Sam :
10.2 Considering the facts and circumstances in entirety and mitigating factors viz. age, education, profession, family background, clean antecedents, deep roots in society, family responsibilities, etc, of the convict I hereby sentence convict Placid Sim as under :
(i) Convict Placid Sam is sentenced to undergo rigorous imprisonment for a period of three years u/Sec.
120 B IPC r/w Sec. 420 IPC and shall also pay fine of Rs. 3,00,000/- (Rs. Three Lacs), and in default, to further CBI Vs. T.O. Joseph Page 139-A of 141
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undergo RI for a period of six months.
(ii) Convict Placid Sam is further sentenced to undergo rigorous imprisonment for a period of three years u/Sec. 420 IPC and shall also pay fine of Rs. 3,00,000/- (Rs. Three Lacs), and in default, to further undergo RI for a period of six months.
The above sentences shall run concurrently. 10.3 Convict M/s CHFL : (i) Convict M/s CHFL is sentenced to fine of Rs.
3,00,000/- (Rs. Three Lacs) u/Sec. 120B r/w Sec. 420 IPC.
(ii) Convict M/s CHFL is also sentenced to fine of Rs.3,00,000/- (Rs. Three Lacs) u/Sec. 420 IPC. 11.0 Copy of the judgment dated 30.07.2013 as well as order on sentence passed today be supplied to the convicts free of cost.
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12.0 Personal bonds and surety bonds of the
convicts are hereby cancelled and endorsement, if any, on their documents/ FDRs, be cancelled and the same may be released to them.
File be consigned to Record Room.
Announced in the open Court on this 6th August 2013. (POONAM A. BAMBA) Special Judge (PC Act):
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