Gujarat High Court
Srinivas D Sridhar vs Central Bureau Of Investigation & on 24 April, 2017
Author: Z.K.Saiyed
Bench: Z.K.Saiyed
R/CR.RA/785/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CRIMINAL REVISION APPLICATION (AGAINST ORDER PASSED BY
SUBORDINATE COURT) NO. 785 of 2016
[On note for speaking to minutes of order dated 17/03/2017 in
R/CR.RA/785/2016 ]
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SRINIVAS D SRIDHAR....Applicant(s)
Versus
CENTRAL BUREAU OF INVESTIGATION & 1....Respondent(s)
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Appearance:
MR P P MAJMUDAR, ADVOCATE for the Applicant(s) No. 1
MR RC KODEKAR, ADVOCATE for the Respondent(s) No. 1
PUBLIC PROSECUTOR for the Respondent(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE Z.K.SAIYED
Date : 24/04/2017
ORAL ORDER
Considering the averments made in the application, present note for Speaking to Minutes is hereby allowed.
In paras-21 and 29 of the judgment, the word "chemicals be substituted and read as "channels".
In paras-27, 32, 33 and 36 of the judgment, the word "Centbank" be substituted and read as "Central Bank".
Name of Sajid Mohamed, R.K. Rajput, AGRUD Partners Advocates and Solicitors, be reflected as names of advocate on record.
Rest of the judgment shall remain in force.
Page 1 of 2 HC-NIC Page 1 of 47 Created On Tue Apr 25 00:23:14 IST 2017 1 of 47 R/CR.RA/785/2016 ORDER (Z.K.SAIYED, J.) siddharth Page 2 of 2 HC-NIC Page 2 of 47 Created On Tue Apr 25 00:23:14 IST 2017 2 of 47 R/CR.RA/785/2016 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CRIMINAL REVISION APPLICATION (AGAINST ORDER PASSED BY SUBORDINATE COURT) NO. 785 of 2016 FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE Z.K.SAIYED ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?
4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?
========================================================== SRINIVAS D SRIDHAR....Applicant(s) Versus CENTRAL BUREAU OF INVESTIGATION & 1....Respondent(s) ========================================================== Appearance:
MR IH SAIYED, ADVOCATE with P P MAJMUDAR, ADVOCATE for the Applicant(s) No. 1 MR RC KODEKAR, ADVOCATE for the Respondent(s) No. 1 MR NJ SHAH, APP for the Respondent(s) No. 2 ========================================================== CORAM: HONOURABLE MR.JUSTICE Z.K.SAIYED Date : 17/03/2017 CAV JUDGMENT
1.The applicant original accused No.7 of Page 1 of 45 HC-NIC Page 3 of 47 Created On Tue Apr 25 00:23:14 IST 2017 3 of 47 R/CR.RA/785/2016 CAV JUDGMENT Special Case No.27 of 2015 has filed this Revision Application against the judgment and order dated 24.6.2016 passed by the learned Special Judge, CBI Court No.3, Ahmedabad, below Ex.9 which is arising out of R.C.No.7(E)/2014/CBI/BSC/Mumbai and Section 13(2) read with Section 13(1)(b) of the Prevention of Corruption Act whereby the learned Special Judge has rejected the discharge application of the present applicant.
2. The brief facts of the case are that respondent through an Investigation Agency has made an allegation against the applicant alongwith 06 other accused, who are also prosecuted with the applicant in the aforesaid case, that other 6 accused and the applicant allegedly hatched criminal conspiracy with principal accused Nos.2 to 4 and allegedly siphoned substantial amount under the grab of commercial transaction and Page 2 of 45 HC-NIC Page 4 of 47 Created On Tue Apr 25 00:23:14 IST 2017 4 of 47 R/CR.RA/785/2016 CAV JUDGMENT thereby committed offence of cheating and forgery with intent to cheat and, therefore, applicant and two other official of Central Bank of India were alleged involved in the case and, therefore, the provision of Act of 1988 also invoke by the respondent. 3. On 31.3.1994, accused Nos.2 and 4 incorporated a Company viz. Electrotherm (India) Ltd., (which will hereinafter referred to as "EIL" for short) which used to have production of certain equipment required for the purpose of steel industries. The promoters/Director of the Company had availed the various loans and credit facilities from other public sector banks such as Bank of India, State Bank of India, Canara Bank and some other private banks as well. The Company was also sanctioned loan by the International Finance Corporation, Washington DC (IFC) which is part of the World Bank Group and it is considered to be prestigious to be Page 3 of 45 HC-NIC Page 5 of 47 Created On Tue Apr 25 00:23:14 IST 2017 5 of 47 R/CR.RA/785/2016 CAV JUDGMENT borrower of IFC. The Company was considered a leader in its field and had sage and investment grade rating from two external independent credit rating agencies approved by the Reserve Bank of India and Securities Exchange Board of India. The company's equity shares were quoted on the Bombay Stock Exchange at Rs.312/ for a share of face value Rs.10 at the time of sanction and 52 high/low was Rs.415/187.
4. The EIL was intended to start steel manufacturing company in Tanzania as there was no steel manufacturing unit in that country and there was substantial high scope for steel industries. The EIL and the accused Nos.2 to 4 were involved in Steel Industry business and thereby they initiated their process for availing certain loan facilities from the Bank.
5. In the month of July/August, 2010, the EIL required a letter of credit, a short term Page 4 of 45 HC-NIC Page 6 of 47 Created On Tue Apr 25 00:23:14 IST 2017 6 of 47 R/CR.RA/785/2016 CAV JUDGMENT loan and export packing credit facility and accordingly EIL initially approached the Bank by opening an account at Lal Darwaja Branch in Ahmedabad. As per the established banking norms and regulation the accused Nos.2 to 4 were required to submit their application with the local branch, which is required to be forwarded to the zonal office for appropriate due diligence and verification of the representation made by the prospective borrowers and considering the high value of loan amount exceeding Rs.100 crores, the Management Committee of the Board of the Bank was required to take appropriate decision thereon.
6. In the year 20102011 the Bank's Board of Directors consisted of 08 Directors, including 02 whole time Executive Directors and 01 ChairmancumManaging Director. The Board also included nominees of the Reserve Bank of India and the Government of India as Page 5 of 45 HC-NIC Page 7 of 47 Created On Tue Apr 25 00:23:14 IST 2017 7 of 47 R/CR.RA/785/2016 CAV JUDGMENT also 04 independent Directors including a Chartered Accountant.
7. On 21.7.2010, the EIL made an application for Export Packing Credit limit of Rs.330/ crores through local branch to the Bank and thereby verification process was commenced from the branch level to the zonal office level. The process of loan sanction is defined in the loan policy of the Bank approved by the Board. A memorandum for sanction of a loan is seen and vetted by at least six levels and by nine officials before it is submitted to CMD. These officials are responsible for the veracity of the statements made by the Company and the details incorporated in the Memorandum.
8. On 10.8.2010, the accused No.5 who was the Chief General Manager of the Bank, and the accused No.6 Executive Director of the Bank, were working for various loan proposals with the applicant and after considering the Page 6 of 45 HC-NIC Page 8 of 47 Created On Tue Apr 25 00:23:14 IST 2017 8 of 47 R/CR.RA/785/2016 CAV JUDGMENT appraisal reports and recommendations of concern Credit Facility Departments, the EPC (Export Packing Credit) limit of Rs.330 crores were sanctioned. Accordingly, the Memorandum of Management Committee for the EPC limit was prepared for approving the EPC limit for setting up a steel plant in Tanzania by EIL.
9. On 10.8.2010, the applicant and accused No.6 approved the Memorandum of EPC limit and the same was placed before the Management Committee of Directors and accordingly the aforesaid loans, namely, a short term loan of Rs.50 crores, L.C./S.B.L.C./Buyer Credit Limit of Rs.100 crores and EPC limit of Rs.330 crores were sanctioned in favour of EIL. On 31.5.2011, the applicant retired from the Bank and he did not have any knowledge and/or control over the banking transaction of EIL with the Bank. However, as per the record submitted by the respondent it appears Page 7 of 45 HC-NIC Page 9 of 47 Created On Tue Apr 25 00:23:14 IST 2017 9 of 47 R/CR.RA/785/2016 CAV JUDGMENT that the account of the EIL is declared to be nonperforming assets and appropriate action under civil law is commenced against the EIL as well as accused Nos.2 to 4. On 8.8.2014, the respondent registered a case bearing C.R. No.R.C.7(E)/2014 under Sections 420, 468, 471 read with Section 120B of Indian Penal Code and Section 13(2) read with Section 13(1)(b) of the Act, 1988.
10. The respondent No.1 commenced an investigation and recorded statements of various witnesses including other creditors of the EIL as well as certain employees of the Bank, whereby respondent arrived at the conclusion that there is evidence against the accused Nos.1 to 6 and this applicant to submit a final investigation report and accordingly the respondent filed its final investigation report under Section 173 of the Code of Criminal Procedure before the learned Special Court, Ahmedabad. The learned Special Page 8 of 45 HC-NIC Page 10 of 47 Created On Tue Apr 25 00:23:14 IST 2017 10 of 47 R/CR.RA/785/2016 CAV JUDGMENT Court was pleased to take cognizance of case and registered the same as Special Case No.27 of 2015.
11. The Investigation Agency collected documentary evidence and also recorded statement of the witnesses and then charge sheet was filed before the CBI Special Court.
12. On 21.12.2015, present applicant made an application under Section 227 of the Code and sought a discharge from the case on the ground that the respondent does not have any legal case against the applicant to impose a prosecution of aforesaid case and thereby the case of the respondent will not have any adverse impact, even though the applicant is discharged from the case.
13. The application Ex.9 was heard at length by Special Court of CBI in Special Case No.27 of 2015. After hearing of both the sides the learned Special Judge has dismissed the said Page 9 of 45 HC-NIC Page 11 of 47 Created On Tue Apr 25 00:23:14 IST 2017 11 of 47 R/CR.RA/785/2016 CAV JUDGMENT application on 24.6.2016 and held that the applicant is alleged with an offence of criminal conspiracy alongwith other accused Nos.1 to 6 and thereby they have committed an offence of cheating against the Bank to the tune of Rs.436.76 crores.
14. Heard Mr.I.H.Saiyed, learned counsel appearing with Mr.P.P.Majmudar, learned counsel for the applicant, Mr.R.C.Codekar, learned counsel for respondent No.1 and Mr.N.J.Shah, learned APP for the respondent No.2.
15. Mr.I.H.Saiyed, learned counsel for the applicant has contended that the loan is applied through branch and loan proposal prepared by branch through zonal office sent to the central office. Thereafter, the credit department prepares the memorandum and then same is sent to the loan advisory group and then, it is sent to Managing Committee through Chairman and Managing Director (for Page 10 of 45 HC-NIC Page 12 of 47 Created On Tue Apr 25 00:23:14 IST 2017 12 of 47 R/CR.RA/785/2016 CAV JUDGMENT short 'CMD').
16. He has contended that in entire charge sheet there is no allegation about illegal gratification received by the applicant. There is no allegation about commission asked by the applicant to sanction the loan. Entire procedure for loan sanction is undergone. The charge sheet proceeds on factual wrong premises against the applicant.
17. He has contended that the procedure for sanction of loan is as under:
It is submitted that a credit proposal received by the bank is processed by the branch and is submitted for sanction to the HO through Zonal Office (ZO). These proposals are then examined at the credit department of the head office of the bank. All loan proposals with value exceeding CMD's powers are office of the bank. All loan proposals with value exceeding CMD's powers are put up to the management committee of the board Page 11 of 45 HC-NIC Page 13 of 47 Created On Tue Apr 25 00:23:14 IST 2017 13 of 47 R/CR.RA/785/2016 CAV JUDGMENT which comprises the CMD, the whole time directors i.e. Executive Directors, usually the Reserve Bank of India (RBI) Nominee Director, 3 (three) other directors with at least 2 independent directors, one of them being chairman of the audit committee who usually is a senior chartered accountant. The loan proposals are presented before the management committee in a structured format called the memorandum which analyses the financial statements of the applicants company, its track record, the purpose of the loan sought, the proposal's strengths, weakness, risk factors and its safeguards, compliance with various regulations and makes an overall recommendations. The memorandum is prepared by the credit department of the bank. Such memorandum is signed by the Dy.
General Manager/Assistant General Manager (for short 'DGM/AGM') (credit) and the General Manager (for short 'GM') (credit). It is the responsibility of these two officers Page 12 of 45 HC-NIC Page 14 of 47 Created On Tue Apr 25 00:23:14 IST 2017 14 of 47 R/CR.RA/785/2016 CAV JUDGMENT to ensure that the proposals are properly processed in terms of the loan policy and all relevant details necessary for taking a decision are incorporated. In case of any deficiency, lack of clarity, the credit department is free to query the ZO/ branch. After the memorandum is signed by the GM (credit) it is placed before a loan advisory group of GMs (with 3 GMs as quorum) and then submitted to management committed through ED and CMD. The memorandum is signed by the GM (credit) and is placed before the loan advisory group of 6 GMs and then put up to the management committee through the executive director and CMD. It is the responsibility of the GM and the credit department to ensure that the necessary recommendations from the ZO/branch are in place and there are no internal inconsistencies/ deviations. It is also the responsibility of the GM and credit department to verify the factual particulars. Page 13 of 45 HC-NIC Page 15 of 47 Created On Tue Apr 25 00:23:14 IST 2017 15 of 47 R/CR.RA/785/2016 CAV JUDGMENT The loan proposal in the instant case was placed before the management committee as the quantum was beyond the sanctioning powers of the CMD. This is entire process was duly followed and no discrepancy has been identified in the chargesheet. It is submitted that the accused no.7 (present applicant) i.e. CMD is not involved personally in the appraisals of the proposals, which is handled by other officers of the bank. The CMD does not verify the facts of the proposal by reference to primary data as the proposal file is not even put up to the CMD. The role of the CMD entails sanctioning/ recommending the proposal to the management committee exercising commercial judgment based on the memorandum put up by the credit department before him, signed jointly by GM and DGM/AGM exercising their commercial judgment. Most importantly, post sanction the CMD ceases to have any role and the manner, frequency and quantum of Page 14 of 45 HC-NIC Page 16 of 47 Created On Tue Apr 25 00:23:14 IST 2017 16 of 47 R/CR.RA/785/2016 CAV JUDGMENT disbursal.
18. He has contended that the following documents make it clear that there is no procedural irregularity in the present case for sanctioning the loan :
(a) Vide a letter dated 21.07.2010, the borrower company had made a written request for requirement of export packing credit (EPC) limit of Rs.330 crores in continuation of their earlier letter dated 21.07.2010 which was addressed to the General Manager, Central Bank of India, Corporate Finance branch, Lal Darwaja Branch, Ahmedabad.
(b) Thereafter, the credit proposal was placed before the Managing Committee for approval which included the proposal for fresh term loan of Rs. 50 crore at applicable rate of interest, fresh letter of credit limit of Rs.100 crores and packing credit limit of Rs.330 crores. The same was sanctioned in favour of the borrower on the terms and conditions as mentioned in the memorandum and the necessary noting are also made over the same by the concerned officers.
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(c) The loan advisory committee recommendations are also a part of the charge sheet and the above proposal was discussed in meeting and recommended for sanction (on the terms and conditions proposed in the Executive brief/ZO proposal dated 11.08.2010, which is signed by General Manger (Credit), General Manager (GAD), General Manger (PS) and General Manager (RMD).
(d) Also, D113 is the communication dated 18.08.2010 addressed to the Zonal Office, Ahmedabad signed by the Deputy General ManagerCR Shri B Mishra has stated that based on the recommendations of Zonal office dated 05.08.2010 and subsequent correspondence, the Managing Committee in its meeting held on 13.08.2010 vide Agenda item No.MC/331/201011/09/2.37 had sanctioned the aforesaid proposals and it was also stated that personal guarantee of promoters/directors Shri Mukesh Bhandari and Shri Shailesh Bhandari is taken and even other terms and conditions are made applicable to the said credit facility as per the bank's guidelines.
(e) That even as per statement of Shri Page 16 of 45 HC-NIC Page 18 of 47 Created On Tue Apr 25 00:23:14 IST 2017 18 of 47 R/CR.RA/785/2016 CAV JUDGMENT Birupaksha Mishra dated 05.03.2015, who is PW6, he has also stated that he has been shown the minutes of New Business Group (for short 'NBG') meeting dated 19.07.2010 and office Memorandum no. NBG/201011/08 dated 10.08.2010 vide which in principle approval to credit facilities to the borrower company was placed for NBG clearance and he is also shown the minutes of NBG meeting dated 18.08.2010 and as per the said minutes, NBG proposal agenda no. 135 was admitted for detailed appraisal of short term loan, LC, SB LC and packing credit to M/s Electrotherm India Ltd i.e. the borrower.
19. He has contended that as per all papers of charge sheet entire loan sanction procedure is followed in the present case and the findings in the impugned order as well as charge in the charge sheet is factually incorrect.
20. He has contended that the charge against the applicant that the applicant hurriedly got the memorandum to the Management Page 17 of 45 HC-NIC Page 19 of 47 Created On Tue Apr 25 00:23:14 IST 2017 19 of 47 R/CR.RA/785/2016 CAV JUDGMENT Committee prepared without proper appraisal by the Credit department/Central office, without clearance by the NBG and inserted EPC limit of Rs. 330 crores for execution of the export order without written request from the borrower is baseless. There was a written request from the borrower dated 21 July, 2010 regarding requirement of EPC limit of Rs. 330 crores.
21. He has contended that it is unthinkable in the banking chemicals for any single person to add any limit to a proposal of a company as alleged. Such charge is wholly baseless and incomprehensible. The CMD does not even get to see, leave alone verify the proposal of a customer. Therefore, the question of the applicant knowing and thereafter, having added/inserted any bank limit to a proposal does not even arise.
22. He has contended that regarding the alleged hurry displayed by the Bank, Page 18 of 45 HC-NIC Page 20 of 47 Created On Tue Apr 25 00:23:14 IST 2017 20 of 47 R/CR.RA/785/2016 CAV JUDGMENT including the applicant, in sanctioning the proposal, it is submitted that such charge is highly objectionable as it is leveled against Government and public sector officials when a modicum of efficiency is practiced. In the private sector, certain loans are sanctioned within minutes and hours not days and the public sector banks compete with them for the same businesses. In such competitive environment efficiency displayed by a public sector bank cannot and should not be viewed from such narrow and prejudiced view point and such speedy approvals should rather be appreciated. Furthermore, the loan policy approved by the Board of the bank stipulates that the loan proposals falling within the powers of the Management Committee be cleared within a period of one month. Further more, the loan policy states that the export credit was a thrust area for the bank with a target of 12% of the net bank credit. The loan policy directs that no worthwhile proposal of Page 19 of 45 HC-NIC Page 21 of 47 Created On Tue Apr 25 00:23:14 IST 2017 21 of 47 R/CR.RA/785/2016 CAV JUDGMENT export credit should suffer for the want of need based credit. During the applicant's tenure as CMD, the bank came to be recognized and appreciated for quick response to business proposals i.e. either approved or declined. The concept of turnaround time was highlighted and a system of tracking the movement of loan proposals at various levels in the bank was put in place.
23. He has contended that these allegations are not only factually incorrect and baseless but are also matters that have no bearing whatsoever to the applicant's role as the CMD. All loan proposals received by the bank are sanctioned and disbursed under the 'Scheme of Delegation of Financial Powers' approved by the Board of Directors of the bank and are processed as per the loan policy approved by the Board of Directors of the Bank, which is reviewed on annual basis. The loan policy applicable at the material time Page 20 of 45 HC-NIC Page 22 of 47 Created On Tue Apr 25 00:23:14 IST 2017 22 of 47 R/CR.RA/785/2016 CAV JUDGMENT was approved by the Board of Directors of the bank and circulated on April 13, 2010. Not a single violation of this policy has been alleged in the charge sheet nor has any detail about any violation or breach of condition has been alleged or stated in the charge sheet.
24. In view of above submissions he has relied on the decision in the case of Central Bureau of Investigation, Hyderabad vs. K. Narayana Rao, reported in (2010) 9 SCC 512. He has contended that a few bits here and a few bits there on which the prosecution relies cannot be held to be adequate for connecting the accused with the commission of the crime of criminal conspiracy. Lastly he has prayed to quash and set aside the impugned order.
25. Mr.R.C.Kodekar, learned advocate for the respondent No.1 has contended that vide letter dated 21.7.2010 the borrower company Page 21 of 45 HC-NIC Page 23 of 47 Created On Tue Apr 25 00:23:14 IST 2017 23 of 47 R/CR.RA/785/2016 CAV JUDGMENT had made a written request for requirement of Export Packing Credit of Rs.330 crores in continuation of their earlier letter dated 21.7.2010. It is contended that on 21.7.2010 there was no company called Lotus Steel and Alloys, Tanzania. It is seen from the agreement dated 15.7.2010 that M/s.Electrotherm India Ltd., entered into an agreement with Kamal Alloys Ltd., Tanzania and not Lotus Steel and Alloys Ltd. Hence, there is no question of requirement of EPC for execution of steel plant in Tanzania by Lotus Steel and Alloys Ltd., as mentioned in the letter dated 21.7.2010 claimed by applicant.
26. He has contended that investigation revealed that Shri Shailesh Bhandari, Managing Director of EIL had submitted an application dated 21.7.2010 to the Lal Darwaza, Ahmedabad Branch of Central Bank of India for (i) Short Term Corporate Loan of Page 22 of 45 HC-NIC Page 24 of 47 Created On Tue Apr 25 00:23:14 IST 2017 24 of 47 R/CR.RA/785/2016 CAV JUDGMENT Rs.50 crores to meet the shortage of working capital funds (ii) LC/Buyer's credit of Rs.100 crores for import of coal from Indonesia. The proposal for short term loan and LC/Buyers' credit was recommended for sanction by the branch and zonal office and sent to the Central Office on 5.8.2010, which was received in Central Office on 10.8.2010. On the same day itself, Shri H.K.Vesuna then CGM (Credit) in conspiracy with Shri Ramnath Pradeep and Shri S. Sridhar got the proposal processed by one Shri V.K.Nagpal, then AGM of Centbank Financial Services Ltd. This was done by Shri H.K.Vesuna without involving the Credit Department's officials of Central office in processing the proposal, who put his signature in the Memorandum and submitted the same to Shri Ramnath Pradeep and then to Shri S. Sridhar, CMD who both put their signature with date "10/8", having seen/approved the proposal on 10.8.2010 itself.
Page 23 of 45 HC-NIC Page 25 of 47 Created On Tue Apr 25 00:23:14 IST 2017 25 of 47 R/CR.RA/785/2016 CAV JUDGMENT As per normal practice, the Memorandum after process by the Credit Department is required to be placed before the Loan Advisory Committee and on their recommendation, the same is placed before the ED and then CMD for approval for placing before the Management Committee. Surprisingly in this case the Memorandum bypassed all the normal channels of processing existing in Central Bank of India and cleared by the ED and then CMD on 10.8.2010 itself.
27. He has contended that the credit proposal was placed before the Management Committee, there is no dispute about that. The party requested for Short Term Loan of Rs.50 crores and LC cum Buyers Credit limit of Rs.100 crores which was recommended by the Branch as well as Zonal Office. As stated by Shri V.K.Nagpal, AGM, Centbank Financial Services Ltd., he inserted the EPC part as instructed by Shri H.K.Vesuna, CGM. He also stated that Page 24 of 45 HC-NIC Page 26 of 47 Created On Tue Apr 25 00:23:14 IST 2017 26 of 47 R/CR.RA/785/2016 CAV JUDGMENT soft copy of the Zonal Office Recommendation was given by Shri H.K.Vesuna, for preparation of the Memorandum to the Board of Directors. Therefore, it is clear that there was no recommendations from the Branch/Zonal Office for EPC of Rs.330 crores. Further, as stated by Shri B. Mishra, DGM (Credit), nobody in the Credit Department processed the application of Electrotherm India Ltd. Therefore, the sanction procedure was not followed at the level of Central Office. Further, on the same day i.e. 10.8.2010 the proposal received from the Zonal Office and Memorandum was hurriedly prepared. Also it was seen by the ED (Shri Ramnath Pradeep) and Shri S.Sridhar, CMD, without due process of Credit Department Loan Advisory Committee etc.
28. He has contended that the facilities were intended for exporting capital equipments for a proposed Company KAL to be set up in Page 25 of 45 HC-NIC Page 27 of 47 Created On Tue Apr 25 00:23:14 IST 2017 27 of 47 R/CR.RA/785/2016 CAV JUDGMENT Tanzania. The appraisal note does not establish the bonafide and the financial profile of the project in Tanzania. For instance, the financial and the Management link between EIL and the proposed Company in Tanzania has not been disclosed in the Memorandum.
29. The contention that it is unthinkable in the Bank Chemicals for any single person to add any limit to a proposal of a Company, it is contended that if the supreme boss wanted to favour any party, rest of the things can be got done without any due process.
30. He has contended that normally for advances against supply of capital goods, source of funds of the buyer will be ensured. In this case though it was proposed through obtention of confirmed LC, the same was relaxed. In that case the source (tieup) of funds for meeting commitment of the importer Page 26 of 45 HC-NIC Page 28 of 47 Created On Tue Apr 25 00:23:14 IST 2017 28 of 47 R/CR.RA/785/2016 CAV JUDGMENT for making payments of huge amount was not ensured, thereby exposing the bank finance to high risk. It was simply mentioned that the proposal for sanction of Term Loan to Kamal Alloys Ltd., (for short "KAL') will be placed before the Management Committee in its next meeting. What was the proposal and the tieup arrangement was not discussed.
31. The contention that it is highly objectionable as it is levelled against Government and public sector officials when a modicum of efficiency is practiced, it is contended that efficiency does not mean that due process is not required for sanction of credit facilities and no policy/guidelines are required.
32. The contention of the applicant that central office conveyed sanction of all the three loans to Zonal Office referring to ZO recommendations and ZO did not point out that they had not recommended EPC, is a very silly Page 27 of 45 HC-NIC Page 29 of 47 Created On Tue Apr 25 00:23:14 IST 2017 29 of 47 R/CR.RA/785/2016 CAV JUDGMENT and irresponsible defence taken by the applicant. It can be seen that Centbank Financial Services Ltd., was pursuing the loan syndication for the project coming up in Tanzania in the name of Kamal Alloys Ltd., and Branch/Zonal Office are not supposed to know what is taking place in subsidiary of the Bank, whereas the central office and CMD are supposed to know that. As stated by Shri V.K.Nagpal it was on the instructions of Shri H.K.Vesuna, the EPC part was inserted. This clears the role of CGM (Credit). It may be stated here that CGM (Credit) gets instructions directly from the CMD and reports directly to the CMD.
33. The contention that the entire loan sanctioning procedure is followed, it is contended that the Memorandum to the Board of Directors was prepared at the Bank's Subsidiary i.e. Centbank Financial Services Ltd., which was no way connected with the Page 28 of 45 HC-NIC Page 30 of 47 Created On Tue Apr 25 00:23:14 IST 2017 30 of 47 R/CR.RA/785/2016 CAV JUDGMENT working of Central Bank of India. Further, no official from the Credit Department, Central Office was involved in the preparation of the Memorandum. It is highly objectionable and surprising that the whole credit Department was bypassed in this manner.
34. The contention that the other Members of the Management Committee were not made accused, it is contended that the Memorandum was seen by the CGM, ED and CMD on 10.8.2010 itself and the other members saw the Memorandum in the meeting on 13.8.2010 alongwith various other proposals cleared in a single day.
35. The contention that no witness stated about any meeting of mind of applicant with other coaccused, it is contended that conspiracy is hatched in secrecy and it is very difficult to get direct evidence of conspiracy. Therefore, it is through the behaviour of the accused that the conspiracy Page 29 of 45 HC-NIC Page 31 of 47 Created On Tue Apr 25 00:23:14 IST 2017 31 of 47 R/CR.RA/785/2016 CAV JUDGMENT has been implied.
36. He has contended that therefore the set procedure for sanction of credit facilities was not complied at central office and an EPC of Rs.330 crores was sanctioned without ensuring the viability of the project to be setup in Tanzania, financial closure of the loan for the said project. It is seen that even in 2011 the company could not provide the required details and finally Centbank Financial Services Ltd., withdrew the loan syndication.
37. In view of above submissions Mr.Kodekar has relied on decisions in the case of (1) P. Vijayan vs. State of Kerala, reported in 2010 AIR SC 663 (2) Sajjan Kumar vs. Central Bureau of Investigation, reported in 2010 (9) SCC 368 and (3) Sheoraj Singh Ahlawat & Ors. vs. State of Uttar Pradesh & Anr. reported in 2013 (11) SCC 476. Lastly he has contended Page 30 of 45 HC-NIC Page 32 of 47 Created On Tue Apr 25 00:23:14 IST 2017 32 of 47 R/CR.RA/785/2016 CAV JUDGMENT that the learned Judge has passed a fair and reasonable order after considering all the materials available on record and no interference is called for in the impugned order.
38. Heard learned advocates for the respective parties. I have gone through the impugned judgment and order passed by the learned Judge and oral as well as documentary evidence produced on the record. I have read the oral evidence of prosecution witness complainant and also perused the charge framed against the accused. I have also considered the submissions advanced by the learned advocates for the respective parties.
39. The allegation against the applicant is regarding the alleged hurry which is clearly baseless and misconceived. The charge of CBI that there was no recommendation from ZO, Ahmedabad for EPC loan is factually incorrect and is addressed as follows:
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(i) ZO vide Ir no ZO/CR/ AHM/ 201011/570 dt 5/8/2010 recommended loan of Rs 50 cr and vide lr no 572 recommended SBLC of Rs 100 cr.
(ii) CO conveyed sanction of all 3 loans to ZO referring to ZO recommendations. ZO did not point out that they had not recommended EPC.
(iii) It is inconceivable that CGM (CR) CO would have put up the Memorandum w/o ZO recommendation.
(iv) The then ZM Shri Mahapatra was posted as CEO of CFSL and had access to CO files.
(v) In any case CMD is not kept informed of such routine matters.
(vi) CBI Reply states that in applicant's tenure more than 100 a/cs totaling Rs 1004 crore became NPA. This may include HSG AGL loans etc. Actually asset quality improved during my tenure:
Gross NPA 31 march, 2011 2394 cr (previous year 2458) as % of total advances 1.84%( 2.29).Cash Loan recovery Rs 736 cr ( 407). Many new initiatives:
Settlement Advisory Committee set up under Justice SN Variava. For first time in its history Bank sold NPAs to ARCs also OTS done either approval of the Committee.
One man committee of CMR Chandrasekharan Nair former Spl.Director CBI set up to review Vigilance process in the Bank.
(vii) Asset Recovery Brs set up.Page 32 of 45
HC-NIC Page 34 of 47 Created On Tue Apr 25 00:23:14 IST 2017 34 of 47 R/CR.RA/785/2016 CAV JUDGMENT
40. The allegation in the charge sheet is contrary to evidence on record and while drafting the charge sheet, evidence on record is ignored. Also, RBI has from time to time issued directions for expeditious sanctioning of loans for a healthy economic system. The loan if is sanctioned within a short time would amount to efficiency of bank rather than commission of an offence. Thus, in a nutshell, the following contentions drive home the point that there is no material to frame charges against the applicant:
(i) That the entire loan sanctioning procedure is duly complied and followed and there are minutes of NBG meeting and letter of sanction of fresh credit facility dated 18.08.2010 which are part of the charge sheet
(ii) Other members of managing committee including CA member of committee not made an accused.
(iii) Ingredients of section 13 of prevention of corruption act are Page 33 of 45 HC-NIC Page 35 of 47 Created On Tue Apr 25 00:23:14 IST 2017 35 of 47 R/CR.RA/785/2016 CAV JUDGMENT completely missing and none of the witnesses have stated about the criminal misconduct by the applicant.
(iv) There is no evidence of abetment by present applicant in chargesheet.
(v) The applicant has not received any pecuniary benefits and even as per chargesheet there is no primafacia evidence of mens rea on part of applicant.
(vi) There is no evidence to presume that applicant has committed offence under PC Act and presumptions under section 20 of PC Act not applicable in present case.
(vii) There is no evidence of criminal conspiracy of under section 120(B) of IPC. Also, it clearly appears that applicant is made a scapegoat and other officers of branch and zonal are not made an accused except accused no.5 and 6.
(viii) That no witnesses states about any meeting of mind of applicant with other coaccused.
(ix) Role of CMD is not appraisal of proposals.
(x) Role of CMD is to recommend the proposals to managing committee based on memorandum put up by credit department before him, so CMD is not responsible for earlier procedure. Page 34 of 45 HC-NIC Page 36 of 47 Created On Tue Apr 25 00:23:14 IST 2017 36 of 47 R/CR.RA/785/2016 CAV JUDGMENT
(xi) Post sanction, CMD has no role.
(xii) CMD does not see proposal of customer, so inserting bank limit charge is baseless.
(xiii) CMD role does not entail checking whether proposal has been cleared by NBG (New Business Group) or recommended by ZO.
(xiv) No stipulation of NBG clearance in credit policy of bank approved by Board.
(xv) In present case entire loan sanction procedure as per the credit policy which is approved by the Board is undergone and for the offences allegedly committed post sanctioning of the loan, the present applicant even as per statements of all the witnesses has not played any role and has nothing to do with the same.
41. The procedure for sanction of loan is as under:
It is submitted that a credit proposal received by the bank is processed by the branch and is submitted for sanction to the HO through Zonal Office (ZO). These proposals are then examined at the credit department of Page 35 of 45 HC-NIC Page 37 of 47 Created On Tue Apr 25 00:23:14 IST 2017 37 of 47 R/CR.RA/785/2016 CAV JUDGMENT the head office of the bank. All loan proposals with value exceeding CMD's powers are office of the bank. All loan proposals with value exceeding CMD's powers are put up to the management committee of the board which comprises the CMD, the whole time directors i.e. Executive Directors, usually the RBI Nominee Director, 3 (three) other directors with at least 2 independent directors, one of them being chairman of the audit committee who usually is a senior chartered accountant. The loan proposals are presented before the management committee in a structured format called the memorandum which analyses the financial statements of the applicants company, its track record, the purpose of the loan sought, the proposal's strengths, weakness, risk factors and its safeguards, compliance with various regulations and makes an overall recommendations. The memorandum is prepared by the credit department of the bank. Such Page 36 of 45 HC-NIC Page 38 of 47 Created On Tue Apr 25 00:23:14 IST 2017 38 of 47 R/CR.RA/785/2016 CAV JUDGMENT memorandum is signed by the DGM/AGM (credit) and the GM (credit). It is the responsibility of these two officers to ensure that the proposals are properly processed in terms of the loan policy and all relevant details necessary for taking a decision are incorporated. In case of any deficiency, lack of clarity, the credit department is free to query the ZO/ branch. After the memorandum is signed by the GM (credit) it is placed before a loan advisory group of GMs (with 3 GMs as quorum) and then submitted to management committed through ED and CMD. The memorandum is signed by the GM (credit) and is placed before the loan advisory group of 6 GMs and then put up to the management committee through the executive director and CMD. It is the responsibility of the GM and the credit department to ensure that the necessary recommendations from the ZO/branch are in place and there are no internal inconsistencies/ deviations. It is also the Page 37 of 45 HC-NIC Page 39 of 47 Created On Tue Apr 25 00:23:14 IST 2017 39 of 47 R/CR.RA/785/2016 CAV JUDGMENT responsibility of the GM and credit department to verify the factual particulars.
The loan proposal in the instant case was placed before the management committee as the quantum was beyond the sanctioning powers of the CMD. This is entire process was duly followed and no discrepancy has been identified in the chargesheet. It is submitted that the accused no.7 (present applicant) i.e. CMD is not involved personally in the appraisals of the proposals, which is handled by other officers of the bank. The CMD does not verify the facts of the proposal by reference to primary data as the proposal file is not even put up to the CMD. The role of the CMD entails sanctioning/recommending the proposal to the management committee exercising commercial judgment based on the memorandum put up by the credit department before him, signed jointly by GM and DGM/ AGM exercising their commercial judgment. Most importantly, post Page 38 of 45 HC-NIC Page 40 of 47 Created On Tue Apr 25 00:23:14 IST 2017 40 of 47 R/CR.RA/785/2016 CAV JUDGMENT sanction the CMD ceases to have any role and the manner, frequency and quantum of disbursal.
42. In view of the above the following can be concluded:
(A) That the charge framed is groundless. (B) The findings in the impugned order are also erroneous and the learned trial judge has gravely erred by arriving at a finding that the memorandum by passed all the normal channels of processing existing in Central Bank of India and cleared by the ED and then CMD on 10.08.2010 itself. Also, the finding that the proposal of EPC limit of Rs.330 crores was seen by the ED and the CMD on 10.08.2010 itself before it was put up before the loan advisory committee is also a factually wrong finding.
(C) The learned trial judge has also gravely erred by arriving at a finding that all required stages for sanctioning of the loan have been bypassed and proposal was directly sent and received by the present applicant. Also, the learned trial judge has gravely erred by arriving at a finding that prima facie present applicant entered into criminal conspiracy with the other accused. (D) The aforesaid findings are erroneous since, the same are based without properly considering the papers of charge sheet. The Page 39 of 45 HC-NIC Page 41 of 47 Created On Tue Apr 25 00:23:14 IST 2017 41 of 47 R/CR.RA/785/2016 CAV JUDGMENT following facts which are uncontroverted have been overlooked while passing the impugned order :
(a) The applicant was appointed as the CMD of bank on March 2, 2009.
(b) In the year 20102011, Electrotherm (India) Ltd. (accused no.1) approached the bank for a (i) Short term loan of Rs.50 crores (ii) Letter of Credit/Standby letter of credit limit of Rs.100 crores and (iii) EPC limit of Rs.330 crores. These proposals of the accused no.1 company were made to the bank vide their letters dated July 21, 2010.
(c) These proposals underwent internal processes of bank and a Memorandum prepared before the management committee of the board was placed before the applicant on August 10, 2010. The credit proposals beyond the sanctioning authority of the CMD are placed before the Management Committee of the Board, which consists of CMD, the two Executive Directors and the RBI Nominee and three independent directors.
(d) After the approval of the CGM (Credit) and the Executive Director, the Memorandum was placed before the applicant on August 10, 2010 for approval for being placed before the Management Committee meeting scheduled on August 12, 2010.
(e) On 13th August 2010, the Page 40 of 45 HC-NIC Page 42 of 47 Created On Tue Apr 25 00:23:14 IST 2017 42 of 47 R/CR.RA/785/2016 CAV JUDGMENT
applicant after perusing the contents of the Memorandum and noting the consent of the CGM (Credit) and the Executive Director approved the Memorandum dated August 10, 2010.
(f) This approved Memorandum was duly placed before the Management Committee consisting of 5 members during its meeting held on August 13, 2010 wherein the Memorandum containing the proposals of the accused no.1 Company was discussed and sanctioned unanimously by all the members.
(g) At the time of aforesaid financial transaction, accused no.1 company was a valuable business account in the banking account in the banking circles and was a subject of completion amongst various lenders for extending credit facilities. The Memorandum placed before the applicant for sanction shows that 14 public sector banks including the top 6 public sector banks i.e. State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank, Union Bank of India and an international private sector bank were all lending to the accused no.1 Company hence, such fact supported the market value of accused no.1 Company.
43. Thus, the gravamen of the bank's complaint in the F.I.R. is the illegal siphoning off by diversion of funds sanctioned by the bank to Page 41 of 45 HC-NIC Page 43 of 47 Created On Tue Apr 25 00:23:14 IST 2017 43 of 47 R/CR.RA/785/2016 CAV JUDGMENT accused no.1 company. On the other hand, the charge sheet expands the scope of this fraud relating to diversion of funds and alleges that the entire loan sanctioning process was vitiated. The charge sheet alleges siphoning off and diversion of funds and of dubious means to achieve the same but makes no reference to the role of applicant in such diversions.
44. All loan proposals received by the bank are sanctioned and disbursed under the 'Scheme of Delegation of Financial Powers' approved by the Board of Directors of the bank and are processed as per the loan policy approved by the Board of Directors of the Bank, which is reviewed on annual basis. The loan policy applicable at the material time was approved by the Board of Directors of the bank and circulated on April 13, 2010. Not a single violation of this policy has been alleged in the charge sheet nor has any detail about any Page 42 of 45 HC-NIC Page 44 of 47 Created On Tue Apr 25 00:23:14 IST 2017 44 of 47 R/CR.RA/785/2016 CAV JUDGMENT violation or breach of condition been alleged or stated in the charge sheet.
45. It is true that for the conspiracy there can hardly be direct evidence and it cannot be hatched in open, but that is not a material because conspiracy can be proved even by circumstantial evidence which is normally available to prove conspiracy. In the present case the socalled transaction of loan approved by the authorised persons and procedure followed is disclosed through chargesheet papers and arguments advanced by learned counsel for the applicant. Even through circumstantial evidence also conspiracy can be established prima facie.
46. I have minutely perused provisions of Section 10 of the Evidence Act and evidence read over by learned counsel for the CBI. Even From the statements the prosecution could not establish prima facie ingredients of conspiracy against the present applicant. Page 43 of 45 HC-NIC Page 45 of 47 Created On Tue Apr 25 00:23:14 IST 2017 45 of 47 R/CR.RA/785/2016 CAV JUDGMENT No doubt the statements may create some suspicion against the applicant. But suspicion is not sufficient to hold that there is reasonable prospect of convicting the applicant of the offence of criminal conspiracy. Looking to the main ingredients of criminal conspiracy there must be meeting of minds resulting in ultimate decision taken by the conspirators regarding the commission of an offence. Where the factum of conspiracy is sought to be inferred from circumstances, the prosecution has to show the circumstances giving rise to a conclusive or irresistible inference of an agreement between the two or more persons to commit an offence. On perusal of the papers prosecution prima facie could not establish the said issue.
47. For the foregoing reasons, the revision application is allowed. impugned order dated 24.6.2016 passed by the learned Special Judge, CBI Court No.3, Ahmedabad, below Ex.9 Page 44 of 45 HC-NIC Page 46 of 47 Created On Tue Apr 25 00:23:14 IST 2017 46 of 47 R/CR.RA/785/2016 CAV JUDGMENT in Special Case No.27 of 2015 is quashed and set aside.
(Z.K.SAIYED, J.) KKS Page 45 of 45 HC-NIC Page 47 of 47 Created On Tue Apr 25 00:23:14 IST 2017 47 of 47