Delhi District Court
Cbi vs . 1 Mahesh Kumar, on 5 September, 2012
IN THE COURT OF MANOJ JAIN: SPECIAL JUDGE (PC ACT) (CBI)
SOUTH DISTRICT: SAKET DISTRICT COURTS
NEW DELHI
CC No. 10/2011
RC-0722009(E)/0005
U/s 120B r/w 420 IPC & 13 (2) r/w 13 (1) (d) PC Act
CBI Vs. 1 Mahesh Kumar,
Son of Late Sh. Jagdish,
Resident of J-1/31, DLF Phase-I,
Gurgaon.
(Presently lodged in Dasna Jail
Ghaziabad, UP).
2 Ravi Sethi,
Son of Roshan Lal Sethi,
Resident of 270, Double Storey,
New Rajendra Nagar,
New Delhi.
Date of Institution : 01.07.2010
Date on which case was received on
Transfer by this Court : 26.09.2011
Date of framing of charge : 29.10.2011
Date of conclusion of arguments : 25.07.2012
Date of Judgment : 05.09.2012
Memo of Appearance
Sh. Jagbir Singh, learned Senior Public Prosecutor for CBI.
Sh. Rajesh Arora, learned Defence Counsel for A-1 Mahesh
Kumar.
Sh. Sunil Ahuja, learned Defence Counsel for A-2 Ravi Sethi.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 1 of 60
JUDGMENT
CRUX OF PROSECUTION STORY 1.0 Accused Mahesh Kumar and Ravi Sethi have been sent up to face trial for commission of offences u/s 120B r/w 420 Indian Penal Code & 13 (2) r/w 13 (1) (d) Prevention of Corruption Act.
1.1 M/s Maharaja Ispat Private Limited, New Delhi was incorporated on 09.03.2001. Accused Mahesh Kumar, Sh. Raj Kumar and Savita Devi (wife of Ombir Singh) were the promoters-directors. Krishna Devi (wife of accused Mahesh Kumar) also joined as director w.e.f. 18.05.2001. Such company was to trade in cement, iron and steel and had taken over the business of three other firms, namely, M/s Gupta Steel Traders (Proprietary concern of accused Mahesh Kumar), M/s Shiv Shakti Steel (Proprietary concern of Savita Devi) and M/s Maharaja Steel (Proprietary concern of Smt. Krishna Devi). These firms had also earlier availed loan facility from Canara Bank, Uttam Nagar Branch but were running in losses.
1.2 M/s Maharaja Ispat Private Limited moved an application on 29.06.2001 and requested Uttam Nagar Branch of Canara Bank for sanction of Cash Credit Limit (CCL) of Rs. 60 lacs. Said application was processed by the Branch and sent to Circle office for approval and sanction. Limit of Rs. 50 lacs was recommended and sanctioned and facility was released on 30.08.2001.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 2 of 60 1.3 Said company again prayed for enhancement of CCL from Rs. 50 lacs to Rs. 100 lacs which resulted in enhancement in limits from Rs. 50 lacs to Rs. 70 lacs. It was then also enhanced to Rs. 95 lacs. And then to Rs. 120 lacs. Such sanction was conveyed on 05.01.2004.
1.4 It is pertinent to mention that Savita Devi and Sh. Raj Kumar resigned from the directorship in between leaving behind accused Mahesh Kumar and his wife Smt. Krishna Devi as the surviving directors. It would be also noteworthy to mention right here that as per CBI, Krishna Devi, though a director, had no role to play in day-to-day affairs of the company.
1.5 There was, yet again, another request by the company for enhancement in CCL from Rs. 120 lacs to Rs. 200 lacs which is of the essence in the present context. Application was signed by accused Mahesh Kumar and Smt. Krishna Devi both and along with the application, they had submitted financial statements. In the process note prepared by the Branch, it was mentioned that company had already achieved sale of Rs. 536 lacs upto Oct. 2004 and that the company would be able to achieve a sale of Rs. 918.84 lacs for the entire year and Branch accepted that the projected sale of Rs. 1000 lacs would improve with additional working capital limit. Office note so prepared was having the initials of Sh. Mahesh Prakash, Officer of the Bank (also a prosecution witness) and Sh. D.C. Narnolia, Manager (Advances).
1.6 Accused Ravi Sethi, who was Chief Manager of said Branch at that time, forwarded the proposal to circle office for sanction against the existing securities.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 3 of 60 1.7 Such proposal was processed vide office note dated 02.12.2004 prepared by Sh. S.K. Gupta, Senior Manager in Circle Office and enhancement was recommended by AGM Sh. S.S. Bhat and permitted by DGM Sh. D.R.P. Sundharam and sanction was conveyed to branch on 07.12.2004.
1.8 However, as on 07.12.2004 there was debit balance in the account to the tune of Rs. 2,00,24,082/- which was evidently in excess of the limit proposed to be sanctioned.
1.9 Ravi Sethi also released enhanced facility without even receiving the formal sanction from Circle Office.
1.10 M/s Maharaja Ispat (P) Ltd. through accused Mahesh Kumar moved another application dated 03.03.2005 requesting for ad hoc limit of Rs. 50 lacs for three months in addition to the aforesaid limit of Rs. 200 lacs. Accused Ravi Sethi recommended such ad hoc limit and sent the same to Circle Office and such proposal was processed and sanction was given and communicated to branch on 24.03.2005.
1.11 There was debit balance of more than Rs. 2 crores as on 24.03.2005.
1.12 As per investigation, accused Ravi Sethi allowed overdrawing much in excess of his delegated powers on number of occasions and he also purchased cheques on the request of M/s Maharaja Ispat Pvt. Ltd. beyond his delegated powers. He did not insist for additional collateral either.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 4 of 60 1.13 Said account was declared NPA on 31.12.2005 with debit balance of Rs. 229.61 lacs.
1.14 Bank sold all the four collateral properties. However, such auction could fetch Rs. 94.80 lacs only and the same was credited in the account after deducting the auction charges.
1.15 As per investigation, when stock was inspected at the registered address i.e. A-43, Bhagat Singh Colony, Bhiwadi, nothing was found in the stock which established that the party had dishonestly and fraudulently disposed of stock which was otherwise hypothecated with the bank and removal of stock was without the knowledge of the bank and thereby bank had been cheated. Moreover, sanctioned fund was utilized for the purpose other than prescribed.
1.16 It would not be out of place to point out here that though internal investigation done by the bank and FIR indicted various other officials of Branch office and Circle office yet they all were not sent up to face trial on the ground that there was not sufficient evidence against them.
1.17 As regards the sanction, it is worthwhile to mention that since accused Ravi Sethi had already been compulsorily retired from the services of Bank, no sanction under Section 19 of Prevention of Corruption Act was sought.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 5 of 60 1.18 Charge-sheet was accordingly filed against both the accused for commission of offences under Sections 120-B r/w Section 420 IPC & 13(2) r/w 13(1)(d) of PC Act.
COGNIZANCE AND CHARGES 2.0 Cognizance was taken and both the accused were summoned.
2.1 Arguments on charge were heard and both the accused were ordered to be charged under Section 120B, Section 420 IPC read with sec 120B IPC and Section 13 (1) (d) r/w 13 (2) of Prevention of Corruption Act read with sec 120B IPC. Accused Ravi Sethi was also individually charged under Sections 13 (2) r/w Section 13 (1) (d) of Prevention of Corruption Act, 1988 and Section 420 IPC and accused Mahesh Kumar was also individually charged under Section 420 IPC.
2.2 They both pleaded not guilty and claimed trial.
PROSECUTION EVIDENCE 3.0 Prosecution was directed to adduce evidence and has examined twenty witnesses.
3.1 These are PW1 Sh. Sandeep Gutpa (Chartered Accountant), PW2 Sh. Satish Sikri (Retired Senior Manager, Canara Bank), PW3 Sh. Dharam Dev, PW4 Tek Chand (Retired Manager, Canara Bank), PW5 T. Somasekharan (Scale-1 Officer, Canara Bank), PW6 Sh. Sugam Sharma, PW7 Sh. Suresh Kumar, PW8 Rajendra Kumar Arora (Retired General CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 6 of 60 Manager, Canara Bank), PW9 Sh. K.B. Jaya Prakash (Retired Chief Vigilance Officer, Canara Bank), PW10 Sh. Vijay Kumar Khanna (Officer Canara Bank), PW11 Sh. Navin Chander (Chartered Accountant), PW12 Sh. Mahesh Prakash (Branch Manager, Canara Bank), PW13 Ms. Rupa Bhatia, (official of Canara Bank), PW14 Sh. Vinay Kumar Sehgal (official of Canara Bank), PW15 Sh. Rakesh Jindal (Chief Manager, State Bank of India), PW16 Sh. Ramesh Kumar (Officer of Canara Bank), PW17 Sh. Mukesh Goel (Branch Manager, Canara Bank), PW18 Sh. Gopal Khatwani (Senior Manager, Canara Bank), PW19 Sh. L. Raju (Retired Divisional Manager, Canara Bank) and PW20 Inspector Satendra Singh (Investigating Officer).
3.2 Accused Mahesh also admitted several documents before recording of testimony of prosecution witnesses. Ravi Sethi, however, did not admit any document.
STATEMENTS OF ACCUSED U/S 313 CR.P.C. 4.0 Statements of accused persons were recorded u/s 313 Cr.P.C. wherein they pleaded innocence.
4.1 Accused Ravi Sethi also filed written statement u/s 313 (5) Cr.P.C.
4.2 As far as accused Mahesh Kumar is concerned, he took shelter behind the factum of his being illiterate. According to him, he had no knowledge of the banking procedure, Rules or Norms and Sh. Ombir Singh was the actual person at the helm of the affairs who made him sign on various documents. According to him, account used to be maintained CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 7 of 60 and controlled under the direct supervision of Ombir Singh who was responsible for the day-to-day affairs of the various companies. In respect of most of the loan applications, he claimed that these were matter of record. He also claimed that there was no criminality involved in applying the credit facilities which had been sanctioned after taking into consideration prime security and collaterals. He also asserted that civil liability had been converted into criminal and CBI twisted and misrepresented the facts and took undue advantage of the fact that he (accused Mahesh Kumar) was in custody in one other case.
4.3 It will not be out of place to mention here that said Ombir Singh is no longer alive. He was cousin of accused Mahesh Kumar. Accused Mahesh Kumar is facing trial for committing murder of none other than the same Ombir Singh and was found in custody in such murder case when he was initially summoned by this court.
4.4 As far as accused Ravi Sethi is concerned, he claimed that he was posted in Canara Bank, Uttam Nagar Branch from 20.09.2004 to 22.07.2006 whereas party in question i.e. M/s Maharaja Ispat Pvt. Ltd. was dealing with said Branch since 1995 and had applied for enhancement of limit from time to time which were dealt by his predecessors. He also claimed that account in question was a preferred account as it was a group account. With respect to the request for enhancement of credit limit from Rs. 120 lacs to Rs. 200 lacs, he claimed that Party had requested for enhancement from Rs. 120 lacs to Rs. 200 lacs and credit proposal was prepared by Mahesh Prakash, officer and D.C. Narnolia the credit manager. The proposal was forwarded by him on 09.11.2004 on merit duly recording the negative features noticed in the account and also suggesting the party to improve and not to repeat the same. According to CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 8 of 60 him, he had forwarded the proposal as per the lending norms against existing security and hypothecation of stocks and proposal was based on turnover method.
4.5 He also admitted that sanction was conveyed by Circle Office vide letter dated 07.12.2004 but since party had approached the Circle Office as it required the funds urgently, sanctioning authority i.e. DGM D.R.P. Sundharam instructed telephonically for early release of funds which fact was not uncommon in the banking practice and accordingly funds were released without waiting for the formal sanction and there was nothing illegal or irregular in his such act. He also claimed that even with respect to the request of ad hoc sanction sought by the party for Rs. 50 lacs for three months, proper procedure had been followed. According to him, a case of civil liability has been converted into criminal liability case with ulterior motive and as a pressure tactic.
DEFENCE EVIDENCE 5.0 Accused Ravi Sethi examined DW1 Sh. N.K. Tokas and DW2 Sh. Chander Shekhar in his defence. DW1 Sh. Tokas has proved the order dated 25.05.2008 passed by DRT and DW2 Sh. Chander Shekhar has proved the order passed against accused in connection with departmental proceedings.
5.1 Accused Mahesh Kumar has examined DW3 Sh. Raj Kumar in order to show that Sh. Ombir Singh was in-charge of the affairs of the companies and Mahesh Kumar had no knowledge of such affairs.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 9 of 60 RIVAL CONTENTIONS 6.0 I have heard Sh. Jagbir Singh, learned PP for CBI, Sh. Ra- jesh Arora, learned defence counsel for accused Mahesh Kumar, Sh. Sunil Ahuja, learned defence counsel for accused Ravi Sethi and carefully gone through the material available on record.
6.1 Sh. Singh, learned Public Prosecutor has contended that there is sufficient material on record to infer conspiracy and to hold both the accused guilty. He has argued that due to such conspiracy, bank was cheated and there was colossal loss to the tune of Rs. 229.61 lacs. He has also claimed that though the bank had sold four mortgaged properties, yet sum of Rs. 94.80 lacs only could be realized.
6.2 Sh. Singh has also argued that accused Ravi Sethi was Branch Head at the relevant time and had recommended enhancement in the facility without insisting for additional collateral security. There were no proper pre-sanction appraisal, assessment, scrutiny of collateral securities and the limits were recommended in utter disregard to the lending norms. He has also argued that stock, which had been hypothecated with the bank, was disposed of without the knowledge of the bank and even sale proceeds thereof were not credited to the loan account. He has also argued that fund flow reflected outflow of funds from the account of M/s Maharaja Ispat Pvt. Ltd. to M/s Golden Rathi Star Industries Ltd. and there was no reverse incoming of funds.
6.3 He has also argued that accused Mahesh cannot take shelter behind his alleged illiteracy. He has asserted that his intention was other than bonafide and he had usurped the money in a calculated manner. He, CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 10 of 60 in collusion, with Ravi Sethi availed facilities and withdrew the same. He has contended that there was no actual trading transaction and bank was hoodwinked.
6.4 Sh. Sunil Ahuja has defended accused Ravi Sethi. His contentions can be summarized as under:
(i) The account in question was an old account which the party was having since 1995. Being a group account, it was a VIP account and various facilities were given/extended to M/s Maharaja Ispat from time to time. Accused Ravi Sethi joined said branch much later as chief Manager and during his tenure he had only proposed enhancement in limit from Rs.120 lacs to 200 lacs. Such proposal was prepared on the basis of appraisal note prepared by his two subordinates Sh. D. C. Narnolia, Manager (Credit) and Sh. Mahesh, Officer (Advances) on the basis of past performance. While sending the proposal to circle office, A2 Ravi Sethi himself had pointed out certain discrepancies to circle office which sanctioned the limit without raising any eyebrow and in such a situation A2 Ravi Sethi cannot be hauled up.
(ii) CBI cannot adopt pick and choose policy as some other bank officers who were also involved with the process of sanctioning, have been deliberately left out.
(iii) Though in the departmental proceedings, A2 Ravi Sethi was held guilty and was given punishment of compulsory retirement yet fact remains that even in the departmental proceedings, appellate authority had categorically observed that there was no malafide intention on the part of Ravi Sethi in discharge of his duties as the fraud had been CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 11 of 60 perpetuated by the party itself and it was also observed that A2 Ravi Sethi might have been a victim of such fraud by the party.
(iv) Testimony of bank officials do not prove the case of prosecution in any manner whatsoever as three of the important bank officials PW8 Sh.
Rajendra Kumar Arora and PW12 Sh. Mahesh Prakash and PW17 Mahesh Goel have not raised accusing finger towards accused Ravi Sethi.
(v) The account had turned NPA in 2005 and the bank had taken the matter to DRT somewhere in 2008 and there were several rounds of negotiations and at one point of time even the party had agreed to settle the dues by making payment at the rate of Rs. 30 lacs per month and merely because the party had failed to maintain financial discipline, it cannot be automatically inferred that accused Ravi Sethi had misused his capacity as public servant or had abused his office.
(vi) There is no material on record suggesting any criminal conspiracy.
(vii) It has been admitted by bank witnesses that in urgent situation, confirmation used to be communicated on telephone and on the basis of such telephonic information, facilities could have been released and therefore, there was nothing bad even if A2 Ravi Sethi had released facility before formally waiting for written sanction from circle office.
(viii) There is nothing on record to show that during the tenure of Ravi Sethi, the stocks were not properly maintained and rather the testimony of bank officials indicate that there was adequate stock till the time Ravi Sethi remained posted as Chief Manager in the concerned branch.
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(ix) Sh. Anoop Garg was director when the appraisal note was received by the circle office. It was mentioned in the note itself that the account was having approval of said director and this fact itself suggests that it was a VIP account.
(x) Prosecution has failed to show any malafide with respect to grant of ad hoc facility of Rs.50 lacs and that over drawing is part and parcel of banking transaction and malafide cannot be attributed because of over drawing only.
(xi) There was no fault of Sh. Ravi Sethi who had acted upon the duly audited financial statements submitted by the party and there was no reason whatsoever to disbelieve such statements even as per PW11 Naveen Chander.
6.5 Sh. Ahuja has thus prayed for acquittal of Ravi Sethi.
6.6 Sh. Rajesh Arora has defended accused Mahesh Kumar and has no qualm that as per record, M/s Maharaja Ispat Pvt. Ltd. had approached Uttam Nagar branch of Canara Bank for various credit facilities from time to time. He also does not dispute that accused Mahesh was one of the directors in said company but supplements that he was an illiterate person who was made scapegoat by his cousin brother Ombir Singh. According to Sh. Arora, the company had been floated by Ombir Singh and he was the person controlling the entire business of the company and Mahesh Kumar was shown director on papers only and Mahesh Kumar was never involved with the day-to-day affairs of the company. According to him, Ombir Singh took undue advantage of CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 13 of 60 illiteracy of Mahesh Kumar and obtained credit facilities from the bank and only he could have thrown light as to where such funds had vanished. He has also contended that there is nothing on record which may show that any facility was obtained by placing on record any forged or fake documents. It has also been argued that no action was ever taken by the bank between 2006 and 2009 primarily due to the reason that it was a case of civil liability and not of criminal liability at all. He has contended that there is nothing to show that accused Mahesh Kumar was having any criminal intention to cheat the bank or that he developed any such intention after the facilities were sanctioned. According to him, he is rather victim of the circumstances and when the account turned NPA, bank, instead of getting its dues recovered by civil means, has chosen to project as if it was a case of cheating and matter was reported to CBI.
6.7 He has also drawn my attention towards deposition of various prosecution witnesses and also towards evidence led by defence in order to show that Mahesh Kumar was never involved with the affairs of the company. It is also argued that bank was already possessing collateral security the value of which was Rs.122 lacs even in the year 2002 and behind the back of the accused, in the most oblique and dishonest manner, the bank attempted to show that it had sold such properties for a meager sum of Rs.94 lacs as late as in 2009 whereas the rate of the property had multiplied manifold during the intervening period of seven years and no document respecting auction of said properties has been placed on record and witnesses have given evasive answers on this score which itself depicts that bank had deliberately sold the properties at a lesser rate to the detriment of the accused.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 14 of 60 6.8 He has also contended that during the investigation the investigating agency had seized the record which reflected genuine sale transactions and records were found duly audited which itself portray that there was no dishonest intention on the part of any one. He has also argued that there was never any conspiracy with alleged co accused and therefore, prosecution case is liable to fail on all fronts.
EVALUATION OF EVIDENCE 7.0 It's time to take a deep plunge into the voluminous bank record and testimony of witnesses.
7.1 Let me straightaway assess the record pertaining to various facilities applied by M/s Maharaja Ispat (P) Ltd.
7.2 Its first application is contained in D-5. It will not be out of place to mention that entire such file D-5 has been admitted by accused Mahesh Kumar u/s 294 Cr.P.C as Ex A1/2. This file consists of 127 pages and accused Mahesh Kumar does not dispute the correctness of the documents contained in such file. Application is at internal page no. 106 and is undated. As per contents of such application, M/s Maharaja Ispat (P) Ltd was a private limited company established in 2000-01 and its main business was trading of steel, iron & cement. There were four directors at the time of such application. These were Mahesh Kumar (accused herein), Raj Kumar (DW3), Savita Devi (wife of Ombir Singh) and Krishna Devi (wife of accused Mahesh Kumar). Such application is found signed by all such directors. As per declaration given by accused Mahesh Kumar himself and as reflected on page no. 104 of D-5, accused Mahesh Kumar was having net worth of Rs. 218.44 lacs.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 15 of 60 7.3 Appraisal note dated 29.06.2001 was prepared by Uttam Nagar Branch of Canara Bank. Such appraisal memorandum is contained in D-5 from internal page no. 107 to 110. On the basis of such appraisal note, proposal was prepared. Such proposal is at page no. 113. As per such proposal, M/s Maharaja Ispat (P) Ltd was incorporated on 05.03.2001 and it was having registered office at 52A, Raja Puri, Bharat Vihar, Uttam Nagar, New Delhi and Sales Office at RZ-1, M.B. Road, Pul Prahladpur, New Delhi-44. It was also mentioned therein that company had decided to go for trading in iron, cement and steel bars and had decided to take over the business of following concerns which were already enjoying credit facility from the same Branch:-
Sl. Name of the firm Name of the Limit Liability
No. Prop.
1 M/s Gupta Steel Mr. Mahesh ODS 10.00 9.94 lacs
Traders Kumar lacs
2 M/s Shiv Shakti Mrs. Savita ODS 10.00 10.40 lacs
Steel Devi lacs
3 M/s Maharaja Steels Mrs. Krishna ODS 10.00 11.36 lacs
Devi lacs
7.4 In the proposal, there is found to be discussion of sale
achieved by such taken over firms and it was proposed that the directors of the company had got rich experience in the business and that they had been dealing with the bank since 1995 and, therefore, it was recommended that OCC limit of Rs. 60 lacs be sanctioned on usual terms & conditions. As collateral security, two properties were made available to the bank. These were (i) Plot No. 50A, Khasra No. 109/12, Raja Puri, CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 16 of 60 Bharat Vihar in the name of Mahesh Kumar having market value of Rs. 50.78 lacs and (ii) Plot No. 52A situated in the same Khasra in the name of Savita Devi having market value of Rs. 37.79 lacs. Such proposal was signed by R.L. Jarwal, the then Senior Manager and was sent to Circle Office.
7.5 Circle Office accorded sanction vide order dated 20.08.2001. Such sanction is contained in page no. 127 of D-5 as well as on external page no.2343 of D-34. As per such sanction memorandum, OCC of Rs. 50 lacs was sanctioned and Branch was permitted to disburse the limit to enable the company to clear/take over the outstanding liability in the account of the taken over companies but Branch was also directed to inspect the stock/godown and to ensure that sufficient DP was available. There was also condition of periodical checking of the stock and there was also direction, inter alia, to comply with the terms & conditions given in various circulars regarding overdrawing.
7.6 It becomes apparent that M/s Maharaja Ispat (P) Ltd was incorporated primarily for trading of steel, iron & cement and it had taken over the business of said three firms which were already running in losses. These firms had also already availed facility from the same bank.
7.7 Thereafter, one more application was moved by said company. Such application is contained in D-6 (external page no. 663). This is again undated. This file has also been admitted by accused Mahesh Kumar and was accordingly exhibited as Ex. A1/3. Accused, however, did not admit the page no. 16 & 23 of said file which, too, were also bearing his signatures.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 17 of 60 7.8 Application was for enhancement of limit from Rs. 50 lacs to Rs. 100 lacs. There was change in the constitution of the company as name of Raj Kumar was not shown as director. However, other three directors had signed such application and accused Mahesh Kumar does not dispute his signatures on such application either. In application, accused Mahesh Kumar claimed his net worth as Rs. 226.24 lacs as is apparent from external page no. 689 of D-6.
7.9 Appraisal note is at external page no. 699 of D-6 and contains signatures of Manager and on the basis of such appraisal note, Uttam Nagar Branch of Canara Bank prepared proposal dated 16.05.2002. Such proposal is at page no. 639 which is signed by Senior Manager. There were four immovable properties which were taken as collateral securities. Such properties were having market value of Rs. 27 lacs, Rs. 24 lacs, Rs. 34.40 lacs and Rs. 33.83 lacs respectively as per valuation report of May, 2002. It was proposed that projected sale of the company of the year ending 31.03.2003 was Rs. 508 lacs and party could cross the targeted turn over and, therefore, it was recommended that OC limit of Rs. 80 lacs be sanctioned. It would be also pertinent to mention here that in such appraisal note, it was mentioned that account was satisfactory and also that action of the Branch in allowing TOD in the account in anticipation of sanction be ratified.
7.10 Such proposal was considered by Circle Office and sanction memorandum is at external page no. 623 of D-6 (Ex. A1/3) and Circle Office accorded sanction for OCC of Rs. 70 lacs on the usual terms & conditions. Such sanction is also contained in D-34 at page no. 2619 which has been proved as Ex. PW8/A. CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 18 of 60 7.11 It will be worthwhile to mention here that Raj Kumar had resigned from directorship w.e.f. 26.02.2002 as is apparent from letter Ex. PW12/A issued under the signatures of accused Mahesh Kumar. Accused Mahesh Kumar has baldly denied his signatures on such letter but his such contention does not seem have to any real value. No reason much less substantial reason has been disclosed as to on what basis, accused Mahesh has denied his signatures on such letter. Surprisingly, he has examined Raj Kumar as his witness and he also admits that he had resigned from the directorship. Intimation was also sent in this regard to ROC and copy of form no.32 is also found contained in D-6 (Ex. A1/3) at external page no. 657 and it is apparent from the record Raj Kumar had resigned from directorship w.e.f. 26.02.2002.
7.12 It is also apparent that share holding pattern in the said company was as under:
(i) Mahesh Kumar : 42 per cent.
(ii) Savita Devi : 39 per cent.
(iii) Krishna Devi : 18 per cent.
(iv) Raj Kumar : 1 per cent.
7.13 M/s Maharaja Ispat (P) Ltd prayed for enhancement in credit
facility from Rs. 70 lacs to Rs. 100 lacs and application in this regard is at external page no. 3037 of D-34. It is also undated. It is signed by same three directors i.e. Mahesh Kumar, Krishna Devi and Savita Devi and accused Mahesh Kumar claimed his net worth as Rs. 229.87 lacs. Appraisal note is at page no. 3023 and on the basis of such appraisal note, proposal was prepared by Uttam Nagar Branch of Canara Bank on 25.10.2002. Such proposal is at external page no. 3017 of D-34 which CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 19 of 60 has been proved as Ex. PW8/C and is signed by PW2 Sh. Satish Sikri who was then posted as Senior Manager with the same Branch. In its proposal, Sh. Sikri claimed that sale of the company was increasing and the projection of sales as on 31.03.2002 was Rs. 2.55 crores and party had achieved sales of Rs. 3.28 crores till September 2002 and was fully confident of achieving sale target of Rs. 5 crores during the year 31.03.2003 and current ratio was satisfactory. Accordingly proposal was sent to Circle Office. Circle Office accorded sanction on 27.11.2002 recommending enhancement in OCC limit from Rs. 70 lacs to Rs. 95 lacs. Such sanction memorandum is at external page nos. 2865-2885 and has been proved as Ex. PW8/F. 7.14 Thereafter, there was one more request made by M/s Maharaja Ispat (P) Ltd for enhancement from Rs. 95 lacs to Rs. 150 lacs. Such application is contained in D-9 at external page no. 1103. It is also signed by accused Mahesh Kumar at point A and on the basis of such application, appraisal note was prepared by Uttam Nagar Branch of Canara Bank which is contained in D-35 at external page no. 3385. Such appraisal note has been proved as Ex. PW8/G. Based on such appraisal note and proposal, Circle Office accorded sanction on 05.01.2004 recommending enhancement in credit limit from Rs. 95 lacs to Rs. 120 lacs. Office note prepared by Circle office has been proved as E. PW8/H (running in 10 pages from 3319-3335 of D-35) 7.15 So far so good.
7.16 Now comes the all important application.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 20 of 60 7.17 This application of M/s Maharaja Ispat (P) Ltd is contained in D-34 at external page no. 3179. It is signed by accused Mahesh Kumar and Krishna Devi. Though it bears the signatures of Raj Kumar also yet fact remains that Raj Kumar was no longer director in that company. M/s Maharaja Ispat (P) Ltd prayed that credit facility be enhanced to Rs. 200 lacs from existing Rs. 120 lacs claiming that present outstanding was Rs. 115 lacs. All the requisite documents were also attached with the application and accused Mahesh Kumar claimed his net worth as Rs. 452.36 lacs as is apparent from page no. 3225 contained in D-34. This application is also contained in external page nos. 1117-1123 of D-9. This was processed by PW 12 Mahesh Kumar and D.C. Narnolia. PW 12 Mahesh Kumar, in his deposition, made a goof-up by referring to application at page nos.1103-1111 of D-9 as that application. It was, in fact, one previous application. However, it does not seem to be serious slip as proposal has been properly proved. Moreover, accused Ravi Sethi admits moving of such application and accused Mahesh also does not seem to be in disagreement. He in his statement u/s 313 Cr.P.C. claimed that moving of such application was matter of record.
7.18 One appraisal note was prepared which is at external page no. 3155 of D-34. Such appraisal note bears the signatures of Sh. Mahesh Prakash, officer and Sh. D.C. Narnolia, Manager of Uttam Nagar Branch of Canara Bank. It will be important to mention that as far as Mahesh Prakash is concerned, prosecution has chosen to cite him as prosecution witness and has examined him as PW12. He has entered into witness box and has made reference to appraisal note and also to proposal prepared by Ravi Sethi. Such appraisal is at external page nos. 1093-1099 of D-9 and PW 12 Mahesh Prakash has identified his signatures at point A and of D.C. Narnolia at point B. Fact, however, remains that such appraisal is of CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 21 of 60 later date i.e. 02.12.2004 and was sent to Circle office later on as per requisition.
7.19 As far as Sh. D.C. Narnolia is concerned, he is not cited as witness. Rather, initially the instant FIR was directed against him also. Fact, however, remains that he has not been sent up to face trial at all as it was concluded the investigating agency that no sufficient evidence had come against him.
7.20 On the basis of said application, Uttam Nagar Branch of Canara Bank prepared a proposal dated 09.11.2004. Such proposal is at page no. 3145 of D-34 and has been proved as Ex. PW8/I. It is also contained in D-9 at page no. 1083 and has been proved as Ex. PW12/D. 7.21 There is duplication of documents as record was seized from the Branch office as well as from the Circle Office.
7.22 Such proposal is signed by accused Ravi Sethi who was posted as Chief Manager, Uttam Nagar Branch on 09.11.2004. It was mentioned in the proposal that M/s Maharaja Ispat (P) Ltd was sister concern of existing parties M/s Kumbh Steel P. Ltd. And M/s Karamvir Steel P. Ltd and the group was dealing with the bank since 1995 satisfactorily and company required enhancement of working capital limit from Rs. 80 lacs to Rs. 200 lacs. As regards the conduct of the account, Chief Manager observed following things:
(i) The company is frequently approaching for overdrawings.
(ii) The account takes more time to regularization.
(iii) Discounted cheques returned noticed.
(iv) Some cheques returned unpaid for want of funds.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 22 of 60 7.23 It was also simultaneously mentioned that above discrepancies had been reduced by the party and the party had assured to rectify aforesaid at the earliest. It was also mentioned in the proposal that OC limit was Rs. 120 lacs but liability had exceeded such limit as the liability was of Rs. 136.01 lacs. Thus, there was overdue of Rs. 16.01 lacs. A detail of the account of the allied companies was also mentioned. Collateral securities remained the same four properties one of which was in the name of Savita Devi and rest in the name of accused Mahesh Kumar. Prime security was hypothecation of stock and book debts. Ravi Sethi recommended enhancement stating that performance of the company was improving and the sales had improved. He also remarked that current ratio was below the benchmark for the year 2003 and 2004 but showed improvement to 1.52 in 2004 but decreased to 1.31. There was improvement in NWC and the stock statements had been submitted in time and the company was exclusively dealing with the Branch and had assured for improving internal control to avoid any further discrepancy or irregularity. Thus, keeping in mind the analysis of balance- sheet and long association with the group concern and collateral security made available, it was recommended that credit facility be enhanced to Rs. 200 lacs.
7.24 Such proposal was considered by Circle Office and sanctioned vide memorandum Ex. PW12/E (D-9, Page No. 1073). Such sanction memorandum dated 07.12.2004 is signed by Senior Manager Sh. S.K. Gupta.
7.25 It is also important to mention that such proposal was processed in the Circle Office and it would be important to make the CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 23 of 60 mention of office note dated 02.12.2004.
7.26 Such office note is at page no. 3073 of D-34 and had been prepared by Sh. S.K. Gupta, Senior Manager wherein it was mentioned that account belonged to Golden Rathi Group account which the bank had lost recently and the Branch had recommended substantial enhancement without obtaining additional collateral security. It was also simultaneously mentioned that account was having recommendation of Sh. Anoop Garg, the Director of the Bank and considering the satisfactory dealings, enhancement may be permitted.
7.27 Such office note was placed before AGM who also agreed that considering the satisfactory record of the group to which party belonged, limit may be sanctioned. It was then placed before DGM for review and DGM accorded sanction. Sh. S.S. Bhatt was AGM at the relevant time and Sh. D.R.P. Sundharam was DGM.
7.28 It will not be again out of place to mention here that Sh. S.S. Bhatt and Sh. D.R.P. Sundharam were also shown as accused in the FIR but since sufficient evidence could not come forth against them, their names were kept in column no. 12 of the charge-sheet and they were not sent up to face trial. It was, however, mentioned that there were lapses and irregularities on the part of Sh. D.C. Narnolia, Credit Manager of Uttam Nagar Branch and D.R.P Sundharam the then DGM Canara Bank, Circle Office, Sh. K.V. Prabhakar Rao the then AGM Circle Office, Sh. S.S. Bhat, AGM Circle Office and Sh. S.K. Gupta, Senior Manager, Circle Office and the bank had already initiated departmental action against them for lapses and irregularities on their part.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 24 of 60 7.29 Sanction was accordingly conveyed vide memorandum Ex. PW12/E dated 07.12.2004.
7.30 It would be also worthwhile to make mention about one last application of the party whereby it prayed for grant of ad hoc limit of Rs. 50 lacs.
7.31 Application is contained in D-10 at page no. 1311 and has been proved as Ex. PW12/F. It is signed by accused Mahesh Kumar as Director of M/s Maharaja Ispat (P) Ltd wherein he claimed that company was maintaining a good profile account and the turnover of the company upto 28.02.2005 was Rs. 10.92 crores and company had met out its projections and had touched new heights and needed more funds of Rs. 50 lacs and that company had sufficient orders in hand. It was also claimed that company would increase the collateral security in the next financial year and prayed that limit may accordingly be sanctioned. Sanction was sought for ad hoc limit of 25 per cent of the sanctioned amount and since sanctioned amount was Rs. 200 lacs, request was naturally for Rs. 50 lacs. Branch prepared the appraisal note on 07.03.2005 which has been proved as Ex. PW12/G (part of D-10 and at external page 1307). It also bears signatures of Ravi Sethi as Chief Manager wherein he recommended that company had ample orders in hand and needed more funds, therefore. Such proposal was considered by Circle Office and Circle Office vide letter dated 24.03.2005 permitted ad hoc limit of Rs. 50 lacs for three months subject to following conditions:
(i) Branch follow up is lax. Branch is yet to submit NF 482 for our previous sanction. Branch to confirm compliance of all the terms and conditions of our sanction No. DCA IV CR 2163:S-240/04-05 DT 7 12 84 before release of the ad hoc limit.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 25 of 60
(ii) Branch to get the account regularized within the tenability of the ad hoc limit and branch to have serious discussion with the party to get additional collateral security.
(iii) Branch to monitor the account closely.
(iv) Branch to Advise the party to observe strict financial discipline and work within the enhanced limit.
7.32 Sanction memorandum has been proved as Ex. PW12/H contained at external page no. 3263 of D-35.
ROLE OF ACCUSED MAHESH KUMAR 8.0 Let me now assess and weigh up the role and involvement of accused Mahesh Kumar.
8.1 There is no dispute that he was one of the directors of M/s Maharaja Ispat (P) Ltd. There is no dispute that such company had approached Uttam Nagar Branch of Canara Bank for credit facilities and enhancement of such facilities from time to time and on all such occasions, accused Mahesh Kumar had also signed as director. Sh. Arora has contended that accused Mahesh Kumar was illiterate and he was director on papers only and actually his cousin brother Ombir Singh was at the helm of the affairs and he was managing entire business of the company and Ombir Singh was instrumental in applying various credit facilities and he was the one who had taken advantage of such facilities.
8.2 I have already made reference to various applications moved by M/s Maharaja Ispat (P) Ltd from to time. Let me assume for a moment that accused Mahesh Kumar is an illiterate man though there is only a bald CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 26 of 60 assertion in this regard. It does not click to reason that merely because accused Mahesh Kumar was illiterate, he would not be knowing even a bit about the company. Here we are talking about the credit facilities running into crores. It is not a small amount. Various high-valued cheques have been issued under the signatures of accused Mahesh Kumar and he is not permitted to take shelter behind his alleged illiteracy and to pass on the buck to a person who is no longer alive. I also cannot be oblivious of the fact that he had surrendered his three properties as collaterals. Had he been illiterate or if Ombir had pressurized him to sign anywhere, he would not have dared to surrender his own properties as collaterals. He had been reaping fruits but when it comes to own up the responsibility, he wants to turn his back claiming that he does not know anything.
8.3 Sh. Jagbir Singh, learned PP has re-asserted that accused Mahesh Kumar has been booked for committing murder of same Ombir Singh and there is nothing on record which may show that Ombir Singh had drawn any sort of advantage or that he had used accused Mahesh Kumar as a puppet.
8.4 I have already made mention that application for grant of credit facility for the first time was moved in May 2001. Accused Mahesh Kumar declared his net worth as Rs. 218.44 lacs. Krishna Devi (wife of accused Mahesh Kumar) had also depicted her net worth Rs. 26.82 lacs. Undoubtedly, Savita Devi (wife of Ombir Singh) was also one of the directors at that time but fact remains that Ombir Singh himself was nowhere in the picture at all. I have also taken note of the fact that major chunk of the share holding in such company was with Mahesh Kumar and his wife Krishna Devi. An illiterate man can also run a big corporate. Even a country, if I may say so. An illiterate person can run such type of CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 27 of 60 company with the help of good & efficient workers/staff. Here accused Mahesh Kumar is trying to dig out undue advantage of his allegedly illiteracy. He has not been able to demonstrate as to how Ombir Singh was controlling the affairs of the company or had actually used the facilities in question. He should rather express gratitude to prosecution that his wife has been spared. He and his wife were the directors at the relevant time. Naturally, since his wife is not arraigned as accused, he alone becomes responsible for the acts in question. His bald denial does not serve any purpose.
8.5 According to prosecution, there was siphoning off funds and funds were diverted and routed within the group companies and actually speaking, there was never any trading transaction and the facilities were availed and the funds so received were misused for own purpose and use which had nothing to do with the working of the company.
8.6 I have already taken note of the fact that when M/s Maharaja Ispat (P) Ltd was incorporated, it had taken over outstanding liability of three other concerns. All these were proprietary concerns. M/s Gupta Steel Traders was proprietary concern of accused Mahesh Kumar and M/s Maharaja Steels was proprietary concern of accused Krishna Devi. There was outstanding liability of around 30 lacs when M/s Maharaja Ispat (P) Ltd was floated and when those other three proprietary concerns were taken over. This rather indicates that from the day one, there was outstanding liability of Rs. 30 lacs. Company had sought to avail credit facilities in order to clear such outstanding liability and was granted credit facilities worth Rs. 50 lacs. Surprisingly, at that particular moment of time, no eyebrow was raised by the Canara Bank and credit facility was granted merely on the ground that directors of the company were having rich CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 28 of 60 experience in the business and were dealing with the bank since 1995. Merely because company was dealing with the bank since 1995 and was having rich experience was not, to me, sufficient from any angle. Bank should have noticed that there was already outstanding liability of Rs. 30 lacs and the facility of Rs. 50 lacs was primarily to be utilized for clearing such dues related to taken over firms. These other firms were enjoying credit facilities. These were having substantial liability and to wipe out the same from record, a novel method was devised and a new concern was floated which took over liabilities of these concerns. Account of these three firms stood cleared but the liability started showing up somewhere else i.e. against the name of this new concern.
8.7 I have already noticed that accused Mahesh Kumar has categorically given his net worth from time to time. He entered into various agreements with respect to taking over of those three proprietary concerns and entire correspondence which M/s Maharaja Ispat (P) Ltd was having with the bank was through accused Mahesh Kumar only. There is no letter written or document or signed by Ombir Singh. In such a situation, it will not be possible for me to believe that accused Mahesh Kumar was director on papers only.
8.8 Let me now see the testimony of some of the prosecution witness in this regard.
8.9 PW6 Sugam Sharma is related to accused Mahesh Kumar and he has deposed that Mahesh Kumar and Ombir Singh both were partners in M/s Golden Rathi Star Industries Ltd. He approached them as he wanted to purchase a car and, therefore, required loan. Ombir Singh then told him that he should open account in any bank and when he CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 29 of 60 enquired about the formalities for opening the account, he was taken to the bank by Ombir Singh as well as by accused Mahesh Kumar and there some documents were obtained from him for the purpose of opening bank account. He was also told that one firm in the name of M/s Karan Steel had been opened in which he had been shown as proprietor and he was also told that he could then get the loan easily from such account. Cheque book was also issued and both accused Mahesh Kumar and Ombir Singh obtained his signatures on blank cheques and took away such cheques with them. He claimed that he did not have any relation with M/s Karan Steel and its bank account and rather Mahesh Kumar and Ombir Singh could tell about the same. In cross-examination, he claimed that he could not recall as to who used to obtain his signatures on blank cheques but he used to sign as they were his relatives. It was suggested to PW6 Sh. Sugam Sharma that he had not signed any cheque at the instance of accused Mahesh Kumar. It was also suggested to him that he was proprietor of M/s Karan Steel and he was conducting all the activities all by himself and had never signed any blank cheque. He labelled these suggestions as wrong and incorrect.
8.10 This is very significant because he happens to be relative of accused Mahesh Kumar and despite that he has emphatically deposed before the Court that account was got opened through him on false pretext and then he was made to sign on blank cheques with respect to account of M/s Karan Steel. His testimony clearly indicates that he had no knowledge about the functioning of M/s Karan Steel and he was shown proprietor on papers only and the account was actually controlled by accused Mahesh Kumar.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 30 of 60 8.11 PW7 Suesh Kumar claimed that Ombir Singh was having seven firms and he was working with his brother Mahesh Kumar. He claimed that he worked with Ombir Singh for 12 years and Ombir Singh was having bank account of his firms in Canara Bank Uttam Nagar. He used to go there with him and Ombir Singh and Mahesh Kumar had opened firms which were converted into private limited concerns and there was not much work in the trading unit and they used to transfer amount from one account to other and entire such work used to be done by Ombir Singh. He also claimed that accused Mahesh Kumar was director of M/s Maharaja Steel but banking work used to be seen by Ombir Singh and not Mahesh Kumar and he had signed at the asking of Ombir Singh and not at the asking of Mahesh Kumar. However, in his subsequent deposition recorded same day, he claimed that he had put signatures and had done banking work under the instructions of Ombir Singh as well as Mahesh Kumar. Court question was also put in this regard as he was found giving different answers and he reiterated that they both used to be together and they both used to ask him to sign on such blank cheques.
8.12 Sh. Arora has claimed that testimony of PW7 Suresh Kumar is not reliable at all as in one breath, he says that banking work used to be done by him at the instance of Ombir Singh only and in the next breath he indicts Mahesh Kumar as well. I do not think merely because of this, his entire testimony can be discarded straightaway. I cannot be oblivious of the fact that he is a close relative of Mahesh Kumar and despite that he has categorically chosen to say that he had signed on blank cheques at the asking of accused Mahesh Kumar as well. When it was suggested to him by the defence that he himself was operating bank account and such transactions were carried out by him at the instance of Ombir Singh only and that accused Mahesh Kumar had nothing to do, he denied such CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 31 of 60 suggestion out-rightly.
8.13 This clearly displays that as per Suresh Kumar, accused Mahesh Kumar was also responsible for obtaining signatures of Suresh Kumar on blank papers. This also stands proved that there was not much work of trading and there used to be transfer of amount from one account to another and for that purpose they had opened various forms which were later on converted into private limited companies.
8.14 It is also important to mention here that PW7 Suresh was shown proprietor of M/s Surya Steel Traders and bank account was got opened and his signatures were obtained on blank cheques.
8.15 PW7 Suresh Kumar has also, in his evidence, made reference to 39 cheques and claimed that these cheques were signed by accused Mahesh Kumar. All these cheques have been collectively exhibited as Ex. PW7/1 and are for the period between 30.12.2002 to 25.06.2005. Under these cheques, money was transferred from the account of M/s Maharaja Ispat (P) Ltd to the account of M/s Surya Steel Traders. Combined value of all such cheques comes to Rs. 2.95 crores (Rs. 2,95,05,366/-). It is also noticed that M/s Surya Steel Traders is one of the group concerns of which PW7 Suresh Kumar was shown proprietor on papers and PW7 Suresh Kumar has already deposed that his signatures were obtained on blank cheques by accused Mahesh Kumar as well. It clearly indicates that facilities were obtained by M/s Maharaja Ispat (P) Ltd and when funds were credited in the said account, funds were siphoned off by issuing cheques in the name of M/s Surya Steel Traders. It was virtually a non-existing company and was a tool for siphoning off and draining out the money.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 32 of 60 8.16 I am conscious of the fact that PW3 Dharam Dev has not supported the case of prosecution. However, fact remains that he has not uttered anything in favour of Mahesh Kumar either. He has merely pleaded his ignorance about the fact whether M/s Maharaja Ispat (P) Ltd was used to be run by Ombir Singh and Mahesh Kumar. He deposed before the Court that he was in M/s Kumbh Steels and he knew accused Mahesh Kumar who used to meet Ombir Singh being his relative but did not know whether they used to run any company together.
8.17 One Sh. Raj Kumar was also cited as prosecution witness but he was dropped by the prosecution. Such witness was examined by accused Mahesh Kumar and I have seen testimony of DW3 Raj Kumar who deposed that since 1997 he was working as Dispatch and Marketing Manager with the Ombir Singh and Mahesh Kumar. He deposed that in the plant of Golden Rathi Star Industries Ltd, he was also deputed on the same post. M/s Maharaja Ispat Pvt. Ltd was one of the group companies of the Golden Rathi Star Industries Ltd. M/s Maharaja Ispat used to purchase material i. e. iron rods etc. from M/s Golden Rathi Star Industries. He deposed that Ombir Singh was handling all affairs and day- to-day business of M/s Maharaja Ispat Pvt. Ltd. DW3 deposed that he was one of the directors of M/s Maharaja Ispat Pvt. Ltd. but he had resigned from the directorship in the year 2001 so he did not have personal knowledge with regard to all affairs and business of M/s Maharaja Ispat Pvt. Ltd. He deposed that accused Mahesh Kumar was not much educated and Ombir Singh always applied for loans and utilized the same and further paid the installments as repayment of loan amount. He deposed that Ombir Singh (since deceased) also obtained signatures of accused Mahesh Kumar on the loan papers without disclosing him the purpose. He deposed that because Ombir Singh had taken and utilized CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 33 of 60 the loans, so the matter was compromised finally with the Canara Bank and installments of Rs.30 lacs per month for a continuous period of 3-4 months were paid by Ombir in execution of the compromise finally settled between the Canara Bank and M/s Maharaja Ispat Pvt Ltd as well as with other group companies of M/s Golden Rathi Star Industries Ltd. Payments made from M/s Maharaja Ispat Pvt. Ltd. to M/s Golden Rathi Star Industries Ltd. were the genuine business transactions and were commercial transactions by way of vouchers and cheques through bank. I don't give much credence to his version as he himself has deposed that after he resigned as director, he did not know much about the affairs of that company. He has tried to claim that there were genuine trade transactions but such assertion is unsubstantiated.
8.18 PW4 Tek Chandwas posted as Manager with Canara Bank and, in year 2009, he had handed over record pertaining to accounts of M/s Surya Steel Traders, M/s Karan Steel, M/s Golden Rathi Star Industries Ltd., M/s Karamvir Steel Pvt. Ltd, M/s Moskos Steel Pvt. Ltd, M/s Kumbh Steel Pvt. Ltd, M/s Maharaja Ispat Pvt. Ltd, Gupta Steel Traders and M/s Shiv Shakti Steel and M/s Maharaja Steel to CBI.
8.19 There are contained in D-13 to D-22 and have been duly exhibited also.
8.20 I have seen testimony of PW4 Tek Chand and there is not much dispute with respect to the fact that such accounts were opened. I have also seen the documents i.e. account opening form and specimen signatures card of all such accounts. Learned PP has contended that all these are group companies and the funds were transferred to one account to another and ultimately withdrawn by accused Mahesh for his own CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 34 of 60 benefit and use and there was no trading and the facilities granted by the Branch were siphoned off. It has also been argued that funds were apparently mis-utilized by issuing cheques in the name of other group concerns and the stock, which was otherwise hypothecated to the bank, was disposed of dishonestly and this clearly indicates the deceitful intention on the part of accused Mahesh Kumar.
8.21 Statement of account of M/s Maharaja Ispat (P) Ltd is contained in D-4 which has been admitted by accused Mahesh as Ex. A1/1 when his statement was recorded on 11.11.2011. This statement D-4 consists of 175 pages.
8.22 D-26 contains 14 cheques issued by M/s Maharaja Ispat (P) Ltd signed by accused Mahesh Kumar favouring M/s Kumbh Steels. These are from 14.08.2004 to 27.04.2006.
8.23 D-27 again consists of 16 cheques which were issued from the account of M/s Maharaja Ispat (P) Ltd to the account of M/s Moskos Steel Pvt. Ltd. These are from 27.08.2004 till 27.04.2006. Worth of cheques contained in D-26 comes to Rs. 1,09,01373/- and worth of cheques contained in D-27 comes to Rs. 3,69,60,500/-.
8.24 D-25 contains various cheques issued from the account of M/s M/s Maharaja Ispat (P) Ltd to the account of M/s Karan Steel. These are from 05.10.2002 to 13.10.2005 and the total worth of these cheques is Rs. 4,13,22,913/-. DW Raj Kumar was shown proprietor of Karan Steels and his help was taken for drawing out the money.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 35 of 60 8.25 D-24 also similarly consists of 30 cheques issued from the account of M/s Maharaja Ispat (P) Ltd to the account of M/s Karamvir Steel Pvt. Ltd. These are from different dates between 31.12.2002 till 25.11.2004 and these cheques are worth of Rs. 1,64,37,840/-.
8.26 To some extent, I can understand the issue of issuance of cheques in the name of M/s Golden Rathi Star Industries Ltd. It happens to be a manufacturing concern and naturally, if one has to trade, one is required to purchase the material from manufacturer. All such cheques are contained in D-23. Entire statement of account of M/s M/s Maharaja Ispat (P) Ltd has been admitted by accused Mahesh Kumar as Ex. A1/1 and all the aforesaid cheques must be mentioned in such statement also.
8.27 I have already noticed above that the prime security was stock and book debts. Stock was naturally hypothecated to the bank. When stock was finally inspected, nothing was found. It might be possible that previously stock was maintained but when bank officials had visited the premises where stock was supposed to be lying, no trace of iron particle was there.
8.28 This fact has been proved by PW1 Sandeep Gupta. He is Chartered Accountant and is running his profession of Chartered Accountancy under the name & style of M/s Gupta Sandeep & Associates. He had been directed by Circle Office of Canara Bank to conduct stock inspection of M/s Maharaja Ispat (P) Ltd and he along with U.M. Bangara had visited A-43, Bhagat Singh Colony, Bhiwadi but he did not find any stock there. I have seen his report of stock audit dated 07.10.2006 which is contained in D-37 and proved as Ex. PW1/B. In such report/certificate, he has certified that no stocks were found there during the physical CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 36 of 60 verification. He also reported that premises, where inventory was supposed to be stored as per information given by the Branch, was rather an uncovered plot where there was no possibility of stocking any such thing even in the recent past. Sh. Sandeep Gupta has also proved his stock audit report as Ex. PW1/A wherein it has been mentioned that as per the declaration given by the party as on 31.08.2006, there was stock worth Rs. 367.47 lacs. It is very much evident that such declaration given by the party was incorrect and false as it is not possible that such huge quantity of stock would disappear within a month or so. Moreover if report of PW1 Sandeep Gupta is to be believed then nothing could have been stocked in such uncovered plot even in the recent past. There could have been only two possibilities. Firstly, nothing at all was stocked there and party had given a wrong statement/declaration and secondly even if it is assumed that some stock was there in August, 2006, it had been dishonestly and mischievously disposed of and removed without the knowledge of the bank. Both are fatal to defence.
8.29 I have seen the cross-examination of PW1 Sandeep Gupta which was conducted on 09.01.2012. It was not at all suggested to PW1 Sandeep Gupta that his report was wrong or that any stock was lying at said premises. No question pertaining to premises was also asked which indicates that accused Mahesh Kumar does not dispute the fact that there was no stock on the date of such inspection.
8.30 PW11 Navin Chander is a Chartered Account and he was running a firm in name & style of M/s Navin Chander & Co. During investigation, he was called by CBI and was shown financial statement audited by his firm and he deposed that financial statement for the year 2004-05 of M/s Maharaja Ispat (P) Ltd were audited by him. Such CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 37 of 60 statement is contained in D-30. He also deposed that Mahesh Kumar had signed on behalf of M/s Maharaja Ispat (P) Ltd on all the relevant documents and he had prepared the statement as per information provided to him by the directors. He also made reference to various previous financial statements prepared by him. He also deposed that initially Mahesh Kumar, Krishna Devi, Savita Devi and Raj Kumar were directors of M/s Maharaja Ispat (P) Ltd and Raj Kumar resigned from directorship in February, 2002 and Smt. Savita Devi resigned in October, 2004. He claimed that apart from M/s Maharaja Ispat (P) Ltd, Mahesh Kumar and his family members were also running M/s Karamvir Steels Pvt. Ltd., M/s Moskos Steels Pvt. Ltd., M/s Kumbh Steels Pvt. Ltd. and M/s Golden Rathi Star Industries Ltd. and he had audited balance-sheet of said companies at the request of Om Prakash, Ombir Singh and Mahesh Kumar. Undoubtedly, in his cross-examination, he claimed that most of the information given to me with respect to M/s Maharaja Ispat (P) Ltd was by one Sh. Satish Sharma, Advocate and he also claimed that he had interaction with Ombir Singh only but that does not mean that accused Mahesh Kumar stands absolved automatically. He was one of the directors along with wife and he cannot escape from such vital fact at all. As a director, he had signed all the relevant documents and high-valued cheques and money was siphoned off by diverting the funds to other sister concerns and from there amount was withdrawn and mis-utilized.
8.31 Sh. Rajesh Arora has relied upon the deposition of PW13 Ms. Rupa Bhatia and PW14 Sh. Vinay Kumar Sehgal. They are officials of Uttam Nagar Branch of Canara Bank and in their cross-examination, they admitted that account in question was VIP account and was being maintained properly. I, however, cannot be oblivious of the fact that their testimony was limited in nature as during their tenure as officers at Uttam CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 38 of 60 Nagar Branch, they had merely cleared certain cheques as per banking procedure and guidelines. Such cheques, contained in D-23, D-24, D-25 and D-28, were shown to them. Their role was thus very limited and they had no business to make any comment with respect to the fact whether the account was maintained properly or not. They did not have any knowledge with respect to the credit facilities and it seems that they had deposed regarding account being maintained properly out of sheer zeal which cannot be said to be working in favour of defence as fact remains that they had no personal knowledge with respect to the facilities in question at all.
8.32 PW15 Sh. Rakesh Jindal was posted as Chief Managr, State Bank of India, Najafgarh Road, Delhi Branch where M/s Golden Rathi Star Industries Ltd. was having its account. He had handed over statement of account of said company which has been proved as Ex. PW15/D which is contained in D-48 and the authorized signatories were Mahesh Kumar, Krishna Devi and Ombir Singh. Account opening form has also been proved as Ex. PW15/B and such account was opened much late i.e. on14.09.2004 and the purpose was apparently to siphon the funds.
8.33 Much has been asserted by Sh. Arora about the fact that matter had been investigated by Sh. M. Ali but he has been held back and has not graced the witness box. I have seen the testimony of PW9 Sh. K.B. Jaya Prakash. He is the person who had made complaint to the CBI regarding the instant matter. He has proved his complaint as Ex. PW9/A (D-1). He deposed that account had become bad and there were not stocks and some collateral securities were even found to be fake. He admitted that he had not investigated the case himself and investigation was conducted by one M.A. Ali, AGM. He, however, supplemented that he CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 39 of 60 himself had also checked the records. When it was asked to him by the Court as to which particular collateral security or document was found to be fake, he corrected himself and claimed that he could not point out any such document from the judicial record. It is important because even as per the case of prosecution, no document pertaining to collateral security was found to be forged and fake. There is no denying the fact that had M.A. Ali been cited as witness, it would have given impetus to the case of CBI. But, to say that his non-examination is death-knell for the case is too fanciful.
8.34 Undoubtedly, bank did not take immediate action. Account had turned NPA on 31.12.2005. Sh. K.B. Jaya Prakash lodged the report with CBI two or two and half years later on. It seems that in the meanwhile there were some efforts to settle the matter. It is not unusual at all. Bank is always interested in getting its money back and in case any party approaches with any settlement proposal, bank would not show exit door to any such party and would rather consider the proposal. After all money in question is public money and bank is not wrong in making every effort to recover the amount from the party. Merely because there were talks of settlement does not mean that liability was civil and civil only. It is experienced that in many matters involving criminal element also, at subsequent stage party approaches for negotiations but that cannot be understood to tantamount to absolving the party. Any such type of transaction can have both facets i.e. civil and criminal and even if the entire account is settled, to the satisfaction of the bank, it cannot be claimed as a matter of right by any such party that since matter has been settled, criminal action cannot be initiated at all.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 40 of 60 8.35 It is not necessary that criminal intention should be there right from day one. It is quite possible that when account was initial opened and facilities were initially sought, party might be feeling that it would be able to revive the taken over concerns and would be in a position to make profit. It is, however, overall conduct of the account and manner in which funds have been diverted and routed which raise suspicion.
8.36 The intention was apparently bad as stocks were taken away and funds were diverted and siphoned off through various accounts most of which were opened in Uttam Nagar Branch. Following table would show that:-
Sl. Name of the Date of Person Name of the Bank
No. Company Opening Authorized
of to Operate
Account the Account
1 M/s Surya 01.07.2002 Suresh Canara Bank Uttam
Steels Kumar Nagar Branch
2 M/s Karan 28.05.2004 Raj Kumar Canara Bank Uttam
Steels Nagar Branch
3 M/s Karamvir 20.02.2003 Shanti & Om Canara Bank Uttam
Steels Prakash Nagar Branch
4 M/s Moskos 20.07.2002 Raj Kumar & Canara Bank Uttam
Steels Pvt. Ltd. Neel Kamal Nagar Branch
5 M/s Kumbh 17.03.2001 Ombir Singh, Canara Bank Uttam
Steels Savita Devi & Nagar Branch
Om Prakash
6 M/s Golden 14.09.2004 Mahesh SBI Najafgarh Branch.
Rathi Star Kumar, Om
Industries Ltd. Prakash &
Savita Devi
8.37 Sh. Arora has also laid stress on the point that worth of the
collateral properties was Rs. 122 crores even in the year 2002 and when CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 41 of 60 these immovable properties were sold in auction, it could fetch a paltry sum of Rs. 94 lacs in the year 2009. According to him, rate of properties has increased manifold in Delhi and the bank has caused a deliberate prejudice to accused and if the properties had been sold properly, bank would have been able to recover the entire amount. I have seen the testimony of PW18 Sh. Gopal Khatwani. He has categorically deposed that properties were sold in public auction. Though record of auction has not been produced before the Court yet that does not mean that there was anything fishy at the time of auction of the properties 8.38 Such type of properties are considered to be disputed properties and may not fetch very good value. Thus, value of properties under distress sale and value of the properties as per market value cannot be equated. Moreover, it is also not uncommon to note that as & when any such party approaches the bank for obtaining facilities and seeks to hypothecate any such immovable property as collateral, there is always a tendency to exaggerate the value of such property so that party can get the facility from the bank. I rather feel that bank was touch fortunate to recover a sum of Rs. 94 lacs from such public auction which cannot be said to be a case of bad recovery or under-valued auction. Moreover, it is a public auction and accused cannot be allowed to grudge or grumble in this regard.
8.39 In view of my aforesaid discussion, it becomes as plain as the nose on face that accused Mahesh Kumar was the one who was controlling M/s Maharaja Ispat (P) Ltd. He alone is responsible for the extraction of funds availed by the company through Uttam Nagar Branch, Canara Bank. Various companies, on paper, were floated and bank accounts were opened. These were in the name of employees or relatives CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 42 of 60 and there was no work in such companies. Most of the bank accounts with respect to various such companies were opened in the Canara Bank, Uttam Nagar Branch itself for diversion of funds.
8.40 There was debit balance of Rs. 229.61 lacs as on 31.12.2005 and the sale of the mortgaged properties could fetch Rs. 94.80 lacs leaving behind the net loss of Rs. 134.81 lacs.
8.41 Thus, funds were mis-utilized by accused Mahesh Kumar, Director of M/s Maharaja Ispat (P) Ltd. He did not even think twice before signing so many cheques most of which were high-valued cheques running in millions. When the premises were lastly inspected, no stocks were found. These stocks were prime security and could not have been disposed of as these were hypothecated to the bank. If at all these were disposed of lawfully, the party was supposed to deposit the proceeds with the bank. Nothing of that sort was done either. Such acts committed by accused Mahesh Kumar, Director of M/s Maharaja Ispat (P) Ltd. clearly indicates commission of offence u/s 420 IPC.
COMPLICITY OF RAVI SETHI 9.0 Let me now see whether accused Ravi Sethi has committed any criminal misconduct so as to attract Section 13(1) (d) r/w Section 13 (2) of PC Act and whether he was acting in league with accused Mahesh Kumar. As per charge-sheet, following allegations are there against him:-
(i) He proposed enhancement of limit from Rs. 120 lacs to Rs. 200 lacs but did not seek any additional collateral security from the party.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 43 of 60
(ii) Proposal was sent by Ravi Sethi to Circle Office on 09.11.2004 and sanction was accorded by the Circle Office on 07.12.2004 but without being intimated about the sanction, accused Ravi Sethi released enhanced facilities.
(iii) Ravi Sethi did not point out discrepancies in the account.
(iv) He did not inspect the stock and did not ensure that stocks, which were otherwise supposed to be hypothecated with the bank, were there or not.
(v) He permitted overdrawing beyond his delegated powers on number of occasions.
(vi) He was permitted to purchase cheques upto Rs. 20 lacs drawn on the customer/party but he purchased cheques beyond his powers.
9.1 Most significant aspect of the case is that accused Ravi Sethi was never associated with any of the previous applications. Penultimate facility was extended from Rs. 95 lacs to Rs. 120 lacs and at that time PW 19 Sh. L. Raju was the Chief Manager/ Branch Head of Uttam Nagar Branch. Ravi Sethi joined Canara Bank Uttam Nagar Branch on 20.09.2004 and remained posted there till 22.07.2006. This fact is not in dispute. This means that after his joining on 20.09.2004, he dealt with this account and forwarded the proposal for the first time only on 09.11.2004 i.e. within a short span of one & half months only. He is alleged to be in league with accused Mahesh Kumar and naturally if there is any conspiracy as per CBI, it must have taken place between 20.09.2004 and 09.11.2004.
9.2 Chief Manager is not the one who initiates and takes up the matter all by himself. He is required to forward the proposal being head of Branch but such proposal is based on the appraisal note prepared by his CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 44 of 60 subordinates. He was relying the appraisal prepared by his two such subordinates i.e. Sh. Mahesh Prakash and Sh. D.C. Narnolia. Prosecution has chosen to cite Sh. Mahesh Prakash as prosecution witness and Sh. D.C. Narnolia is neither an accused nor a witness before the Court. PW12 Mahesh Prakash has deposed that process note was prepared by him. He has admitted his signatures as well as the signatures of Sh. D.C. Narnolia on note. At that juncture, he was posted as officer and Sh. D.C. Narnolia was Credit Manager/Manager (Advances). I have seen the appraisal note prepared by Sh. Mahesh Prakash and Sh. D.C. Narnolia. In such appraisal note, there is column to the effect 'whether the stocks were maintained properly by the borrower'. There is a column 'whether stock statements were received regularly in time' and while preparing such appraisal note, Sh. Mahesh Prakash and Sh. D.C. Narnolia did not find any perilous feature with respect to those two important columns and they mentioned 'Yes' against such columns meaning thereby that stock-books were properly maintained and stock statements were received regularly. They both in such appraisal note recommended enhancement in limit from Rs. 120 lacs to Rs. 200 lacs. They did not record adverse remark related to stock inspection and did not record any negative feature while preparing such appraisal note. Interestingly, such appraisal note is of 02.12.04 and is in form NF 622. Any appraisal prepared by them prior to 09.11.2004 is not to be seen anywhere.
9.3 I have scrutinized the proposal prepared by Sh. Ravi Sethi which seems exhaustive and all-embracing. He analyzed the balance- sheet and with respect to the conduct of the party, he also made a clear mention about the negative features. He remarked that party was frequently approaching for overdrawing. He remarked that account was taking more time for regularization and there were returns of discounted CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 45 of 60 cheques and some cheques returned unpaid for want of funds. Undoubtedly, he also made assertion of the fact that company had assured to rectify the aforesaid discrepancies and had made improvement as well but fact remains that he pointed out these discrepancies.
9.4 Credit limit was of Rs. 120 lacs at that time and in his report, he claimed that against credit limit of Rs. 120 lacs, there was liability of Rs. 136.01 lacs. Thus, there was overdue of Rs. 16.01 lacs. He did not hide this important fact either. He made mention of all the four collateral properties, the value of which was Rs. 119.23 lacs as in May 2002. He also pointed out that net profit was very less as compared to the volume of sales and the current ratio was below the benchmark. He also claimed that if the projected sale of Rs. 1000 lacs was to be expected then there was requirement of Rs. 200 lacs. His such calculation cannot be said to be wrong as it is accepted even by prosecution that in turnover method as contained in guidelines related to instructions for working capital finance, accepted sales are considered as 20 per cent of the projected sales. Party itself had projected the sale target as Rs. 1000 lacs and thus the accepted sale would have been of Rs. 200 lacs and keeping in mind those parameters, he had recommended enhancement in limit from Rs. 120 lacs to Rs. 200 lacs.
9.5 Before proceedings any further, it would be appropriate to see the office-note prepared by the Circle Office. Office note Ex. PW8/J is dated 02.12.2004 and it also talks about the various discrepancies pointed out by Ravi Sethi. It is, however, also mentioned in the office-note that turnover of the party was strong over the years and party has projected sale of Rs. 1000 crores during the current financial year and party is having good market strategy and was regularly supplying steels to various CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 46 of 60 contractors, housing societies and builders in the different areas. It is also mentioned that stock holding is of around two months and outstanding debtor and creditor level was negligible. It is also mentioned in the office- note that recommended limit is within the MPBF. It is, however, also mentioned that the Branch has recommended enhancement without obtaining any additional collateral security.
9.6 Such office note was prepared by Senior Manager. It is very essential to mention that the Senior Manager, in his office-note, emphatically mentioned that account belonged to Golden Rathi Group Account which they had lost recently and that the account was also having recommendation of Sh. Anoop Garg, Director of the bank and considering the satisfactory record, enhancement may be permitted.
9.7 It was placed before DGM through AGM. AGM, in his noting, mentioned that sale of the company had improved over the years and considering satisfactory track record and the group to which party belonged, limit may be enhanced. Finally, enhancement was permitted by DGM and thereafter it was duly conveyed to the branch.
9.8 Now let me see about the alleged irregularities and lapses on the part of accused Ravi Sethi.
NOT ASKING FOR ADDITIONAL COLLATERAL SECURITY 9.9 Interestingly, even as per the case of prosecution, there are no specific guidelines regarding obtaining of collateral security in working capital which is normally left to the discretion of the sanctioning authority. I have seen the deposition of various bank officials. PW8 Sh. Rajendra CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 47 of 60 Kumar Arora, who was also AGM in Circle Office, New Delhi between 2001 to 2004, has admitted in his cross-examination that there was no set of guidelines of the bank regarding obtaining collateral security in working capital limits and these are only insisted upon as comfort. He also did not dispute that limits, in the present case, had been sanctioned on the basis of past performance and projection given by the party and whenever it is felt that projections are on the higher side, sanctioning authority has power to lower the limits. He also admitted that system followed for assessment of the limit is called Maximum Permissible Bank Finance (MPBF) which is derived on the basis of turnover.
9.10 PW9 K.B. Jaya Prakash, the complainant has also admitted in cross-examination that there was no norm or guideline or RBI circular that collateral security should be taken in working capital loan and he admitted that even before CBI, he had claimed that there were no set of guidelines in this regard. He also admitted that primary security was stock- in-trade and book debts.
9.11 PW19 L. Raju, the previous Chief Manager has also admitted in his examination that there were no set guidelines of the bank regarding collateral security in working capital loans.
9.12 Thus, even if Ravi Sethi had proposed enhancement without insisting for any collateral security, it cannot be said that he had done any blunder. Fact remains that there were no guidelines in this regard and the prime security was stock and book debts. Moreover, bank was possessing four properties as collateral worth of which was Rs. 120 lacs approximately in the year 2002 and if the Circle Office was having any doubt with respect to the value of collateral security, it could have asked for re-evaluation of CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 48 of 60 such collaterals. Normally, value of immovable property rises with every passing year in NCR. Thus, Ravi Sethi cannot be said to have committed any blemish or mistake by not insisting for any additional collateral security.
RELEASE OF FACILITY WITHOUT WAITING FOR SANCTION ORDER FROM CIRCLE OFFICE 9.13 Learned PP has labelled this to be the most alarming aspect of the case as accused Ravi Sethi released funds without waiting for the sanction in black and white from the Circle Office. This rather, according to learned PP, is indicative of his being in connivance with the party. Undoubtedly, funds were released without waiting for the formal written sanction from the Circle Office.
9.14 Two things are required to be considered. Firstly, whether it can be done or not. Secondly, if it is done whether it stands ratified once the sanction is received subsequently.
9.15 It is not the case where the sanction has been declined by Circle office. Had it been a case of refusal of sanction, things would have been altogether different. Ravi Sethi has cried hoarse that in banking matters, facilities are released even on the basis of telephonic confirmation from the Circle Office. In his statement u/s 313 Cr.P.C., he claimed that he had received telephonic call from DGM D.R.P. Sundharam for early release of the funds. According to him, it was not uncommon in the banking practice. He also claimed that early release was reported to the Circle Office on 02.12.2004 and liability was also informed in NF622 and Circle Office raised no objection and accorded sanction on 06.12.2006.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 49 of 60 9.16 Interestingly, even prosecution witnesses have confirmed such thing.
917 PW17 Sh. Mukesh Goel has admitted in his examination-in- chief that whenever any proposal is sent to Circle Office for approval/sanction, on some occasions, Circle Office permits branch office to release the facilities and on such telephonic permission about the sanction, branch releases the facilities before the actual approval is received in writing from Circle Office. PW12 Sh. Mahesh Prakash has also admitted in his cross-examination that Circle Office communicates them telephonically in case of any urgent situation or requirement and then it used to be complied by them. He also admitted that Circle Office had been intimated about the factual position of the account pertaining to enhancement of limit and nothing was concealed.
9.18 PW12 Sh. Mahesh Prakash has made direct reference to NF622 i.e. appraisal form dated 02.12.2004 and has deposed that factum of there being liability of Rs. 215.30 lacs was duly intimated to Circle Office before the grant of sanction. This clearly indicates that Circle Office was intimated well-in-advance that there was liability of Rs. 215.30 lacs in the account in question. Circle Office did not raise any eyebrow and despite taking note of that fact, sanction was accorded. This, itself, means that on all the actions of Ravi Sethi in releasing facility, before formal acknowledgement of sanction in writing, stood ratified by the Circle Office. Such NF 622 is there in file D-34 at page 3155 and signed by Mahesh Prakash and Mr. Narnolia. This was sent pursuant to request made by Circle office which is contained in external page no.3143 of D-34. Thus, circle office was duly intimated about the liability as on 02.12.2004 which had already crossed Rs. 200 lacs and despite that, circle office did not CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 50 of 60 raise any question and accorded sanction. Circle office was not kept in dark at all. It was duly informed that though the existing liability was Rs. 120 lacs, the liability had crossed Rs. 200 lacs only. It is not possible that Circle office would not have considered the same as it had rather itself demanded that form NF 622. Only logical inference is that circle office itself must have permitted Branch to release the facilities in anticipation of sanction.
9.19 Record would also show that release of facilities in anticipation of sanction from Circle Office was not unusual or uncommon. Proposal had been sent from Branch Office for enhancing the limit from Rs. 50 lacs to Rs. 100 lacs. Proposal was sent on 16.05.2002 and the sanction was accorded on 13.06.2002. But before that on 12.06.2002, the account holder i.e. M/s Maharaja Ispat (P) Ltd. had issued two cheques in favour of M/s Surya Steel Traders. Total worth of these cheques was Rs. 15.60 lacs and the date of debit in the account is also12.06.2002.
9.20 Here, I would also like to mention that when party sought enhancement from Rs. 50 lacs to Rs. 100 lacs, it was sanctioned enhancement upto Rs. 70 lacs. When proposal was sent by the Branch office to Circle Office, there was already liability of Rs. 64.04 lacs as against Rs. 50 lacs and in the proposal itself, it was prayed that action of the Branch in allowing TOD in the account in anticipation of sanction be ratified. This, itself, indicates that it was not uncommon to allow release of facilities without waiting for written sanction from Circle Office. Thus, it cannot be said that release of facility in advance had any malafide angle.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 51 of 60 OVERDRAWINGS 9.21 I have already noticed above that Ravi Sethi had not concealed anything and had made a mention about the negative features also. He also specified that existing limit was Rs. 120 lacs but liability was Rs. 136.01 lacs and there was overdue of Rs. 16.01 lacs. I would say that this again is within the permissible limit. Ravi Sethi was Chief Manager at that time and exceptional drawings i.e. emergency powers was permissible to the extent of 25 % of the existing limit or 25 % of the delegated powers whichever was less. Existing credit facility was Rs. 120 lacs. 25 % of that comes to Rs. 30 lacs. Any Chief Manager was having delegated powers of Rs. 75 lacs and 25 % of Rs. 75 lacs comes to Rs. 18.75 lacs. Thus, Ravi Sethi was within his right to permit exceptional drawing upto Rs. 18.75 lacs. Here overdue was Rs. 16.01 lacs which was within the emergency powers/ exceptional drawings.
9.22 Moreover, as per PW14 Vinay Kumar, overdrawing was part and parcel of banking. He also claimed that when he joined this Branch, overdrawing was already going on as per banking practice. He also claimed that it was a VIP account.
STOCK INSPECTION 9.23 Learned PP has asserted that as a Chief Manager, it was primary duty of accused Ravi Sethi to ensure that there was regular stock inspection and he should not have forwarded the proposal before seeing the stock inspection report. I have already noted above that appraisal note was prepared by Sh. Mahesh Prakash and Sh. D.C. Narnolia and it was CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 52 of 60 their duty to see whether stocks were in order or not. There was no adverse entry regarding inspection in their appraisal note. It will be now useful to again refer to the testimony of PW12 Mahesh Prakash. In his cross-examination, he claimed that it was correct that in the appraisal form of 02.12.2004 (NF622), it was shown that godown of the party was inspected in November 2004 and that no inspection was due.
9.24 PW12 Sh. Mahesh Prakash has also admitted that Sh. Narnolia, Manager (Advances) used to plan the inspection of the godowns as per guidelines of the bank on rotational basis. PW19 L. Raju was Chief Manager prior to accused Ravi Sethi and he claimed that it was duty of the Credit Manager to prepare report regarding inspection. He also deposed that Credit Manager was bound to produce stock inspection report and in case such reports were not produced by the Credit Manager then Credit Manager was to be held responsible and accountable. Thus, according to him, Sh. D.C. Narnolia, who was Credit Manager/Manager (Advances,) is to be held responsible for stock inspection. Interestingly, PW19 L. Raju has also admitted in his examination-in-chief that he had also inspected the stock with Credit Manager during the course of regular inspection but he did not record in writing as he was under the impression that the Credit Manager would have recorded the same.
9.25 In order to see as to what was the stock inspection status just before the proposal in question i.e. proposal dated 09.112004, I called for the case diary. I came across various monthly inspection reports. One Inspection Report dated 14.10.2004 is found to be there seems to be signed by Mr. Narnolia showing stock worth Rs. 1.86 crores. Next report of inspection is of 18.11.2004. There are signatures of godown inspection CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 53 of 60 official and it is mentioned in the report that stock was properly stored and maintained and the details of stock was as per the stock register and was found in order. These related to the stock statement submitted by the party and party had given stock statement, as on 31.10.2004, having total value of Rs. 1,88,16,815/-. Thereafter also, there is one stock statement dated 30.11.2004 given by the party and duly signed by accused Mahesh Kumar. Surprisingly, this stock statement shows stock worth of Rs. 3,51,51,690/-. The stock inspection was carried out on 18.12.2004 and was found to be in order. I really do not understand as to why these inspection reports had been held back by the prosecution. All these are contained in file MR452/10 to MR 515/10 and there are various monthly inspection report for the previous months also. Thus, inspection of stock was carried out by Sh. D.C. Narnolia and Sh. Mahesh Prakash regularly and if that is the situation, naturally, Chief Manager was not unjustified in sending the proposal. It has also come on record that it was never the task of the Chief Manager to have inspected the stock all by himself. After all he is branch head and if the stock inspection reports are prepared by his subordinates, who were in the rank of officer and manager, he was not wrong in placing his reliance upon such reports. On the contrary, case has been projected in a manner as if there were no inspection at all. Investigating agency, with complete ease, segregated these reports and did not choose to place its reliance upon such reports. These would not have come to the knowledge of the Court had the Court not summoned the case diary and all the documents.
PURCHASE OF CHEQUES BEYOND DELEGATED POWERS 9.26 Mere fact that cheques were purchased beyond discretionary powers would not, by itself, reflect any criminal misconduct or connivance CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 54 of 60 or conspiracy with the party or any intention to cheat the bank.
9.27 Moreover, it is admitted case of prosecution that as a Chief Manager, accused Ravi Sethi could purchase cheques upto Rs. 20 lacs only. As per charge-sheet, he had purchased cheques beyond Rs. 20 lacs. I have seen the entire statement of account of M/s Maharaja Ispat (P) Ltd which has been proved as Ex. A1/1 and which is not even disputed by accused Mahesh Kumar. If I have read the statement correctly, there are 26 cheques which had been purchased by accused Ravi Sethi and which also returned dishonoured. These are of his tenure only. None of these 26 cheques is above Rs. 20 lacs. Naturally, if accused Ravi Sethi purchases any cheque beyond his discretionary powers but such cheque is also duly honoured, it is not going to cause any loss to the bank. It can be said to be case of calculated risk which pays off also. Problem arises when any such Chief Manager purchases any such cheque beyond discretionary power and such cheque returns unpaid. Ravi Sethi had purchased 373 cheques during his tenure. Worth of these was more than Rs. 15 crores and out of these 373 cheques, only 26 cheques returned dishonoured. Purchase of all such cheques is within discretionary powers. Details of such cheques are as under:
S. No. CDB Number Amount Date of Purchase Date of Return 1 CDB9192 3,05,000/- 01.11.2004 04.11.2004 2 CDB9193 4,25,000/- 01.11.2004 04.11.2004 3 CDB9562 5,00,000/- 25.11.2004 30.11.2004 4 CDB9563 5,00,000/- 25.11.2004 30.11.2004 5 CDB9582 5,00,000/- 27.11.2004 01.12.2004 6 CDB9864 5,00,000/- 23.12.2004 08.01.2004 7 CDB10026 3,50,000/- 08.01.2005 12.01.2005 8 CDB10106 12,00,000/- 13.01.2005 22.01.2005 CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 55 of 60 9 CDB10145 3,60,000/- 15.01.2005 19.01.2005 10 CDB10160 10,50,000/- 17.01.2005 20.01.2005 11 CDB10333 5,00,000/- 01.02.2005 04.02.2005 12 CDB10931 2,35,000/- 31.03.2005 04.04.2005 13 CDB10934 5,00,000/- 31.03.2005 04.04.2005 14 CDB11079 5,00,000/- 12.04.2005 16.04.2005 15 CDB11437 2,54,000/- 14.05.2005 18.05.2005 16 CDB12055 16,00,000/- 01.07.2005 05.07.2005 17 CDB12111 5,00,000/- 07.07.2005 09.07.2005 18 CDB12633 5,00,000/- 19.08.2005 22.08.2005 19 CDB12999 3,00,000/- 21.09.2005 24.09.2005 20 CDB13028 3,10,000/- 24.09.2005 28.09.2005 21 CDB13034 4,15,050/- 26.09.2005 28.09.2005 22 CDB13040 2,20,905/- 26.09.2005 28.09.2005 23 CDB13041 5,00,000/- 26.09.2005 28.09.2005 24 CDB13124 2,00,000/- 03.10.2005 06.10.2005 25 CDB13809 50,000/- 08.12.2005 12.12.2005 26 CDB13948 7,03,577/- 21.12.2005 10.01.2006 9.28 It signifies that even if accused had purchased any cheque beyond his discretionary power, it did not return dishonoured. I am not able to fathom as to how it resulted in any cheating to the bank. Moreover, CBI should have made it very clear that any cheque purchased beyond discretionary powers had returned dishonoured. Such fact has neither been asserted in challan nor proved. On the contrary, task has been left to the court to find out the same from such a long statement. In view of my foregoing discussion and said chart, no criminality, therefore, can be found even if he had purchased any cheque beyond his discretionary power though he was supposed to at least inform the Circle Office and could have obtained ratification of the same as well.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 56 of 60 CONCLUSION 10.0 I am conscious of the order of the appellate authority in connection with the departmental proceedings. CBI has attempted to dig out huge mileage out of that. According to Ld. PP, since he has been held liable in such proceedings, he should be held liable here as well as facts and evidence were same and identical in both such proceedings. Order in this regard has been proved as Ex. DW2/A and the Appellate Authority, to the utter dismay of prosecution, observed that there was no malafide intention on the part of Chief Manager Ravi Sethi in discharge of his duty as fraud had been perpetrated by the party and he might have been victim of deliberate fraud of the account holder/ party. Canara Bank had conducted full-fledged inquiry and had returned the aforesaid findings. These findings cannot be casually brushed aside which, to some extent, absolves Ravi Sethi.
10.1 An omission on the part of public servant, dereliction of duty or negligence is not per se criminal misconduct as defined in Prevention of Corruption Act. There is vast difference between criminality and dereliction of duty. Mere error of judgment also cannot be said to be falling within the definition of criminal misconduct. Moreover, there ought to be some difference between misconduct and criminal misconduct. Every misconduct is not criminal in nature.
10.2 Bank earns profits by lending money and by getting interest in return. Banking business is, at times, done on speculation and guesswork by taking some calculated risk. It is not always essential that in every case where facilities are granted with complete exactitude and watchfulness, the account would never turn bad. Vice versa, even where CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 57 of 60 there are serious lapses, deliberate or otherwise, the bank may end up making profits. Ravi Sethi, in the case in hand, might have been swayed away by various previous grant of facilities. He was also relying upon reports prepared by his subordinates. Sanctioning Authority also sided with him and sanctioned the proposed limits. Rather, Circle office was under
some sort of awe or influence that account had recommendation of its Director and accorded sanction without much murmur. If Circle office felt that there was something amiss or lacking, it should not have accorded sanction at all.
10.3 Moreover, all along, concerned Branch officials and Circle officials must have remained apprehensive. They were also made accused by the Canara Bank. Departmental action was also taken against them. No necessity was felt to at least inform the court as to what action was proposed by department against them. Without disclosing any compelling reason, they all were virtually exonerated and let off as they were not sent up to face trial. Officials below and officials above Ravi Sethi are not in the dock though all were required to share the blame, if any. Equals were required to be treated equally.
10.4 I do not find any material which may suggest any sort of conspiracy between the accused. I have already noticed above that accused Ravi Sethi had barely joined the Uttam Nagar Branch as Chief Manager when he had forwarded the proposal. He had minutely scrutinized the matter and mentioned about the negative features in his proposal. Merely because, he had forwarded the proposal recommending enhancement does not per se designate that there was any conspiracy between the accused persons. There is no material showing any sort of CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 58 of 60 other link between the two accused except the fact that M/s Maharaja Ispat (P) Ltd. was enjoying the credit facility from the bank where Ravi Sethi had recently joined as Chief Manager. He had relied upon the documents placed before him which included duly audited financial statements and no document submitted by the party was found to be forged or fabricated and, therefore, it is very difficult for me to irrefutably decipher any criminality on the part of accused Ravi Sethi.
10.5 I reiterate that though as per final outcome of the departmental proceedings against accused Ravi Sethi, he was though meted out punishment of compulsory retirement yet even appellate authority commented that he was victim of fraud perpetrated by the party and there was no malafide intention on his part. Standard of proof required to establish any criminal case is far higher than the standard of proof required to establish guilt in departmental proceedings and, therfore, such observation appearing in departmental proceedings cannot be kept aloof and detached and have to be given some credence.
10.6 There is nothing on record which may even remotely reveal or imply that accused Ravi Sethi obtained any sort of pecuniary advantage in any manner whatsoever. Merely because he had forwarded the proposal and merely because account had later turned NPA does not mean that the act of forwarding the proposal was criminal in nature or that release of facility was with any ulterior motive. There is nothing to show that any of the alleged act of accused Ravi Sethi was actuated with malice or criminal intent or amounted to criminal misconduct. There is no material suggesting abuse of office either.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 59 of 60 10.7 I, accordingly granting benefit of doubt, acquit accused Ravi Sethi of all the charges levelled against him.
10.8 In view of my foregoing discussion, It is also held that CBI has been able to prove its case against accused Mahesh Kumar only. He is hereby held guilty for offence punishable u/s 420 IPC only and convicted thereunder.
ANNOUNCED IN OPEN COURT On this 5th Day of September 2012.
(MANOJ JAIN) Special Judge (PC Act) (CBI) South District, Saket Courts, New Delhi CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 60 of 60 CC No. 10/2011 CBI Vs. Mahesh Kumar Thursday, September 06 2012 Present: Sh. Jagbir Singh, learned Senior Prosecutor for CBI.
Convict Mahesh Kumar has been produced from Dasna Jail. Sh. Rajesh Arora, counsel for convict Mahesh Kumar.
1 Heard arguments on sentence.
2 Sh. Singh has prayed for maximum dosage. It has been contended that because of the fraudulent and dishonest act of convict, there is loss of Rs. 134.81 lacs to the bank and if the interest on 'such outstanding amount is also reckoned, such loss becomes even bigger.
3 Sh. Arora has, on the other hand, prayed for maximum leniency. According to him, convict has four children including three daughters and youngest one is hardly five years of age. They all are on road as even their residential property has been reclaimed by the bank. Sh. Arora has also contended that convict is himself a victim as he was duped by his brother Ombir Singh who made him sign various blank cheques and documents and convict is not beneficiary at all. It has also been argued that he is not involved in any other matter related to banking activity and it has also been reasserted that it was a case of civil liability and out of the alleged balance cheated amount of Rs. 134 lacs approximately, Ombir Singh had deposited Rs. 90 lacs in three installements and even the LIC policies worth Rs. 15 lacs have been reclaimed by the bank and thus the remaining loss is virtually minimal.
4 I cannot be oblivious of the fact that Indian Banking has seen CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 61 of 60 an exponential growth in the recent years. It is already noticed by me in the judgment that credit facilities are sometimes given on the basis of some calculated speculation. Thus, the element of risk is inherent in the banking business. No banking sector can be said to be absolutely immune to fraudulent activity. Indubitably, steps should be taken to minimize such fraud related incidents.
5 India is said to be one of the fastest growing economy and such banking fraud can slowdown the pace. Most of the banking frauds relate to retail banking followed by corporate banking. Even whenever there is case of fraud related to retail banking, the prime reason is lack of management by the officials involved with the sanctioning process.
6 I am also cognizant of the fact that, at times, there is huge pressure on the officials of the bank to meet stiff target and in its over- enthusiasm to meet such target, bank officials do not adhere to the circulars and guidelines which consequently result in loss to the bank.
7 It is time for the banks to gear them up. Banks are not supposed to grant facilities merely on the drop of hat and are rather required to be extra vigilant as public money is involved. Banks are supposed to develop a foolproof fraud-control-management-system. There should not be any case of incorrect sanctioning or over valuation of collateral. The internal cross-check mechanism should be very effective. There is technological advancement in every field and it is high time that banks should adopt latest technological tools and should hold regular training modules to minimize such type of bank-fraud so as to create complete awareness amongst its officers with respect to the clever ploys applied by the parties for siphoning off the funds. If strong anti fraud CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 62 of 60 measures are not adopted and implemented, there would be serious setback to the Indian economy. Thus, banks are required to formulate guidelines for comprehensive fraud risk management if not already in place and senior management should not blindly rely upon the proposals sent by Branches. Mechanism be also developed defining and pinpointing the responsibility of each individual. Regular training programmes and refresher courses would prove to be handy for the bank officials as it is experienced that most of the time, even the bank officials are not very clear as to what act or step would constitute misconduct. All these issues are required to be addressed as early as possible so that any person having fraudulent intention is not in a position to exploit the situation and to run away with the public money.
8 Keeping in mind the overall facts and circumstances of the present case and also considering the aggravating and mitigating factors, I hereby sentence convict Mahesh Kumar to undergo SI for a period of three years and also impose fine of Rs. 1 lac and in default thereof, he would further undergo SI for a period of 10 months. Fine not deposited.
9 In the present case, when the cognizance was taken and process was issued, it was learnt that convict was in custody in case u/s 302 IPC and was lodged in Dasna Jail, Ghaziabad and production warrants were accordingly issued by this Court on 07.01.2011. Therefore, I assume him to be in the custody in the present case w.e.f. 07.01.2011 and he would be entitled to the benefit of set off. Though he was ordered to be released on bail vide order dated 17.03.2011, he never submitted any bond.
CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 63 of 60 10 Convict be sent to jail under appropriate warrants. Superintendent, Dasna Jail, Ghaziabad, UP would ensure that convict undergoes the sentence awarded to him and he would be at liberty to transfer the convict to Central Jail Tihar for serving any such sentence in case, the convict is acquitted in the case for which he is lodged in Dasna Jail. This be done under the intimation of this Court. A separate copy of order on sentence be also attached with the warrants for Superintendent, Dasna Jail, Ghaziabad.
11 A copy of judgment & order on sentence be given to convict free of cost. Convict is desirous of filing appeal but has no means to engage any counsel. He be produced before District Legal Services Authority, Saket Courts, New Delhi today itself for necessary action to be taken in this regard.
12 Ahlmad is directed to paginate and book-mark the file as per the circular so as to enable digitization of the entire record.
13 File be consigned to record Room.
Announced in the open Court on this 6th day of September, 2012.
(MANOJ JAIN) Special Judge (PC Act) (CBI) South Distt: Saket Courts: New Delhi CC No. 10/2011 CBI Vs. Mahesh Kumar & Another. 64 of 60