India: Prevention Of Corruption Act - Scanning Private Bankers

Last Updated: 29 April 2016
Article by Legasis Legasis

Corruption is one of the biggest areas of concern for the world in its efforts to make itself a better place in terms of compliance and ethics. All over the world, may it be Brazil in America, Italy in Europe or China in Asia; countries are trying to ensure stricter enforcement of anti-corruption provisions. Also, in order to have more elaborated and clearer anti-corruption statutes in place, countries are opting to bring into force separate anti-corruption statutes over having these provisions as part of their civil codes. To keep the business economies untainted from non-compliant and unethical practices such as corruption, it's important for the judiciary to interpret the statutes based on the purposivism theory of interpretation. Purposive interpretation i.e. interpretation by placing the focus on the legislative intent or purpose is a sine qua non for the judiciary in order to curb corruptive practices at a ground level. The Supreme Court of India recently set an example by interpreting India's Prevention of Corruption Act in a way that will extend the ambit of ethics and compliance to the private banking industry.

The rule of casus omissus states that 'what has not been provided for in the statute cannot be supplied by the Courts'. The rule limits the right of judiciary to interpret beyond what is stipulated. However, Justice Lord Denning, in the case of Seaford Court Estates Ltd. Vs Asher ((1949) 2AIIER 155, p 164) opines that "... A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases..." The approach taken by Justice Denning serves as an exception to the rule and the same has been relied upon by Justice Ranjan Gogoi of the Supreme Court of India. In the case of Ramesh Galli Vs CBI through Superintendent of Police, BS & FC & Anr.("the said decision")1, Justice Gogoi widened the scope of the definition of a 'public servant' given under the Prevention of Corruption Act, 1988 ("the P. C. Act") to include bankers working in a private bank.

To sum up the facts of the said decision, the Global Trust Bank ("GBT") was incorporated as a banking company in 1993 and was issued a license by the Reserve Bank of India ("RBI") under the Banking Regulations Act, 1949. The promoters Ramesh Gelli and Sridhar Subasri, who are also the Chairman and the Executive Director of the Bank respectively ("the Accused # 1"), obtained loans from certain individuals and corporations including M/s Beautiful Group of Companies and M/s Trinity Technomics Services Pvt. Ltd. run by Rajesh Mehta and Vijay Mehta ("the Accused # 2"). After opening the account in the name of Beautiful Diamonds Ltd. in GTB, the Accused #1 allowed Accused #2 to avail of certain credit facilities by fraudulently instructing the branch heads without following the branch norms of credit facilities. The Accused #1 also illegally approved higher credit limits to M/s Beautiful Diamonds Ltd. In addition, the non-performing assets ("NPA") accounts of the Accused #2 were manipulated and declared as higher profit yielding accounts. The Accused #1 and #2 together caused a total loss of Rs 41.00 crores to GTB. The scam came to light only when GTB merged with Oriental Bank of Commerce ("OBC") and two First Information Reports ("FIR") were lodged by the Vigilance Officer of the OBC under Sections 420, 467, 468, 471 of Indian Penal Code ("IPC"), Sec 13 (2) read with Sec 13 (1)(d) of the Prevention of Corruption Act ("PC Act") and Section 120B read with Sections 409 and 420 IPC against the Accused #1 and 2.

It is important to emphasise on the fact that GBT was a private sector bank before its amalgamation with OBC and that the Accused #1 were the employees of a private sector bank when the offence was committed. The question that arises is whether being the private bankers, they can be deemed to be a public servant to be charged guilty under the P. C. Act. As per Section 2(c) of the P. C. Act, 'public servant' means "(i)...(ii)...(viii) any person who holds an office by virtue of which he is authorised or required to perform any public duty ... (ix)..." Also, "public duty" as defined under the P. C. Act means "a duty in the discharge of which the State, the public or the community at large has an interest". Taking a plain view of both the definitions, the definitions do not seem to include the employees of a private bank in their scope and thus, from a literal point of view, the P. C. Act should not reach the employees of a private bank. However, the Supreme Court in the said decision chose to look beyond the plain interpretation of these definitions and took a purposive way to interpret the P. C. Act.

In the said decision, the Supreme Court laid down that "The present Act (the 1988 Act) envisages widening of the scope of the definition of the expression "public servant". It was brought in force to purify public administration. The legislature has used a comprehensive definition of "public servant" to achieve the purpose of punishing and curbing corruption among public servants. Hence, it would be inappropriate to limit the contents of the definition clause by a construction which would be against the spirit of the statute. Bearing in mind this principle, when we consider the case of the appellant, we have no doubt that he is a public servant within the meaning of Section 2(c) of the Act.... The word "office" is of indefinite connotation and, in the present context, it would mean a position or place to which certain duties are attached and has an existence which is independent of the persons who fill it."

Thus, the said decision brings private bankers in the purview of anti-corruption provisions of India. This can be considered as one of the landmark judgements in determining the reach of anti-corruption provisions.  In order to encourage robust compliance and ethics practices, mere enactment of a law does not suffice. It further requires judiciary to correctly interpret and apply the law in the manner that it will serve the purpose of the legislation and will, as a result, deter noncompliance. The Supreme Court through the said decision sets a benchmark by interpreting and applying the P. C. Act in the manner that will curb unethical and non-compliant practices in a private banking industry which indeed is the purpose of the legislation.

Footnote

1 CRIMINAL APPEAL NOS. 1077-1081 OF 2013, http://supremecourtofindia.nic.in/FileServer/2016-02-23_1456211032.pdf

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