The Supreme Court ("SC") in Central Bureau of Investigation, Bank Securities and Fraud Cell and Others v. Ramesh Gelli and Others (Criminal Appeal Nos. 1077-1081 of 2013 and W.P. (Crl.) No. 167 of 2015) has held officers of private banks to be public servants under Prevention of Corruption Act, 1988 ("PCA").
In August, 2004, Global Trust Bank ("GTB"), a private bank in India amalgamated/merged with Oriental Bank of Commerce ("OBC") which is a public sector bank. For raising their contribution to the capital, the two accused, Mr. Ramesh Gelli (Chairman and Managing Director of GTB) and Mr. Sridhar Subasri (Executive Director of GTB) (both were also promoters of GTB) ("Accused Persons") obtained loans from various individuals and companies including M/s Beautiful Group of Companies. Allegations were levelled against the Accused Persons for sanctioning higher credit limits to M/s. Beautiful Diamonds Limited, in abuse of their official positions and against banking regulations. The Accused Persons had fraudulently instructed branch heads without following banking norms for sanctioning such credit facilities.
According to Central Bureau of Investigation ("CBI"), the investigations revealed that in pursuance to the alleged conspiracy of the Accused Persons with other accused including the directors of M/s. Beautiful Diamonds Limited, the funds of GTB were diverted, and release of Rs. 5 crores was made in the name of M/s. Beautiful Realtors Limited on the request of directors of M/s. Beautiful Diamonds Limited. Said amount was further transferred to already overdrawn account of M/s. Beautiful Diamonds Limited. In April 2001, directors of Beautiful Group of Companies in pursuance of conspiracy with other accused submitted another application for sanction of Rs. 3 crores as diamond loan in the name of M/s. Crystal Gems. Investigations further revealed that the Accused Persons along with other accused directors of Beautiful Group of Companies caused total wrongful loss of about Rs. 41 crores to GTB. The accounts of Beautiful Diamonds Limited and other companies, which availed funds from GTB, should have been declared Non Performing Assets ("NPA"), but the Accused Persons allegedly manipulated and showed the accounts of Beautiful Realtors and Crystal Gems as higher profit yielding accounts.
These allegations pertained to the pre-amalgamation period, but were brought to light as a result of an audit after the amalgamation.
CBI investigated the matter on the receipt of complaint made by the Chief Vigilance Officer of OBC, in respect of offences punishable under Sections 420 (Cheating and dishonestly inducing delivery of property), 467 (Forgery of valuable security, will, etc), 468 (Forgery for purpose of cheating), 471 (Using as genuine a forged document or electronic record) of the Indian Penal Code ("IPC") and under Sections 13(2) read with 13(1)(d) of the PCA (Criminal, misconduct by a public servant), wherein allegations were made against the Accused Persons and other accused for entering into a criminal conspiracy to cheat GTB causing wrongful loss to the tune of Rs. 17.46 crores and thereby earning corresponding wrongful gain. After investigation, charge sheet was filed in the said matter before the Special Judge, CBI. Subsequent to this, another First Information Report ("FIR") was registered by CBI for offences punishable under Section 120B (Punishment of criminal conspiracy) read with Sections 409 (Criminal breach of trust by public servant, or by banker, merchant or agent) and 420 of the IPC against the Accused Persons and other employees of GTB. It was alleged that, GTB sanctioned and disbursed loans by throwing all prudent banking norms to winds and thus created a large quantum of NPA jeopardizing the interests of thousands of depositors, but painted a rosy financial picture. It was noted that, two accounts, namely that of M/s. Beautiful Diamonds Limited and M/s. Crystal Gems were used to siphon out funds of GTB.
However on February 5, 2007, the Special Judge, Mumbai declined to take cognizance of offence punishable under Sections 13(2) read with 13(1)(d) of the PCA, on the ground that the Accused Persons were not public servants on the dates such transactions were said to have taken place. Since the High Court of Judicature of Bombay had upheld the order of the Special Judge, CBI approached the SC through special leave, which was clubbed with the writ petition filed by Mr. Ramesh Gelli, as similar questions of law were involved in both petitions, and thus a common order was passed.
The SC was required to adjudicate on "whether the Chairman, Directors and Officers of Global Trust Bank Limited (a private bank before its amalgamation with the Oriental Bank of Commerce), can be said to be public servants for the purposes of their prosecution in respect of offences punishable under the PCA or not?"
The SC was focussed on the following provisions of law : a) Section 2(b) and Section 2(c)(viii) of the PCA (b) Section 46A of the Banking Regulation Act, 1949 ("BR Act").
- Section 2(b) of PCA defines public duty as a "duty in discharge of which the State, the public or the community at large has an interest" and provides for an explanation stating "In this clause "State" includes a corporation established by or under a Central, Provincial or State Act, or an authority or a body owned or controlled or aided by the Government or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956)".
- Section 2(c)(viii) of the PCA defines public servant to be any person who holds an office by virtue of which he is authorized or required to perform any public duty.
- Further, Section 46A of the BR Act states that, every chairman who is appointed on a whole-time basis, managing director, director, auditor, liquidator, manager and any other employee of a banking company shall be deemed to be a public servant for the purposes of Chapter IX of the IPC. Chapter IX of IPC deals with offences by or relating to public servants.
Section 46A of BR Act provides for officers of a bank to be deemed as public servants for the purposes of Chapter IX of the IPC. It is pertinent to note that, when the PCA was enacted, Sections 161-165A contained in Chapter IX of the IPC were repealed and the said offences were embodied in the substantive sections (Sections 7-12) of the PCA. The Court reasoned that the objectives of the PCA clearly specified that the statute was to make the anti-corruption law more effective and widen its coverage. The BR Act deemed officers of banks to be public servants and thus, the pith and substance of Section 46A of the BR Act would not be defeated merely because the PCA repealed Section 161-165A (Offences in relation to public servants) of the IPC and engrafted the same in PCA, and an express provision to this effect was not made in Section 46A of the BR Act. After conjointly reading the provisions of PCA and BR Act, the court interpreted that officers of a private banking company would fall under the definition of a "public servant" as defined in the PCA.
With the Prevention of Corruption (Amendment) Bill, 2013 seeking to include private players into the ambit of PCA, this judgment is a way forward in strengthening the anti-corruption enforcement measures in India in the private space. Furthermore, it should be noted that the judgment has been pronounced in the backdrop of several frauds being detected in the banking sector in relation to non-performing assets. As a preventive measure, it is suggested that the private banks ought to put more compliance mechanisms in place and need to get a clearer understanding of the application of PCA provisions and the consequences thereof. It is to be clarified that this judgment is not meant to obliterate the distinction between the holder of a private office and a public office, but is an instance where the Court has taken a step forward in filling up the lacunae which the statute has not provided for.
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