REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDCITION

CRIMINAL APPEAL NO. 76 OF 2004

R. Venkatakrishnan …. Appellant

Versus

Central Bureau of Investigation  …. Respondent

[With Criminal Appeal No. 164 of 2004, Criminal Appeal No. 92 of 2004,  Criminal  Appeal  No.  101  of  2004,  Criminal  Appeal  No.  90  of  2004,  Criminal Appeal No. 147 of 2004]

J U D G M E N T

S.B. SINHA, J.

INTRODUCTION

These six appeals are directed against a judgment and order dated 4th  

December, 2003 passed by the Special Court in Case No.2 of 1993 whereby  

and whereunder the appellants herein were convicted and sentenced in the  

following terms :-   

“(a) Accused No. 1, K. Margabanthu is sentenced for  the offence punishable under Section 120-B read  

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with Section 409 of  the  Indian Penal  Code read  with Section 13(1)[d](iii) read with Section 13(2)  of  the  Prevention  of  Corruption  Act  to  undergo  R.I. for a period of six months and to pay fine of  Rs.1,00,000/- in default S.I. for two months.  

(b) Accused No. 2, R. Venkatkirshnan is sentenced for  the offence punishable under Section 120-B read  with  Section 409 of  the  Indian Penal  Code read  with Section 13(1)[d](iii) read with Section 13(2)  of  the  Prevention  of  Corruption  Act,  to  undergo  R.I. for a period of six months and to pay a fine of  Rs.1,00,000/- in default S.I. for two months.

(c) Accused No. 3, S.V. Ramnathan is sentenced for  the offence punishable under Section 120-B read  with  Section 409 of  the  Indian Penal  Code read  with Section 13(1)[d](iii) read with Section 13(2)  of  the  Prevention  of  Corruption  Act  to  undergo  R.I. for a period of one month and to pay fine of  Rs.10,000/- in default S.I. for 15 days.

(d) Accused No. 5, Atul M.Parekh is sentenced for the  offence  punishable  under  Section  120B  of  the  Indian Penal Code to undergo R.I. for a period of  15 days and to pay fine of Rs.10,000/-, in default  S.I. for 15 days.

(e) Accused No. 6, C. Ravikumar is sentenced for the  offence punishable under Section 120-B read with  section  409  of  the  Indian  Penal  Code  read  with  Section 13(1)[d](iii) read with Section 13(2) of the  Prevention of Corruption Act to undergo R.I. for a  period  of  three  years  and  to  pay  fine  of  Rs.1,00,000/- in default S.I. for three months.

(f) Accused No. 7, S. Suresh Babu is sentenced for the  offence punishable under Section 120-B read with  section  409  of  the  Indian  Penal  Code  read  with  Section 13(1)[d](iii) read with Section 13(2) of the  

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Prevention of Corruption Act to undergo R.I. for a  period of one year and to pay fine of Rs.50,000/- in  default S.I. for three months.”

BACKGROUND FACTS

While accused No.1, K. Margabandhu, at the relevant time, was the  

Chairman and Managing Director of United Commercial Bank (UCO Bank),  

(a  public  sector  bank),  accused  No.2,  Ramaiya  Venkatkrishnan  was  the  

General  Manager  and accused No.3,  S.V. Ramnathan was the Divisional  

Manager thereof of the Bombay Branch.   

accused No.4, Harshad Shantilal Mehta (Harshad Mehta) is said to be  

the kingpin of the whole operation.  He is no more.   

accused  No.5,  Atul  Manubhai  Parekh  was  working  as  Asst.  Vice  

President  in  M/s.  Growmore  Research  and  Assets  Management  Ltd.  

Bombay  and  representing  Harshad  Mehta  in  the  matter  of  undertaking  

security transactions.   

accused No.6 Coodli Ravi Kumar was Assistant General Manager of  

National  Housing Bank (NHB),  Bombay and was in charge of  its  Funds  

Department.   accused  No.7,  Seethapathy  Suresh  Babu  was  the  Assistant  

Manager of National Housing Bank.  He used to report to Accused No.6,  

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Shri  Coodli  Ravi Kumar in regard to his function and worked under his  

instructions.   

The basic allegation against the appellants and Late Harshad Mehta  

was that some transactions were carried out in connivance with the officials  

of  the  Financial  Institutions,  Banks  illegally  as  a  result  whereof  Late  

Harshad Mehta was allowed to obtain a  sum of Rs.40 crores  which was  

actually ‘Call Money’ given as a loan by the National Housing Bank to the  

UCO Bank.   

Similar illegal transactions relating to government securities and other  

non governmental securities came to the notice of the Central Government.  

A Committee commonly known as ‘Janakiraman Committee’ was thereafter  

constituted,  Shri  R.  Janakiraman,  the  then  Deputy  Governor  of  Reserve  

Bank of India was appointed as its Chairman.   The Committee submitted its  

report between May, 1992 and April, 1993.  On the basis of the report of the  

said Committee,  Special  Courts were constituted in terms of The Special  

Court (Trial of Offences Relating to Transactions in Securities) Act, 1993.   

Allegations  against  the appellants  and late  Harshad Mehta were as  

under:-

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On 6th April, 1992 National Housing Bank lent a sum of Rs.40 crores  

‘at call’ to UCO Bank.  However the said amount was credited to Harshad  

Mehta’s account in UCO Bank, Hamam Street Branch, Mumbai.  This was  

allegedly done under the instructions of the Head Office in Calcutta and its  

Zonal Office at Bombay.  The Fund Dealing Officer at D.N. Road, Bombay,  

Branch had alleged that a letter was received from National Housing Bank  

enclosing the  cheque but  it  was not  traceable  either  in  UCO Bank or  in  

National  Housing  Bank.   On the  date  of  credit,  the  account  of  Harshad  

Mehta  in  UCO  Bank,  Hamam  Street  Branch  showed  an  overdraft  of  

Rs.39.07  crores.   Harshad  Mehta  allegedly  repaid  the  said  amount  with  

interest  amounting  to  Rs.27  lakhs  through  Grindlays  Banks  which  had  

debited  Harshad Mehta’s account.     

It is stated that National Housing Bank could not have advanced loans  

directly  to the brokers.   The recording of  the  transactions  as  call  money  

transactions  through  other  banks  was  a  subterfuge  meant  only  to  ensure  

grant  of  loans  to  Harshad Mehta.   It  was  also alleged that  all  the  funds  

management  operations at  the National  Housing Bank (the lending bank)  

were centralized with C. Ravikumar, Assistant General Manager (accused  

No.6).  He was not only the dealer but was also one of the signatories to the  

cheques.   The  back  up  functions  were  conducted  by  S.  Suresh  Prabhu,  

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Assistant Manager, who used to report to C. Ravikumar and acted under his  

instructions.  These two officers, between themselves, were responsible for  

all  functions including (i)  making the deal;  (ii)  recording the same ;  (iii)  

preparing the vouchers; (iv) preparing the cheques; (v) signing the cheques  

(as one of the two signatories); preparing and signing BRs; (vii) custody of  

BRs received from counter-parties; (viii) issuing and receiving SGL transfer  

forms and lodging the same with the RBI; and (ix) maintaining the account  

with the RBI and reconciling the same.

The incident  having come to  light,  an investigation was conducted  

whereafter Charge Sheets were filed against the accused persons. Charges  

were framed by the Special Court on or about 31st October, 2001 which were  

as many as fourteen in number.  We need not advert thereto.

PROCEEDINGS BEFORE THE TRIAL COURT

With  a  view to  prove  the  charges  against  the  accused  persons  the  

prosecutions  examined twenty witnesses, viz :-

1. Shri Bishwajit Choudhuri,  Chairman and Managing Director,  United Commercial Bank of India.   Sanctioning Authority  

2. Shri P. Arvindak Shah

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General Manager, Reserve Bank of India,  Production Witness

3. Ravi Vira Gupta Chairman, National Housing Bank,  Sanctioning Authority

4. Shri B.L. Sachdeva, Under Secretary in the Ministry of Finance in  Banking Division

5. Shri Hiten D. Mehta,  Employee of late Shri Harshad S. Mehta

6. Shri N.A. Shivraman,  Assistant, Funds Department,  National Housing Bank

7. Shri Sunil Pandurang Gondhale,  Peon, National Housing Bank

8. Jeroo Dalal,  Management Trainee, ANZ Grindlays Bank

9. Shri Satish D. Hosangadi, Chief General Manager, National Housing Bank.

10. Mrs. Jyoti R. Patankar,  Officer, Reserve Bank of India Production Witness

11. Sujata Milind Nimbalkar,  ANZ Grindlays Bank Production Witness

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12. Shri Sunil Kakkar, Assistant Chief Officer, UCO Bank, Head Office,  Kolkata.  

13. Shri Chinmoykumar Mukherjee, Assistant Chief Officer, UCO Bank,  Kolkata

14. Shri K. Vijayan, Manager, Accounts Department, D.N. Road  Branch, UCO Bank

15. Shri Manohar C. Rupani Assistant Manager, D.N. Road Branch, UCO Bank

16. Neelam P. Kini Clerk, Hamam Street Branch, UCO Bank.

17. Shri K. Mallikarjunan,  Officer, UCO Bank, Head Office, Kolkata

18. Shri Pradeep A. Karkhanis,  Senior Manager, UCO Bank, Hamam Street  Branch

19. Shri Sitaram Premaram Paladia, Supdt. Of Police, C.B.I.

20. Shri P.K. Mankar, Dy. S.P. C.B.I.

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For proving charges against accused No.1, evidence of P.W. No. 4  

Shri  B.L.  Sachdeva,  PW-12,  Shri  Sunil  Kakkar;  PW-13,  Shri  

Chinkmoykumar Mukehrjee and PW-17, Shri K. Mallkarjunan are relevant.  

Accused No.1 also examined defence witnesses inter alia contending that on  

6th April, 1992 he was not present at the Head Office till 3.30 p.m.  It was  

furthermore contended that the transactions in question were held by and  

between NHB and accused No.4 and the officers of UCO Bank had nothing  

to do therewith.  The depositions of the said witnesses are also relevant for  

proving the charges so far as accused No.2 is concerned.  His defence was  

that the offence of conspiracy has not been proved.  It is his case that the  

purported decision to arrange for call  money had not  been taken by him  

alone  as  per  the  statement  of  PW-3,  P.  Arvindk  Shah  and  PW-17,  K.  

Mallikaarjunan,  but  by  the  Chairman-cum-Managing  Director  of  UCO  

Bank.   

With a view to prove the charges against accused No.3 the learned  

Special Court relied upon the evidence of PW-1, Shri Bishwajit Choudhuri,  

PW-13, Shri Chinmoykumar Mukherjee, PW-16, Neelam P. Kini and PW-

18,  Pradeep  A.  Karkhanis.   His  defence  was  that  on  the  basis  of  the  

documentary as well as oral evidence, the prosecution had not been able to  

prove his involvement either for commission of the offence in conspiracy or  

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in commission of any other offence.  The only evidence against him being  

that on 6th April, 1992 he had gone to Hamam Street Branch of the UCO  

Bank and at that time accused No.5 was also present and the fact that he had  

sent a letter for reviving the transaction with broker Late Harshad Mehta  

from the Hamam Street Branch by itself does not prove the offence.  

So far as accused No.5 is concerned, the prosecution had relied upon  

the evidence of PW-5, Shri Hiten D. Metha, who was an employee of Late  

Harshad Mehta.  He in his deposition stated that he used to make telephone  

calls  the  documents  were  prepared  for  repayment  of  Rs.40  crores  on  

instructions from accused No.5, Atul M. Parekh. The defence of the said  

accused was that he was merely an employee and had been looking after the  

execution  of  the  transactions  after  the  deal  had  been finalized  under  the  

instructions of Harshad Metha.  He being an employee could not be a party  

to the conspiracy nor the prosecution had been able to show that he had any  

role to play in the transaction.  

Admittedly  accused No.6,  C.  Ravikumar,  was  a  dealer  with  NHB.  

The prosecution relied upon the deposition of PW-3, Ravi Vira Gupta to  

prove the order of sanction, validity whereof is in question.  The prosecution  

for proving charge against him relied upon the deposition of PW-5, Hiten D.  

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Mehta,  who  was  working  with  Late  Harshad  Mehta.    Reliance  by  the  

prosecution  has  also  been  placed  on  the  evidence  of  PW-6,  Shri  N.A.  

Shivraman, who was working as Assistant, Funds Department, NHB from  

27th January, 1991 to 31st December, 1991.  Reliance has also been placed in  

this behalf on the deposition of PW-9, Shri Satish D. Hosangadi, who at the  

relevant time was the Chief General Manager of NHB.   

For  proving the  charges  against  accused No.7,  the  prosecution  has  

relied upon the depositions of PW-6, Shri N.A. Shivraman and PW-9, Shri  

Satish D. Hosangadi.  

Accused Nos. 1 to 3 and 6 & 7 were public servants.

Orders of sanction for their prosecution were passed by the competent  

authorities. Accused Nos. 6 and 7 challenged the validity of the said orders  

of sanction before the courts below.

All the accused persons had been charged for commission of offences  

punishable under Section 120-B read with Section 409 and Section 34 of the  

Indian  Penal  Code  and  Section  13(1)(d)(iii)  r/w  Sections  13(2)  of  the  

Prevention of Corruption Act, 1988.       

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JUDGMENT OF THE SPECIAL COURT

The learned Special Court in its impugned judgment referred to the  

decision  of    Ram Narayan  Popli      v.   Central  Bureau  of  Investigation,  

[(2003) 3 SCC 641 ] in extenso so as to note the ingredients for commission  

of the offence of conspiracy to conclude :-

“It  is  thus  well  established  that  the  transaction  of  call  money  which  was  shown  to  be  between  the  National  Housing  Bank  and  the  UCO  Bank  was  not  a  real  transaction of call money between the National Housing  Bank and the  UCO Bank.   It  was  really  a  transaction  between the National Housing Bank and Harshad Mehta  and the officers of the UCO Bank permitted the name of  the UCO Bank to be used to facilitate  the transactions  between  the  National  Housing  Bank  and  UCO  Bank.  Therefore, about the nature of the transaction, there is no  dispute.”

Referring to the statement of accused No.1 it was furthermore held :-

“From the submissions of accused No. 1 it is clear that  even according to him in this transaction, the UCO Bank  allowed itself to be used by Harshad Mehta pursuant to  the routing facility  that  was extended by it  to Harshad  Mehta.  Accused No. 1 also relies  on the deposition of  P.W. 5 Hiten Mehta in relation to this facility.”

Yet again upon referring to the deposition of PW-5, Hiten D. Mehta  

and PW-18, Pradeep A. Karkhanis, the learned court held :-

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“Now, so far as the aspect of conspiracy is concerned,  P.W. 18 Karkhanis has stated that on 6.4.1992 at 12 –  ’12.30  Ramnathan  accused  No.  3  and  Atul  Parekh  accused No. 5 had come to the Hamam Street Branch and  before he received call from Vijayan,  Atul Parekh told  him that he is expecting a cheque of Rs.40 crores from  the  NHB.   This  clearly  indicates  that  it  was  already  settled between the officers of  the NHB and the UCO  Bank that on that day the NHB was to route Rs.40 crores  to  Harshad  Mehta  through  the  UCO  Bank  and  that  Ramnathan and Atul Parekh knew about it.  It has come  on  record  that  the  transactions  with  the  brokers  were  stopped in the year 1991 from the Hamam Street Branch.  The  accused  No.  3  Ramnathan  wrote  a  letter  dated  17.3.1992  on  instruction  from  accused  No.  1  K.  Margabanthu for starting of the transactions again.  P.W.  18 Karkhanis has stated that on 6.4.1992 accused No. 3  Ramnathan  came  to  the  Hamam  Street  Branch  and  insisted on starting the transactions immediately.  He also  states  that  accused  No.  3  said  that  he  is  saying  so  on  instructions  from  accused  No.  1.   This  shows  that  accused No. 3 knew that on that day N.H.B. was to route  Rs. 40 crores to Harshad Mehta through the UCO Bank  and he had gone to the UCO Bank Hamam Street Branch  to see that the transaction goes through and that he did so  on instruction from the accused No. 1, K. Margabanthu.  The Supreme Court has clearly laid it down in the case of  Somnath  Thapa  referred  to  above  that  for  establishing  conspiracy knowledge about indulgence in illegal act is  necessary.  So far as accused No. 1 is concerned, from  the statements that he made in the meeting on 6.4.1992 it  is clear that he knew about the transaction.  (The dispute  about the time of the meeting raised by accused No. 1 is  really  not  relevant  considering  the  means  of  communication  available  and  the  written  submissions  filed  by  him,  where  he  says  that  this  was  a  routine  routing  transaction).   So  far  as  accused  No.2  is  concerned,  it  is  he  who  authorized  the  call  money  transaction though the amount of Rs.40 crores was not  needed by the UCO bank on that  day.   Therefore,  his  

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knowledge  about  the  nature  of  the  transaction  is  well  established.   So  far  as  accused  No.  3  Ramnathan  is  concerned, his presence at the Hamam Street Branch on  6.4.1992  at  12  –  12.30  with  Atul  Parekh  and  his  insistence that the transaction with the broker should be  started immediately show that he was also aware of the  transaction.  It is pertinent to note that cross-examination  of P.W. 18 by accused No. 3 shows that even an attempt  is  not  made to dispute the above referred statement  of  P.W.  18.   So  far  as  accused  No.5  Atul  Parekh  is  concerned, above referred statement of P.W. 18 clearly  establishes  his  knowledge  of  the  transaction.   The  statement of P.W. 8 Jeroo Dalal also shows that at his  instruction  pay  order  for  repayment  to  the  NHB  was  prepared.”

Referring to the other cases vis-à-vis accused Nos. 6 and 7, it  was  

opined :-

“Thus, the evidence on record clearly shows that all the  accused  persons  had knowledge  of  the  transaction  and  that all of them have some part in the transaction.”  

The  learned  Special  Court  thereafter  considered  the  question  as  to  

whether the ‘transfer’ was illegal within the meaning of Section 43 of the  

Indian Penal Code in the light of the provisions of Section 14 of the NHB  

Act, holding :-

“It is thus clear that the National Housing Bank in terms  of  Section  14  of  the  Act  can  only  make  loans  and  advances  to  housing finance institutions  and scheduled  banks or slum clearance authority constituted under the  

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Central or State Legislation.  Sub-section (4) of Section  49 of the National Housing Bank Act lays down that if  any other provision of this Act is contravened or if any  default is made in complying with any other requirement  of this Act, or of any order, regulation or direction made  or  given  or  condition  imposed  thereunder,  any  person  found  guilty  of  such  contravention  or  default  shall  be  punishable with fine.”   

So far as the purported offence in regard to criminal breach of trust is  

concerned, the learned Judge held that the same stood proved against the  

officers of the Bank.  However, so far as accused No.5 is concerned, the  

same was held to have not been proved, although it was held that he was  

guilty of commission of offence of conspiracy.   

So far as the offences under the Prevention of Corruption Act, 1988 is  

concerned, a finding has also been arrived at that the charges under the said  

provisions have been proved.   

The  learned  Special  Court  also  negated  the  contention  of  accused  

Nos.6 and 7 that the order of sanction passed against them are not valid.   

SUBMISSIONS

The principal contentions raised on behalf of the appellants are :-

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1) That the prosecution case even if taken to be correct in its entirety  

does not disclose any offence of conspiracy.  

2) So far as accused No. 1 and 2 are concerned they were stationed at  

Kolkata.   Only because they had held a meeting in the Chamber of  

accused No.1 in presence of PWs 12 and 13, the same by itself  

does not prove that they were party to a larger conspiracy, namely  

use  of  call  money  for  causing  unlawful  gain  to  Late  Harshad  

Mehta.  

3) The charges of conspiracy vis-à-vis criminal breach of trust cannot  

be said to have been proved as even in terms of Section 14 of the  

National  Housing  Bank  Act,  such  a  transaction  was  legally  

permissible.   

4) Only because the accused No.3 was present at the Bank and wrote  

a letter for reviving the account of Late Harshad Mehta, the same  

by itself does not prove that he was a party to the conspiracy.   

5) If  the  prosecution  case  that  there  had  been  a  larger  conspiracy  

because of unlawful favour shown to Harshad Mehta is correct, the  

other  officers  of  the  UCO Bank,  concerned  officers  of  Reserve  

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Bank of  India and ANZ Grindlays  Bank should have also been  

prosecuted.   

6) The orders of sanction for prosecuting accused Nos. 6 and 7 were  

illegal.  

7) The evidences of PWs. 5, 7, 12, 13 and 17 should not have been  

relied upon by the learned Special Court as they were accomplices  

to the crime.

8) Accused No.1 having come to his office at about 3.00 - 3.30 p.m.  

from Chennai and the entire transaction having been completed by  

2 O’ clock, he cannot be said to be a party to a decision either to  

obtain call money from NHB or the cancellation thereof.  

9) The documents proved on behalf of the prosecution do not disclose  

that the accused and in particular accused Nos. 1 and 2 had any  

intention to commit the alleged offence.

10) Accused  No.2  having  signed  only  two  documents  and  accused  

No.1 having put his initials only on one document, they could not  

be held to be a party to the alleged conspiracy.  

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11) Witnesses, PW No. 5 – Hiten D. Mehta; PW No.12 Sunil Kakkar;  

PW  No.  13  –  Chinmoykumar  Mukherjee;   PW  No.  17  –  K.  

Mallikaarjunan and PW No. 18 -  Pradeep A. Karkhanis, having  

regard  to  Section  163  of  the  Evidence  Act,  1872   read  with  

illustrations  appended  to  clause  VIII  of  Section  114  of  the  

Evidence  Act,  1872,  could  not  have  been  relied  upon  by  the  

learned  Special  Court  without  any  corroboration  of  their  

statements.  In any view of the matter, evidence of one accomplice  

cannot be taken into consideration for the purpose of corroboration  

of the evidence of another alleged accomplice.   

12) In a case of this nature, where the conspiracy was alleged in regard  

to a legal act by illegal means, active participation by each one of  

them must have been held to be imperative in character and in its  

absence,  they  could  not  be  held  guilty  of  commission  of  any  

offence.   

13) Accused  No.3,  who  was  only  Scale  IV  officer  and  posted  at  

Hamam Street Branch of UCO Bank, visited  D.N. Road Branch  

and he had issued a circular for reviving account of three brokers  

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including Late Harshad Mehta, the same by itself does not lead to a  

conclusion that he had committed the offence.   

14) On  behalf  of  accused  No.5,  it  was  submitted  that  being  an  

employee  of  Late  Harshad  Mehta  and  having  acted  on  his  

instructions,  he cannot be held to have committed an offence of  

conspiracy only because he had visited the banks and /or was in  

touch with some of their officers for the purpose of ascertaining  

the position of accounts of Mehta.  

15) Accused  No.6  merely  being  signatory  to  the  cheque  of  Rs.  40  

crores issued in favour of UCO Bank which has been cleared by  

the  Reserve  Bank  of  India  cannot  be  presumed  to  have  any  

knowledge of diversion of the said amount by the officers of UCO  

Bank in  the  account  of  Late  Harshad  Mehta  and  the  purported  

refund  of  the  said  amount  with  interest  by  him  through  ANZ  

Grindlays Bank, and as such he cannot be said to have committed  

the offence of conspiracy.  .  

16) Accused  No.7  merely  being  an  Assistant  Manager  and  having  

discharged  his  functions  acting  under  the  directions  of  accused  

19

No.6 and other higher officers cannot be said to have committed  

any offence as alleged or at all.  

17) Departmental  proceedings  having  not  been  initiated  by  the  

employers and neither the UCO Bank nor the NHB having suffered  

any loss, the judgment of conviction for criminal breach of trust is  

wholly unsustainable.

18) The  learned  Special  Court  having  not  assigned  any  reason  and  

having not  discussed the materials  brought  on record in details,  

must  be held to  have acted  illegally  and without  jurisdiction  in  

passing the impugned judgment.   

19) The transfer of money being not ‘securities’ within the meaning of  

the  provisions  of  Special  Court  (Trial  of  Offences  Relating  to  

Transactions  in Securities)  Act,  1993,  the Special  Court  had no  

jurisdiction to try the offences thereunder.

20) Accused No.5 having been acquitted from the charges of criminal  

breach of trust, could not have been held to be guilty of being a  

party to the conspiracy as alleged by the prosecution on the basis  

of the materials brought on record.    

20

Mr. Mohan Prasaran, learned Additional Solicitor General appearing  

on behalf of the Central Bureau of Investigation, on the other hand, urged:-

1) The prosecution case that NHB had diverted its funds in violation of  

the provisions of the National Housing Bank Act, 1987 must be held  

to have been proved as the accused persons including Late Harshad  

Mehta  and  his  associates  utilized  the  officers  of  UCO  Bank  as  a  

conduit, having regard to the fact that it stands admitted that a ready  

forward deal was entered into by and between UCO Bank and NHB  

Bank, in terms whereof a sum of Rs.40 crores was credited to the  

account of Late Harshad Mehta.

2) An  offence  of  conspiracy  need  not  be  proved  by  adducing  direct  

evidence  of  meeting  of  mind  but  the  same  can  be  established  by  

cumulative consideration of various facts  and several  events  which  

had taken place in quick succession to facilitate  the routing of  the  

amount.  

3) From the evidence of PW-17,  K. Mallikarjunan it  has clearly been  

established that both accused Nos. 1 and 2 had closely monitored the  

purchases and sales of securities in tandem with Late Harshad Mehta  

21

and they in conspiracy with each other had caused huge losses to the  

Bank.

4) Accused No.3 although a Divisional Manager of UCO Bank, issued a  

letter  to the Zonal Manager, UCO Bank, Bombay,  on 17th March,  

1992, purported to be containing guidelines issued on BR transactions  

whereby recommendations were made to deal with only three brokers,  

including late Harshad Mehta, in terms of the purported instructions  

of the Chairman-cum-Managing Director and as a copy of the said  

letter was, inter alia. forwarded to accused No.2, showed that he had  

also been a party to the said conspiracy which has also been proved by  

reason of the fact that he had visited the D.N. Road Branch of UCO  

Bank along with accused No.5 on the date of the said transaction.    

5) Accused  Nos.  6  and  7  had  not  only  been  a  party  to  the  entire  

transaction but also manipulated other documents, and in particular,  

the vouchers, which clearly show that they not only had the requisite  

knowledge that the amount of Rs.40 crores had to be diverted to the  

account of Late Harshad Mehta but also the fact that the said amount  

would be returned with interest by him through ANZ Grindlays Bank.  

22

6) The purported contradiction in regard to absence of accused No. 1  

from the office of UCO Bank on 6th April, 1992, and also the timing  

of meeting the same does not affect the prosecution case, namely the  

commission of offence of conspiracy by all of them, as it has been  

established that the cheque issued by the NHB was never intended to  

be utilised as call money.   

7) Accused No.2, in fact, in his written statement in unequivocal terms  

admitted before the Special Court that the transaction involved was a  

routing  transaction,  absolutely  transparent  and  clear  transaction  in  

ordinary course of nature, stated that had the scam not been attributed  

to Harshad Mehta, nobody would have raised eye brows thereabout  

and, thus, admitted that the routing of a sum of Rs.40 crores belonging  

to NHB through UCO Bank to the account of Harshad Mehta was  

carried out for unknown consideration.   

8) The entire transaction being illegal would come within the purview of  

Section 120-A and Section 120-B of Indian Penal Code and, thus, no  

exception can be taken to the judgment of the learned Special Court.  

23

OVER VIEW

NATIONAL HOUSING BANK

NHB is  a  Bank constituted under  the  National  Housing Bank Act,  

1987 (in short NHB Act).  The Act was enacted to establish a bank to be  

known  as  the  National  Housing  Bank  (NHB)  to  operate  as  a  principal  

agency to promote housing finance institutions both at local and regional  

levels and to provide financial and other support to such institutions and for  

matters connected therewith or incidental thereto. It is a financial institution.  

It  is  also  a  Bank  within  the  meaning  of  the  provisions  of  the  Banking  

(Regulation) Act, 1949.    

The nature of business of the NHB is contained in Chapter IV of the  

Act.   

‘Housing finance institution’ has been defined in Section 2(d), (as it then  

stood) to mean –

“2.  (d)  "housing  finance  institution"  includes  every  institution, whether incorporated or not, which primarily  transacts or has as its principal object, the transacting of  the business  of  providing finance for housing,  whether  directly or indirectly;”  

24

NHB was established with a view to  give effect  to the object  and  

purpose  of  the  said  Act.    It  is  a  subsidiary  of  Reserve  Bank  of  India.  

Provisions of Section 14 of NHB Act, as they are relevant for our purpose  

may be noticed:-  

“Section 14 - Business of the National Housing Bank  

Subject  to  the  provisions  of  this  Act,  the  National  Housing Bank may transact all or any of the following  kinds of business, namely:--

(a) promoting, establishing,  supporting or aiding in the  promotion, establishment and support of housing finance  institutions;

(b) making of loans and advances or rendering any other  form  of  financial  assistance  whatsoever  to  housing  finance institutions and scheduled banks,  

(c)  subscribing  to  or  purchasing  stocks,  shares,  bonds,  debentures and securities of every other description;”

The Hierarchy of NHB is as under:

1. Chairman-cum-Managing Director  

2. Executive  Director  

3. Chief General Manager/s  

4. General Manager/s  

5. Deputy General Manager/s  

6. Assistant General Manager/s  

25

7. Regional General Manager/s  

8. Manager/s  

9. Deputy  Manager/s  

10. Assistant Manager

UCO BANK

UCO Bank is a nationalized bank having been taken over in terms of  

the  provisions  of  the  Banking  Companies  (Acquisition  and  Transfer  of  

Undertakings) Act, 1970.  Its head office is at Calcutta.  Amongst others it  

has two branches in Bombay – one at D.N. Road and other at Hamam Street,  

Functions of the scheduled banks are governed by the provisions of  

the Banking Companies Act, 1936.  UCO Bank is one of the fourteen banks  

which was nationalized.  The administrative hierarchy of UCO Bank is as  

under:

1. Chairman  & Managing Director  

2. Executive  Director  

3. General Manager (Scale VII)  

4. Dy. General Manager (Scale VI)  

5. Asstt. General Manager (Scale V)  

6. Officer in (Scale IV)

26

7. Officer in (Scale III)

8. Officer in (Scale II)

9. Officer in (Scale I)

CALL MONEY – THE LEGAL HISTORY

The statute  relating to  business  in  Banking was the  Bankers  Book  

Evidence Act,  1891. In 1936 Banking Companies Act, 1936 was enacted  

which  was  also  known  as  Indian  Companies  (Amendment)  Act,  1936  

wherein  Part  XA was  inserted  providing  for  far  reaching  effects  on  the  

banking  legislations.   Subsequently,  the  Banking  Regulation  Act,  1949  

(1949  Act)  was  enacted  to  consolidate  and  amend  the  law  relating  to  

banking.  It repealed and replaced Part XA of the Banking Companies Act,  

1936.

In the meanwhile, however, Reserve Bank of India Act, 1934 came  

into force.  Section 42 of the 1934 Act provided for “cash reserves” to be  

kept with the Bank, relevant provisions whereof read as under:-

“Section 42 - Cash reserves of scheduled banks to be  kept with the Bank  

(1)  Every  bank included  in  the  Second Schedule  shall  maintain  with  the  Bank  an  average  daily  balance  the  amount of which shall not be less than such per cent. of  the total  of the demand and time liabilities  in India of  

27

such  bank  as  shown  in  the  return  referred  to  in  sub- section (2), as the Bank may from time to time, having  regard to the needs of securing the monetary stability in  the country, notify in the Gazette of India

Explanation.-For the purposes of this section,-

(a) "average daily balance" shall mean the average  of  the  balances  held  at  the  close  of  business  of  each day of a fortnight;

…  (1A)  Notwithstanding  anything  contained  in  sub- section (1), the Bank may, by notification in the Gazette  of  India,  direct  that  every  scheduled  bank  shall,  with  effect  from  such  date  as  may  be  specified  in  the  notification, maintain with the Bank, in addition to the  balance  prescribed  by  or  under  sub-section  (1),  an  additional  average  daily  balance  the  amount  of  which  shall not be less than the rate specified in the notification,  such additional balance being calculated with reference  to  the  excess  of  the  total  of  the  demand  and  time  liabilities of the bank as shown in the return referred to in  sub-section  (2)  over  the  total  of  its  demand  and  time  liabilities at the close of business on the date specified in  the notification as shown by such return so however, that  the  additional  balance  shall,  in  no  case,  be  more  than  such excess:

Provided that the Bank may, by a separate notification  in  the  Gazette  of  India,  specify  different  dates  in  respect of a Bank subsequently included in the Second  Schedule.  

…(3) If the average daily balance held at the Bank by a  scheduled  bank  during  any  fortnight  is  below  the  minimum prescribed by or under sub-section (1) or sub- section (1A), such scheduled bank shall be liable to pay  to the Bank in respect of that fortnight penal interest at a  rate of three per cent, above the bank rate on the amount  by which such balance with the Bank falls short of the  prescribed minimum, and if during the next succeeding  

28

fortnight,  such average daily  balance is  still  below the  prescribed minimum, the rates of penal interest shall be  increased to a rate of five per cent, above the bank rate in  respect  of  that  fortnight  and each  subsequent  fortnight  during  which  the  default  continues  on  the  amount  by  which  such  balance  at  the  Bank  falls  short  of  the  prescribed minimum.”

Section  42  also  provides  for  penalties.  It  is,  thus,  mandatory  in  

character.

Maintenance  of  ‘cash  reserve  ratio’  is,  therefore,  a  statutory  

requirement.  The consequence of non compliance thereof has been provided  

for in sub-section 3 and 3A of Section 42 which was brought into the statute  

book by Act 38 of 1956 which came into force from 6th October, 1956.   

In terms of the said provision each bank is to maintain, what is known  

as, ‘cash reserve ratio’ (CRR) every day.  It is accepted at the bar that where  

a  bank having an excess  amount would like to  invest  the same so as  to  

enable it to earn interest, those who fall short of ‘cash reserve ratio’ would  

be under a statutory obligation to borrow the same so as to maintain the  

‘cash reserve ratio’ on such interest, as may be mutually agreed upon.  

The Banks which are governed under the aforementioned Act being in  

the business of banking, besides other purposes, may grant loans not only to  

individuals or private persons or body corporates but also to another bank.   

29

Control of Banking Companies is vested in the Reserve Bank of India  

as would appear from Section 35 of the 1949 Act.  Section 35A empowers  

the Reserve Bank of India to issue direction, which the banks are bound to  

carry out; on their failure to do so the penal clause contained in Section 46  

would be attracted, sub-section (4) whereof reads as under :-

“Section 46 - Penalties  

(4)  If  any  other  provision  of  this  Act  is  contravened or if any default is made in-

(i) complying with any requirement of this  Act or of any order, rule or direction made  or condition imposed thereunder, or

(ii)  carrying  out  the  terms  of,  or  the  obligations  under,  a  scheme  sanctioned  under sub-section (7) of section 45,  

by any person, such person shall  be punishable  with  fine  which  may  extend  to  fifty  thousand  rupees  or  twice  the  amount  involved  in  such  contravention  or  default  where  such  amount  is  quantifiable,  whichever  is  more,  and  where  a  contravention or default is a continuing one,with  a further fine which may extend to two thousand  and  five  hundred  rupees  for  every  day,  during  which the contravention or default continues.”

In view of the aforementioned provision the ‘cash reserve ratio’ as  

specified in the statutes, is mandatorily required to kept with Reserve Bank  

30

of India.  Such average daily balance is not to be less than 3% of the total  

demand and time liabilities of such Bank in India.   

Liabilities of a Bank may be in the form of demand or time deposits or  

borrowings  or  other  miscellaneous  items  of  liabilities.  Liabilities  of  the  

Banks may be towards banking system (as defined under Section 42 of RBI  

Act, 1934) or towards others in the form of Demand and Time deposits or  

borrowings or other miscellaneous items of liabilities. Reserve Bank of India  

has been authorized in terms of Section 42 (1C) of the RBI Act, 1934 to  

classify any particular liability as either a demand or a time liability.

'Demand  Liabilities'  include  all  liabilities  which  are  payable  on  

demand. ‘Time Liabilities’ are those which are payable otherwise than on  

demand and they include fixed deposits, cash certificates etc.  

“Call money” transactions are thus indisputably banking transactions.  

It  is  no  doubt  true  that  in  the  event  any  irregularity  is  committed,  the  

Reserve Bank of India would be entitled to take action against the erring  

Bank.   

JURISDICTION OF THE SPECIAL COURTS.

31

During  the  period  April,  1992  and  June,  1992  certain  large  scale  

irregularities  and  malpractices  were  detected  in  transactions  of  both  

governmental and other securities, carried out by some brokers in collusion  

with the employees of various Banks and Financial Institutions. To have a  

more close look into the matter the RBI appointed a committee under the  

chairmanship of the then Deputy Governor of RBI, Shri R. Jankiraman (“the  

Jankiraman Committee”). The committee submitted its report between May,  

1992 and April 1993. On the basis of the said report and to deal with the  

situation as also to ensure the speedy recovery of the huge amount involved  

the  Parliament  enacted  the  Special  Court  (Trial  of  Offences  Relating  to  

Transaction in Securities) Act, 1992 (“the Special Courts Act”), establishing  

the Special Court, from whose judgment this appeal arises.  

The  learned  counsel  for  the  appellants  contend  before  us  that  the  

special court so constituted did not have the jurisdiction to try this matter.  

They argue that  Section 7 read with  Sub Section 2 of  Section 3,  of  the  

Special  Court  Act,  limiting  the  jurisdiction  of  the  Special  Court  only  to  

‘offences  relating  to  transaction  in  securities’  would  not  attract  the  

transactions which have been attributed to the appellants in the present case.  

It is argued that the definition of the term ‘Securities’, as provided for in  

Section  2  (c)  of  the  Act  does  not  bring  within  its  ambit  ‘call  money  

32

transactions’ for which they are being tried. It must be noted that the order  

passed by the learned Special judge is silent on the issue of jurisdiction even  

though the issue is said to have been raised at the trial.  

The Special  Courts under the Act were established ‘for the trial  of  

offences  relating  to  transaction  in  securities  and  for  matters  connected  

therewith or incidental thereto.’  

Section 3 of the Act deals with the appointment of, and the functions  

of  custodians  under  the  Act.  Section  3  (2)  empowers  the  Custodians  to  

notify the name of any person who are involved ‘in any offence relating to  

transaction in securities’. The relevant part thereof reads as under:

“3. Appointment  and  functions  of  custodians.- …(2) The  Custodian may, on being satisfied on  information  received  that  any  person  has  been  involved in any offence relating to transaction in  securities after the 1  st   day of April,  1991 and on    and before the 6  th   June, 1992   notify the name of  such  person  in  the  official  gazette.”  [Emphasis  supplied]  

Section  3,  it  must  be  noted,  deals  only  with  offences  relating  to  

transaction in securities within the period of time specified in the Act. The  

time period of carrying out  the call  money transactions is  not  in dispute  

before us, for those transactions admittedly took place within the time period  

33

referred to  in  the  section.  What  is  disputed however  is  whether  the  said  

transactions do not relate to transactions in securities, as is required by the  

section.  The definition of the term ‘securities’ as provided for in section 2  

(c) of the Act, reads as under:

“…(c) “securities” includes –

(i) shares, scrips, stocks, bonds, debentures,  debenture stock, units of the Unit Trust of India or  any other mutual fund or other marketable  securities of a like nature in or of any incorporated  company or other body corporate;  

(ii) Government securities; and  

(iii) rights or interests in securities;”[Emphasis added]

Section 4 of the Act gives the Custodians the requisite power to cancel  

certain contracts  entered into fraudulently  and/or  to defeat  the provisions  

therein.  Section 5 of  the  Act  provides  for  the  establishment  of  a  special  

Court with a sitting judge of a High Court for speedy trial of such offences.  

Section 6 empowers the Special Court to take cognizance or try such cases  

as are instituted before it.  

Section  7,  which  is  of  relevance  in  determining  the  present  issues  

before us, defines the jurisdiction of the Special Courts in criminal matters.  

It reads as under:

34

“7. Jurisdiction  of  Special  Court.-  Notwithstanding anything contained in  any other  law,  any  prosecution  in  respect  of  any  offence  referred to in sub section (2) of section 3 shall be  instituted only in the Special Court ….” [Emphasis  supplied]

The said section begins with a non obstante clause providing that the  

Special Court shall have jurisdiction to try matters in respect of the offences  

referred to in Section 3 (2) of the Act.  

The definition of ‘securities’ in the Act is an inclusive one. It is not  

exhaustive.  It takes within its purview not only the matters specified therein  

but also all other types of securities as commonly understood.   

In the  State of Bombay and others  v.  The Hospital Mazoor Sabha  

and others, [AIR 1960 SC 610] this Court while interpreting the definition of  

“industry” as contained in Section 2(j) of the Industrial Disputes Act, 1947  

noted as under:-

“It is obvious that the words used is an inclusive  definition denote extension and cannot be treated  as restricted in any sense. Where we are dealing  with  an  inclusive  definition  it  would  be  inappropriate  to  put  a  restrictive  interpretation  upon terms of wider denotation” [Internal citations  omitted]

35

{See  also  Regional  Director,  Employees  State  Insurance  Corporation   v.  

High Land Coffee Works of P.X.S. Saldanha and sons and another, [(1991)  

3  SCC  617)  and  Commercial  Taxation  Officer,  Udaipur  v.  Rajasthan  

Taxchem  Ltd..  [2007  (2)  SCALE  120].  Karnataka  Power  Transmission  

Corpn. & Anr. v. Ashok Iron Works Pvt. Ltd. [(2009) 3 SCC 240]}

However, even if we hold call money transactions not to be within the  

scope and ambit of the definition of the term ‘securities’,  it  must still  be  

remembered  that  the  jurisdiction  of  the  Special  Court  extends  even  to  

offences relating to transaction in securities. Therefore, the jurisdiction of  

the Special Court could be invoked even in cases where the transaction is  

somehow related to securities. It would extend also to the utilization of any  

amount  relating  to  transactions  in  securities  and  for  matters  connected  

therewith or incidental thereto.  

The jurisdiction of the Special Court is an exclusive one.  It exercises  

original jurisdiction to try offences relating to the securities scam.  It, having  

regard, to the peculiar nature of the offences sought to be dealt with, should  

receive a liberal construction.   

It  was  so  held  in  Harshad  S.  Mehta  and  others  v.   State  of  

Maharashtra, [(2001) 8 SCC 257].   

36

“The use of different words in Sections 6 and 7 of  the Act as already noticed earlier also show that  the words in Section 7 that the prosecution for any  offence  shall  be  instituted  only  in  Special  Court  deserve a liberal and wider construction.”

Similarly the court in  L.S. Synthetics Ltd.  v.  Fairgrowth Financial  

Services  Ltd.  and  another,  [(2004)  11  SCC  456]  also  noted  that  ‘[t]he  

jurisdiction of the Special Court is of wide amplitude. Subject to a decision  

in appeal therefrom, its decision is final.’

Further Section 4 of the Code of Criminal Procedure provides that all  

offences under the Indian Penal Code shall be investigated and tried as per  

the provisions of the Code.  The same, however, would be subject to special  

provisions to the contrary.  Section 5 of the Code of Criminal Procedure  

contains  a  saving  clause  in  terms  of  which  the  jurisdiction  of  special  

legislations is saved. The Jurisdiction of the Special Court was required to  

be determined with reference to the said provision.  The Act is a special Act.  

The  section  conferring  jurisdiction  on  the  Special  Courts  under  the  Act  

contains a ‘Non Obstante’  clause.   It,  thus,  prevails  over any other Law.  

[See  Solidaire India Ltd.  v.  Fairgrowth Financial Services Ltd. and others,  

[(2001) 3 SCC 71 ].

37

The Jurisdiction of the Special Court may be invoked when an offence  

committed relate to transactions in securities; the logical corollary whereof  

would  be  that  all  parties  connected  in  diverting  the  funds  of  the  public  

sectors  and/or  financial  institutions  would  also  come within  the  purview  

thereof.  For considering the provisions of the said Act, it has to be borne in  

mind the object and purport thereof.  We have noticed heretobefore that the  

Reserve Bank of India constituted Janakiraman Committee for the purpose  

of looking in to the Securities Scam of the early 90’s.  A report pursuant  

thereto was submitted.  It was on the basis of that report that the said Act  

was enacted and the Special Court was constituted.  These background facts,  

in our opinion, would be relevant for determining the issue.

For the purpose of determining the question as to whether the Special  

Court  had  the  jurisdiction  to  try  the  offences  in  question  or  not,  in  our  

opinion, the principle of purposive construction must be resorted to.  The  

rule which is also known as the ‘mischief rule’ enables consideration of four  

matters in construing an Act: (i) What was the law before the making of the  

Act, (ii) What was the mischief or defect for which the law did not provide  

(iii)  What is  the remedy that  the Act has provided, and (iv)  What is  the  

reason  of  the  remedy.  The  rule  then  directs  the  courts  to  adopt  that  

construction which suppresses the mischief and advances the remedy. [See  

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Bengal Immunity Co. v.  State of Bihar, AIR 1955 SC 661,  Zile Singh v.  

State  of  Haryana,  AIR 2000 SC 5100].  Simply stated  ‘the  courts  should  

identify the mischief which existed before passing of the statute and then if  

more than one construction is possible, favour that which will eliminate the  

mischief so identified.’ [Anderton v.  Ryan, (1985) 2 All ER 355, per Lord  

Roskill].  

The phrase ‘offence relating to transaction in securities’  as used in  

section 3 (2) is clearly subject to more than one meaning. It is anything but  

clear.  For the aforementioned purpose we may notice the meaning of the  

word ‘in relation to’.

In M/s. Doypack Systems (Pvt.) Ltd. v. Union of India & ors., [(1988)  

2 SCC 299], it was observed :-

“In  view  of  the  language  used  in  the  relevant  provisions, it appears to us that Section  3 has two  limbs: (i) textile undertakings: and (ii) right, title  and interest  of  the  company  in  relation to every  such  textile  undertaking….  The  expressions  “pertaining  to”,  “in  relation  to”  and “arising  out  of” , used in the deeming provision, are used in the  expansive  sense,  as  per  decisions  of  courts,  meanings found in a standard dictionaries, and the  principles  of  broad  and  liberal  interpretation ….  We are of the opinion that the words “pertaining  to”  and  “in  relation  to”  have  the  same  wide  meaning and  have  been  used  interchangeably….  The expression “in relation to” (so also “pertaining  

39

to”),  is  a  very  broad  expression  which  pre- supposes another subject matter.  These are words  of  comprehensiveness  which  might  both  have  a  direct  significance  as  well  as  an  indirect  significance  depending  on  the  context....  In  this  connection reference may be made to 76 Corpus  Juris Secundum at pages 620 and 521 where it is  stated  that  the  term  “relate”  is  also  defined  as  meaning  to  ring  into  association  or  connection  with. It has been clearly mentioned that “relating  to”  has  been  held  to  be  equivalent  to  or  synonymous  with  as  to  “concerning  with”  and  “pertaining to”.  The expression “pertaining to” is  an  expression  of  expansion  and  not  of  contraction.” [Emphasis supplied]

These  lines  were  also  quoted  with  approval  in  T.N.  Kalyane  

Mandapam Association  v.  Union of India, [(2004) 5 SCC 632]. (See also  

Bismag  v.   Amblins  (Chemists),  [1970]  3  All  ER  1053  (QB)  and  Re  

National  Federation  of  Retail  Newsagents’,  Booksellers’  and  Stationers  

Agreement) (Nos. 3 & 4),  [1971] 1 WLR 408.)  

Regard, therefore, in the matter of establishing and constitution of the  

Special Court must also be had to the object of creating the Special Courts.  

In  Minoo Mehta   v.  Shavak D. Mehta, [ AIR 1998 SC 831), this  

Court held:

“As the Preamble of the Act shows, the Act is to  provide for  the  establishment  of  a  Special  Court  for the trial of offences relating to transactions in  

40

securities  and for matters  connected therewith or  incidental  thereto.  Therefore,  every  offence  pertaining to any transaction in securities which is  covered by the sweep of the Act, that is,  if such  transaction has taken place between 1-4-1991 and  on or before 6-6-1992 would be subjected to the  provisions  of  the  Act  regarding  trial  of  such  an  offence.”

If the purport and object of the Act was to bring home an offence of  

the nature discussed heretobefore, in our opinion, the Special Court would  

have  jurisdiction  to  try  that  offence.   The  money  belonging  to  National  

Housing Bank had been diverted to Harshad Mehta’s account who was a  

broker dealing in securities so as to enable him to enter into transactions in  

securities during the period 1st April, 1991 and on or before 6th June, 1992,  

which was an offence triable exclusively by the Special Court. The Special  

Court, therefore, rightly exercised the jurisdiction vested in it.

VALIDITY OF THE SANCTION ORDERS.

All the appellants  before us, except accused No. 5 Atul M Parekh,  

were at the relevant point of time public servants. Whereas Accused 1, 2 & 3  

were  employees  of  UCO Bank,  Accused  6  & 7  were  employees  of  the  

National  Housing  Bank.  They,  therefore,  have  also  been  charged  for  

commission  of  offences  under  the  Prevention  of  Corruption  Act,  1988.  

41

Section 19 of the Act however requires previous sanction for prosecution of  

the Public Servants. The relevant part thereof reads as under:

“19. Previous  Sanction  necessary  for  prosecution.- (1) No Court shall take cognizance of  an offence punishable under sections 7, 10, 11, 13  and 15 alleged to have been committed by a public  servent, except with the previous sanction,-

…(c) in the case of any other person, of the  authority competent to remove him from office.”

Indisputably the competent authority had passed the orders of sanction  

against all the concerned accused persons. Whereas accused 1, 2 & 3 have  

raised no objection as regards validity of orders of sanction issued against  

them; accused 6 & 7 who were employees of the National Housing bank  

have questioned the same.   

The order of sanction as against  accused No. 6 was passed by the  

Chairman-cum-Managing Director of NHB, Shri R.V. Gupta, who has been  

examined as PW 3.  The relevant portion of the order granting sanction reads  

as under:-

“AND  WHEREAS,  I  R.V.  Gupta,  Chairman  National  Housing  Bank,  being  the  Authority  competent to remove the said Shri C.Ravi Kumar  from office, after fully and carefully examining the  materials and investigation report in regard to said  allegations and circumstances of the case, consider  

42

that  the  said  Shri  C.  Ravi  Kumar  should  be  prosecuted  in  the  Court  of  Law  of  competent  jurisdiction for the said offences.  

NOW  THEREFORE,  I,R.V.  Gupta,  Chairman  National Housing Bank, do hereby accord sanction  under Section 19(1)(c) of Prevention of Corruption  Act, 1988 for prosecution of the said Shri C. Ravi  Kumar for the said offences and any other offence  punishable under other provisions of law in respect  of the acts aforesaid and for taking cognizance of  the  offences  by  the  Court  of  competent  jurisdiction.”

It is contended by accused no. 6, C Ravi Kumar that he had come to  

NHB on deputation from the RBI, and therefore the conditions of his service  

were governed by the RBI regulations and not those of NHB Act. According  

to him, the Governor of RBI was the only competent sanctioning authority.  

Indisputably  accused  No.6  was  initially  appointed  by  the  Reserve  

Bank of India and was sent to NHB on deputation in the year 1988. He was,  

however, permanently absorbed there in 1992 and the Order of sanction in  

respect  of  him was  passed  on  26th February,  1993.   It  is  a  fundamental  

principle  of  service  jurisprudence  that  an  employee,  subject  to  statutory  

interdict,  cannot have two masters.  If from the date of his absorption the  

relationship of employer and employee came into being between him and  

NHB, it is fallacious to suggest that the Reserve Bank of India continued to  

43

be his employer.  It is not in dispute that if accused No.6 is treated to be the  

an  officer  of  the  Bank,  the  Chairman-cum-Managing  Director,  being  its  

highest authority would be competent to pass the order of sanction.   

Next it was urged before us on behalf of accused no. 7, S Suresh Babu  

that since the terms and conditions of service of the employees of NHB till  

as late as 1995 used to be governed by the Service Regulations framed by  

Reserve  Bank  of  India,  Shri  R.V.  Gupta,  the  Chairman-cum-Managing  

Director, NHB had no authority to issue the sanctioning order. It was argued  

that  NHB’s own staff  regulations  governing conduct  and discipline  came  

into effect only in the year 1995.

The said contention in our opinion is wholly misconceived. Even if till  

the  framing  of  Regulations  by  NHB,  it  adopted  the  Service  Regulations  

governing the employees of the Reserve Bank of India, the same would not  

mean that the appointing authority would also be an officer of the Reserve  

Bank of India and not the appropriate authority of NHB.  Chairman-cum-

Managing Director of NHB being a highest executive authority, would be,  

subject to any delegation of powers conferred in terms of the Regulations or  

through  Resolutions  adopted  by  the  Board  of  Directors,  the  appointing  

44

authority. As an appointing authority, therefore, he will have the requisite  

jurisdiction to accord sanction for prosecution of the employees.

Even though, in our opinion, the sanction orders are legal and valid,  

even if any doubt exists, the same becomes clear in view of the provisions of  

Section 19 (3). It is reproduced heretobelow:

“(3) Notwithstanding  anything  contained  in  the  Code  of  Criminal  Procedure,  1973  (2  of  1974),-

(a)  no finding,  sentence or  order  passed  by  a  special  judge  shall  be  reversed  or  altered by a court in appeal, confirmation  or revision on the ground of the absence  of, or any error, omission  or irregularity  in,  the  sanction  required  under  sub- section (1), unless in the opinion of that  court, a failure of justice has in fact been  occasioned thereby;…

Explanation.- For the purpose of this section.-  

(a) error  includes competency of  the  authority  to    grant sanction;…” [Emphasis supplied]

What has been challenged here before us by both the accused is in fact  

the competence of the sanctioning authority to issue sanction orders against  

them.  As  per  the  said  section,  ‘a  finding’  or  a  ‘sentence’  shall  not  be  

reversed  by  a  court  of  appeal  on  the  ground  of  any  error,  omission  or  

irregularity  in  the  sanctioning  order  unless  a  failure  of  justice  has  been  

45

occasioned thereby. In our considered opinion even if we assume for the  

sake of argument that the Chairman cum managing director of NHB, Shri  

RV Gupta was not the competent authority to pass the orders of sanction  

against the officials of NHB, the prosecution could still rely on the said s. 19  

(3) of the Act; especially since there has been no failure of justice in the  

present case by the said error in the orders. The contentions of the accused,  

as to the validity of the Sanctioning orders, in view of the said sub section  

must be rejected.  

RELIANCE ON THE JANKIRAMAN COMMITEE

Before  we  move  on  to  deal  with  the  substantive  criminal  charges  

under the Indian Penal Code and the Prevention of Corruption Act invoked  

against the appellants herein, we must first deal with a grievance which has  

been raised by the learned counsel for the appellants and, in our opinion,  

rightly that in the impugned judgment the Special Court had acted illegally  

and  without  jurisdiction  in  relying  upon  the  report  of  the  “Janakiraman  

Committee” while imposing the sentence on respondent No.6; the relevant  

portion whereof is as under:-

“So far as accused No.6 is concerned, it  is clear  from what has been observed [by the] Jankiraman  Committee that there was virtually no supervision  on accused No.6 and he was managing the affairs  

46

or  mismanaging  the  affairs  of  the  N.H.B.  according to his own acts, wish and ultimately at  the wish and fancy of the brokers.  He was giving  loans to the brokers which the law prohibited him  from doing.”   

We  have  noticed  hereinbefore  the  premise  on  which  the  said  

Committee  was constituted.   We have also noted its  objects and reasons.  

There is no dispute that the Committee was appointed and it submitted its  

report.  It is one thing to say that the court records to the constitution of the  

Committee for the purpose of tracing the history for enactment of the Act.  

But it is another thing to say that the contents of the said report would be  

admitted  in  evidence  in  a  criminal  case  without  proof  thereof.   The  

Committee was not a court.  It did not render any decision.  It was merely a  

fact finding body.  It was constituted for a limited purpose.  Contents of the  

report,  therefore,  without  formal  proof,  could  not  have  been  taken  in  

evidence.

A Division Bench of the Nagpur High Court in M.V. Rajwade v. Dr.  

S.M.  Hassan, [AIR  1954  Nag  71]  following  the  judgment  of  the  Privy  

Council In Re. Maharaja Madhava Singh LR , [(1905) 31 IA 239], held that  

a Commission is a fact finding body meant only to instruct the mind of the  

47

Government without producing any document of a judicial nature and that  

findings of a Commission of Inquiry were not as definitive as a judgment.  

Similarly in  Branjnandan Sinha v.  Jyoti  Narain [1955] S.C.R.  955,  

this Court held that the Commission appointed under the Public Servants  

(Inquiries) Act, 1850, was not a court within the meaning of the Contempt of  

Courts Act, 1952.[See also Ram Krishna Dalmia v. Justice S.R. Tendolkar,  

1959 SCR 279,  Puhupram v. State of Madhya Pradesh, (1968) MPLJ 629.  

Sham Kant v. State of Maharashtra [1992 Suppl. (2) SCC 521]]

Accordingly, the Janakiraman committee report was not admissible in  

evidence.  The report in terms of the provisions of the Evidence Act, 1872 is  

not  a  judgment.   The report  may facilitate  investigation but  cannot  form  

basis of conviction and sentencing of the accused.  For the said purpose the  

report was wholly inadmissible in evidence.  

CRIMINAL CONSPIRACY

It  would  now be  appropriate  to  deal  with  the  offence  of  criminal  

conspiracy of which all the appellants herein have been charged with and  

convicted of.  It is alleged by the prosecution that K Margabanthu (A 1), R  

Venkatrrishnan  (A-2)  and  SV  Ramanathan  (A  3),  who  all  were  at  the  

48

relevant time officials of UCO Bank, along with C Ravikumar (A 6) and S  

Sureh Babu (A 7), both of whom were at the relevant time officials of the  

National Housing Bank, at the behest of Late Harshad S Mehta and Atul M  

Parekh (A 5) entered into a criminal conspiracy with the object of diverting  

funds from the National Housing Bank to Late Harshad Mehta’s Account in  

UCO Bank. The funds were diverted to enable Harshad Mehta to invest the  

same in the Securities Market. It is alleged that in furtherance of the said  

conspiracy K Margabathu (A 1), R Venkatkrishnan (A 2), C Ravikumar and  

S Suresh Babu (A 7) created certain fake documents to facilitate the transfer  

of funds. It is further alleged that SV Ramanathan (A 3) along with Atul M  

Parekh (A5) then persuaded the officials  of UCO bank to allow the said  

transaction to proceed without any hindrance.  

Criminal  conspiracy  in  terms  of  Section  120B  of  the  Code  is  an  

independent  offence.   It  is  punishable separately.   Prosecution,  therefore,  

must prove the same by applying the legal principles which are applicable  

for the purpose of proving a criminal misconduct on the part of an accused.   

A criminal conspiracy must be put to action and so long a crime is  

merely generated in the mind of the criminal, it does not become punishable.  

Thoughts, even criminal in character, often involuntary, are not crimes but  

49

when they take concrete shape of an agreement to do or cause to be done an  

illegal act or an act which is not illegal but by illegal means then even if  

nothing  further  is  done,  the  agreement  would  give  rise  to  a  criminal  

conspiracy.   

The ingredients of the offence of criminal conspiracy are:

(i) an agreement between two or more persons;

(ii) the agreement must relate to doing or causing to be done either  

(a) an illegal act;  

(b) an act  which is  not  illegal  in itself  but  is  done by illegal  

means.

Condition precedent, therefore, for holding accused persons guilty of  

a charge of criminal conspiracy must, therefore, be considered on the anvil  

of a fact which must be established by the prosecution, viz., meeting point of  

two or more persons for doing or causing to be done an illegal act or an act  

by illegal means.

The courts, however, while drawing an inference from the materials  

brought on record to arrive at a finding as to whether the charges of the  

criminal conspiracy have been proved or not, must always bear in mind that  

50

a conspiracy is hatched in secrecy and it is, thus, difficult, if not impossible,  

to obtain direct evidence to establish the same.   

The  manner  and  circumstances  in  which  the  offences  have  been  

committed and the level of involvement of the accused persons therein are  

relevant  factors.   For  the  said  purpose,  it  is  necessary  to  prove  that  the  

propounders had expressly agreed to or caused to be done the illegal act but  

it  may also be proved otherwise by adduction of  circumstantial  evidence  

and/  or  by  necessary  implication.   [See  Mohammad  Usman  Mohammad  

Hussain Maniyar & Ors. v. State of Maharashtra (1981) 2 SCC 443]

The  following  passage  from  Russell  on  Crimes (12th Edn.  Vol  1)  

refrred to by Jagannatha Shetty, J in  Kehar Singh and Ors. v.  State (Delhi  

Administration), [1988 (3) SCC 609 at 731] brings out the legal position  

succinctly:

“The gist of the offence of conspiracy then lies, not  in doing the act, or effecting the purpose for which  the conspiracy is formed, nor in attempting to do  them, nor in inciting others to do them, but in the  forming of the scheme or agreement between the  parties.  Agreement is essential.  Mere knowledge,  or  even  discussion,  of  the  plan  is  not,  per  se  enough”

51

It was further noted in that case that to establish an offence of criminal  

conspiracy ‘[i]t is not required that a single agreement should be entered into  

by all the conspirators at one time. Each conspirator plays his separate part  

in one integrated and united effort to achieve the common purpose. Each one  

is aware that he has a part to play in a general conspiracy though he may not  

know all its secrets or the means by which the common purpose is to be  

accomplished.’  

Dr.  Hari  Singh  Gour  in  his  Commentary  on  Penal  Law  of  India,  

(Vol.2, 11th Edn. p. 1138) elaborates:

“In order to constitute a single general conspiracy  there  must  be  a  common  design.  ….  The  evil  scheme  may  be  promoted  by  a  few,  some  may  drop out and some may join at a later stage, but the  conspiracy  continues  until  it  is  broken  up.  The  conspiracy  may  develop  in  successive  stages.  There  may  be  general  plan  to  accomplish  the  common design by such means as may from time  to time be found expedient.”

In some cases,  intent  of  unlawful  use being made of  the goods or  

services in question may be inferred from the knowledge itself.  This Court  

in State of Maharashtra v. Som Nath Thapa [(1996) 4 SCC 659] opined that  

it is not necessary for the prosecution to establish that a particular unlawful  

52

use was intended, so long as the goods or services in question could not be  

put to any lawful use, stating:

“…to establish a charge of conspiracy knowledge  about indulgence in either an illegal act or a legal  act by illegal means is necessary. In some cases,  intent of unlawful use being made of the goods or  services  in  question  may  be  inferred  from  the  knowledge itself.  This  apart,  the  prosecution has  not to establish that a particular unlawful use was  intended,  so  long  as  the  goods  or  service  in  question  could  not  be  put  to  any  lawful  use.  Finally,  when  the  ultimate  offence  consists  of  a  chain of actions, it would not be necessary for the  prosecution to establish, to bring home the charge  of conspiracy, that each of the conspirators had the  knowledge of what the collaborator would do, so  long as it is known that the collaborator would put  the goods or service to an unlawful use.”

[See also K.R. Purushothaman v. State of Kerala (2005) 12 SCC 631]

We may also notice a decision of this Court being  State (NCT) of  

Delhi v.  Navjot Sandhu @ Afsan Guru [(2005) 11 SCC 600], commonly  

known as the Parliament Attack case, wherein upon taking note of various  

earlier decisions of this Court, it  was opined that as conspiracy is mostly  

proved by circumstantial evidence, usually both the existence of conspiracy  

and its objects have to be inferred from the circumstances and the conduct of  

the accused, stating :

53

“101. One more principle which deserves notice is  that  the  cumulative  effect  of  the  proved  circumstances  should  be  taken  into  account  in  determining  the  guilt  of  the  accused  rather  than  adopting  an  isolated  approach  to  each  of  the  circumstances.  Of  course,  each  one  of  the  circumstances should be proved beyond reasonable  doubt.  Lastly,  in  regard  to  the  appreciation  of  evidence relating to the conspiracy, the Court must  take  care  to  see  that  the  acts  or  conduct  of  the  parties must be conscious and clear enough to infer  their concurrence as to the common design and its  execution.   

In Ram Narayan Popli (supra), this Court noted:  

“…Law making conspiracy a crime is designed to  curb immoderate  power  to  do mischief  which is  gained  by  a  combination  of  the  means.  The  encouragement and support which co-conspirators  give to one another rendering enterprises possible  which, if left to individual effort, would have been  impossible,  furnish  the  ground  for  visiting  conspirators  and  abettors  with  condign  punishment…”

{See also Esher Singh v. State of A.P. [(2004) 11 SCC 585]}:

Recently, in Yogesh @ Sachin Jagdish Joshi v. State of Maharashtra  

[(2008) 6 SCALE 469], a Division Bench of this Court held:

“23. Thus, it is manifest that the meeting of minds  of two or more persons for doing an illegal act or  an  act  by  illegal  means  is  sine  qua  non  of  the  criminal conspiracy but it may not be possible to  

54

prove the agreement between them by direct proof.  Nevertheless,  existence  of  the  conspiracy and its  objective  can  be  inferred  from  the  surrounding  circumstances and the conduct of the accused. But  the incriminating circumstances must form a chain  of events from which a conclusion about the guilt  of the accused could be drawn. It  is  well  settled  that  an  offence  of  conspiracy  is  a  substantive  offence and renders the mere agreement to commit  an offence punishable even if an offence does not  take place pursuant to the illegal agreement.”

A conspiracy may further be a general one and a separate one.  A  

smaller conspiracy may be a part of a larger conspiracy.  It may develop in  

successive stages. [Nirmal Singh Kahlon v. State of Punjab and Others, 2008  

(14) SCALE 639] New techniques may be invented and new means may be  

devised for advancement of common plan.  For the said purpose, conduct of  

the parties would also be relevant.

Applying the principles of law to the facts of the present case, we may  

take  note  of  certain  broad  features.   Indisputably,  maintaining  of  cash  

reserve ratio is a statutory requirement. All the Scheduled Banks are bound  

to carry on the statutory instructions issued by the Reserve Bank of India in  

this behalf.  It is for the maintenance of this cash reserve ratio that UCO  

Bank used to participate in call money transactions in the money market,  

decision in respect whereof used to be taken at its Head Office at Kolkata.  

55

For the said purpose, however, the Head Office used to be in touch with the  

D.N. Road Main Branch in Bombay.  

It  is  neither  in  doubt  nor  in  dispute  that  Mr.  K.  Venkatkrishnan  

(Accused No. 2) at the Head Office in Kolkata was authorized for the said  

purpose. P.W. 12 – Sunil Kakkar in his statement before the learned Special  

Judge, stated as under:

“6. …The General manager Mr. Venkatakkrishnan  [A  2]  used  to  decide  upon  the  requirement  of  borrowing of call money on a particular date. He  also used to decide about lending of call money to  other banks. Instructions in this respect were given  by  the  treasury  and  investment  department  head  office, Kolkatta by the General Manager to the DN  Road branch in Bombay.  …. Mr Venkatakrishnan,  Genaral  manager  used  to  take  decisions  after  knowing the requirement,  the rate of interest etc.  The call money transactions are authorized by him  and are recorded in a register known as call money  register. ”    

Such a power had been conferred upon various officers to deal with  

call  money  transactions.   Indisputably,  accused  No.2  was  one  of  them.  

Although, those various other officers might have been taking decisions in  

this  behalf,  but  there  is  no  reason  to  disbelieve  P.W.  12  that  ordinarily  

Accused No. 2 used to take a decision.  

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For  the  purpose  of  exercise  of  power  furthermore  it  may  not  be  

necessary that he would be given instructions only by Accused No. 2 and no  

other.  If he had been given instructions in this behalf from time to time by  

the Assistant General Manager or Assistant Manager, the same would not  

necessarily mean that Accused No. 2 was not exercising his power.

P.W. 13 in his evidence categorically stated that Mr. Mallikarjunan  

(P.W. 17) would take instructions from all the fourteen centres on the basis  

whereof  the  General  manager  Mr  Venkatkrishnan  [A2]  used  to  take  a  

decision.  P.W. 17 in his deposition categorically stated:

“2. The  deals  of  lending  or  borrowing  money  market were done at Calcutta Head Office by Mr.  Venkatakrishnan. This is in respect of call money  borrowing and lending…

3. Mr  Venkatkrishnan  used  to  decide  from  whom call money to be borrowed and to whom it  is to be lent. The necessary information could be  supplied  by  the  Bombay  main  branch.  Bombay  main branch informs us between 10:30 to 2:30 pm.  Once a decision is taken for borrowing or lending  call money to some institute at particular rate, the  entries are entered in Head Office in call money  register  of  Calcutta  office.  The  decision  is  communicated to the branch where the transaction  is to be executed.”  

57

Indisputably again, however, a decision taken by the General Manager  

would be subject  to any direction which may be issued by Margabanthu  

(Accused No. 1), Managing Director of the Bank.  Keeping that aspect of the  

matter in mind, we may also take notice of the call money transaction which  

took place on 6.4.1992 around which the prosecution case revolves.  

Indisputably,  call  money  was  required  on  the  6th of  April,  1993  

although there may be some dispute with regard to the quantum thereof.  

P.W. 17 in his deposition produced a ‘Chit’ which was marked as Exhibit 56  

to show that call money was to be procured from Can Mutual, State Bank of  

Saurashtra, and State Bank of Hyderabad amounting to Rs. 21 crores, Rs.30  

crores and Rs. 50 crores besides of National Housing Bank for a sum of  

Rs.40 crores.   

It is profitable to notice the relevant portion of his testimony, which  

reads as under:

“6.  On  6.4.1992,  I  was  informed  by  Mr.  Venkatakrishnan that Rs. 40 crore are borrowed as  call  money  from NHB.  It  was  sometime  in  the  afternoon  and  must  be  at  2.00  pm.  Mr  Venkatkrishnan informed me and I noted it down  on a chit in my own handwriting. I noted on that  chit  the names of four institutions  and the total  borrowing from four institution Rs. 144 crore. […]  I  gave  this  chit  to  Mr  Sunil  Kakkar  for  making  necessary  entries  in  the  call  money  register.  He  

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made the entries and sent [the call money register]  through me to General Manager, Venkatkrishnan. I  am  shown  the  call  money  register  […]  for  identification  […].  I  identify  the  handwriting  of  Sunil  Kakkar.  The  enteries  in  Call  Money  Authorization  register  would  be  made  subsequently by Sunil Kakkar and register would  be  signed  by  Venkatkrishnan.  I  am  shown  the  register […] These are in the handwriting of Mr  Kakkar and signed by Venkatkrishnan.[…]”  

With respect to the said chit in which Mr. Mallikarjun had noted down  

the details regarding the call money transaction after receiving information  

from A2 [Mr Venkatkrishnan], he further stated:

“On this sheet, I wrote the names, Can Mutual, SB  Saurashtra,  and  SBH,  with  the  amounts  and  interest  against  them  as  21  crores.  Can  Mutual  23%, 30 crores Saurashtra at  26% and 50 crores  SB Hyderabad at 26% and these three were totaled  after drawing a line below it and the total of 101  crore  was  written.  Thereafter  I  wrote  NHB  and  against  that  40  crore  and  26%  and  again  after  drawing  line  the  total  of  141  crores  is  made.  Exactly I  do not remember  what happened but  I  can say that [K Venkatakrishnan (A2)] must have  told me three names of the banks and there figures  and  after  totaling,  he  must  have  told  the  fourth  name  and  the  figure  which  is  added  and  the  amount is retotaled but I say that I noted down all  the four names and figures at the same time.”    

It  is  true that  in his  cross-examination,  this  witness  stated that  the  

same  was  in  his  handwriting.  Existence  of  the  said  Chit  is  thus  not  in  

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dispute.   It  matters  little  whether  it  is  in  the  handwriting  of  P.W.17  or  

Accused No.2.  The fact that the decision had been taken by the Accused  

No.2 to obtain call money to the tune of Rs. 40 crores is, thus, not in dispute.  

P.W.17 also notes that he had noted the details in the chit after receiving  

information from Accused No. 2 in this behalf.  The said Chit containing the  

details of the call money transactions was thereafter handed over to P.W.12  

– Sunil  Kakkar.   It  has been brought on record that  this  witness used to  

maintain the call  money register,  and was, therefore,  required to note the  

same in the said register.   

The learned counsel appearing on behalf of the appellant, however,  

would submit that the entries in respect of the said transactions had been  

made post facto.   For the aforementioned purpose our attention has been  

drawn to the deposition of P.W. 12 – Sunil Kakkar who stated,  

“the entries of the transactions would be made post  facto. It was the responsibility of superior officer  to verify the entries in the register.   By superior  officers,  I  mean  General  Manager,  Assistant  General Manager.”   

It was principally, therefore, the responsibility of those two officers to  

make verification.  The entry in relation to the said transaction inter alia  

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finds place in Exhibit 45 for daily funds records to the CMD dated 6.4.1992.  

This witness has proved the entries in the said registers.

Yet again, a comment has been made with reference to his statement  

that a number of pages of the register were written at one time and i.e., post  

facto and Accused No. 2 signed the same after the entries had been made  

post facto.   The signature of the Accused No. 2 in those registers, therefore,  

stands proved.   

The significance of this aspect of the matter would be dealt with a  

little later.  Before, however, we do so, we may notice the evidence of P.W.  

12 – Sunil Kakkar in this behalf which is to the following effect:

“8. […] There is reference in the daily Report of  call  money borrowing on 6.4.1992 amounting to  Rs.  141  crore  […]  the  last  borrowing  is  from  National  Housing  Bank  Rs.  40  crore  at  26  %  interest due date 7.4.1992 i.e. for one day. These  figures are collected from a slip of paper given to  me by Assistant general manager Mr. Mallikarjun.  The signature of the Assistant General Manager on  this document signifies that he has noted the daily  funds position as mentioned in the sheet”  

He,  upon making entries  with regard to  the  said transaction  in  the  

register, in his deposition, stated:

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“11.  […] I am shown the entry of  6.4.1992. the  entry reads as borrowing transaction on 6.4.1992  call  money  of  canbank  mutual  fund  21  crores  payable next date i.e. 7.4.1992 rate of interest 23%  […]  This  entry  is  in  my  handwriting.[…]  The  other three entries on that day are of State Bank of  saurashtra, state bank of Hyderabad and National  Housing Bank. These three entries are also in my  handwriting […]”  

The  question  as  to  whether  the  aforementioned  amount  of  Rs.40  

crores,  which was to be taken on loan from National Housing Bank was  

really needed or not is, however, a matter of some controversy.   We may, at  

this juncture, take note thereof.   

The prosecution in view of the aforementioned documentary and oral  

evidence must be held to have proved the following facts:

(i) That the decisions regarding the lending or borrowing of call money  

were usually taken at the Head Office in Kolkata based upon the information  

received from the DN Road Branch in Bombay.  

(ii) These  decisions  in  Kolkatta  were  primarily  taken  by  K.  

Venkatakriahnan (A 2) who at the relevant time was the General Manager of  

UCO Bank Kolkatta.  

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(iii) The decision as to the call money borrowing on the 6th April, 1992  

was also taken by K Venkatakrishnan. On that day he had communicated his  

decision of borrowing of call money to  K Mallikarjun, who at the relevant  

time  was  an  official  there.  K  Mallikarjun  had  noted  the  information  

regarding the borrowing in a chit of paper. He had noted down information  

regarding call money borrowing amounting to a total of Rs. 141 crore from  

four  different  banks.  One of  these  banks  was the  NHB from which  call  

money amounting to Rs. 40 crore had been borrowed for a period of one day  

at 26% interest.  

(iv) K Mallikarjun had then handed over this  chit  with  the  call  money  

information to Sunil Kakkar who had the responsibility of noting the details  

in  the  call  money  register.  He  accordingly  noted  the  details  of  the  Call  

Money transactions of the day, including the one from NHB worth Rs. 40  

Crore.  

But that is not the end of the story.

Subsequently,  however,  a  meeting  has  been  alleged  to  have  taken  

place in the chamber of Accused No. 1.  According to P.W. 17, it was at this  

meeting  that  Accused No.  1 had informed him and others  present  at  the  

meeting that the call money which had been borrowed from the National  

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Housing Bank had in fact been arranged by Harshad Mehta for the purpose  

of carrying out his security transactions.  He further informed them that the  

money  was  required  by  Harshad  Mehta  at  UCO  Banks,  Hamam  Street  

Branch  in  Bombay.   As  per  the  deposition  of  the  said  witness,  

Venkatakrishnan (Accused No. 2) and C.K. Mukerjee (P.W. 13) were also  

present in the said meeting.  He stated:

“7. On 6.4.1992 there was meeting at about 2.00  p.m. in a chamber of Mr. Margabanthu where Mr  R.  Venkatakrishna,  myself  and  CK  Mukherjee  were present. Mr Margabanthu who is accused in  this case told us that this amount from NHB of Rs.  40 Crore meant for Harshad S Mehta account.”

In his cross-examination to which our attention has been drawn by the  

learned  counsel  appearing  on behalf  of  the  appellant,  he is  said  to  have  

accepted that he did not remember to have heard from Accused No. 2 that it  

was not a call money and that the said amount was raised from the Bank by  

Harshad Mehta.  He further accepted :

“I did not tell the CBI about this as I was not asked  any question about the same by the CBI, […] I was  not  knowing  for  what  purpose  the  inquiry  was  made. I did not tell CBI of my own regarding the  meeting in the Chamber of Mr Margabanthu, as I  was only answering the questions.”

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We  have  noticed  hereinbefore  that  he,  therefore,  has  given  some  

explanation as to why we could not disclose as to what had taken place in  

the  said  meeting  in  his  statement  recorded  by  the  Central  Bureau  of  

Investigation.  The fact that such a meeting had taken place was also the  

subject matter of deposition by P.W. 13, stating:

“7.  On  that  day  in  the  afternoon  I  and  Mallikarjunan  were  called  by  General  Manager  Venkatakrishnan. Mr. Venkatakrishnan told us that  we had to go to the chamber of Managing Director  Margabanthu  and  report  to  him  about  all  the  treasury  transactions.  Then  we,  means,  I  ,  Mallikarjunan [PW 17] and Venkatakrishnan [A 2]  went  to  Mr  Margabanthu’s  office  [A  1]  and  Venkatkrishnan  informed  him  the  day’s  transactions. While referring to NHB’s call money  transaction of 40 crore Mr. Margabanthu said that  it was not UCO bank’s call money transaction. It  was  money  arranged  by  Harshad  Mehta  from  NHB. He also said that the money was required by  Harshad  Mehta  at  our  Bank  at  Hamam  Street  Branch  for  undertaking  certain  securities  operations  by  him.  […]  He  also  told  that  Mr.  Venkatkrishnan General Manager that this amount  of  Rs.  40  Crore  should  be  immediately  sent  to  Hamam Street branch so that Security transactions  could be completed by Mr. Harshad Mehta”    

P.W. 13, allegedly on this basis, had called up Vijayan (P.W. 14) who  

was the Manager, Accounts Department, D.N. Road Branch of the Bank to  

inform him of the development, stating:

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“[…] After the meeting was over we, i.e. I and Mr  Mallikarjun came down to our department and as  per  instructions  of  Mr  Venkatkrishnan,  General  Manager I conveyed this message to Mr Vijanan  DN Road Branch, Mumbai”

Such a telephone call to P.W.14 is further corroborated by P.W. 17,  

stating:

“8.  Mr CK Mukherjee phoned to Mr. Vijayan at  Bombay and informed him about this decision.[…]

11.  Mr  Venkatakrishnan  told  me  that  he  telephoned  and  informed  Mr.  Vijayan,  Bombay.  My statement  that  Mr Mukherjee  telephoned Mr  Vijayan is on the basis what Mr. Venkatkrishnan  told  me.  Mr  Venkatkrishnan  told  me  most  probabally after  the meeting but I do not recollect  the exact time.”

Our attention, however, has been drawn to the evidence of P.W. 14 by  

Mr. Narasimha, learned counsel appearing on behalf of the accused No. 2  

that  the  instructions  for  cancellation  was  received  at  1:00  p.m.  or  so.  

Although, according to P.W. 17, the meeting had taken place at about 2:00  

p.m.   

It must, however, be borne in mind that in a case of this nature where  

the witnesses were being examined more than ten years later i.e. in the 2003,  

some amount of  discrepancy with  regard to  time would not  be of  much  

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significance.  We would deal with this aspect of the matter at some details at  

an appropriate stage. Keeping in view the statement made by P.W. 14 which  

was  not  shaken  in  the  cross  examination,  there  is  no  reason  for  us  to  

disbelieve that part of the material brought on record that call money from  

NHB was, in fact, sought to be cancelled.  In any event, as would appear  

from the discussions to be made hereinafter, the prosecution cannot be said  

to have failed to prove its case.  We may, however, notice that at one stage,  

according to this witness, such a telephone call had been made at about 2:00  

or 2:30 p.m.  

Our  attention  has  also  been  drawn that  P.W.  13  before  the  C.B.I.  

stated:

“Mr. Kakkar also told me that the telex message  received at Head Office from D.N. Road, Bombay  branch showing position of call money borrowed  lend on that  day does not contain the borrowing  item  of  Rs.40  crores  from  National  Housing  Bank.”

Telex message has not been produced.  Nothing much turns on the  

said purported admission. It appears from the records that at a later stage the  

General Manager (I&M) was asked to make an investigation.  A report was  

filed by P.W. 17.  Only because in the said report again the factum of the  

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meeting did not find place, the same by itself should not be taken to be a  

ground to ignore the depositions of all these witnesses.    

Apart from the supposed contradictions and inconsistencies, it is also  

pointed by the learned counsel for the appellants that no such meeting had  

taken place in the chamber of Accused No.1 on 6.4.1982.  Our attention has  

been drawn to the evidence of D.W 1- Ajit Sadhukhan, who at the relevant  

time was the driver  of the Accused No. 1 to contend that  Accused No.1  

came to his chamber only at about 3.30 p.m. although the transaction was  

over at 3.00 p.m., stating:

“On 6th April  when in the morning I went to the  flat of Margbanthu, Mrs. Margbanthu informed me  that  Mr.  Margbanthu  is  coming  to  Calcutta  by  flight  from  Madras  and  that  I  have  to  take  the  vehicle  to  airport  for  Mr.Margbanthu.   Shri  Margbanthu came to Calcutta Airport by flight at  about  12.30  p.m.   He  was  having  luggage  with  him.  The suitcase was having a registered tag. I  took him to his residence.   Mr. Margbanthu told  me that he will leave for the office after his lunch.  We started the office at about 3.15 pm and reached  the office at 3.30 pm. We tell the airport with Mr.  Margbanthu at  about  1  O’clock  and reached  the  residence at 2 O clock.”  

The prosecution case  must  be judged on a  broad based fact.   The  

Indian Airlines Flight reached Kolkata Airport at about 12.30 p.m. on that  

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date.  Evidences brought on record show that it takes about 45 minutes to  

reach  the  Head  Officer  from the  Airport.   According  to  the  prosecution  

witness to which we have already adverted to, the meeting took place round  

about 2’O clock.  Even if Accused No. 1 had gone to his house for taking  

lunch,  the  possibility  of  his  coming to  his  office  round about  2’O clock  

cannot  be  ruled  out.   The  Chairman  cum Managing  Director  of  a  Bank  

presumably  would  like  to  attend  to  his  duties  during  banking  hours  and  

particularly when vital decisions as regards the borrowing of call money was  

required to be taken.  That amount of concern from a highly responsible  

officer should be expected.

We must, however, notice that the evidence of P.W.14, who at the  

relevant point of time was working at the Bombay Branch of UCO Bank,  

categorically stated :

“7. The head office had instructed that call money  transaction  of  Rs.  40  crore  was  cancelled.  This  instruction was received at about 1:00 pm or so.  From  Head  office  Mr  Mukherjee  talked  to  me  about  this  cancellation  of  call  money transaction  from NHB. Mr Mukherjee first told me that there  are  four  call  money  transaction  from  NHB  and  subsequently  informed  that  Rs.  40  crore  transaction from NHB has been cancelled.”  

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Mr. Vijayan (PW 14) in his testimony further goes on to clarify about  

the cancellation of the call money.  

Though the entry for the call money transaction occurs in the Note  

Book which was being maintained, but the final Call money register which  

was being maintained only had three call money transactions, since by the  

time the entries in the register had to be noted down the fourth transaction  

had already been cancelled :

“9. I  am  shown  note  Book  […]  These  four  entries  in  my handwriting are of  all  call  money.  […] and last entry is of NHB Rs. 40 crore rate of  interest  @ 26 % and this entry has subsequently  cancelled  on  receipt  of  instruction  from  head  office. […] The entry of call money transaction is  taken in the call  money register  […] Mr Rupani  made entry in call  money register  from the note  book.

10. The register shown to me is call money register  in which enteries are taken from note book. Only  three  call  money  transactions  of  6.4.  1992  are  mentioned  in  this  register  where  as  fourth  transaction of NHB is not mentioned and there is  no entry in this register. […]

11. […]In respect of other three banks they issued  call money receipts to the said banks and collected  the cheques. It  was between 2:00 to 3:00 pm. In  case of NHB Reciept was not prepared and sent as  transaction was cancelled. Before 2:00 pm it was  cancelled. […]”

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However, despite being informed that the call money from NHB had  

been cancelled, when the DN Road Branch, UCO Bank received a cheque  

for Rs. 40 crores from NHB, Mr. Vijayan (PW 14) [DN Road Branch] called  

Mr. Ravikumar (A 6) [NHB] to seek clarification in this respect. Mr Vijayan  

in his testimony notes:

“7. […] By 3.00 pm we received a cheque of Rs.  40 crores from NHB. Thereafter I telephoned Mr.  Ravi Kumar at NHB and asked why he had sent  the cheque when transaction is cancelled, he told  me on phone in reply that this cheque of Rs. 40  crore pertains to Hamam street Branch.[…]

He further went on to state:

“12. […] I called up Mr Ravi Kumar because he  should  have  sent  the  cheque  to  Hamam  street  branch  instead  he  sent  the  cheque  to  DN  Road  Branch.[…]”

Mr  Vijayan  (PW  14)  also  clarified  that  he  had  also  received  

information  from  Mr.  Mukherjee  (PW  13)  that  the  cheque  was  to  be  

transferred to the Hamam street branch of UCO Bank.

However, since there was little time left to transfer the cheque to the  

Hamam street Mr Vijayan directly deposited the cheque with RBI. He also  

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informed this information to Mr Karkhanis (PW 18) from the Hamam street  

branch:

“7. […] Since there was no time left and since the  Hamam street Branch cannot deposit the cheque. I  informed the Hamam street  branch that  we have  received the cheque  and I am depositing it with  RBI. Mr Karkhanis was the Hamam street Branch  Manager and I talked with him in connection with  the transaction. I told him that we received cheque  of Rs. 40 crore from NHB on behalf of Hamam  street branch and we have deposited it with RBI.”

Mr.  Karkhanis  (PW 18 )  [Senior  Manager,  Hamam Street  Branch]  

stated in his testimony as regards the said phone call which was received by  

him from Mr Vijayan (PW 14):  

“2. On 06.04.1992 the current account of Harshad  Mehta was credited by 40 crores. The cheque was  deposited in DN Road Branch but I have not seen  that cheque. Sr. Manager of DN Road Branch, Mr  Vijayan  informed  me  on  phone  that  he  had  received a  RBI cheque of  40 crores  and he was  depositing  it  directly  with  RBI  because  of  time  constraint. He gave instructions to credit it to the  account  of  Harshad Mehta.  The instruction were  received from Mr. Vijayan at about 3.00.”  

However, Mr Vijayan, (PW 14) [DN Road Branch] in his testimony  

disclosed that he had only received information from NHB that the cheque  

was to be transferred to the Hamam Street Branch in the following terms :

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“It did not happen that I contacted Ravi Kumar on  telephone and he told me that amount of Rs.  40  crores is  meant for Harshad Mehta,  he only told  me that it is meant for Hamam Street Branch”  

There is a discrepancy between the two testimonies of Mr Vijayan  

[DN  Road]  and  Mr  Karkhanis  [Hamam  Street],  as  Mr  Vijayan  in  his  

testimony stated that the amount of Rs. 40 Crore was meant  for Hamam  

Street Branch and that he himself had not been informed that the amount  

was meant for Mr. Harshad Mehta. Mr Pradeep Kharkhanis stated that Mr.  

Vijayan specifically informed him that  the said amount was meant  to be  

credited to the account of Mr Harshad Mehta. If Mr Vijayan himself did not  

know that the 40 crore were meant to be deposited in the account of Mr.  

Harshad Mehta at Hamam Street Branch how could he have informed Mr  

Kharkhanis that it was for Mr Harshad Mehta.?

The  matter,  however,  must  be  considered  from  another  angle.  A  

bankers’ cheque for a sum of Rs. 40 crores was received by the Hamam  

Street Branch of the UCO Bank.  The records of the UCO Bank reflect that  

the same amount was to be repaid on 7.4.1992. The said sum was to carry  

interest at the rate of 26% per annum.   

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Had  the  transaction  related  to  call  money,  it  should  have  been  

deposited in the D.N. Road Branch and not in the Hamam Street Branch.  

The Hamam Street  Branch does not  deal with call  money.  On 6.4.1992  

itself the amount was credited to the account of Harshad Mehta.  Although a  

lot of arguments had been advanced to contend that National Housing Bank  

is  entitled to enter  into the security  transactions but  neither  the deceased  

Harshad Mehta nor the accused No. 5 made any attempt to show that any  

transaction  had been entered  into  by  and between the  deceased  Harshad  

Mehta and National Housing Bank.   

The  accused  in  their  statement  under  Section  313  of  the  Code  of  

Criminal Procedure accepted that the transaction in question was a routine  

transaction.  Such a transaction indisputably was utilized for the personal  

gain of Harshad Mehta.  If such transaction was a routine transaction, it goes  

to show the long standing agreement between the said bank and Harshad  

Mehta.  Why on one pretext or the other UCO Bank would allow itself to be  

used as a conduit thereto is the question.   

P.W 5 –  Hiten  D.  Mehta  who  used  to  work  with  Harshad  Mehta  

admitted  that  he  knew  Ravikumar  (Accused  No.  6)  since  1990  and  the  

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remittance facilities were available.  A sort of arrangement by and between  

the said Bank and Harshad Mehta, thus, stood established.   

This is one of the links in the chain to show how the arrangement  

developed  so  as  to  bring  the  matter  within  the  purview  of  conspiracy  

amongst the accused.   

In  between  11:00  a.m.  and  3:00  p.m.  things  took  place  in  quick  

succession.   The  transaction  in  question  was  shown to  be  a  call  money  

transaction.  While assuming it to be so for the time being, if it was a call  

money transaction it could not have been used for any other purpose.  The  

amount was required to be retained in the Bank and should have ordinarily  

been deposited at  the D.N. Road Branch.   This was not  done.   Why the  

amount had been deposited in the Hamam Street branch remains a mystery.  

Indisputably,  the  money  which  had  been  lent  to  UCO  Bank  had  been  

credited to Harshad Mehta’s Hamam Street Bank account on the very same  

day.  Any call money operation could not have been carried out without the  

knowledge and involvement of Accused Nos. 1 and 2.  The involvement of  

the accused No. 1 and 2 in tandem for the purpose of entering into such  

agreement, thus, stands established.  

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It  would  be  appropriate  also  to  deal  with  the  role  played  by  SV  

Ramanathan (A 3) in carrying out the said call money transactions at this  

stage. As per Mr CK Mukherjee (PW 13) [Kolkata], Mr Margabanthu (A1),  

in the meeting which took place in his chambers, reference whereto has been  

made heretobefore,  had informed him that  Mr SV Ramanathan (A3) had  

been authorized him to deal with security transactions of Mr Harshad Mehta  

at the Hamam Street Branch, Bombay.

It  has  also  been  emphasized  by  the  prosecution  that  Mr.  SV  

Ramanathan was present at the Hamam Street Branch on the day the said  

transaction took place.  The testimony of  Pradeep Kharkhanis (PW 18) is  

relevant which reads as under :

“On that day at about 12:00 to 12:30 Noon, Mr SV  Ramanathan, the Divisional Manager had come to  our office. Mr SV Ramanathan came to our office  at about 12:00 to 12:30 noon and  told me that he  will  take  care  of  any  difficulty  about  the  transaction  as  required  by  Parekh.  These  were  brokers  transactions.  Mr  SV  Ramanathan  was  presenting  the  Bank  when  Mr  Atul  Parekh  was  there”

(Emphasis added)

Mr Kharkhanis, in his testimony, further clarified the role of Mr SV  

Ramanathan in insisting the starting up of security transactions through the  

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account of Mr Harshad Mehta, regarding which Mr Ramanathan had even  

addressed the following letter:

“This letter was in connection with the restarting  of brokers transaction of Mr Harshad Mehta and  two other brokers.  I identify the signature of the  Divisional  Manager  Mr  SV Ramanathan.  I  have  made  the  endorsement  to  the  effect  that  Mr  SV  Ramanathan,  DM visted the  Branch on 6.4.1992  from 12:30  to  3:15  pm and  insisted  on  starting  switch transactions which he said were as per the  chairman’s instructions.”

It  is  evident  therefore  that  SV  Ramanathan  (A3)  also  played  an  

important role in ensuring that the call money from NHB which was meant  

from UCO bank got transferred to Harshad Mehta’s Account.

It  is  pertinent  to  note  that  the  money  which  was  supposed  to  be  

borrowed by UCO Bank as a call money was ultimately repaid by Harshad  

Mehta through his account in ANZ Grindlays Bank directly.  

Mr.  Jeroo  Dalal  (PW 8)  who at  the  time was  an  official  at  ANZ  

Grindlays states in his testimony thus:

“2.       Deceased Shri Harshad S Mehta was having    an account with ANZ Grindlays Bank…

4. I am shown document No. 14. It bears my  signature.  I  would  have  received  instruction  on  phone from Shri Atul Parekh on the basis of which  this is prepared. I can say that this was prepared on  

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pursuance of telephone of Shri Atul parekh and I  have  mentioned  in  the  document  favouring  National Housing Bank for Rs. 40,27,52,42/- and  below   that Debit Shri Harshad Mehta and I have  signed.”

Satish D Hosangadi (PW 9) [Chief General Manager, NHB] also, in  

his deposition, notes with regard to the repayment of the said call money  

from ANZ Grindlay Bank stated, thus:  

“From the record, it appears that the cheque dated  16.4.1992 was given to the National Housing Bank  by  Grindlays  Bank.  [Technically]  the  amount  of  Rs. 40 crore is not yet repaid by the UCO Bank…

6.  The cheque of Grindlays bank was directly  deposited with RBI and credited to the account of  NHB”

During his re-examination, Mr Satish D. Hasangadi furthermore to  

the following questions :

“Q: During the period of 6th of April and 16th April,  1992  did  the  ANZ  Grindlays  Bank  owe  Rs.  40,27,52,42/]  to  the  Nationla  Housing  Bank  in  connection with any transaction.”

answered in negative.

The testimony of Mr Jeroo Dalal also brings out the involvement of  

Mr Atul Parekh (A5) in the entire chain of conspiracy, stating :

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“7 We  used  to  get  instructions  from  Atul  Parekh  on  behalf  of  accused  No,  4  and  as  per  instructions from the bank, the amount used to be  debited in the account of Harshad Mehta.”

Mr  Pradeep  Anant  Karkhanis  (PW 18)  [Hamam  Street  branch]  

notes in his testimony, stated :

“Shri  Atul  Parekh  accused  in  this  case  had  also  come in our branch on that day. Shri Atul Parekh  had come to me for starting transaction in brokers  account. I raised certain queries in this respect and  I told Shri Atul Parekh that I was seeking replied  (sic)  to  the  queries…These  were  brokers  transactions.  Before  I  received  telephone  from  Vijayan.Shri  Atul  Parekh  told  me  that  he  was  expecting a cheque of Rs. 40 crores from National  Housing bank.”  

Whatever doubt had been left regarding the involvement of Shri  

Atul Parekh (A5) has been cleared by the above stated testimony.  He knew  

that he was to receive 40 crores from NHB and that is why he had on the  

said day come to the Hamam Street Branch of the Bank.  

It must however be noted that the entire transaction could not have  

been carried out, had the officials of the NHB been not involved.  

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We must here deal with the involvement of C Ravi Kumar (A6) and  

Suresh Babu (A7). NA Shivraman (PW 6) [NHB] in his testimony in this  

regard stated thus:  

“I am shown Voucher D 11.… It mentions deal no.  395 amount Rs. 40,27,52,442/- It mentions Rs 40  crores call money and interst… The rate of interest  for 1 day is 26% and for 9 days it is 25% and the  date  of  maturity  is  16.04.92.  the  date  of  deal  is  6.4.92.  Accused C Ravi Kumar was authorized to  decide the date of maturity or of extending the date  of maturity… The particulars of call money were  being  first  mentioned  in  his  diary  by  C  Ravi  Kumar and thereafter the entries were taken in call  money register….

11.  I  am  shown  the  concerned  page  containing  entry of 6th April, 1992….  The entry mentions the  deal no 395 and the name of the institution as UCO  Bank with rate as 26 % and due date as 7.4. 92.  …  The  period  extension  to  9  days  from  1  day  is  written in the diary by C Ravi Kumar. Interest of  25% was for 9 days and 26% for 1 day”

It is amply clear from above testimony that the C. Ravi Kumar (A6)  

was the person responsible for the extension of the call money transaction  

from 1 day to 9 days and the reduction of the interest from 26% to 25%. The  

involvement of C Ravi Kumar (A6) is also corroborated by the testimony of  

Mr Vijayan (PW 14) where he made reference to the fact that it  was the  

former who had informed him that the cheque from NHB worth Rs. 40 crore  

was to be transferred to the DN Road Branch of UCO Bank.

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What survives is the involvement of the Suresh Babu (A7) who was  

working under C Ravi Kumar (A6) at NHB.  In this regard, reliance has  

been  placed  by  the  prosecution  and  even  by  the  Special  Court  in  its  

judgment on the testimony of Mr. Sunil Pandurang Gondale (PW 7) who  

deposed that Suresh Babu (A 7) had sent him to UCO Bank, Hamam Street  

Branch on the  16.4.1992 to  collect  the  cheque for  the  return  of  the  call  

money advanced:

“For the first time, I had gone on 6.4.1992 I went  to UCO Bank and handedover the cheque. After  about 10 days on 15th or 16th Aptil, 1992 I again  had  gone  to  UCO  Bank  on  instructions  of  Shri  Suresh Babu. When I went for the second time, I  was directed to receive cheque from UCO bank,  Hamam Street Branch….However I did not get the  cheque from there as directed by shri Suresh Babu.  On Coming  from UCO Bank I  told  Shri  Suresh  Babu that I did not get the cheque and the person  to  whom I  was  asked to  meet  had  told  me that  cheque was sent directly by UCO Bank”

In our opinion, reliance on the said testimony is not enough. Just  

because  Sunil  Pandurang Gondale  (PW 7) had been sent  by Shri  Suresh  

Babu (A7)  is  not  enough for  his  involvement in  the  criminal  conspiracy  

which  was  hatched  on  behalf  of  the  other  accused.  Something  more  

substantial would be needed to bring him within its fold. In fact in his cross  

examination he admits:

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“It is not true to say that on 16.4.92 Suresh Babu  [A 7] told me to go to Hamam Street Branch. It is  not true to say that when I was sent to UCO bank  accused C Ravi Kumar [A 6] was not present”  

The  burden  of  proof  is  always  heavy  on  the  prosecution.  The  

prosecution must stand on its own legs basing its findings on the evidence  

that has been let in by it. The prosecution has however failed in this task at  

least with respect to A7, Shri Suresh Babu who was an officer working with  

NHB.  

Now that it has been established that the accused had the knowledge  

of  the  call  money  transaction  which  took  place  between  the  National  

Housing Bank and Harshad Mehta on the 6th April  2008, next we would  

have to consider the question as to whether the said transaction was illegal  

or not.  To establish a charge of conspiracy, indulgence in either an illegal  

act or a legal act by illegal means is necessary.  

The definition of ‘illegal’ is provided for in section 43 of the Indian  

Penal Code.

“43.  ‘Illegal’,  ‘legally  bound  to  do’.-The  word  ‘illegal’  is  applicable  to  everything  which  is  an  offence or  which is  prohibited by law,  or  which  furnishes ground for a civil action; and a person is  said  to  be  ‘legally  bound  to  do’  whatever  it  is  illegal in him to omit.”

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The word ‘illegal’ in the section has been given a very wide meaning.  

It  consists  of  three  ingredients:  (1)  everything  which  is  an  offence;  (2)  

everything which is prohibited by law; and (3) everything which furnishes  

ground for civil action.  

It  is contended on behalf of the respondent that the routing of call  

money from the National Housing Bank to the Account of the deceased Shri  

Harshad Mehta who was a stock broker was contrary to the provision of the  

National Housing Bank Act, 1987.  

To adequately deal with this leg of the submission we must notice the  

provisions of the National Housing Bank Act, 1987 (The 1987 Act). The  

NHB was  created  ‘to  operate  as  a  principal  agency  to  promote  housing  

finance institutions both at local and regional levels and to provide financial  

and other support to such institutions.’ It was thus created to provide finance  

to housing finance institutions. Section 14 of the 1987 Act which is of some  

relevance deals with the ‘Business’ of NHB, the relevant portions whereof  

read as under:

“14.  Business  of  the  National  Housing  Bank.- Subject to the provisions of this Act, the National  Housing  Bank  may  transact  all  or  any  of  the  following kinds of business namely:

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…(b) making of loans and advances or rendering  any other form of financial assistance whatsoever  to  housing  finance  institutions  and  scheduled  banks. (or to any authority established by or under  any Central, State or provincial Act and engaged in  slum clearance).”

In terms of Section 14 the 1987 Act, NHB could advance loans to  

‘housing  finance  institutions’  and  ‘scheduled  banks’  or  ‘slum  authority’  

constituted under a Central or State Legislation. Furthermore, Sub-section 4  

of Section 49 of the Act lays down that if any other provision of the Act is  

contravened  or  if  any  default  is  made  in  complying  with  any  other  

requirement of this  Act,  or  of any order,  regulation or direction made or  

given  or  condition  imposed  thereunder,  any  person  guilty  of  such  

contravention or default shall be punishable with fine.  

It reads as under:

“49. Penalties….(4) If any other provision of this  Act  is  contravened  or  if  any  default  is  made  in  complying with any other requirement of this Act,  or  of  any order,  regulation  or  direction  made  or  given or condition imposed thereunder, any person  guilty  of  such  contravention  or  default  shall  be  punishable  with  fine  which  may  extend  to  two  thousand  rupees  and  where  a  contravention  or  default is a continuing one, with further fine which  may extend to one hundred rupees for every day,  after  the first,  during which the contravention or  default continues.”

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The NHB cannot, therefore, advance loans to anybody except housing  

finance institutions, scheduled banks and statutory slum clearance body, and  

in case it advances any loan to any individual the same would amount to an  

offence under the provisions of the 1987 Act.  

It has been contended by the learned counsel for the appellants that it  

was for the Reserve Bank of India to take some action and the very fact that  

it did not take any action against UCO Bank and NHB are pointers to show  

that no offence had been committed.  The said contention is untenable. It  

was the Reserve Bank of India, which having regard to the magnitude of the  

scam constituted Janakiraman Committee to look into the real nature of the  

transactions and to find out if any fraud or irregularity had been committed.  

Only pursuant to or in furtherance of the report a first information report was  

lodged by the Central Bureau of Investigation.  It was only with a view to  

achieve  a  speedy  trial  and  pass  consequential  orders  in  regard  to  the  

properties acquired by illegal means, the Special Court was constituted in  

terms  of  the  provisions  of  the  said  Act.   Reserve  Bank  of  India  in  the  

circumstances could not have done anything more.

Therefore, advancement of loan to Harshad Mehta by NHB under the  

disguise  of  a  call  money  transaction  was  illegal.  The  accused  had  the  

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knowledge  of  the  said  transaction.  Therefore  they  have  been  rightly  

convicted  by  the  courts  for  commission  of  the  offence  of  criminal  

conspiracy.

In conclusion we hold that there is sufficient evidence to hold all  

accused A1 to A3, all official of UCO Bank & A5 who was working under  

Harshad Mehta and A6, official of NHB guilty of criminal conspiracy. But  

there is not sufficient evidence to show the involvement of A7, NHB in the  

said transactions.

CRIMINAL BREACH OF TRUST

The next charge we have to deal with is one arising under Section 409  

IPC.  For the offence of Criminal Breach of Trust by a public servant the  

punishment is provided under Section 409 IPC. We must also in this respect  

have regard to the provision of  S 405 which defines Criminal Breach of  

Trust :

“405. Criminal Breach of trust. Whoever , being in  any manner entrusted with property,  or with any  dominion  over  property,  dishonestly  misappropriates  or  converts  to  his  own  use  that  property  in  violation  of  any  direction  of  law  prescribing the mode in which such trust is to be  discharged,  or  of  any  legal  contract,  express  or  implied, which he has made touching the discharge  

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of such trust or willfully suffers any other person  so to do, commits ‘criminal breach of trust’”

Punishment for criminal breach of trust is provided in Section 406.  

Punishment for an aggravated form of criminal breach of trust is provided in  

Sections 407 to Section 409.

The terms of the section are very wide.  They apply to one who is in  

any manner entrusted with property or dominion over property. The section  

does not require that the trust should be in furtherance of any lawful object.  

It  merely  provides,  inter  alia,  that  if  such  a  person  dishonestly  

misappropriates or converts to his own use the property entrusted to him;  he  

commits criminal breach of trust.  This section requires  

1) Entrusting any person with property or with dominion over property.

2) That person entrusted (a) dishonestly misappropriates or converts to  

his own use that property; or (b) dishonestly uses or disposes of that  

property or willfully suffers any other person so to do in violation –

(i) of any direction of law prescribing the mode in which such  

trust is to be discharged, or

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(ii) of any legal contract made touching the discharge of such  

trust.

In  Onkar Nath Mishra and Ors. vs.  State (NCT of Delhi) and Anr.,  

[(2008) 2 SCC 561] this court noted that in the commission of the offence of  

criminal breach of trust, two distinct parts are involved. The first consists of  

the creation of an obligation in relation to the property over which dominion  

or control is acquired by the accused. The second is a misappropriation or  

dealing  with  the  property  dishonestly  and  contrary  to  the  terms  of  the  

obligation created.  

In  Jaikrishnadas  Manohardas  Desai  and  Anr. v.  State  of  Bombay,  

[AIR 1960 SC 889], this Court observed :

“To establish a charge of criminal breach of trust,  the  prosecution  is  not  obliged  to  prove  the  precise mode of conversion, misappropriation or  misapplication  by  the  accused  of  the  property  entrusted to him or over which he has dominion.  The  principal  ingredient  of  the  offence  being  dishonest misappropriation or conversion which  may not  ordinarily be a matter  of  direct  proof,  entrustment of property and failure, in breach of  an  obligation,  to  account  for  the  property  entrusted,  if  proved,  may  in  the  light  of  other  circumstances, justifiably lead to an inference of  dishonest  misappropriation  or  conversion.  Conviction  of  a  person  for  the  offence  of  criminal breach of trust may not, in all cases, be  founded merely on his failure to account for the  

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property entrusted to him, or over which he has  dominion,  even  when  a  duty  to  account  is  imposed  upon  him  but  where  he  is  unable  to  account  gwhich  is  untrue,  an  inference  of  misappropriation  with  dishonest  intent  may  readily be made.”

However,  Sections 407 to 409 make special  provisions  for  various  

cases in which property is entrusted to the enumerated categories of persons  

who commit the offence.  

Criminal breach of trust by a Public servant is dealt with under s. 409.

“409. Criminal breach of trust by public servant, or  by banker, merchant or agent.- Whoever, being in  any manner  entrusted  with  property  or  with  any  dominion over property in his capacity of a public  servant or in the way of his business as a banker,  merchant,  factor,  broker,  attorney  or  agent,  commits criminal breach of trust in respect of that  property shall  be punished with imprisonment  of  life, or with imprisonment of either description for  a term which may extend to ten years, and shall  also be liable to fine.”

This  section  classes  together  public  servants,  bankers,  merchants,  

factors, brokers, attorneys and agents. The duties of such persons are of a  

highly confidential  character,  involving great  powers of control,  over the  

property entrusted to them and a breach of trust by such persons may often  

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induce  serious public  and private  calamity.  High morality  is  expected  of  

these persons. They are to discharge their duties honestly.  

The following are the essential ingredients of the offence under this  

section :

1) The accused must be a public servant;

2) He must have been entrusted , in such capacity with the property ;  

3) He must have committed breach of trust in respect of such property.

In  Raghunath  Anant  Govilkar Vs. State  of  Maharashtra  and  Ors,  

[2008 (2) SCALE 303] the court noted that Section 406 which provides the  

punishment  for  criminal  breach  of  trust  simplicitor  and  409  of  IPC  are  

cognate  offences  in which the  common component  is  criminal  breach of  

trust. When an offence  punishable under under Section 406 is committed by  

a  public  servant  (or  holding any one  other  of  the  positions  listed  in  the  

Section) the offence would escalate to Section 409 of the Penal Code.

In Superintendent and Remembrancer of Legal Affairs, W.B. v. S.K.  

Roy,   [(1974) 4 SCC 230], this Court held:

“12.  To constitute  an  offence under  Section 409  IPC, it is not required that misappropriation must  necessarily take place after the creation of a legally  

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correct  entrustment  or  dominion  over  property.  The  entrustment  may  arise  in  any  manner  whatsoever. That manner may or may not involve  fraudulent  conduct  of  the  accused.  Section  409  IPC,  covers  dishonest  misappropriation  in  both  types  of  cases;  that  is  to  say,  those  where  the  receipt of property is itself fraudulent or improper  and those where the public servant misappropriates  what may have been quite properly and innocently  received.  All  that  is  required  is  what  may  be  described  as  entrustment  or  acquisition  of  dominion over property in the capacity of a public,  servant  who,  as  a  result  of  it,  becomes  charged  with a duty to act in a particular way, or, atleast  honestly.”

In  Chelloor  Mankkal  Narayan  Ittiravi  Namhudiri v.  State  of  

Travancore, Cochin, [AIR 1953 SC 478], this Court held:

“... to constitute an offence of criminal breach of  trust, it is essential that the prosecution must prove  first  of  all  that  the  accused  was  entrusted  with  some property or with any dominion or power over  it. It has to be established further that in respect of  the  property  so  entrusted,  there  was  dishonest  misappropriation  or  dishonest  conversion  or  dishonest use or disposal in violation of a direction  of law or legal contract, by the accused himself or  by  someone  else  which  he  willingly  suffered  to  do.”

In Ram Narayan Popli (supra), this Court stated the law, thus :-

“81. To constitute an offence of criminal breach of  trust, there must be an entrustment, there must be  

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misappropriation or conversion to one's own use,  or use in violation of legal direction or of any legal  contract: and the misappropriation or conversion or  disposal must be with a dishonest intention. When  a  person  allows  others  to  misappropriate  the  money entrusted to him that amounts to a criminal  appropriation of trust  as defined by Section 405.  The section relatable to property in a positive part  and a negative part.  The positive part  deals with  criminal  misappropriation  or  conversion  of  the  property  and  the  negative  part  consists  of  dishonestly using or disposing of the property in  violation  of  any  direction  and  of  law  or  any  contract touching the discharge of trust.”    

NON-INSTITUTION OF DEPARTMENTAL PROEEDINGS

In  this  regard,  it  must  be  emphasized  that  the  submission  of  the  

learned  counsel  that  the  Banks  have  not  initiated  any  proceedings  and  

suffered  any  loss  and  thus  the  judgment  of  conviction  and  sentence  of  

criminal breach of trust is wholly unsustainable cannot be accepted for more  

than one reason.   

It is not the law that complaint petition under all circumstances must  

be made by the Banks and Financial Institutions whose money had been the  

subject matter of offence.  It is also not the law that suffering of loss is a sine  

qua non for recording a judgment of conviction.  It is now trite that criminal  

law can be set in motion by anybody.  The prosecution was initiated on the  

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basis of the information received by the Central Bureau of Investigation.  It  

would entitled to do so not only in regard to its statutory powers contained in  

the Delhi Special Police Act but it was also entitled to take cognizance in  

terms of  the  report  submitted  by ‘Janakiraman Committee’.   The money  

involved in the transfer is public money belonging to Public Sector Banks.   

The first allegation of criminal breach of trust is against accused No.6  

and 7 as they had for allowed the diversion of a huge sum meant to be used  

for  specific  purpose,  namely  –  ‘call  money’  to  be  lent  to  another  

Nationalized Bank. We have already hereinbefore dealt with the question as  

to the legality of the transactions having regard to the provisions of the NHB  

Act.  If the transaction was illegal, as result whereof, a private person, who  

was not expected to reap the fruit of ‘call money’ was allowed to retain the  

same for a period to make an unlawful gain therefrom, offence of criminal  

breach of trust must be held to have been committed.   

It is for the same reason, the submission that as no body ultimately  

suffered any loss, an offence under Section 409 of the Indian Penal Code  

was not made out, cannot be accepted.  A Bank or Financial Institution may  

not suffer ultimate loss but if the money has been allowed to be used by  

another person illegally for illegal purposes, the ingredients of Section 405  

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of the Indian Penal Code would get attracted.  A case involving temporary  

embezzlement also attracts the ingredients of Section 405 of the Indian Penal  

Code.  

Furthermore, in terms of the above referred judgments of this Court,  

when a person allows others to misappropriate the property entrusted to him,  

that also amounts to criminal breach of trust.  

In  the  present  case  the  amount  of  Rs.  40  crore  was  entrusted  to  

accused  No.  6,  C  Ravi  Kumar  to  be  dealt  with  in  accordance  with  the  

provisions of the NHB Act. As has already been noticed herein before, the  

1987 Act does not permit grant of loan to an individual. Accused No 6 in  

violation of the law handed over the amount to the UCO Bank with full  

knowledge that the amount would be credited to the account of accused No.4  

Harshad Mehta.  The call  money transaction with UCO Bank was only a  

cover  up.  Thus  the  property  which  was  trusted  to  accused  No.  6  was  

misappropriated by him.  

It  must  in this  regard be emphasized that  an act  of  breach of trust  

simpliciter involves a civil wrong of which the person wronged may seek his  

redress for damages in a civil court but a breach of trust with mens rea gives  

rise  to  a  criminal  prosecution  as  well.  [SW Palanikar v.  State  of  Bihar,  

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(2002)  1 SCC 241].  The element  of  ‘dishonest  intention’  is  therefore  an  

essential element to constitute the offence of Criminal Breach of Trust.   

So  far  as  the  aspect  of  dishonest  intention  is  concerned,  the  term  

‘Dishonestly’ is defined by Section 24 of the IPC:

“‘Dishonestly’-  Whoever  does  anything  with  the  intention of causing wrongful gain to one person or  wrongful loss to another person, is said to do that  thin ‘dishonestly’.”

Thus, an act done with the intention to cause ‘wrongful gain’ can be  

said to be dishonest.  

The  term ‘wrongful  gain’  is  defined  in  Section  23  of  the  IPC  as  

follows:

“Wrongful  gain’-  ‘Wrongful  gain’  is  gain  by  unlawful means of property to which the person  gaining is not legally entitled.”  

The most  essential  ingredient  of  proof  of  criminal  breach  of  trust,  

therefore,  is  misappropriation  with  a  dishonest  intention.  Breach  of  trust  

simplicitor is not an offence as is it not associated with intention which is  

dishonest.  

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The term dishonestly defined in Section 24 IPC means doing anything  

with the intention of causing wrongful gain to one person or wrongful loss to  

another. So the offence is completed when misappropriation of the property  

has been made dishonestly. Accordingly, even a temporary misappropriation  

falls within the ambit of the said offence. [See the Judgment of the Orissa  

High Court in Kartikeshwar Nayak v. State, 1996 Cr.L.J. 2253].  

In the present case accused No. 6 parted with money of NHB which  

was  entrusted  to  him  so  that  Harshad  Mehta  could  get  it  although  not  

entitled therefor in Law. The conduct of accused 6 was therefore dishonest.  

He  is  guilty  of  the  offence  of  criminal  breach  of  trust.  With  regard  to  

accused No 7, Suresh Babu we have already mentioned that  there is  not  

enough evidence to show his involvement in the said transactions.  

So far as the involvement of accused 1 to 3 is concerned, we are of the  

opinion that they also played an important role in diverting the supposed call  

money  from  NHB  which  was  meant  for  UCO  Bank  to  the  account  of  

Harshad Mehta. As soon as the cheque for Rs 40 crore was received by UCO  

Bank the amount stood entrusted to the officials of UCO Bank. However  

accused  1  to  3  in  violation  of  law  and  in  the  absence  of  any  contract  

permitted  the  amount  to  be transferred   to  the  account  of  accused no.  4  

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Harshad Mehta who was not entitled to it. Therefore, the offence of criminal  

breach of trust stands proved against them also.  

We must  also make reference to  the  following observations of  the  

Supreme Court in Ram Narayan Popli (supra) which was a case arising from  

the  connected  securities  market  scam,  to  bring home the point  as  to  the  

impact of the transactions:

“100. The offence in these cases were not of the  conventional  or  traditional  type.  The  ultimate  objective was to use public money in a carefully  planned manner for personal use with no right to  do it.

101. Funds of the public bodies were utilized as it  they were private funds. There was no legitimacy  in  the  transactions.  …Their  acts  had  serious  repercussions  on  the  economic  system  of  the  country,  and  the  magnitude  of  financial  impact  involved in the  present  appeal  is  only tip of  the  iceberg.  There were several  connected cases  and  interestingly some of the prosecution witnesses in  the present case are stated to be accused in those  cases.  That  itself  explains  the  thread  of  self- perseverance  running  through  their  testimony.  Therefore,  the need to pierce the facadial  smoke  screen to unravel the truth to lift the veil so that the  apparent,  which is  not  real  can  be  avoided.  The  proverbial red herrings are to be ignored, to find  out the guilt of the accused.

102. The cause of the community deserves better  treatment at the hands of the Court in the discharge  of  its  judicial  functions.  The  Community  or  the  

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State is not a persons non grata whose cause may  be treated with disdain. The entire community is  aggrieved  if  economic  offenders  who  ruin  the  economy of the State are not brought to book. A  murder may be committed in the heat of moment  upon  passions  being  aroused.  An  economic  offence  is  committed  with  cool  calculation  and  deliberate  design  with  an  eve  on  personal  profit  regardless of the consequence to the Community.”  

PREVENTION OF CORRUPTION ACT

Apart  from the charges under  the  IPC,accused  1 to  3  [UCO Bank  

officials]  and accused 6 & 7 [NHB officials]  have  also been charged of  

committing the offence under s 13 (1) (d) (iii)  read with s 13 (2) of the  

Prevention of Corruption Act.  It must be placed on record that in this regard  

that  the  Prevention  of  Corruption  Act,  1988  replaced  the  Prevention  of  

Corruption Act, 1947. The new Act was enacted ‘to consolidate and amend  

the law relating to the prevention of corruption and for matters connected  

therewith.’  Relevant  portions  of  section  13  which  provide  for  criminal  

misconduct by a public servant read as under.

“13. Criminal misconduct by a public servant.- (1)  A public servant is said to commit the offence of  criminal misconduct,-  

…(d) if he,-

…(iii)  while  holding  office  as  a  public  servant,  obtains  for  any  person  any  valuable  thing  or  

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pecuniary  advantage  without  any  public  advantage; or  

(2)  Any  public  servant  who  commits  criminal  misconduct shall be punishable with imprisonment  for a term which shall be not less than one year but  which shall  may extend to seven years and shall  also be liable to fine.”

Section 13 in general lays down that if a public servant, by corrupt or  

illegal means or otherwise abusing his position as a public servant obtained  

for  himself  or  for  any  other  person  any  valuable  thing  or  pecuniary  

advantage  he would be guilty  ‘criminal  misconduct’.   Clause  (2)  thereof  

speaks of the punishment for such misconduct. [See CK Damodaran Nair v.  

Government of India, AIR 1997 SC 551.]

The ingredients of Sub-clause (iii) of S 13 (1) (d) contemplate that a  

public servant who while holding office obtains for any person any valuable  

thing or pecuniary advantage without any public interest would be guilty of  

criminal  misconduct.  Sub  section  (2)  of  section  13  provides  for  the  

punishment for such criminal misconduct.   

Minimum sentence is prescribed under Section 13(2) of the 1988 Act  

and  a  public  servant  who  abuses  his  position  as  such  for  obtaining  for  

himself or for any other person any valuable thing or pecuniary advantage  

cannot be punished for a term of imprisonment, which is less than for the  

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duration of one year.  For convicting the person under Section 13(1)(d)(iii),  

there must be evidence on record that accused 'obtained' for any other person  

any valuable thing or pecuniary advantage without any public advantage.  

In  Dalpat  Singh v.  State  of  Rajasthan,  [AIR  1969  SC  17]  while  

interpreting  an  analogous  provision  in  the  unamended  Prevention  of  

Corruption Act, this opined noted:

“The ingredients of the offence under section 5 (1)  (d)  are:  (1)  that  the  accused  should  be  a  public  servant,  (2)  that  he  should  use  some  corrupt  or  illegal means or otherwise abuse his position as a  public servant, (3) that he should have obtained a  valuable thing or pecuniary advantage, and (4) for  himself or any other person”   

The Madras High Court in B. Ramachandran and S.S. Abdul Hameed  

vs.State  rep.  by  The  Inspector  of  Police,  Special  Police  Establishment,  

Central Bureau of Investigation, Anti-Corruption Branch, Crl. A. No. 553 of  

2000 decided on 23.03.2007 noted thus:

“Section 13(1)(d) of the said Act also deals with  the  criminal  misconduct  by  a  public  servant  by  means  of  corrupt  or  illegal  means,  obtains  for  himself of for any other person any valuable thing  or pecuniary advantage; or by abusing his position  as a public servant, obtains for himself or for any  other  person  any  valuable  thing  or  pecuniary  advantage;  or  while  holding  office  as  a  public  servant, obtains for any person any valuable thing  

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or  pecuniary  advantage  without  any  public  interest.”

In the light of the provisions already enumerated by us we per the law  

laid down we therefore hold that the accused A1 to A3 [officials of UCO  

Bank] & A6 [officials of NHB] are guilty of criminal misconduct under the  

Prevention of Corruption Act. For the reasons already mentioned by us we  

do not find sufficient evidence to bring in the involvement of A7, Suresh  

Babu within the fold of the said transaction.  

All the accused were at the relevant time public servants. Each one of  

them played a specific role in diversion of funds from NHB to the account of  

Harsad Mehta, all ostensibly under a call money transaction. They thereby in  

our opinion facilitated Harshad Mehta to obtain pecuniary advantage within  

the meaning of the section. The acts were anything but intended to be in  

public  interest.  On the  contrary  the  public  loss  and suffering  occasioned  

thereby was immeasurable. Though it is true, as has been argued before us  

that all the funds diverted have subsequently been returned to NHB and no  

actual  loss has been occasioned there by either  to the UCO Bank or  the  

NHB. But it must not be forgotten that white collar crimes of such a nature  

affect  the  whole  society  even though they  may  not  have  any  immediate  

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victims. We, accordingly, hold accused A1 to A3 and A6 guilty of criminal  

misconduct under s. 13 (1) (d) (iii) of the Prevention of Corruption Act.

SENTENCING

A sentence of punishment in our opinion poses a complex problem  

which requires a balancing act between the competing views based on the  

reformative, the deterrent as well as the retributive theories of punishment.  

Accordingly a just and proper sentence should neither be too harsh nor too  

lenient. In judging the adequacy of a sentence, the nature of the offence, the  

circumstances  of  its  commission,  the  age  and  character  of  the  offender,  

injury to individual  or  the society,  effect  of punishment  on offender,  are  

some amongst many other factors which should be ordinarily taken in to  

consideration by the courts. We may also place on record that as the CBI has  

not preferred any appeal against the quantum of sentence, this Court cannot  

impose a higher sentence.

We  must  first  accordingly  take  into  consideration  the  sentence  

imposed by the Special Court :

As regards A1, K Margabanthu, the court stated that he had been the  

Chairman  and  the  Managing  director  of  a  public  sector  bank  when  he  

committed the offence.  Though the court was  of the opinion of giving him  

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a  harsh  sentence  because  of  the  key  role  played  by  him  in  the  entire  

transaction,  it,  however,  while  considering  his  age  and  health  condition,  

sentenced  him  to  undergo  only  six  months  Rigorous  Imprisonment  and  

ordered him to pay a fine of Rs.1,00,000/- and in default to undergo SI for  

two months. We find no reason to interfere with the sentence imposed by the  

special court.

As regards A2, R Venkatakrishnan the Special  Court again for the  

reasons of his age and the financial status of his family imposed exactly the  

same sentence as that was imposed on A1. We do not intend to interfere  

with the sentence of A2 either as regards to the punishment that he had to  

undergo or the amount of fine imposed on him.  

As regards A3, SV Ramanathan the court considering his lower rank  

in the hierarchy of the bank imposed on him only a sentence of one month  

RI and ordered to pay a fine of Rs. 10,000/-  and in default SI for 15 days.  

Though we are of the opinion that he deserved to be dealt more harshly by  

the trial court but after five years having passed since the pronouncement of  

the judgment we do not propose to effect any change the said sentence.  

As to A 5, Atul  M Parekh the court took note of the fact that he was  

working under the orders of A4, the deceased Harshad Mehta,  being his  

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employee, and  handed him a sentence of merely 15 days and ordered him  

to pay a  fine of  Rs.  10,000 and in default  SI  for  15 days.  We need not  

interfere with the said sentence.

As to A6, C Ravi Kumar the court gave him a sentence of three years  

and ordered him to pay a fine 1,00,000 in default SI for 3 months. We have  

herein before already deprecated against the reference by the Special Court  

on the Jankiraman Committee Report while awarding the sentence. Though  

we too are of the opinion that A6 played a very instrumental  role in the  

entire  scheme of things,  but feel  that the Special  Court  might have been  

influenced by the observations of the Report while awarding the sentence. In  

our opinion the transaction could not have been possibly carried on without  

the help of A6. But so long as there is doubt that the court was not wholly  

correct in awarding the sentence we would not be in a position to uphold it.  

This is also visible from the wide difference in the sentence of imprisonment  

which has been given to him as compared to other accused who also played  

a equally instrumental role in the illegal transactions. We accordingly reduce  

his sentence of his imprisonment to six months but uphold the amount of  

fine which has been imposed upon him.  

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Since we have acquitted A7, S Suresh Babu of all charges no question  

as regards the sentence to be imposed on him arises.

CONCLUSION

1. A1, K Margabanthu is sentenced for the offence punishable under s.  

120B and  s. 409 of the IPC as also s.13 (1) (d) (iii)  read with s. 13  

(2) of the Prevention of Corruption Act to undergo RI for a period of  

six months and to pay fine of Rs. 1,00,000 in default to undergo SI for  

two months

2. A-2 , R Venkatkrishnan is found guilty of offence under s. 120B and  

s. 409 of the IPC as also s. 13 (1) (d) (iii) read with s. 13(2) of the  

Prevention of  Corruption Act and is sentenced to undergo RI for a  

period of six months and to pay fine of Rs. 1,00,000 and in default SI  

for two months.

3. A3, SV Ramanathan is sentenced for the offence punishable under s.  

120B and  s. 409 of the IPC as also s.13 (1) (d) (iii)  read with s. 13  

(2) of the Prevention of Corruption Act to undergo RI for a period of  

one months and to pay fine of Rs. 10,000 and in default SI for two  

months.

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4. A5,  Atul  M Parekh  is  sentenced  for  the  offence  punishable  under  

section 120 B of the IPC to undergo RI for a period fo 15 days and to  

pay a fine of Rs. 10,000 and in default to undergo a SI for 15 days.

5. A6, C Ravikumar is sentenced for offences under punishable s. 120B  

and s. 409 of the IPC as also s 13 (1) (d) (iii) read with s. 13(2) of the  

Prevention  of  Corruption  Act  and  is  sentence  to  undergo  

imprisonment  for 1  year  and to pay a  fine of  Rs.  1,00,000 and in  

default to undergo a imprisonment for SI for two months.

6. A7, S Suresh Babu is hereby acquitted of all charge as the prosecution  

has failed to prove the case against him beyond all reasonable doubts.

Each accused should be given a set off for the period for which he has  

already undergone imprisonment in this case. So far as the payment of fine  

is concerned, a period of 2 months time is given to all accused persons, on  

whom fine has been imposed, to pay the said fine.

………………………….J. [S.B. Sinha]

..…………………………J.     New Delhi; [Cyriac Joseph] August 7, 2009

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