RAM NARAIN POPLI v. CENTRAL BUREAU OF INVESTIGATION

Citation: [2003] 1 S.C.R. 119

Court: Supreme Court of India

Bench: M.B. SHAH, B.N. AGRAWAL, ARIJIT PASAYAT

Judgment text

RAM NARAIN POPLI v. CENTRAL BUREAU OF INVESTIGATION JANUARY 14, 2003 [M. B. SHAH, B. N. AGRAWAL AND ARIJIT PASAYAT, JJ. ] Penal Code, 1860; Sections 120B rlw Ss. 403, 409, 420, 467 and 4711 Special Court (Trial ofOffences relating to Transactions in Securities) Act, 1992. Financial transactions between Govt.

Company, banks and brokers- Irregularities therein-CB/filed cases against/we accused under theprovisions ofSpecial Court Act-Misappropriation ofpublic funds, charges ofcheating, criminal breach of trust, criminal conspiracy and abuse ofpublic offices- Special Court convicted all except one of the accused -On appeal-Held, Agreementto commit crime is essential ingredient and overt act not necessary-- Criminal conspiracy-Direct evidence is rarely available, circumstantial evidence proves complicity of accused in the crime-In the facts and circumstances ofthe case, accused Bank employees intended to hide informaJion about involvement ofaccused-broker in the financial transactions ta provide benefit to him, which goes to prove conspiracy amongst the accused-Economic Offences.

Criminal breach oftrust-Entrustment ofproperty, conversion to one's own use or use in violation of law with dishonest intention-Necessary ingredients established by the acts and =onduct of some of the accused- Hence, they are rightly convictedfor offence ofcriminal breach oftrust. Forgery-Some of the accused found involved in making false Bank Receipts and other documents with the intention to cause injury to Government Company -Hence committed forgery. Cheating-Some ofthe accused by their conduct impliedly inferredfrom the nature oftransactions actedfraudulently and dishonestly to induce Govt. company/banks in delivering valuable security/property-Hence committed the offence ofcheating. Market practices-Approval of-Held, a wrong practice even though prevailing, cannot be treated as approved practice-Since no public interest is involved, such a p>"(! ictice cannot be a substitutefor Statutory & Regulatory prescriptiott:S. Prevention of Corruption Act, 1986; Ss. 13(J)(c) r/w S.

13(2): Public Servant-Acts ofCorruption-Involvement-Held, some ofthe accused-public servants, in jurtl#! r'ance of criminal conspiracy, abused their position by causing! alif>wing the funds ofGovernment Company to be utilizedfor wrongful gain of accused-broker-Hence provisions of Sections 13(1)(c) and 13(2) attracted Words and Phmses: 'Entru. stment' and 'Market practices'-Meaning of Central Bureau ofInvestigation filed a case before the Special Court under the provisions of Special (Trial of Offences relating to Transactions in Securities), Act, 1992 against accused Nos. 1 to S. Al and A2 were officers of Maruti Udyog Ltd. , a Govt. Company; A3 and A4 were bank Officers and AS was a financial broker. According to the prosecution AS in connivance with Al, A2, A3 and A4 involved in irregularities committed in five financial transactions involving sale and purchase of securities (Units of Units Trust oflndia) and reversal thereof. Several enquiries were J....

made in relation to said security scam. Reserve Bank of India appointed the Jankiraman Committee; Besides, a joint Parliamentary Committee was also appointed to enquire into the financial irregularities. Reports of both the Committees were placed before the Trial Court. The main allegation was that accused No. S hatched a criminal conspiracy with other accused and in collusion with accused nos. 3 & 4 got deposited surplus funds of MUL into Banks and finally transferred the same in his favour. It was also alleged that Al & A2, without lawful authority, dealt with AS and indulged in illegal financial transaction intentionally to provide benefits to AS. All the five accused appellants were charged under Sections 409, 420, 467, 471 IPC and Sections 13(l)(c) r/w Section 13(2) of the Prevention of Corruption Act. Special Court convicted all the accused except accused no. 2 for committing various offences under Indian Penal Code. Hence these appeals by Al, A3, A4 and AS.

CBI filed appeal against acquittal of A2. During the pendency of appeals, AS expired and on the petition filed by widow of AS, appeal was ordered to be continued. R. N. POPLI v. C. B. l. lt was contemled for the appellants that the investment/loan involved in live transactions was for a slmrt period and at a higher rate of interest.

The amount was paid ba~k 11n due dates; that AS did not commit any offence or offe11ces but the prosecution was a piece of political revenge against AS fllr di•closing certain facts to the Press against the political leaders; that the transactions were loan transactions because rate of interest and period was settled before exchange of money in lieu of Government securities; that delay in lodging of FIR indicates that )( investigation was Intentionally kept alive by the CBI for undisclosed motive; that cheques were drawn in favour of one of the Bank for expeditious transmission of amount to AS to prevent monetory loss to him; that there was no conspiracy to siphon off the surplus funds of MUL as the amount was lent on security and repaid with interest in time; that the prosecution had tried to prove the theory of absurd conspiracy by the sole evidence of approver PW23 without corroborating his evidence; that crossexamination of PW16 was not allowed to corroborate the evidence of PW23; that there was no evidence to establish that Bank Receipts were issued without Units being available with the Bank; that by allowing the proceeds to be credited to the account of the c.

ustomer, i. e A-5, the Bank was neither g~Uty of negligence nor of any criminality, thus no officer of the Bank could be held liable for the same; that PW23's insistence that A2 was present In the alleged meeting between accused leads to the irresistible inference that deposition about the alleged meeting was totally concoct! 'd; llrnt the charge of conspiracy was cooked up to cover first three transaction• wMeh were prior to issuance of the RBI Circular for stopping illegal praetices; that the alleged link between the accused and in furtherance of conspiracy doing of overt act that by involvement in alleged irregularities in financial transactions, was broken by the fact that 13 other transactio11s tool; place during the same period between AS and MUL; that the pardon granted to approver PW23 becomes inadmissible; that the evidence of PW23 did not disclose any conspiracy; that the conviction cannQt be based on sole evidence of approver; that there was no evidence against ,.

\2 and no material evidence was provided justifying any interference in acquittal appeal; that the prosecution has failed to establish Al misrepresenting to MUL regarding transfer of funds to one of the Bank at the instrqctions of the other Bank; that the charge of conspiracy was fabricated one, there was no mens rea for alleged criminal breach of trust on the part or Al; that charges under the provision of Section 13(l)(c) of Prevention or Corruption Act and Section 409 IPC were without any foundation; that PW7 and PW14, Officials of a Bank, could not differentiate whether Bank Receipts and letters pertain to the alleged " transactions involving accused Bank officers and accused client broker; that and prosecution has failed to examine material witnesses; that there was no evidence to prove that A4 handled the cheque of one of the Banks though PW16 accepted the cheque and forwarded it for encashment in favour of accused AS; that A4 was not in any way party to any fraud; that the prosecution witnesses themselves deposed that cheques were deposited in the account of the Bank and not in the account of AS; that the RBI Circular nowhere prohibits the Banks to act on behalf of their clients; that sine there was no illegality on the part of A3 in the transfer of funds of MUL to AS and there was no evidence ofany actual loss caused to anybody or of intention of causing loss to anybody; that A3 was not connected with the 5th transaction as at the relevant time he was transferred to another branch; that A3 was erroneously charged for forging the Bank Receipts on the wrong assumption that the Bank did not -r-· hold the units for which the BRs were issued.

It was submitted for the respondent that these transactions were a facade for a wrong transaction which could not be entered into by MUL in favour of AS; that in view of the guidelines issued by RBI, MUL could not give loan to AS for diverting the funds to MUL; that Al got issued cheques for payment by one Bank in favour of another Bank which in turn transferred to the account of AS; that since the cheques for payment had not been delivered to the representative of UCO Bank, the transaction was not between MUL and UCO Bank; that since cheques were issued in favour of Grindlays Bank for transferring the amount to UCO Bank, it was not loan transaction between MUL and AS; that A3 was having no authority to sell or purchase units with the Bank; and that since A3 was F. having no authority to issue BRs/documents, he forged these documents to provide benefits to AS. _. )...

Disposing of the appeals, the Court HELD (By the Court): (1) Criminal Appeal filed by the State against A2 is dismissed. (2) Crimimtl Appeal filed by A4 is allowed and he is acquitted of all the offences alleged against him. (3) Criminal Appeal filed by Al, A3 and deceased AS are partly allowed. Conviction of Al, A3 and AS by the Special Court R. N. POPLI v. C. B. I. 123 is confirmed. Sentence of Al and A3 is reduced to the period already undergone. Per Pasaya! , J. (for himself and Agrawal, J. ) : 1. 1. From the statement of account of UCO Bank, Bombay it is clear that there was no debit entry showing that the UCO Bank, Bombay has charged any commission for the transaction of certain units of UTI and there is also nothing to show that UCO Bank had charged any commission ~ from A-5. From internal vouchers, it is clear that though names of Bank of America and UCO Bank have been indicated, there was no involvement of UCO Bank either in passing or receivlni: funds in its own account.

On the contrary, evidence shows that in tlie Orsi instance money was paid by A-5 through its bankers to MUL. There was nothing to show that the · payment was made to MUL through Bank of America under the instructions of UCO Bank, Bombay. Similarly, at the stage of reversal, the amount paid by MUL directly came to be credited in the account of A-5 first in the Grindlays Bank, Delhi, then in the Grindlays Bank, Bombay and finally in the UCO Bank, Bombay. In all these three stages, the amount went directly to the account of A-5. There was no involvement of UCO Bank in financial aspects of the transaction, if the Bank, as claimed by A-5, at all acted for him as routing Bank in the transaction. There is _. _ nothing to show that such payment was made under the instructions of UCO Bank, Bombay. (286-C, D, E, F] 1. 2.

In the 2nd transaction, the BR authorised and signed by A3 and Issued by UCO Bank recites that UCO Bank having receiyed from MUL the concerned sum, being the cost of certain units of UTI, the security will be delivered when ready in exchange "by this receipt" is duly discharged. It clearly indicates that UCO Bank had undertaken to MUL to deliver security as and when the Units were ready in exchange for the BR. There is also endorsement made in the BR reading as "discharged" with a rubber stamp of MUL which is proved to be made by accused No. l as proved by PW-3, an officer of MUL. This endorsement shows UCO Bank having discharged its obligations to MUL under the said BR. Credit advice issued by UCO Bank Is in the handwriting of A-3. Although, In the narration of credit voucher it was mentioned that certain units related to MUL, there - '"' is no written record in that regard. Exbt.

128, which is the advice of Grindlays Bank, does not justify the narration as appearing in the credit voucher. The material on record clearly justifies a conclusion that the amount involved came from the account of A-5 and was paid to MUL. There was no involvement whatsoever of UCO Bank though the stand of MUL is that the transaction was between it and UCO Bank. As is the case with the first transaction, the situation is somewhat similar so far as transaction no. 3 is concerned. 1287-F, G, H; 288-A, B, C, DJ 1. 3. In the fourth transaction MUL was dealing with UCO Bank and there was no question of A-5 dealing with MUL on principal-to-principal basis. In the minutes of Sub-Committee of MUL for the investment, the f. committee had earlier approved the proposals as contained in the Agenda Note, where the investment in the security in question was to be made with Grindlays Bank. But later on, the same was changed and it was resolved to be made with UCO Bank, Bombay as proposed by A-1.

Significantly, there was no written proposal either from UCO Bank or Grindlays Bank which has been received and placed before the Committee of MUL. The )- - Committee had given its approval to the proposal for investment with UCO Bank. In respect of the other transaction, there was no direct involvement of UCO Bank and it was A-5 creating a facade to give a picture to MUL as if the transaction was between it and UCO Bank. 1288-G, H; 289-A) 1. 4. In transaction No. S, there was no letter issued by UCO Bank, Bombay and proposal to MUL was similar to earlier transactions. The most significant aspect is that there was also no Bank Receipt (BR) issued by UCO Bank, Bombay favouring MUL in respect of this transaction. Notwithstanding these, the security was put through, the MUL parted with money which went into the account of A-S in the same manner as in the case of trans~tions 2 to 4.

Another important aspect is that the monies/ funds were in fact credited eventually in the account of A-S with UCO Bank, Bombay. The debit and credit vouchers of the Bank amply prove this. 1289-C, F] 2. 1. A-1 concealed the receipt signed by PW-23 on the letterhead of A-S cancelling the receipt ofcertain units from MUL. It is hard to believe that A-1 did not know that the ultimate beneficiary was A-S. A-1 delivered pay order for the second transaction to PW-16. It has to be noted that for the first time in this Court A-5 has taken the stand that the relevant transactions were iii the nature of loan transaction between A-S and MUL. _,. L_ A-1 used to place the proposal before the Board and obtained approvals for the investments in question. A decision was taken by MUL for investing its funds with PSU. That clearly indicates that investments could only be R. N. POPL! v. C. 8. 1. 125 in PSU's bonds. [289-F, G] 2. 2.

The plea that there was instruction by UCO Bank to issue pay order in favour of Grindlays Bank is clearly untenable because if the UCO Bank intended that in its transaction the pay orders were to be issued to Grindlays Bank, the same could not have been without any direction from UCO Bank. In respect of fourth and fifth transactions, pay orders continued to be issued to Grindlays Bank even though admittedly there ,. ' was no instruction from UCO Bank. In the fifth transaction, Al released ~ funds of MUL even in the absence of an authority letter or a security in the form of Bank Receipt from UCO Bank. Payments made at the stage of reversal by MUL were directly made to A-5. There was no authorization to purchase any securities from any brokers. There was no mention about the intention that monies will be given on loan to any broker. Each transaction, as reflected, was considered to be a placement of funds with . ..

,_ PSUs and there was no scope of any placement of surplus funds with private person. It is unbelievable that A-1 did not know about the involvement of A-5 when the receipt in respect of certain units was kept in the records of MUL. (291-A, B, C, DJ 2. 3. In all the transactions the role of A-3 is very significant. Investment of the first transaction indicates that the same was written on the letterhead of UCO Bank and was signed by A-3 with reference to certain units. So far as reverse entries are concerned, a letter was addressed by the UCO Bank, Bombay to MUL requesting MUL to remit funds through ANZ Grindlays Bank. Transaction No. 2-BR is in the handwriting of A-3 and is signed by him. Carbon copy of credit voucher of UCO Bank is in the handwriting of A-3 and also bears his signature. It indicates that the amount was intended for A-5 being the amount of security, namely, units sold to MUL. Similarly Exbt.

151(1) shows that A-3 signed on the debit voucher in the name of A-5 for certain amount. ]291-E, F, G] 2. 4. One significant factor as deposed by PW-7 is that none of the UCO Bank Managers were authorized to deal with securities. Ifthere was any genuine transaction. for sale of security, the deal could have been concluded by the Head Office of the Bank. Accused No. 3 wrote letters and made a representation that he has entered into transactions for the Bank. A-3 was not authorized to write a letter unless he is permitted to do so from the Head Office. A-3, therefore, did not have the authority to deal with the Bank or to any arrangement. PWs. 14 and 21 deposed that only the Head Office can instruct on behalfof the Bank. A-3 fraudulently signed documents showing different designations to misrepresent something which in reality was not there. In reality he was the Assistant Manager. These are clearly conducts of deceit and dishonest intention. On the basis of the letters and BRs.

MUL parted with its funds which went to the account of - A-5. [292-D, F, GJ 2. 5. Grindlays and UCO Bank never received money in their own· right. They only collected the cheque for A-5, although the cheque in each -+;I; ( case was non-negotiable payee cheque in favour ofGrindlays Bank without any instructions from MUL. UCO Bank did not sell or agree to sell, as A-3 had no authority either to sell or commit UCO Bank to any sale of security on behalf of the Bank, even if it is accepted that the Bank had purchased the security, it had become the property of Bank, and the securities dealt with as an agent is not to be reflected in the books of the Bank yet such recording is appropriate. In the instant case, the sale or repurchase has not been passed through the Bank's books. The stand that Bank had received a commission is inconsistent with the stand that there was a sale and repurchase involved in the transaction.

In such a transaction, the difference in price is the profit and not a commission. For the 5th transaction neither there was a letter from the UCO Bank nor a - BR which amply demonstrate that no security was delivered. Though in respect of transactions 2, 3 and 4 certain securities were placed with A-3 by A-5, that really is of no assistance to A-5. If any security is received, the Bank ought to have made some payment and if the Bank has not paid to retain the security, it would have been required to deliver the securities based on the BR and/or its letters. The Banker's cheque issued by Canara Bank on MUL's account was received by Grindlay's Bank and credited to the account of A-5, and remitted to the Bombay Branch of Grindlay's Bank. There was an instruction from Grindlays Bank to credit the amount in the account of A-5 in respect of Banker's cheques of UCO Bank. Thus, UCO Bank did not receive any money in the transaction. (293-A, B, C, D, E, F) 2. 7.

For the first time before this Court A-5 took a stand that there was a transaction between him and the UCO Bank. Hence A-5 was the recipient of the money and he had derived benefit of it. (293-G) 2. 8. Pay Orders of Canara Bank were collected by PW 16. These were deposited as though he was the payee. It is clear from the descriptions in the pay-in slips, letters written by his agent/employees to Grindlays R. N. POPLI v. C. B. I. 127 Bank giving clear instructions to remit the proceedings of Pay Orders to bis account. Receipts given by A-S in respect of the first transaction of certain units of UTI were in the records of MUL. It is clear from the . • resolutions and the minutes of discussion that MUL had not approved the role or involvement of AS and it was not known to the Board that the transactions were in reality with AS. The subterfuge adopted was to conceal actual state of affairs and to present a totally distorted picture. (293-H; 294-A-BJ 2. 9.

A Bank cannot act as a broker under the Banking Act. It is not one of tbe permitted acts. There is also not a question of paying of any commission on purchase/sale of transactions. Hence, the transactions are not transparent. (294-HJ 2. 10. MUL does not appear to have noticed about the role of the brokers. The decisions in question did not refer to A-5, but to UCO Bank, however, the beneficiary is A-S. The pay-in slips were filled up by PW-16 which indicate that the payment was made to A-S and in fact there was authorization from MUL in this regard. In Exhibit 38, A-3 has signed as "Accountant". The document uses the expression "cost". Though the receipt was from A-S, it was indicated as if it was from MUL. All the relevant vouchers show as if the sale of units was to Grindlays' Bank. Transactions show that payment was made to Grindlays Bank and not to UCO Bank and there was no question of MUL issuing the cheque to Grindlays Bank.

It would have been to UCO Bank, Grindlays Bank made the payment and UCO Bank had nothing to do with MUL. The draft was in the name of UCO Bank. In essence, UCO Bank has not received any money from MUL. There was direction given by Grindlays Bank, New Delhi. All the vouchers that have been produced show that same are put through Grindlays Bank. The vouchers of MUL clearly show as if the transaction was between MUL and UCO Bank. (29S-A, B, C, DJ 2. 11. The evidence on record clearly shows that PW 23 was not only -, known to MUL but represented accused No. S and in particular to accused No. I. Exbt. 58 is the letter of the UCO Bank, Bombay wherein MUL had been instructed to deliver certain units to PW 3 whose specimen signature was attested by accused No. 3. Delivery of the said securities was effected _J_ to PW 23 by MUL and the receipt was passed by PW 23. The acknowledgment is on the printed stationery i. e. letter head of A-S.

In respect of each of the transactions 2 to S, the pay orders issued by MUL through its Bankers, Canara Bank towards the consideration of the security was handed over to PW 16 under instructions·of A-l or A-2. This amply establishes that PW 23 was not a total stranger or unknown to accused 1 and 2 as claimed. His association with accused S also Is clearly borne out. It is unbelievable that to a stranger, PW 23, valuable securities of crores of rupees and pay orders were delivered by MUL for which receipts were issued on the letterhead of A-5. The evidence also shows that letters and the BRs issues by the UCO Bank, Bombay in the transactions addressed to MUL were first received in the office of A-S and were then passed on to MUL. (295-E, F, G, H; 296-A, DJ An attempt was made to as if there was no broker involved. Accounts were to be presented in such a manner that the role of A-5 would remain hidden. 2. 12. So far as the Sth transaction is concerned, there is no letter or the BR.

Though accused No. 5 was the mastermind in reality, it reflects >-- the involvement of several persons to present legitimacy while in reality that was not so. Letters authored by A-3 made a clear representation to MUL as if it was transacting with UCO Bank. [296-EJ 3. 1. The essence of criminal conspiracy is an agreement to do an .... illegal act and such an agreement can be proved either by direct evidence or by circumstantial evidence or by both, and it is a matter of common experience that direct evidence to prove conspiracy is rarely available. Therefore, the circumstances proved before, during and after the occurrence have to be considered to decide about the complicity of the accused. [299-C) Halsbury's Laws of England (4th Ed. Vol. 11, page 44, page 58), referred to. 3. 2.

It is not always possible to give affirmative evidence about the date of the formation of the criminal conspiracy, about the persons who took part in it, about the object, which the objectors set before themselves and about the manner in which the object of conspiracy is to be carried out, all this is necessarily a matter of inference. [301-C, DJ 3. 3. The provisions of Section 120A and 120B IPC have brought the law of conspiracy in India in line with the English Law by making the .. L overt act unessential when the conspiracy is to commit any punishable offence. [301-E) Regina v. Murphy, (1837) 173 ER S02, referred to. R. N. POPLI v. C. B. I. Russell on Crime (12th Ed. Vol. /, P. 202) and "Criminal law" by Glanville Williams (Second Ed P. 382), referred jo. 3. 4.

Where the conspiracy alleged is with regard to commission of a serious crime of the nature as contemplated in Section 1208 read with the proviso to sub-section (2) ofSection 120A IPC, then in that event mere proof of an agreement between the accused for commission of such a crime alone is enough to bring about a conviction under Section 1208 and the -" •,. L proof of any overt act by the accused or by any one of them would not be necessary. Sections 120-A and 120-8 IPC have brought the law of conspiracy in India in line with English law by making an overt act inessential when the conspiracy is to commit any punishable offence. In a case where criminal conspiracy is alleged, the Court must inquire whether the two persons are independently pursuing the same end or they have come together to pursue the unlawful object. The former does not render - - r were admittedly not brokers. They were either Banks or financial . ·' institutions.

Evidence clearly shows that A-S wanted that he will not ... directly come to the picture, and would not appear in the books of accounts of MUL; but he would stand to gain by way ofcommission and brokerage from the Bank. The statement of A-1 that he would look into any good proposals if A-S does not come to the picture shows that the actual state -kh ofaffairs was intended to be hidden from the MUL authorities and a totally I distorted picture was sought to be given. These are factors which clearly proves conspiracy. (306-E, G, H; 307-A) State ofKera/a v. P. Sugathan & Anr. , [2000) 8 SCC 203, relied on. 4. 1. Repayment itself is not an indication of lack of dishonest intention. It so happens that with a view to create confidence the )- repayments are made so that for the future transactions the money can be dishonestly misappropriated. This is a part of the scheme and the factum of repayment cannot be considered in isolation.

The repayment can be a factor to be considered while awarding sentence, but cannot be a ground for proving innocence of the accused. (307-B) ... 4. 2. To constitute an offence of criminal breach of trust, there must --l... be an entrustment, there must be misappropriation or conversion to one's own use, or use in violation of a 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 is 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. (307-G, HJ 4. 3.

The term 'entrustment' is not necessarily a term of law. It may have different implication in different context. In its most general signification all it imports is the handing over possession for some purpose J... _ which may not imply the conferring of any proprietary right at all. When a person misappropriates to his own use the property that does not belong to him, the misappropriation is dishonest even though there was an R. N. POPLI v. C. B. I. 131 intention to restore it at some future point of time. [309-C, DI Jaswantrai Manila/ Akhaney v. The State ofBombay, AIR (1956) SC • 575 and Jaikrishnadas Manohardas Desai andAnr. v. State ofBombay, AIR (1960) SC 889, relied on. 4. 4. In order to constitute an offence of forgery the documents must be made dishonestly or fraudulently. But dishonest or fraudulent are not ,,,, • _!.. tautological. Fraudulent does not imply the deprivation of property or an element of injury.

In order to be fraudulent, there must be some advantage on the one side with a corresponding loss on the other, Every forgery postulates a false document either in whole or in part, however, small. [310-A, Bl 4. 5. The accused persons have tried to take shelter behind what they have described as "market practices". Such practices even if existing, -- had instructed that amount be sent through Grindlays Bank, writing of such letter would not mean that he has committed any fraud. (260-B-CJ 4. 5. A3 has been charged with forging the BRs on the ground that UCO Bank did not hold the units for which the BRs were issued. All the transactions are based upon the documents, which stand proved by the evidence of various witnesses of MUL, who signed the documents. The ·- -. He contended that there is no evidence on record that Grindlays bank or the Canara bank had any objection to this course of dealing.

He further contends that there is no question of conspiracy to siphon off the surplus funds of MUL as the amount was lent on security and repaid with interest on due dates. He contends that prosecution has tried to prove the theory of socalled absurd conspiracy by the sole evidence of approver PW23 and has failed to prove the same miserably. He pointed out that before taking loan, units of UTI were deposited or were with the UCO Bank and there is no ,-4 evidence on record to establish that units were not with the UCO bank at the time when the BRs were issued. It is his submission that in a criminal prosecution it is absurd to suggest that defence has to prove that BRs were obtained without sufficient security. The prosecution witnesses of the UCO Bank have admitted that necessary record was not maintained by the bank because of heavy pressure of work. . J__ It is also submitted that for similar transactions RC. 8(BSC)/94/Bom.

was lodged and a report was submitted before the Court stating that there was no case against the accused. After investigation, it was discovered that the BRs were indeed backed up by the securities, hence the CBI filed closure report dated 11. 11. 1994 Ex. A-5-116 before the High Court and the said report was accepted on 17. 3. 1997. That order was upheld by this Court. However, the CBI proceeded with this prosecution for an oblique motive. In written submissions filed on behalf ofA-5, it has been further stated that the charge against A-5 reads as under: - "That you accused no. 5 in furtherance ofihe aforesaid conspiracy did ·dishonestly misappropriate 4 banker's cheques to wit. Cheque No. 645585 dated 13. 3. 1991, cheque no. 646402 dated 18. 3. 1991, cheque no. 863237 dated 24. 4. 1991 and cheque no. 863260, dated 2. 5. 1991 aggregating to Rs.

38,97,20,000 drawn by MUL on its bank to wit the Canara Bank, Connaught Place Branch in favour of the ANZ Grindlays Bank and you thereby committed an offence under Section 403 of the IPC. " It is contended that the point ofdetermination is - whether this charge is legally sustainable. In other words whether borrowing money on four occasions and returning it on the due date with interest is an offence under Section 403 of the ! PC? The answer to this point is - a resounding No. The learned senior counsel further submitted that following are the ingredients of the offence charged above: - (i) that the accused appropriated the cheques to himself; (ii) that the appropriation was a misappropriation; (iii) that it was dishonest. He submits that the first ingredient is satisfied-A-5 appropriated the cheques or their proceeds to himself. A person misappropriates only when he appropriates property to himself which in fact belongs to somebody else and he does so without that person's consent.

Grindlays bank had not negotiated the loan for itself. Cheques were being issued for the purpose of lending money by MUL to AS. The cheques and their proceeds were meant for the accused and it was the accused who was receiving it by a pay order in the name of Grindlays Bank. It is not the prosecution case that the amount was in fact meant for Grindlays bank but it is the prosecution case that the amount was meant only for A-5. It is argued that when in the four transaction the loan was advanced by MUL to A-5, it was done every time by a pay order. Under that pay order issued by the Canara Bank, it was to pay a sum of money to Grindlays bank. Grindlays bank acknowledged the receipt. This pay order had been given by the Canara Bank to an employee of A-5. The very fact that this was so handed over shows that Canara Bank must have received instructions from their own customer that the cheque be handed over not to an employee of Grindlays bank but to some other person.

Further, it is submitted that the contention of the prosecution that the Grindlays bank should have first credited the amount to itself and then after some interval paid to its customer A-5, is without any substance as what has been do\le was only to expedite the payment so that the large amount of interest which was to be paid by A-5 may not go waste. What the Grindlays bank did was to provide a laudable legitimate banking service. In any event, every trifling departure from practice does not make the transaction illegal. At worst it is unusual, but not irregular. For this, it is submitted that PW12 Ashok Monga, Asstt. Manager, ANZ Grindlays Bank has fully supported the existence and propriety of this practice. The kind of pay order like Ex. 30 has never been held to be a cheque. To hold it to be a cheque would lead to some absurdity.

Section 128 of the Negotiable Instruments Act lays down that when a cheque is crossed, the banker on whom it is drawn shall not pay it otherwise than to banker. It is obvious that if the payee is itself a banker he cannot be expected to present it to another banker for collection. Grindlays Bank cannot open an account with some other bank and cash its Pay orders in that account. Even paying a crossed cheque otherwise than through a bank only renders the bank liable for negligence if somebody suffers a loss. If the banker is certain who the beneficiary of the cheque is, it may well pay out in the certain belief that no loss will occur. It is a manifestly untenable proposition that a criminal breach of trust or misappropriation thereby takes place. Even if it is assumed that the cheque was property of Grindlays bank, the bank cannot be said to have committed any offence by passing on its property to anybody it likes.

By allowing the proceeds to be credited to the account of its true customer, the Bank is neither guilty of negligence nor of any criminality. Similarly, no oCicer of the bank could be held liable for the same and there is no question of any liability for A-5. There is no evidence that Grindlays bank or the Canara bank had any objection to this course of dealings. Certainly there was no intention to cause wrongful loss to anybody because no loss has been caused and no unlawful means were used. Learned senior counsel referred to the decision in Dr. Vim/av. Delhi Administration, [1963] Suppl. 2 SCR 585 and submitted that unlike the above case, every thing in the present case is above board, there is no deceit, there is no falsehood· and suppression of truth. It is contended that an approver's evidence cannot be accepted without corroboration and certainly not when it is in conflict with the unchallenged testimony of another prosecution witness.

There was no justification for the Court to come to the conclusion that it is accused no. 5 who is responsible for these pay orders being credited directly in his account. Of course, it is without prejudice to the arguments that the amount is not directly put into his account. It is contended that even though it was necessary to recall PW16 for the cross-examination on the new falsehoods which were introduced through the examination-in-chief and cross-examination of PW23, but the learned Judge dismissed the application filed on behalfofA-5 and it has caused incalculable damage. The illegality is of such vital importance that it vitiates the entire trial and judgment. The charge of conspiracy against A-5 is legally and factually absurd, false and frivolous. The alleged conspiracy is supposed to have originated in April/May, 1989. The sole prosecution witness who deposed about the alleged meeting of April/May, 1989 is approver PW23.

The evidence discloses that PW23 had stated a willful falsehood in deposing about the said meeting. His own sworn testimony unambiguously establishes that the meeting alleged by him to have taken place could not and did not take place. According to him, the alleged meeting took place either in April or May, 1989 at the office premises of MUL, K. G. Marg, New Delhi. He is categorical that A-5 visited New Delhi once in April or May, 1989. In his cross examination on behalf of A I and A-2, he states that: "I cannot say about the frequency of visits of A-5, but I recollect he having visited Delhi once sometime in April, May, 1989. " PW23 makes passing reference to A-2's presence at the alleged meeting so that it could be said that it was a condonable lapso of memory on his part.

On appreciation ofhis evidence, it cannot be said that he had an understandably vague memory regarding A-2's presence; on the contrary, his deposition evidences vivid details about the role and participation of A-2 at the said meeting. Since A-2 could not even be present at the meeting as he was not employed with MUL on that date, it is abundantly clear that PW23 has deposed falsely about the meeting. If A-2 could not have been present at the meeting, PW23's insistence that A-2 was so present, leads to the irresistible ) inference that his deposition regarding the alleged meeting is totally concocted. It has come on record that PW23 disclosed regarding the alleged meeting. only on I0. 8. 1994. Indeed, the very suggestion by PW23 that a police officer who interrogated him would not question him about the circumstances offive transactions is absurd and incredible.

The said meeting being a crucial aspect of the instant prosecution ought to have been referred to in the very first statement of PW23. The fact that it was not so referred to conclusively established that the meeting never took place and reference to it in PW23's later statement of I0. 8. 1994 and in his judicial confession recorded u/s 164 CrPC was at the instance of the CBI to whose suggestions he readily acceded in view of an agreement to make him an approver. It is further contended by the learned counsel for the appellant that in fact no such meeting ever. took place and consequently. the conspiracy charge insofar as it is alleged to have commenced from April/May, 1989 is unsubstantiated by any evidence and in fact falsified by it as- (a) the veracity of PW23 has been destroyed in cross examination. He denied his taped conversation and feigned ignorance of police statement. He suppressed truth from the JPC.

(b) Para 160 at page 294 of the impugned judgment, contains a legal error. The learned Judge treats as corroborative evidence what in law and common sense is not corroborative evidence at all. Learned Judge has held that evidence of Khandelwal is corroborated from what followed thereafter in the form of various transactions between MUL and A-5. It is contended that the conspiracy of 1989 cannot be corroborated by transaction in 1991. (c) In charge no. I. one of the objects of the conspiracy is alleged to be 'dishonest misappropriation'. This has obviously reference to the 34th charge against A-5. On the facts this charge cannot be established. For the same reason the charge u/s 409 IPC against A-5 cannot stand. The other section mentioned is 420. The learned Judge has recorded no conviction under this charge and all the accused against whom this charge was framed are deemed to be acquitted of this charge.

The charge of conspiracy is cooked up to cover first three transactions which were prior to 1st April, 1991. Further, the RBI's Circular dated 09. 9. 1992 Ex. 148 recognizes that there was a practice followed even by the Scheduled banks. When banks follow a particular practice they do so at least in the bonajide belief that the practice did not violate any law. If a practice is -j illegal, it may not convert that which is illegal into legal but it certainly provides for bonafides and absence of dishonesty. From this circular, it is clear that the scheduled banks were being advised against a practice which might put them in difficulty. They were running the risk of being responsible for unauthorized payments. ~ MOTIVATION BEHIND THE INSTANT CASE: There are several salient features ofthe instant prosecution which clearly show that the entire investigation has been dishonest.

It is almost trite to suggest that the SCAM Act was promulgated with a view to recover public monies Jost by certain banks and financial institutions ~+ in securities where such losses arose as a result of such transactions. It is equally trite to state the contrary proposition that where there were no losses at all, the institution of the Special Court was wholly unnecessary and the Special Court was not to try such transactions even ifthey amounted lo some technical offences. If the aforesaid two propositions are correct, then, there is simply no justification for the instant prosecution. The Joint Parliamentary Committee (JPC) succinctly set out the ·" dimensions of the scam in its report. The Committee highlighted various irregularities and fraudulent transactions undertaken by the Banks and Financial Institutions etc. in the six reports submitted by it.

Yet, inspite of all the above mentioned features peculiar to the instant case, the charge sheet in the present case was one of the earliest to be filed against A-5. In view of the palpable lack of nexus between the instant .. _ prosecution and legislative intent in enacting the SCAM Act the question can arise as to why the CBI chose to investigate and prosecute the instant case. This question has a clear answer that the CBI chose to pursue the instant case and other cases in which PW23 had acted on behalf of A-5 in New Delhi in transactions with public sector undertaking to intimidate and blackmail PW23 G for not supporting A-5's public declaration from June, 1993 onwards that he had paid the sum of Rs. 1 crore to the then Prime Minister at his residence · in Delhi. In simple words, if PW23-a vital witness in A-5's allegation . l. _ against the then PM-supported the allegation of A-5, then he would be prosecuted along with accused no. 5 in the instant case and other cases.

Ifhe cooperated and did not support A-5, he would be granted a pardon in the said H ) cases. The forum in which the cooperation of PW23 was sought for was in proceedings before the JPC which inter alia was to inquire into A-S's allegation against Slui Narsimharao, the then Prime Minister. Following consequences tof events conclusively establish the quidpro quo referred to between the CBI and PW23. .... (a) In June, 1992, PW23 met the then Director CBI. This is admitted by PW23. The Director told him that if he wanted to disclose something, he should meet Mr. PC Sharma, the then DIG Special ~ Investigation Wing. (b) PW23 met Mr. Sharma on a number of occasions thereafter. (c) JPC was informed by Mr. Sharma that PW23 was sent to him as a 'source'. What was the source disclosed to Mr. Sharma has not been revealed by the latter to the JPC as he did not wartt to betray his source.

~- (d) Notwithstanding the fact tl1at PW23 first met the CBI as a source, a preliminary enquiry was registered in the instant case on 15. 9. 1992. (e) 13 members of the JPC in a separate note have described this change in status of PW23. (f) On 17th February, 1993, A-5's advocate addressed a letter to x. CBI about 4 cash withdrawals from banks in Bombay and Dellri between 2nd and 4th November, 1991 which according to him were politically sensitive in the extreme and stated that details of these would be revealed if A-5 was given assurance of complete protection from political harassment or persecution. (g) Although the CBI replied A-S's letter on 2S. 2. 1993 to the effect that it was beyond their power to grant such protection, they . A continued to make efforts in March, 1993 to obtain A-S's narration on the said cash withdrawals. It is only after they failed to obtain such a narration that the FIR in tlle instant case was filed on 15. 4. 1993. (h) The FIR of dated 15. 4.

1993 did not cite PW23 as an accused, despite the fact that PW16 was cited as an accused in the FIR. _,l. _ IO PW25 says that decision to name PW16 in the FIR was that of the Superintendent of Police V. D. Maheshwari and the investigating agency and that he had to agree with that decision. Further, they decided not to cite PW23 as an accused in the FIR. (i) The evidence of VD Maheshwari as a court witness completely -; corroborates the fact that the FIR was registered not because the investigating agency had applied its mind and such application had revealed to it that the case prima facie disclosed offences which deserved to be investigated but was to extort PW23's support in connection with the conditional disclosures that A-5 offered to make.

Thus in his cross-examination on behalf of A- :+ 5, he does not even remember the following- (i) whether he questioned A-5 before the FIR was registered; (ii) whether he interrogated any of the other accused in the instant case before the FIR was registered; (iii) whether he interrogated PW23; (iv) whether he discussed the matter with the IO; (v) whether the IO submitted any written report on the outcome of the preliminary enquiry; (vi) whether at the time of registration of the FIR he had determined the role of PWl6; (vii) why PW23 was not named as an accused in the FIR which came to be registered; (viii) whether he personally referred to any documents before deciding to register the FIR. All the above circumstances reveal the non- application of mind which the investigating agency displayed in filing the FIR. The only circumstance that Maheshwari recalls is that the decision to lodge the FIR was a unanimous one. (j) The investigation concluded on 4. 11.

93 when the IO PW25 recommended the prosecution of all the accused including PW23. Although the investigation had ostensibly concluded, no charge sheet was filed. Obviously, the CBI was awaiting the outcome of the event. (k) The JPC prepared its report in December 1993. In January 1994, the said report was made public. The report disclosed that PW23 fulfilled his part ofthe bargain with the CBI refusing to support +-- A-S's public claim that the cash withdrawals made by him in November 91 were utilized for paying a sum of Rs. I crore to the PM, which claim became public by virtue of a press conference held on 16. 6. 1993. (I) In the very next month after the publication of JPC report, a -f·. > charge-sheet was filed in a case dealing with the funds of Power Finance Corporation in which A-5 and PW23 were cited as accused. (m) On 26. 5. 1994 PW23 made an application u/s 306 read with S. 164 Cr. P. C.

that his judicial confession be recorded and that he be made an approver in the instant case before the Ld. Special Judge, New Delhi who was seized of the charge-sheet in the * PFC case. That application was rejected. Thereafter, on second attempt, after his arrest on 10. 8. 1994, his confessional statement was recorded by another Magistrate and not by the Special Judge who rejected the application for pardon in PFC case. (n) Ld. CMM assigned the case for recording ofconfession to PW20 ). -· ICCl/NABARD etc. The RBI for the first time inter a/ia issued instructions to banks in this regard in their Circular of26. 7. 1991 (Appendix-IX). A similar receipt issued by a non-banking financial company is termed 'Security Receipt' (SR) and such receipts also came to be freely used in security transactions. 4. 32 The Committee is led to the conclusion that the BR system has been considerably misused. Every step should, therefore, be taken to prevent recurrence of such things in future.

There is need for reforms ofthe BR system, for example, by way of reduction in the period of its validity and imposing of severe penalties for its misuse. MANIPULATIONS TO FAVOUR BROKERS ..... CREDITING OF CHEQUES TO BROKERS' ACCOUNTS 12. 14 The scrutiny of securities transactions in a number of banks revealed that some banks were even handing over Account payee • cheques drawn in favour of other banks to the brokers who got them credited to their account ostensibly to assist the latter in transferring funds quickly to meet their obligations. As per informal understanding and in the name of market practice, the payee-bank used to credit the proceeds to the accounts of the broker constituents who brought the cheque to it for collection. These practices were in gross violation of the instruction that the accounts of banks with RBI, should be utilised only for genuine inter bank transactions and not for transfer of funds to their clients.

The total amount diverted to the brokers accounts and the ultimate disposal of funds has not been determined. Some instances are however given below. 12. 15 In respect of investment transactions between PFC and UCO Bank during the period. July, 1990 to May, 1991, 16 bankers cheques totalling Rs. 394. 23 crores were unauthorisedly issued in favour of ANZ Grindlays which were irregularly credited to the account of HSM. ROUTING OF TRANSACTIONS 12. 24 Many brokers e. g. HSM, HPD, ADN, Excel & Co. , NKA etc. used some of the banks as 'routing' banks which carried iarge volume of securities transactions for them. Thus Andhra Bank, UCO Bank, BOK, Bank of Madura and ABFSL carried transactions of the value of over Rs. 77,000 crores for brokers and others during April, 1991 to May, 1992.

These banks, thus, provided special privilege to a select few brokers by lending their names to the transactions of these brokers totally disproportionate to the income derived and exposed themselves to great risk by irregularly issuing their own BR or SGL transfer forms against BR received or to be received in their favour. SINGLE POINT CLEARANCE 12. 28 In the case of SBI, it was noticed that HSM had been G. unauthorisedly given the facility of collection and credit of the bankers cheques by SBI as per his instructions. The Bombay Main Branch of SBI acting as the agent ofSBI Caps had debited SBI Caps account and unauthorisedly credited funds to the . account of HSM instead of making payments to named banks/ institutions. Cheques drawn on UCO Bank had been credited to the current account of the same broker. 12. 29 The Committee noticed in this connection that HSM had requested the Bombay Main Branch twice by his letter dated 19. 8. 91 and 10. 01.

92 for acceptance of bankers cheques from banks/organisations brought by him or his representative and issuance of bankers cheques there against. In fact, the broker wanted that the facility of 'single point clearance' whereby the activities of issuance and acceptance of bankers cheques in their account may be conducted through the Securities Division of the SBI Main Branch Bombay instead of the Personal Banking Division in the same branch where he had the account. This facility had enabled HSM to put through the transactions through the Securities Division itself and also to get bankers cheques in ·+ favour of SBI credited to his account and issue of cheques against the credits. The SB! in a note furnished to the Committee stated that the letter dated 19. 8. 91 was not traceable but the letter dated 10. 01. 92 did make a reference ofthe same. The Committee, however, obtained a copy of the letter dated 19. 8. 91 from HSM.

In this letter, HSM while requesting for the facility of obtaining bankers cheques against presentation of bankers cheques in . k bank's favour argued that there would be no outlay of any funds by the bank. On the contrary, a good amount of sum will be left in current account for the bank to enjoy the float. 12. 30 In his letter dated I0. 01. 92, ti1e broker repeated his request and stated: "to facilitate a single point clearance, we have to request you to let the activities of issuance and acceptance of Banker's Cheques be conducted by the Securities Division. This will facilitate us to meet the deadlines of inter-bank clearing timings. " 14. 21 The Committee note that the PSUs were the single largest G . source of surplus investible funds around Rs. 36,000 crores between April 1990 and December 1992 only.

In the investment ofthese funds guidelines and instructions were routinely flouted and no norms were observed Neither DPE nor the Ministries concerned took any steps to ensure the compliance of their guidelines. Even the Ministry of Petroleum and Natural Gas which had made a review of investment of surplus funds by the PSUs under its administrative control in May 1990 closed its eyes knowing fully well that PSUs were investing with the foreign banks despite the guidelines of OPE that PSUs could have normal banking transactions only with nationalised banks. PLACEMENT OF FUNDS FOR SHORT PERIODS- 14. 98 The PSUs have placed funds with banks and finance companies for very short periods, sometimes for only afew days and even for one day implying supply offunds for speculative purposes to earn higher return. These banks/finance companies issued BRs for the amount received.

The PSUs after the maturity of investments returned the BRs and got their moneys along with the yield which was agreed to at the time of placement of funds. Thus these transactions were in the nature of ready forward +deals instead of genuine investment transactions which was in contravention of RBI guidelines issued on 11. 4. 1988 which stated that sale and purchase of securities with the same party and for ·, identical or similar amounts were construed as tacit arrangements which was in contravention of the instructions prohibiting buy back arrangements with non-bank clients. DIVERSION OF FUNDS TO BROKERS- 14. 114 While most of the PSUs/Organisations denied before the Committee about utilising the services of brokers, the Committee found that in some cases inquiries/investigations by CBI/internal auditors clearly established nexus between brokers, officers of PSUsl banks resulting in syphoning offunds ofPSUs to brokers.

It is reported that 22 PSUs had placed funds to the extent of over Rs. 12,000 crores through Harshad S. Mehta which were syphoned of to him and his groups of Companies. Some instances are given below: - (i) (ii) In the case of Maruti Udyog Limited, it was found, that funds ofMUL meant for purchase of units from UCO bank were credited into the individual accounts of HSM. There is a financial involvement of Rs. 33. 63 crores. (iii) R. N. POPLI v. C. B. I. [M. B. SHAH, J. j 167 (iv) 17. 48 On 16th June, 1993 Shri Harshad Mehta held a press conference in which he issued a copy of an affidavit of 24th February, 1993 and briefed the press of the details of the 4 specific withdrawals of 2nd and 4th November, 1991 and its subsequent disbursement. In a press conference held on the same day he released a copy of an affidavit dated 24th February, 1993 alleging that these were in connection with payment of Rs. I crore to the P. M. on 4. 11. 1991. 18.

5 HSM was summoned by the Committee again on 30. 6. 1993. During evidence when his attention was drawn to the inherent contradictions between what he had deposed before the Committee earlier and that given in the press conference he -+ stated that he had been 'discrete' about the information given by him to the Committee. From the aforesaid part of the report, it is apparent that- (a) Some banks were even handing over account payee cheques drawn in favour of other banks to the brokers who got them credited to their account ostensibly to as,ist the latter in transferring funds quickly to meet their obligations. As per informal understanding and in the name of market practice, the payee bank used to credit the proceeds to the accounts of the broker constituents who brought the cheque to it for collection. (b) Routing of transactions facility was given to many brokers including A-5. (c) Single Point Clearance claimed by A-5 and given by SB!.

(d) PSUs were investing the funds against the guidelines and instructions. (c) PSUs were investing funds for short periods for few days and even for one day implying supply of funds for speculative purposes to earn higher return. (f) In the investment of these funds guidelines and instructions were routinely flouted and no norms were observed. Neither OPE nor the Ministries concerned took any steps to ensure the compliance of their guidelines. RELEVANT PART OF EVIDENCE- In the present case, the evidence runs into more than 40 volumes. However, at the time of hearing of this matter, on behalf of A-5, five transactions in question are admitted. Hence, it is not necessary to refer to or consider the evidence pertaining to the transactions in question. If the prosecution and defence had concentrated on the real issues for determination before the Special Court, it would have saved the Court's time in recordin~ -r-evidence at such a length.

Unfortunately, a practice is developed in criminal/ civil cases not to admit any document and thereby to prolong the litigation with impunity. For the purpose of deciding these appeals, it is necessary to only refer to relevant part of evidence which learned counsel for the parties have relied upon. For this purpose, we would divide the evidence and submissions as +under:- [On behalf of] - (a) MUL; (b) UCO Bank; (c) ANZ Grindlays Bank; (d) other relevant witnesses, such as, PW16 Anuj Kalia, PW23 Mohan D. Khandelwal (Approver) and PW25 1. 0. etc. (a) WITNESSES FROM MUL [PWI, PW3 and PW4) PWl Brijendra Singh Bhargava stated that he was Legal Advisor of MUL and at the relevant time Company Secretary and also internal legal advisor for the Company. It is his say that during May, 1989 to May, 1991 -~ Mr. R. C. Bhargava was the Managing Director and Shri S. Natrajan was the Director (Finance).

During the said period, MUL had several bankers, such as, Canara Bank, Bank of America and Bank of Tokyo. At that time, A-1 Pritam Lal Manocha was Deputy Manager, Corporate Finance and one of his duties was deployment of funds of MUL. He had power and authority to sign cheques on behalf of MUL and to operate its account. Mr. S. Natrajan was superior officer to A-1. + A-2 was also an employee ofMUL since 1989. It is his say that surplus funds available with MUL used to be invested with the publ! c . sector undertakings and the Board of Directors had delegated the poWefs of R. N. POPLI v. C. B. l. [M. B. SHAH, l. ] 169 deployment of funds to the sub-committee constituted by it. Such subcommittee comprised of Managing Director and Director (Finance), which ·1 would have final say in the deployment of funds, but there was a practice reporting the same to the Board of Directors in its meeting. The Corporate Finance department used to put up proposal for fund deployment before subcommittee.

The sub-committee would then take decision one way or the other. He has produced relevant documents and the resolutions passed by the Board as well as the sub-committee. It is his say that he was broadly aware of the activities of Funds Investment Committee for the placement of funds. His office was also a section of Corporate Finance, which was located in a big open hall and they all were sitting adjoining to each other. Only the Director (Finance) was having closed cabin in the said hall, which has transparent glasses. It is his further say that the fact that MUL was having surplus funds was well known in the finance market and the large amount used to remain idle in the bank. Company felt that there was need of optimum utilization of surplus funds to get best possible returns. It is his say that four transactions of investment were approved by the sub-committee consisting of Mr. R. C. Bhargava and Mr. S.

Natrajan and there was also discussion with him in respect of dis-investment of units of UT! on 24th January, 1991. It is his say that the investment and dis-investment transactions were placed before Board of Directors for information and Board had not raised any objection. In cross-examination, when he was asked whether he was aware that the representatives of the brokers representing the counter parties used to contact officials of the Corporate Finance Department, he stated, "according to him, the Director of Finance might be knowing about the same. '' ,_ He also admitted that there was a system of internal audit and a statutory audit and aforesaid transactions would be covered by the same. Comptroller and Auditor General of India had also audited the account of MUL for the period in question arid they had made their comments as 'nil', which means they made no comments in respect of said five transactions.

He admitted that MUL has not lodged any complaint/FIR with the CBI nor made any complaint to anyone about the said transactions and according to him no loss was caused to the MUL in the said five transactions. He admitted that after CBI enquiry, the management of MUL did not take any action against A 1 and A2 as it felt that A-I and A-2 were not guilty. The performance of A-1 was appreciated and he was subsequently promoted to the next level. He was also granted one additional increment. For that purpose, the relevant letters written by Mr. R. C. Bhargava, Chairman-cum- Managing Director of MUL are produced on record. He has also admitted that A-2 Ambuj Sushilkumar Jain was also promoted by the management on considering his perfonnance and merits.

He further admitted that Joint Parliamentary Committee (JPC) was constituted by the Parliament for the purpose of inquiring into various securities transactions and MUL was required by the JPC to clarify certain queries in respect of its securities transactions including those transactions which are subject matter of this case. It is his say that he was associated along with Director (Finance) Mr. A. R. Halasyam and Mr. RC Bhargava, Chairman- Cum-Managing Director for the preparation of the reply to be given to the JPC. Besides, some officials from Corporate Finance were also associated in -+the process of preparation of replies. Reply was based on the information and record furnished and made available by Corporate Finance. It is his say that Mr. R. C. Bhargava was summoned by JPC. Next witness from MUL-PWJ Mr.

Agharam Ramakrishnan Halasyam was the General Manager (Finance) since 1985 till the end of I989; in 1991 he was promoted as Chief General Manager (Finance) and thereafter was ). __ promoted as Director (Finance) from Ist June, I991. According to him, in 1991 MUL used to have surplus funds, which were invested in UTI and PSU bonds. It also disinvested the same when funds were required. This was done by the Corporate Finance Cell. For this purpose, Corporate Finance Cell used to get quotations from different banks for different kinds of securities and p Finance Cell used to evaluate quotations received from the banks in terms of yields. After such evaluation, Director (Finance) used to be apprised and then a decision would be taken depending upon the best yield possible. Thereafter, an agenda used to be put up to the Director (Finance) for a final decision and that A-1 used to convey such offers to Director (Finance) orally.

A-1 also used to put-up a written note about the proposals of investments before the Director (Finance). It is his say that such deals were directly discussed with the counter party and such investment deals were not put through any individual by MUL on principal to principal basis. He stated that in respect of five transactions being the subject matter of this case, he was not having any personal information. However, when he took over as a Director (Finance), the same policy about the placement of funds continued. It is also his say that J R. N. POPLI v. C. B. l. [M. B. SHAH. J. ] i71 BR held by MUL is discharged when the duration of investment gets over. He admitted that looking at the BR of UCO Bank (Ex. 41 dated 24. 4. 1991) for identification) no suspicion would arise on the face of it. With regard to all five transactions, he stated the same thing.

In further cross-examination, he admitted that issuance of BR necessarily indicates that the bank issuing it would be holding the security covered under the said BR. The BR would also acknowledge the receipt of monies from MUL for the purchase of security. He further agreed that in respect of three transactions dated 13th March, 1991, 18th March; 1991 and 24th April, 1991, the payments made from MUL were for buying securities and securities were received and the subsequent delivery of the securities involved receipts of payment by MUL. For these transactions, MUL had also received the payments with agreed yield. Jn the last transaction of May, 1991, MUL made payment for the purchase of securities. In the said transaction, MUL had received money with agreed yield. In respect of disinvestment transaction dated 24. 1. 1991 MUL delivered the securities against the payment and on reversal received the securities and made the payment.

He further admitted that MUL had not suffered any monetary loss in any of the five transactions. In the five transactions there was optimum yield and utilization from the point of investment by MUL. MUL used to have large amount of surplus funds for investment. Every day there used to be such investment transactions for and on behalf of MUL on short term basis. This fact was well known in the financial market. He also admitted that afrer he took over as Director (Finance), he heard about some of the brokers on behalf of some financial institutions/banks making offers to MUL. Such services included delivery of securities, delivery of offers and other connected documents including delivery of BRs. He further stated that essentially most of the offers in respect of placement of funds which MUL used to receive )- were on telephone. In case of investment for a short period i. e.

for couple of days (for two or three weeks) there might not be written proposal and he had heard this while discussing with A-1 and A-2. He also admits that with regard to the JPC, he was concerned with the queries received by the MUL and their response. One Mr. Surender Singh was then the concerned Secretary. He was a Director of MUL representing Government of India. He himself and the Managing Director had occasion to discuss with him about the queries received as also the response that MUL was to make. Response which MUL gave was with the approval of Mr. Singh. This witness has proved the agenda notes and resolutions passed by the Sub-Committee of MUL. Prosecution has also examined PW4 Rajan Ramgopal, Executive, who at the relevant time was posted as Accountant and working in Corporate Finance Cell under A- I and A-2.

In examination-in-chief, the witness has stated that MUL through its Finance Cell used to deploy its surplus funds in Inter Corporate Deposit with Public Sector Undertakings and al~o invest in securities through Banks and also through brokers quoting on behalf ofthe banks. For this purpose, the office was receiving telephone calls directly from the banks as also from brokers acting on behalf of the banks. Similarly, MUL also used to make calls for the enquiries to the banks as also the brokers. It is his say that in case of incoming calls, the calling party would disclose its identity and would inquire about A-1 or A-2. In case both being busy then he used to take down the particulars furnished by the calling party and then pass on to A-1 or A-2. The calling party would ask whether MUL has any surplus funds for deployment in securities. They used to pass on the said message to A-1 or A-2 and inform what the other party had offered.

He also states that the name ofbroker did not figure or reflect on the record of MUL in the event oftransaction of investment being through the Broker. It is his further say that PW2 Mr. Meda Sai Swaroop, who was the concerned Manager of the Canara Bank after preparing bankers' cheque as per their instructions would hand over the same to him and he in turn used to hand over the cheque to the representative of the said bank or brokers' represel? tative. It is his say that because of pressure of work, they were not going to the respective banks and instead handing over the bankers cheque to the representative of the bank or to the broker under the instructions of either A-1 or A-2. In cross-examination, he admits that during the relevant period foreign banks used to effect transfer ofmonies from one city to another much faster than the national banks and they were able to do so during the banking hours of the same day. He came across transactions where SBI -~.

Capital Market Services had done transactions both of receiving monies and paying it to them on the date of maturity which payments were made or reused through Bank of America. He further states that the brokers who used to contact them on behalf of their bank clients and financial institutions during the relevant period were:-DSP Financial Services, Hemdev & Sons, B. D. Agarwal & Co. and one Mr. Asit Mehta. Finally, he admits that writing contained on all the vouchers and its language was his and he used expression as either 'through UCO bank' or 'through ANZ Grindlays bank' because transactions in question were between MUL and the concerned banks. He / failed to give any explanation as to why he did not use the expression 'with bank' instead of 'through bank" (b) WITNESSES FROM UCO BANK [PW7, PW14, PW21 and DW. A-3(2) AND PW2 FROM CANARA BANK[. PW7 Mr. Pradip Anant Karkhanis is a dismissed employee of UCO Bank. He is one of the accused in a security scam related case being case no.

5 of 1996 pending on the file of Sessions Court, Greater Bombay. He had worked in the Hamam Street Branch during the period July 1976 to September 1980 and September 1990 to April 1992. During his second posting, he worked as Sr. Manager and was over all in-charge of the said branch. It is his say that he was not familiar in detail with the working of the security department of the said branch. The security department used to attend the security transactions on behalf of the head office as also on behalf of the clients which also included brokers. The branch was not concluding deals in -+ the security transactions, in case where such transactions were on behalf of their bank and the same used to be concluded by the Head Office. The transactions in securities included both sale of such securities by UCO Bank as also purchase. It was only the Head Office which was concluding deals of sale of the securities, inviting the proposals etc.

As per instructions of the head office, Hamam Street branch used to receive the sale proceeds and ...... deliver the securities to the purchasing bank. The branch used to receive instructions in respect of such concluded deals from the head office over telephone. During the relevant period there were no hard and fast rules and any officer including the witness used to receive such telephonic instructions from the head office in respect of security transactions. The securities sold by their bank were not delivered in a physical form and their branch used to issue mostly SGL Forms. In case of some of the financial institutions, the delivery used to be in a physical form of security. During his tenure in Hamam Street Branch in one or two cases BRs were issued. As per format of a BR at least two authorized officers were required to sign the BR. There were three types of head office accounts with their branch i. e. Director Head Office (DHO), Inter Branch Transaction and Block Account.

It was not permissible to use the said accounts for any individual. While working in Hamam Street Branch, sometimes he came across few brokers including Harshad S. Mehta whom he met once in his office along with Mr. S. V. Ramnathan, the then Divisional Manager of the bank. He never came across transactions known as buy back or ready forward. He came across transactions known as switch transactions, wherein security is received from one bank and delivered to the other bank. During the relevant time, a doubt was entertained in respect ofswitch transactions, the Zonal Manager and Divisional Manager took the decision to stop the said practice. After one week, the Divisional Manager phoned Hamam Street Branch and asked them to resume such transactions. Accused no. 3 was not authorized to conclude transactions in security on his own on behalf of the bank.

On seeing the Jetter dated 23rd January, 1991 addressed to MUL, containing signature of A-3, it is his say that it was not within the authority of A-3 to address such letters. He agreed that Switch transactions were the transactions conducted by the UCO Bank for buying and selling the securities on behalfofits clients including brokers. The negotiations in respect ofsuch transactions were conducted by the clients directly with the counter party. UCO Bank used to act as a routing bank in such transactions. The said transactions were done through the brokers' accounts and were not treated as transactions of UCO Bank. He did not know whether such transactions were ever undertaken by their head office. The Hamam street branch used to conduct its transactions on the instructions of the head office and under the instructions of its clients on their behalf.

UCO Bank used to undertake such transactions on behalf of its clients on charging its commission and that the bank had made substantial profit by undertaking such transactions. In 1990, he noticed that the bank has conducted such transactions for about 9 brokers. In January, 1990, Mr. Barve who was also one of the Managers in Hamam Street Branch informed the Divisional Manager and Zonal Manager the names of 18 such brokers for whom UCO Bank was doing switch over transactions. Because of increase in deposits, Hamam Street Branch of UCO Bank was upgraded from medium to large branch. He has further stated that the bank was charging the commission for routing such switch over transactions but did not agree that it was so doing for lending its name as suggested. According to him, routing transaction means-UCO bank used to receive bank receipts from one bank and against it the bank used to issue BRs to other bank.

It is also his say that in some cases their bank received bankers cheques from one bank and UCO bank issued its bankers' cheques to another bank. Whenever switch over transactions used to take place under the instructions of the brokers, the brokers' ... instructions to receive or deliver securities were sent to the counter party along with the cost memos and BRs. The BRs and cost memos used to be of UCO bank. The brokers instructions used to be on the letter head of the broker. The purpose of sending brokers instructions along with various documents to the counter party was to put it on a proper notice. It is his further say that although he was overall in charge of Hamam R. N. POPLJ v. C. B. l. [M. B. SHAH, J. ] 175 Street branch of UCO bank all the debit and credit vouchers of that branch were not being received by hin1 every day. He was fa1niliar with what is meant by 'day book' which was kept and maintained by the bank.

All the debit and credit vouchers would be reflected in the said 'day book' on particular day including in subsidiary book. Such 'day books' used to come to him every day. He knew that securities transactions on behalf of brokers were taking place but he had no detailed particulars thereof. By going through the debit and credit vouchers it was not possible to get such details or particulars of such transactions. Credit voucher in a security transaction would contain the particulars such as a nomenclature of security, face value, rate etc. The name of the counter party may not necessarily be reflected in such vouchers. He might have seen some credit vouchers but he did not remember. He did not remember whether the names of the counter party were mentioned in those vouchers which he might have seen. It is his further say that there used to be 30 to 40 switch over transactions every day.

The strength of the staff available in the said department was adequate enough to handle the volume of work in such transactions. Such transactions were to be completed on the very same day during the banking hours. There used to be auditing of the Hamam street branch. This auditing used to be done by internal auditors, external auditors and also by the statutory auditors. Between September, 1990 to April, 1992 during his tenure one internal inspection and one statutory audit took place in respect of Hamam Street branch. He had gone through both these audit reports and no adverse comments were made over the switch transactions. PWl4 Prem Shanker Joshi, who was Assistant Chief Officer in Merchant Banking Division, situated at YWCA Building, Madam Cama Road, Bombay, stated that in the year I 992, he was transferred as Manager in Security Section of Hamam Street Branch of UCO Bank and thereafter he was promoted as Sr. Manager in the year 1993.

To a que;tion-What was the nature of the business conducted by the security cell? , -he replied- as far as Hamam Street Branch was concerned, the said branch used to conduct the security transactions on behalf of their head office as well as on behalf of clients. Mr. Harshad S. Mehta was one such client. In case ofsale transactions • on behalf of their clients, they used to get written instructions from their clients, having necessarily their accounts with the bank. Such written instructions would be addressed to the Branch Manager. The instructions being for the sale of the security, they were ascertaining from their clients about the availability of the security with the bank or the time of delivering of security to the bank. On receipt ofthe security, they were preparing a cost memo as per instructions oftheir client as contained in his instructions letter.

The officers working in the security department were authorised to sign the cost memos and such authorised officer used to sign the same. Their bank was receiving payment in accordance with the cost memo from the counter party and on receipt of such payment they were delivering the security in question to the counter party. Without security in the hands ofthe bank, they were not preparing the cost memo and sending it to the counter party. He admitted that UCO Bank, Hamam Street branch can issue a BR while dealing on behalfofits client in the security transactions provided there is a back up security ofthe client. He further stated that BR should not be issued on behalf of the client in absence of security or back up security. In case of security transaction on behalf of the client, they credit the sale proceed receipt into the account of client. They were preserving and keeping the original letters so .

received from the client and instructions received from the head office by telex or fax messages. In respect ofsecurity transactions executedfor and on behalfofhead office, Hamam street branch used to debit and/or credit direct head office account (shortly known as 'DHO account'). It is his further say that the officer working in Hamam Street branch could not enter into any purchase transaction in security on behalf of head office without instructions from head office. Similarly, on behalf of the client, the officer working in Ham