caselaws
Supreme Court of India
Vinayak Narayan Deosthali vs C.B.I on 12 January, 2015Author: N Ramana
Bench: Sudhansu Jyoti Mukhopadhaya, N.V. Ramana
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 335 OF 2005
VINAYAK NARAYAN DEOSTHALI … APPELLANT
VERSUS
CENTRAL BUREAU OF INVESTIGATION … RESPONDENT
JUDGMENT
N.V. RAMANA, J.
This appeal is directed against the judgment dated 3rd December, 2004
of the Special Court (Trial of offences relating to transactions in
Securities) at Bombay in Special Case No. 3 of 1995 whereby the Special
Judge convicted and sentenced the appellant for the offences under Sections
409/120B, 403, 477-A/109, IPC and Section 13(2) read with Section 13(1)(d)
of the Prevention of Corruption Act, 1988.
2. The prosecution story, briefly stated, is that during the year 1991,
the appellant (accused No.1) while he was working as Assistant Manager in
the Securities Department of UCO Bank, Hamam Street Branch, Mumbai in
connivance with a colleague of the Bank (accused No. 2) hatched a criminal
conspiracy with the infamous share & stock broker of Bombay of those times,
Harshad S. Mehta (accused No. 3) with the object of cheating the UCO Bank
by causing wrongful loss to the Bank and effecting illegal gain to the
accused No. 3 (Harshad Mehta). It is alleged that for achieving the object
of conspiracy, the appellant despite being a public servant, committed
criminal breach of trust and misappropriated the funds of Bank by
manipulating the accounts to facilitate unlawful gains to Harshad S. Mehta
(accused No. 3).
3. The background of the case as unfolded by the prosecution is that at
the relevant time, UCO Bank had two Subsidiary General Ledger (SGL)
accounts with the RBI. The SGL is a type of Securities Account floated by
the Central Government. For making transactions in these Securities, Banks
and financial institutions have to open the SGL account with the Public
Debt Office of the Reserve Bank of India. UCO Bank has two such SGL
accounts with the Reserve Bank of India. Out of the two SGL accounts owned
by the UCO Bank, one account with the number 032 was meant for the Bank’s
Head Office’s own transactions and the other SGL account No. 065 was
maintained for the transactions done by constituents/brokers. When the Bank
itself purchased/sold a Government Security, the respective entry was to be
made in account No. 032 and if the Security was purchased/sold by a broker
client of the UCO Bank, the entry was to be made in SGL account No. 065. As
far as the entry in the books of RBI was concerned, it was made in a
particular account according to the instructions given by UCO Bank for
every transaction, as both the accounts stood in the name of UCO Bank.
4. On 22nd March, 1991 UCO Bank sold Securities namely, Government of
India 11.5% 2009, worth Rs.20 crores to Indian Bank (Ext. 250) from its SGL
account No. 032 i.e. UCO Bank’s own account. On the same day, UCO Bank
purchased Securities namely, Government of India 11.5% 2006, worth Rs.20
crores from Indian Bank (Ext. 425).
5. On 5th April, 1991 UCO Bank re-purchased the earlier sold GOI 11.5%
2009 Securities from Indian Bank and sold GOI 11.5% 2006 Securities
purchased earlier to Indian Bank. In other words, UCO Bank reversed the
earlier transactions. With the effect of repurchase of Securities by the
UCO Bank, RBI should have made the entry crediting the worth of those
securities in SGL Account No. 032 of the UCO Bank.
6. Whereas, due to a communication dated 13th April, 1991(Ext. 300)
signed by the appellant accused in his position as Assistant Accountant and
the co-accused (not a party in the present appeal) requesting the RBI to
make entry in SGL Account No. DV SL 065, the SGL Account No. 065 which was
meant for the broker clients of the UCO Bank and which had no balance on
that date, showed the balance of Securities worth Rs.20 crores. At that
point of time, the transactions of all other brokers stood squared off
except in respect of accused No. 3 (Harshad Mehta). Taking this wrong entry
to his advantage, accused No. 3-Harshad S. Mehta, being the broker/client
of the UCO Bank, sold GOI Securities 11.5% 2009, worth Rs.15 crores (Ext.
413), which actually did not belong to him, and thereby wrongfully gained
and the UCO Bank suffered the loss. It was none other but the appellant-
accused No. 1, who passed the Debit & Credit vouchers pertaining to the
transaction (Exts. 295, 296 & 297). When these misdeeds came to light, the
accused took steps and made efforts to cover up the transactions.
7. When the Securities Scam broke out in the year 1992, a special cell
was established by the CBI to deal with the cases arising out of the scam.
Accordingly, an FIR was registered on 30th December, 1993 against the
accused invoking Sections 120B read with Section 409, 420, 468, 471, 477-A,
IPC and Section 13(2) read with Section 13(1)(d) of the P.C. Act, 1988 and
the case was committed to the Special Court. The appellant was arrested on
12th May, 1997. The Special Judge, after taking overall view of the
matter, held the appellant guilty of the offences and sentenced him to
undergo rigorous imprisonment for a period of one year and to pay an amount
of Rs.25,000/- towards fine, in default thereof, to further undergo
imprisonment for a period of three months. The special judge, however, let
the accused appellant to be on bail for a period of 12 weeks to enable him
to approach the appellate Court.
8. Aggrieved by the judgment of the Special Judge, the appellant filed
this appeal under Section 10 of the Special Court (Trial of Offences
Relating to Transaction in Securities) Act, 1992. That is how this appeal
is before us.
9. Though there are three accused in this case, we are concerned with
accused No. 1-appellant herein only. The other two accused namely Makrand
Vasant Shidhaye (accused No. 2) and Harshad S. Mehta (accused No. 3) are
not parties in the present appeal. However, it is pertinent to mention that
Makrand Vasant Shidhaye (accused No. 2) had also preferred an appeal before
this Court against judgment of the Special Judge being Criminal Appeal No.
336 of 2005 which was listed before this Court on 11th November, 2014 when
the following order was passed:
Criminal Appeal No. 336 of 2005
This appeal is listed against the common impugned judgment along with
Criminal Appeal No. 335/2005.
The learned counsel appearing on behalf of the appellant is not present.
It is informed at Bar by the learned counsel for the appellant in Criminal
Appeal No. 335/2005 that Makrand Vasant Shidhaye-appellant in Criminal
Appeal No. 336/2005 died during the pendency of the appeal. In view of such
fact brought to our notice, the appeal stands abated and disposed of.
So far as accused No. 3 (Harshad S. Mehta) is concerned, he had died on
31st December, 2001 during the pendency of trial.
10. On 21st February, 2005 while admitting the appeal, this Court granted
interim relief to the appellant by suspending sentence of imprisonment
during pendency of the appeal before this Court.
11. Learned counsel for the appellant-accused submitted that the learned
Special Judge failed to appreciate the evidence correctly and erred in
holding the accused guilty of the offences. The SGL information concerning
the securities re-purchased by the UCO Bank on 5th April, 1991was received
on 12th April, 1991. Since there used to be a number of transactions by the
clients/brokers and the re-purchased SGL information was received after a
gap of about one week, a clerical and bona fide mistake was committed by
the appellant-accused in getting the securities credited into the SGL
account No. 065 instead of account No. 032 of the UCO Bank. There was no
participation by the accused in any conspiracy to benefit accused No. 3,
Harshad Mehta. It was purely a clerical error that occurred in a casual way
without any bad intention. In a normal way, the accused signed the covering
note dated 13th April, 1991 also signed by accused No. 2 enabling the RBI
to credit the securities into SGL account No. 065. The accused-appellant
had no mala fide or dishonest intention to commit any fraud or cause loss
to the UCO Bank or to cheat it. The mistake happened mechanically without
the conscious involvement of the appellant. It is also evident from the
record that accused No. 2 himself admitted in his statement under Section
313, Cr.P.C. that it was he who struck off account No. 032 and wrote
account No. 065 in the covering note (Ext. 300). Thus, the appellant cannot
be charged with a severe punishment for a reasonable clerical mistake.
12. Learned counsel also submitted that the appellant was not concerned
with the routine work of the Hamam Street Branch of UCO Bank. He was
specially entrusted the duties of redemption and reconciliation of
securities. While discharging those duties, when the appellant noticed the
mistake, he immediately facilitated transfer of Rs. 2 crores on 15th July,
1991 from the account No. 065 to account No. 032 to set right the record.
Learned Special Judge, has failed to appreciate the fact in a true spirit
that the SGL transfer forms (Ext. 235 and Ext. 240) concerning the
securities sold by Harshad Mehta to the tune of Rs.15 crores from SGL
account No. 065, were not signed by the appellant and the appellant has no
role in that transaction. This fact itself clearly establishes that the
appellant was not part of any conspiracy with accused No. 3 (Harshad
Mehta). But the Special Judge took a different and wrong view and erred by
holding that the appellant transferred securities worth Rs. 2 crores lying
in the account No. 065 to account No. 032 to cover up the transaction.
There was no evidence on record to establish a link between the accused-
appellant and the accused No. 3 (Harshad Mehta) forming a conspiracy
between them and the prosecution has utterly failed to prove this aspect
and therefore, the appellant is entitled for benefit of doubt.
13. Further contention of the learned counsel is that the appellant was
only an Assistant Manager of the Bank and scrupulously implementing the
decisions taken by his superiors. The appellant had only performed his
duties obediently for which he cannot be made a scapegoat as if the
appellant was solely responsible for the transactions. The important
factor, ignored by the learned Special Judge while convicting the
appellant, is that the appellant had not earned any pecuniary gains for
himself. The learned trial Judge under a misconception went on believing
the prosecution case. Only for the simple reason of irregularity or
negligence in discharging duties, the appellant was given harsh punishment
of sentence by the learned Special Judge even though factually no loss was
caused to the UCO Bank. The view taken by the learned Special Judge that
the acts of the appellant have exposed the UCO Bank to a grave financial
loss is absolutely subtle and not based on the evidence. The prosecution
has also admitted that no loss was caused to the UCO Bank. By any stretch
of imagination, the acts of the appellant cannot be construed to label
against him ‘criminal misconduct’ within the ambit of Prevention of
Corruption Act, 1988.
14. Disputing the quantum of sentence also, learned counsel for the
appellant submitted that the learned Special Judge while sentencing the
appellant ignored the element of proportionality in imposing the
punishment. Learned Special Judge has miserably failed to appreciate the
facts in their proper perspective and committed a grave error in convicting
the appellant and hence the impugned judgment calls for interference by
this Court.
15. On the other hand, learned Senior Counsel appearing for the C.B.I.,
while supporting the judgment of the learned Special Judge, submitted that
the learned Special Judge passed the impugned judgment after undertaking a
thorough trial procedure. He came to the conclusion only after having
satisfied that the guilt of the accused has been proved beyond reasonable
doubt. Hence the Trial Court committed no error in sentencing the accused.
16. She contended that the accused cannot plead innocence as he played an
active role in the conspiracy in benefitting accused No. 3 (Harshad Mehta).
In the process, he took the benefit of being an employee of the UCO Bank,
fully acquainted with the SGL transactions, and committed the offence
misusing his official position. The transfer of 11.5% CGL 2009 securities
for a value for Rs.20 crores into the SGL account No. 065 in the Public
Debt Office of RBI effected only with the maligned intention of the accused-
appellant in pursuance of his illegal object of providing wrongful gain to
accused No. 3 (Harshad Mehta). The conspiracy hatched by the accused
deprived UCO Bank of the interest that would have accrued on the face value
of securities amounting to Rs.20 crores. The illegal object and the role
played by the accused with full knowledge and intention are established by
a series of transactions which formed a continuous chain and link of
circumstances leading to the culpability of the accused.
17. Learned counsel has drawn our attention to a Telex message dated 23rd
March, 1991 (Ext. 287) sent by the UCO Bank from its Head Office to Zonal
Office instructing for effecting the switch transaction in favour of UCO
Bank Head Office Account (SGL Account No. 032). In spite of those clear
instructions, the accused-appellant with a view to benefit the accused No.
3, effected the transfer of Securities into the UCO Bank
Constituents/Brokers Account (Account No. 065). It is also evident from the
record that at the relevant time, all brokers’ transactions were squared
off except that of accused No. 3 (Harshad Mehta) who sold those wrongfully
transferred securities for his own benefit, causing loss to the UCO Bank.
18. In pursuance of achievement of illegal object to cause wrongful gain
to accused No. 3, the appellant, being a public servant, abused his
position to a great extent. When the UCO Bank Head Office was not informed
about the development of the switch transaction with reference to their
Telex message dated 23rd March, 1991 (Ext. 287), which transaction was
admittedly being carried by the accused, the Head Office issued another
Telex message dated 6th April, 1991 (Ext. 466) inquiring about the
transaction. Despite this second Telex message from the Head Office, the
accused did not respond to inform the Head Office immediately and it is
only on 11th April, 1991 the accused sent a Telex message (Ext. 288) to the
Head Office informing execution of the transaction, that too concealing the
truth. Another link exhibiting the wrong intentions of the accused is that
the Bank Receipt (Ext. 299) dated 5th April, 1991 issued by Indian Bank was
discharged by the appellant on 12th April, 1991 in favour of the UCO Bank
Head Office by signing on the reverse of it.
19. Learned senior counsel further contended that it was only when the
accused came to know that inquiries were being carried out by the UCO Bank
Head Office for the loss occurred to it due to non-credit of the interest
on the securities in question, the accused in connivance with each other in
a planned manner tried to cover up the transactions and credited UCO Bank
Head Office account through four transactions. These transactions are:
15th July, 1991 Transferred GOI securities 11.5% 2009 worth Rs. 2 crores
from UCO Bank’s SGL A/C No. BYSL 065 (Brokers’ account) to SGL A/C No. 032
(UCO Bank’s own account) (Ext. 245)
21st October, 1991 Transferred GOI securities 11.5% 2009 worth Rs.17 crores
from the accused No. 3’s account of State Bank of India to his State Bank
of Saurashtra (Ext. 277) account.
21st October, 1991 Again transferred GOI securities 11.5% 2009 worth Rs.17
crores from accused 3’s State Bank of Saurashtra account to UCO Bank’s
Account No. 065 (Ext. 272).
25th October, 1991 Finally these GOI securities 11.5% 2009 have been
transferred from UCO Bank’s Account No. 065 to its Account No. 032 (Ext.
282).
20. To further assert her argument that the accused in the process of
effecting those cover up transactions indulged in illegal acts, learned
senior counsel explained that even though there was no instruction from the
UCO Bank Head Office, the accused-appellant directed the Reserve Bank to
transfer securities worth Rs.2 crores from Account No. 065 to Account No.
032 (cover up transaction ‘a’ above) blatantly misusing his position as a
public servant. To prove the chain of conspiracy, learned senior counsel
took us through Ext. 277 which shows that Securities worth Rs.17 crores
were transferred from State Bank of India from the account belonging to
accused No. 3 (Harshad Mehta) on 21st October, 1991 to State Bank of
Saurashtra (another account belonging to Harshad Mehta) and on the same day
they were again transferred from State Bank of Saurashtra to UCO Bank SGL
Account No. 065 (Ext. 272) and then to UCO Bank SGL Account No. 032 on 25th
October, 1991 (Ext. 282) without any instructions from the UCO Bank Head
Office. In this way, the accused, in connivance with each other tried to
cover up the UCO Bank Head Office Account.
21. Highlighting the crucial link of the conspiracy among the accused in
misusing the funds of UCO Bank to the tune of Rs.20 crores, learned senior
counsel submitted that on 1st July, 1991 accused No. 3 wrote a letter to
the UCO Bank (Ext. 413) requesting to issue GOI 11.5% 2009 Securities worth
Rs.15 crores to State Bank of Saurashtra and State Bank of Hyderabad,
though these Securities in fact did not belong to him. Accordingly,
Securities worth Rs.5 crores (Ext. 235) were transferred to the State Bank
of Hyderabad from UCO Bank SGL Account No. 065, without any instruction
from the UCO Bank. The Banker’s cheque dated 1st July, 1991 (Ext. 678)
received from State Bank of Hyderabad against those securities, in favour
of UCO Bank for an amount of Rs.5,07,195,62.22 (including interest) was
credited in the account of accused No. 3 (Harshad Mehta). Similarly, on the
same day i.e. 1st July, 1991 Securities worth Rs.10 crores (Ext. 240) were
transferred to the State Bank of Saurashtra from UCO Bank’s SGL Account No.
065, without any instruction from UCO Bank.
22. The learned senior counsel finally submitted that the offences with
which the appellant was charged have been proved beyond reasonable doubt
and the Trial Court had not committed any error in convicting the accused.
She, therefore, prayed that the impugned judgment does not deserve to be
interfered with.
23. Heard the counsel on either side at length and gone through the
voluminous record placed before us. The issue that falls for consideration
is whether the learned Judge of the Special Court was right in convicting
the accused for the offences he is charged with and whether the prosecution
proved the guilt of the accused beyond reasonable doubt?
24. Basing on the argument of both the parties, it appears that it is the
specific defence of the accused that absolutely there is no motive or
intention on his part in the alleged transactions and if at all anything is
done, it is purely a clerical bona fide mistake. Absolutely, he has no
mala fide intention to commit any fraud or crime. Having noticed the
irregularities that have taken place, he has taken steps to transfer an
amount of Rs.2.00 crores to the account No.032 from the account No.065. He
is not involved in any conspiracy or benefited by the transactions and the
learned Judge has failed to appreciate the evidence in its proper
perspective and misguided himself in convicting the accused. Whereas, on
behalf of the CBI, arguments were advanced supporting the judgment of the
Special Court.
25. The CBI has adduced voluminous evidence to establish the guilt of the
accused. The whole issue revolves around the fact whether the accused has
got a role to play in the switch transactions account and whether he was
discharging the duties as a prudent man and is it a bona fide mistake as he
claims it to be.
26. It appears from the record and on a thorough examination of the
events that took place between April 1991 and October 1991, we understand
that on 22nd March, 1991 on which date UCO Bank’s 11.5% 2009 securities
with face value of Rs. 20 crores were sold to Indian Bank, UCO Bank has
purchased similar value of securities from Indian Bank viz., 11.5% 2006 GOI
Securities for its SGL Account No. 032. On 5th April, 1991 both the above
transactions were reversed. Resultantly, UCO Bank’s Account No. 032 should
have got back the aforementioned securities, but the same was wrongfully
transferred into UCO Bank’s SGL Account No. 065, being operated by the
Brokers. At that point of time, all brokers’ transactions who were
operating UCO Bank Account No. 065 got squared off except that of accused
No.3. Taking this to his advantage, out of the securities lying in the UCO
Bank’s Account No. 062, Securities worth Rs.15 crore, have been sold by the
accused No. 3, though not belonging to him actually, to the State Bank of
Saurashtra and State Bank of Hyderabad and the banker’s cheque issued in
discharge of those securities in favour of UCO Bank for an amount of
Rs.5,07,195,62.22 (including interest) was credited in the account of
accused No. 3 (Harshad Mehta).
27. The Telex messages dated 23.3.1991 (Ext. 287) and 6.4.1991 (Ext. 466)
reveal that UCO Bank Head Office explicitly instructed for switch
transaction for its own Account (032). The communication dated 13th April,
1991 (Ext. 300) sent by the accused Nos. 1 & 2 cannot be treated as a
simple mistake considering the consequential events. We have given our
anxious and thorough perusal to the said communication (Ext. 300) and found
that the preparation of communication and also the entry relating to the
Securities in question has been written by the accused No.1-appellant
herein himself. The entry indicates to transfer the securities into the UCO
Bank’s Account No. 065 (Brokers’ Account) together with two other entries
relating to other securities which were actually meant for transfer into
the UCO Bank’s Account No. 065. We, therefore, cannot accept the plea of
appellant that it was merely a clerical mistake that the Account No. 032
was struck off and Account No. 065 was retained by accused No.2. The
inclusion of securities in question in the said communication by the
appellant in his own handwriting, establishes the fact that the appellant
had willfully and with ulterior motive prepared the communication.
28. It was claimed by the accused that he has transferred an amount of
Rs.2.00 crores from account No.065 to account No.032, without there being
any transaction which clearly shows that to get away with enquiries of the
Head Office, the accused has chosen to transfer the money without there
being any transaction and exhibits the conduct of the accused. All the
documents relating to switch transaction between the UCO Bank and Indian
Bank were signed by the accused, being the responsible officer knowing
pretty well that these securities are purchased by the Head Office of UCO
Bank, which at any stretch of imagination cannot be termed as a mistake or
oversight, and above all, the debit and credit vouchers for transaction in
question were passed by the accused. On 12-4-1991, bank receipt of Indian
Bank dt. 5-4-1991 (Ex.299) was discharged and A1 signed on the reverse of
bank receipt. Almost all the documents pertaining to switch transaction
are signed by him.
29. We have also perused the depositions of prosecution witnesses. PW1-S.
Nagrajan, the person who was working in RBI’s Public Debt Office at the
relevant time, in his deposition explained how the SGL accounts are
maintained. PW2-Harsukhlal Chhotalal Parekh, the erstwhile Manager of UCO
Bank’s Hamam Street Branch asserted that when the transactions are taken
place over SGL accounts, necessary instructions are received by the
Securities Department of the Hamam Street Branch from concerned Broker.
Admittedly, the procedure of dealing with SGL accounts as explained by PW1
and PW2 has not been followed in the case of securities in question. The
material on record unequivocally establishes that the wrong entry in the
account of UCO Bank SGL Account No. 065 effected to the advantage of
Harshad Mehta (Accused No. 3) was not occurred as a result of an
inadvertent error, but a planned misdeed done with mala fide intention.
30. Considering the whole scenario of the case, there is no doubt in our
minds that the accused, who is well acquainted with the banking activities
and SGL transactions, created false documents and acted contrary to the
provisions and committed illegal acts which are writ large on the face of
record. It has been clearly recorded by the trial Court that accused No.1
has already been convicted in two cases and two more cases are pending. In
one case, he has undergone imprisonment for a period of one year and in
another case, imprisonment for a period of 9 months, which shows the
conduct of the accused, though that is not the basis for our conclusion.
We are, therefore, of the considered view that the appellant was part of
the conspiracy in facilitating trading of SGL securities to the benefit of
accused No. 3 (Harshad Mehta) and in the process, abused his official
position and violated provisions of banking laws. The facts and
circumstances of the case clearly show the participation of the appellant
in the criminal acts and misuse of his official position. In our opinion,
the prosecution has successfully proved the nexus between the accused. The
ingredients of the offences for which the accused is charged has also been
established beyond all reasonable doubt by the prosecution by adducing
voluminous documentary evidence as well as oral evidence.
31. For the foregoing reasons, we do not find any merit in the appeal
calling for our interference with the impugned judgment passed by the
learned Special Judge. Consequently, the appeal fails and is dismissed
accordingly. By this Court’s order dated 21st February, 2005 the
substantive sentence of imprisonment remained suspended during the pendency
of appeal. The said order is hereby recalled. The appellant may be taken
into custody forthwith to serve the period of imprisonment.
……………………………………………….J.
(SUDHANSU JYOTI MUKHOPADHAYA)
………………………………………………..J.
(N.V. RAMANA)
NEW DELHI
JANUARY 12, 2015
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