# SUDHIR SHANTILAL MEHTA .-r v. C.8.1

- **Citation:** [2009] 12 S.C.R. 682
- **Court:** Supreme Court of India
- **Decided:** 2009-08-07
- **Case number:** Criminal Appeal No. 905 of 2005
- **Bench:** S.8. Sinha, Cyriac Joseph
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sudhir-shantilal-mehta-r-v-c-8-1-25075
- **Pages:** 71

## Headnote

Special Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992:
.I
c
s.36(1) - Security scam - Transaction of discounting and
rediscounting of bill of exchange - Accused persons, public
servants having dominion over public funds - Allegedly
entered into conspiracy wiU1 Harshad Mehta, dealer in
-
D securities market for obtaining liquid cash for short period with
a view to make investments in securities market - Bills of
..
exchange issued in relation l'o transaction in shares - No
I
verification as required undertaken - No security taken -
Discounting of bill of exchange - Payment not made on the
E retiring day - Loss to bank - Conviction under s.409 and
s. 120B - Held: Acquisition of shares was neither bona fide
nor in the interest of the Bank - Guidelines laid down in the
Manual of UCO Bank and directions of Reserve Bank of India
.JI
dated 5.9.1988, stipulated that credit limit be fixed only after
....
F
verifying the creditworthiness of customer - Security also
required to be taken and it was the duty of the Manager to
satisfy himself that the Bills of Exchange were a result of
genuine trade transactions - But said procedures were given
a complete go by - Branch not dealing with Bill Discounting
chosen which demonstratively proved that the transactions
G were not ordinary commercial transactions - Accused 1 and
2 were high ranking officers of the Bank and had dominion
over the funds thereof - They could not part with the same in
favour of any person without complying with the statutory
requirements - By reason of such transaction wrongful loss
H
682
SUDHIR SHANTILAL MEHTA v. C.8.1.
683
--
--1
was caused to the Bank and wrongful gain was made by the
A
Harshad Mehta group - Money of a Public Sector Bank was
diverted to share/securities market transactions in violation of
law - Prosecution proved the charges made against the
accused 1, 2, 4, 5- Conviction for conspiracy for commission
of the offence of criminal breach of trust upheld - Banking
B
Regulation Act, 1949 - s.21, 35A - Reserve Bank of India,
1934 - Penal Code, 1860 - ss.405, 409, 120B - Scam.
Jurisdiction of Special Court - Held: Is not confined to
the scam relating to securities alone but utilization of any c
amount relating to transaction of securities and for matters
connected therewith or incidental thereto.
s.2(c) - Securities - Meaning of.
Reserve Bank of India, Act, 1934: Directions/circulars D
-'\
issued by RBI are statutory in character - RBI has requisite
..
power to issue direction to Banks in relation to discounting and
rediscounting of bills of exchange and directions so issued
have statutory force - All public sector banks are bound
thereby.
E
Prosecution case was that accused no.1 was the
).
Chairman-cum-M.D. of the UCO Bank. On 14.3.1992, he
"'
visited Harshad Mehta who was a dealer in the securities
market. After the meeting he allegedly informed the other
officers of the bank that he met Harshad Mehta who
F
suggested that it was in the interest of the bank to
undertake the business of discounting and rediscounting
bills of exchange. The officers present were assured by
accused no.1 that the business would be transacted
without involving the banks funds. He also insisted for G
,_
undertaking the said business through the Nariman Point
Branch of the Bank though such transactions were
generally not undertaken therefrom.
On the same day i.e. 14.3.1992, a resolution was
H
684
SUPREME COURT REPORTS [2009] 12 S.C.R.
A passed by M/s. Growmore, to open an account in UCO
r
,
Bank, Nariman Point so as to enable it to avail bill
discounting facility provided by UCO Bank Ltd. limited to
Rs.50 crores. A similar resolution was passed on
18.3.1992 by Mis. Mazda.
B
On 24.3.1992, Accused no. 7 and 9 came to Nariman
Point Branch of UCO Bank. They brought with them two
banker's cheques, one cheque was from Syndicate Bank
for Rs.24.63 lacs and the other from State Bank of Patiala
c
for Rs.25 lacs. Two bills of exchange drawn by J.H. Mehta
were acce

## Text

_Characters 0–39,978 of 133,622. This is a partial read: ask again with offset=39978 for what follows._

[2009] 12 S.C.R. 682
A
SUDHIR SHANTILAL MEHTA
.-r
v.
C.8.1.
(Criminal Appeal No. 905 of 2005)
B
AUGUST 7, 2009
[S.8. SINHA AND CYRIAC JOSEPH, JJ.]
Special Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992:
.I
c
s.36(1) - Security scam - Transaction of discounting and
rediscounting of bill of exchange - Accused persons, public
servants having dominion over public funds - Allegedly
entered into conspiracy wiU1 Harshad Mehta, dealer in
-
D securities market for obtaining liquid cash for short period with
a view to make investments in securities market - Bills of
..
exchange issued in relation l'o transaction in shares - No
I
verification as required undertaken - No security taken -
Discounting of bill of exchange - Payment not made on the
E retiring day - Loss to bank - Conviction under s.409 and
s. 120B - Held: Acquisition of shares was neither bona fide
nor in the interest of the Bank - Guidelines laid down in the
Manual of UCO Bank and directions of Reserve Bank of India
.JI
dated 5.9.1988, stipulated that credit limit be fixed only after
....
F
verifying the creditworthiness of customer - Security also
required to be taken and it was the duty of the Manager to
satisfy himself that the Bills of Exchange were a result of
genuine trade transactions - But said procedures were given
a complete go by - Branch not dealing with Bill Discounting
chosen which demonstratively proved that the transactions
G were not ordinary commercial transactions - Accused 1 and
2 were high ranking officers of the Bank and had dominion
over the funds thereof - They could not part with the same in
favour of any person without complying with the statutory
requirements - By reason of such transaction wrongful loss
H
682
SUDHIR SHANTILAL MEHTA v. C.8.1.
683
--
--1
was caused to the Bank and wrongful gain was made by the
A
Harshad Mehta group - Money of a Public Sector Bank was
diverted to share/securities market transactions in violation of
law - Prosecution proved the charges made against the
accused 1, 2, 4, 5- Conviction for conspiracy for commission
of the offence of criminal breach of trust upheld - Banking
B
Regulation Act, 1949 - s.21, 35A - Reserve Bank of India,
1934 - Penal Code, 1860 - ss.405, 409, 120B - Scam.
Jurisdiction of Special Court - Held: Is not confined to
the scam relating to securities alone but utilization of any c
amount relating to transaction of securities and for matters
connected therewith or incidental thereto.
s.2(c) - Securities - Meaning of.
Reserve Bank of India, Act, 1934: Directions/circulars D
-'\
issued by RBI are statutory in character - RBI has requisite
..
power to issue direction to Banks in relation to discounting and
rediscounting of bills of exchange and directions so issued
have statutory force - All public sector banks are bound
thereby.
E
Prosecution case was that accused no.1 was the
).
Chairman-cum-M.D. of the UCO Bank. On 14.3.1992, he
"'
visited Harshad Mehta who was a dealer in the securities
market. After the meeting he allegedly informed the other
officers of the bank that he met Harshad Mehta who
F
suggested that it was in the interest of the bank to
undertake the business of discounting and rediscounting
bills of exchange. The officers present were assured by
accused no.1 that the business would be transacted
without involving the banks funds. He also insisted for G
,_
undertaking the said business through the Nariman Point
Branch of the Bank though such transactions were
generally not undertaken therefrom.
On the same day i.e. 14.3.1992, a resolution was
H
684
SUPREME COURT REPORTS [2009] 12 S.C.R.
A passed by M/s. Growmore, to open an account in UCO
r
,
Bank, Nariman Point so as to enable it to avail bill
discounting facility provided by UCO Bank Ltd. limited to
Rs.50 crores. A similar resolution was passed on
18.3.1992 by Mis. Mazda.
B
On 24.3.1992, Accused no. 7 and 9 came to Nariman
Point Branch of UCO Bank. They brought with them two
banker's cheques, one cheque was from Syndicate Bank
for Rs.24.63 lacs and the other from State Bank of Patiala
c
for Rs.25 lacs. Two bills of exchange drawn by J.H. Mehta
were accepted by accused 4 on behalf of Growmore and
accused 7 on behalf of Mazda. Letters were also issued
by Mazda and Growmore to the effect that the said
amount would be repaid by them on or before 24.4.1992.
D
The two usance promissory notes were handed over to
accused no.7 and 9. The acceptors Mazda and Growmore
did not have any account in the said branch at that time.
l
Two draft promissory notes were handed over to PW 44
...
by Accused Nos. 7 and 9; one issued in favour of
Syndicate Bank and the other in favour of State Bank of
E Patiala to be executed by UCO Bank in relation to the said
cheques. Those usance promissory notes were signed
by PW 44 and PW 1, pursuant whereto the Bank issued
~
two pay orders on the same day in favour of ANZ
....
Grindlays Bank for a sum of Rs.25.27 crores and Rs.
F 14.14 crores. An account in the name of M/s J.H. Mehta
was opened on the same day and the amount of Bill of
Exchange was credited into that account.
On 25.3.1992, the amount was transferred to Harshad
G Mehta's account. On 26.3.1992, PW 44 asked PW 1 to
prepare a note for the Chairman so as to enable him to
seek approval from the Board for the transaction.
Pursuant to this, the said note was prepared and it was
shown to accused No. 1. A proposal for ratification of the
H
Bill Discounting transaction was sent to the Head office
SUDHIR SHANTILAL MEHTA v. C.B.I.
685
on 3.4.1992. On 24.4.19~2, i.e., the due date for retiring the A
- -I
Bills of Exchange, the payments were not made either by
the drawer or by the acceptors. Accused No. 1 allegedly
agreed to the suggestion of Harshad Mehta for rolling
over the same for one more month. PW 44 allegedly did
not agree thereto and insisted on prompt payment.
B
As the funds were not received, UCO Bank made
payments to Syndicate Bank and State Bank of Patiala
out of its own funds. There was shortfall in the funds
available with UCO Bank, the requisite call money to meet c
the deficient was borrowed by it from the Corporation
Bank and the Oriental Bank of Commerce to the tune of
Rs. 50 crores for three days. Officers of UCO Bank
thereafter visited the offices of Mazda and Growmore for
realization of the payments due. Two cheques were
D
handed over by M/s J.H. Mehta with a request that the
-' •
same be not encashed and that the cheques of
..
Growmore and Mazda would be given at a later date .
Mazda and Growmore also issued two cheques. They
were not sent for clearing as the requisite funds therefor
were admittedly not available in their accounts. The said E
two Bills of Exchange, for want of fund, were not retired
either by M/s J.H. Mehta or Growmore or Mazda.
....
Subsequent thereto, a formal meeting of the Investment
Committee consisting of Accused Nos. 1 and 3 and PW
45 was held. At the instance of Accused Nos. 1 and 3,
F
shares of Gujarat Ambuja Cement worth Rs. 50 crores
were purchased by UCO Bank. The amount received by
J.H. Mehta from UCO Bank under the said transaction
-
was transferred by him to Mazda and Growmore so as
to facilitate encashment of the said cheques for retiring G
-f
the Bills of Exchange. Payment towards purchase of
shares was made by UCO Bank before delivery thereof.
The amount due to the Bank was thus sought to be
realized in that manner.
H
686
SUPREME COURT REPORTS [2009] 12 S.C.R.
A
Several charges were frame(t against the accused
persons by the Special Court. The Special Court held
r -
that the offence of criminal breach of trust on the part of
the accused Nos. 1 and 2 was proved beyond all
reasonable doubts as they had been entrusted with the
B funds of UCO Bank; that the said discounting of bills was
illegal as it violated the Circular issued by the Reserve
Bank of India dated 5.9.1988; and by reason thereof, a
sum of Rs. 50 crores was transferred to the accused No.
3 Harshad Mehta and/or his groups; the transactions was
c in violation of the Circular dated 5.9.1988, the accused
Nos. 1, 2 and 8 acted contrary thereto or inconsistent
therewith, the same constituted an offence within the
meaning of Section 405 IPC; the said transactions were
carried out to benefit Harshad Mehta Group of
D Companies by the accused in conspiracy with each
other; and the private accused as well as Accused No.8
~
were convicted only for commission of the offence of
4
criminal conspiracy. Accused 1 to 5 and 8 filed these
._
appeals.
E
Disposing of the appeals, the Court
HELD: 1. Jurisdiction of Special Court is confined to
trial of offence relating to transactions in securities and
..
for matters connected therewith or incidental thereto
F committed during the period between 1.4.1991 and
6.6.1992. The alleged offence was admittedly committed
during the said period. The definition of 'securities' is an
inclusive one. It is not exhaustive. It takes within its
purview not only the matters specified therein but also
-
G all other types of securities as commonly understood.
The term 'securities', thus, should be given an expansive
meaning. The jurisdiction of the Special Court is not
confined to the scam relating to securities alone but
utilization of any amount relating to transactions in
H
SUDHIR SHANTILAL MEHTA v. C.8.1.
687
__,
securities and for matters connected therewith or A
-
incidental thereto. The jurisdiction of the Special Court is
exclusive one. It exercises original jurisdiction to try
offences relating to security scam. The said Act having
regard to the peculiar nature of offence sought to be dealt
with, should receive a liberal construction. Jurisdiction of
B
the Special Court is required to be determined with
regard to the provisions of Section 6 of the Code of
Criminal Procedure, 1973. The Act is a special Act. It
+.-
contains a non obstante clause. It shall, thus, prevail over
any other Act. [Paras 34, 37, 40, 41 and 44] [718-E; 719- c
E-F; 720-F-G; 721-D]
State of Bombay and others v. The Hospital Mazoor
>
Sabha and others AIR 1960 SC 610; Regional Director,
Employees State Insurance Corporation v. High Land Coffee
D
Works of P.X. S. Sa Idanha and sons and Anr. (1991) 3 sec
~
617; Commercial Taxation Officer, Udaipur v. Rajasthan
Taxchem Ltd. (2007) 3 SCC 124 and So/idaire India Ltd. v.
Fairgrowth Financial Services Ltd. and others (2001) 3 SCC
71 - relied on.
E
Harshad S. Mehta and others v. State of Maharashtra
}-
(2001) 8 SCC 257; L.S. Synthetics Ltd. v. Fairgrowth Financial
·--
Services Ltd. and another (2004) 11 sec 456, referred to.
2. An offence is committed with a view to circumvent
F
the law. An apparent state of affairs need not be the real
state of affairs. A simple transaction of discounting and
rediscounting on its face may appear to be genuine and
Llawful but there may be underlying purposes behind it. It
has not been disputed that Harshad Mehta was dealing
G
in the money market and securities market and that
'4Growmore although a public limited company, was
controlled by Harshad Mehta. Both Mazda as also
Growmore indisputably were dealing in the business of
selling and buying of shares. Further Mis J.H. Mehta, was
the proprietary concern of the wife of Harshad Mehta. She
H
688
SUPREME COURT REPORTS [2009] 12 S.C.R.
A used to execute business through her constituted
attorney. General Power of Attorney was also issued by
these Companies in favour of the accused persons. The
Harshad Mehta Group of Companies were therefore
dealing in securities. [Para 45] [721-E-H]
B
3.1. The method of siph 1oning of the funds of UCO
Bank through discounting of two bills of exchange was
unlawful. Both the bills of exchange were shown to have
been issued in relation to transaction in shares between
c
M/s JH Mehta, Growmorn and Mazda. For arranging
repayment of the amount, shares were purchased by
UCO Bank through M/s VB Desai and Co. The offence of
conspiracy to commit the offence of breach of trust, thus,
related to the transaction in securities. It is therefore not
....
a case where it can be said that the Special Court lacked
D inherent jurisdiction in trying the offence said to have
..
been committed by thf~ accused. [Paras 46 and 48) [722-
•
A-B; 722-B; 722-C)
3.2. UCO Bank is a Nationalized Bank. It has various
E branches in Bombay; its main Branch being at D.N. Road.
Its Nariman Point Branch was mainly dealing with foreign
exchanges. The business as regards discounting and
i
rediscounting usually was carried out at the main branch.
~
[Para 50] [722-E-F]
F
4. In terms of Section 35A of the Banking Regulation
Act,1949, the Reserve Bank of India is empowered to
issue directions to the Banks in public interest; or in the
interest of Banking policy; or to prevent the affairs of any
banking company being conducted in a manner
G detrimental to the interests of the depositors or in a
manner prejudicial to the interest of the Banking
Company; or to secure the proper management of any
Banking company generally. The Reserve Bank of India,
therefore, has the requisite power to issue direction to
H Banks in relation to discounting and rediscounting of
SUDHIR SHANTILAL MEHTA v. C.8.1.
689
-i
bills of exchange and directions so issued have statutory
A
force. All public sector banks are bound thereby.
Pursuant to or in furtherance of the said power, the
Reserve Bank of India issued a Circular dated 5.9.1988
titled "Bills Rediscounting Scheme -- Introduction of
usance promissory notes -
Procedure therefor".
B
Accused Nos. 1, 2 and 8 were public servants and so
were bound by the Circulars issued by the Reserve Bank
of India. [Paras 52-55 and 57] [722-G-H; 722-B-C; 722-D]
~
Corporation Bank vs. D.S. Gowda & Anr. (1994) 5 SCC c
213 & Central Bank of India vs. Ravindra & Ors. (2002) 1 SCC
367, referred to.
8.0./. Finance Ltd. v. Custodian & ors. 1997 (10) SCC
488, held inapplicable.
D
-t
5.1. The distinction between exercise of jurisdiction
under the enabling provisions contained in Section 36(1)
of Special Court (Trial of offences relating to transactions
in Securities) Act, 1992 and the ones under Sections 21
and 35A of the Banking Regulation Act and the
E
provisions contained in Section 45L of the Reserve Bank
/I.
of India Act, 1934 is absolutely clear and unambiguous.
~
In terms of Section 36, the Reserve Bank of India may
caution or prohibit the Banking Companies but in terms
of Sections 21 and 35A of 1949 Act it can issue binding
F
directions. The circular was issued by the Reserve Bank
of India in regard to rediscounting. The officials of UCO
Bank were, therefore, bound by the said circular letter.
UCO Bank could only have discounted the bills of
exchange out of bonafide commercial transactions as
G
had been provided under the RBI circulars. [Paras-63 and
65] [725-F; 725-G; 726-B]
State of Madhya Pradesh v. Ramcharan AIR 1977 MP
68, referred to.
H
690
SUPREME COURT REPORTS [2009] 12 S.C.R.
A
5.2. The accused contended that they had no
knowledge of the circulars. The conduct of the accused
clearly shows to the contrary that they in fact had
knowledge of the RBI Circulars in question. They
otherwise would not have gone to the length of creating
B documents to show that the bills of exchange was
issued because of a sale of shares of M/s JH Mehta to
Growmore and Mazda. In order that the bank could
discount a bill of exchange, it was necessary that it related
to a bonafide or genuine commercial transaction and it
c was because of this requirement that the accused
persons had gone to the extent of preparing false
documents to give an appearance that the discounting
related to bona fide commercial transaction. [Para 66]
(727-F-G; 727-H; 728-A-B]
D
6.1. An offence of criminal breach of trust by a public
servant attracts the penal provision of Section 409 IPC.
Indisputably, the Bank entrusted its funds to its officers;
they had the dominion over the said property; they were
holding the said money in trust which is an
E comprehensive expression, to denote a relationship of
master and servant. The act of criminal breach of trust per
se may involve a civil wrong but a breach of trust with
an ingredient of mens rea would give rise to a criminal
prosecution as well. [Para 68] (728-E-F]
F
6.2. The criminal breach of trust would mean using
or disposing of the property by a person who is entrusted
with or has otherwise dominion thereover. Such an act
must not only be done dishonestly but also in violation
G of any direction of law or any contract express or implied
relating to carrying out the trust. It is one thing to say that
any circular letter issued by the Reserve Bank of India
being not within the public domain would not be law but
it would be another thing to say that it did not contain any
direction of law so as to attract the liability in terms of
H
t
SUDHIR SHANTILAL MEHTA v. C.B.I.
691
Section 405 IPC. Lawful directions were issued by the
A
Reserve Bank of India. The Circular Letter was meant for
all Scheduled Banks. The authorities and/or officers
running the affairs of the Scheduled Banks therefore
were aware thereof. If it is binding on the Banks, it would
be binding on the officers. Any act of omission or B
commission on the part of any authority of the Bank
would amount to acting in violation of any direction of
law. A direction of law need not be a law made by the
~
Parliament or a Legislature; it may be made by an
authority having the power therefor; the law could be a c
subordinate legislation, a notification or even a custom.
[Para 69] [729-A-D]
6.3. Indisputably, the higher authorities of the UCO
Bank were entrusted with or otherwise had dominion
over the properties of the bank. They were dealing with
D
public funds. Failure on their part to abide by the
directives issued under the Circulars would result in civil
action. Subjecting the bank to a civil liability would thus
attract one of the ingredients of criminal breach of trust.
[Para 70] [729-E-G]
E
,k
7. The mode of disposal of the public money is
..
prescribed in terms of the UCO Bank Manual and the
Circulars issued by the Reserve Bank of India. It was,
however, necessary for the prosecution to prove that the
F
same was done with requisite mens rea. The submission
for the appellants that there has been no violation of the
RBI Guidelines and/or the UCO Bank Manual cannot be
accepted. It may be true that PW 40, Executive Director,
RBI, Bombay had stated that technically the RBI Circular G
referred to the Bill rediscounting and not discounting, but
it is not disputed at the Bar that Bill rediscounting must
be preceded by Bill discounting. UCO Bank had issued
usance promissory notes; it was required to be backed
by encumbered usance Bills of Exchange of at least
H
692
SUPREME COURT REPORTS [2009) 12 S.C.R.
A equal value not due for payment; the transactions were
required to be bona fide commercial transaction. UCO
Bank Manual although permits advances as against
house bills but it stipulates that for the said purpose,
creditworthiness of the customer was required to be
B verified. Credit limit was also to be fixed. For the said
purpose, credit reports were to be compiled; limits were
to be sanctioned. The jurisdiction of Chairman-cumManaging Director and other Authorities are fixed if the
Bill of Exchange exceeds Rs. 25,000/-, credit report on
c drawees on whom the bill is drawn is also required to be
obtained. The Manual mandates that security be also
taken. The duty had been cast on the Manager to satisfy
himself that Bill of Exchange is the result of genuine
trade transaction. [Paras 71 and 88] [730-A-B; 735-C-H]
D
8.1. Section 43 IPC carries a very wide meaning. If
any ground for civil action can be founded on the basis
of any act of omission or commission on the part of a
person, his act may be held to be illegal or it may be held
that he was legally bound to do an act which he had
E omitted to do. If a person is guilty of breach of a
departmental order, he may be held to be guilty as he
was legally bound to act in terms thereof. It does not
;I.
matter whether the violation was in relation to the Circular
~
issued by the Reserve Bank of India or whether it was in
F violation of the guidelines issued by the Bank itself. The
question as to whether the directions are statutory in
character and binding in law may not depend upon the
nature of the powers to be exercised by the Reserve Bank
of India. Discounting and rediscounting of Bills of
G Exchange is an integral part of banking transactions.
Purchase and sale of securities is also a part of the
banking transactions as would appear from Section
6(1)(a) of the Banking Regulations Act. Harshad Mehta
was having a very good customers credit rating which
H was even spoken of by PW 7. The Bills of Exchange
SUDHIR SHANTILAL MEHTA v. C.8.1.
693
being usance Bills of Exchange in terms of Section 32 of A
the Negotiable Instruments Act on their maturity, only the
acceptors, namely, Growmore and Mazda were
responsible for clearance thereof and not M/s J.H. Mehta.
[Paras 89 and 90] [736-C-E; 736-E-G]
8.2. The bills were drawn by M/s JH Mehta and were
accepted by M/s Growmore and M/s Mazda. The payment
on rediscounting by the Bank should therefore be made
to M/s JH Mehta, but the payment was in fact made to M/
8
s Growmore and M/s Mazda Industries. If the Bills of C
Exchange was drawn because M/s JH Mehta had sold the
shares to Mazda and Growmore, it was Mis JH Mehta
entitled to the purchase price of the shares which it was
sold to M/s Growmore and M/s Mazda. In the present case
the Bank first made a credit entry in the account of JH
Mehta and then transferred the amount to Growmore and
D
Mazda by issuing cheques in favour of ANZ Grindleys
Bank favouring Mazda and Growmore. Thus the ultimate
payment on the rediscounting of the two bills of
exchange went to Growmore and Mazda who had been
shown as the purchasers of the shares from M/s JH
E
Mehta and were therefore to make payment of the price
of the share to JH Mehta. Even the cheques for
repayment to the Bank on 27.04.1992 were issued by M/
s Growmore and M/s Mazda. As the amount paid under
the Bills of exchange by the Bank was returned to the
Bank, it is beyond the purview of any explanation why
the bills of exchange was drawn in the first place.
Obviously the discounting of the Bills of exchange did not
represent a bonafide commercial transaction. [Para 91]
(736-H; 737-A-E]
F
G
9. It was brought to notice by the appellants that
Harshad Mehta was behind all the entities. Apart from his
individual capacity, he was acting on behalf of M/s J.H.
Mehta, Mazda and Growmore. This fact was not unknown
H
694
SUPREME COURT REPORTS [2009] 12 S.C.R.
A to the officers of the Bank. Each one of the private
accused was connected in one way or the other with
each of the said entities. J.H. Mehta, Mazda and
Growmore were new customers. An account was opened
on the same day as the Bill of Exchange was presented
B for discounting. It is beyond any doubt or dispute that the
power to sanction advance so far as the Chairman is
concerned is limited to Rs.5 crores. Prior sanction of the
Board of Director was necessary if the Bill discounting
exceeds Rs.5 crores. Admittedly, even the Board of
c Directors did not ratify the said transaction although in
terms of the Manual it was necessary that prior sanction
should be obtained. The Manual, prescribed exercise of
greater caution in the cases where the drawer and
drawee of the Bill are identical or connected persons. It
0 provided for the meeting of safeguards by way of making
an enquiry as regards the creditworthiness, a satisfaction
of which was required to be arrived at by the Manager.
Thereabout, having regard to the credit rating, business
integrity and past dealing, the Manual provided that those
borrowers who did not satisfy the said tests laid down
E would not be eligible for any loan. Evidently, all these
procedural requirements necessary for safeguarding the
interests of the Bank were not fulfilled. [Paras 92, 93 and
94] [737-F-G; 738-G-H; 739-A-B; 739-C]
F
10.1. The Executive Director of UCO Bank, PW-37
accepted that the discounting of bills is a method of
advancing credit to a party. Evidently, therefore, the
prudent lending norms were required to be observed.
One of the contentions raised for the appellants was that
G further security was not necessary as two cheques had
been issued by two scheduled Banks. The cheques were
issued for the purpose of earning interest by way of
rediscounting. It may be true that whereas the Syndicate
Bank and State Bank of Patiala were to get 17 .5% of
H
SUDHIR SHANTILAL MEHTA v. C.B.1-.
695
interest, the UCO Bank was to receive interest from A
-+
Harshad Mehta at the rate of 21% per month. This itself
shows the speculative nature of the transaction.
Syndicate Bank and State Bank of Patiala or even the
banker of Harshad Mehta and his group ANZ Grindlays
Bank were of the opinion that they proceeded with so B
much amount even for a short period. [Para 97] [739-H;
740-A-C]
10.2. Evidently, UCO Bank was approached as a
conduit as it had no money of its own. Whereas other c
banks were secured as they had issued cheques in the
name of Nationalized Bank; UCO Bank did not obtain any
security or pledge. The fact that it had undertaken a grave
risk is not in dispute. Money was to be returned by a fixed
date, namely, 24.4.1992. Even the balance sheet and D
annual reports of the two banks were not sought for far
~
less scrutinized for arriving at a satisfaction as regards
the capability of the borrower to repay the amount within
the stipulated time. Only after advances were made i.e. on
26.3.1992, PW-44 asked PW-1 to collect the balance sheet
from Mazda and Growmore for forwarding them to the E
Head Office for seeking approval of the Bill Discounting
....
already done. Thus, all attempts to procure the balance
i"
sheet, etc. were undertaken at a later date. As the date of
repayment was coming closer, UCO Bank sent letters to
Mazda and Growmore for arranging funds to retire the Bill F
of Exchange on due date. Evidently, they were unable to
fulfill their promise. For the said purpose, Accused No.1
agreed that the Bills would be rolled over for one more
month. PW-44 was informed about this by Accused No.9.
Naturally, as the entire blame would be put on him, he did G
not agree thereto and insisted on payment. From the
evidence, it is evident that PW-44 informed about his
decision for insistence of payment to Accused No. 2 and
PW-45 also informed of the same to Accused No. 1.
Accused No. 2 being a high-ranking Officer was informed
H
696
SUPREME COURT REPORTS [2009] 12 S.C.R.
A particularly in view of the fact that if the Bank does not
get back the money, it has to take loan for the purposes
of having call money, but the very fact that the highranking officers also informed the Accused No. 8, speaks
a volume. [Paras 100, 103) [741-C-D; 741-E-F; 724-B-D;
B 743-B-C]
10.3. Admittedly, even on 24.4.1992 payments were
not made either by the drawer or by the acceptors. In
terms of Section 32 of the Negotiable Instruments Act, it
was the acceptor's liability and not the drawer's liability.
C The fact remained that the money was not re-deposited.
Indisputably, UCO bank had to make payment out of its
own funds. As by reason thereof a shortfall occurred, call
money was borrowed from two other banks, namely,
Corporation Bank and Oriental Bank of Commerce to the
D tune of Rs. 50 crores for three days. Therefore, the
charge of criminal breach of trust stands established
against Accused 1, and 2. The role played by Accused
No. 2 in the entire chain of events is significant. The
decision to discount the two bills of exchange at Nariman
E Point Branch was taken by Accused No. 1 only after
consulting Accused No. 2. Accused No. 2 had full details
of the transaction. He also played a key role in the
,.
purchase of shares by UCO Bank to provide for
repayment of the amount advanced by UCO Bank itself.
F He also similarly made an endorsement for issuing a
cheque in favour of ANZ Grindley's Bank on account of
JH Mehta. However the role played by Accused No. 2 was
subsidiary to that played by Accused No. 1. The entire
transaction appeared to have been gone through
G because of a deal struck between deceased Harshad
Mehta and Accused No. 1. [Paras 104 and 105) [743-D-F;
744-C-E]
10.4. Accused No. 8 was not in a position to issue
any directions; he being a Scale IV employee. He
H
'-
SUDHIR SHANTILAL MEHTA v. C.B.I.
697
therefore could not be said to be guilty of the offence of A
Criminal Breach of trust. The judgment of acquittal
recorded by the Special Judge as regards the Accused
No. 8 is not interfered with. [Para 106] [744-F-G]
11.1. Criminal conspiracy is an independent offence. 8
It is punishable independent of other offences; its
ingredients being:- an agreement between two or more
persons; the agreement must relate to doing or causing
to be done either (a) an illegal act; (b) an act which is not
illegal in itself but is done by illegal means. It is now, C
however, well settled that a conspiracy ordinarily is
hatched in secrecy. The court for the purpose of arriving
at a finding as to whether the said offence was committed
or not may take into consideration the circumstantial
evidence. While however doing so, it must bear in mind
that meeting of the minds is essential; mere knowledge D
or discussion would not be. [Para 107) [744-H; 745-A-C)
Yogesh @ Sachin Jagdish Joshi v. State of Maharashtra
(2008) 6 SCALE 469; Nirmal Singh Kahlon vs. State of
Punjab & Ors. (2008) 14 SCALE 639; Ram Lal Narang vs.
E
State (Delhi Administration (1979) 2 SCC 322, referred to.
Chaman Lal & Ors. v. State of Punjab & Ors. JT 2009
(4) SC 662; K.R. Purushothaman vs. State of Kera/a (2005)
12 SCC 631; P.K. Narayanan vs. State of Kera/a (1995) 1 F
sec 142, relied on.
11.2. Offence was committed purely for the benefit of
Harshad Mehta. He was the prime beneficiary. He made
_,
elaborate plans to obtain liquid cash for a short period
with a view to enable him to make investments in the G
security market so that he could obtain quick returns. He
involved a few Nationalized Banks in the process.
Prosecution sought to establish the offence of
conspiracy from the evidence of P.W. 44, P.W. 45 and
P.W. 7. The conduct of Growmore and Mazda in passing H
698
SUPREME COURT REPORTS [2009] 12 S.C.R.
A the resolution for opening the accounts even before the
alleged purchase of shares by them from JH Mehta who
had drawn the bills of exchange raise doubt about the
bona fide of the entire transaction. [Para 111 and 112] [7 47G-H; 748-C-D; 748-A]
B
11.3. Both Accused 1 and Accused 2 played a major
role in arranging the entire transaction. In fact had it not
been for Accused No. 1, it would not have been possible
for Harshad Mehta or his associates to take the Bank for
c
a ride and unlawfully utilize the funds of the bank. With a
view to achieve the said object, neither the RBI directions
requiring bills of exchange to satisfy the tests of bona fide
commercial or cash transactions were complied with nor
the procedure laid down under the UCO Bank Manual
were followed. The power of the Chairman for investment
D in shares is upto Rs. 10 crore. His power in regard to bill
discounting is only upto Rs.5 crore. So far as other
>
accused are concerned, namely Accused No.3, Accused
No. 4 and Accused 5, they were not only residing at the
same place but Accused No. 4 and Accused 5 were men
E of trust of Harshad Mehta. A power of attorney had been
executed in their favour. [Paras 114 and 117] [750-C-D;
750-E-F]
~
•
12. The Board of Directors of Growmore had by their
F
resolution dated 14th March, 1992 authorized Accused 4
and 5 to seek bill discounting facility from UCO Bank to
the limit of Rs. 50 crores. The apl?lication for opening the
account of Growmore at Nariman point was signed by
Accused No. 4. Further on behalf of Growmore the Bill of
"'
G
exchange was accepted by Accused No. 4. Not only this
but the letter dated 24.3.1992 addressed to UCO Bank by
Growmore undertaking to repay the amount by 24.4.1992
was also signed by Accused No. 4. Legally the Bank
would be concerned only with M/s JH Mehta. But the letter
of Growmore signed by Accused No. 4 clearly indicates
H his involvement in the criminal conspiracy. So far as
SUDHIR SHANTILAL MEHTA v. C.8.1.
699
Accused No. 5 is concerned, it is he who had signed the
A
,
--t
Bill of Exchange as the Power of attorney of the
proprietors of M/s JH Mehta. It is he who had signed the
forms for opening the account with the Nariman Point
Branch of UCO Bank. He had signed the letter dated
23.3.1992 requesting the Bank to discount the two bills
B
of Exchange. The relationship between the parties both
personal and professional clearly establishes criminal
conspiracy on the part of Accused No. 5. The decision
~
of the special judge holding Accused No. 5 guilty of the
offence of criminal conspiracy is affirmed. Accused Nos. c
6, 7 and 9 did not prefer appeals challenging their
conviction. There is no reason to interfere with the
judgment of conviction arrived at by the Special Judge
with respect to the said accused. However the
conclusions arrived at by the Special Judge with regard
D
(
to the guilt of Accused No. 8 for the offence of Criminal
Conspiracy is not upheld. The mere fact that he may be
present at the meeting dated 14.3.1992 of the officers of
UCO Bank by ,itself does not conclusively prove his
involvement in the conspiracy hatched by the other E
· officers of the Bank. Something more was needed to be
shown that he was a party thereto. [Paras 118 and 121]
,<
[750-G-H;.!51-A-B; 751-B-D; 751-E; 751-E-G]
•
Case Law Reference~
AIR 1960 SC 610
relied on
Para 38
F
(1991) 3 sec 617
relied on
Para 38
(2007) 3 sec 124
relied on
Para 39
c2001) 8 sec 257
referred to
Para 42
G
t
(2004) 11 sec 456
referred to
Para 43
c2001) 3 sec 11
relied on
Para 44
(1994) 5 sec 213
referred to
Para 53
H
700
SUPREME COURT REPORTS [2009] 12 S.C.R.
A
(2002) 1 sec 367
referred to
Para 53
1997 (10) sec 488
held inapplicable Para 58
AIR 1977 MP 68
referred to
Para 64
B
(2008) 6 SCALE 469
referred to
Para 108
(2008) 14 SCALE 639
referred to
Para 109
JT 2009 (4) SC 662
relied on
Para 109
(2005) 12 sec 631
relied on
Para 110
c
(1995) 1 sec 142
relied on
Para 110
CRIMINAL AP PELLA TE JURISDICTION : Criminal Appeal
No. 905 of 2005.
D
From the Judgment & Order dated 09.06.2005 of the
Special court (Trial of Offences Relating to Transactions in
>
Securities) at Bombay in Special Case No. 1 of 1993.
WITH
E
Crl. A. Nos. 922, 925, 945 & 965 of 2005.
Bishwajit Bhattacharyya, V.A. Mohta, Kamini Jaiswal, P.S.
~
Narasimha, Amit Sharma, Rohit Rao, Rosh Mani, Anupam Lal
•
Das, Debashi~ Mukherjee, Ajay Singh, Ravindra Kumar, E.C.
F Ag rawala. f6r the Appellant.
...
Ai. Mariarputham, A. Subba Rao, Aruna Mathur, C.V.
Subba Rao, T.A. Khan, B.K. Prasad, P. Parmeswaran, for the
Respondents.
-
G
The Judgment of the Court was delivered by
S.B. SINHA, J.
INTRODUCTION
H
1. These appeals arise out of a judgment and order dated
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 701
-f
9.6.2005 passed by the learned Judge, Special Court, Bombay
A
constituted under the Special Court (Trial of Offences Relating
to Transactions in Securities) Act, 1992 (for short, "the said
Act") in Special Case No. 1 of 1993 whereby and whereunder
appellants herein with accused Munipally Subramanium
Eshwar Chandra (Accused No. 6), Sunil Samtani (Accused No.
B
7) and Pankaj Brijlal Shah (Accused No. 9) were convicted for
commission of offences punishable under Sections 409 and
120B amongst others and sentenced as under:
~·
(a) Accμsed No. 1, K. Margabanthu was sentenced to c
undergo R.I. for a period of six months and to pay fine of ·
Rs.1,00,000/-, in default S.I. for two months.
(b) Accused No. 2, Ramaiya Venkatkrishnan was
sentenced to undergo RI. for three months and to pay fine
of Rs.50,000/-, in default S.I. for 15 days .
D
.t
"
(c) Accused No. 4, Ashwin Mehta was sentenced to
undergo RI. for a period of three months and to pay fine
of Rs. 2,00,000/-, in default S.I. for one month.
(d) Accused No. 5, Sudhir Mehta was sentenced to
E
>
undergo RI. for a period of three months and to pay fine
fl'
of Rs.2,00,000/-, in default S.I. for one month.
(e) Accused Nos. 6, Munipally Subramanium Eshwar
...
Chandra, Accused No. 7 Sunil Samtani, Accused No. 9
F
Pankaj Brijlal Shah were directed to pay fine in the amount
of Rs.25,000/- each, in default S.I. for 15 days.
(f) Accused No. 8, S.V. Ramanathan was sentenced to
undergo R.I. for a period of one month and to pay fine of G
t
Rs. 25,000/- in default R.I. for 15 days.
2. Before proceeding further, we may place on record that
Harshad Shantilal Mehta (Original Accused No. 3) expired
during the pendency of the criminal proceedings and the case
H
·.
702
SUPREME COURT REPORTS [2009] 12 S.C.R.
A against him, thus, abated. Accused Nos. 1, 2 and 8 who are
appellants in Criminal Appeal Nos. 945, 965 and 922 of 2005
respectively were the Chairman-cum-Managing Director, the
General Manager and the Divisional Manager of UCO Bank
respectively.
B
3. Whereas Accused No. 1 and 2 have been found guilty
of committing both Criminal Breach of Trust as well as Criminal
Conspiracy, Accused No 8, being a Scale IV Bank employee
was found guilty only for commission of the offence of criminal
c conspiracy. Accused Nos. 4 and 5 (hereinafter referred to as,
"the private accused") were found guilty of commission of
offences only under Section 120B of the Indian Penal Code
being related to and otherwise connected with the activities of
the original accused No. 3. Accused Nos. 6, 7 and 9 on whom
only a punishment of fine was imposed accepted the judgment
D and have not preferred any appeal before this Court.
)
BACKGROUND FACTS
_.
4. The prosecution case centers around transactions, of
E
discounting and rediscounting of Bills of Exchange and two Pay
Orders issued by the State Bank of Patiala and Syndicate
Bank, in favour of the UCO Bank. This was said to be at the
instance of the private accused.
..
..
5. Harshad Mehta was a dealer in the money and
F securities market. The Reserve Bank of India had found that
Harshad Mehta along with his other associates had diverted a
huge amount of public fund belonging to Public Sector Banks
and Financial Institutions for short term investment in the
securities market, and thus defrauded the banks of a huge
-
G amount.
6. An Inquiry Committee was thereafter constituted under
the Chairmanship of Shri Janakiraman. The Committee
submitted its report; pursuant to and in furtherance whereof the
said Act was enacted providing inter alia for the constitution of
H a Special Court for trial of the criminal offences, as also civil
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 703
--+
disputes arising therefrom during the period between 1.4.1991
A
and 6.6.1992. The said Act provides for the appointment of a
Custodian for attaching the properties of notified parties to
prevent diversion of such properties. The properties which were
attached included shares of various companies as well as
moveable and immoveable properties of the private parties
B
herein.
7. Accused No. 1 being Chairman-cum-Managing Director
of the UCO Bank used to sit in the Head Office of the Bank
situated atCalcutta. The Bank has an office and a guest house c
at Bombay as well.
8. On or about 14th March 1992, Accused No. 1 visited
Harshad Mehta. Thereafter he came back to his office and
called a meeting in which, inter alia, four Prosecution Witnesses
being Shri S.V. Prabhu, Assistant General Manager (PW 44),
D
"'
Shri Bhaskar Roy Choudhary, Dy. General Manager (PW-45),
•
Shri Ramanathan, Divisional Manager (Accused No. 8) and
Shri R.L. Joshi, Public Relations Officer (PW 7) participated.
9. Accused No. 1 allegedly informed others that he had
met Harshad Mehta who had suggested that it would be in the
E
interest of the Bank to undertake the business of discounting
).:_
and rediscounting of Bills of Exchange.