# VINAYAK NARAYAN DEOSTHALI v. C.B.I

- **Citation:** [2014] 12 S.C.R. 308
- **Court:** Supreme Court of India
- **Decided:** 2014-12-02
- **Case number:** Criminal Appeal No. 346 of 2004
- **Bench:** Sudhansu Jyoti Mukhopadhaya, Adarsh Kumar Goel
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/vinayak-narayan-deosthali-v-c-b-i-29549
- **Pages:** 29

## Headnote

Special Court (Trial of offences relating to Transactions
C in Securities) Act, 1992: s.10 - Allegation of diversion of
public funds belonging to certain public sector banks and
financial institutions by employees of such banks and financial
institutions in collusion with some brokers - Conviction of
appellant-bank manager ulss. 120-8, 409, 467, 471 /PC and
D ss. 13(1)(c) and (d) of Prevention of Corruption Act, 1988 by
special court -
Held: Action of appellant involved
unauthorised conversion of public funds to private funds of
an individual - Mens rea was established from the f?ct that
false bank receipts were issued for non-existent securities -
·E Diversion of public funds by appellant by committing forgery/
use of forged documents amounted to criminal breach of trust
as well as offence under POC Act - Conviction upheld.
Disposing of the appeal, the Court
F.
HELD: 1. The facts are undisputed and clearly stand
established on the record : (i) The EEPC is functioning
under the control of Ministry of Commerce to help export
of engineering goods and services. It was operating
International Price Reimbursement Scheme with a view
G to neutralize the price of Steel for domestic exporters. It
had funds for disbursement. Further it had funds on
account of sale o.f office. IPRS was being operated by PW
3. He made a deposit of a sum of Rs.7.75 crores with the
UCO Bank by way of three cheques in favour·of the UCO
H·
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VINAYAK NARAYAN DEOSTHALI v. C.B.I.
. 309
Bank~ (iij The appellant acting as Assistant Manager of A
the UCO Bank transferred the amount to the account of
Mehta which was apparently in collusion with Mehta
without any authority by EEPC. He issued Bank Receipts
in lieu of. physical delivery of securities without such
securities being in existence. (iii) The EEPC never B
instructed purchase of securities through Mehta nor
allowed'the transfer .of the amount in question to Mehta
but the EEPC was made to sign documents under a
mistal(en belief at the instance of the appellant. PW-3, who
represented the EEPC fully supported the prosecution c
version of having made deposit with the Bank and
having not authorized the diversion of the said amount
in favour of any private party. The said evidence has been
duly accepted by the Special Court. The appellant
unauthorisedly credited the amount to Mehta's account o
by abusing his position in conspiracy with Mehta. The
accused also issued bank receipts for security
transactions without physical existence of securities
which amounted to forgery. It is thus, safe to infer the
abuse of position by the accused-appellant in conspiracy E
with and to the benefit of Mehta. Diversion of public funds
by the accused amounted to criminal breach of trust by
committing forgery/use of forged documents as well as
offence under the provisions of the Corruption Act. PW10 and PW-12, who were maintaining· register for sale and
· purchase of securities could not show that the securities F
in question were physically available with the Bank when
the bank receipts were issued by the accused which
could be done only if securities were available. The
Special Court thus rightly held the charge to be proved.
It was not necessary to prove that the accused had G ·
derived any benefit or caused any loss to the Bank. The
fact remains that action of the appellant involved
unauthorized conversion of public funds to private funds
of an individual. Issuing of Bank receipts for securities
H
310
SUPREME COURT REPORTS
[2014] 12 S.C.R.
A without existence of securities could not be justified
except for illegal benefit to a private individual. Patent
illegality cannot be defended in the name of practice or
direction of higher authorities. Mens rea is established
from the fact that false Bank Receipts were issued for nonB existent securities. Thus, the offences of conspiracy,
forgery, misappropriation and corruption stand
established. [Paras 14, 15 and 16] [332-A-H; 333-A, E]
Ram Narayan Popli vs. Central Bureau of Investigat

## Text

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A
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[2014] 12 S.C.R. 3os
VINAYAK NARAYAN DEOSTHALI
v:
C.B.I.
(Criminal Appeal No. 346 of 2004)
DECEMBER 02, 2014
[SUDHANSU JYOTI MUKHOPADHAYA AND
ADARSH KUMAR GOEL, JJ.]
Special Court (Trial of offences relating to Transactions
C in Securities) Act, 1992: s.10 - Allegation of diversion of
public funds belonging to certain public sector banks and
financial institutions by employees of such banks and financial
institutions in collusion with some brokers - Conviction of
appellant-bank manager ulss. 120-8, 409, 467, 471 /PC and
D ss. 13(1)(c) and (d) of Prevention of Corruption Act, 1988 by
special court -
Held: Action of appellant involved
unauthorised conversion of public funds to private funds of
an individual - Mens rea was established from the f?ct that
false bank receipts were issued for non-existent securities -
·E Diversion of public funds by appellant by committing forgery/
use of forged documents amounted to criminal breach of trust
as well as offence under POC Act - Conviction upheld.
Disposing of the appeal, the Court
F.
HELD: 1. The facts are undisputed and clearly stand
established on the record : (i) The EEPC is functioning
under the control of Ministry of Commerce to help export
of engineering goods and services. It was operating
International Price Reimbursement Scheme with a view
G to neutralize the price of Steel for domestic exporters. It
had funds for disbursement. Further it had funds on
account of sale o.f office. IPRS was being operated by PW
3. He made a deposit of a sum of Rs.7.75 crores with the
UCO Bank by way of three cheques in favour·of the UCO
H·
308
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
. 309
Bank~ (iij The appellant acting as Assistant Manager of A
the UCO Bank transferred the amount to the account of
Mehta which was apparently in collusion with Mehta
without any authority by EEPC. He issued Bank Receipts
in lieu of. physical delivery of securities without such
securities being in existence. (iii) The EEPC never B
instructed purchase of securities through Mehta nor
allowed'the transfer .of the amount in question to Mehta
but the EEPC was made to sign documents under a
mistal(en belief at the instance of the appellant. PW-3, who
represented the EEPC fully supported the prosecution c
version of having made deposit with the Bank and
having not authorized the diversion of the said amount
in favour of any private party. The said evidence has been
duly accepted by the Special Court. The appellant
unauthorisedly credited the amount to Mehta's account o
by abusing his position in conspiracy with Mehta. The
accused also issued bank receipts for security
transactions without physical existence of securities
which amounted to forgery. It is thus, safe to infer the
abuse of position by the accused-appellant in conspiracy E
with and to the benefit of Mehta. Diversion of public funds
by the accused amounted to criminal breach of trust by
committing forgery/use of forged documents as well as
offence under the provisions of the Corruption Act. PW10 and PW-12, who were maintaining· register for sale and
· purchase of securities could not show that the securities F
in question were physically available with the Bank when
the bank receipts were issued by the accused which
could be done only if securities were available. The
Special Court thus rightly held the charge to be proved.
It was not necessary to prove that the accused had G ·
derived any benefit or caused any loss to the Bank. The
fact remains that action of the appellant involved
unauthorized conversion of public funds to private funds
of an individual. Issuing of Bank receipts for securities
H
310
SUPREME COURT REPORTS
[2014] 12 S.C.R.
A without existence of securities could not be justified
except for illegal benefit to a private individual. Patent
illegality cannot be defended in the name of practice or
direction of higher authorities. Mens rea is established
from the fact that false Bank Receipts were issued for nonB existent securities. Thus, the offences of conspiracy,
forgery, misappropriation and corruption stand
established. [Paras 14, 15 and 16] [332-A-H; 333-A, E]
Ram Narayan Popli vs. Central Bureau of Investigation
c
(2003) 3 sec 641: 2003 (1) SCR 119 - relied on.
Case Law Reference:
2003 (1) SCR 119
relied on
Para 4
CRIMINAL APP ELLA TE JURISDICTION : Criminal f\ppeal
D No. 346 of 2004.
E
From the Judgment & Order dated 20.01.2004 Special
Court (Trial of Offences Relating to transaction in Securities)
Act, 1992 in Case No. 1 of 1997 in R.C. No. 9 (BSC)/94/Bom.
Kamini Jaiswal, Dhiraj Mirajakar, S. Altaf for the Appellant.
'
..
Chetan Chawla, T.A. Khan, B.V. Balramdas, Arvind Kumar
Sharma for the Respondent. .
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The Judgment of the Court was delivered by ·
ADARSH KUMAR GOEL, J. 1. This appeal has been
preferred under Section 10 of the Special Court (Tri'al of
Offences relating to Transactions in Securities) Act, 1992 (for
short "the Special Court") against the Judgment and Order
G dated 20th January,, 2004 passed by the Special Court
constituted under the sai_d Act in Special Case No.1 of 1997
in R.C. No.9 (BSC)/94/BOM.
2. In the wake of report of enquiry committee constituted
H by the Reserve Bank of India under the Chairmanship of Shri
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
311
[ADARSH KUMAR GOEL, J.]
Janki Raman to enquire into the allegation of unauthorized
A
diyersion of public funds belonging to certain public sector
banks and financial institutions by employees of such banks and
institutions in collusion with some brokers, the Act was enacted
for constitution of a Special Court for trial of criminal offences
in respect of transactions during the period 1st April, 1991 to
B
6th June, 1992 as provided under the Act. The object of the
Act was speedy recovery of public money all<!gedly diverted
in security transactions and to punish the guilty and to restore
confidence and credibility of the banks and the financial
institutions.
C
3. The Special Court was to try notified persons jointly with
other connected persons. One of such named persQns was the
broker- Harshad S. Mehta who died during the trial. The
appellant was Assistant Manager of the UCO Bank, Hamam
Street Branch who was jointly tried with Mehta on the allegation
D
that during the period 12th March, 1991 to 24th April, 1991,
he diverted funds of the Engineering Export Promotion Council
(for short "EEPC'.') amounting to Rs.7.75 crores to the private
account ·Of Harshad S. Mehta. Though the said funds were
transferred back to the EEPC, conduct of the appellant
E
amounted to offences under Sections 120-B, 409, 467, 471 of
the Indian Penal Code and Sections 13(1 )(c) and (d) of the
. Prevention of Corruption Act, 1988.
·
4. The ch_arge has been held proved by the Special Court.
F
It may be noted that the appellant's conviction by the Special
Court for abusing .his official position in relation to five other
transactions involving diversion of funds to the account of late
Mehta, has been earlier upheld by this Court in Criminal Appeal
No.1141 of 1999 decided on 14th January, 2003 reported in
G
Ram Naravan Popli vs. Central Bureau of lnvestigation1
We also find reference to the conviction of the appellant by the
Special Court in two other cases giving rise to the filing of
1.
(2003) 3 sec 641.
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SUPREME COURT REPORTS
[2014] 12 S.C.R.
A Criminal Appeal No.687 of 2006 and Criminal Appeal No.335
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of 200q ii) this Court.
'
5. In the present ca~e. charg'es against the appellant as
framed by the Special Court are as follows :
"FIRSTLY: That during the period from August, 1990 to
April 1991, you the accused abovenamed, working as
Assistant Manager, UCO Bank, Hamam Street Branch,
Mumbai did enter into a criminal conspiracy with Harshad
Shanti/al Mehta, original accused No. 1 (since deceased),
a Share, Stock and Securities Broker, Mumbai, the object
whereof was to illegally divert the funds of Engineering
Export. Promotion Council (EEPC) to the extent of
Rs. 7.75 crores to the Current Account No.1028 of the
aforesaid Harshad Shanti/a/ Mehta (since deceased),
maintained with UCO Barik, Hamam Street Branch,
Mumbai, in the name of Mis Harshad S. Mehta, and
thereby to obtain undue pecuniary advantage to the said
Harshad Shanti/al Mehta (since deceased), by you the
accused abovenamed misusing your official position as
a Public SeNant by corrupt or illegal means, under the
garb of Securities transactions, camouflaging the same
as if the transactions were of UCO Bank, while knowing
· or having reason to believe that the transactions were in
fact of the said Harshad Shanti/al Mehta and that you
thereby committed an offence punishable under Section
120-B of the Indian Penal Code and· within my
cognizance.
SECONDLY: That in pursuance of the said criminal
. conspiracy and in the course of the same transaction, on
or about 123, 1991, the said Harshad Shanti/al Mehta
(since deceased), while purporting to act as a Broker of
UCO Bank, dishonestly issued two contract notes to
EEPC, Mumbai, showing purchase of 692 /akh units of
UNITS HJ64 Scheme at Rs.14.4585 per unit on ready
forward basis for the sale of the same securities on
VINAYAK NARAYAN DEOSTHALI v. C.B.L
313
[ADARSH KUMAR GOEL, J.)
22.03.1991 on their behalf at Rs.14.50628 per unit as
A
also issued false Delivery Orders to the EEPC instructing
them to receive the delivery of the aforesaid securities
from UCO Bank and also issued another Delivery Order
of even date to UCO Bank to deliver the said securities
to EEPC knowing or having reason to believe that UCO
B
Bank could not deliver the said securities to EEPC in the
absence of the UCO Bank holding any such securities
on account of the said Harshad Shanti/al Mehta (since
deceased) and in furlherance of the said conspiracy, and
during the course of the same transaction, you the C
accused abovenamed, being a Public Servant, and
having been entrusted with the funds or dominion over
the funds of or under the control of UCO Bank, Hamam
Street Branch, Mumbai, dishonestly issued a Cost Memo
dated 12.03.1991 in respect of the aforesaid sale of the
0
said securities for a total sum of Rs.99,99,988.20,
knowing or having reason to believe that UCO Bank had
no such transaction with EEPC and also committed the
offence of forgery by issuing BR N0.111191 of UCO
Bank on the instructions of the said Harshad Shanti/a/
Mehta (since deceased) knowing or having reason to
E
believe the same to be false document, by fraudulently
signing and issuing the said BR, knowing or having
reason to believe that the said BR was not backed by
securities, and in consideration thereof having received
Bankers Cheque No.054053 dated 12.03.1991 drawn on
F
State Bank of India, Cuffe Parade Branch, Mumbai, from
EEPC for Rs. 1 crore issued in favour of UCO Bank,
obtained ·undue pecuniary advantage in favour of the
said Harshad Shanti/al Mehta (since deceased), without
any public interest and committed Criminal Misconduct G
by crediting the proceeds of the said Cheque directly into
the Current Account No.1028 maintained by the said
Harshad Shanti/al Mehta (since deceased) in the name
of Mis Harshad S. Mehta with UCO Bank, Hamam Street
Branch, Mumbai without any instructions in that behalf
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SUPREME COURT REPORTS
[2014] 12 S.C.R.
from the issuing Bank, and in furtherance of the said
criminal conspiracy and during the course of the same
transaction you the accused abovenamed dishonestly
received the credit of the said amount knowing or having
reason to believe the same to be stolen property viz, the
property in respect of which an offence of Criminal
breach, of Trust had been committed and that you
thereby committed offences punishable under Section
120B of the Indian Penal Code read with Sections 409,
411, 467, 471 of the l.P.C. and sections 13(2) read with
13(1)(c) and 13(1)(d) of the Corruption Act, 1988 and
within my cognizance.
THIRDLY: That in pursuance of the said criminal
conspiracy -
and during the course of the same
transaction, on or about 12.03.1991 you the accused
abovenamed, acting in your official capacity as Assistarit
Manager, UCO Bank, Hamam Street Branch Mumbai,
dishonestly and fraudulently issued_ a UCO Bank Cost
Memo dated 12.03.1991 in respect of the aforesaid
ostensible sale of the said securities for a total sum of
Rs.99,99,980.20, knowing or having reason to believe
that UCO Bank had no such transaction with EEPC and
further, 'dishonestly issued UCO Bank BR No.111191
favouring EEPC knowing or having reason to believe that
the same was not backed with securities and that you the
accused abovenamed thereby committed an offence
punishable under Section 120-B read with Section 467 ·
of the Indian Penal Code and within my cognizance.
FOURTHLY: That in pursuance of the said criminal
conspiracy and during' the course of the same
transaction, on or about 12.03.1991 you the accused
abovenamed used the abovesaid forged BR No.111191
a genuine by forwardfng the same to EEPC and that you
thereby committed an offence punishable under Section
120-8 read with Section 467 read with 471 of the Indian
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
315
[ADARSH KUMAR GOEL, J.]
Penal Code and within my cognizance.
A
FIFTHLY: That in pursuance of the said criminal
conspiracy and during the course. of (he same
transaction, on or about 12.03.1991, you the accused
abovenamed, being a Public Servant and working your
B
capacity as Assistant Manager, UCO Bank, Hamam
Street Branch, Mumbai, and in such capacity having
been entrusted with the funds or dominion over the funds
of or under the control of UCO Bank, Hamam Street
Branch, Mumbai, having received an Account Payee C
Banker's Cheque No.054053 payable to UCO Bank and
drawn on the State Bank of India, Cuffe Parade Branch,
Mumbai, for an amount of Rs. 1 crore, in violation of
express or implied contract touching the mode of
discharge of such trust, credited the same directly into
the Current Account No.1028 maintained by the said D
Harshad Shanti/al Mehta (since deceased) in the name
of Mis Harshad S. Mehta, with UCO Bank, Hamam Street
Branch, Mumbai, without any instructions in that behalf
from the issuing Bank, and that you thereby committed
an offence punishable under Section 120-B read with
E
Section 409 of. the Indian Penal Code and within my
cognizance.
SIXTHLY: That in pursuance of the said criminal
conspiracy and during the course of the same
F
transaction, on or about 12.03.1991; you the accused
. abovenamed, being a Public Servant, by abusing your
official position as Assistant Manager, UCO Bank,
Hamam Street Branch, Mumbai and by corrupt or illegal
means, having received an Account Payee Banker's G
cheque No.054053 for Rs. 1 crore, payable to UCO Bank
drawn on State Bank of India, obtained for the said
Harshad Shanti/a/ Mehta (since deceased) obtained
undue pecuniary advantage without any public interest,
and committed criminal misconduct by illegally crediting
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316
SUPREME COURT REPORTS
(2014] 12 S.C.R.
the proceeds of the said cheque directly into the Current
Account No.1028 maintained by the said Harshad
· Shanti/al Mehta (since deceased) with UCO Bank,
Hamam Street Branch, Mumbai, in the name of Mis
Harshad S .• Mehta without any instructions in that behalf
from the issuing Bank, and that you thereby committed
an offence punishable under Sec_tion 120-B of the Indian
Penal Code read with Section 13(2) read with Sectin
13(1)(d) of the Prevention of Corruption Act, and within
my cognizance.
SEVENTHL Y: That in pursuance of the said criminal
conspiracy and during the course of the same
transaction, on or about 12.03.1991, you the accused
abovenamed, being a Public SeNant, by abusing your
official position as Assistant Manager, UCO Bank,
Hamam Street Branch, Mumbai having received an
Account Payee Bankers Cheque No. 054053 for Rs. 1
crore, payable to UCO Bank drawn oh State Bank of
India, dishonestly misappropriated the said funds by
crediting the proceeds of the said cheque directly into the
Current No: 1028 maintained by the said Harshad
Shanti/al Mehta (since deceased), with UCO Bank,
Hamam Street Branch, Mumbai, in the name of Mis
Harshad S. Mehta, without any instructions in that behalf
from the. issuing Bank, and that you thereby committed
and offence .punishable under Section 120-B of the
Indian Penal Code read with Section 13(2) read with
13(1)(c) of the Prevention of Corruption Act, and within
· my cognizance.
EIGHTHL Y: That in pursuance of the said criminal
conspiracy and during the course of the same
transaction, on or about 23.04.1991, the said Harshad
Shanti/al Mehta (since deceased), while purporting to act
as Broker for UCO Bank, dishonestly issued two Contract
Notes to EEPC, Mumbai, showing, purchase of 35 /akh
VINAYAK NARAYAN DEOSTHALI v. C.B.L
317
[ADARSH KUMAR GOEL, J.]
units of UNITS 1964 Scheme at Rs.1500 per unit on A
ready forward basis for the sale of the same securities on
08.05.1991 on their behalf at Rs. 15.11096 per unit and
also issued false Delivery Orders to the EEPC instructing
them to receive the delivery of the aforesaid securities
from UCO Bank and also issued another Delivery Order B
of even date to UCO Bank to deliver the said securities
to EEPC knowing or having reason to· believe that UCO
Bank could not deliver the said securities to EEPC in the
absence Of the UCO Bank holding any such securities
on account of the said Harshad Shanti/al Mehta (since c
deceased), and in furtherance of the said conspiracy, and
during the course of the same transaction, you the
accused abovenamed being a Public Servant, and
having been entrusted with the funds or dominion over .
the funds of or under the control of UCO Bank, Hamam 0
Street Branch, Mumbai, dishonestly issued A Cost. Memo
dated 23.04.1991 in respect of the aforesaid sale of the
~aid securities for a total sum of Rs.5.25 crores, knowing
or having reason to believe that UCO Bank had no such
transaction with EEPC and also committed. the offence
of Forgery by issung BR No.153191 of UCO Bank on the
E
instructions of the said Harshad Shanti/al Mehta (since
deceased) knowing or having reason to believe the same
to be false document by fraudulently signing and issuing
the said BR knowing or having reason to believe that the
said BR was not backed by securities, and in F
consideration thereof having received Banker's Cheque
No.054337 dated 23.04:1991 drawn on State Bank of
India, Cuffe Parade Branch, Mumbai, from EEPC for
Rs.5.25 crores in favour of UCO Bank obtained undue
pecuniary advantage in favour of the said Harshad G
Shanti/al Mehta (since deceased) without any public
interest and committed criminal misconduct by crediting
the proceeds of the said Cheque directly into the Current .
Account No. 1028 maintained by the said Harshad
Shanti/al Mehta (since deceased) in the name of Mis H
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SUPREME COURT REPORTS
[2014] 12 S.C.R.
A·
Harshad S. Mehta with UCO Bank, Hamam Street
Branch, Mumbai, without any instructions in that behalf
from the issuing Bank, and that you thereby committed
offence punishable underSection 120-B of the Indian
Penal Code read with Sections 409, 471 of the Indian
B
Pena/ Code and Sections ,13(2) read with 13(1)(c) and
13(1 )(d) of the Prevention of Com:Jption Act, and within my
cognizance.·
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NINTHL Y: That in pursuance of the said criminal
conspiracy and during the course of the same
transaction, on or about 23.04.1991, you the accused
abovenamed acting in yours official capacity as Assistant
Manager, UCO Bank, Hamam Street Branch, Mumbai,
dishonestly and fraudulently issued a UCO Bank Cost
Memo dated ·23.04.1991 in respect of the aforesaid
ostensible sale of the said securities for a total sum of
Rs.5.25 crores, knowing or having reason to believe that
UCO Bank had no such transactioo with EEPC and
further dishonestly issued UCO Bank BR No.153191
favouring EEPC or having reason to believe that the
same was not backed with securities and that you the
accused abovenamed thereby committed an offence
punishable under Section 120-B read with Section 467
of the Indian Penal Code and within my cognizance.
TENTHLY: That in pursuance of the said criminal
conspiracy and during the course of the same
transaction, on or about 23.04.1991, you the accused
"abovenamed used the a/5ovesaid forged BR No.153191
as genuine by forwarding the same to EEPC and that you
thereby committed an offence punishable under Section
120-B read with Section 467 read with Section 471 of.the
Indian Penal Code and within my cognizance.
ELEVENTHL Y: That in pursuance of the said criminal
conspiracy and d.uring the course of the same
H
transaction, on -or about 23.04.1991 you the accused
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
319
[ADARSH KUMAR GOEL, J.]
abovenamed, being a Public SeNant and working in your A
capacity as Assistant Manager, UCO B9nk, Hamam
Street Branch, Mumbai, and in such capacity having
been entrusted with the funds or dominion over th.e funds
of or under the control of UCO Bank, Hamam Street
Branch, Mumbai, having received an Account Payee B
Banker's Cheque No. 054337 payable UCO Bank and
drawn on the State Bank of India, Cuffe Parade Branch,
Mumbai, for an amount of Rs.5.25 crores, in violation of
express or implied contract touching the mode of
discharge of such trust, credited the same directly. into c
the Current Account No.1028 maintained by the said
Harshad Shanti/al Mehta (since deceased) in the name
of Mis Harshad S. Mehta, with UCO Bank, Hamam Street
Branch, Mumbai, without any instructions in that behalf
from the issuing Bank, and that you thereby. committed 0
an offence punishable under Section 120-B read with
Section 409 of the Indian Penal Code and within my
cogni1ance,
TWELTHL Y: That in pursuance of the said criminal
conspiracy and during the course of the same E
transaction, on or about 23.04.1991 you that accused
abovenamed, being a Public SeNant, by abusing your
official position as an Assistant Manager, UCO Bank,
Hamam Street Branch, Mumbai, having received an
Account Payee Banker's Cheque No.054337 for Rs.5.25
F
crores payable to UCO Bank drawn on the State Bank of
India, dishonestly misapprqpriated the said funds by
crediting the proceeds of the said cheque directly into the
Current Account No.1028 maintained by the said
Harshad Shanti/al Mehta (since deceased) in the name G
of Mis Harshad S. Mehta; with UCO Bank, Hamam Street
Branch, Mumbai, without any instructions in that behalf
from the issuing Bank, and that you thereby committed
an offence punishable under Section 120-B read with
Section 13(2) read with 13(1) of the Prevention of H
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SUPREME COURT REPORTS
[2014] 12 S.C.R.
Corruption Act, and within my cognizance.
THIRTEENTHL Y: That in pursuance of the said criminal
conspira9y and during the course of the same
trmsaction, ·on or about 23.04.1991 you the accused
; bovenamed, being a Public Servant, by abusing your
:Jfficial positional as an Assistant Manager, UCO Bank,
Hamam Street Branch, Mumbai, having received an
Account Payee Banker's Cheque No. 054337 for Rs.5.25
crores, payable to UCO Bank and drawn on the State
Bank of India, Cuffe Parade Branch, Mumbai,
dishonestly misappropriated the said funds crediting the
proceeds. of the said cheque directly into the Current
Account No.1028 maintained by the said Harshad
Shanti/al Mehta (since deceased) in the name of Mis
Harsf1ad S. Mehta, with UCO Bank; Hamam Street
Branch, Mumbai, without any instructions in that behalf
from .the issuing Bank, and that you thereby committed
an offence punishable under Section 120-~ read with
Section 13(2) read with 13(1)(c) of the Prevention of
Corruption Act, and within my cognizance.
FOURTENTHL Y: That in pursuance of the said criminal
conspiracy and during ·the course of the same
transaction, on or about 24.04.1991 the said Harshad
Shanti/al Mehta (since deceased), while purporting to act
as a Broker of UCO Bank, dishonestly issued to Contract
Notes to EEPC, Mumbai, showing purchase of 10 lakh
units of UNITS 1964 Scheme at Rs.15.00 per unii on
ready forward basis for the sale of the same securities .
on 29.04.1991 on their, behalf at Rs.15.04110 perunit as
also issued false Delivery Orders tp the EEPC instructing
them to receive the delivery of the aforesaid securities
from UCO Bank and also issued another-Delivery Order
, of even date to UCO bank to deliver the said securities
to EEPC knowing or having reason to believe that UCO
Bank could not deliver the said securities to EEPC in the
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
321
[ADARSH KUMAR GOEL, J.]
absence of the UCO bank holding any such securities A
on account of the said Harshad Shanti/al Mehta (since
deceased), and in furtherance of the said conspiracy, and
during the course of the same transaction, you the
accused abovenamed, being a Public Servant, and
having been entrusted with the funds or dominion over B
the funds of or under the Control of UCO Bank, Hamam
Street Branch, Mumbai, dishonestly issued a Cost Memo
dated 24.04.1991 in respect of the aforesaid sale of the
said securities for a total sum of Rs. 1. 50 crores, knowing
or having reason to believe that UCO Bank had no such c
transaction with EEPC and also committed the. offence
of Forgery issuing BR No.16B/91 of UCO Bank on the
instructions of the said Harshad Shanti/al Mehta (since
deceased) knowing or having reason to believe the same .
to be false document by fraudulently signing and issuing 0
the said BR knowing or having reason to believe that the
said BR was not backed by securities and in
consideration thereof having received Banker's Cheuqe
No.054353 dated 24.04.1991 drawn on the State Bank
of India, Cuffe Parade Branch, Mumbai, from EEPC for
Rs. 1 crore issued in favour of the UCO Bank, obtained E
undue pecuniary advantage without any public interest
for the said Harshad Shanti/al Mehta (since deceased)
and committed Criminal Misconduct by crediting the
proceeds of. the said Cheque directly into the Current
Account No.1028 maintained by the said Harshad F
Shanti/al Mehta (since deceased) in the name of Mis
Harshad S. Mehta with UCO Bank, Hamam Street
Branch, Mumbai, without any instructions in that behalf
from the issuing Bank and that you thereby committed
offence punishable under Section 120-B of the Indian· G
Penal Code read with Sections 409, 467, 471 of the
Indian Penal Code and Sections 13(2) read with 13(1)(c)
and 13(1)(d) of the Prevention of Corruption Act, 1988,
and within my cognizance.
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[2014) 12 S.C.R.
FIFTEENTHL Y: That in pursuance of the said criminal
conspiracy and during the course of the same
transaction, on or about 24.04.1991, you the accused
abovenamed, acting your official capacity as Assistant
Manager, UCO Bank, Hamam Street Branch, Mumbai,
dishonestly and fraudulently issued a UCO Bank Cost
Memo dated 24.04.1991 in respect of the aforesaid
ostensible sale of the said securities for a total sum of
Rs.1.50 crores, knowing or having reason to believe that
UCO Bank had no such· transaction with EEPC and
. further dishonestly issued UCO Bank BR No. 168791
favouring EEPC knowing or having reason to believe that
the same was not backed with securities and that you the
accused abovenamed thereby committed an offence
punishable under Section 120-B of the Indian Penal
Code read with Section 467 of the Indian Penal Code and
Within my cognizance.
SIXTEENTHL Y: That in pursuance of the said criminal
conspiracy and during the course of the same
transaction, on or about 24.04.1991 you the accused
abovenamed used the abovesaid forged BR No.168191
as genuine by forwarding the same to EEPC and that you .
thereby committed an offence punishable under Section
120-B read with Section '.467 read with 471 of the Indian
Penal Code and within my cognizance.
SEVENTEENTHL Y: That in pursuance of the said
criminal conspiracy 24. 04. 1991 you the accused
abovenamed, being a Public SeNant and working in your
capacity as Assistant Manager, UCO Bank, Hamam
Street Branch, Mumbai, and in such capacity having
been entrusted with the funds or dominion over the funds
of or under the control of UCO Bank, Hamam Street
Branch, Mumbai, having received an Account Payee
Bankers Cheque No.054353 payable to UCO Bank and
drawn on the State Bank of India, Cuffe Parade Branch,
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
323
[ADARSH KUMAR GOEL, J.]
Mumbai, for an amount of Rs.1.50 crores, in violation of A
express or implied contract touching the mode of
discharge of such trust, credited the same directly into
the Current Account No.1028 maintained by the said
Harshad Shanti/al Mehta (since deceased) in the name
of Mis Harshad S. Mehta; with UCO Bank, Hamam Street B
Branch, Mumbai, without any instructions in that behalf
from the issuing Bank, and that you thereby committed
an offence punishable under Section 120-B of the Indian
Penal Code read with Section 409 of the Indian Penal
Code and within my cognizance.
EIGHTEENTHL Y: That in pursuance of the said criminal
conspiracy 24.04.1991, you that accused abovenamed,
being a Public Servant, by abusing your official position
c
as Assistant Manager, UCO Bank, Hamam Street
Branch, Mumbai, and by corrupt or illegal means having D
received an Account Payee Banker's Cheque No.054353
for Rs.1.50 crores, payable to UCO Bank and drawn on
the State Bank of India, obtained undue pecuniary
advantage without any public interest for the said
Harshad Shanti/al Mehta (since deceased) and E
committed criminal misconduct by illegally crediting the
proceeds of the said cheque directly into the Current
Account No.1028 maintained by the said Harshad
Shanti/al Mehta (since deceased) with UCO Bank,
Hamam Street Branch, Mumbai, in. the name of Mis
F
Harshad S. Mehta, without any instructions in that behalf
from the issuing Bank, and that you thereby committE!d
an offence punishable under Section 120-B of the Indian
Penal Code read with Sections 13(2) read with 13(1)(d)
of the Prevention of Corruption Act, and within my G
cognizance.
NINETENTHL Y: That in pursuance of the said criminal
conspiracy 24.04.1991 you the accused abovenamed,
being a Public Servant, by abusing. your official position H
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[2014] 12 S.C.R.
A
as Assistant Manager, UCO Bank, Hamam Street·
Branch, . Mumbai, having received an Account Payee
Banker's cheque No.054353 of Rs.1.50 crores, payable
· to UCO Bank drawn on State Bank of India, dishonestly
misappropriated the said funds by crediting the proceeds
B
of the said cheque directly into the Current Account
No. 1028 maintained by the s.aid Harshad Shanti/al
Mehta (since deceased) with UCO Bank, Hamam Street
. Branch, Mumbai, in the name of Mis Harshad S. Mehta,
without any instructions in that behalf from the issuing
c
Bank and that you thereby committed an offence
punishable under Section-120B of the Indian Penal
Code read with Section 13(2) read with 13(1)(c) of the
Prevention of Corruption Act, and within my cognizance."
6. The EEPC was set up to promote export of engineering
D
goods and services under the Ministry of Commerce. It was
operating a. scheme called the International Price
Reimbursement Scheme (for short "IPRS") with the object of
neutralizing price of steel for domestic exports at par with the
international market where prices were lesser. The scheme
E
envisaged compensating the exporters by way of
reimbursement of the price difference. The funds received by
the EEPC through Joint Plan Committee ("JPC") were kept with
the State Bank of. India at Calcutta. PW-3, Girish Chandra an
offi~er of EEPC was running the scheme. Apart from the said
F
funds, other source of available funds with the EEPC was sale
of premises at Tardey, Mumbai to shift the office to rented
premises in World Trade Centre which was considered to be
more suitable. Sale proceeds were kept with the State Bank
of India, Cuffe Parade Branch. During the period between 12th
G
March, 1991 and 24th April, 1991, PW-3 issued three cheques
in favour of the UCO bank where the appeilant was posted.
Without instructions from EEPC, the said amount was
transferred to the private account of late Mehta. Though the
EEPC received contract notes and· delivery orders in respect
H
of the three transactions and. the documents were signed by
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
325
[ADARSH KUMAR GOEL, J.]
· PWc3, but this was under a mistaken 'thought that he was merely
A
signing a format prescribed by the Bank. Thus, the appellant'
abused his position in collusion with Mehta resulting in transfer
of public funds to private account of an individual
unauthorisedly. Forged Bank Receipts (BRs) were issued by
the Bank to EEPC in lieu of physical delivery of securities,
B
without such securities being in existence. PW-4, Arup Mohan
Patnaik, an officer of CBI, after investigation, lodged the FIR
on 30th November, 1994. Investigation was further conducted
by PW-13, Mr. S.K. Sareen, Inspector CBI, who collected
documents from EEPC, UCO Bank and State Bank of India and c
also recorded statements of witnesses. He filed charge sheet
against. late Mehta and the appellant.
7. Apart from producing the documents, the prosecution
relied upon the oral evidence of Mr. Chhadisingh-PW-1, Mr.
Maitra-PW-2, Mr. Girish Chandra-PW-3, Mrs. Sudha KubalD
PW-4, Mr. Ankur Gupta-PW-5 and Mr. Babaji Firoz-PW-6, all
of them working with EEPC in the Regional Office at Mumbai
in different capacities; Mr. B.D. Raut-PW-7; Mr. Aarsiwala-PW
8 working with State Bank of India; Mr. Anjaria-PW-9; Mr.
Pinjani-PW-10 and Nilam Keni-PW-12 working with UCO
E.
Bank, Hamam Street Branch, Mumbai, in different capacities ..
Rest of the witnesses are Mr. Jain-PW-11, the Hand Writing
Expert; Mr. Patnaik-PW-14, who lodged the FIR and Mr. S.K.
Sareen-PW-13 is the Investigating Officer and had filed charge
sheet against the accused.
F
The accused led defence evidence and examined DW-1Mr. Atul Manubhai Parekh, who was working in the office of
Harshad Mehta at the relevant time and Mr. Pradeep Anant
Karkhanis-DW-2, who was working in the UCO Bank as a
G'
Senior Manager at the relevant time.
8. Stand of the appellant is that the deposit in the account
of late Mehta was not on account of dishonest intention of the
appellant. The Bank had been offering facility to brokers for
security transactions by charging commission. Transactions
H
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SUPREME COURT REPORTS
[2014] 12 S.C.R.
. I
A were between brokers and "the counter party. All the documents
were prepared in normal course of banking.
·
9. The Special Court rejected the defence of the accused
and held that transfer oi' funds to private account of late Mehta
8 was without any authori2:ation by the EEPC. It was observed:-
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"The entire evidence in this regard has gone
unchallenged, The defence of the accused is, however,
that Hamam Street Branch of UCO Bank was having
such securities transactions on behalf of the clients and
they were going on since 1987, much before he joined
the said branch in 1989. According to him there were
eighteen brokers getting such routine facility. This facility
was temporarily stopped for the period between May, 1991
and March, 1992 and in March, 1992, similar facility was
continued to be given to the brokers. His defence is that
the aforesaid three transactions were between EEPC and
HSM. No contract notes were ever sent to UCO Bank.
The Head Office was aware of such transactions. While
admitting that all the vouchers, cost memos and BRs
related to the aforesaid three transactions were prepared
at his instance in his branch. His defence is that those
were performed in normal course of banking business.
He states that he is innocent and acting as per the
procedure adopted by the bank.
The charge against the accused is that he had conspired
with HSM for diverting the funds of the EEPC, the public
money, to HSM with dishonest and fraudulent intention,
the object of which was to give benefit of such diverted
money to HSM. It is also the charge against the accused
that he had no authority either from the EEPC or from the
Bank Authorities to credit the amount of the aforesaid
three bankers' cheques issued by SB/ in favour of the
UCO Bank, to the HSM's account No. 1028 and, therefore,
the accused had misused his official position as a public
VINAYAK NARAYAN DEOSTHALI v. C.B.I.
327
[ADARSH KUMAR GOEL, J.]
seNant, namely, the Manager in Securities Depaitment A
of Hamam Street Branch of UCO Bank, at Mumbai.
The accused is a/so charged for having issued BR's in
respect of these transactions without there being any
backing of physical securities for issuing such BRs and,
8
therefore, it is alleged that the accused had prepared the
documents like cost memos and BRs by forging them
and by using them as genuine.
Since all the three transactions have been proved having
taken place in the manner aforesaid, it is clear that EEPC C
had transferred their funds from their account in SB/ to
UCO Bank for the purpose of their short term investments.
The evidence of Girish Chandra-PW 3 clearly shows that
as per the instructions and circulars issued by the Central
Government, he had authority to make investments of the o
surplus funds of EEPC, either in nationalized banks or
in Government Securities or Government approved
securities and he had no authority to transfer the funds
of the EEPC for the benefit of any individual, including
HSM. From the aforesaid transactions, it is clear that all E
the three bankers' cheques issued in favour of the UCO
Bank were credited into the account of HSM, being
Account No.1028. The transactions also show that the
accused had issued cost memos against EEPC for the ·
transactions of sale of securities shown therein. When the
F
cheques were received the amount were credited to the
account of HSM. There were instructions under the
delivery notes issued by HSM to the UCO Bank that UCO
Bank should deliver to EEPC certain number of units
1964 scheme, as shown in the delivery orders, at the
indicated rates to UCO Bank. The accused, therefore,
G
had acted as pr the instructions of HSM. However, this
was contrary to the contract notes issued by HSM to
EEPC, which clearly indicated that in all the three
transactions HSM was acting as broker. Indication in the
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[2014] 12 S.C.R.
contract notes is that HSM had purchased certain
number of units of 1964 scheme for and on behalf of the
EEPC and the delivery orders issued to EEPC as also
to UCO Bank, indicated that EEPC has to receive the
said Units from UCO Bank and UCO Bank had to hand
over those units to EEPC. This clearly indic;;ites that
HSM was acting as a Broker and he was not the principal
. nor the counter party to .. those transactions. Even then,
UCO Bank had treated HSM as principal i.e. counter
party having direct .contact with EEPC. The accused,
therefore, credited the amount received from SB/ on
behalf"of the EEPC to the account of HSM. In any event,
the bankers' cheques drawn on SB/, Account EEPC, were
in fact in favour of the UCO Bank only and not in favour
of any other party. Therefore, the accused could only
have credited those amounts under those three cheques
only in UCO Bank account and nobody else's account.
There were apparently no instructions from EEPC in that
behalf. It, therefore, clearly shows the meeting of mind
of the accused and HSM in illegally diverting the EEPC's
funds to HSM's account and giving undue pecuniary
advantage to HSM. Therefore, the prosecution has
established that it is a criminal conspiracy betWeen the
two, the object of which was to illegally divert the funds
of EEPC, totally amounting to Rs. 7. 75 crores to the
current account of HSM in Account No.1028, enabling
the HSM to obtain undue pecun·iary advantage of the
same and that the accused had misused his official
position as public servant by camouflaging the
transaction as securities transaction.
It is also established that the accused issued BRs in lieu
of the physical delivery of securities, when the securities
were not available with the Bank at all.