Brief Facts
- Accused bank/original bank (i.e. LVB) allegedly misappropriated fixed deposit furnished as security by complainant (RFL). RFL had placed four FDs with the combined value of Rs. 750 Crore as security for short term loans. LVB extended loan to RHC holding and RANCHEN utilizing these FDs. Later the RHC defaulted in repaying the loan and LVB debited an amount of Rs. 723.71 Cr. from RFL’s current account without any prior authorization.
- Later the LVB was amalgamated in DBS bank after amalgamation i.e. DBS Bank India Limited
- The DBS Bank India Limited filed the petition for quashing criminal proceeding under section 482 CrPC. However, the High Court rejected the prayer for quashing but stayed the summoning order against DBS Bank till clarification was issued by RBI. Being aggrieved by these orders both the parties preferred appeal before the Supreme Court from the petition.
Issues
- Whether the vicarious criminal liability of the transferor bank can be inherited by the transferee Bank?
- Whether the approval of amalgamation scheme would exonerate the amalgamating bank from its criminal liability? If yes, would it also tantamount to exoneration of errant officials of the amalgamating bank?
Held
- The appeal filed by the DBS Bank was allowed and the criminal proceeding qua the DBS bank was quashed.
- Every scheme of amalgamation is statutory and sanctioned under the Banking Act. Such amalgamation is to ensure that the interests of the depositors, the creditors and others who had invested, or given credit to in the erstwhile bank, before its sickness, and that the general public are protected. It aims at securing larger public interest and health of the banking industry.
- Late intervention into the affairs of a bank can result in a “run” on it, resulting in serious loss of confidence in the intricately woven banking and financial system. If one sees this and the overall objective of the scheme, it is to ensure recovery of what are the Section 233 (9) of the Companies Act, 2013 bank’s dues and ensuring protection of the creditors. Clause 3 (3) of the scheme, therefore, has to be considered from this backdrop.
- In this context, the express mention of directors and such other individuals in the proviso means that it is to that extent only that prosecutions or other criminal proceedings can continue; in the ordinary sense, criminal liability can neither be attributed to DBS nor its directors, brought in after the amalgamation, whose appointments were approved by the RBI.
- The Hon’ble Supreme Court observed that the criminal liability of the individuals now attributed to DBS are actions of (1) Anjani Kumar Verma, (2) S. Venkatesh, (3) Pradeep Kumar and (4) Parthsarathi Mukherjee. They were all officials of LVB. Their individual responsibility and accountability in criminal law, is and remains unaffected by the amalgamation.
- Therefore, there is in fact, no involvement of DBS Bank, revealed in the charge sheet filed by the Delhi Police. In completely ignoring these aspects and proceeding on a rather superficial basis, the High Court, in our considered opinion fell into error.
- To permit prosecution of DBS for the acts of LVB officials (who are in fact, facing criminal charges) would result in travesty of justice.
Relevant Para No.
- 32, 34,35, 36