Supreme Court clarifies definition of ‘Public Servant’ under Prevention of Corruption Act for Bank Officials (23 February 2016)

Can officials of a private bank be considered “public servants” under the Prevention of Corruption Act? The Supreme Court of India addressed this crucial question in a case involving alleged corruption at Global Trust Bank. This judgment clarifies the scope of “public servant” definition, particularly in the context of banking regulations. The bench comprised Justices Ranjan Gogoi and Prafulla C. Pant, with Justice Pant authoring the main judgment and Justice Gogoi adding a concurring opinion.

Case Background

Global Trust Bank (GTB) was a private bank incorporated on October 29, 1993, and licensed by the Reserve Bank of India (RBI) on September 6, 1994. Ramesh Gelli served as the Chairman and Managing Director, while Sridhar Subasri was the Executive Director. Both were also promoters of GTB.

The Central Bureau of Investigation (CBI) alleged that Gelli and Subasri obtained loans from various individuals and companies to raise their contribution to the bank’s capital. They then fraudulently sanctioned credit facilities to these entities, violating banking norms and causing a loss of approximately ₹41 crores to GTB.

Specifically, the CBI claimed that the accused sanctioned higher credit limits to M/s. Beautiful Diamonds Ltd. against regulations. Funds were also diverted to M/s. Beautiful Realtors Ltd. and then transferred to the overdrawn account of M/s. Beautiful Diamonds Ltd. Additionally, a loan of ₹3 crores was sanctioned to M/s. Crystal Gems.

The accounts of these companies should have been declared Non-Performing Assets (NPA). However, Gelli and Subasri allegedly manipulated the accounts to show higher profits. The alleged scam came to light in 2005. GTB merged with Oriental Bank of Commerce (OBC) on August 14, 2004.

Timeline

Course of Proceedings

The Special Judge, Mumbai, declined to take cognizance of offenses under the Prevention of Corruption Act, 1988, against Ramesh Gelli and Sridhar Subasri. The Special Judge reasoned that they were not “public servants” when the alleged transactions occurred. The Special Judge directed the charge sheet to be returned, to be submitted before the Metropolitan Magistrate for offenses under the Indian Penal Code (IPC).

The High Court of Judicature at Bombay upheld the Special Judge’s order. Consequently, the CBI appealed to the Supreme Court. Additionally, Ramesh Gelli filed a writ petition in the Supreme Court seeking to quash the charge sheet filed against him in Delhi.

Legal Framework

The Supreme Court examined the definition of “public servant” under Section 2(c) of the Prevention of Corruption Act, 1988. Specifically, Section 2(c)(viii) defines a public servant as “any person who holds an office by virtue of which he is authorized or required to perform any public duty.”

Section 2(b) of the Prevention of Corruption Act defines “public duty” as “a duty in the discharge of which the State, the public or the community at large has an interest.”

Section 46A of the Banking Regulation Act, 1949, states that “Every chairman who is appointed on a whole-time basis, managing director, director, auditor, liquidator, manager and any other employee of a banking company shall be deemed to be a public servant for the purposes of Chapter IX of the Indian Penal Code.”

Chapter IX of the Indian Penal Code (IPC) contained Sections 161 to 165A, which dealt with offenses related to public servants. These sections were repealed by Section 31 of the Prevention of Corruption Act, 1988, and the offenses were incorporated into Sections 7, 8, 9, 10, 11 and 12 of the Prevention of Corruption Act, 1988.

Arguments

The accused argued that they were not public servants because they did not hold any public office. They contended that the relationship between a bank and its customer is commercial, not public. They also argued that Section 46A of the Banking Regulation Act, 1949, was not applicable because the relevant sections of the IPC had been repealed.

The CBI argued that the accused were public servants under Section 2(c) of the Prevention of Corruption Act, 1988, and Section 46A of the Banking Regulation Act, 1949. The CBI contended that banking companies are an extended arm of the Reserve Bank of India and that the accused performed a public duty.

The CBI relied on the principle that a private body discharging a public duty or positive obligation of a public nature actually performs a public function.

Submissions by Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

✓ Whether the Chairman, Directors, and Officers of Global Trust Bank Ltd. (a private bank before its amalgamation with the Oriental Bank of Commerce), can be said to be public servants for the purposes of their prosecution in respect of offenses punishable under the Prevention of Corruption Act, 1988 or not?

Treatment of the Issue by the Court

Authorities

The court considered various authorities to reach its conclusion.

Cases

Legal Provisions

Judgment

Treatment of Submissions

View of Authorities

The Supreme Court relied on P.V. Narasimha Rao vs. State (CBI/SPE) [1998] 4 SCC 626* to define “office” as a position with attached duties of a public character. It used the definition of “office” in McMillan v. Guest (1942) AC 561* to emphasize that an office has an existence independent of the person holding it.

The court referred to Bangalore Water Supply & Sewerage Board Vs. A Rajappa and Others [1978] 2 SCC 213* to justify filling gaps in legislation through interpretation. It also cited Dadi Jagannadham Vs. Jammulu Ramulu and others [2001] 7 SCC 71* to demonstrate how courts can harmonize conflicting provisions.

The court used Govt. of Andhra Pradesh and Others vs. P.Venku Reddy [2002] 7 SCC 631* to emphasize the need for a purposive approach to the definition of “public servant.” The court distinguished its earlier ruling in Federal Bank Ltd. vs. Sagar Thomas and others [2003] 10 SCC 733*, noting that the issue in that case was different.

The Supreme Court also relied on State of Maharashtra & ors. v. Brijlal Sadasukh Modani 2015 SCC Online SC 1403* to highlight a broad definition of “public servant.” The court distinguished Housing Board of Haryana v. Haryana Housing Board Employees’ Union and others [1996] 1 SCC 95*, stating that the rule of ejusdem generis was not applicable.

The Supreme Court cited Manish Trivedi v. State of Rajasthan [2014] 14 SCC 420* to emphasize the need for a broad interpretation of “public servant” under the Prevention of Corruption Act, 1988. The court also referred to State of M.P. v. Shri Ram Singh [2000] 5 SCC 88* to show the importance of a wide construction of the definition of “public servant” to curb corruption.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legislative intent behind the Prevention of Corruption Act, 1988, which aimed to widen the definition of “public servant” to combat corruption effectively. The court emphasized that the omission to explicitly include offenses under the Prevention of Corruption Act in Section 46A of the Banking Regulation Act, 1949, was an unintended legislative oversight.

The court also considered the public nature of banking and the need to protect public interest. The court determined that bank officials perform public duties and should be held accountable under the Prevention of Corruption Act.

Sentiment Analysis of Reasons

Fact:Law Ratio

Logical Reasoning

The court reasoned that the legislative intent behind the Prevention of Corruption Act was to widen the scope of the definition of “public servant.” The court held that the omission to explicitly include offenses under the Prevention of Corruption Act in Section 46A of the Banking Regulation Act was an unintended legislative omission.

The court emphasized that banking is a public function and that bank officials perform public duties. The court also noted that Section 46A of the Banking Regulation Act was already in place when the Prevention of Corruption Act came into force.

The court also considered the public nature of banking and the need to protect public interest. The court determined that bank officials perform public duties and should be held accountable under the Prevention of Corruption Act.

The court stated, “The unequivocal legislative intent to widen the definition of “public servant” by enacting the PC Act cannot be allowed to be defeated by interpreting and understanding the omission in Section 46A of the BR Act to be incapable of being filled up by the court.”

The court also observed, “A law which is not shown ultravires must be given proper meaning. Section 46-A of Banking Regulation Act, 1949, cannot be left meaningless and requires harmonious construction.”

The court further noted, “The present Act (the 1988 Act) envisages widening of the scope of the definition of the expression “public servant”. It was brought in force to purify public administration. The legislature has used a comprehensive definition of “public servant” to achieve the purpose of punishing and curbing corruption among public servants.”

Key Takeaways

✓ Bank officials, including chairmen, managing directors, and directors of private banks, are considered “public servants” under the Prevention of Corruption Act, 1988.

✓ This ruling clarifies that the deeming provision in Section 46A of the Banking Regulation Act, 1949, extends to offenses under the Prevention of Corruption Act, even though the corresponding sections of the IPC were repealed.

✓ The judgment emphasizes the public nature of banking and the need to hold bank officials accountable for corruption.

✓ The Supreme Court has adopted a purposive interpretation of the law to give effect to the legislative intent of widening the scope of the definition of “public servant” to combat corruption effectively.

Directions

The Supreme Court set aside the orders of the lower courts and directed the Special Judge (CBI) to take cognizance of offenses punishable under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. The court also clarified that the accused could not be considered public servants under Section 21 of the IPC, and therefore, offenses under Section 409 of the IPC may not be attracted.

Development of Law

The ratio decidendi of this case is that the officials of a banking company are to be considered as public servants under Prevention of Corruption Act, 1988, due to the deeming provision under Section 46A of the Banking Regulation Act, 1949, and the legislative intent to widen the scope of “public servant.” This judgment clarifies that the deeming provision under Section 46A extends to offenses under the Prevention of Corruption Act, 1988, despite the repeal of relevant sections of the IPC. This is a change from the previous position of law where private bank officials were not considered public servants under the Prevention of Corruption Act.

Conclusion

The Supreme Court’s judgment in the Global Trust Bank case clarifies that officials of private banks are considered “public servants” under the Prevention of Corruption Act, 1988. This decision reinforces the legislative intent to broaden the definition of “public servant” and combat corruption effectively. The ruling ensures that bank officials are held accountable for their actions, emphasizing the public nature of banking and the need to protect public interest.

Category

• Prevention of Corruption Act, 1988
  • Section 2(c), Prevention of Corruption Act, 1988
  • Section 2(b), Prevention of Corruption Act, 1988
  • Public Servant
  • Public Duty
  • Corruption
• Banking Regulation Act, 1949
  • Section 46A, Banking Regulation Act, 1949
  • Banking Company
  • RBI
  • Public Function
• Indian Penal Code
  • Section 409, Indian Penal Code
  • Sections 161 to 165A, Indian Penal Code
• Criminal Law
  • Criminal Prosecution
  • Corruption Offences
  • Criminal Conspiracy
  • Misappropriation
  • Cheating

FAQ

Q: What does this judgment mean for bank officials?
A: This judgment means that bank officials of private banks can be prosecuted under the Prevention of Corruption Act, 1988, if they are found to be involved in corrupt practices. They are considered “public servants” for the purposes of this Act.

Q: Does this apply to all bank employees?
A: The judgment specifically mentions chairmen, managing directors, directors, and other similar positions. It is likely to apply to those in positions of authority within a bank.

Q: What is the significance of Section 46A of the Banking Regulation Act?
A: Section 46A deems certain bank officials to be public servants. The Supreme Court has clarified that this deeming provision extends to offenses under the Prevention of Corruption Act, 1988.

Q: What does “public duty” mean in this context?
A: “Public duty” refers to a duty in which the State, the public, or the community at large has an interest. Banking is considered a public function, and bank officials are seen as performing a public duty.

Q: How does this judgment impact the fight against corruption?
A: This judgment strengthens the fight against corruption by ensuring that bank officials are held accountable for their actions under the Prevention of Corruption Act.