Supreme Court Dismisses CBI Appeal in Loan Sanction Case: Srinivas D. Sridhar Cleared (2024)

Date of the Judgment: 16 October 2024

Citation: 2024 INSC 783

Judges: Abhay S. Oka, J. and Ujjal Bhuyan, J.

Can a public servant be charged with criminal misconduct based solely on the speed of processing a loan proposal, without direct evidence of malfeasance? The Supreme Court of India recently addressed this question in a case involving the Central Bureau of Investigation (CBI) and a former Chairman and Managing Director of a nationalized bank. The core issue revolved around whether there was enough evidence to frame charges against the respondent for offences under the Indian Penal Code, 1860 and the Prevention of Corruption Act, 1988, related to alleged irregularities in the sanctioning of loan facilities. The bench comprised Justices Abhay S. Oka and Ujjal Bhuyan, who delivered a unanimous judgment dismissing the appeal.

Case Background

The case originated from a charge sheet filed by the CBI following an investigation into alleged irregularities in the sanctioning of loan facilities by the Central Bank of India to M/s Electrotherm (India) Limited. The respondent, Srinivas D. Sridhar, was the Chairman and Managing Director of the bank at the time the loans were sanctioned. The CBI alleged that the respondent, along with other bank officials and the company’s directors, conspired to cheat the bank by granting undue favors to the company.

The allegations centered on three loan facilities sanctioned to the company during 2010-2011: a short-term loan of Rs. 50 crores, a letter of credit with a limit of Rs. 100 crores, and export packing credit (EPC) facilities of Rs. 330 crores. The CBI claimed that the EPC facility was sanctioned without proper appraisal and that the funds were not used for their intended purpose. The total loss to the bank was estimated at Rs. 436.74 crores. The respondent was charged under Sections 420, 468, 471, and 120-B of the Indian Penal Code, 1860, and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988.

Timeline:

Course of Proceedings

The respondent’s application for discharge was initially rejected by the Special Judge of the CBI Court. Subsequently, the respondent filed a revision application before the High Court. The High Court allowed the revision application and discharged the respondent. Aggrieved by the High Court’s decision, the CBI filed an appeal before the Supreme Court.

Legal Framework

The charges against the respondent were framed under the following legal provisions:

• Section 420 of the Indian Penal Code, 1860: This section deals with cheating and dishonestly inducing delivery of property.
  
  “Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
• Section 468 of the Indian Penal Code, 1860: This section pertains to forgery for the purpose of cheating.
  
  “Whoever commits forgery, intending that the document or electronic record forged shall be used for the purpose of cheating, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
• Section 471 of the Indian Penal Code, 1860: This section deals with using as genuine a forged document or electronic record.
  
  “Whoever fraudulently or dishonestly uses as genuine any document or electronic record which he knows or has reason to believe to be a forged document or electronic record, shall be punished in the same manner as if he had forged such document or electronic record.”
• Section 120-B of the Indian Penal Code, 1860: This section addresses criminal conspiracy.
  
  “Whoever is a party to a criminal conspiracy to commit an offence punishable with death, imprisonment for life or rigorous imprisonment for a term of two years or upwards, shall, where no express provision is made in this Code for the punishment of such a conspiracy, be punished in the same manner as if he had abetted such offence.”
• Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988: This section deals with criminal misconduct by a public servant.
  
  “A public servant is said to commit the offence of criminal misconduct,—(d) if he,—(i) by corrupt or illegal means, obtains for himself or for any other person any valuable thing or pecuniary advantage; or (ii) obtains for himself or for any other person any valuable thing or pecuniary advantage by abusing his position as a public servant; or (iii) while holding office as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage, without public interest.”

Arguments

Submissions by the Appellant (CBI):

• The learned Additional Solicitor General (ASG) argued that the High Court had conducted a mini-trial, which is not permissible at the stage of framing charges.
• The ASG submitted that to prove conspiracy, it is not necessary that all co-conspirators must know every detail, or participate from the beginning to the end.
• The ASG contended that a strong suspicion created by the material in the charge sheet is sufficient for framing a charge.
• The ASG highlighted that the proposal for the EPC facility of Rs.330 crores was added by a witness on the instruction of another accused, without recommendation from the zonal office.
• The ASG pointed out that the Memorandum was prepared and signed by accused nos. 5, 6, and the respondent on the same day, indicating undue haste.
• The ASG argued that the due process for sanctioning credit facilities was sacrificed for the sake of alleged efficiency.
• The ASG submitted that no formal application was made by the company for the EPC facility.
• The ASG contended that even without allegations of pecuniary benefits, the respondent abused his official position, constituting criminal misconduct under Section 13(1)(d) of the PC Act.
• The ASG argued that the High Court should not have examined the veracity of the allegations at the stage of framing the charge.

Submissions by the Respondent:

• The learned senior counsel for the respondent argued that based on the material in the charge sheet, no case was made out to proceed against the respondent.
• The respondent argued that the High Court rightly discharged him.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the primary issue that the Court addressed was:

1. Whether the High Court was correct in discharging the respondent, considering the material in the charge sheet.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not cite any specific cases or books in its judgment. The court primarily relied on the factual matrix of the case and the procedural aspects of the loan sanction process. The court did consider the following legal provisions:

• Section 420 of the Indian Penal Code, 1860: Deals with cheating and dishonestly inducing delivery of property.
• Section 468 of the Indian Penal Code, 1860: Pertains to forgery for the purpose of cheating.
• Section 471 of the Indian Penal Code, 1860: Deals with using as genuine a forged document or electronic record.
• Section 120-B of the Indian Penal Code, 1860: Addresses criminal conspiracy.
• Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988: Deals with criminal misconduct by a public servant.

Authorities Considered by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court analyzed the facts of the case in light of the legal provisions. The Court did not find sufficient evidence to indicate that the respondent had committed any offences under the Indian Penal Code, 1860 or the Prevention of Corruption Act, 1988.

• The Court considered the provisions of Section 420, Indian Penal Code, 1860, but found no evidence of cheating by the respondent.
• The Court considered the provisions of Section 468, Indian Penal Code, 1860, but found no evidence of forgery by the respondent.
• The Court considered the provisions of Section 471, Indian Penal Code, 1860, but found no evidence of using forged documents by the respondent.
• The Court considered the provisions of Section 120-B, Indian Penal Code, 1860, but found no evidence of criminal conspiracy by the respondent.
• The Court considered the provisions of Section 13(2) read with 13(1)(d), Prevention of Corruption Act, 1988, but found no evidence of criminal misconduct by the respondent.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the lack of direct evidence linking the respondent to any criminal activity. The Court emphasized that mere suspicion or the speed with which the loan was processed was not sufficient to frame charges against the respondent. The Court highlighted the fact that the proposal had been vetted by multiple committees and senior officials before reaching the respondent. The court was also influenced by the fact that the respondent’s role was limited to signing the Memorandum and participating in the Management Committee meeting.

The Court’s reasoning focused on the following points:

• The respondent’s role was limited to signing the Memorandum after it was approved by the Chief General Manager (Credit) and the Executive Director.
• The loan proposal had passed through the Loan Advisory Committee, which recommended the same.
• The respondent’s role was confined to signing the Memorandum prepared by senior officers and participating in the Management Committee meeting.
• No material was placed on record to show that the respondent had met any of the accused other than bank officials before the sanction of the proposal.
• The entire proposal was processed and cleared within a short span of time, but this alone is not sufficient to establish an offence against the respondent.

The Court’s sentiment was clearly in favor of protecting individuals from being subjected to criminal trials based on weak or circumstantial evidence.

Logical Reasoning

The Court considered the entire material in the charge sheet and found that the respondent’s role was limited. The Court emphasized that the loan proposal had been approved by multiple committees and senior officials before reaching the respondent. The Court concluded that there was no direct evidence of malfeasance on the part of the respondent, and mere suspicion was not enough to frame charges.

The Court stated, “As far as the respondent is concerned, considering his position and the role ascribed to him in the grant of sanction to the loan proposal of the Company, mere suspicion against him is not enough to frame a charge against him.”

The Court also stated, “The respondent ‘s role was confined to signing the memorandum prepared by the senior officers and participating in the Management Committee meeting, which approved the proposal.”

Additionally, the Court noted, “Only because the entire proposal was processed and cleared within a short span of time, no offence is made out against the respondent.”

Key Takeaways

• Mere suspicion or the speed of processing a loan proposal is not sufficient to frame criminal charges against a public servant.
• The role of a public servant must be clearly established with direct evidence to prove criminal misconduct.
• The courts should not conduct a mini-trial at the stage of framing charges, but should examine whether the charge sheet material discloses a prima facie case.
• The judgment emphasizes the importance of due process and the need to protect individuals from being subjected to criminal trials based on weak or circumstantial evidence.

Directions

The Supreme Court did not issue any specific directions in this judgment. However, the Court clarified that its observations were limited to the role of the respondent and would not affect the trial against the other accused persons.

Specific Amendments Analysis

There was no discussion of any specific amendments in this judgment.

Development of Law

The ratio decidendi of this case is that mere suspicion or the speed of processing a loan proposal is not sufficient to frame criminal charges against a public servant. The Court emphasized that the role of a public servant must be clearly established with direct evidence to prove criminal misconduct. This judgment reinforces the principle that individuals should not be subjected to criminal trials based on weak or circumstantial evidence.

Conclusion

The Supreme Court dismissed the appeal filed by the CBI, upholding the High Court’s decision to discharge the respondent. The Court found that the charge sheet material did not establish a prima facie case against the respondent. The judgment underscores the need for concrete evidence to frame criminal charges against public servants and emphasizes that mere suspicion or procedural irregularities are not sufficient grounds for prosecution.