Supreme Court overturns conviction of two loanees in bank fraud case: M. Ramalingam vs. State (2019)

Date of the Judgment: 03 October 2019

Citation: (2019) INSC 1149

Judges: N.V. Ramana, J. and Ajay Rastogi, J.

Can a person be convicted of fraud if they were unaware that the loan they received was sanctioned fraudulently? The Supreme Court of India recently addressed this question in a case involving a bank manager who sanctioned loans without proper security. This judgment clarifies the importance of proving criminal intent and knowledge in cases of fraud and conspiracy. The bench comprised Justices N.V. Ramana and Ajay Rastogi, with the judgment authored by Justice Rastogi.

Case Background

T. Maran, the Branch Manager of Indian Overseas Bank (IOB) in Narikudi, from May 4, 1988, to January 28, 1991, was accused of sanctioning fraudulent agricultural jewel loans. Maran, along with a clerk-cum-typist named Nagarajan (who died after the charge sheet was filed), were the custodians of the branch’s jewel safe. Three separate criminal cases were filed against Maran. The allegations were that Maran sanctioned loans by using jewels already deposited for previous loans, without proper appraisal or documentation.

In one instance, Maran sanctioned a loan of Rs. 7,000 to M. Ramalingam (Appellant in Criminal Appeal No. 1949 of 2009), using jewels that were already pledged under a different loan account. Similarly, he sanctioned a loan of Rs. 7,100 to Nagarajan (deceased) by altering records of another jewel loan. In another transaction, Maran sanctioned a loan of Rs. 10,000 to N. Rajangam (Appellant in Criminal Appeal No. 347 of 2010), again using jewels already pledged for another loan.

These discrepancies were discovered when another officer, Krishnamoorthy, took charge while Maran was on leave. A subsequent inquiry by the Vigilance Officer revealed serious irregularities, leading to the registration of three separate FIRs against Maran, M. Ramalingam, and N. Rajangam. Maran was charged under Section 120B, 467, 467 read with 471, 420, 477-A of the Indian Penal Code (IPC) and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. M. Ramalingam and N. Rajangam were charged with conspiracy and fraud under Sections 120B and 420 of the IPC, and Sections 120B, 467 read with 471 of the IPC, respectively.

Timeline

Course of Proceedings

The Trial Court conducted a simultaneous trial of all three cases (03/1995, 04/1995, and 05/1995). It convicted T. Maran under Section 120B, 467, 467 read with 471, 420, 477-A of the IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. M. Ramalingam was convicted under Sections 120B and 420 of the IPC, and N. Rajangam was convicted under Sections 120B, 467 read with 471 of the IPC. The High Court of Judicature at Madras upheld these convictions, finding no infirmity in the Trial Court’s findings. The appellants then appealed to the Supreme Court.

Legal Framework

The case involves several sections of the Indian Penal Code, 1860, and the Prevention of Corruption Act, 1988. The relevant provisions are:

• Section 120B of the Indian Penal Code, 1860: Deals with the punishment for criminal conspiracy. It states, “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 420 of the Indian Penal Code, 1860: Defines cheating and dishonestly inducing delivery of property. It states, “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 467 of the Indian Penal Code, 1860: Deals with forgery of valuable security, will, etc. It states, “Whoever forges a document which purports to be a valuable security or a will, or an authority to adopt a son, or which purports to give authority to any person to make or transfer any valuable security, or to receive the principal, interest or dividends thereon, or to receive or deliver any money, movable property, or valuable security, or any document purporting to be an acquittance or receipt acknowledging the payment of money, or an acquittance or receipt for the delivery of any movable property or valuable security, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.”
• Section 471 of the Indian Penal Code, 1860: Deals with using as genuine a forged document. It states, “Whoever fraudulently or dishonestly uses as genuine any document which he knows or has reason to believe to be a forged document, shall be punished in the same manner as if he had forged such document.”
• Section 477A of the Indian Penal Code, 1860: Deals with falsification of accounts. It states, “Whoever, being a clerk, officer or servant, or employed or acting in the capacity of a clerk, officer or servant, wilfully, and with intent to defraud, destroys, alters, mutilates or falsifies any book, electronic record, paper, writing, valuable security or account which belongs to or is in the possession of his employer, or has been received by him for or on behalf of his employer, or wilfully, and with intent to defraud, makes or abets the making of any false entry in, or omits or alters or abets the omission or alteration of any material particular from or in, any such book, electronic record, paper, writing, valuable security or account, shall be punished with imprisonment of either description for a term which may extend to seven years, or with fine, or with both.”
• Section 13(1)(d) of the Prevention of Corruption Act, 1988: Defines criminal misconduct by a public servant. It states, “A public servant is said to commit the offence of criminal misconduct, if he, by corrupt or illegal means or by otherwise abusing his position as public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage.”
• Section 13(2) of the Prevention of Corruption Act, 1988: Prescribes the punishment for criminal misconduct. It states, “Any public servant who commits criminal misconduct shall be punishable with imprisonment for a term which shall not be less than four years but which may extend to ten years and shall also be liable to fine.”

Arguments

The arguments presented by the parties can be summarized as follows:

Arguments on behalf of the Appellants (M. Ramalingam and N. Rajangam):

• The appellants argued that they were merely loanees and were not aware of the fraudulent activities of the bank manager, T. Maran. They contended that they were illiterate agriculturists who applied for loans in good faith.
• It was submitted that the prosecution failed to provide any evidence to establish that the appellants had any knowledge of the fraudulent activities or that they had conspired with the bank manager.
• The appellants argued that the loans were sanctioned by the bank manager, and they had no role in the manipulation of records or the misuse of pledged jewels.

Arguments on behalf of the State:

• The State argued that the appellants were part of a conspiracy with the bank manager to defraud the bank.
• The State contended that the appellants benefitted from the fraudulent loans, and therefore, they should be held liable for the offenses.
• The State relied on the fact that the loans were sanctioned without proper security, and this could not have happened without the appellants’ knowledge and involvement.

Submissions Categorized by Main Arguments

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the conviction of the appellant T. Maran for the offences under Section 467, 467 read with 471, 420, 477-A of the IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 was justified.
2. Whether the conviction of the appellant M. Ramalingam under Section 120B and 420 of the IPC was justified.
3. Whether the conviction of the appellant N. Rajangam under Section 120B, 467 read with 471 of the IPC was justified.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court did not rely on any specific case laws or books for its decision in this matter. However, it considered the evidence presented by the prosecution and the arguments made by both sides.

The court considered the following legal provisions:

• Section 120B of the Indian Penal Code, 1860: Relating to criminal conspiracy.
• Section 420 of the Indian Penal Code, 1860: Relating to cheating and dishonestly inducing delivery of property.
• Section 467 of the Indian Penal Code, 1860: Relating to forgery of valuable security.
• Section 471 of the Indian Penal Code, 1860: Relating to using as genuine a forged document.
• Section 477A of the Indian Penal Code, 1860: Relating to falsification of accounts.
• Section 13(1)(d) of the Prevention of Corruption Act, 1988: Relating to criminal misconduct by a public servant.
• Section 13(2) of the Prevention of Corruption Act, 1988: Relating to punishment for criminal misconduct.

Authorities Considered by the Court

Judgment

The Supreme Court upheld the conviction of T. Maran, the bank manager, but overturned the convictions of M. Ramalingam and N. Rajangam. The Court found that there was sufficient evidence to prove that T. Maran had committed the offenses he was charged with. However, the Court found no evidence to suggest that M. Ramalingam and N. Rajangam were aware of the fraudulent activities or that they had conspired with T. Maran to defraud the bank. The Court noted that these loanees were illiterate agriculturists who had applied for loans in good faith.

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

How each authority was viewed by the Court?

The Court considered the legal provisions as follows:

• Section 120B of the Indian Penal Code, 1860: The Court held that there was no evidence to prove that M. Ramalingam and N. Rajangam were part of a criminal conspiracy.
• Section 420 of the Indian Penal Code, 1860: The Court found that there was no evidence to prove that M. Ramalingam and N. Rajangam had cheated or dishonestly induced the bank to deliver property.
• Section 467 of the Indian Penal Code, 1860: The Court found that there was no evidence to prove that N. Rajangam had forged any valuable security.
• Section 471 of the Indian Penal Code, 1860: The Court found that there was no evidence to prove that N. Rajangam had used any forged documents as genuine.
• Section 477A of the Indian Penal Code, 1860: The Court found that T. Maran had falsified the accounts.
• Section 13(1)(d) of the Prevention of Corruption Act, 1988: The Court found that T. Maran had committed criminal misconduct by abusing his position as a public servant.
• Section 13(2) of the Prevention of Corruption Act, 1988: The Court upheld the punishment of T. Maran for criminal misconduct.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the lack of evidence connecting M. Ramalingam and N. Rajangam to the fraudulent activities. The Court emphasized that mere benefit from a fraudulent transaction is not sufficient to prove guilt. The prosecution failed to establish that the loanees had any knowledge of the fraudulent scheme or that they had conspired with the bank manager. The Court also noted that the loanees were illiterate agriculturists who had applied for loans in good faith. The Court focused on the principle that criminal liability requires proof of intent and knowledge.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning

The Court’s reasoning was based on a thorough examination of the evidence presented. It noted that the prosecution had failed to establish a clear link between the loanees and the fraudulent activities of the bank manager. The Court emphasized that the burden of proof lies with the prosecution to prove the guilt of the accused beyond a reasonable doubt. In the case of M. Ramalingam and N. Rajangam, the prosecution failed to meet this burden. The Court observed that the loanees were illiterate agriculturists and that there was no evidence to suggest that they were aware of the fraudulent scheme. The Court also noted that the loans were sanctioned by the bank manager, and the loanees had no role in the manipulation of records or the misuse of pledged jewels. The Court further stated that: “We are not able to trace out any evidence in respect of dishonesty/misuse in obtaining loan without furnishing any security.”

The Court also stated, “In all bonafides, it reveals from the record that applications were submitted by the loanee who are illiterate agriculturists and loan was got sanctioned by the appellant T. Maran(A1-Bank Manager) with the connivance of the Nagrajan(deceased) in violating the rules and regulations for their personal gains.”

The Court concluded, “In our view the prosecution has failed to prove beyond reasonable doubt the charges levelled against the appellant(M. Ramalingam and N. Rajangam) in Criminal Appeal No. No. 1949 of 2009 and Criminal Appeal 347 of 2010 and, the conviction of appellant M. Ramalingam under Section 120B and 420 IPC and appellant N. Rajangam under Section 120B, 467 read with 471 IPC deserves to be set aside.”

Key Takeaways

• Mere benefit from a fraudulent transaction is not sufficient to prove guilt; the prosecution must prove knowledge and intent.
• Illiterate individuals who apply for loans in good faith cannot be held liable for fraud committed by bank officials unless there is clear evidence of their involvement and knowledge.
• The burden of proof lies with the prosecution to prove the guilt of the accused beyond a reasonable doubt.
• Public servants who abuse their position for personal gain will be held accountable under the Prevention of Corruption Act, 1988.
• This judgment highlights the importance of due process and the need for a thorough investigation before holding individuals liable for criminal offenses.

Directions

The Supreme Court directed that the bail bonds of M. Ramalingam and N. Rajangam be discharged. It also directed T. Maran to surrender and undergo the remaining part of his sentence.

Development of Law

The ratio decidendi of this case is that mere benefit from a fraudulent transaction is not sufficient to prove criminal liability. The prosecution must establish a clear link between the accused and the fraudulent activity, including proof of knowledge and intent. This case reinforces the principle that individuals cannot be held liable for offenses committed by others unless they were aware of the fraudulent scheme and participated in it. There is no change in the previous position of law; rather, this case emphasizes the importance of the existing principles of criminal law.

Conclusion

The Supreme Court’s judgment in M. Ramalingam vs. State (2019) clarifies that individuals cannot be convicted of fraud and conspiracy based on mere suspicion or benefit from a fraudulent transaction. The prosecution must prove beyond a reasonable doubt that the accused had knowledge of the fraudulent scheme and participated in it. The Court upheld the conviction of the bank manager, T. Maran, for his fraudulent activities but overturned the convictions of the loanees, M. Ramalingam and N. Rajangam, due to a lack of evidence connecting them to the fraud.