Supreme Court Reinstates Charges of Cheating and Conspiracy in Bank Loan Case: State of Madhya Pradesh vs. Yogendra Singh Jadon (2020)

Date of the Judgment: 31 January 2020

Citation: 2020 INSC 76

Judges: L. Nageswara Rao, J. and Hemant Gupta, J.

Can individuals be charged with cheating and conspiracy when they benefit from irregular bank loans approved while their father was the bank’s president? The Supreme Court of India addressed this question in a recent case, overturning a High Court decision that had quashed charges against the respondents. The core issue revolves around whether the respondents, sons of the bank’s president, could be held liable for offenses related to loans sanctioned to them without proper procedure. The judgment was delivered by a two-judge bench comprising Justice L. Nageswara Rao and Justice Hemant Gupta, with the opinion authored by Justice Hemant Gupta.

Case Background

The case originated from a First Information Report (FIR) registered on 23rd June 2007, alleging financial irregularities at the District Cooperative Kendriya Bank Maryadit, Shajapur (hereinafter referred to as ‘the Bank’). The primary accusation was that Manohar Singh Jadon, the deceased father of the respondents, misused his position as President of the Bank to facilitate fraudulent loans to his relatives using forged documents. Manohar Singh Jadon served as President from 5th February 1997 to 26th March 2002, and again from 27th March 2002 to 7th May 2004.

The respondents, Yogendra Singh Jadon and Harshvardhan Singh Jadon, were proprietors of M/s. Sarohar Trading Company and M/s. Harshvardhan & Brothers, respectively. It was alleged that Harshvardhan Singh Jadon applied for a cash credit limit of Rs. 25 lakhs on 2nd November 2000, which was sanctioned without following due procedure. The mortgage deed was not registered, and the original loanee’s signature was missing. Despite a deposit of Rs. 25 lakhs, an outstanding balance of Rs. 59,88,327 was recorded on 1st December 2001. The President renewed the cash credit limit, later confirmed by the loan Sub-Committee. Similarly, Yogendra Singh Jadon obtained a cash credit limit of Rs. 25 lakhs on 30th July 2001, without adhering to procedural requirements and without proper mortgage of property. Smt. Saroj Singh mortgaged land without valuation, and Ishwar Singh provided surety. An outstanding balance of Rs. 25,65,894 was recorded on 31st March 2002, despite withdrawals exceeding the approved limit.

Timeline

Course of Proceedings

The Special Judge ordered the framing of charges against Harshvardhan Singh Jadon and Yogendra Singh Jadon on 24th February 2014, along with other accused individuals. The respondents challenged this order through a criminal revision petition. The High Court of Madhya Pradesh, on 2nd May 2016, found that the offenses under Section 420 (cheating) and Section 120-B (criminal conspiracy) of the Indian Penal Code, 1860 were not made out against the respondents. The High Court reasoned that there was no evidence to suggest that the respondents obtained the cash credit facility with the knowledge that they would not repay the loan amount. The High Court stated that the bank officers might have disregarded rules to benefit the respondents due to their father’s position, but this would only lead to liability against the bank officers, not the respondents. The High Court concluded that the basic ingredient to constitute the offence of Section 420 of the Indian Penal Code, 1860 was missing in the chargesheet.

Legal Framework

The case primarily involves the interpretation and application of the following legal provisions:

• Section 420 of the Indian Penal Code, 1860 (IPC): This section defines the offense of 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 120-B of the Indian Penal Code, 1860 (IPC): This section deals with 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.”
• Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988: These sections pertain to criminal misconduct by a public servant. Section 13(1)(d) 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) specifies the punishment for such misconduct.

Arguments

The arguments presented by both sides in the case are as follows:

Arguments of the State

• The State argued that the High Court erred in examining the entire issue of whether offenses under Sections 420 and 120-B of the Indian Penal Code, 1860 were made out at the pre-trial stage.
• The State contended that the respondents were beneficiaries of the cash credit limit when their father was the President of the Bank.
• The State submitted that the manner in which the loans were advanced, without proper documentation, and the fact that the respondents benefited from their father’s position, prima facie disclosed an offense under Sections 420 and 120-B of the Indian Penal Code, 1860.
• The State highlighted that other officials of the Bank had been charge-sheeted for offenses under Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988.
• The State argued that the charge under Section 420 of the Indian Penal Code, 1860, should not be viewed in isolation but should be considered along with the offenses under the Prevention of Corruption Act, 1988, to which the respondents may be liable with the aid of Section 120-B of the Indian Penal Code, 1860.

Arguments of the Respondents

• The respondents argued that the High Court correctly quashed the charges under Sections 420 and 120-B of the Indian Penal Code, 1860.
• The respondents contended that there was no assertion that they obtained the cash credit facility with the knowledge that they would not repay the loan amount.
• The respondents claimed that while the bank officers might have acted improperly due to their father’s position, this would only lead to liability against the bank officers, not against them.
• The respondents asserted that the basic ingredients to constitute the offense of Section 420 of the Indian Penal Code, 1860 were missing in the chargesheet.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section but the core issue was whether the High Court was correct in quashing the charges under Sections 420 and 120-B of the Indian Penal Code, 1860 against the respondents at the pre-trial stage.

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 explicitly cite any case laws or books in the judgment. However, it referred to the following legal provisions:

Judgment

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

How each authority was viewed by the Court?

• Section 420 of the Indian Penal Code, 1860: The Court used this provision to assess whether the allegations against the respondents met the criteria for the offense of cheating and dishonestly inducing delivery of property.
• Section 120-B of the Indian Penal Code, 1860: The Court considered this provision to determine if the respondents were involved in a criminal conspiracy, particularly in relation to the offenses under Section 420 of the Indian Penal Code, 1860 and the Prevention of Corruption Act, 1988.
• Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988: The Court noted that other officials of the Bank were charge-sheeted under these provisions, and the charges against the respondents were to be considered in conjunction with these offenses.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The High Court’s premature examination of the case at the pre-trial stage.
• The fact that the respondents were beneficiaries of the loans sanctioned while their father was the President of the Bank.
• The irregular manner in which the loans were advanced without proper documentation.
• The need to consider the charges under Section 420 of the Indian Penal Code, 1860 in conjunction with the offenses under the Prevention of Corruption Act, 1988.

The Court emphasized that the allegations required to be proved in a court of law and that the High Court should not have quashed the charges at the pre-trial stage. The Court also highlighted the importance of considering the charges under Section 420 of the Indian Penal Code, 1860 in conjunction with the offenses under the Prevention of Corruption Act, 1988.

Logical Reasoning

Judgment

The Supreme Court set aside the order of the High Court, stating that the High Court should not have examined the entire issue at the pre-trial stage. The Court noted that the respondents were beneficiaries of the grant of cash credit limit when their father was the President of the Bank. The Court stated that “the manner in which loan was advanced without any proper documents and the fact that the respondents are beneficiary of benevolence of their father prima facie disclose an offence under Sections 420 and 120-B IPC.” The Court also observed that “the charge under Section 420 IPC is not an isolated offence but it has to be read along with the offences under the Act to which the respondents may be liable with the aid of Section 120-B of IPC.” The Court concluded that “the order of the High Court quashing the charges against the respondents is not sustainable in law and the same is set aside.” The appeal was allowed, and the respondents were given the liberty to take any other action available to them under the law.

Key Takeaways

• The Supreme Court emphasized that High Courts should be cautious in quashing charges at the pre-trial stage, especially when there are allegations that require evidence to be presented in court.
• Individuals who benefit from irregular financial transactions, particularly through the misuse of a position of power, can be held liable for offenses such as cheating and criminal conspiracy.
• Charges under Section 420 of the Indian Penal Code, 1860 should be viewed in conjunction with offenses under the Prevention of Corruption Act, 1988, when there are allegations of corruption and misuse of public office.
• The Court’s decision reinforces the principle that allegations of fraud and corruption must be thoroughly investigated and adjudicated in a court of law.

Directions

The Supreme Court did not provide any specific directions, other than setting aside the High Court’s order and allowing the trial to proceed. The respondents were given the liberty to take any other action available to them under the law.

Development of Law

The ratio decidendi of this case is that the High Court should not quash charges at the pre-trial stage if the allegations disclose a prima facie case, especially in cases involving fraud and corruption. The Supreme Court clarified that the charges under Section 420 of the Indian Penal Code, 1860 should be read in conjunction with the offenses under the Prevention of Corruption Act, 1988, when there are allegations of misuse of public office for personal gain. This judgment reinforces the principle that allegations of fraud and corruption should be thoroughly investigated and adjudicated in a court of law.

Conclusion

The Supreme Court’s decision in State of Madhya Pradesh vs. Yogendra Singh Jadon & Anr. overturns the High Court’s order and reinstates charges of cheating and criminal conspiracy against the respondents. The Court emphasized that the allegations required to be proved in a court of law and that the High Court should not have quashed the charges at the pre-trial stage. This judgment underscores the importance of due process in cases involving alleged financial irregularities and misuse of public office.

Category

Parent Category: Indian Penal Code, 1860

Child Categories:

• Section 420, Indian Penal Code, 1860
• Section 120-B, Indian Penal Code, 1860
• Cheating
• Criminal Conspiracy
• Financial Irregularities

Parent Category: Prevention of Corruption Act, 1988

Child Categories:

• Section 13(1)(d), Prevention of Corruption Act, 1988
• Section 13(2), Prevention of Corruption Act, 1988
• Criminal Misconduct
• Abuse of Public Office

FAQ

Q: What was the main issue in the State of Madhya Pradesh vs. Yogendra Singh Jadon case?

A: The main issue was whether the High Court was correct in quashing charges of cheating and criminal conspiracy against individuals who benefited from irregular bank loans sanctioned while their father was the bank’s president.

Q: What did the Supreme Court decide in this case?

A: The Supreme Court set aside the High Court’s order and reinstated the charges against the respondents, stating that the allegations required to be proved in court and should not have been quashed at the pre-trial stage.

Q: What is Section 420 of the Indian Penal Code, 1860 about?

A: Section 420 of the Indian Penal Code, 1860 defines the offense of cheating and dishonestly inducing someone to deliver property.

Q: What is Section 120-B of the Indian Penal Code, 1860 about?

A: Section 120-B of the Indian Penal Code, 1860 deals with criminal conspiracy, which is an agreement between two or more people to commit an illegal act.

Q: What are Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988 about?

A: Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988, pertain to criminal misconduct by a public servant, including the misuse of their position to obtain a valuable thing or pecuniary advantage for themselves or others.

Q: What does this judgment mean for individuals who benefit from irregular financial transactions?

A: This judgment means that individuals who benefit from irregular financial transactions, especially through the misuse of a position of power, can be held liable for offenses such as cheating and criminal conspiracy.

Q: What is the significance of the Supreme Court’s decision?

A: The Supreme Court’s decision reinforces the principle that allegations of fraud and corruption must be thoroughly investigated and adjudicated in a court of law, and that High Courts should be cautious in quashing charges at the pre-trial stage.