Supreme Court Stays Criminal Proceedings in Loan and Voter Fraud Case: A.P. Mahesh Cooperative Bank (2021)

Date of the Judgment: 20 July 2021
Citation: 2021 INSC 437
Judges: Indira Banerjee, J. and V. Ramasubramanian, J.

Can a criminal case be stayed if it appears to be an attempt to convert a civil dispute into a criminal one? The Supreme Court of India recently examined this question in a case involving allegations of loan and voter fraud against the directors of A.P. Mahesh Cooperative Urban Bank. The court had to decide whether the High Court of Telangana was correct in staying criminal proceedings initiated against the bank’s directors, considering the backdrop of ongoing election disputes and writ petitions.

The bench, comprising Justices Indira Banerjee and V. Ramasubramanian, delivered a unanimous judgment dismissing the Special Leave Petitions, thereby upholding the High Court’s decision to stay the criminal proceedings. The judgment authored by Justice V. Ramasubramanian.

Case Background

The case originated from two criminal complaints filed by the A.P. Mahesh Cooperative Urban Bank Shareholders Welfare Association against the bank’s directors, namely Ramesh Kumar Bung, Managing Director and CEO, and the Chairman and Vice Chairman of the bank. The complaints alleged offences under Sections 409, 420, 467, 468, 471, and 477A read with 120B of the Indian Penal Code (IPC). These charges related to loan fraud and voter fraud.

The complaints were filed after a series of events including the expiry of the previous board’s term, the announcement of elections, and subsequent disputes regarding the voter list and election process. The association had also filed writ petitions challenging the election process and seeking investigations into the alleged wrongdoings of the bank’s management. The High Court had initially ordered the declaration of election results but restricted the newly elected directors from making policy decisions.

Following the registration of the criminal complaints, the accused directors filed petitions in the High Court seeking to quash the complaints and obtain a stay on further proceedings, including their arrest. The High Court granted this stay, which led to the present appeal before the Supreme Court.

Timeline:

Course of Proceedings

The A.P. Mahesh Cooperative Urban Bank Shareholders Welfare Association initially filed complaints with the III Additional Chief Metropolitan Magistrate at Hyderabad, who directed the police to register cases under Section 156(3) of the Code of Criminal Procedure (CrPC). Consequently, the police registered two FIRs.

The accused, i.e., the bank’s directors, then filed petitions under Section 482 of the CrPC in the High Court of Telangana, seeking to quash the criminal complaints. They also sought an interim stay on all further proceedings, including their arrest. The High Court, after hearing both sides, granted the stay, citing the overlapping nature of the allegations with ongoing civil writ petitions and the circumstances surrounding the initiation of the criminal complaints. This order was challenged before the Supreme Court.

Legal Framework

The case primarily involves the following legal provisions:

• Section 156(3) of the Code of Criminal Procedure (CrPC): This section empowers a Magistrate to order an investigation by the police. The Magistrate can direct the police to register a case and investigate when a complaint discloses a cognizable offence.
• Section 482 of the CrPC: This section grants inherent powers to the High Court to make orders necessary to prevent abuse of the process of any court or to secure the ends of justice. It is under this section that the High Court entertained the quashing petitions.
• Sections 409, 420, 467, 468, 471, and 477A read with 120B of the Indian Penal Code (IPC): These sections pertain to offences such as criminal breach of trust, cheating, forgery, and falsification of accounts.
• Multi-State Cooperative Societies Act, 2002: This Act governs cooperative societies with operations in more than one state. The A.P. Mahesh Cooperative Urban Bank is governed by this act.

The legal framework also touches upon the balance between the powers of the police to investigate crimes and the High Court’s power to prevent abuse of the legal process. The Supreme Court’s judgment interprets how these provisions interact in the context of a case where criminal allegations are intertwined with civil disputes.

Arguments

Arguments by the Petitioner (A.P. Mahesh Cooperative Urban Bank Shareholders Welfare Association):

• The High Court should not have stayed the criminal proceedings when the complaints prima facie disclosed cognizable offences. The petitioner relied on the judgments in Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra & Others and Skoda Auto Volkswagon India Pvt. Ltd. vs. State of U.P. to argue that the High Court should not interfere with police investigation at the initial stage.
• The High Court erred in considering the pendency of civil writ petitions related to voter fraud as a basis to stay the criminal complaints. The petitioner cited Mohd. Allauddin Khan vs. State of Bihar & Ors. and K. Jagdish vs. Udaya Kumar GS to argue that civil proceedings should not impact criminal proceedings.
• The High Court incorrectly viewed some allegations as arbitrable under Section 84 of the Multi-State Cooperative Societies Act, 2002. The petitioner contended that criminal matters cannot be subjected to arbitration, citing N.N. Global Mercantile Pvt. Ltd. vs. Indo Unique Flame Ltd.
• The petitioner argued that the High Court’s order was contrary to the principles laid down by the Supreme Court in Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra & Others, which restricts the grant of stay orders in criminal proceedings.

Arguments by the Respondents (Ramesh Kumar Bung and Ors.):

• The Supreme Court should not interfere with an interim order of the High Court when the main matter is pending.
• The High Court had valid reasons to grant a stay, as the criminal complaints were a result of election-related disputes and were filed with mala fide intent to harass the respondents.
• The High Court’s order was not a blanket stay but a reasoned order based on the facts of the case, which is permissible under the principles laid down in Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra & Others.
• The respondents contended that the complaints were filed to put pressure on them during the election period and were an abuse of the legal process.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed by the Court can be summarized as:

1. Whether the High Court was justified in staying further proceedings in the criminal complaints, including the arrest of the respondents.
2. Whether the High Court’s order was in line with the principles laid down by the Supreme Court in Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra & Others.
3. Whether the pendency of civil writ petitions related to election disputes could be a valid ground to stay criminal proceedings.
4. Whether the allegations of loan fraud were genuinely independent of the election disputes or were an attempt to convert a civil dispute into a criminal one.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

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 authorities as follows:

• Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra & Others [ (2021) SCC Online SC 315]:* The Court held that the High Court’s order was in line with the principles laid down in this case, as it was a reasoned order based on exceptional circumstances.
• Skoda Auto Volkswagon India Pvt. Ltd. vs. State of U.P. [(2020) SCC Online SC 988]:* The Court distinguished this case, stating that the High Court’s order was justified given the facts of the case.
• Mohd. Allauddin Khan vs. State of Bihar & Ors. [(2019) 6 SCC 107]:* The Court distinguished this case, stating that the High Court did not stay proceedings solely based on the pendency of civil proceedings.
• K. Jagdish vs. Udaya Kumar GS [(2020) 14 SCC 552]:* The Court distinguished this case, stating that the High Court did not stay proceedings solely based on the pendency of civil proceedings.
• N.N. Global Mercantile Pvt. Ltd. vs. Indo Unique Flame Ltd. [(2021) SCC Online SC 137]:* The Court stated that the reference to Section 84 of the Multi-State Cooperative Societies Act, 2002 was limited to allegations about admission of members, and not the criminal complaints.
• State of Haryana vs. Bhajan Lal [1992 Supp (1) SCC 335]:* The Court reiterated the principles laid down in this case, particularly regarding mala fide intent and abuse of process.
• Sheonandan Paswan vs. State of Bihar [(1987) 1 SCC 288]:* The Court referred to this case to highlight the view that a criminal prosecution does not become vitiated on account of malafides of the complainant, but cited Bhajan Lal to state an exception to this view.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the sequence of events leading to the filing of the criminal complaints. The Court noted that the petitioner association initially raised concerns about the election process and the creation of the post of Chairman Emeritus. The allegations of loan fraud emerged much later, after the petitioner failed to secure interim relief in the writ petitions related to the elections. The Court observed that the petitioner had engaged in a multi-pronged attack, including filing writ petitions, sending police complaints, and approaching the Hon’ble Minister for directions, before finally filing private complaints before the Magistrate.

The Court emphasized that the High Court had rightly identified the mala fide intent behind the criminal complaints, which appeared to be an attempt to convert an election dispute into a criminal case. The Court also noted that the High Court had given elaborate reasons for granting the stay, which is permissible under Neeharika in exceptional cases. The Court also took note of the fact that a forensic audit was already prayed for in the civil proceedings, which was a better way to ascertain the truth of the allegations.

The Court also considered the fact that the petitioner association was registered only in 2019, while the allegations pertained to the period 2016-2020, further indicating that the complaints were not genuine but an attempt to harass the respondents.

Sentiment Analysis of Reasons

Fact:Law Ratio

Logical Reasoning

The Court considered that the facts of the case indicated that the criminal complaints were not genuine but an attempt to harass the respondents and convert a civil dispute into a criminal one. The Court also considered the legal principles laid down in Neeharika and Bhajan Lal, which allow for the quashing or staying of criminal proceedings in exceptional cases where there is mala fide intent.

The Court rejected the petitioner’s arguments that the High Court erred in considering the pendency of civil writ petitions and that the allegations were not arbitrable. The Court clarified that the High Court had rightly considered the overlapping nature of the allegations and the sequence of events, and that the reference to Section 84 of the Multi-State Cooperative Societies Act, 2002 was limited to allegations about admission of members.

The Court quoted the following from the judgment:

• “witnesses may lie, but circumstances may not”
• “where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge”
• “that a criminal prosecution, if otherwise justifiable and based upon adequate evidence, does not become vitiated on account of malafides or political vendetta of the first informant or complainant.”

Key Takeaways

• High Courts have the power to stay criminal proceedings, including arrests, in exceptional cases where there is a clear indication of mala fide intent or abuse of the legal process.
• Criminal complaints that appear to be an attempt to convert a civil dispute into a criminal one may be stayed by the High Court.
• The sequence of events and the background of a case are crucial in determining the genuineness of criminal complaints.
• Courts may consider the overlapping of allegations in civil and criminal proceedings when deciding on interim relief.
• A reasoned order by the High Court, based on the facts of the case, is permissible under the principles laid down in Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra & Others.

This judgment reinforces the principles laid down in Neeharika and Bhajan Lal, emphasizing that criminal proceedings should not be used as a tool to harass individuals or settle personal scores. It also highlights the importance of a thorough examination of the facts and circumstances of a case before initiating or continuing criminal proceedings.

Directions

The Supreme Court dismissed the Special Leave Petitions, thereby upholding the High Court’s order to stay the criminal proceedings. The stay earlier granted by the Supreme Court was vacated.

Specific Amendments Analysis

There were no specific amendments discussed in this judgment.

Development of Law

The ratio decidendi of this case is that High Courts can stay criminal proceedings, including arrests, in exceptional cases where there is a clear indication of mala fide intent or abuse of the legal process, particularly when criminal complaints appear to be an attempt to convert a civil dispute into a criminal one. This judgment reinforces the principles laid down in Neeharika and Bhajan Lal, emphasizing the need to prevent the misuse of criminal law.

Conclusion

The Supreme Court dismissed the Special Leave Petitions filed by the A.P. Mahesh Cooperative Urban Bank Shareholders Welfare Association, thereby upholding the High Court’s decision to stay criminal proceedings against the bank’s directors. The Court found that the criminal complaints were an attempt to convert an election dispute into a criminal case and that the High Court had correctly exercised its powers to prevent abuse of the legal process. The judgment emphasizes the need for a thorough examination of the facts and circumstances of a case before initiating or continuing criminal proceedings and the importance of preventing the misuse of criminal law for personal or political vendettas.