Supreme Court Upholds Conviction in Bank Fraud Case: Vijayaraman vs. State (2024)

Date of the Judgment: May 3, 2024

Citation: 2024 INSC 373

Judges: C.T. Ravikumar, J. and Rajesh Bindal, J.

Can individuals who benefited from fraudulent bank transactions, even if they did not directly manipulate the accounts, be held liable for cheating? The Supreme Court of India recently addressed this question while dismissing appeals against a High Court judgment that upheld the conviction of businessmen involved in a bank fraud. The case revolves around unauthorized debits and credits made by bank officials in collusion with private parties, resulting in interest-free advances. The Supreme Court bench, comprising Justices C.T. Ravikumar and Rajesh Bindal, delivered the judgment, dismissing the Special Leave Petitions.

Case Background

The case originated from an FIR registered by the Central Bureau of Investigation (CBI) on September 27, 2004, concerning fraudulent transactions at the Srirangam Branch of Indian Bank in Trichy. The investigation revealed that bank officers had made unauthorized debits in external clearing and local drafts accounts, crediting these amounts to various parties, including the petitioners, to offset temporary overdrafts. These transactions occurred in September 2002. An inspection by senior bank officers on January 9, 2004, uncovered these fraudulent entries, totaling ₹1,10,66,100 involving ten borrowers. The bank manager deposited the amount the next day. The Trial Court convicted the petitioners, and the High Court upheld the conviction.

Timeline

Course of Proceedings

The Trial Court (II Additional District Judge for CBI Cases, Madurai) convicted T.R. Vijayaraman and B. Kanagarajan for offences under Section 120-B read with Section 420 of the Indian Penal Code, 1860, and Section 420 of the Indian Penal Code, 1860, sentencing them to five years of rigorous imprisonment and a fine of ₹5,000 each. The High Court of Judicature at Madras, Bench at Madurai, upheld these convictions in Criminal Appeal (MD) No.407 of 2016 and Criminal Appeal (MD) No. 386 of 2016, respectively. The petitioners then approached the Supreme Court via Special Leave Petitions, which were ultimately dismissed.

Legal Framework

The petitioners were charged under the following sections of the Indian Penal Code, 1860:

• Section 120-B of the Indian Penal Code, 1860: This section deals with criminal conspiracy, which is an agreement between two or more persons to commit an illegal act.
• Section 420 of the Indian Penal Code, 1860: This section pertains to 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.”

Arguments

The petitioners argued that the High Court did not discuss the evidence in detail for each of the five separate trials. They claimed they were not directly involved in the cheating and did not receive any undue benefit, as the bank did not suffer any loss because the amount was returned. They contended that the transactions were normal business practices, supported by security furnished for the overdraft facility. They cited the case of A.T. Mydeen and Another vs. Assistant Commissioner, Customs Department [(2022) 14 SCC 392] to argue that no case of cheating was made out.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, however, the main issue was whether the High Court erred in upholding the conviction of the petitioners for offences under Section 120-B read with Section 420 of the Indian Penal Code, 1860, and Section 420 of the Indian Penal Code, 1860, based on allegations of fraudulent bank transactions.

Treatment of the Issue by the Court

Authorities

The following authority was 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 distinguished the case of A.T. Mydeen and Another vs. Assistant Commissioner, Customs Department [(2022) 14 SCC 392]*, which the petitioners relied on, stating that it was not applicable to the facts of the present case.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the finding that the petitioners were involved in a deliberate scheme to defraud the bank. The Court emphasized that the transactions were not normal business practices but were fraudulent, as the entries were made without any instrument submitted for clearing. The fact that the petitioners enjoyed interest-free advances and the manner in which the entries were made in the accounts were also significant factors. The Court also noted the immediate deposit of the amount after the inspection as a sign of guilt.

Logical Reasoning

The Court rejected the petitioners’ arguments that the transactions were normal business practices, emphasizing that the fraudulent entries were made without any instrument submitted for clearing. The Court also noted that the petitioners had enjoyed interest-free advances, which indicated a deliberate scheme to defraud the bank. The immediate deposit of the amount after the inspection further solidified the Court’s view that the petitioners were guilty of the offense.

The Supreme Court upheld the conviction, stating, “The manner in which the entries were made in the accounts could not be disputed… All the accused in connivance with each other have cheated the bank.” The Court also noted, “The fraud started in the year 2002, when without there being any instrument submitted to the bank for clearance from the accounts in which there was no balance, entries were made in the external clearing account and local drafts account for giving credit to the petitioners.” Further, the Court observed, “It was not a loan transaction as was sought to be argued.”

Key Takeaways

• Individuals who benefit from fraudulent bank transactions, even if they do not directly manipulate the accounts, can be held liable for cheating.
• The court emphasized the importance of financial integrity and the consequences of engaging in fraudulent activities.
• The judgment serves as a reminder that immediate restitution of funds does not absolve individuals of criminal liability for fraudulent transactions.

Directions

The Supreme Court directed the petitioners to surrender before the concerned Trial Court within two weeks from the date of the judgment.

Development of Law

The ratio decidendi of the case is that individuals who are part of a criminal conspiracy to defraud a bank can be held liable under Section 120-B read with Section 420 of the Indian Penal Code, 1860, and Section 420 of the Indian Penal Code, 1860, even if they did not directly manipulate the accounts. This judgment reaffirms the principles of criminal liability for fraudulent acts and emphasizes the importance of financial integrity. There is no change in the previous positions of law, but the judgment reinforces the application of existing laws to cases of bank fraud.

Conclusion

The Supreme Court dismissed the Special Leave Petitions filed by T.R. Vijayaraman and B. Kanagarajan, upholding their conviction for offences under Section 120-B read with Section 420 of the Indian Penal Code, 1860, and Section 420 of the Indian Penal Code, 1860. The Court found that the petitioners were involved in a criminal conspiracy to defraud the bank by making fraudulent entries and enjoying interest-free advances. The judgment emphasizes the importance of financial integrity and the consequences of engaging in fraudulent activities.