Holding

The Supreme Court held that the Reserve Bank of India should investigate the alleged misuse of power by the bank officials and submit a report determining their responsibility.

Summary

The Delhi Development Authority filed a petition alleging that senior officials of the New Bank of India and Canara Bank deliberately misused their powers by granting bank guarantees to the Skipper group of companies, causing loss to the banks. The Supreme Court examined whether the officials, including former chairmen and directors, were culpable and what liability they might bear. Recognising that the Reserve Bank of India (RBI) is the statutory regulator of banks, the Court held that the RBI should conduct a detailed enquiry into the alleged irregularities. It directed the Governor of the RBI to appoint two Deputy Governors as members of an Enquiry Committee and to consider the material presented, including the Justice Saharya Commission Report. The Court ordered that the Committee’s findings be reported back within three months and that the properties of the accused be subject to earlier orders. Consequently, the petition was disposed of pending the RBI’s enquiry report.

Issues considered

What extent, if any, did the former chairmen and directors of New Bank of India and Canara Bank intentionally misuse their powers in granting guarantees to the Skipper group?
What liability, if any, should attach to those officials for losses incurred by the banks?
Whether the Reserve Bank of India, as the banking regulator, should conduct an enquiry into these alleged irregularities.

Subjects

bank guaranteeregulatory oversightReserve Bank of Indiaenquiry committeemisuse of powerbanking irregularitiesDelhi Development AuthoritySkipper ConstructionSupreme Court order

Judgment

A DELHI DEVELOPMENT AUTHORITY
v.
SKIPPER CONSTRUCTION CO. AND ANR.

FEBRUARY 11, 1997
, I

B [B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.]

Banking:

Bank guarantee-llregultirities in-Chainnan and Managing Director
aJld Directors of New Bank of India and other Bank authorities-Irregularities
c by in the matter of bank guarantee to and on behalf of Skipper Group-Held,
Reserve Bank of India being the authority to regulate and monitor the
activities of the Banks in the country, would enquire into the matter and send
a report to the Supreme Court detennining the responsibility, if any, of each
of the persons involved in the case.
D
CIVIL APPELLATE JURISDICTION: IA. Nos. 16, 23, 24, 25, 27, -..,.,.
29, 30, 31, 32, 38-49, 15, 32A, 33, 34, 51-54.

In

E Special Leave Petition (C) No. 21000 of 1993.

From the Judgment and Order dated 9.12.93 of the Delhi High Court
in Suit No. 770 of 1993.

V.R. Reddy, K.N. Bhat, Additional Solicitor Generals, H.N. Salve,
F Kapil.Sibbal, Arun Jaitley, Joseph Vellapally, Arvind Kumar, Ms. Kamini
Jaiswal, Dayan Krishanan, K.C. Dua, Din Dayal Sharma, K.J. John, Sudhir
Kumar Gupta, Jana Kalyan Das, P.N. Misra, R.C. Gubrele, Sunil Dogra,
Ms. Monica Sharma, Ms. Sushila Ram, Devender Singh, S. Sukumaran, ·
Jagdeep Kishore, Y.P. Narula, Mukul Mudgal, Y.P. Mahajan, V.K.
G Verma, K.C. Dua, Ranjit Kumar, Ms. Anu Mohla, H.S. Parihar, Kuldeep
S. Parihar, R.K. Anand, S.P. Sharma, Lokesh, Arun Birbal, P.R. Ramasesh,
S.K. Kulkarni, (Jaswant Singh - In-person) for the appearing parties.

The following Order of the Court was delivered :

H This order is in continuation of the order dated January 31, 1997 and
1122
D.D.A. v. SKIPPER CON1N. CO. 1123

the order dated February 7, 1997. A
Pursuant to the notice given to Sri R.C. Suneja [formerly Chairman
and Managing Director of the New Bank of India], he has filed a detailed
counter setting out several facts and circumstances and putting forward
several defences. He has also filed a list of all the movable and immovable
properties held by him, his wife and his children. The Canara Bank has B
filed an elaborate response in the matter. The Punjab National Bank, into
which the New Bank of India has been merged, has also offered to file their
:.- response.

The other directors of New Bank of India, to whom notices were C
directed, viz., Ms. Tajwar Rehman Sawhney, Sri Sudershan Lal, Sri S.S.
Ranade and Sri J .K. Sawhney have filed their explanations.

On the basis of information furnished by the learned counsel for the
Canara Bank, with respect to the legal representatives of Late Sri B.R.
Ratnakar [formerly Chairman and Managing Director of the Canara Bank) D
~ notices have been issued to his legal representatives in India.

Sri Harish Salve, learned counsel appearing for the Reserve Bank of .
India, stated that during the course of the day [7th February, 1997], the
response of the Reserve Bank of India will be filed. E
The question before us is whether, and to what extent, Sri R.C. Suneja,
Ms. Tajwar Rehman Sawhney, Sri Sudershan Lal, Sri S.S. Ranade and Sri
J.K. Sawhney are guilty of deliberate and/or intentional misuse/abuse of
their power in the matter of the New Bank of India extending bank
guarantees to and on behalf of Skipper group of companies and what loss, F
if any, have they caused to the bank on that account. Upon the answer to
the said question will depend the liability of one or the other of the said
persons to make good the loss caused to the bank. Any action against them
shall also depend upon such answer.

Similarly, the question in the case of Sri. B.R. Ratnakar is whether, G
and to what extent, he is guilty of deliberate and/or intentional
misuse/abJLse of his power in the matter of New bank of India extending
Y bank guarantees to and on behalf of Skipper group of companies and what
loss, if any, has he caused to the bank on that account. Upon the answer
to the said question will depend the liability of the legal representatives of H
1124 SUPREME COURT REPORTS (1997] 1 S.C.R.

A said person to make good the loss caused to the bank.

We may also mention that Sri R.R. Pradhan, Dr. M.R. Kotdawala,
Sri J.P. Awashti were nominees of Reserve Bank of India on the board of
Canara Bank during the period April 24, 1984 to November 10, 1988. Their
B responsibility in the matter has also to be determined. Sri D. Seetharamma
was the workman Director on the board of this bank from August 1, 1981
to August 17, 1987. Notices to these persons shall also issue calling upon
them to show-cause why appropriate action should not be taken against
them inthe light of conclusion (e) recorded by Justice Saharya Commission
[at page 128 of the Report].
c
Having regard to the nature of the question involved herein, and also
because the Reserve Bank of India is the authority to regulate and monitor
the activities of the Banks in the country, we think it appropriate that the
aforesaid questions shall be enquired into by the Reserve Bank of India.
D For this purpose, we request the Governor of the Reserve Bank of India
to nominate two officers of the status of Deputy Governors of the Reserve
Bank of India to act as an Enquiry Committee. The responses/explanations
filed by the several parties in this court, pursuant to the notices issued by
this court, shall be forwarded to the Reserve bank of India and shall form
part of the record before the Enquiry Committee. Two copies of the Justice
E Saharya Commission Report shall also be forwarded to the Reserve Bank
of India and it shall also form part of the record before the said Enquiry
Committee. The said Report of the Commission shall be treated as a
relevant piece of evidence but not as conclusive evidence against the
persons concerned. In other words, while the Enquiry Committee shall be
p entitled to take into consideration the material, oral and documentary,
gathered by the said Commission and its Report, it shall not treat the same
as final and/or binding. It shall be open to the persons concerned to show
that the said findings are not correct and/or tenable, in fact or law, and
that the evidence gathered is not relevant against them. The Enquiry
G Committee shall give notices to both the banks, viz., Punjab National Bank
[into which the New Bank of India has since merged] and the Canara Bank,
to the persons aforementio,ned and to all such other persons who, in the
opinion of the Enquiry Committee, are responsible for any irregularities in
the matter and send a report to this Court determining the responsibility
and the extent of responsibility, if any, of each of the above persons. Those
H persons, to whom notices are given by this Court but have not already filed
I

D.D.A. v. SKIPPER CONTN. CO. 1125

their response/explanation in this Court as well as those to whom notices A
may be given by the Enquiry Committee aforesaid, shall be entitled to
submit their response/explanations before the Reserve bank of India/En-
quiry Committee. The persons who have already appeared in this Court
shall appear before the Committee, at Delhi, on February 20, 1997 in the
premises of the RBI. No notices be sent to them by the Enquiry Commit-
B
tee. The Enquiry Committee shall meet on that day and commence the
work.

""· All the properties standing in the name of Sri R.C. Suneja, his wife
and children as per the list filed by him shall be subject to the orders dated
January 31, 1997. C
The Reserve Bank of India [the Enquiry Committee aforesaid] shall
submit their Report in the matter to this Court as expeditiously as possible,
not later than three months. As and when the Report is received, the same
shall be placed before this Court for appropriate orders.
D
A copy of this order shall be communicated to the Governor,
Reserve Bank of India by name today itself. The Governor, Reserve Bank
of India is requested to take appropriate steps in pursuance of this order.

R.P. Petitions disposed of.

0