Holding

The Special Court has jurisdiction over offences relating to securities and matters incidental thereto, RBI circulars are binding statutory directions, and the accused bank officials knowingly violated them, constituting criminal breach of trust and conspiracy.

Summary

The case concerned the discounting and rediscounting of two bills of exchange by UCO Bank, allegedly to provide funds to stock‑broker Harshad Mehta for securities transactions. The Supreme Court examined whether the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 had jurisdiction over such transactions, and whether RBI circulars issued under the Banking Regulation Act were statutory directions whose breach could constitute criminal breach of trust. It held that the definition of "securities" is expansive, giving the Special Court jurisdiction over the matter, and that RBI circulars are binding on scheduled banks and their officers. The Court found that the accused bank officials knowingly violated these directions, acted dishonestly, and conspired to divert public funds, thereby satisfying the elements of Sections 405, 409 and 120B IPC. Convictions for criminal conspiracy were upheld against accused 1, 2, 4 and 5, with 1 and 2 also convicted of criminal breach of trust; accused 8 was acquitted, and the sentence of accused 2 was modified. The appeals were disposed of with the judgments of the Special Court largely affirmed.

Issues considered

The Special Court's jurisdiction over bill discounting transactions not expressly labeled as securities.
Whether RBI circulars issued under the Banking Regulation Act have the force of law and are binding on bank officers.
Whether the accused possessed the requisite mens rea to constitute criminal breach of trust and criminal conspiracy.
The liability of Accused No.8, a Scale IV bank employee, for criminal conspiracy.
The appropriate sentencing for the convicted accused.

Legislation cited

Banking Regulation Act, 1949s. 21, s. 35A
Code of Criminal Procedure, 1973s. 6
Indian Penal Code, 1860s. 120B, s. 405, s. 409
Negotiable Instruments Acts. 32
Prevention of Corruption Acts. 13(1)(d), s. 13(2)
Reserve Bank of India Act, 1934
Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992s. 36(1)

Subjects

securities scambill discountingcriminal breach of trustcriminal conspiracyRBI circularspecial court jurisdictionbanking regulationsHarshad MehtaUCO Bank

Judgment

[2009] 12 S.C.R. 682

A SUDHIR SHANTILAL MEHTA
.-r
v.
C.8.1.
(Criminal Appeal No. 905 of 2005)
AUGUST 7, 2009
B
[S.8. SINHA AND CYRIAC JOSEPH, JJ.]

Special Court (Trial of Offences Relating to Transactions
.I
in Securities) Act, 1992:
c
s.36(1) - Security scam - Transaction of discounting and
rediscounting of bill of exchange - Accused persons, public

D
servants having dominion over public funds - Allegedly
entered into conspiracy wiU1 Harshad Mehta, dealer in
securities market for obtaining liquid cash for short period with
-
a view to make investments in securities market - Bills of
I
..
exchange issued in relation l'o transaction in shares - No
verification as required undertaken - No security taken -
Discounting of bill of exchange - Payment not made on the
retiring day - Loss to bank - Conviction under s.409 and
E
s. 120B - Held: Acquisition of shares was neither bona fide
nor in the interest of the Bank - Guidelines laid down in the
.JI
Manual of UCO Bank and directions of Reserve Bank of India
....
dated 5.9.1988, stipulated that credit limit be fixed only after
verifying the creditworthiness of customer - Security also
F required to be taken and it was the duty of the Manager to
satisfy himself that the Bills of Exchange were a result of
genuine trade transactions - But said procedures were given
a complete go by - Branch not dealing with Bill Discounting
chosen which demonstratively proved that the transactions
G were not ordinary commercial transactions - Accused 1 and
2 were high ranking officers of the Bank and had dominion
over the funds thereof - They could not part with the same in
favour of any person without complying with the statutory
requirements - By reason of such transaction wrongful loss
H 682
SUDHIR SHANTILAL MEHTA v. C.8.1. 683

-- --1
was caused to the Bank and wrongful gain was made by the A
Harshad Mehta group - Money of a Public Sector Bank was
diverted to share/securities market transactions in violation of
law - Prosecution proved the charges made against the
accused 1, 2, 4, 5- Conviction for conspiracy for commission
of the offence of criminal breach of trust upheld - Banking B
Regulation Act, 1949 - s.21, 35A - Reserve Bank of India,
1934 - Penal Code, 1860 - ss.405, 409, 120B - Scam.

Jurisdiction of Special Court - Held: Is not confined to
the scam relating to securities alone but utilization of any
amount relating to transaction of securities and for matters
c
connected therewith or incidental thereto.

s.2(c) - Securities - Meaning of.

Reserve Bank of India, Act, 1934: Directions/circulars D
-'\ issued by RBI are statutory in character - RBI has requisite
.. power to issue direction to Banks in relation to discounting and
rediscounting of bills of exchange and directions so issued
have statutory force - All public sector banks are bound
thereby.
E
Prosecution case was that accused no.1 was the
).
Chairman-cum-M.D. of the UCO Bank. On 14.3.1992, he
"' visited Harshad Mehta who was a dealer in the securities
market. After the meeting he allegedly informed the other
officers of the bank that he met Harshad Mehta who F
suggested that it was in the interest of the bank to
undertake the business of discounting and rediscounting
bills of exchange. The officers present were assured by
accused no.1 that the business would be transacted
without involving the banks funds. He also insisted for G
,_ undertaking the said business through the Nariman Point
Branch of the Bank though such transactions were
generally not undertaken therefrom.

On the same day i.e. 14.3.1992, a resolution was
H
684 SUPREME COURT REPORTS [2009] 12 S.C.R.

A passed by M/s. Growmore, to open an account in UCO r ,

Bank, Nariman Point so as to enable it to avail bill
discounting facility provided by UCO Bank Ltd. limited to
Rs.50 crores. A similar resolution was passed on
18.3.1992 by Mis. Mazda.
B
On 24.3.1992, Accused no. 7 and 9 came to Nariman
Point Branch of UCO Bank. They brought with them two
banker's cheques, one cheque was from Syndicate Bank
for Rs.24.63 lacs and the other from State Bank of Patiala
for Rs.25 lacs. Two bills of exchange drawn by J.H. Mehta
c were accepted by accused 4 on behalf of Growmore and
accused 7 on behalf of Mazda. Letters were also issued
by Mazda and Growmore to the effect that the said
amount would be repaid by them on or before 24.4.1992.
The two usance promissory notes were handed over to
D accused no.7 and 9. The acceptors Mazda and Growmore
did not have any account in the said branch at that time.
l
Two draft promissory notes were handed over to PW 44 ...
by Accused Nos. 7 and 9; one issued in favour of
Syndicate Bank and the other in favour of State Bank of
E Patiala to be executed by UCO Bank in relation to the said
cheques. Those usance promissory notes were signed
~
by PW 44 and PW 1, pursuant whereto the Bank issued
....
two pay orders on the same day in favour of ANZ
Grindlays Bank for a sum of Rs.25.27 crores and Rs.
F 14.14 crores. An account in the name of M/s J.H. Mehta
was opened on the same day and the amount of Bill of
Exchange was credited into that account.

On 25.3.1992, the amount was transferred to Harshad
Mehta's account. On 26.3.1992, PW 44 asked PW 1 to
G prepare a note for the Chairman so as to enable him to
seek approval from the Board for the transaction.
Pursuant to this, the said note was prepared and it was
shown to accused No. 1. A proposal for ratification of the
Bill Discounting transaction was sent to the Head office
H
SUDHIR SHANTILAL MEHTA v. C.B.I. 685

on 3.4.1992. On 24.4.19~2, i.e., the due date for retiring the A
- -I
Bills of Exchange, the payments were not made either by
the drawer or by the acceptors. Accused No. 1 allegedly
agreed to the suggestion of Harshad Mehta for rolling
over the same for one more month. PW 44 allegedly did
not agree thereto and insisted on prompt payment. B
As the funds were not received, UCO Bank made
payments to Syndicate Bank and State Bank of Patiala
out of its own funds. There was shortfall in the funds
available with UCO Bank, the requisite call money to meet
the deficient was borrowed by it from the Corporation
c
Bank and the Oriental Bank of Commerce to the tune of
Rs. 50 crores for three days. Officers of UCO Bank
thereafter visited the offices of Mazda and Growmore for
realization of the payments due. Two cheques were
handed over by M/s J.H. Mehta with a request that the D
-'
.. •
same be not encashed and that the cheques of
Growmore and Mazda would be given at a later date .
Mazda and Growmore also issued two cheques. They
were not sent for clearing as the requisite funds therefor
were admittedly not available in their accounts. The said E
two Bills of Exchange, for want of fund, were not retired
either by M/s J.H. Mehta or Growmore or Mazda.
.... Subsequent thereto, a formal meeting of the Investment
Committee consisting of Accused Nos. 1 and 3 and PW
45 was held. At the instance of Accused Nos. 1 and 3, F
shares of Gujarat Ambuja Cement worth Rs. 50 crores
were purchased by UCO Bank. The amount received by

- J.H. Mehta from UCO Bank under the said transaction
was transferred by him to Mazda and Growmore so as
to facilitate encashment of the said cheques for retiring G
-f the Bills of Exchange. Payment towards purchase of
shares was made by UCO Bank before delivery thereof.
The amount due to the Bank was thus sought to be
realized in that manner.
H
686 SUPREME COURT REPORTS [2009] 12 S.C.R.

A Several charges were frame(t against the accused
persons by the Special Court. The Special Court held
r
-
that the offence of criminal breach of trust on the part of
the accused Nos. 1 and 2 was proved beyond all
reasonable doubts as they had been entrusted with the
B funds of UCO Bank; that the said discounting of bills was
illegal as it violated the Circular issued by the Reserve
Bank of India dated 5.9.1988; and by reason thereof, a
sum of Rs. 50 crores was transferred to the accused No.
3 Harshad Mehta and/or his groups; the transactions was
c in violation of the Circular dated 5.9.1988, the accused
Nos. 1, 2 and 8 acted contrary thereto or inconsistent
therewith, the same constituted an offence within the
meaning of Section 405 IPC; the said transactions were
carried out to benefit Harshad Mehta Group of
Companies by the accused in conspiracy with each
D
other; and the private accused as well as Accused No.8 ~
4
were convicted only for commission of the offence of
._
criminal conspiracy. Accused 1 to 5 and 8 filed these
appeals.

E Disposing of the appeals, the Court

HELD: 1. Jurisdiction of Special Court is confined to
trial of offence relating to transactions in securities and
for matters connected therewith or incidental thereto
..
F committed during the period between 1.4.1991 and
6.6.1992. The alleged offence was admittedly committed
during the said period. The definition of 'securities' is an
inclusive one. It is not exhaustive. It takes within its
purview not only the matters specified therein but also
all other types of securities as commonly understood.
G The term 'securities', thus, should be given an expansive
-
meaning. The jurisdiction of the Special Court is not
confined to the scam relating to securities alone but
utilization of any amount relating to transactions in

H
SUDHIR SHANTILAL MEHTA v. C.8.1. 687

__, securities and for matters connected therewith or A
- incidental thereto. The jurisdiction of the Special Court is
exclusive one. It exercises original jurisdiction to try
offences relating to security scam. The said Act having
regard to the peculiar nature of offence sought to be dealt
with, should receive a liberal construction. Jurisdiction of B
the Special Court is required to be determined with
regard to the provisions of Section 6 of the Code of
Criminal Procedure, 1973. The Act is a special Act. It
+.- contains a non obstante clause. It shall, thus, prevail over
any other Act. [Paras 34, 37, 40, 41 and 44] [718-E; 719- c
E-F; 720-F-G; 721-D]

State of Bombay and others v. The Hospital Mazoor
> Sabha and others AIR 1960 SC 610; Regional Director,
Employees State Insurance Corporation v. High Land Coffee
Works of P.X. S. Sa Idanha and sons and Anr. (1991) 3 sec D
~ 617; Commercial Taxation Officer, Udaipur v. Rajasthan
Taxchem Ltd. (2007) 3 SCC 124 and So/idaire India Ltd. v.
Fairgrowth Financial Services Ltd. and others (2001) 3 SCC
71 - relied on.
E
Harshad S. Mehta and others v. State of Maharashtra
}- (2001) 8 SCC 257; L.S. Synthetics Ltd. v. Fairgrowth Financial
Services Ltd. and another (2004) 11 sec 456, referred to.
·--
2. An offence is committed with a view to circumvent
the law. An apparent state of affairs need not be the real F
state of affairs. A simple transaction of discounting and
rediscounting on its face may appear to be genuine and
L- lawful but there may be underlying purposes behind it. It
has not been disputed that Harshad Mehta was dealing
in the money market and securities market and that G
'4-
Growmore although a public limited company, was
controlled by Harshad Mehta. Both Mazda as also
Growmore indisputably were dealing in the business of
selling and buying of shares. Further Mis J.H. Mehta, was
the proprietary concern of the wife of Harshad Mehta. She H
688 SUPREME COURT REPORTS [2009] 12 S.C.R.

A used to execute business through her constituted
attorney. General Power of Attorney was also issued by
these Companies in favour of the accused persons. The
Harshad Mehta Group of Companies were therefore
dealing in securities. [Para 45] [721-E-H]
B
3.1. The method of siph 1oning of the funds of UCO
Bank through discounting of two bills of exchange was
unlawful. Both the bills of exchange were shown to have
been issued in relation to transaction in shares between
M/s JH Mehta, Growmorn and Mazda. For arranging
c repayment of the amount, shares were purchased by
UCO Bank through M/s VB Desai and Co. The offence of
conspiracy to commit the offence of breach of trust, thus,
related to the transaction in securities. It is therefore not ....
a case where it can be said that the Special Court lacked
D inherent jurisdiction in trying the offence said to have
been committed by thf~ accused. [Paras 46 and 48) [722-
.
•
A-B; 722-B; 722-C)

3.2. UCO Bank is a Nationalized Bank. It has various
E branches in Bombay; its main Branch being at D.N. Road.
Its Nariman Point Branch was mainly dealing with foreign
exchanges. The business as regards discounting and i

rediscounting usually was carried out at the main branch. ~

[Para 50] [722-E-F]
F 4. In terms of Section 35A of the Banking Regulation
Act,1949, the Reserve Bank of India is empowered to
issue directions to the Banks in public interest; or in the
interest of Banking policy; or to prevent the affairs of any
banking company being conducted in a manner
G detrimental to the interests of the depositors or in a
manner prejudicial to the interest of the Banking
Company; or to secure the proper management of any
Banking company generally. The Reserve Bank of India,
therefore, has the requisite power to issue direction to
H Banks in relation to discounting and rediscounting of
SUDHIR SHANTILAL MEHTA v. C.8.1. 689

-i bills of exchange and directions so issued have statutory A
force. All public sector banks are bound thereby.
Pursuant to or in furtherance of the said power, the
Reserve Bank of India issued a Circular dated 5.9.1988
titled "Bills Rediscounting Scheme -- Introduction of
usance promissory notes - Procedure therefor". B
Accused Nos. 1, 2 and 8 were public servants and so
were bound by the Circulars issued by the Reserve Bank
of India. [Paras 52-55 and 57] [722-G-H; 722-B-C; 722-D]
~
Corporation Bank vs. D.S. Gowda & Anr. (1994) 5 SCC
213 & Central Bank of India vs. Ravindra & Ors. (2002) 1 SCC
c
367, referred to.

8.0./. Finance Ltd. v. Custodian & ors. 1997 (10) SCC
488, held inapplicable.
D
-t 5.1. The distinction between exercise of jurisdiction
under the enabling provisions contained in Section 36(1)
of Special Court (Trial of offences relating to transactions
in Securities) Act, 1992 and the ones under Sections 21
and 35A of the Banking Regulation Act and the E
provisions contained in Section 45L of the Reserve Bank
/I. of India Act, 1934 is absolutely clear and unambiguous.
~ In terms of Section 36, the Reserve Bank of India may
caution or prohibit the Banking Companies but in terms
of Sections 21 and 35A of 1949 Act it can issue binding
F
directions. The circular was issued by the Reserve Bank
of India in regard to rediscounting. The officials of UCO
Bank were, therefore, bound by the said circular letter.
UCO Bank could only have discounted the bills of
exchange out of bonafide commercial transactions as
had been provided under the RBI circulars. [Paras-63 and G
65] [725-F; 725-G; 726-B]

State of Madhya Pradesh v. Ramcharan AIR 1977 MP
68, referred to.
H
690 SUPREME COURT REPORTS [2009] 12 S.C.R.

A 5.2. The accused contended that they had no
knowledge of the circulars. The conduct of the accused
clearly shows to the contrary that they in fact had
knowledge of the RBI Circulars in question. They
otherwise would not have gone to the length of creating
B documents to show that the bills of exchange was
issued because of a sale of shares of M/s JH Mehta to
Growmore and Mazda. In order that the bank could
discount a bill of exchange, it was necessary that it related
to a bonafide or genuine commercial transaction and it
c was because of this requirement that the accused
persons had gone to the extent of preparing false
documents to give an appearance that the discounting
related to bona fide commercial transaction. [Para 66]
(727-F-G; 727-H; 728-A-B]
D 6.1. An offence of criminal breach of trust by a public
servant attracts the penal provision of Section 409 IPC. t
Indisputably, the Bank entrusted its funds to its officers;
they had the dominion over the said property; they were
holding the said money in trust which is an
E comprehensive expression, to denote a relationship of
master and servant. The act of criminal breach of trust per
se may involve a civil wrong but a breach of trust with
an ingredient of mens rea would give rise to a criminal
prosecution as well. [Para 68] (728-E-F]
F
6.2. The criminal breach of trust would mean using
or disposing of the property by a person who is entrusted
with or has otherwise dominion thereover. Such an act
must not only be done dishonestly but also in violation
G of any direction of law or any contract express or implied
relating to carrying out the trust. It is one thing to say that
any circular letter issued by the Reserve Bank of India
being not within the public domain would not be law but
it would be another thing to say that it did not contain any
direction of law so as to attract the liability in terms of
H
SUDHIR SHANTILAL MEHTA v. C.B.I. 691

Section 405 IPC. Lawful directions were issued by the A
Reserve Bank of India. The Circular Letter was meant for
all Scheduled Banks. The authorities and/or officers
running the affairs of the Scheduled Banks therefore
were aware thereof. If it is binding on the Banks, it would
be binding on the officers. Any act of omission or B
commission on the part of any authority of the Bank
would amount to acting in violation of any direction of
law. A direction of law need not be a law made by the
~ Parliament or a Legislature; it may be made by an
authority having the power therefor; the law could be a
subordinate legislation, a notification or even a custom.
c
[Para 69] [729-A-D]

6.3. Indisputably, the higher authorities of the UCO
Bank were entrusted with or otherwise had dominion
over the properties of the bank. They were dealing with D
public funds. Failure on their part to abide by the
directives issued under the Circulars would result in civil
action. Subjecting the bank to a civil liability would thus
attract one of the ingredients of criminal breach of trust.
[Para 70] [729-E-G] E

,k 7. The mode of disposal of the public money is
. prescribed in terms of the UCO Bank Manual and the
Circulars issued by the Reserve Bank of India. It was,
however, necessary for the prosecution to prove that the
F
same was done with requisite mens rea. The submission
for the appellants that there has been no violation of the
RBI Guidelines and/or the UCO Bank Manual cannot be
accepted. It may be true that PW 40, Executive Director,
RBI, Bombay had stated that technically the RBI Circular
referred to the Bill rediscounting and not discounting, but G
it is not disputed at the Bar that Bill rediscounting must
be preceded by Bill discounting. UCO Bank had issued
usance promissory notes; it was required to be backed
by encumbered usance Bills of Exchange of at least
H
692 SUPREME COURT REPORTS [2009) 12 S.C.R.

A equal value not due for payment; the transactions were
required to be bona fide commercial transaction. UCO
Bank Manual although permits advances as against
house bills but it stipulates that for the said purpose,
creditworthiness of the customer was required to be
B verified. Credit limit was also to be fixed. For the said
purpose, credit reports were to be compiled; limits were
to be sanctioned. The jurisdiction of Chairman-cum-
Managing Director and other Authorities are fixed if the
Bill of Exchange exceeds Rs. 25,000/-, credit report on
drawees on whom the bill is drawn is also required to be
c obtained. The Manual mandates that security be also
taken. The duty had been cast on the Manager to satisfy
himself that Bill of Exchange is the result of genuine
trade transaction. [Paras 71 and 88] [730-A-B; 735-C-H]

D 8.1. Section 43 IPC carries a very wide meaning. If
any ground for civil action can be founded on the basis
of any act of omission or commission on the part of a
person, his act may be held to be illegal or it may be held
that he was legally bound to do an act which he had
E omitted to do. If a person is guilty of breach of a
departmental order, he may be held to be guilty as he
;I.
was legally bound to act in terms thereof. It does not ~

matter whether the violation was in relation to the Circular
issued by the Reserve Bank of India or whether it was in
F violation of the guidelines issued by the Bank itself. The
question as to whether the directions are statutory in
character and binding in law may not depend upon the
nature of the powers to be exercised by the Reserve Bank
of India. Discounting and rediscounting of Bills of
Exchange is an integral part of banking transactions.
G
Purchase and sale of securities is also a part of the
banking transactions as would appear from Section
6(1)(a) of the Banking Regulations Act. Harshad Mehta
was having a very good customers credit rating which
was even spoken of by PW 7. The Bills of Exchange
H
SUDHIR SHANTILAL MEHTA v. C.8.1. 693

being usance Bills of Exchange in terms of Section 32 of A
the Negotiable Instruments Act on their maturity, only the
acceptors, namely, Growmore and Mazda were
responsible for clearance thereof and not M/s J.H. Mehta.
[Paras 89 and 90] [736-C-E; 736-E-G]
8
8.2. The bills were drawn by M/s JH Mehta and were
accepted by M/s Growmore and M/s Mazda. The payment
on rediscounting by the Bank should therefore be made
to M/s JH Mehta, but the payment was in fact made to M/
s Growmore and M/s Mazda Industries. If the Bills of C
Exchange was drawn because M/s JH Mehta had sold the
shares to Mazda and Growmore, it was Mis JH Mehta
entitled to the purchase price of the shares which it was
sold to M/s Growmore and M/s Mazda. In the present case
the Bank first made a credit entry in the account of JH
Mehta and then transferred the amount to Growmore and D
Mazda by issuing cheques in favour of ANZ Grindleys
Bank favouring Mazda and Growmore. Thus the ultimate
payment on the rediscounting of the two bills of
exchange went to Growmore and Mazda who had been
shown as the purchasers of the shares from M/s JH E
Mehta and were therefore to make payment of the price
of the share to JH Mehta. Even the cheques for
repayment to the Bank on 27.04.1992 were issued by M/
s Growmore and M/s Mazda. As the amount paid under
the Bills of exchange by the Bank was returned to the F
Bank, it is beyond the purview of any explanation why
the bills of exchange was drawn in the first place.
Obviously the discounting of the Bills of exchange did not
represent a bonafide commercial transaction. [Para 91]
(736-H; 737-A-E] G

9. It was brought to notice by the appellants that
Harshad Mehta was behind all the entities. Apart from his
individual capacity, he was acting on behalf of M/s J.H.
Mehta, Mazda and Growmore. This fact was not unknown H
694 SUPREME COURT REPORTS [2009] 12 S.C.R.

A to the officers of the Bank. Each one of the private
accused was connected in one way or the other with
each of the said entities. J.H. Mehta, Mazda and
Growmore were new customers. An account was opened
on the same day as the Bill of Exchange was presented
B for discounting. It is beyond any doubt or dispute that the
power to sanction advance so far as the Chairman is
concerned is limited to Rs.5 crores. Prior sanction of the
Board of Director was necessary if the Bill discounting
exceeds Rs.5 crores. Admittedly, even the Board of
c Directors did not ratify the said transaction although in
terms of the Manual it was necessary that prior sanction
should be obtained. The Manual, prescribed exercise of
greater caution in the cases where the drawer and
drawee of the Bill are identical or connected persons. It
provided for the meeting of safeguards by way of making
0
an enquiry as regards the creditworthiness, a satisfaction
of which was required to be arrived at by the Manager.
Thereabout, having regard to the credit rating, business
integrity and past dealing, the Manual provided that those
borrowers who did not satisfy the said tests laid down
E would not be eligible for any loan. Evidently, all these
procedural requirements necessary for safeguarding the
interests of the Bank were not fulfilled. [Paras 92, 93 and
94] [737-F-G; 738-G-H; 739-A-B; 739-C]

F 10.1. The Executive Director of UCO Bank, PW-37
accepted that the discounting of bills is a method of
advancing credit to a party. Evidently, therefore, the
prudent lending norms were required to be observed.
One of the contentions raised for the appellants was that
G further security was not necessary as two cheques had
been issued by two scheduled Banks. The cheques were
issued for the purpose of earning interest by way of
rediscounting. It may be true that whereas the Syndicate
Bank and State Bank of Patiala were to get 17 .5% of
H
SUDHIR SHANTILAL MEHTA v. C.B.1-. 695

interest, the UCO Bank was to receive interest from A
-+ Harshad Mehta at the rate of 21% per month. This itself
shows the speculative nature of the transaction.
Syndicate Bank and State Bank of Patiala or even the
banker of Harshad Mehta and his group ANZ Grindlays
Bank were of the opinion that they proceeded with so B
much amount even for a short period. [Para 97] [739-H;
740-A-C]

10.2. Evidently, UCO Bank was approached as a
conduit as it had no money of its own. Whereas other
banks were secured as they had issued cheques in the
c
name of Nationalized Bank; UCO Bank did not obtain any
security or pledge. The fact that it had undertaken a grave
risk is not in dispute. Money was to be returned by a fixed
date, namely, 24.4.1992. Even the balance sheet and
annual reports of the two banks were not sought for far D
~ less scrutinized for arriving at a satisfaction as regards
the capability of the borrower to repay the amount within
the stipulated time. Only after advances were made i.e. on
26.3.1992, PW-44 asked PW-1 to collect the balance sheet
from Mazda and Growmore for forwarding them to the E
Head Office for seeking approval of the Bill Discounting
.... already done. Thus, all attempts to procure the balance
i" sheet, etc. were undertaken at a later date. As the date of
repayment was coming closer, UCO Bank sent letters to
Mazda and Growmore for arranging funds to retire the Bill F
of Exchange on due date. Evidently, they were unable to
fulfill their promise. For the said purpose, Accused No.1
agreed that the Bills would be rolled over for one more
month. PW-44 was informed about this by Accused No.9.
Naturally, as the entire blame would be put on him, he did G
not agree thereto and insisted on payment. From the
evidence, it is evident that PW-44 informed about his
decision for insistence of payment to Accused No. 2 and
PW-45 also informed of the same to Accused No. 1.
Accused No. 2 being a high-ranking Officer was informed H
696 SUPREME COURT REPORTS [2009] 12 S.C.R.

A particularly in view of the fact that if the Bank does not
get back the money, it has to take loan for the purposes
of having call money, but the very fact that the high-
ranking officers also informed the Accused No. 8, speaks
a volume. [Paras 100, 103) [741-C-D; 741-E-F; 724-B-D;
B 743-B-C]

10.3. Admittedly, even on 24.4.1992 payments were
not made either by the drawer or by the acceptors. In
terms of Section 32 of the Negotiable Instruments Act, it
was the acceptor's liability and not the drawer's liability.
C The fact remained that the money was not re-deposited.
Indisputably, UCO bank had to make payment out of its
own funds. As by reason thereof a shortfall occurred, call
money was borrowed from two other banks, namely,
Corporation Bank and Oriental Bank of Commerce to the
D tune of Rs. 50 crores for three days. Therefore, the
charge of criminal breach of trust stands established
against Accused 1, and 2. The role played by Accused
No. 2 in the entire chain of events is significant. The
decision to discount the two bills of exchange at Nariman
E Point Branch was taken by Accused No. 1 only after
consulting Accused No. 2. Accused No. 2 had full details
of the transaction. He also played a key role in the ,.
purchase of shares by UCO Bank to provide for
repayment of the amount advanced by UCO Bank itself.
F He also similarly made an endorsement for issuing a
cheque in favour of ANZ Grindley's Bank on account of
JH Mehta. However the role played by Accused No. 2 was
subsidiary to that played by Accused No. 1. The entire
transaction appeared to have been gone through
G because of a deal struck between deceased Harshad
Mehta and Accused No. 1. [Paras 104 and 105) [743-D-F;
744-C-E]
10.4. Accused No. 8 was not in a position to issue
any directions; he being a Scale IV employee. He
H
SUDHIR SHANTILAL MEHTA v. C.B.I. 697

therefore could not be said to be guilty of the offence of A
Criminal Breach of trust. The judgment of acquittal
recorded by the Special Judge as regards the Accused
No. 8 is not interfered with. [Para 106] [744-F-G]

11.1. Criminal conspiracy is an independent offence.
8
It is punishable independent of other offences; its
ingredients being:- an agreement between two or more
persons; the agreement must relate to doing or causing
to be done either (a) an illegal act; (b) an act which is not
illegal in itself but is done by illegal means. It is now, C
however, well settled that a conspiracy ordinarily is
hatched in secrecy. The court for the purpose of arriving
at a finding as to whether the said offence was committed
or not may take into consideration the circumstantial
evidence. While however doing so, it must bear in mind
that meeting of the minds is essential; mere knowledge D
or discussion would not be. [Para 107) [744-H; 745-A-C)

Yogesh @ Sachin Jagdish Joshi v. State of Maharashtra
(2008) 6 SCALE 469; Nirmal Singh Kahlon vs. State of
Punjab & Ors. (2008) 14 SCALE 639; Ram Lal Narang vs. E
State (Delhi Administration (1979) 2 SCC 322, referred to.

Chaman Lal & Ors. v. State of Punjab & Ors. JT 2009
(4) SC 662; K.R. Purushothaman vs. State of Kera/a (2005)
12 SCC 631; P.K. Narayanan vs. State of Kera/a (1995) 1 F
'-
sec 142, relied on.
11.2. Offence was committed purely for the benefit of
Harshad Mehta. He was the prime beneficiary. He made
_, elaborate plans to obtain liquid cash for a short period
with a view to enable him to make investments in the G
security market so that he could obtain quick returns. He
involved a few Nationalized Banks in the process.
Prosecution sought to establish the offence of
conspiracy from the evidence of P.W. 44, P.W. 45 and
P.W. 7. The conduct of Growmore and Mazda in passing H
698 SUPREME COURT REPORTS [2009] 12 S.C.R.

A the resolution for opening the accounts even before the
alleged purchase of shares by them from JH Mehta who
had drawn the bills of exchange raise doubt about the
bona fide of the entire transaction. [Para 111 and 112] [7 47-
G-H; 748-C-D; 748-A]
B
11.3. Both Accused 1 and Accused 2 played a major
role in arranging the entire transaction. In fact had it not
been for Accused No. 1, it would not have been possible
for Harshad Mehta or his associates to take the Bank for
a ride and unlawfully utilize the funds of the bank. With a
c view to achieve the said object, neither the RBI directions
requiring bills of exchange to satisfy the tests of bona fide
commercial or cash transactions were complied with nor
the procedure laid down under the UCO Bank Manual
were followed. The power of the Chairman for investment
D in shares is upto Rs. 10 crore. His power in regard to bill
discounting is only upto Rs.5 crore. So far as other >
accused are concerned, namely Accused No.3, Accused
No. 4 and Accused 5, they were not only residing at the
same place but Accused No. 4 and Accused 5 were men
E of trust of Harshad Mehta. A power of attorney had been
executed in their favour. [Paras 114 and 117] [750-C-D;
750-E-F] ~

•
12. The Board of Directors of Growmore had by their
resolution dated 14th March, 1992 authorized Accused 4
F
and 5 to seek bill discounting facility from UCO Bank to
the limit of Rs. 50 crores. The apl?lication for opening the
account of Growmore at Nariman point was signed by
Accused No. 4. Further on behalf of Growmore the Bill of
"'
exchange was accepted by Accused No. 4. Not only this
G but the letter dated 24.3.1992 addressed to UCO Bank by
Growmore undertaking to repay the amount by 24.4.1992
was also signed by Accused No. 4. Legally the Bank
would be concerned only with M/s JH Mehta. But the letter
of Growmore signed by Accused No. 4 clearly indicates
H his involvement in the criminal conspiracy. So far as
SUDHIR SHANTILAL MEHTA v. C.8.1. 699

Accused No. 5 is concerned, it is he who had signed the A
, --t
Bill of Exchange as the Power of attorney of the
proprietors of M/s JH Mehta. It is he who had signed the
forms for opening the account with the Nariman Point
Branch of UCO Bank. He had signed the letter dated
23.3.1992 requesting the Bank to discount the two bills B
of Exchange. The relationship between the parties both
personal and professional clearly establishes criminal
conspiracy on the part of Accused No. 5. The decision
~
of the special judge holding Accused No. 5 guilty of the
offence of criminal conspiracy is affirmed. Accused Nos. c
6, 7 and 9 did not prefer appeals challenging their
conviction. There is no reason to interfere with the
judgment of conviction arrived at by the Special Judge
with respect to the said accused. However the
conclusions arrived at by the Special Judge with regard
D
to the guilt of Accused No. 8 for the offence of Criminal
(
Conspiracy is not upheld. The mere fact that he may be
present at the meeting dated 14.3.1992 of the officers of
UCO Bank by ,itself does not conclusively prove his
involvement in the conspiracy hatched by the other
· officers of the Bank. Something more was needed to be E
shown that he was a party thereto. [Paras 118 and 121]
,<
[750-G-H;.!51-A-B; 751-B-D; 751-E; 751-E-G]
•
Case Law Reference~
F
AIR 1960 SC 610 relied on Para 38
(1991) 3 sec 617 relied on Para 38
(2007) 3 sec 124 relied on Para 39
c2001) 8 sec 257 referred to Para 42 G
t (2004) 11 sec 456 referred to Para 43
c2001) 3 sec 11 relied on Para 44
(1994) 5 sec 213 referred to Para 53 H
700 SUPREME COURT REPORTS [2009] 12 S.C.R.

A (2002) 1 sec 367 referred to Para 53
1997 (10) sec 488 held inapplicable Para 58
AIR 1977 MP 68 referred to Para 64
(2008) 6 SCALE 469 referred to Para 108
B
(2008) 14 SCALE 639 referred to Para 109
JT 2009 (4) SC 662 relied on Para 109
(2005) 12 sec 631 relied on Para 110
c
(1995) 1 sec 142 relied on Para 110

CRIMINAL AP PELLATE JURISDICTION : Criminal Appeal
No. 905 of 2005.

D From the Judgment & Order dated 09.06.2005 of the
Special court (Trial of Offences Relating to Transactions in
Securities) at Bombay in Special Case No. 1 of 1993.
>
WITH
E Crl. A. Nos. 922, 925, 945 & 965 of 2005.

Bishwajit Bhattacharyya, V.A. Mohta, Kamini Jaiswal, P.S. ~

Narasimha, Amit Sharma, Rohit Rao, Rosh Mani, Anupam Lal •
Das, Debashi~ Mukherjee, Ajay Singh, Ravindra Kumar, E.C.
F Ag rawala. f6r the Appellant. ...
Ai. Mariarputham, A. Subba Rao, Aruna Mathur, C.V.

G
Subba Rao, T.A. Khan, B.K. Prasad, P. Parmeswaran, for the
Respondents.

The Judgment of the Court was delivered by
-
S.B. SINHA, J.

INTRODUCTION

H 1. These appeals arise out of a judgment and order dated
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 701

-f 9.6.2005 passed by the learned Judge, Special Court, Bombay A
constituted under the Special Court (Trial of Offences Relating
to Transactions in Securities) Act, 1992 (for short, "the said
Act") in Special Case No. 1 of 1993 whereby and whereunder
appellants herein with accused Munipally Subramanium
Eshwar Chandra (Accused No. 6), Sunil Samtani (Accused No. B
7) and Pankaj Brijlal Shah (Accused No. 9) were convicted for
commission of offences punishable under Sections 409 and
120B amongst others and sentenced as under:
~·
(a) Accµsed No. 1, K. Margabanthu was sentenced to
undergo R.I. for a period of six months and to pay fine of ·
c
Rs.1,00,000/-, in default S.I. for two months.

(b) Accused No. 2, Ramaiya Venkatkrishnan was
sentenced to undergo RI. for three months and to pay fine
of Rs.50,000/-, in default S.I. for 15 days . D
.t
(c) Accused No. 4, Ashwin Mehta was sentenced to
" undergo RI. for a period of three months and to pay fine
of Rs. 2,00,000/-, in default S.I. for one month.

(d) Accused No. 5, Sudhir Mehta was sentenced to E
undergo RI. for a period of three months and to pay fine
>
of Rs.2,00,000/-, in default S.I. for one month.
fl'

(e) Accused Nos. 6, Munipally Subramanium Eshwar
...
Chandra, Accused No. 7 Sunil Samtani, Accused No. 9 F
Pankaj Brijlal Shah were directed to pay fine in the amount
of Rs.25,000/- each, in default S.I. for 15 days.

(f) Accused No. 8, S.V. Ramanathan was sentenced to
undergo R.I. for a period of one month and to pay fine of
G
Rs. 25,000/- in default R.I. for 15 days.
t
2. Before proceeding further, we may place on record that
Harshad Shantilal Mehta (Original Accused No. 3) expired
during the pendency of the criminal proceedings and the case
H
·.
702 SUPREME COURT REPORTS [2009] 12 S.C.R.

A against him, thus, abated. Accused Nos. 1, 2 and 8 who are
appellants in Criminal Appeal Nos. 945, 965 and 922 of 2005
respectively were the Chairman-cum-Managing Director, the
General Manager and the Divisional Manager of UCO Bank
respectively.
B
3. Whereas Accused No. 1 and 2 have been found guilty
of committing both Criminal Breach of Trust as well as Criminal
Conspiracy, Accused No 8, being a Scale IV Bank employee
was found guilty only for commission of the offence of criminal
conspiracy. Accused Nos. 4 and 5 (hereinafter referred to as,
c "the private accused") were found guilty of commission of
offences only under Section 120B of the Indian Penal Code
being related to and otherwise connected with the activities of
the original accused No. 3. Accused Nos. 6, 7 and 9 on whom
only a punishment of fine was imposed accepted the judgment
D and have not preferred any appeal before this Court.
)
BACKGROUND FACTS _.

4. The prosecution case centers around transactions, of
discounting and rediscounting of Bills of Exchange and two Pay
E Orders issued by the State Bank of Patiala and Syndicate
Bank, in favour of the UCO Bank. This was said to be at the
instance of the private accused.
..
.
5. Harshad Mehta was a dealer in the money and
F securities market. The Reserve Bank of India had found that
Harshad Mehta along with his other associates had diverted a
huge amount of public fund belonging to Public Sector Banks
and Financial Institutions for short term investment in the
securities market, and thus defrauded the banks of a huge
G amount.
-
6. An Inquiry Committee was thereafter constituted under
the Chairmanship of Shri Janakiraman. The Committee
submitted its report; pursuant to and in furtherance whereof the
said Act was enacted providing inter alia for the constitution of
H a Special Court for trial of the criminal offences, as also civil
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 703

disputes arising therefrom during the period between 1.4.1991 A
--+ and 6.6.1992. The said Act provides for the appointment of a
Custodian for attaching the properties of notified parties to
prevent diversion of such properties. The properties which were
attached included shares of various companies as well as
moveable and immoveable properties of the private parties B
herein.

7. Accused No. 1 being Chairman-cum-Managing Director
of the UCO Bank used to sit in the Head Office of the Bank
situated atCalcutta. The Bank has an office and a guest house
at Bombay as well. c
8. On or about 14th March 1992, Accused No. 1 visited
Harshad Mehta. Thereafter he came back to his office and
called a meeting in which, inter alia, four Prosecution Witnesses
being Shri S.V. Prabhu, Assistant General Manager (PW 44), D
Shri Bhaskar Roy Choudhary, Dy. General Manager (PW-45),
•
"' Shri Ramanathan, Divisional Manager (Accused No. 8) and
Shri R.L. Joshi, Public Relations Officer (PW 7) participated.

9. Accused No. 1 allegedly informed others that he had
met Harshad Mehta who had suggested that it would be in the E
interest of the Bank to undertake the business of discounting
).:_
and rediscounting of Bills of Exchange. The officers present
" were assured by him that the business could be transacted
without involving the banks' funds. He furthermore insisted that
the said business be undertaken through the Nariman Point F
Branch of the Bank though such transactions were generally not
undertaken therefrom. In course of the meeting, Accused No.

- f
1 contacted Accused No. 2 R. Venkatkrishnan at Calcutta and
informed him about the transactions which had to be carried
out. On the other officers of the Bank objecting thereto, Accused
No. 1 assured them that the business of discounting and
G

rediscounting of Bills of Exchange would be personally looked
after by Harshad Mehta himself.

10. On the same day, that is, on 14.3.1992, a resolution
was passed by M/s Growmore Research and Asset H
' .
704 SUPREME COURT REPORTS [2009] 12 S.C.R.

A Management Ltd. (for short, "Growmore") to open an account f'-
in UCO Bank, Nariman Point so as to enable it to avail Bill
Discounting facility provided by UCO Bank limited to Rs.50
crores. Harshad Mehta (the Original Accused No. 3), Ashwin
Mehta (Accused No. 4) and/or Sudhir Mehta (Accused No. 5)
B had been authorized by the said resolution to execute
necessary documents on behalf of the Company. A similar
resolution was also passed by M/s Mazda Industries & Leasing
Ltd. (for short, "Mazda") (Accused No. 7), which is a public
limited company for the purpose of opening up of a current
c account in UCO Bank, so that it too could avail the Bill
discounting facilities from the Bank .
11. Two or three days thereafter, Sunil Samtani, the Vice
President of Mazda and Pankaj Shah, the Vice President of
Growmore (Accused No. 9) met Shri Prabhu (PW 44) with
D Ramanathan (Accused No. 8). They procured two forms for
-
opening current accounts with the Bank. They were introduced t
by Accused No. 8, who were also invited for attending the ~

Annual General Meeting of Mazda as also a cocktail party
which was to be held on 18.3.1992 at Hotel Oberoi.
E
12. The party was attended by Ramanathan (Accused No.
8), Prabhu (PW 44), Roy Choudhary (PW 45), Pankaj Brijlal -'
Shah (Accused No. 9) and Harshad Mehta. •
13. On 24.3.1992, at about 2.30 P.M., Sunil Samtani
F (Accused No. 7) and Pankaj Shah (Accused No. 9) came to
the Nariman Point Branch of the UCO Bank. They had brought
with them two banker's cheques; one cheque was from
Syndicate Bank dated 24.3.1992 for a sum of Rs.24,63,01,370/
- drawn in favour of UCO Bank (Exh. 24); and the other from
G State Bank of Patiala dated 24.3.1992 for a sum of
-
Rs.25,00,53,636/-.
14. They had also brought with them the application forms
for opening Current Accounts in the Bank. The same were
handed over to Prabhu (PW 44). The two cheques that they had
H brought were handed over to Ranjit Mukherjee (PW 1) for
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 705

clearance. A
-+
15. Two Bills of Exchange for a sum of Rs.14,41,44,000/
- and Rs.35,95,24,000/- drawn by J.H. Mehta which were
accepted by Ashwin Mehta (Accused No. 4) on behalf of
Growmore (Exhibit 154) and by Sunil Samtani (Accused No.
B
7) on behalf of Mazda respectively were brought by Accused
Nos. 7 and 9. Both the Bills of Exchange were executed by
Sudhir Mehta (Accused No. 5), authorized signatory of M/s J.H.
Mehta. It is not in dispute that original contract note with respect
to the underlying security transaction had not been produced
and only a photocopy thereof had been produced. c
16. Letters were also issued by Mazda and Growmore to
the effect that the said amount would be repaid by them on or
before 24.4.1992. They had asked the Bank in writing to issue
cheques in the name of ANZ Grindlays Bank. D
::+ 17. For the said two cheques receipts were obtained from
Syndicate Bank and State Bank of Patiala. The two usance
promissory notes were handed over to Accused No. 7 and
Accused No. 9. Indisputably, J.H. Mehta, the drawer of the Bills
of Exchange did not have any account in his name. The E
acceptors, namely, Mazda and Growmore also did not have any
). account at the said branch.
,
18. Two draft promissory notes were handed over to
Mr. Prabhu (PW 44) by Accused Nos. 7 and 9; one issued in
F
favour of Syndicate Bank and the other in favour of State Bank
of Patiala to be executed by UCO Bank in relation to the said
cheques. Those usance promissory notes were signed by Mr.
Prabhu (PW 44) and Ranjit Mukherjee (PW 1), pursuant
whereto the Bank issued two pay orders on the same day in
G
favour of ANZ Grindlays Bank for a sum of Rs.25,27,00,000/-
f~
and Rs. 14, 14,00,000/-.
19. An account in the name of M/s J.H. Mehta was opened
on the same day; the amount of Bill of Exchange was credited
into that account; three accounts were opened in the Bank for H
706 SUPREME COURT REPORTS [2009] 12 S.C.R.

A carrying on transactions in the name of the aforementioned -t•
three entities bearing Nos. 1705, 17(')6 and 1708. The Account
Nos. 1705 and 1706 were introduced by Ashwin Mehta
(Accused No. 4) and Account No. 1708 was introduced by
Sudhir Mehta (Accused No. 5). Two Bills of Exchange were
B drawn by M/s J.H. Mehta. The same were signed by Sudhir
Mehta {Accused No. 5) as the Constituted Attorney of Mrs. Jyoti
Mehta, the proprietor of M/s J.H. Mehta. On behalf of Mazda,
the bill was accepted by Ashwin Mehta (Accused No. 4). The
amount of Bills of Exchange were credited to the account of
c M/s J.H. Mehta and thereafter they were transferred to the
account of Mazda and Growmore. The Bills of Exchange in
relation to Growmore was accepted by Ashwin Mehta (Accused
No.4).
20. On 25.3.1992, the account of J.H. Mehta in Grindlays
D Bank credited the said amount and the amount was promptly
transferred to Harshad Mehta's'Account. On 26.3.1992, Prabhu t
(PW 44) asked Ranjit Mukherjee (PW 1) to prepare a note for
the Chairman so as to enable him to seek approval from the
Board for the transaction pursuant whereto the said note was
E prepared and it was shown to accused No. 1. On the same
date, PW 1 was asked by Prabhu (PW 44) to collect the
Balance Sheets from Mazda and Growmore. Whether the •
Balance Sheets and Annual Reports of the said two Companies •
were ultimately collected or not is unknown. A proposal for
F ratification of the Bill Discounting transaction was sent to the
Head office on 3.4.1992. On 24.4.1992, i.e., the due date for
retiring the Bills of Exchange, the payments were not made
either by the drawer or by the acceptors. Accused No. 1
allegedly agreed to the suggestion of Harshad Mehta for rolling
G over the same for one more month. PW 44 allegedly did not
agree thereto and insisted on prompt payment.
As the funds had not been received, UCO Bank made
payments to Syndicate Bank and State Bank of Patiala out of
its own funds. There being a shortfall in the funds available with
H UCO Bank, the requisite call money to meet the deficient had
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 707

to be borrowed by it from the Corporation Bank and the Oriental A
-... Bank of Commerce to the tune of Rs. 50 crores for three days.
Officers of UCO Bank thereafter visited the offices of Mazda
and Growmore for realization of the payments due. Two
cheques were handed over by Mis J.H. Mehta with a request
that the same not be encashed and that the cheques of B
Growmore and Mazda would be given at a later date. Mazda
and Growmore also issued two cheques. They were not sent
for clearing as the requisite funds therefor were admittedly not
available in their accounts in Grindlays Bank. The said two Bills
-'
of Exchange, for want of fund, were not retired either by M/s c
J.H. Mehta or Growmore or Mazda.

22. Subsequent thereto, a formal meeting of the Investment
Committee consisting of Accused Nos. 1 and 3 and PW 45
was held. At the instance of Accused Nos. 1 and 3, shares of
Gujarat Ambuja Cement worth Rs. 50 crores were purchased D
1., by UCO Bank. It was routed through V.B. Desai a broker and
an amount of commission for a sum of Rs. 9.53 lakhs was paid
to him. The amount received by J.H. Mehta from UCO Bank
under the said transaction was transferred by him to Mazda and
Growmore so as to facilitate encashment of the said cheques E
for retiring the Bills of Exchange. Payment towards purchase
;. of shares was made by UCO Bank before delivery thereof. The
.. amount due to the Bank was sought to be realized in that
manner.
F
23. However Mr. VB. Desai, could not deliver all the shares
of Gujarat Ambuja Cement. It was agreed that in place of 3
lakhs shares of Gujarat Ambuja Cement, 77150 shares of
_, 'CASTROL' would be delivered at the rate of Rs.1750/- per
share.
G
+ 24. Mr. Prabhu thereafter contacted accused No. 2 and
informed him about the transactions, which according to him,
had to be gone through at the Nariman Point Branch as had
been directed by accused No. 1.
H
708 SUPREME COURT REPORTS [2009) 12 S.C.R.

A CHARGES
25. Several charges were framed against the accused
persons by the learned Judge, Special Court on or about
9.10.1995. A Special Leave Petition was preferred
thereagainst. Although the order of the Special Court dated
8
9.10.1995 was not interfered with, this Court recorded a
statement made by the Additional Solicitor General of India that
charges No. 10 to 13 and 16 would not be pressed. We may
also place on record that the prosecution at a later stage did
C not press charges No.2, 4 and 6. The charges which were, thus,
framed and pressed against the accused persons were charge
Nos. 1, 3, 5, 7, 8, 9, 14 and 15 as also charge No. 12 and 13
(Exhibit - 228). As charges No. 14 and 15 related to the
deceased accused No. 3- Harshad Mehta, the same stood
abated. The charges which survived were charges No. 1, 3, 5,
D 7, 8, 12 and 13.

26. In the words of the learned Special Court, the said
charges read as under:

"2. By charge No.1, it is alleged that the accused nos. 1,
E
2 and 8 being public servants and being entrusted with
public funds entered into a criminal conspiracy to commit
offences punishable under Section 409 of the Indian Penal .
Code. It is also alleged that accused nos. 1, 2, and 8 being
public servant entered into a criminal conspiracy and
F
thereby committed offence punishable under Section
1208 of the Indian Penal Code. It is further alleged that
accused nos. 1, 2 and 8 are also guilty of the offence of
criminal misconduct under Section 13(1)(d) and Section
13(2) of the Prevention of Corruption Act.
G
3. By charge nos. 2, 4, 6 and 9, it is alleged that accused
nos. 4, 5, 6, 7 and 9 acted in furtherance of the criminal
conspiracy and abetted accused nos. 1, 2 and 8 in
committing offence of criminal breach of trust. It is thus,
H clear that basically the offences with which the accused
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 709

--+ nos. 1, 2 and 8 are charged are offences of committing A
criminal breach of trust and entering into a criminal
conspiracy, and the accused nos.4, 5, 6, 7 and 9 are
charged with the offence of criminal conspiracy."

EVIDENCE B
27. The prosecution in support of its case examined a large
number of witnesses. The defence also examined some
witnesses. Ashwin Mehta (Accused No. 4) also examined
-"'" himself in defence.
c
A large number of documents were also brought on record
by the parties. We would refer to some of them at an
appropriate stage.

PROCEEDINGS BEFORE THE SPECIAL COURT
D
;f
28. Before the special court it was alleged that the original
contract note with respect to the underlying security transaction
for the discounting of Bills had not been produced at the time
of entering into the said transactions and only a photocopy
thereof was produced. It was furthermore alleged that no E
security was .insisted upon for discounting the Bills of Exchange
>: and before signing the promissory notes, the Bank did not have
. with it the shares in relation to which the Bills of Exchange were
drawn. The said acts of omission and commission on the part
of Accused Nos. 1, 2 and 8 are said to be in violation of the F
UCO Bank Manual of Instructions on Bill Discounting (Exhibit-
239) as also the Circular letter dated 5.9.1988 issued by the
Reserve Bank of India (Exhibit-247).

29. The prosecution alleged that the transaction of
discounting and rediscounting of the two Bills of Exchange was
G
f
bogus and that the said modus operandi was adopted for
siphoning of the public funds wherewith accused Nos. 1, 2 and
8 were entrusted. It was furthermore alleged that the said Bills
of Exchange were not issued by way of any bona fide
commercial transaction and were prepared only to secure H
710 SUPREME COURT REPORTS [2009] 12 S.C.R.

A financial accommodation for the deceased Harshad Mehta and -r
his group.

30. The prosecution further alleged that as the deceased
Harshad Mehta was not in a position to pay the amount due to
the Bank on 24.4.1992; only with a view to facilitate the
B
payment of amount to the Bank against the two Bills of
Exchange, accused Nos. 1 and 2 decided to purchase shares
of Gujarat Ambuja Cement and the amount of purchase price
of the shares was paid to M/s J.H. Mehta. Growmore and ;...
Mazda thereafter issued cheques in favour of the Bank in
c discharge of the liability in relation to the said two Bills of
Exchange. The authority on the part of the accused Nos.1, 2
and 8 to enter into the said transactions without obtaining
sanction from the Board of Directors was also questioned.

D The defence of the accused persons had been a mere I-
denial of the allegations.

31. Before proceeding further, we may notice that Bhaskar
Roy Choudhary (PW 45) and S.V. Prabhu (P.W. 44) were
initially made accused in the case. They were arrested and later
E
on released on bail. Applications were filed on their behalf
purported to be in terms of Section 307 of the Code of Criminal
"..
Procedure, 1973, which were allowed by the learned Special
Judge by order dated 22.6.1993, inter alia, on the condition that
they would give evidence during the trial and make a full-and
F true disclosure of the circumstances within their knowledge
relating to the said offences.

JUDGMENT

G 32. The learned Special Judge upon consideration of the
entire materials brought on record by the parties, in a very
detailed and well considered judgment, held:

i. The offence of criminal breach of trust on the part
of the accused Nos. 1 and 2 was proved beyond
H all reasonable doubts as they had been entrusted
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 711

- ..... with the funds of UCO Bank, they had discounted A
two Bills of Exchange drawn by M/s J.H. Mehta and
accepted by two corporate entities, Growmore and
Mazda.

ii. The said discounting of bills was illegal as it violated B
the Circular issued by the Reserve Bank of India
dated 5.9.1988 (Exhibit 247); and by reason
thereof, a sum of Rs. 50 crores was transferred to
the deceased accused No. 3 Harshad Mehta and/
or his groups.
c
iii. The transactions having been carried out in violation
of the aforementioned Circular dated 5.9.1988
issued by the Reserve Bank of India, the accused
Nos. 1, 2 & 8 having acted contrary thereto or
inconsistent therewith, the same constituted an D
:i offence within the meaning of Section 405 of the
Indian Penal Code.

iv. The said transactions having been carried out to
benefit Harshad Mehta Group of Companies by the
E
accused in conspiracy with each other, the
~
prosecution has proved its case. The private
. accused as well as Accused No.8 were convicted
only for commission of the offence of criminal
conspiracy.
·- F
SUBMISSIONS

The learned counsel appearing on behalf of the appellants,
inter alia, would urge:
G
i. The transactions being related to discounting and
rediscounting of Bills of Exchange and not to
securities, the Special Court had no jurisdiction to
pass the impugned judgment of conviction and
sentence.
H
712 SUPREME COURT REPORTS (2009] 12 S.C.R.

A ii. The purported Circular Letter dated 5.9.1988 not ....,-
being law within the meaning of Section 405 of the
Indian Penal Code read with Section 43 thereof,
the prosecution of the appellants ex facie was illegal
and without jurisdiction. In any event, the said
B Circular Letter not being in the public domain having
not been published cannot have any force of law as
is ordinarily understood.

iii. The said Circular in any event being not binding on
the private accused, they could not be said to have
c been a party to the offence of conspiracy.

iv. The Circular Letter being confined to rediscounting
and a separate procedure having been laid down
for discounting of Bills of Exchange permitting the
D house loan/accommodation loan for some time as
~-
provided for in Exhibit 299; the impugned judgment
cannot be sustained. No money, thus, having been
transferred in violation of any law, the question of
commission of any offence under Section 409 did
E not arise.

v. The transactions having been entered into bona fide
~
by the officials of the Bank and with the accused in .
order to earn profit for the bank and in that view of
the matter, the prosecution cannot be said to have
F proved any dishonest intention on their part as
envisaged under Section 24 of the Indian Penal
Code.

vi. The prosecution has not been able to prove that any
G wrongful loss or wrongful gain was caused to any
person. In view of the admitted case that Harshad
Mehta or his group had not made any default in
payment of the amount due and only because now
a purported scam is said to have been committed,
H all the private accused who were connected with
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 713

Harshad Mehta Group of Companies are alleged A
to have committed the offence of conspiracy,
although the prosecution had failed to prove any of
the charges levied against them.

vii. The deposition of S.V. Prabhu (PW 44), Bhaskar 8
Roy Choudhary (PW 45) should not have been
relied upon by the learned Special Judge without
any material corroboration having regard to the fact
that they were approvers.

viii. The judgment of the learned Special Judge being C
full of speculative inferences and surmises, is wholly
unsustainable.

- ix. No witness having been examined by the
prosecution to show that the action on the part of
the official accused was not bona fide, the learned
o
Special Judge committed a serious error in passing
the impugned judgment. It suffers not only from
misreading and misconstruction of the evidences
but also in taking note of the deposition of the E
witnesses examined on behalf of the defence.

x. Accused No. 1 being the Chairman-cum-Managing
Director of the Bank having taken a decision to
transact business with Harshad Mehta in the
interest of the Bank whose reputation and F
creditworthiness in those days being
unquestionable and particularly in view of the fact
that even the prosecution witness accepted that he
was respected by all concerned, the inference that
the transaction was not entered into bona fide is G
wholly unsustainable.

xi. The learned Special Judge committed a serious
error in arriving at a finding that no contract had
been entered into by and between the Banks as it H
714 SUPREME COURT REPORTS (2009] 12 S.C.R.

A has categorically been accepted by Shri Prashant .... - ..
D. Patel, (P .W. 17) that a contract was entered into.
In any event, a contract, it is well known, can be
entered into by necessary implication.

xii. The learned Special Judge committed a serious
B
error in holding that accused No. 5 was Director of
the Company although in fact he was merely an
employee.

xiii. Even assuming that Jyoti Mehta, Mazda and
c Growmore belonged to one group but in terms of
the Manual issued by the UCO Bank itself, house
loan transactions in favour of persons having the

D
same identity and belonging to a group being
permissible; the transactions were not violative of
the directions issued by the Reserve Bank of India.
-
xiv. In any event, the Reserve Bank of India's directions
being confined to rediscounting and UCO Bank
having knowledge thereof entered into the
transaction for discounting, the said Circular was
E
not applicable to the case at hand. The decision to
enter into the said transaction having been taken ~

in a meeting and not by Accused No. 1 alone, he •
cannot be said to have any mens rea particularly
when the Bank had earned a huge amount by way
F of interest.

xv. Purchase of shares of Gujarat Ambuja Cement
having been recommended by the Investment
Committee which was a separate Department in a
G meeting held on 27.4.1992; purchase was not in
violation of any law.

xvi. The learned Special Judge committed a serious
error in recording the judgment of conviction against
each of the appellants herein without considering
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 715

their individual involvement. A
33. Mr. Mariarputham learned counsel appearing on behalf
of the C.B.I., on the other hand, urged:

i. Conspiracy amongst the accused had clearly been
established by the evidence of S.V. Prabhu (PW B
44), Bhaskar Roy Choudhary (PW 45) and R.L.
Joshi (PW 7).

ii. The manner in which the transactions had been
carried through and in particular accused No. 1's c
meeting with Harshad Mehta on 13.3.1992 as also
the transactions taking place in quick succession

- -j
thereafter clearly establish that all the accused were
parties to the conspiracy, which would appear from
the following: D

-
/'

a. The decision was taken to make available a sum
of Rs. 50 crores to Harshad Mehta by way of Bill
Discounting.

b. A branch which had not been dealing with Bill E
Discounting of such high value had been chosen
,.. which demonstratively proved that the transactions
... in question were not ordinary commercial
transactions as the branch which had been dealing
with such bill discounting transactions was D.N. F
Road branch and not the Nariman Point Branch.
The said branch was purposely chosen as the
officers working there were not familiar with Bill
discounting transactions.

c. Immediately after the meeting between accused G
No. 1 and Harshad Mehta on 13.3. 1992, resolutions
were passed by Growmore and Mazda for opening
accounts with a view to obtaining Rs. 50 crores from
the Bank. Transactions were shown to have been
H
716 SUPREME COURT REPORTS [2009] 12 S.C.R.

A entered into between M/s J.H. Mehta on the one .... - '
hand and Mazda and Growmore on the other,
purporting to sell shares worth Rs. 50 crores on
20.3.1992; on the strength whereof two Bills of
exchange were prepared by M/s J.H. Mehta and
B purported to have been accepted by Growmore
and Mazda. The same were presented to UCO
Bank, Nariman Point branch for discounting. The
said Bills of Exchange were not accompanied by
the original credit note relating to the alleged sale
c transaction of share securities. The Bills of
Exchange were discounted and payment of Rs.50
crores was made. The accounts for facilitating the
said bill discounting had been opened on the same
day. No verification as per the required procedure
was undertaken.
D
~
d. No security was taken even before the Bills of
Exchange were discounted, although rediscounting
had been carried out by two other Banks. Even the
usance promissory notes for rediscounting was
-
E issued by the UCO Bank much later.

e. When there was default in retiring the Bills of
Exchange with a view to cover up the matter, shares •
worth Rs. 49.50 crores were purchased from J.H.
F Mehta; as a result whereof, the said amount was
made available to it for the purpose of retiring the
Bills of Exchange. The acquisition of shares was
neither bona fide nor in the interest of the Bank.

f. Mazda had approached Hamam Street Branch
G of UCO Bank for bill discounting facility upto the
limit of Rs. 50 crores. However the same had not
been granted as it had been found that Mazda did
not satisfy the eligibility criterion, as would appear
from the evidence of PW 2, Mazda would have been
H entitled to a maximum credit limit only of Rs. 2.76
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 717

crores; but even then transactions worth Rs. 50 A
_,. - ....
crores were undertaken with J.H. Mehta, Growmore
and Mazda.

g. Guidelines laid down in the Manual of UCO Bank
(Exhibit 239) and directions of the Reserve Bank B
of India dated 5.9.1988, which have statutory force,
stipulated that the credit limit be fixed only after
verifying the creditworthiness of the customer
wherefor it was necessary to compile the credit
-* reports and accordingly the credit limit should have
been sanctioned only thereafter. In terms of the said
c
directions, if the Bills of Exchange exceeded Rs.
25,000/-, credit report on the drawee on whom the
Bill was drawn was required to be obtained.
Security was also required to be taken and it was
the duty of the Manager to satisfy himself that the D
,1 Bills of Exchange were a result of genuine trade

- transactions. But in the instant case, the said
procedures were given a complete go by.

h. Accused No. 1 and Accused No. 2 being the E
officers of the Bank and having dominion over the
,Ii
funds thereof could not part with the same in favour
• of any person without complying with the statutory
requirements. Even if the Manual of the UCO Bank
and the Circular of Reserve Bank of India were not F
statutory in nature, the transactions having
dishonestly been carried out, the same would satisfy
the requirements of Section 405 read with Section
24 of the Indian Penal Code.

i. By reason of such transaction wrongful loss was G
cause.d to the Bank and wrongful gain was made
by the Harshad Mehta group. Money of a Public
Sector Bank was diverted to share/securities
market transactions in violation of law and the
prosecution therefore must be held to have proved H
718 SUPREME COURT REPORTS [2009] 12 S.C.R.

A the charges made against the accused. The two ...\ -
banker's cheque issued by the Syndicate Bank and
State Bank of Patiala, although were not per se
securities but as by reason therBof liability to pay
interest had been cast on UCO Bank.
B
j. Accused No. 6 being Chief Executive of Mazda,
Accused No. 7 being Vice President of Mazda and
Accused No. 9 being Vice President of Growmore,
they were also party to the conspiracy for
commission of the offence of criminal breach of
c trust.

JURISDICTION OF THE SPECIAL COURT

34. The history as regards constitution of the Special
D Courts has been noticed by us heretobefore. Its jurisdiction,
inter alia, is confined to trial of offence relating to transactions
-
t
in securities and for matters connected therewith or incidental
thereto committed during the period between 1.4.1991 and
6.6.1992. The alleged offence had been committed admittedly
during the said period.
-
E
Section 2(c) of the 1992 Act defines "securities" to mean:-

"(c) "securities" includes-- *•
(i) shares, scrips, stocks, bonds, debentures, debenture
F
stock, units of the Unit Trust of India or any other mutual
fund or other marketable securities of a like nature in or
of any incorporated company or other body corporate;

(ii) Government securities; and
G
(iii) rights or interests in securities;"

35. Sub-section (1) of Section 3 of the 1992 Act provides
for appointment and functions of custodian. Sub-section (2) of
Section 3 enables the custodian, on being satisfied on
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 719

-.,.._ information being received that any person had been involved A
in any offence relating to transaction in securities after the 1st
day of April, 1991 and on and before the 6th June, 1992, to
notify the name of such person in the Official Gazette. Section
4 provides for cancellation of contracts entered into fraudulently.
Section 5 provides for the establishment of the Special Court. B
Section 6 empowers the Special Court to take cognizance of
or try such cases which are instituted before it or transferred
to it. Jurisdiction of the Special Court is provided for in Section
7 of the 1992 Act. It starts with a non obstante clause providing
'*· that any prosecution in respect of any offence referred to in sub- c
section (2) of Section 3 shall be instituted only in the Special
Court and any prosecution in respect of such offence pending
in any Court shall stand transferred to the Special Court. Section
9 provides for the procedure and powers of the Special Court.

·f 36. Let us, at the outset, deal with contention of learned D
/•
counsel for the appellant that having regard to the-cleftl1ition of .
...... 'securities' as contained in Section 2(c) of the 1992 Act which
does not involve 'bill discounting and rediscounting', the Special
Court had no jurisdiction to try the accused for the offences
alleged against them. E

4· 37. The definition of 'securities' is an inclusive one. It is .
. not exhaustive. It takes within its purview not only the matters
specified therein but also all other types of securities as
commonly understood. The term 'securities', thus, should be F
given an expansive meaning.

38. In State of Bombay and others v. The Hospital Mazoor
Sabha and others, AIR 1960 SC 610 this Court while
interpreting the definition of "industry" as contained in Section
20) of the Industrial Disputes Act, 1947 held as under:- G
r
"It is obvious that the words used is an inclusive definition
denote extension and cannot be treated as restricted in
any sense. (Vide : Stroud;s Judicial Dictionary", Vol. , p.
H
720 SUPREME COURT REPORTS [2009] 12 S.C.R.

A 1415). Where we are dealing with an inclusive definition ~-

it would be inappropriate to put a restrictive interpretation
upon terms of wider denotation"

(See also Regional Director, Employees Stat/:3 Insurance
Corporation v. High Land Coffee Works of P.X. S. Saldanha
B
and sons and another, [ (1991) 3 sec 617).

39. In Commercial Taxation Officer, Udaipur v. Rajasthan
Taxchem Ltd. [(2007) 3 SCC 124, this Court stated:
.J.

c "22. We have already extracted the definition of raw
material under Section 2(34) which specifically includes
fuel required for the purpose of manufacture as raw

D
material. The word includes gives a wider meaning to the
words or phrases in the statute. The word includes is
usually used in the interpretation clause in order to enlarge
-
the meaning of the words in the statute. When the word
include is used in the words or phrases, it must be ,,,_
construed as comprehending not only such things as they
signify according to their nature and impact but also those
things which the interpretation clause declares they shall
E
include."

40. This jurisdiction of the Special Court is not confined ..
to the scam relating to securities alone but utilization of any
•
amount relating to transactions in securities and for matters
F connected therewith or incidental thereto.
41. The jurisdiction of the Special Court is exclusive one.
It exercises original jurisdiction to try offences relating to
security scam. The said Act having regard to the peculiar nature
of offence sought to be dealt with, should receive a liberal
G
construction. ·

42. In Harshad S. Mehta and others v. State of
Maharashtra, ((2001) 8 SCC 257], this Court held:

H
SUDHIR SHANTILAL MEHTA v. C.8.1. [S.B. SINHA, J.] 721

''The use of different words in Sections 6 and 7 of the Act A
as already noticed earlier also show that the words in
Section 7 that the prosecution for any offence shall be
instituted only in Special Court deserve a liberal and wider
construction."
B
43. We may also notice another decision of this Court in
L. S. Synthetics Ltd. v. Fairgrowth Financial Services Ltd. and
another, [(2004) 11 sec 456] wherein it was held as under:-

"18. The juri:>diction of the Special Court is of wide
amplitude. Subject to a decision in appeal therefrom, its C
decision is final."

44. Jurisdiction of the Special Court is required to be
determined with regard to the provisions of Section 6 of the
Code of Criminal Procedure, 1973. The Act is a special Act. It o
contains a non obstante clause. It shall, thus, prevail over any
other Act. [See - So/idaire India Ltd. v. Fairgrowth Financial
Services Ltd. and others, [(2001) 3 SCC 71].

45. An offence is committed with a view to circumvent the
law. An apparent state of affairs need not be the real state of E
affairs. A simple transaction of discounting and rediscounting
+ on its face may appear to be genuine and lawful but there may
,. be underlying purposes behind it. It has not been disputed that
Harshad Mehta was dealing in the money market and securities
market and that Growmore although being a public limited F
company, was controlled by Harshad Mehta. Both Mazda as
also Growmore indisputably were dealing in the business of
selling and buying of shares. Further Mis J.H. Mehta, was the
proprietary concern of the wife of Harshad Mehta. She used to
execute business through her constituted attorney. General G
f- Power of Attorney had also been issued by the aforementioned
· Companies in favour of the accused persons. The Harshad
Mehta Group of Companies were therefore dealing in
securities.
H
722 SUPREME COURT REPORTS [2009] 12 S.C.R.

A 46. The method of siphoning of the funds of UCO Bank
J-
through discounting of two bills of exchange was unlawful. Both
the bills of exchange were shown to have been issued in
relation to transaction in shares between M/s JH Mehta,
Growmore and Mazda.
B
47. For the purpose of arranging repayment of the amount,
shares were purchased by UCO Bank through M/s VB Desai
and Co. The offence of conspiracy to commit the offence of
Breach of trust, thus, related to the transaction in securities.

c 48. It is therefore not a case where it can be said that the
Special Court lacked inherent jurisdiction in trying the offence
said to have been committed by the accused.

RBI CIRCULAR
D
49. Banking business is controlled by several Acts of
1
Parliament. We need not go into the history relating thereto in
great details being not necessary.

50. Suffice it to say that UCO Bank is a Nationalized Bank
E having been taken over under the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970. It has
various branches in Bombay; its main Branch being at D.N. ;
Road. Its Nariman Point Branch was mainly dealing with foreign ..
exchanges. The business as regards discounting and
F rediscounting usually used to be carried out at the main branch.

51. The Bank, inter alia, is regulated under the provisions
of the Reserve Bank of India Act, 1934 as also the Banking
Regulation Act, 1949 (for short, "the 1949 Act") Its directions
are statutory in character.
G
52. In terms of Section 35A of the 1949 Act, the Reserve
Bank of India is empowered to issue directions to the Banks
in public interest; or in the interest of Banking policy; or to
prevent the affairs of any banking company being conducted
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 723

in a manner detrimental to the interests of the depositors or in A
a manner prejudicial to the interest of the Banking Company;
or to secure the proper management of any Banking company
generally. The Reserve Bank of India in terms of Section 21 of
the 1949 Act is empowered to control advances by banking
companies and issue necessary directions in this behalf. B

53. The Reserve Bank of India, therefore, has the requisite
power to issue direction to Banks in relation to discounting and
rediscounting of bills of exchange and those directions issued
by the Reserve Bank of India have statutory force and, thus, can C
be termed as law in force. {See also Corporation Bank vs.
D.S. Gowda & Anr. [(1994) 5 SCC 213] & Central Bank of
India vs. Ravindra & Ors. [(2002) 1 SCC 367]}

54. All public sector banks are bound thereby.
D
55. Pursuant to or in furtherance of the said power, the
Reserve Bank of India issued a Circular dated 5.9.1988 titled
"BILLS REDISCOUNTING SCHEME -- INTRODUCTION OF
USANCE PROMISSORY NOTES - PROCEDURE
THEREFOR", clauses 2(iii) and 2(v) whereof read as under
E
"2(iii) The usance promissory note should be backed by
unencumbered usance Bills of Exchange of at least equal
value not fallen due for payment, drawn or endorsed in its
favour, arising out of bonafide commercial or trade
transactions on which the required stamp duty has been F
paid. The discounting bank will hold and continue to hold
such unencumbered usance bills till the date of maturity of
the usance promissory note.

2(v) It would be desirable to centralize the function and G
confine the authority to draw the usance promissory notes
etc. at the bank's main Funds Management Centre."

56. We may also notice that the Bank had issued a
Manual, known as the "UCO Bank Manual of Instructions on Bill
H
724 SUPREME COURT REPORTS (2009] 12 S.C.R.

A Discounting" relating to discounting of Bills of Exchange, laying ~--
down the procedure therefor, relevant portions whereof (marked
as Exhibit 239) read as under:

"2.5. The attention of the Sanctioning Authority should be
specifically drawn:
B
(a) If bills drawn on places where the bank does not have
branch are to be purchased.

(b) If house bills are to be purchased under the limit. House
c bills are bills where drawer and drawee are identical or
connected persons. Purchase of house bills obviously
involves greater risk than the purchaser of bills drawn on
unconnected, independent drawees. Purchase of house
bills should be recommended for sanction only when the
D credit rating, business integrity, past dealings and business
methods of the customer are highly satisfactory and he is 1.
considered good for the limit on his single signature."

THE EFFECT OF THE CIRCULAR LETTER

E 57. Accused Nos. 1, 2 and 8 being public servants, they
were bound by the aforementioned Circulars having been
issued by the Reserve Bank of India. ~

~

58. Mr. Jethmalani, however, has relied upon the decision
in 8.0./. Finance Ltd. v. Custodian & ors. 1997 (10) SCC 488,
F
wherein this Court while dealing with a Circular letter which had
been marked confidential opined that such a Circular did not
bind third parties, stating:

"22. With regard to the finding of the Special Court that the
G transactions in question were illegal, as they were in
contravention of the circulars which were issued by the ....
Reserve Bank of India under the provision of the Act, it was
contended by Mr. Cooper, learned Counsel, that the
circulars issued were no more than guidelines which were
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 725

,. .,.___ required to be followed by the Bank and they were not A
mandatory in nature. Elaborating this contention, Mr.
Cooper submitted that the Banking Companies Act
contains provisions which enable the Reserve Bank of
India to issue directions which were mandatory and also
give advice to the banks. Our attention was drawn to B
Sections 21 and 35A of the said Act and it was contended
that the directions which are issued by the Reserve Bank
of India under these two provisions are clearly mandatory.
_j..
On the other hand, Section 36(1)(a) & (1)(b) gives power
to the Reserve Bank of India to give advice or lend c
assistance and any action taken thereunder cannot be
regarded as mandatory. It was submitted that the language
of the circulars dated 14.4.1987 and 1.12.1987, which
prohibit the banks from entering into buying back
arrangements, clearly shows that the said circulars were
D
.J only in the nature of advice and must be regarded as
having been issued under Section 36(1)(a) and (1)(b) of
the Act."

59. Having regard to the provisions of Section 36(1)(a) and
(b) of the Banking Regulation Act. it was held that they were E
only in the nature of an advice and not binding on the third
~
.. parties .

60. The distinction between exercise of jurisdiction under
the enabling provisions contained in Section 36(1) and the ones F
under Sections 21 and 35A of the Banking Regulation Act and
the provisions contained in Section 45L of the Reserve Bank
of India Act, 1934 is absolutely clear and unambiguous.

61. In terms of Section 36, the Reserve Bank of India may
caution or prohibit the Banking Companies but in terms of G
/.
Sections 21 and 35A of 1949 Act it can issue binding
directions. The directions have been issued by the Reserve
Bank of India in regard to rediscounting.

62. The said decision therefore is not applicable to the H
726 SUPREME COURT REPORTS [2009] 12 S.C.R.

A facts and circumstances of this case. ~ ·~

63. Whether a circular letter issued by a statutory authority
would be binding or not or whether the same has a statutory
force, would depend upon the nature of the statute. For the said
purpose, the intention of the legislature must be considered.
B
Having regard to the fact that the Reserve Bank of India
exercises control over the Banking Companies, we are of the
opinion that the said Circular letter was binding on the Banking
Companies. The officials of UCO Bank were, therefore, bound ~-
by the said circular letter.
c
64. The Madhya Pradesh High Court in The State of
Madhya Pradesh v. Ramcharan [AIR 1977 MP 68] held:

"6. Although the Constitution does not contain any generic
D definition of law, it defines "law" for purposes of Article 13
to include "any Ordinance, order, bye-law, rule, regulation, 1~
notification, custom or usage having in the territory of India
the force of law". Article 366(10) of the Constitution also
defines the expression "existing law" to mean "any law,
Ordinance, Order, bye-law, rule or regulation passed or
E
made before the commencement of this Constitution by
any legislature authority or person having power to make -j.
such law, Ordinance, order, bye-law, rule or regulation". .
Another definition which is relevant here is the definition
of the expression "Indian law" in the General Clauses Act,
F 1897. Section 3(29) of this Act defines "Indian Law" to
mean "any Act, Ordinance, regulation, rule, order or bye-
law, which before the commencement of the Constitution
had the force of law in any Province of India or part thereof
and hereafter has the force of law in any Part A State or
G Part C State or part thereof, but does not include any Act
of Parliament of the United Kingdom or any Order in "
Council, rule or other instrument made under such Act".
These definitions go to confirm that under our legal order
"law" does not include only legislative enactments but it
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 727

~. i also includes rules, orders, notifications etc. made or A
issued by the Government or any subordinate authority in
the exercise of delegated legislative power.

... 7. The question relating to a post-constitution order or
notification in the context whether it amounts to law was B
considered by the Supreme Court in Jayanti/a/ Amratlal
=
v F. N. Rana, AIR 1964 SC 648 1964-5 SCR 294 .... The
Court further observed as follows:

"This is not to say that every order issued by an executive
authority has the force of law. If the order is purely c
administrative, or is not issued in exercise of any statutory
authority it may not have the force of law. But where a
general order is issued even by an executive authority
which confers power exercisable under a statute, and
which thereby in substance modifies or adds to the statute, D
.J such conferment of powers must be regarded as having
the force of law." ... "

65. It therefore stands established from the above that
UCO Bank could only have discounted the bills of exchange out
E
of bonafide commercial transactions as had been provided
under the RBI circulars which were statutorily binding on UCO
~
Bank .
•
66. So far as the submission of the learned counsel that
they had no knowledge of the circulars issued by RBI is F
concerned, we would affirm the findings of the special judge
that the conduct of the accused clearly shows to the contrary
that they in fact did have knowledge of the RBI Circulars in
question. They otherwise would not have gone to the length of
creating documents to show that the bills of exchange had been G
~. issued because of a sale of shares of M/s JH Mehta to
Growmore and Mazda. If they did not have the knowledge of
the said circulars and if the bank had been willing to discount
the bills of exchange, a simple accommodation Bill of Exchange
could have been executed. In order that the bank could discount H
728 SUPREME COURT REPORTS [2009] 12 S.C.R.

A a bill of exchange, it was necessary that it related to a bonafide ... ~
or genuine commercial transaction and it was because of this
requirement that the accused persons had gone to the extent
of preparing false documents to give an appearance that the
discounting related to bona fide commercial transaction.
B
CRIMINAL BREACH OF TRUST
67. Section 405 of the Indian Penal Code defines Criminal
Breach of Trust in the following terms:
"405. Criminal breach of trust - Whoever, being in any
c manner entrusted with property, or with any dominion over
property, dishonestly misappropriates or converts to his
own use that property, or dishonestly uses or disposes of
that property in violation of any direction of law prescribing
the mode in which such trust is to be discharged, or of any
D
legal contract, express or implied, which he has made ~
'
touching the discharge of such trust, or willfully suffers any
other person so to do, commits "criminal breach of trust".
68. An offence of criminal breach of trust by a public
E servant attracts the penal provision of Section 409 of the Indian
Penal Code. Indisputably, the Bank entrusted its funds to its
officers; they had the dominion over the said property; they were .
holding the said money in trust which is an comprehensive •
expression, inter alia, to denote a relationship of master and
F servant. The act of Criminal Breach of Trust per se may involve
a civil wrong but a breach of trust with an ingredient of mens
rea would give rise to a criminal prosecution as well. The
ingredients of Section 409 are:

G 1. Accused must be a Public servant, merchant, agent, a
factor, broker or an attorney.
2. In his such capacity he must be entrusted with some
property or must have gained dominion thereover.

H 3. He must have committed criminal breach of trust.
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 729

' ·~. 69. The criminal breach of trust would, inter alia, mean A
using or disposing of the property by a person who· is entrusted
with or has otherwise dominion thereover. Such an act must not
only be done dishonestly but also in violation of any direction
of law or any contract express or implied relating to carrying
out the trust. It is one thing to say that any Circu~r Letter issued B
by the Reserve Bank of India being not within the public domain
would not be law but it would be another thing to say that it did
not contain any direction of law so as to attract the liability in
terms of Section 405 of the Indian Penal Code. Lawful
directions were issued by the Reserve Bank of India. The c
Circular Letter was meant for all Scheduled Banks. The
authorities and/or officers running the affairs of the Scheduled
Banks therefore were aware thereof. If it is binding on the
....
Banks, it would be binding on the officers. Any act of omission
or commission on the part of any authority of the Bank would
D
~
1 amount to acting in violation of any direction of law. A direction
... of law need not be a law made by the Parliament or a
Legislature; it may be made by an authority having the power
therefor; the law could be a subordinate legislation, a notification
or even a custom.
E
70. Indisputably, the higher authorities of the bank were
+ entrusted with or otherwise had dominion over the properties
... of the bank. They were dealing with public funds. Indisputably
again they were required to apply the same in terms of the
Circulars issued by the Bank as also the Reserve Bank of India. F
It has been accepted at the Bar that failure on the part of the
officers of the Bank to abide by the directives issued under the
Circulars would result in civil action. Subjecting the bank to a
• civil liability would thus attract one of the ingredients of criminal
breach of trust. There cannot be, however, any doubt G
l whatsoever that a mere error of judgment would not attract the
penal provision contained in Section 409 of the Indian Penal
Code.
The materials brought on record by the parties must be
judged keeping in view of the aforesaid legal position. H
•
730 SUPREME COURT REPORTS [2009] 12 S.C.R.

A 71. The primary question is whether the property of the ~ ~

bank was dishonestly used or disposed of in violation of any
direction of law prescribing the mode therefor. The mode of
disposal of the public money is prescribed in terms of the UCO
Bank Manual and the Circulars issued by the Reserve Bank of
B India. It was, however, necessary for the prosecution to prove
that the same was done with requisite mens rea.

Before proceeding further, we may notice some basic
facts which have been proved by the prosecution and in respect
whereof there is not much controversy.
c
72. All the accused were working as full-time employees.
On 13.3.1992, Margabanthu (Accused No.1) Chairman-cum-
Managing Director of the Bank met Harshad Mehta, the prime
accused. This has been proved by Joglekar PW-6 the Driver
D and R.L. Joshi, PW-7.
i,
73. What transpired in the said meeting although is not ...
known, the purport thereof can be found out from the
representation made by Accused No. 1 in the meeting held on
14.3.1992, which was attended by PW 44 - Prabhu, Assistant
E
General Manager of the Nariman Point Branch, PW 45 -
Bhaskar Roy Choudhary, Dy. General Manager, Accused No.
+
8 - Ramanathan, Division Manager and PW 7 - R.L. Joshi, •
Market Promotion Officer, that the bank may earn some profit
without investing its own money. Ex facie, the offer appeared
F to be attractive as it was for the benefit of the Bank but the
process involved therein was a complex one.
74. It was insisted that the transaction of such magnitude •
be carried out from the Nariman Point Branch of the Bank
G which was not the main branch and was not otherwise well
equipped to deal with such transactions. The private accused
did not have any account in the said branch. The employees
of the said branch did not have enough experience to carry out
transaction of such high values. Despite objection made by
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 731

f ·t-. Prabhu (PW-44), the same was insisted upon. A

75. It had not been disclosed that a similar offer made by
Mazda to carry the transactions at the Hamam Street Branch
of the Bank had yielded no results. An assessment of
creditworthiness of Mazda was made and it was found that their B
creditworthiness was only to the extent of Rs. 2.76 crores and
not beyond the same. This appears to be the prime reason why
the transactions were shifted from Hamam Street Branch to
• Nariman Point Branch. -

76. The officers of the main branch of the Bank at Bombay c
were not taken into confidence at all. One of the officers who
was asked to attend the meeting was Ramanathan, Divisional
Manager (Accused No.8). Why he was involved had not been
explained? He might not have participated in the meeting as
,, .,., contended but then his subsequent roles-peaks of volumes. We D
would refer thereto a little later. It must be noticed that during
.. the said meeting itself the Accused No. 1 spoke to Accused
No. 2 over phone. This has been proved by PW-7 in his
deposition, stating:
,/
E
"When I was in the chamber, Mr. Margabanthu had spoken
-t to Mr. R. Venkatakrishnan i.e. Accused No. 2.
•
"When the person on the other side of the telephone picked
up the phone Mr. Margabanthu said 'Venkit'. Then Mr.
Margabanthu informed about this bill transaction and F
added that this would not affect the outflow of the funds
from the Bank. At that time Mr. Verikatakrishnan, Accused
... No.2 was looking after the Investments & Treasurer
Division of the Bank that is why I know that the conversation
was with Mr. Venkatakrishnan" G
ft
77. The fact that Accused No.1 spoke to Accused 2 over
phone was also stated by PW-44 and PW-45 in their
statements. The reason why consent of Accused No. 2 or at
least the necessity of keeping him informed about the H
732 SUPREME COURT REPORTS [2009] 12 S.C.R.

A transaction appears to be that he used to handle the call money. _, .
If a large chunk of money goes out of the coffer of the bank, it
would have been probably necessary to arrange for call money
in future.

78. Although, it is not the case of the prosecution that
B
Nariman Point Branch of the Bank had not been dealing with
discounting/rediscounting of the Bills of Exchange; what was
pointed out was that from the said Branch such a huge
transaction had never been carried out. Objection of PW 44
was over ruled on the premise that Harshad Mehta who had
c vast experience in the field himself would be taking care of the
transaction.

79. Indisputably, thus, the person for whose benefit the
transactions were sought to be carried out, was involved in the
-
D internal functioning of the Bank. This aspect of the matter has i~
been proved by PW-7 - R.L. Joshi, PW-44 - S.V. Prabhu and
PW-45 - Bhaskar Roy Choudhary. ,_

80. On the same day, Growmore passed a resolution to
open an account at the Nariman Point Branch of the UCO Bank
E
for the purpose of availing Bill Discounting limit of Rs. 50 crores.
Harshad Mehta (accused No. 3), Ashwin Mehta (accused No. •..
4) and Sudhir Mehta (accused No. 5) were authorized to
execute necessary documents on behalf of the company.
Although we do not know the exact time of holding of the
F meeting of the Bank Authorities vis-a-vis the time when the
Resolution was passed but the fact remains that both took
place on the same date. Only a few days later, Sunil Samtani
(accused No.7), the Vice President of Mazda and Pankaj Shah
(accused No.9), the Vice President of Growmore came to the
G Bank and met Prabhu (PW-44). They did not come alone; they
were accompanied by Ramanathan (accused No.8).
Admittedly, they obtained two forms for opening Current
Accounts. At the same time, the Officers were invited for
attending a cocktail party on 18.3.1992, i.e. on the same day.
H ..
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 733

81. We would presume that before accused No. 7 and A
. ~ i accused No. 9 came to the Bank, a resolution was also passed
by Mazda. Although no documentary evidence in this behalf is
available on record but it was spoken of by PW 4 Prakash V.
Bhat. The learned special judge also has referred thereabout
in his judgment. We may, for this purpose also, take into B
consideration that a dinner was held at Hotel Oberoi on the
same day. It was attended by Ramanathan (Accused No. 8),
Prabhu (PW-44), Roy Choudhary (PW-45). Accused No. 7,
... Accused No.9 and Harshad Mehta (Accused No.3) were also
present. It is crucial that on 24.3.1992, at about 2.30 P.M., c
Samtani (accused No. 7) and Pankaj Shah (accused No.9)
came to the Nariman Point Branch of the UCO Bank; they
brought with them two cheques marked Exhibit 24 and Exhibit
26; the first having been drawn by Syndicate Bank on the same
date for a sum of Rs.24,63,01,370/- in favour of UCO Bank,
D
and second from the State Bank of Patiala of the same date
_.'I
for a sum of Rs.25,00,53,636/-. The application forms for
~ opening 'Current Accounts' were handed over to Prabhu (PW-
44). The cheques were handed over to Ranjit Mukherjee (PW
1) for clearance. PW-44 testified that the account opening forms
E
were given to the Current Account Department. At the same
time, two draft promissory notes were brought, on the basis
-t whereof usance promissory notes were prepared and signed
... by Prabhu (PW-44) and Ranjit Mukherjee (PW-1). Bank's
functions of preparing draft promissor)' notes were therefore
taken over by the borrower. F

82. The promissory notes were issued (Exhibit 28 and
Exhibit 29) in favour of Syndicate Bank for a sum of Rs. 25
crores and in favour of State Bank of Patiala for a sum of Rs.
25,36,64,000/-. They also brought two Bills of Exchange (Exhibit G
154 and Exhibit 155) one of which was drawn by M/s J.H.
Mehta for a sum of Rs. 14,41,44,000/- signed by Ashwin Mehta
(Accused No.4) and the other for a sum of Rs.35,95,24,000/-
signed by Sunil Samtani (Accused No.7). Whereas former
(Exhibit 154) was accepted by Growmore and the later (Exhibit H
Cl
734 SUPREME COURT REPORTS [2009] 12 S.C.R.

A 155) by Mazda. Both the Bills of Exchange were executed by
Sudhir Mehta (accused No. 5). > '

83. Ranjit Mukherjee (PW-1) who was supported by PW-
44 - Prabhu categorically stated that no original contract note
with regard to the underlying security transactions had been
B
produced, only a photocopy was produced. No security was
received for discounting the Bills of Exchange. Banks also did
not have the shares in relation to which the Bills of Exchange
were drawn before the promissory notes were executed.
c 84. As is customary, having regard to the nature of the
promissory notes being usance, Mazda and Growmore were
to repay the amount on 24.4.1992. They issued letters

D
promising to do so (Exhibit 35 and Exhibit 36).

85. Letters were also issued asking the Bank to issue
-
cheques in the name of ANZ Grindlays Bank. The same was
"1'.
complied with. Accused No. 7 and Accused No. 9 were handed
over: (i) two pay orders in favour of ANZ Grindlays Bank; (ii) '
receipts for the tv10 cheques received from Syndicate Bank
and State Bank of Patiala; and (iii) two usance promissory
E
notes.

86. Indisputably, as on the said date, M/s J.H. Mehta did
not have any account at the Nariman Point Branch. Accounts
*.
of Mazda being Account No. 1705 (Exhibit 86), Growmore
F being Account No. 1706 (Exhibit 89) and M/s J.H. Mehta being
Account No. 1708 (Exhibit 93) were opened later. The
transactions took place in a post haste manner.

87. Accounts of Growmore and Mazda were credited and
G pay orders were issued. Thereafter, M/s J.H. Mehta's Account
was credited and the amount was transferred to the accounts
of Growmore and Mazda. When certain irregularities in regard
to the Bill discounting were pointed out, PW 44 and PW-1
admitted that confusion was prevailing in the matter. The Bills
were rediscounted by State Bank of Patiala before they had
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 735

been discounted by UCO Bank. PW-19 l.B. Gupta, who is an A
r +
employee of State Bank of Patiala categorically stated that
Sunil Samtani (accused No.7) had contacted the Bank in the
morning about the bill rediscounting. Similarly, S.K. Jindal (PW-
21), an officer of the State Bank of Patiala testified that Prakash
Shah (PW-9) had given an offer on behalf of Harshad Mehta B
for investment in bill rediscounting. Money was credited in the
account of Mis J.H. Mehta with ANZ Grindlays Bank. This has
been proved by Cheque dated 25.3.1992 (Exhibit 267) and the
deposit slip (Exhibit 268). This was the route of transferring the
money agreed to by all the players. c
88. The submission of the learned counsel for the
appellants that there has been no violation of the RBI Guidelines

- and/or the UCO Bank Manual cannot be accepted. It may be
true that Shri Veeraraghwan Rangarajan (PW 40), Executive
Director, RBI, Bombay had stated that technically the RBI D
,. y Circular referred to the Bill rediscounting and not discounting,
but it is not disputed at the Bar that Bill rediscounting must be
preceded by Bill discounting. UCO Bank had issued usance
promissory notes; it was required to be backed by encumbered
usance Bills of Exchange of at least equal value not due for E
payment; the transactions were required to be bona fide
commercial transaction. UCO Bank Manual although permits
-+
.., advances as against house bills but it stipulates that for the said
purpose, creditworthiness of the customer was required to be
verified. Credit limit was also to be fixed. For the said purpose, F
credit reports were to be compiled; limits were to be
sanctioned. The jurisdiction of Chairman-cum-Managing
Director and other Authorities are fixed if the Bill of Exchange
exceeds Rs. 25,000/-, credit report on drawees on whom the
bill is drawn is also required to be obtained. The Manual G
mandates that security be also taken. The duty had been cast
~·
on the Manager to satisfy himself that Bill of Exchange is the
result of genuine trade transaction.

H
736 SUPREME COURT REPORTS [2009] 12 S.C.R.

A ILLEGALITY
> '
89. Section 43 defines the tenns 'Illegal' or 'Legally bound
to do" in the following terms.

"43. "Illegal", "Legally bound to do"- The word "illegal" is
B applicable to everything which is an offence or which is
prohibited by law, or which furnishes ground for a civil
action; and a person is said to be "legally bound to do"
whatever it is illegal in him to omit.

c It carries a very wide meaning. If any ground for civil action
can be founded on the basis of any act of omission or
commission on the part of a person, his act may be held to be
illegal or it may be held that he was legally bound to do an act
which he had omitted to do. If a person is guilty of breach of a ....
D departmental order, he may be held to be guilty as he was
legally bound to act in terms thereof.
"'
It does not matter whether the violation was in relation to
the Circular issued by the Reserve Bank of India or whether it
was in violation of the guidelines issued by the Bank itself.
E
90. The question as to whether the directions are statutory
in character and binding in law may not depend upon the nature +
of the powers to be exercised by the Reserve Bank of India. .
Discounting and rediscounting of Bills of Exchange is an
F integral part of banking transactions. Purchase and sale of
securities is also a part of the banking transactions as would
appear from Section 6(1 )(a) of the Banking Regulations Act.
Harshad Mehta was having a very good customers credit
"
rating which was even spoken of by PW 7. The Bills of
G Exchange being usance Bills of Exchange in terms of Section
32 of the Negotiable Instruments Act on their maturity, only the
acceptors, namely, Growmore and Mazda were responsible for
clearance thereof and not M/s J.H. Mehta.

H 91. Further we must take note of the fact that the bills had
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 737

been drawn by Mis JH Mehta and were accepted by Mis A
' "' Growmorw and Mis Mazda. The payment on rediscounting by
the Bank should therefore have been made to Mis JH Mehta,
but the payment had in fact been made to Mis Growmore and
Mis Mazda Industries. If tr.e Bills of Exchange had been drawn
because Mis JH Mehta had sold the shares to Mazda and B
Growmore, it would have been Mis JH Mehta which would have
been entitled to the purchase price of the shares which it had
._ been sold to Mis Growmore and Mis Mazda. In the present
case the Bank had first made a credit entry in the account of
JH Mehta and then the amount had been transferred to c
Growmore and Mazda by issuing cheques in favour of ANZ
Grindleys Bank favouring Mazda and Growmore. Thus the
ultimate payment on the rediscounting of the two bills of
exchange went to Growmore and Mazda who had been shown
as the purchasers of the shares from Mis JH Mehta and were D
y
,Jo
therefore to make payment of the price of the share to JH
Mehta. It must moreover be noted that even the cheques for
repayment to the Bank on 27.04.1992 had been issued by Ml
s Growmore and Mis Mazda. As the amount paid under the Bills
of exchange by the Bank was returned to the Bank, it is beyond
E
the purview of any explanation why the bills of exchange had
.t been drawn in the first place. Obviously the discounting of the
...
... Bills of exchange in our opinion did not represent a bonafide
commercial transaction.

92. It has been brought to our notice by the learned counsel F
for the appellants that Harshad Mehta was behind all the
entities. Apart from his individual capacity, he was acting on
behalf of Mis J.H. Mehta, Mazda and Growmore. This fact was
not unknown to the officers of the Bank. Each one of the private
accused was connected in one way or the other with each of G
)
the said entities. Sudhir Shantilal Mehta (Accused No. 5) held
the Power of Attorney and was the authorized signatory of Mis
J.H. Mehta. In a situation of this nature, in terms of the Manual
if house bills were to be purchased where the drawer and the
drawee were closely interconnected, the following requirements H
738 SUPREME COURT REPORTS (2009] 12 S.C.R.

A were to be satisfied, namely, (i) if the credit rating is high, (ii) ... ~

business integrity and (iii) past dealings and the business
methods of the customer were highly satisfactory and he was
considered good for the limit on his single signature. None of
the aforementioned ingredients of Para 2.5 (b) of the Manual
B were satisfied. None of them were customers of the said
Branch; the Authorities, namely, PW-44, PW-45 as also PW-1
did know them. Although the past dealings of the accused with
the Bank took place at Hamam Street Branch, its records were
not called for. So far as J.H. Mehta, Mazda and Growmore are
c concerned, they were new customers. It was therefore beyond
anybody's comprehension as to how an account was opened
on the same day as the Bill of Exchange was presented for
discounting. It is also beyond any doubt or dispute that the
power to sanction advance so far as the Chairman is concerned
is limited to Rs.5 crores. Prior sanction of the Board of Director
D
was necessary if the Bill discounting exceeds Rs.5 crores. ... .
PW-44 in his evidence stated:

"The limit upto which Shri Margabanthu was authorized to
E sanction was Rs. 5 crores. If business was to be in excess
of Rs.5 crores, the authority to sanction was with the Board
of Directors." ~

To the same effect is the evidence of Varanadi
• .
Subrahmanyam (PW-43), who testified:
F
"According to me a transaction of discounting or
rediscounting of Bills of Exchange in a sum of Rs. 50
crores could not be undertaken without previous sanction
of the Board of Directors.
G
93. The Manual, therefore, prescribes exercise of greater
caution in the cases where the drawer and drawee of the Bill
are identical or connected persons. It provides for the meeting
of safeguards by way of making an enquiry as regards the
creditworthiness, a satisfaction of which was required to be
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 739

. ~ arrived at by the Manager. Thereabout, having regard to the
credit rating, business integrity and past dealing, the Manual
A

provides that those borrowers who do not satisfy the said tests
laid down would not be eligible for any loan. Evidently, all these
procedural requirements necessary for safeguarding the
interests of the Bank were thrown to the winds. B
94. The submission of Mr. Mohta, however, is that all such
transactions of the past had been ratified by the Board of

-- Directors. It may be or it may not be but the fact remains that
the law requires prior sanction of the Board of Directors and
not ratification. Admittedly, even the Board of Directors did not c
ratify the said transaction although in terms of the Manual it was
necessary that prior sanction should be obtained. At least, none
has been produced before us.

95. Strong reliance has been placed on a resolution of the D
fy
Board of Directors dated 12.5.1992 whereby all support was
extended to Accused No.1. The same, in our opinion, is of no
significance as even on that day the Board of Directors did not
ratify the transaction.
E
96. We may notice that the Officers of the Bank were
aware of the fact that the Bank finances were not utilized for
.., -+ speculative purposes. The Banking business is governed by
sound practice. Any advance exceeding Rs. 5 lakhs against
shares and debentures was to be sanctioned by the Board/
Committee of Directors. As it is stated: F

"12. Advances exceeding Rs. 5 lakhs against shares and
debentures should be sanctioned by the Board/Committee
of Directors .. Suitable powers may be delegated to the
Chief Executive and others for sanctioning advances for G
A
lesser amounts.

97. Advances against securities/shares/debentures in
terms of explanatory note included all types of advances. The
Executive Director of UCO Bank Biswajit Choudhari (PW-37)
H
740 SUPREME COURT REPORTS [2009] 12 S.C.R.

A accepted that the discounting of bills is a method of advancing
credit to a party. Evidently, therefore, the prudent lending norms
...
were required to be observed. One of the contentions raised
by the learned counsel for the appellants was that further
security was not necessary as two cheques had been issued
B by two scheduled Banks. The cheques were issued for the
purpose of earning interest by way of rediscounting. It may be
true that whereas the Syndicate Bank and State Bank of Patiala
were to get 17.5% of interest, the UCO Bank was to receive
interest from Harshad Mehta at the rate of 21 % per month. This
itself shows the speculative nature of the transaction. Syndicate
c Bank and State Bank of Patiala or even the banker of Harshad
Mehta and his group ANZ Grindlays Bank were of the opinion
that they proceeded with so much amount even for a short
period. We fail to see any reasons as to why the usual good
credit was not taken recourse to. The underlying object of such
D transaction is that the same should be a genuine/bonafide
'f.
commercial transaction. It was for the said purpose procedural
requirements were required to be complied with.

98. Even if the words 'directions of law' are to be given
E literal meaning, it would include a direction issued by the
authorities in exercise of their statutory power as also the power
of supervision. We have opined heretobefore that it has been t

accepted at the Bar that both the RBI Circulars as also the
..
Manual of UCO Bank were binding on the authorities. Our
F attention, however was drawn to the statement of Srinivas
Padiyar (PW-20) of the Syndicate Bank to show that a contract
was entered into on phone. It was furthermore submitted that
the contract was an implied one. Apart from the fact that no
sufficient and reliable evidence has come on record to show
G that the competent authorities of the UCO Bank and the other
Banks in question, namely, Syndicate Bank and State Bank of
Patiala had entered into such transactions but we would
assume the same for the sake of argument. We will also
assume that the transaction was otherwise permissible in law
in terms of the provisions of the Contract Act or any other
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 741

1 ~ Parliamentary Act for the time being in force. A

99. The prosecution case, however, is that it has been
done in a manner not known to law and/or in violation of the
directions of law. If it has been able to prove the ingredients of
Section 405 of the Indian Penal Code that the transaction had B
been carried out for the purpose of disposing of the property
belonging to the Bank or having used dishonestly and/or in
violation of the direction of law, the prosecution must succeed.
The entire transaction was undertaken with one motive that the
funds of UCO Bank should be made available to Harshad
Mehta who was the stock broker.
c
100. Evidently, UCO Bank was approached as a conduit
as it had no money of its own. Whereas other banks were
secured as they had issued cheques in the name of
Nationalized Bank; UCO Bank did not obtain any security or D
,. 'Y pledge. The fact that it had undertaken a grave risk is not in
dispute. Money was to be returned by a fixed date, namely,
24.4.1992.

101. Even the balance sheet and annual reports of the two E
banks were not sought for far less scrutinized for arriving at a
-4 satisfaction as regards the capability of the borrower to repay
... the amount within the stipulated time. Only after advances were
made i.e. on 26.3.1992, PW-44 asked PW-1 to collect the
balance sheet from Mazda and Growmore for forwarding them
to the Head Office for seeking approval of the Bill Discounting
F
already done.

PW-1 in his evidence stated:
"Round about 26th March, 1992, Mr. Prabhu also asked G
f me to collect the balance-sheet of Mazda and Growmore.
He told me that it was necessary to send the balance
sheets to the Head Office. He had asked me to go to their
offices. On 27th or 28th March, 1992, I visited the office
of Mazda. Over there I met Mr. Samtani. I requested him
H
742 SUPREME COURT REPORTS [2009] 12 S.C.R.

A to give me the Balance Sheets and the Annual Reports for
the last three years. Mr. Samtani told me that he would send
the same. I also asked him about the Balance Sheets of
Growmore. Mr. Samtani stated that he would collect these
and send them to the bank. As Mr. Samtani did not give
B the Balance Sheets and the Annual Reports, I again
contacted Mr. Samtani. Mr. Samtani gave me two Annual
Reports for the years 1988 to 1990 and for the year 1991"

102. Thus, all attempts to procure the balance sheet, etc.
were undertaken at a later date. As the date of repayment was
C coming closer, UCO Bank sent letters to Mazda and Growmore
for arranging funds to retire the Bill of Exchange on due date.
Evidently, they were unable to fulfill their promise. For the said
purpose, Harshad Mehta had already spoken to Accused No.1
and he agreed that the Bills would be rolled over for one more
D month. PW-44 was informed thereabout by Pankaj Shah
(Accused No.9). Naturally, as the entire blame would be put on
him, he did not agree thereto and insisted on payment. In his
evidence, he stated:

E "The due date of both the bills of exchange was 24th April,
1992. On 22nd March 1992, the Bank addressed letters
to Mazda Leasing Co. and Growmore Finance Ltd. to
retire the bills on due date. On 22nd April 1992 I was
informed by Mr. Pankaj Shah that Mr. Harshad Mehta has
talked to the Chairman of the Bank and that the bills are
F
not to be retired on 24th April 1992 but are to be rolled
over. (The witness is shown documents at Exhs. 58 and
59). This were the letters sent to the above referred
Companies on 22nd April, 1992. I told Mr.Pankaj Shah
that I do not agree to the re-rolling and that payment of both
G the bills should be made on due date. I also informed Shri
Roy Chowdhari, Zonal Manager that I do not agree to any
re-rolling and that payment has to be made on due date. I
also informed the same to Shri Ramnathan. I remember
that I also gave the same information to Shri
H Venkatkrishnan at Kolkata on telephone."
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 743

He was corroborated by PW-45 who stated: A
; >.
"Shri Harshad Mehta told us that he and Mr. Margabanthu
had already decided that the period of discounting will be
extended by one month."

103. From the aforementioned evidence, it is evident that · B
PW-44 informed about his decision for insistence of payment
to Accused No. 2 and PW-45 also informed of the same to
Accused No. 1. We can understand that Accused No. 2 being
a high-ranking Officer was informed particularly in view of the
fact that if the Bank does not get back the money, it has to take c
loan for the purposes of having call money, but the very fact that
the high-ranking officers also informed the Accused No. 8,
speaks a volume. We would consider this aspect of the matter
a little later.
D
104. Admittedly, even on 24.4.1992 payments were not
j. 'r
made either by the drawer or by the acceptors. At this stage, it
may not be necessary to consider the submission of Mr.
Bhattacharyya that in terms of Section 32 of the Negotiable
Instruments Act, it was the acceptor's liability and not the
drawer's liability, for the simple reason that whosoever's liability E
it was, the fact remained that the money had not been re-
,.. ~ deposited. Indisputably, UCO bank had to make payment out
of its own funds. As by reason thereof a shortfall occurred, call
money was borrowed from two other banks, namely,
Corporation Bank and Oriental Bank of Commerce to the tune F
of Rs. 50 crores for three days. The evidence of PW-44 in this
regard is relevant, which is as under:

"In view of the promissory notes executed by the Bank in
favour of Syndicate Bank and Bank of Patiala, on due date G
our Bank made payments to the two Banks in whose favour
promissory notes were signed. The Bank made these
payments from its own funds. The Mazda Industries and
Leasing Ltd. and Growmore Finance Ltd. did not retire the
bills of exchange on due date i.e. 24th April, 1992" H
744 SUPREME COURT REPORTS [2009] 12 S.C.R.

A To the same effect is the evidence of PW-1:

"These Promissory Notes were due for payment on 24th ~
'
April, 1992. In the morning I had discussed this with Mr.
Prabhu. He asked me to make payments in respect of
these Promissory Notes. We had therefore made
B payments to the Syndicate Bank and to the State Bank of
Patiala respectively."

105. We are, therefore, of the opinion that the charge of
criminal breach of trust stands established against Accused 1,
c and 2. The role played by Accused No. 2 in the entire chain of
events is significant. The decision to discount the two bills of
exchange at Nariman Point Branch had been taken by Accused
No. 1 only after consulting Accused No. 2. Accused No. 2 had
full details of the transaction. He had also played a key role in
D the purchase of shares by UCO Bank to provide for repayment
of the amount advanced by UCO Bank itself. He had also
similarly made an endorsement for issuing a cheque in favour '( -
of ANZ Grindley's Bank on account of JH Mehta. However we
may notice that the role played by Accused No. 2 was
subsidiary to that played by Accused No. 1. The entire
E
transaction appears to have been gone through because of a
deal struck between deceased Harshad Mehta and Accused
No. 1. We would take note of this aspect of the case while ~
considering the quantum of sentence so far as Accused No. 2 •
is concerned.
F
106. We agree with the observations of the learned
Special Judge that Accused No. 8 was not in a position to issue
any directions; he being a Scale IV employee. He therefore
could not be said to be guilty of the offence of Criminal Breach
G of trust. We find no justification advanced by the prosecution
to interfere with the judgment of acquittal recorded by the
learned Special Judge as regards the Accused No. 8.

CRIMINAL CONSPIRACY

H 107. Criminal conspiracy is an independent offence. It is
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 745

' . ;ii.
punishable independent of other offences; its ingredients
being:-

(i) an agreement between two or more persons.
A

(ii) the agreement must relate to doing or causing to
be done either (a) an illegal act; (b) an act which is B
not illegal in itself but is done by illegal means.

It is now, however, well settled that a conspiracy ordinarily
is hatched in secrecy. The court for the purpose of arriving at
• a finding as to whether the said offence has br~en committed
or not may take into consideration the circumstantial evidence.
c
While however doing so, it must bear in mind that meeting of
the minds is essential; mere knowledge or discussion would

- not be.

108. As the question has been dealt with in some detail
in Criminal Appeal No. 76 of 2004 (R. Venkatakrishnan vs.
D

,,.
" Central Bureau of Investigation), it is not necessary for us to
dilate thereupon any further.

We may, however, notice that recently in Yogesh @ E
Sachin Jagdish Joshi v. State of Maharashtra ((2008) 6
SCALE 469], a Division Bench of this Court held:
~
• "23. Thus, it is manifest that the meeting of minds of two
or more persons for doing an illegal act or an act by illegal
F
means is sine qua non of the criminal conspiracy but it may
not be possible to prove the agreemel'!t between them by
direct proof. Nevertheless, existence of the conspiracy and

- its objective can be inferred frorn the surrounding
circumstances and the conduct of the accused. But the
incriminating circumstances must fom1 a chain of events
from which a conclusion about the guilt of the accused
G

could be drawn. It is well settled that an offence of
conspiracy is a substantive offence and renders the mere
agreement to commit an offence punishable even if an
H
746 SUPREME COURT REPORTS [2009) 12 S.C.R.

A offence does not take place pursuant to the illegal A\ f '
agreement."

109. Yet again in Nirmal Singh Kah/on vs. State of
Punjab & Ors. [(2008) 14 SCALE 639), this Court following
Ram Lal Narang vs. State (Delhi Administration [(1979) 2
B
SCC 322) held that a conspiracy may be a general one and a
separate one meaning thereby a larger conspiracy and a
smaller which may develop in successive stages. For the
aforementioned purpose, the conduct of the parties also
assumes some relevance. {See also Chaman Lal & Ors. v.
c State of Punjab & Ors. [JT 2009 (4) SC 662]}

-
110. In K.R. Purushothaman vs. State of Kera/a [(2005)
12 SCC 631), this Court held:

D "11. Section 120A of l.P.C. defines 'criminal conspiracy.'
According to this Section when two or more persons '( .
agree to do, or cause to be done (i) an illegal act, or (ii) ..-
an act which is not illegal by illegal means, such an
agreement is designed a criminal conspiracy. In Major
E.G. Barsay v. State of Bombay, (1962) 2 SCR 195,
E
Subba Rao J., speaking for the Court has said:

'The gist of the offence is an agreement to break •
the law. The parties to such an agreement will be •
guilty of criminal conspiracy, though the illegal act
F agreed to be done has not been done. So too, it is
not an ingredient of the offence that all the parties
should agree to do a single illegal act, It may

G
comprise the commission of a number of acts."

)()()( )()()( )()()(
-
13. To constitute a conspiracy, meeting of mind of two or
more persons for doing an illegal act or an act by illegal
means is the first and primary condition and it is not
necessary that all the conspirators must know each and
H every detail of conspiracy. Neither it is necessary that
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 747

every one of the conspirators takes active part in the A
I>-.
commission of each and every conspiratorial acts. The
agreement amongst the conspirators can be inferred by
necessary implications. In most of the cases, the
conspiracies are proved by the circumstantial evidence,
as,the conspiracy is seldom an open affair, The existence B
of conspiracy and its objects are usually deducted from the
circumstances of the case and the conduct of the accused
involved in the conspiracy. While appreciating the evidence
~ of the conspiracy, it is incumbent on the Court to keep in
mind the well-known rule governing circumstantial evidence c
viz., each and every incriminating circumstance must be
clearly established by reliable evidence and the
circumstances proved must form a chain of events from
which the only irresistible conclusion about the guilt of the
accused can be safely drawn, and no other hypothesis D
.
")
'
against the guilt is possible. The criminal conspiracy is an
independent offence in Indian Penal Code. The unlawful
agreement is sine quo non for constituting offence under
Indian Penal Code and not an accomplishment.
Conspiracy consists of the scheme or adjustment between
E
two or more persons which may be express or implied or
partly express and partly implied. Mere knowledge, even
j
discussion, of the Plan would not per se constitute
• conspiracy. The offence of conspiracy shall continue till the
termination of agreement."
" F
{See also P.K. Narayanan vs. State of Kera/a [(1995) 1
sec 142]}:
111. Offence had been committed purely for the benefit of
Harshad Mehta. He was the prime beneficiary. He appears to G
have made elaborate plans to obtain liquid cash for a short
period with a view to enable him to make investments in the
security market so that he could obtain quick returns. He
involved a few Nationalized Banks in the process. Prosecution
seeks to establish the offence of conspiracy from the evidence
H
748 SUPREME COURT REPORTS (2009] 12 S.C.R.

A of Shri S.V. Prabhu (P.W. 44), Shri Bhaskar Roy Choudhary
(P.W. 45) and Shri R.L. Joshi (P.W. 7). If the story unfolded by " •
the prosecution through several witnesses is taken to its logical
conclusion, the following would emerge:

112. The transactions in relation to which the two bills of
B
exchange were drawn are dated 20th March, 1992. Growmore
and Mazda opened the account with Nariman Point Branch of
the UCO Bank on the same date on which the bills of exchange
were presented to the Bank on 24 March 1992, but a resolution
c for the purpose of opening the account with the UCO Bank was
passed by Growmore on 14. 03.1992 and by Mazda on
18.03.1992. The conduct of Growmore and Mazda in passing
the resolution for opening the accounts even before the alleged
purchase of shares by them from JH Mehta who had drawn the
bills of exchange raise doubt about the bonafide of the entire
D transaction.
'f •

113. Accused No. 4 appearing as a witness made a
statement that the transaction had been settled and executed
-
by Harshad Mehta. For the said purpose, it may be necessary
E to take into consideration the mode and manner in which the
same was completed. Indisputably, a large sum, namely, Rs.50
crore was made available to Harshad Mehta through the t
process of bill discounting. Evidences have been clearly brought ..
on record to show that the business;. of bill discounting was not
being carried out in the Nariman Point Branch. The said branch,
F
therefore, was chosen so as to enable Harshad Mehta to open
and operate account therein. Accused No. 1 met Harshad
Mehta at about 1.00 p.m. on 1.3. 1992. Accused No.8 was
present in the said meeting. After meeting Harshad Mehta,
Accused No.1 came back to the Bank. He asked the officers
G to undertake bill discounting fQ'( Harshad Mehta. He, however,
..\
did not disclose that for the ~1forementioned purpose he had
met Harshad Mehta earlier. /J1ccused No. 8 was present in the
said meeting. He, however, l.s said to have not taken any part
therein. During the said me1eting itself, Accused No. 1 spoke
H
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 749

to Accused No. 2. Possibility of having transactions relating to A
. 1 i.
bill discounting was disclosed. Accused No. 2 was consulted.
Accused No. 2 did not deny or dispute receipt of t~e telephonic
call but merely took a plea that according to him details thereof
had not been furnished to him. As a follow up of the decision
taken in the meeting held by Accused No.1, resolutions were B
passed by Mazda and Growmore. However, a note in relation
to the aforementioned meeting was prepared which related to
the aforementioned discussions. Why Nariman Point Branch
was chosen for carrying out the said transaction is not known.
c\ ·A
P.W. 44 raised objection stating that only the D.N. Road c
Branch used to deal with the matter relating to bill discounting.
It is now no longer in dispute that Mazda had approached D.N.
Road Branch for getting the facility of discounting upto 50 crore
of rupees but the same was not granted as it did not satisfy
the eligibility requirements. The said fact had not been
D
disclosed. On the strength of the opening of the account Mazda
,Y
and Growmore in the said Branch, two bills were presented. It
is, however, of some significance to notice that the original
credit note relating to the alleged sale transactions of shares
had not been presented, only a photocopy thereof had been
E
presented. A sum of Rs. 50 crore is made available on the
same day; no verification or assessment as per procedure is
~ carried out; no security was t51ken./Yet again, before the bills
"" of exchange were discounted, rediscounting had already been
done by two other branches. The usuance promissory notes,
however, were issued by UCO Bank later. Rediscounting is F
permissible only when the transaction of discounting is taken
first. P.W. 40 said so in no uncertain terms in the following
manner:

"There can be no Bills Re-discounting unless there is a first G
Bill Discounting. This Circular is only laying down the
revised procedure for rediscounting. According to me, in
that sense this is covering Bills Discounting but it is correct
that it does not directly deal with Bills Discounting."
114. For the purpose of covering default in retiring the bills H
750 SUPREME COURT REPORTS [2009] 12 S.C.R.

A of exchange, shares were purchased from J.H. Mehta by UCO
... ,
Bank and a sum of Rs. 49.50 crore were made available to it
by retiring the same. J.H. Mehta in turn transferred the accounts
to Mazda and Growmore
115. Purchase of shares of J. H. Mehta is neither denied
B
nor disputed. It was projected as a bona fide acquisition of
shares in the interest of the Bank.
116. However, the very fact that the principal accused
made a default of repayment of Rs. 50 crores, the purchase of ;,. .
c shares by the Bank itself assumes significance. Even Accused
No. 2 took prominent part in the matter of purchase of shares.
We have already noted that both Accused 1 and Accused 2
played a major role in arranging the entire transaction. In fact
had it not been for Accused No. 1, in our opinion it would not
D have been possible for Harshad Mehta or his associates to
take the Bank for a ride and unlawfully utilize the funds of the
bank.
" '

117. With a view to achieve the said object, neither the RBI
directions requiring bills of exchange to satisfy the tests of bona
E fide commercial or cash transactions were complied with nor
the procedure laid down under the UCO Bank Manual were
followed. The power of the Chairman for investment in shares ~

is upto Rs. 10 crore. His power in regard to bill discounting is \'

only upto Rs.5 crore. So far as other accused are concerned,
F namely Accused No.3, Accused No. 4 and Accused 5, they
were not only residing at the same place but Accused No. 4
and Accused 5 were men of trust of Harshad Mehta. A power
of attorney had been executed in their favour. .
118. The Board of Directors of Growmore had by their
G resolution dated 14th March, 1992 authorized Accused 4 and
5 to seek bill discounting facility from UCO Bank to the limit of
Rs. 50 crores. The application for opening the account of
Growmore at Nariman point had been signed by Accused No.
4. Further on behalf of Growmore the Bill of exchange had been
H accepted by Accused No. 4. Not only this but the letter dated
SUDHIR SHANTILAL MEHTA v. C.B.I. [S.B. SINHA, J.] 751

'. ' l. 24th March, 1992 addressed to UCO Bank by Growmore A
undertaking to repay the amount by 24th April, 1992 had also
been signed by Accused No. 4. Legally the Bank would have
been concerned only with Mis JH Mehta. But the letter of
Growmore signed by Accused No. 4 clerly indicates his
involvement in the Criminal conspiracy. B

119. So far as Accused No. 5 is concerned, it is he who
had signed the Bill of Exchange as the Power of attorney of
~-
the proprietors of of Mis JH Mehta. It is he who had signed the
forms for opening the account with the Nariman Point Branch
of UCO Bank. He had signed the letter dated 23.3.1992
c
requesting the Bank to discount the two bills of Exchange. The
relationship between the parties both personal and
.. professional clearly establishes criminal conspiracy on the Part
of Accused No. 5. We therefore affirm the decision of the
speciai judge finding Accused No. 5 guilty of the offence of D
~r Criminal Conspiracy.

120. As we have already mentioned Accused Nos. 6, 7
and 9 have not preferred appeals before us challenging their
conviction. We find no reason to interfere with the judgment of E
conviction arrived at by the learned Special Judge with respect
.~ to the said accused .
" 121. We however disagree with the conclusions arrived at
by the learned Special Judge with regard to the guilt of Accused
No. 8 for the offence of Criminal Conspiracy. The mere fact that
F
he might have been present at the meeting dated 14.3.1992
of the officers of UCO Bank by itself does not in our opinion
conclusively prove his involvement in the conspiracy hatched
by the other officers of the Bank. Something more was needed
to be shown that he was a party thereto . G
..l
122. In conclusion we hold Accused No. 1 (K.
Margabanthu), Accused No. 2 (Ramaiya Venkatkrishnan),
Accused No. 4 (Ashwin Mehta) and Accused No. 5 (Sudhir
Mehta) guilty of the offence of Criminal conspiracy. We need H
752 SUPREME COURT REPORTS [2009] 12 S.C.R.

A not interfere with the conviction of Accused 6, 7 and 9. Accused .i
. ;

No 8 (S.V. Ramanathan) is acquitted of the charge of Criminal
Conspiracy.

SENTENCING
B 123. We must, while pronouncing on the sentence to be
passed on the accused make note of the fact that the CBI has
not preferred any appeals for enhancement against the
impugned judgment of the Special Court. This Court, therefore, ;~

cannot impose a higher sentence.
c
124. Accused No. 1, K Margabanthu had been sentenced

D
to undergo RI for a period of six months and to pay a fine of
Rs.1,00,000/- in default to undergo SI for two months, by the
learned Special Judge. We find no reason to interfere therewith. -
125. Accused No. 2, Ramaiya Venkatkrishnan had been "
sentenced to undergo rigorous imprisonment (RI) for three
months and to pay a fine of Rs. 50,000/- in default simple
imprisonment (SI) for 15 days, by the learned Special Judge.
We set aside the sentence of the special judge and sentence
E him to imprisonment for a period of one month of RI and to pay
a fine of Rs.1,00,000/- and in default thereof Simple .
Imprisonment for 15 days. r

126. Accused No. 4 Ashwin Mehta is sentenced to
F undergo RI for a period of one month and to pay a fine of
Rs.1,00,000/- in default Simple Imprisonment for 15 days.

127. Accused No. 5 (Sudhir Mehta) is sentenced to
undergo Rigorous Imprisonment for a period of one month and
to pay a fine of Rs.1,00,000/- in default Simple Imprisonment
-
G for 15 days.

All the accused should be entitled to set off for the period
of imprisonment undergone by them in this case.

H D.G. Appeals disposed of.