Brief facts:
In
August 2004, Global Trust Bank, a private bank in India amalgamated / merged
with the Oriental Bank of Commerce which is a public sector bank. Allegations
were levelled against Mr Ramesh Gelli (Chairman & Managing Director) and Mr
Sridhar Subasri (Executive Director) of the Global Trust Bank that at their
behest loans were sanctioned and disbursed “by
throwing all prudent banking norms to winds” which resulted in the creation
of a large quantum of non performing assets, thereby compromising the interests
of the bank’s depositors. These allegations pertained to the pre-amalgamation
period but were brought to light as a result of an audit after the
amalgamation.
India’s
premiere investigation agency - the Central Bureau of Investigation (“CBI”)
investigated the matter and accordingly filed a charge sheet before the Special
Judge (CBI), against the accused persons charging them with the commission of
offences under the Indian Penal Code
and the PCA (Section
13
– Criminal misconduct by a public servant).
The Special Judge (CBI), declined to take cognizance against Mr Ramesh Gelli
and Mr Sridhar Subasri of the offences punishable under the PCA, on the grounds
that were not public servants at the time of the alleged transactions. The
Bombay High Court on appeal upheld this view of the Special Judge (CBI).
The
CBI thereafter filed a special leave petition before the Supreme Court of India,
which was clubbed, with a writ petition filed by Mr Ramesh Gelli, as similar
questions of law were involved in both petitions, and thus a common order was
passed.
Provisions of law in question:
The
Supreme Court was focussed on the following provisions of law:
A. Section
2 (b) of the PCA – "public
duty" means a duty in the discharge of which the State, the public or the
community at large has an interest
B. Section
2 (c) (viii) of the PCA – “any person who
holds an office by virtue of which he is authorised or required to perform any
public duty”
C. Section
46A of the Banking Regulation Act, 1949 (“BRA”)
This
provision is at the heart of the matter, as it provides for officers of a bank
to be deemed as public servants for the purposes of Chapter IX of the Indian
Penal Code. The section reads as follows:
“Every chairman who is appointed on a whole-time basis,
managing director, director, auditor], liquidator, manager and any other
employee of a banking company shall be deemed to be a public servant for the
purposes of Chapter IX of the Indian Penal Code (45 of 1860).”
It
is pertinent to mention that when the PCA was enacted, Sections 161-165A
contained in Chapter IX of the Indian Penal Code were repealed and the said
offences were embodied in the substantive sections (7-12) of the PCA.
What the Supreme Court held:
The
Supreme Court thus was required to adjudicate on “whether the Chairman, Directors and Officers of Global Trust Bank Ltd.
(a private bank before its amalgamation with the Oriental Bank of Commerce),
can be said to be public servants for the purposes of their prosecution in
respect of offences punishable under Prevention of Corruption Act, 1988 or not
?”
The
court reasoned that the objectives of the PCA clearly specified that the
statute was to “make the anti corruption
law more effective and widen its coverage.” The BRA deemed officers of
banks to be public servants and thus, the pith and substance of Section 46A
would not be defeated merely because the PCA repealed Section 161-165A of the
Indian Penal Code and an express provision to this effect was not made in
Section 46A of the BRA. Taking exception to the rule of cassus omissus (what has not been provided for in the statute
cannot be supplied by the Courts), the Court held that the legislative intent
to widen the ambit of the country’s anti corruption law and the definition of
“public servant” can not be defeated due to a mere omission in Section 46A of
the BRA. This omission was held to be capable of “being filled up by the
court”.
After
conjointly reading the provisions of the PCA with Section 46A of the BRA, the
court harmoniously constructed them to determine in the affirmative that
officers of a private banking company would fall under the definition of a public
servant as defined in the PCA. The matter was therefore, remanded back to the
trial court to take cognisance of the offences punishable under the PCA.
Impact:
The
judgment has provided law enforcement authorities with considerable clarity on
the conflict between the provisions of the PCA and BRA, thus now enabling them
to charge private bankers under the country’s anti corruption law. The
judgement thus in the context of private bankers fills the void in the statute
books of a substantive offence of commercial bribery, while the Ministry of
Home Affairs still sits over its proposal to introduce
commercial bribery in the Indian Penal Code.
It
would be imperative to mention that the Supreme Court’s judgement comes at the
backdrop of India battling a major non-performing asset crisis, where several
banks have been accused of sanctioning loans without following due process. It
is highly likely (and hoped) that law enforcement will explore the ‘quid pro quo’ angle
more seriously now that private bank officers can be charged with the PCA.
Private
banks should consider risk mapping the potential for criminal misconduct with
respect to the sanction of loans to non-performing assets, and of course
strengthen their compliance programs to incorporate elements of the PCA. Officers
of private banks must understand the nuances of criminal liability that the PCA
would cast on them, which would is a considerable departure from the earlier
substantive position of the law.
In
the same breath of optimism and without casting an aspersion on the deterrent
value of this judgement, it is hoped that our enforcement statistics do not
continue to remain abysmal.
Criminal Appeal Nos. 1077-1081 OF 2013
with Central Bureau of Investigation through Superintendent of Police, BS &
FC & Anr. Versus Ramesh Gelli, Writ Petition (CRL.) NO. 167 OF 2015.
