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TMI Blog2009 (11) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... r referred to as the Bank ). The loan was raised through an arranger and commission of Rs. 1.62 crore was paid to the applicant. 2. Application for review has been filed in Civil Writ Petition No. 6566 of 2008, decided on 9-10-2009, as we had directed the Director, Central Bureau of Investigation to hold preliminary inquiry into the transaction and Reserve Bank of India to evolve a mechanism to curb such payments of commission to the Loan Arrangers. 3. By way of present application, M/s. A.K. Capital Services Ltd. through their Director, Deepak Mittal, has prayed for review of the judgment. In the review application and during the course of arguments, following grounds were pressed : ( a )The applicant is registered as a Category-I Merchant Banker with Securities and Exchange Board of India (hereinafter referred to as the SEBI ) and to arrange term loan from nationalized Banks, is one of the activities, which is recognized by SEBI and thus, arrangement of the loan and receipt of the commission, being in consonance with the functions of the Merchant Banker, prevailing norms and practice in financial sector, same ought to be construed as part of the activities of the Mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not been noticed by us. 5. Before we deal with the merits of the averments made in the application and the submissions made before us, we need to point out that the applicant has in our view made an attempt to sidetrack the real issues and has attempted to create a smoke screen without understanding the true perspective, in which the order under review was made by us. We may all the same straighten the facts noticed by us in our judgment for purposes of deciding the present review application : ( i )The Comptroller and Auditor General (Commercial) has indicted the Electricity Board for payment of the amount of Rs. 1.62 crore made to the arranger for the loan. ( ii )The Superintendent of Police (Economic Offences Wing), Unit-V, Vigilance Bureau, Punjab has also concluded that there was a connivance between the nationalised Banks and the Arrangers. The Investigating Officer has clearly indicted the Bank officials for collusion with applicant Loan Arranger. ( iii )The Bank requested the Board to extend time for making an offer of loan up to 20-8-2005. The Board officials waited for the response of the Bank up to 22-8-2005. On 23-8-2005, Punjab National Bank, The Mall, Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of the Board or have used their skill for demonstration of financial viability and strength of the borrower. 8. In the application filed for review, to controvert our observations, it was only stated that due to consistent, qualitative, comprehensive presentations and financial expertise of the Loan Arranger, the Bank had sanctioned the loan [para 11( e ) of the application]. No details and particulars were given in the application. However later, a Civil Misc. application was filed, along with documents, which were provided to the Bank, have been annexed. A perusal of the same shows that the documents only contained balance sheet of Punjab State Electricity Board and only statement of accounts. If this was the presentation given, it hardly depicts any skill or special knowledge and expertise of the applicant. 9. This brings us to examine the role of Merchant Banker regarding raising of the term loan. 10. The Securities and Exchange Board of India Act, 1992 states that the securities will have the same meaning as is assigned to it in section 2 of the Securities Contracts (Regulation) Act, 1956. Securities have been defined under section 2( h ) of the Securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single loan arrangement, in which several or many banks participate." 14. In a leading financial article, to understand the syndication of loans in common parlance, it has been stated that : "The standard theory for why banks join forces in a syndicate is risk diversification. The banks in the syndicate share the risk of large, indivisible investment projects. Syndicates may also arise because additional syndicate members provide informative opinions of investment projects or additional expertise after the funding has been extended." 15. In the present case, term loan was raised from single Bank, i.e., Punjab National Bank. It was an ordinary business transaction, therefore, it will not fall under the syndication of rupee term loan, an activity which a Merchant Banker can undertake. Therefore, it can be safely concluded that as per SEBI guidelines, Merchant Banker cannot act as Loan Arranger, in the kind of transaction, which we have examined in the present case. It will be pertinent to mention here that on 1-10-2003, Reserve Bank of India issued a press release No. 2003-04/451, which reads as under : "RBI does not approve Loan Arrangers October 1, 2003 It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on the part of the public servants, which include Bank officials and officials of the Board. Central Bureau of Investigation has been directed to investigate the transaction. 19. It has been held in V.C. Shukla v. State (Delhi Administration) AIR 1980 SC 1382, that when a First Information Report is filed before a police officer, the law does not require that the officer must hear the accused before recording the FIR. Para 44 of the judgment makes it explicitly clear that for launching a criminal prosecution, accused is not required to be heard. This view is further fortified in R.S. Gill v. State (J K) 2008 Cri. L.J. 868. Still in order to allay the apprehension of the applicant, as a matter of abundant caution, we make it clear that any observations made by us in our judgment, of which review has been sought, shall not be construed as an expression on the merits of the case. We have given no final opinion. We have only set the preliminary inquiry into motion. We have taken into consideration this aspect and have not ordered registration of FIR straightway. 20. Therefore, the grievance of the applicant that the observations made by us and the directions issued ..... X X X X Extracts X X X X X X X X Extracts X X X X
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