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TMI Blog2003 (1) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The entire prosecution version is around the following five transactions entered into by Maruti Udyog Limited (hereinafter referred to as MUL ), through United Commercial Bank (hereinafter referred to as 'UCO Bank') wherein Harshad S. Mehta A-5 is payee or recipient of the amount, which are mentioned hereunder:-- Trains No. A-5 Dates From To Days Rate of % Amt Rs. Interest Rs. Amount Repaid (Rs) 01. Lent to MUL 24.01.91 25.02.91 32 12.75 4,99,5.000 5.58,250 5,05,03,250 Remarks- MUL delivered 35 lacs Units of UTI to A5. 02. Borrowed 13.03.91 25.03.91 12 16.75 10,11,50,000 5,56,995 10,17,06,200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 13(1)(c) read with Section 13(2) of the Prevention of Corruption Act, 1988 (hereinafter referred to as the PC Act ). A-1 Pramod Kumar Pritam Lal Manocha, A-2 Ambuj Sushil Kumar Jain and A-3 Vinayak Narayan Deosthali were separately charged under Section 13(1)(c) read with Section 13(2) of the PC Act as also under Section 409 of IPC. For being a Bank employee, A-4 Ram Narayan Popli was also charged under Section 409 of IPC. A-3 in addition was charged for the offence punishable under Section 420 IPC for cheating MUL and was also charged under Section 471 read with Sections 467 and 468 of IPC for fraudulently and dishonestly using letter-heads and BRs of UCO Bank, Hamam Street Branch, Bombay knowing the same to be false and forged documents as also forging certain documents to be used as valuable securities. A-5 Harshad Shantilal Mehta was also charged for the offence punishable under Section 403 of IPC. 4. By judgment and order dated 27th/28th September, 1999, the learned Special Judge acquitted accused No. 2 and convicted accused Nos. 1, 3, 4 and 5 as under :-- 1. A-1 Pramod Kumar Pritam Lal Manocha. A-3 Vinayak Narayan Deosthali, A-4 Ram Narayan Popli and A-5 Hars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the said Mr. Anuj Kalia was an employee of accused No. 5-- HSM; 3. ACCUSED NO. 3 Vinayak Narayan Deosthali- i) A-3 is convicted for an offence under Section 13(1)(c) read with Section 13(2) of PC Act in furtherance of criminal conspiracy, in his capacity as a public servant viz. being Asstt. Manager of UCO Bank, Hamam Street Branch, Bombay which is the Government of India undertaking being a nationalised bank for abusing his position as a public servant and allowing use of funds of MUL to be wrongfully gained by A-5; ii) A-3 is convicted under Section 467 of IPC in furtherance of criminal conspiracy, he on or about 23.1.1991 at Bombay having forged a letter dated 23.1.1991 (Ex.58) with the dishonest intent of authorizing remittance of MUL's funds of ₹ 4,99,45,000/- to Bank of America, New Delhi by accused No. 5 to MUL, Delhi and further dishonestly authorizing the delivery of valuable securities of 35 lacs of units of UTI belonging to MUL to Mr. Mohan D. Khandelwal, an attorney of A-5; iii) A-3 is convicted under Section 468 IPC for having forged letter dated 23.1.1991 of UCO Bank, Hamam Street Branch, Bombay intending that the same could be used for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... honestly using the BR No. 1132 dated 18.3.1991 for ₹ 10,83,75,000/- (Ext. 39) as genuine; xiv) A-3 is convicted under Section 467 of IPC for having forged valuable security of UCO Bank, Hamam Street Branch, Bombay viz. BR No. 166 dated 24.4.1991 for ₹ 7,62,45,000/- (Ex.41) with the intent to make MUL, believe that UCO Bank, Hamam Street Branch, Bombay was holding 51 lacs units of UTI of fact value of ₹ 5,10,00,000/- with UCO Bank to be delivered to MUL; xv) A-3 is convicted under Section 468 of IPC for having forged valuable security being BR No. 166 dated 24.4.1991 for ₹ 7,62,45,000/- (Ext.41) with the intent to make MUL, believe that it should be used for cheating; xvi) A-3 is convicted under Section 471 r/w Sections 467 and 468 of IPC for having fraudulently and dishonestly used the said BR dated 24.1.1991 (Ex.41) as genuine knowing it to be a false and forged document; 4. ACCUSED NO. 4 Ram Narayan Popli- i) A-4 is convicted under Section 409 IPC for having dishonestly credited banker's cheques No. 645532 dated 25.2.1991 for sum of ₹ 5,05,03,250/- (Ex.28), 646402 dated 18.3.1991 for ₹ 10,83,75,000/- (Ext.32) and 863237 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of A-5 for which afore-quoted five transactions took place, even though there was prohibition on granting loan by MUL to individuals. It is stated that A-1 and A-2 were working closely and they had dominion over the property of MUL. A-1 used to place the proposal before the Board and obtain approval for the investments. A-1 and A-2 used to give instructions on the basis of which letters addressed to banks were prepared. It is alleged that they misappropriated the property in violation of the law as well as their duty (express and implied) by making it available for use of A-5. This is on account of the fact that they were authorised to invest the money in the defined securities in a transaction with Public Sector Undertakings only. They, however, knowingly entered into a series of transactions, which had the result of making the funds of MUL available to A-5. 8. It is also the prosecution version that they [A1, A2 and A3] being public servants during the material time, abused their position and thereby conferred a pecuniary advantage upon A-5 and in any event while holding office as a public servant obtained a pecuniary advantage for A-5 against public interest. Thus, they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount was paid to A-5. 12. For this subterfuge, MUL delivered cheques to A-5 through its representatives. If the transaction was between MUL and UCO Bank, the cheque would have been delivered to the representative of UCO Bank either at Delhi or at Bombay. If there was a loan transaction between the MUL and A-5 then there was no necessity of issuing cheque in favour of Grindlays Bank at New Delhi and transferring the said amount to UCO Bank. It is the prosecution version that as the transactions were not genuine and as loan could not be given to A-5 in his individual capacity, it was given to A-5 by creating forged documents. 13. He pointed out that after receiving the cheques issued by Canara Bank on behalf of MUL, in favour of Grindlays Bank, the same were immediately encashed on the same day and thereafter Grindlays Bank, New Delhi again transferred the same to its Bombay branch in favour of A-5. Thereafter, A-5 gave cheques to UCO bank. This itself indicates that as the transactions were not genuine, irregular and illegal procedure was adopted for encashing the cheques. Therefore, this is a case of misappropriation and forgery. Further, if there was genuine sale of unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction he borrowed money from the MUL because MUL had surplus funds which MUL were to invest and make substantial profits out of investment. A-5 returned the borrowed amount on due date with interest in each transaction. All the said four transactions were backed by BRs as collateral security and the BRs were backed by requisite number of units. Loan was for a short period e.g. 2nd transaction was for 12 days, 3rd was for five days, 4th was for two days and 5th for five days. Interest rate was also high i.e. 16.75%, 21%, 26.25% and 25% respectively. 16. It is his submission that it is absurd to suggest that A-5 committed any offence or offences, but the prosecution is a piece of political revenge against A-5 for disclosing certain facts to the press against the political leaders. He contends that transactions were loan transactions because in all these transactions the rate of interest and number of days for which the loan was being advanced was settled before the money and the units changed hands. This is consistent only with the transaction being a loan transaction. He also submitted that mainly the prosecution case in the FIR dated 15.4.1993 which was lodged after preliminar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that before taking loan, units of UTI were deposited or were with the UCO Bank and there is no evidence on record to establish that units were not with the UCO bank at the time when the BRs were issued. It is his submission that in a criminal prosecution it is absurd to suggest that defence has to prove that BRs were obtained without sufficient security. The prosecution witnesses of the UCO Bank have admitted that necessary record was not maintained by the bank because of heavy pressure of work. 20. It is also submitted that for similar transactions RC.8(BSC)/94/Bom. was lodged and a report was submitted before the Court stating that there was no case against the accused. After investigation, it was discovered that the BRs were indeed backed up by the securities, hence the CBI filed closure report dated 11.11.1994 Ex.A-5-116 before the High Court and the said report was accepted on 17.3.1997. That order was upheld by this Court. However, the CBI proceeded with this prosecution for an oblique motive. 21. In written submissions filed on behalf of A-5, it has been further stated that the charge against A-5 reads as under:-- That you accused No. 5 in furtherance of the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself and then after some interval paid to its customer A-5, is without any substance as what has been done was only to expedite the payment so that the large amount of interest which was to be paid by A-5 may not go waste. What the Grindlays bank did was to provide a laudable legitimate banking service. In any event, every trifling departure from practice does not make the transaction illegal. At worst it is unusual, but not irregular. For this, it is submitted that PW12 Ashok Monga, Asst. Manager, ANZ Grindlays Bank has fully supported the existence and propriety of this practice. The kind of pay order like Ex.30 has never been held to be a cheque. To hold it to be a cheque would lead to some absurdity. Section 128 of the Negotiable Instruments Act lays down that when a cheque is crossed, the banker on whom it is drawn shall not pay it otherwise than to banker. It is obvious that if the payee is itself a banker he cannot be expected to present it to another banker for collection. Grindlays Bank cannot open an account with some other bank and cash its Pay orders in that account. Even paying a crossed cheque otherwise than through a bank only renders the bank liable for negligence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d stated a willful falsehood in deposing about the said meeting. His own sworn testimony unambiguously establishes that the meeting alleged by him to have taken place could not and did not take place. According to him, the alleged meeting took place either in April or May, 1989 at the office premises of MUL, K.G. Marg, New Delhi. He is categorical that A-5 visited New Delhi once in April or May, 1989. In his cross examination on behalf of A1 and A-2, he states that: I cannot say about the frequency of visits of A-5, but I recollect he having visited Delhi once sometime in April, May, 1989. 31. PW23 makes passing reference to A-2's presence at the alleged meeting so that it could be said that it was a condonable lapse of memory on his part. On appreciation of his evidence, it cannot be said that he had an understandably vague memory regarding A-5's presence; on the contrary, his deposition evidences vivid details about the role and participation of A-2 at the said meeting. Since A-2 could not even be present at the meeting as he was not employed with MUL on that date, it is abundantly clear that PW23 has deposed falsely about the meeting. If A-2 could not have been pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions which were prior to 1st April, 1991. Further, the RBI's Circular dated 09.9.1992 Ex. 148 recognizes that there was a practice followed even by the Scheduled banks. When banks follow a particular practice they do so at least in the bonafide belief that the practice did not violate any law. If a practice is illegal, it may not convert that which is illegal into legal but it certainly provides for bonafides and absence of dishonesty. From this circular, it is clear that the scheduled banks were being advised against a practice which might put them in difficulty. They were running the risk of being responsible for unauthorized payments. MOTIVATION BEHIND THE INSTANT CASE: 34. There are several salient features of the instant prosecution which clearly show that the entire investigation has been dishonest. 35. It is almost trite to suggest that the SCAM Act was promulgated with a view to recover public monies lost by certain banks and financial institutions in securities where such losses as a result of such transactions. It is equally trite to state the contrary proposition that where there were no losses at all, the institution of the Special Court was wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Notwithstanding the fact that PW23 first met the CBI as a source, a preliminary enquiry was registered in the instant case on 15.9.1992. e) 13 members of the JPC in a separate note have described this change in status of PW23. f) On 17th February, 1993, A-5's advocate addressed a letter to CBI about 4 cash withdrawals from banks in Bombay and Delhi between 2nd and 4th November, 1991 which according to him were politically sensitive in the extreme and stated that details of these would be revealed if A-5 was given assurance of complete protection from political harassment or prosecution g) Although the CBI replied A-5's letter on 25.2.1993 to the effect that it was beyond their power to grant such protection, they continued to make efforts in March, 1993 to obtain A-5's narration on the said cash withdrawals. It is only after they failed to obtain such a narration that the FIR in the instant case was filed on 15.4.1993. h) The FIR of dated 15.4.1993 did not cite PW23 as an accused, despite the fact that PW16 was cited as an accused in the FIR. IO PW25 says that decision to name PW16 in the FIR was that of the Superintendent of Police V.D. Maheshwari and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PW23 made an application Under Section 306 read with Section 164 Cr.P.C. that his judicial confession be recorded and that he be made an approver in the instant case before the ld. Special Judge, New Delhi who was seized of the charge-sheet in the PFC case. That application was rejected. 39. Thereafter, on second attempt, after his arrest on 10.8.1994, his confessional statement was recorded by another Magistrate and not by the Special Judge who rejected the application for pardon in PFC case. n) Ld. CMM assigned the case for recording of confession to PW20 Dr. Ramkrishna Yadav, M.M., New Delhi who ultimately recorded the judicial confession (Ex.139) of PW23 on 21.10.1994. 40. Ultimately, the application for grant of pardon was accepted by the same Magistrate. 41. Very soon, after the said pardon was granted, the charge sheet was filed on 6.12.1994 i.e. within a period of six weeks from the pardon being granted. o) The absence of any loss to MUL in the instant case, the absence of proof whether A-5 made any gain in the instant case; the fact that the transactions took place at a time in which three of them were beyond the time period for which the Special Court ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a public sector undertaking and these officials were public servants. (ii) S/Shri Pramod Kumar and Ambhuj Jain entered into a criminal conspiracy during the period from January 1991 to May 1991 at Delhi and Bombay with V.N. Deosthali an officer of UCO Bank, Hamam Street Branch, Bombay, R.N. Popli of ANZ Grindlays Bank, Delhi and Sh. Harshad S. Mehta a broker, his employee Anuj Kalia and certain other unknown persons with the object to misappropriate the said surplus funds of MUL and to provide pecuniary advantage to Sh. Harshad S. Mehta out of the funds to be invested by MUL by abusing their official position as public servants. (iii) In pursuance to the said criminal conspiracy, Shri V.N. Deovasthali wrote a letter on 24.1.91 to MUL to effect physical delivery of 35 lacs units of UTI to Sh. Mohan Kandelwal, the attorney of Sh. Harshad S. Mehta and an amount of ₹ 4,99,45,000/- was credited to the account of MUL, in Bank of America at Delhi out of the account of Sh. Harshad S. Mehta. This amount was borrowed by MUL at higher interest rate of 12.75% per annum for 32 days against physical delivery of 35 lac units of UTI. The physical delivery of 35 lac units was taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated funds of MUL by abusing their official position as public servants in as much as they invested the funds of MUL at lower rate of interest and thereby caused pecuniary advantage to the co-conspirators and corresponding loss to the MUL. 48. In the charge-sheet submitted on 15.12.1994, similar allegations are reiterated. Learned senior counsel Mr. Jethmalani pointed out that --(1) Paragraph 4 of the charge-sheet expressly confirms that the first transaction was loan transaction inasmuch as it is averred that MUL borrowed the amount at a higher rate of interest i.e. at 12.75% per annum for 32 days against physical delivery of 35 lacs Units of the UTI; (2) paragraph 5 of the charge-sheet referring to the transaction of 13th March, 1991 describes it as an investment of 10 crores and odd from MUL for a period of 12 days at the interest rate of 16.75% per annum. (3) paragraphs 6, 7 and 8 contain similar description of the remaining transactions. (4) Para 3 of the FIR is the basis for conspiracy during the period from January 1991 to May 1991. 49. From the contents of the FIR it appears that A-1 and A-2 were investing surplus funds of MUL with various agencies. These investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt issued by a bank selling securities when it is not able to effect physical delivery of the securities sold even after the receipt of the purchase consideration for reasons such as the securities are lying at another center. In terms of the B.R., the seller bank undertakes to hold the security on trust for the purchaser for the short period till delivery and it is generally considered valid for 90 days or till delivery is effected whichever is earlier. In the inter bank market, a large number of transactions in securities were being concluded by means of BR deliveries (instead of physical delivery of securities sold); however, there was no uniformity in the format of the BR and there were also not set guidelines for its usage. B.R. does not find a place in the Banking Regulation Act, 1949. It was only on the 6th May, 1991 that IBA issued a circular prescribing a format and laying down certain broad guidelines and recommending its adoption by member banks and other financial institutions like IDBI/IFCI/ICCI/NABARD etc. The RBI for the first time inter alia issued instructions to banks in this regard in their Circular of 26.7.1991 (Appendix-IX). A similar receipt issued by a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their favour. SINGLE POINT CLEARANCE 12.28 In the case of SBI, it was noticed that HSM had been unauthorisedly given the facility of collection and credit of the bankers cheques by SBI as per his instructions. The Bombay Main Branch of SBI acting as the agent of SBI Caps had debited SBI Caps account and unauthorisedly credited funds to the account of HSM instead of making payments to named banks/institutions. Cheques drawn on UCO Bank had been credited to the current account of the same broker. 12.29 The Committee noticed in this connection that HSM had requested the Bombay Main Branch twice by his letter dated 19.8.91 and 10.01.92 for acceptance of bankers cheques from banks/organisations brought by him or his representative and issuance of bankers cheques there against. In fact, the broker wanted that the facility of single point clearance whereby the activities of issuance and acceptance of bankers cheques in their account may be conducted through the Securities Division of the SBI Main Branch Bombay instead of the Personal Banking Division in the same branch where he had the account. This facility had enabled HSM to put through the transactions through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of RBI guidelines issued on 11.4.1988 which stated that sale and purchase of securities with the same party and for identical or similar amounts were construed as tacit arrangements which was in contravention of the instructions prohibiting but back arrangements with non-bank clients. DIVERSION OF FUNDS TO BROKERS- 14.114 While most of the PSUs/Organisations denied before the Committee about utilising the services of brokers, the Committee found that in some cases inquiries/investigations by CBI/internal auditors clearly established nexus between brokers, officers of PSUs/ banks resulting in syphoning of funds of PSUs to brokers. It is reported that 22 PSUs had placed funds to the extent of over ₹ 12,000 crores through Harshad S. Mehta which were syphoned of to him and his groups of Companies. Some instances are given below:- (i) ..... (ii) In the case of Maruti Udyog Limited, it was found, that funds of MUL meant for purchase of units from UCO bank were credited into the individual accounts of HSM. There is a financial involvement of ₹ 33.63 crores. (iii) ..... (iv) ..... 17.48 On 16th June, 1993 Shri Harshad Mehta held a press conference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riminal/civil cases not to admit any document and thereby to prolong the litigation with impunity. For the purposes of deciding these appeals, it is necessary to only refer to relevant part of evidence which learned counsel for the parties have relied upon. 56. For this purpose, we would divide the evidence and submissions as under:-- [On behalf of]- (a) MUL; (b) UCO Bank; (c) ANZ Grindlays Bank; (d) other relevant witnesses, such as, PW16 Anuj Kalia, PW23 Mohan D. Khandelwal (Approver) and PW25 I.O. etc. (a) WITNESSES FROM MUL [PW1, PW3 AND PW4] 57. PW1 Brijendra Singh Bhargava stated that he was Legal Advisor of MUL and at the relevant time Company Secretary and also internal legal advisor for the Company. It is his say that during May, 1989 to May, 1991 Mr. R.C. Bhargava was the Managing Director and Shri S. Natrajan was the Director (Finance). During the said period, MUL has several bankers, such as, Canara Bank, Bank of America and Bank of Tokyo. At that time, A-1 Pritam Lal Manocha was Deputy Manager, Corporate Finance and one of his duties was deployment of funds of MUL. He had power and authority to sign cheques on behalf of MUL and to operate i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd they had made their comments as nil , which means they made no comments in respect of said five transactions. 63. He admitted that MUL, has not lodged any complaint/FIR with the CBI nor made any complaint to anyone about the said transactions and according to him no loss was caused to the MUL in the said five transactions. 64. He admitted that after CBI enquiry, the management of MUL did not take any action against A1 and A2 as it felt that A-1 and A-2 were not guilty. The performance of A-1 was appreciated and he was subsequently promoted to the next level. He was also granted one additional increment. For that purpose, the relevant letters written by Mr. R.C. Bhargava, Chairman-cum-Managing Director of MUL are produced on record. He has also admitted that A-2 Ambuj Sushilkumar Jain was also promoted by the management on considering his performance and merits. 65. He further admitted that Joint Parliamentary Committee (JPC) was constituted by the Parliament for the purpose of inquiring into various securities transactions and MUL was required by the JPC to clarify certain queries in respect of its securities transactions including those transactions which are subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity covered under the said BR. The BR would also acknowledge the receipt of monies from MUL for the purchase of security. He further agreed that in respect of three transactions dated 13th March, 1991, 18th March, 1991 and 24th April, 1991, the payments made from MUL were for buying securities and securities were received and the subsequent delivery of the securities involved receipts of payment by MUL. For these transactions, MUL had also received the payments with agreed yield. In the last transaction of May, 1991, MUL made payment for the purchase of securities. In the said transaction, MUL had received money with agreed yield. In respect of disinvestment transaction dated 24.1.1991 MUL delivered the securities against the payment and on reversal received the securities and made the payment. 67. He further admitted that MUL had not suffered any monetary loss in any of the five transactions. In the five transactions there was optimum yield and utilization from the point of investment by MUL. MUL used to have large amount of surplus funds for investment. Every day there used to be such investment transactions for and on behalf of MUL on short term basis. This fact was well kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is further say that PW2 Mr. Meda Sai Swaroop, who was the concerned Manager of the Canara Bank after preparing bankers' cheque as per their instructions would hand over the same to him and he in turn used to hand over the cheque to the representative of the said bank or brokers' representative. It is his say that because of pressure of work, they were not going to the respective banks and instead handing over the bankers cheque to the representative of the bank or to the broker under the instructions of either A-1 or A-2. In cross-examination, he admits that during the relevant period foreign banks used to effect transfer of monies from one city to another much faster than the national banks and they were able to do so during the banking hours of the same day. He came across transactions where SBI Capital Market Services had done transactions both of receiving monies and paying it to them on the date of maturity which payments were made or reused through Bank of America. He further states that the brokers who used to contact them on behalf of their bank clients and financial institutions during the relevant period were:-- DSP Financial Services, Hemdev deals in the security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used to attend the security transactions on behalf of the head office as also on behalf of the clients which also included brokers. The branch was not concluding was not permissible to use the said accounts for any individual. While working in Hamam Street Branch, sometimes he came across few brokers including Harshad S. Mehta whom he met once in his office along with Mr. S.V. Ramnathan, the then Divisional Manager of the bank. He never came across transactions known as buy back or ready forward. He came across transactions known as switch transactions, wherein security is received from one bank and delivered to the other bank. During the relevant time, a doubt was entertained in respect of switch transactions, the Zonal Manager and Divisional Manager took the decision to stop the said practice. After one week, the Divisional Manager phoned Hamam Street branch and asked them to resume such transactions. Accused No. 3 was not authorized to conclude transactions in security on his own on behalf of the bank. On seeing the letter dated 23rd January, 1991 addressed to MUL, containing signature of A-3, it is his say that it was not within the authority of A-3 to address such letters. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by him every day. He was familiar with what is meant by 'day book' which was kept and maintained by the bank. All the debit and credit vouchers would be reflected in the said 'day book' on particular day including in subsidiary book. Such 'day books' used to come to him every day. He knew that securities transactions on behalf of brokers were taking place but he had no detailed particulars thereof. By going through the debit and credit vouchers it was not possible to get such details or particulars of such transactions. Credit voucher in a security transaction would contain the particular such as a nomenclature of security, face value, rate etc. The name of the counter party may not necessarily be reflected in such vouchers. He might have seen some credit vouchers but he did not remember. He did not remember whether the names of the counter party were mentioned in those vouchers which he might have seen. It is his further say that there used to be 30 to 40 switch over transactions every day. The strength of the staff available in the said department was adequate enough to handle the volume of work in such transactions. Such transactions were to be com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck up security. In case of security transaction on behalf of the client, they credit the sale proceed receipt into the account of client. They were preserving and keeping the original letters so received from the client and instructions received from the head office by telex or fax messages. In respect of security transactions executed for and on behalf of head office. Hamam street branch used to debit and/or credit direct head office account (shortly known as DHO account'). It is his further say that the officer working in Hamam Street branch could not enter into any purchase transaction in security on behalf of head office without instructions from head office. Similarly, on behalf of the client, the officer working in Hamam Street branch could not enter into a purchase transaction in security without instruction of a client. He admitted that Hamam Street branch of UCO Bank was not maintaining security account, either security wise or otherwise, of the clients. However, the record in respect of security transactions put through head office was maintained in the Hamam Street Branch in a Security Register. On perusing the BRs Exs. 38, 39 and 41(1), he admits that the said BRs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as only to execute the security transactions of the head office as per their instructions. One Harshad S. Mehta (A-5) had his current account with their branch and he was knowing him. He came across a person by name Mr. Pankaj Shah working with Harshad S. Mehta, who sometimes used to come to Hamam street branch in connection with brokers security transactions. It is further say that no record in a form of security ledger or security register broker wise was kept and maintained in respect of security transactions of their broker clients. Initially, there used to be such record but because of increase in the transactions in security on behalf of their broker clients in large numbers, the practice of maintaining of such record was discontinued. There was no guidelines formulated or received in this regard in their branch. On seeing Ex.106, xerox copy of the delivery order dated 25.2.1991 on the letter head of A-5 Harshad S. Mehta, it is his say that the same is delivery order of Harshad S. Mehta addressed to UCO Bank containing instructions to deliver 35 lakhs units of UTI to MUL. The question put to the witness was--whether the above document (Ex.106) is the sale of the security by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he is one of the accused in Special Case No. 1 of 1993 on the file of the Special Court. In connection with the said case Mr. Bhaskar Raichoudhary the then Zonal Manager in the rank of DGM was arrested in Special Case No. 1 of 1993 who later on was turned to be an approver. There is no departmental proceeding or inquiry instituted against him either by UCO Bank or Central Vigilance Commission in that matter. A question was put to him--What was pre-condition to use BRs in the security transactions and how transactions in securities by means of BRs used to be put through at the relevant time. 78. His answer to the above query was that--the bank would issue its BR only against back up of another Br i.e. the BR issued by other banks in favour of UCO Bank stating therein that the said issuing Bank held the securities in question with it. BRs could be issued on bank's own behalf as also on behalf of its customers. When UCO Bank is selling its security on its own, it would issue its BR favouring the counter party bank. In case of purchase by UCO Bank the process would be vice a versa i.e. other counter party bank would issue its BR favouring UCO Bank. When UCO Bank would act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BR:002:91 dated 1.1.1991 on the subject matter. After stoppage of the switch transactions by us, all the Brokers called on us as well as Zonal Manager and Zonal Manager had also discussion in this regard with Mr. Venkatakrishnan. General Manager, subsequently, based on the discussions Deputy General Manager and the undersigned had with all the brokers and based on the understanding that Branch will never run into a difficulty and day on account of switch transactions and because the brokers have already entered into contracts with various banks to route the transactions through UCO bank on various dates up to end of March, 1991, it was decided to resume the switch transactions on the following terms: 1) The resumption is temporary and that bank after having detailed discussion further with individual brokers and after discussion with various bankers who are dealing in switch transactions and who are not dealing in switch transactions may discontinue routing this transaction through UCO Bank depending upon our findings. 2) The brokers will give us an advance list of transactions they are going to put through. 3) They will deliver the pay orders well in time to the Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee of the said pay order which was entitled to receive the credit of the said pay order. In the cross-examination, he has stated that he was sure that payee banker i.e. Grindlays Bank had received the credit under the said pay order and that Canara Bank was not concerned as to what Grindlays bank did with the proceeds of the said pay order. (c) WITNESSES FROM ANZ GRINDLAYS BANK [PW9, PW11, PW12 and PW15 AND also PW22 Ex. RBI Officer] 83. PW9 Ravi Saluja, was an employee of ANZ Grindlays Bank. During the period 1990 till May, 1991 he was posted at Karol Bagh branch of the said bank as an officer. It is his say that ANZ Grindlays bank has a department known as clearing department and he is acquainted with the procedure of clearing department. He was stated about the procedure how the clearing aspect is processed. According to him, the account holder of the bank is required to deposit the cheque meant for clearance by filling in slip known as pay-in-slip or deposit slip mentioning particulars such as the date of the deposit, name of the account holder, the nature of account, the account number, the amount of the deposited cheque, the name of the bank, its branch and number o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same at the right hand bottom corner of the said letter. A debit voucher in respect of issuance of the said pay order was prepared with one original and one carbon copy. The original was sent to Mr. Harshad S. Mehta and carbon copy thereof was retained in their office. 85. PW12 Ashok Kumar Anant Ram Monga, Asstt. Manager, Grindlays Bank stated that during the year 1991 he was posted in Sansad Marg branch. He identified A-4 R.N. Popli as the person who also worked in the said branch along with him as officer in charge, clearing department. He was overall in-charge of the said branch along with the Manager and in that capacity, he used to have supervision over the working of the concerned clearing department. He was shown bankers cheque Ex.28 favouring Grindlays bank, having rubber stamp in the left hand top corner reading as Payee Account only and on the right hand side top corner reading as Not transferable . The witness stated that since the Canara Bank is the drawer of the said cheque and the Grindlays bank who is the payee in respect of the cheque bearing endorsement 'not transferable' and 'payees account only', therefore, cheque irrespective of whoev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h networth customers like British Airways, Classic Financial Nizhewan Travels and Harshad Mehta Group, which list is not exhaustive and he came across the instances in case of the said parties where there bank had allowed such credits. He further agreed that RBI had never taken any action against the Grindlays bank in respect of five pay orders shown to him earlier. He was aware that RBI possessed the power to take action against any errant bank. The Grindlays bank had not received any complaint from MUL for crediting the amounts of said five pay orders to the account of third party. When the instrument like pay order is drawn favouring Grindlays bank then the same has necessarily to be deposited in Grindlays bank account with RBI. He was asked about the category of customers regarded as High Networth customers. He replied--such classification is generally given by the concerned manager of the bank having regard to the deposits maintained by the customer or other business potentials. Any officer working in the branch of their bank having any doubt was certainly approaching the Branch Manager for clarification and if he could not answer then it was being taken to the Area Manager. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y used to send the said cheques for clearance. He could not recollect who was or who were the concerned officers of the treasury department who would be giving such instructions as there were many such officers. The instructions were conveyed to him orally and he considered the same to be in proper order. 87. PW22 V. Rangarajan is an ex-employee of RBI. He joined R.B.I. in 1961 as a Junior office and retired in 1997. It is his say that in December, 1990 he was elevated to the position of Additional Chief Officer and was posted in Department of Banking Operations and Developments (DBOD). It is his say that the commercial banks have their account with RBI. Individual persons are not eligible and entitled to open their account in any form with the R.B.I. The bankers cheque/pay order issued by one bank favouring other bank are negotiated as under:-- The payee bank would deposit the cheque for clearance in clearing house and RBI would settle the payment thereof by giving credit into the account of payee with RBI. 88. The witness was further question--Is it permissible to deposit an account payee bankers' cheque favouring another bank in the account of unnamed persons as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Banks (excluding RRBs) Dear Sir, Payment of cheques/pay orders It has come to our notice that banks have undertaken large value transactions with third parties on a significant scale by means of cheques drawn on their accounts maintained with Deposit Accounts Department of Reserve Bank of India (RBI) in the names of other banks maintaining accounts with the RBI. As banks are aware, the facility of maintaining accounts with RBI has been granted mainly to enable banks to fulfil their statutory obligations, settlement of transactions with RBI/Government, settlement of inter-bank transactions or adverse clearing balances. It is reiterated that the accounts maintained with RBI should be utilised only for these purposes and not for facilitating credit to accounts of third parties. 2. It has also been revealed during investigations that banks have credited cheques drawn in their favour by other banks marked Account Payee to the accounts of constituents even when they are not named in the cheques as the beneficiaries. In the case of cheques not having been drawn in the names of constituents nor containing 'any' direction to pay to the constituents the proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his say that through a common acquaintance, he came across one Ashwin Mehta in the year 1988 and then with Harshad S. Mehta (A-5). Ashwin Mehta is the younger brother of A-5. It is his further say that Ashwin Mehta was looking for a qualified person who could assist him in research activities in the share market and he called him to come to Bombay to meet Harshad Mehta and accordingly he went to Bombay somewhere in December, 1988 (when for the first time he met A-5). The purpose was to enable him to have a set up in Delhi. He met A-5 at his residence and office. In the meeting, they decided to associate with each other for the purpose of carrying out research in share market and companies in Delhi. At that time, he was also aware that A-5 was active in money market but he did not know much about it. A-5 wanted to set up his business in Delhi and for that purpose wanted to find out suitable place for his office and also establish the office in Delhi. In July, 1989, they got the office premises in Arunahcala Building, Bara Khamba Road, New Delhi. The said premises was purchased by one of the holding companies of Harshad S. Mehta. During his visit to Bombay, he came to know the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril/May, 1989, A-5 made reference to MUl and told that MUL had surplus investable funds as a PSU and they were very active in money market. On his request, he fixed an appointment of A-5 with accused No. 1, who was the concerned functionary in the investment of funds. He was not knowing the exact date and time but it was during A-5's visit to Delhi in April/May, 1989. A-1 and A-2 were present in the meeting which took place in the office of MUL. It is his further say that he saw and heard Harshad Mehta introducing himself in the said meeting as a Member of Bombay Stock Exchange who was very active in money market and that he wanted to deal with MUL. He also informed that he had lost of contracts with the banks in Bombay and he could offer to MUL excellent deals in in the money market. 96. Question was put to the witness--Did he (Mehta) indicate the method by which he could work out the said offers between MUl and the banks in Bombay? 97. Witness replied--A-1 at that time stated that the MUL could not deal or involve the brokers. A-5 stated that the deals would be between MUL and the banks, structured and suggested by him and his name would not appear in the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ANZ Grindlays Bank to credit the proceeds of the said pay order Ex. 36 and the said proceeds of which were credited into the account of Harshad S. Mehta with Grindlays Bank. As per his knowledge, the amount involved in four transactions referred to by him earlier, which were credited into the account of Harshad S. Mehta were reveersed at later stages. 105. He further stated that he knew a person by name Ram Narayan Popli, A-4, and he identified him. In the year 1991, A-4 was working with ANZ Grindlays Bank, Parliament Street Branch, New Delhi. He had occasion to meet him during the year 1990-91 in the Parliament Street Branch of Grindlays Bank. The purpose of meeting was in connection with the operation of the accounts of Harshad S. Mehta with the banks. He was not aware what was his official designation at that time, but to his knowledge he was working in the Remittance Department of the said bank in its Parliament Street Branch office. He had no speicifc knowledge whether during the said period he was an officer or a clerk. Whenever, he used to meet A-4, he used to have talk in connection with remittances which were to be received form Bombay or remittances which were to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t his brokerage from the covered banks. A-1 stated that he did not want to mention the name of Harshad Mehta as broker in the books of MUL. A-2 was absolutely quiet during the said meeting. A1 said that he would be open to any good suggestions and offers or proposals in the money market. 111. Witness was shown Pay Order Ex. 34 dated 24.4.1991 and was questioned--on what basis ANZ Grindlays Bank credited the proceeds of the said pay order in the account of Harshad S. Mehta with them? 112. The witness replied--ANZ Grindlays bank usually used to credit the amount on the bais of covering letter of Harshad Mehta issued by Delhi Office. In some case, ANZ Grindlays bank has also credited the process of pay orders on the bais of pay-in-slips by which pay orders were deposited. 113. The covering letters which used to be normally given to ANZ Grindlays bank were given to Anuj Kalia which were pre-signed but he cannot say whether Anuj Kalia delivered such letters along with the said pay order to the said bank. He did not inform A-1 and A-2 or any other personnel of MUl that proceeds of the said pay order were credited into the account of Harshad S. Mehta in ANZ Grindlays Bank. 114 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. Bhatnagar, SP CBI stated that he was transferre to BS FC Branch of CBI at the end of February 1994 as Dy. S.P. At that time he was working in Delhi. Case No. RC. 2 (A) 93-ACU.VII was entrusted to him soon after the registration of FIR of this case in 1993 itself. The FIR of this case was registered by Shri V.D. Maheshwari, who was the SP, CBI and Incharge of ACU (VII) Unit. Mr. Maheshwari had entrusted this case to him for investigation. During the investigation conducted by him Shri Maheshwari being his superior remained in touch with htis case as a supervisory authority of investigation till November, 1993. Inspector O.P. Arora. Inspector Dhaga and Inspector Routela assisted him in the investigation. Pursuant to the orders from the headquarter of CBI, the papers were handed over by him to Dy. S.P. Mr. Panwar, During the course of investigation, he affected the arrest of all the accused persons stationed at Mumbai i.e. Harshad Mehta and V.N. Deosthali. He also enquired about the status of MUL. The requisite information was received by him from Mr. BS Bhargava, the Company Secretary of MUL vide document Ex. 21 121. During the course of investigaiton, one Mohan Khandelwal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was caused to the MUL due to lower rate of interest and that fact is mentioned in the charge-sheet. In further cross-examination, the witness stated that during the course of investigation MUL never complained of any pecuniary loss to it. MUL also did not disclose if it had filed any case of recovery against ANZ Grindlays Bank, Sansad Marg Branch, New Delhi, for any loss. During the course of investigation, he had not visited any other bank except that Grindalsy bank to ascertain the procedure of inter banking clearance. He had examined the transactions of high value inter banking clearance prior to February 1991. These transactions pertained to the high network customers of the bank. He had also checked the high value transactions of inter banking clearance pertaining to high network customers of the bank between February, 1991 to May, 1991. 127. After May 1991 he had not examined such kind of transactions of the bank. He could not remember as to how many transactions of the kind of nature referred to above were examined by him prior to February, 1991. 128. 8He agreed that he did not check up the record and the procedure of inter banking clearance of the cheques of high val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss to MUL. At that time, he did not consider it necessary to record the statement of the concerned officials of the PSUs. 131. He could not remember if he had recorded the statement of any officials of MUL on the point of loss. He does not recollect of MUL had other borrowings on that day and if so at what rate. He agreed that MUL had not lodged any FIR with regard to any of the five transactions in question. 132. He had recorded the statement of R.C. Bhargava nd Natrajan during investigation to ascertain if any other higher authority of MUl was also involved in the case. On that basis his conclusion was that A-1 and A-2 were liable for their acts as mentioned in the charge- sheet. So far as Mr. Bhargav and Mr. Natrajan were concerned, they were found not involved directly. They were involved not criminally but for approving the proposal put by A-1 and A-2. The proposal put by A-1 and A-2 was a criminal act. Mr. Bhargav and Mr. Natrajan were not aware that the investment in fact has been made with A-5 through UCO Bank. Mr. Bhargav and Mr. Natrajan and bonafidely accepted the proposal put up by A-1 and A-2. A-1 and A-2 were the person who were responsibel for investing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose decision was not to cite M. Khandelwal as an accused in the FIR. As an IO, he was at the bottom of the hierarchy i.e. SP and then his DIG, Joint Director, Additional Director, Special Director and the Director. He had in fact not made any conclusion as to whom should be made the accused. He had only given his findings of the preliminary enquiry. During the course of preliminary enquiry, he had learnt that Anuj Kalia was the person who took the cheques of these five transactions to and fro, the bank and delivered them in Delhi. He had mentioned the role of Anuj Kalia in the report submitted to his SP. During the course of enquiry, he had also learnt the role of Mohan Khandelwal and that at all time Anuj Kalia was acting on his instructions. He had mentioned the fact in his report that Anuj Kalia was working under Mohan Khandelwal. 135. In further cross-examination, he stated A-3 was implicated on account of the overt acts done by him as mentioned in the charge- sheet. One of the overt acts of A-3 was issuing irregularly the bank receipts. Although the issuance of bank receipts was an usual and common practice being followed by UCO Bank under instructions from Head Office and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with the office work, he had occasion to visit the office of MUL situated at Kasturba Gandhi Marg, New Delhi on few occasiosn. On seeing the letter Ex. 58 issued by the UCO Bank on 23.1.1991 addressed to MUL., New Delhi, he stated that he had an occasion to handle the said letter. The said letter was given to him by Mohan Khandelwal. At that time, he was also given one more letter by Mr. Khandelwal (witness was shown Ex.A-5(1) being receipt dated 24.1.1991 on the letter head of Harshad S. Mehta). Along with the said letter shown to him, Mr. Khandelwal gave him this document also. He was instructed by Mr. Khandelwal to go along with both these documents to the office of MUL and collect the envelope containing units of UTI from that office. 140. The witness stated that he had an occasion to collect bank pay order from the office of MUL while working in the said company. He did so under the instructions of Mr. Mohan Khandelwal. He was instructed by Mr. Khandelwal to go to the office of MUL and meet either A-1 or 2 and collect the banker's cheque and then deposit the same into the account of Harshad S. Mehta with Grindlays bank, Sansad Marg Branch. He was not apprais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank, Parliament Street Branch, as per its number and amount mentioned therein into the account of A-5. 145. On seeing Ex.76, the witness stated that he wrote the said letter under instruction of Mohan Khandelwal. He handed over the letter Ex. 76 along with pay-in-slip Ex.102 and Ex.30 to A-4 in Grindlays Bank. He handed over the instruction letter and pay order to A-4 because A-4 was handling the said work and he was also instructed by Mr. Khandelwal to do so. 146. On seeing Ex.32, 78 and 103 being Canara Bank's pay order dated 18.3.1991 favouring Grindlays Bank, Pay-in-slip dated 18.3.1991 and instruction letter dated 18.3.1991, the witness stated that the said documents co-related to each other and he handed over the same to A-4 as he was the concerned officer handling the said work and he was also instructed by Mr. Khandelwal to do so. It is his further say that X-18 pay-in-slip dated 24.4.1991 of ANZ Grindlays Bank was filled in by him and it relates to the deposit of bankers' cheque of Canara Bank, Sansad Marg Branch of the number and amount mentioned therein into the account of A-5. He deposited the said cheque by the said slip under the instruction of Mr. Khand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of IO about the MUL's security transactions as well as cash withdrawals during 1991-92 from the accounts of A-5. Accordingly, he recorded the statement of Mr. Khandelwal on 15.6.1993 in presence of IO at Delhi. He stated that FIR was registered on 15th April, 1993. It is his say that to ascertain whether any departmental irregularity was committed or any criminal offences were committed, the CBI instituted the preliminary enquiry. He admitted that there is no statutory provision which permits or allows the investigating agency like CBI to institute and conduct preliminary enquiry as has been done in this case prior to the registration of crime. He did not know why the said statement dated 15.6.1993 of Mr. Khandelwal was not furnished and or included along with the papers accompanying the charge sheet submitted before the Court. He did not instruct the investigating officer of this case not to include the said statement along with the charge sheet. So long as he handled the case, the said statement dated 15.6.1993 formed part of the record of this case. He further stated that the source information did not disclose commission of any offence. It was not clear whether any crimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his said statement recorded by him on 15.6.1993 had made the statement as above at Sl. Nos.(i) to (xii). 152. On the basis of the aforesaid statement, question was asked to the witness that -- whether he realised that the said statement disclosed the material requiring or warranting separate and independent enquiry in certain aspects which were not covered or directly related to the evidence of the case which he has registered as per the FIR? To this question, he replied that he did realise so and thereafter DIG Mr. Amod Kanth conducted some enquiry with Mr. Sitaram Kesari who revealed that he did not recollect about the donation to the party. 153. DW5(8) Atul Manubhai Parekh stated that he is dealing with pharmaceuticals and chemicals since about last two years. Prior thereto, he was in the employment of A-5 from June 1990 till June 1992. He was Asstt. Vice President and looking after settlement of money market transactions of A-5. He used to sit at Nariman Point Office, Bombay of A-5. He then stated that deals in money market transaction in security transactions used to take place during the day for and on behalf of A-5. His duty was to confirm about the delivery of the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished conspiracy on the basis of so-called meeting between A-1, A-2, A-5 and PW23 Mohan Khandelwal in the month of April/May, 1989. For conspiracy, it is the prosecution version that A1 to A5 entered into a criminal conspiracy to siphon-off the funds of MUL in favour of A-5 and afore-quoted five transactions took place, even though there was a special bar of granting loan by MUL to individuals. 161. Mr. Mahesh Jethmalani who appeared as amicus curiae for A-3, submitted that the conspiracy charge is not tenable for the following reasons:- a) It is absurd to suggest that the conspiracy took place in 1989 and the first overt act in pursuance of that conspiracy took place in March, 1991. The link between the conspiracy of 1989 and the first overt act of March, 1991 is further broken by the fact that 13 other transactions took place in the year 1990 between A-5 and MUL. All these transactions have been brought out in cross-examination of PW23 and the relevant documents have been proved by the defence through their defence witnesses. b) There can not be a conspiracy to siphon-off surplus funds when the overt acts show that nothing of that kind happened even once; monies we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... divulge the information he was aware of. He submitted that this is crystal clear from the evidence of CW1 Mr. V.D. Maheshwari wherein he has stated that Mr. Khandelwal in his statement dated 15.6.1993 disclosed that after withdrawing large amount from the bank. A-5 along with Sunil Mittal went at the residence of Mr. Sitaram Kesari, Congress Party Treasurer and handed over the said amount to him. To suppress this, Mr. Khandelwal was made approver. 164. The learned counsel for all the accused contended that prosecution story of conspiracy between A1 to A5 is absurd, subsequently developed and cooked up. It is contended that one of the purposes for developing the story of conspiracy hatched in the year 1989 might be for seeing that the offences are tried by the Special Court. It is contended that under Section 3(2), the offence which took place between first day of April, 1991 and on or before 6th June, 1992 could only be tried by the Special Court. The transactions of giving loan by A-5 on 24.1.1991 to MUL and borrowing by A-5 on 13.3.1991 which was repaid on 25.3.1991 and third transaction for which amount was received on 18.3.1991 and repaid on 22.3.1991, would not be covered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d they were very active in money market. It is the say of PW23 that A-5 desired that he should fix an appointment with A-1 who was the concerned functionary in the investment of the funds by MUL. Therefore, a meeting was fixed in the month of April/May, 1999 which took place in the office of MUL in Delhi. In the said meeting, A-5, A-1 and A-2 were present. In the meeting, A-5 stated that he wanted to deal with MUL and that he was having lot of contracts with the banks in Bombay and could offer to MUL excellent deals in the money market. Relevant talk which transpired in the said meeting is as under:- Ans. 34. The accused No. 1 at that time stated that the MUL could not deal or involve the brokers. Mr. Harshad S. Mehta stated that the deals would be between MUL and banks, structured and suggested by him i.e. Mr. Harshad S. Mehta. Mr. Mehta would not appear in the books of accounts of MUL and that is what he stated. Ans. 35. Mr. Harshad S. Mehta stated that he would stand to gain by way of commission and/or brokerage from the banks. He also stated that MUL would benefit by getting better deals. Ans. 36. The accused No. 1 stated that he would took into any good proposals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the statement recorded by the CBI with regard to the presence of A-1. From the aforesaid admission in the cross-examination, it is apparent that A-2 was not present during the meeting and that the prosecution story with regard to the alleged meeting appears to be doubtful. In any case, approver PW23 does not assign any role to A2 in the said meeting. 173. It is also to be noted that the alleged meeting took place in an open hall where other employees of MUL were sitting in close proximity of A-1 and A-2 and one of the employees was PW-4 Rajan Ramgopal who joined the Corporate Finance Cell of MUL sometime in the year 1986 as deposed by him. He stated that he used to work directly under A-1 and that he himself, A-1, A-2 and Jagdish Kumar used to sit in a common hall; A-1 had his table with chairs meant for visitors and by the said of it and in front of him, there was a common table where A-2 used to sit; he (PW4) used to sit opposite to A-2; to the side of A-2, Mr. Jagdish Kumar used to sit and one Mr. Shrinivasan used to sit next to him. Thereafter, he states that while working with Corporate Finance Cell of MUL, he had not heard the name of Harshad Mehta and that he had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions took place under the name of and through UCO Bank and in four transactions UCO Bank in turn gave the said amount to A-5. It is pointed out that as there was conspiracy, A1 and/or A-2 gave Account Payee cheques issued by Canara Bank on behalf of MUL payable to Grindlays Bank to Anuj Kalia representative of A-5. Grindlays Bank deposited the said amount in the account of A-5 at Delhi and thereafter transferred the same to the account of A-5 at Bombay. Subsequently on the same day, it was transferred to UCO Bank and UCO Bank gave cheque to A-5. 179. From the nature of aforesaid transactions, whether conspiracy can be inferred? It is true that apparently transactions are not simple. It casts serious doubt with regard to functioning of Banks and MUL. But as against this, the evidence which is brought on record by the prosecution establishes that these were routing/switch transactions. PW14 Assistant Chief Officer, UCO Bank has stated that in case of security transactions on behalf of the client, they credit the sale proceeds receipt into the account of the client. PW-7 Karkhanis has specifically stated that Hamam Street branch on each day used to have 30-40 such transactions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roys the prosecution case. Not only it creates doubts with regard to that part of the prosecution version but on occasions casts doubt about the motive. Result is -- under our criminal jurisprudence, benefit of doubt may go to the accused. 184. Once we arrive at the conclusion that the prosecution has failed to prove the criminal conspiracy, the conviction of the accused under Section 120-B of IPC requires to be set aside. JURISDICTION OF THE SPECIAL COURT UNDER THE SCAM ACT. 185. At the outset, it is to be stated that accused were tried under the SCAM Act which was preceded by an Ordinance promulgated on 6th June, 1992. In the year of 1992, it was noticed that there was a scam in the stock exchange as there was sudden rise or fall of prices in the stock market and large number of persons who were trading in stock exchange were losing their money. Some of them were experienced gamblers at the stock exchange and most of them were laymen. As per the Statement of Objects and Reasons of the Act, large scale irregularities and malpractices were noticed by the Reserve Bank of India (RBI) in relation to transactions in both the Government and other securities indulged in by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 403 and/or Section 405 IPC the prosecution is required to establish the ingredients of said sections beyond reasonable doubt. 188. Therefore, as the prosecution has failed to establish the conspiracy, the jurisdiction of the Special Court would be limited only for the transactions which took place after 1st April, 1991. In the present case, only two transactions, i.e., dated 24.4.1991 and 2.5.1991 would be covered. CASE AGAINST A-1 AND A-2 189. In this case, as the prosecution has failed to establish criminal conspiracy, we are required to consider the prosecution case against each accused for the acts committed by them and to find out whether they have committed any offences. 190. The case of the prosecution against A-1 and A-2 is as follows:-- a) A-1 and A-2 misappropriated the property in violation of the law as well as their duty (express and implied) by making it available for use of A-5. This is on account of the fact that they were authorised to invest the money in defined securities in a transaction with Public Sector Undertakings only. They, however, knowing entered into a series of transactions, which had the result of making the funds of MUL avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the stipulated interest. This transaction was considered as placement of funds with PSUs. The witness have clearly stated that the only authorisation for placement of surplus funds was PSUs and not private person. CHARGES AGAINST A-2 a) He was present in the meeting held in April/May, 1989. b) He signed letter dated 25.2.1991 for issuing a pay order in the name of ANZ Grindlays bank and also wrote in his own handwriting to Canara Bank that the pay order might be handed over to one Mr. Anuj Kalia (PW16) (Ex. 26--first transaction). c) He signed letter dated 18.3.1991 for issuing pay order in the name of ANZ Grindlays Bank (Ex.31--third transaction) d) He signed letter dated 24.4.1991 for issuing a pay order in the name of ANZ Grindlays bank (Ex. 33--4th transaction). e) He discharged a bank receipt after the money was received by MUL on 26.4.1991 (Ex. 41 -- 4th transaction). 192. The learned senior counsel Mr. Jain appearing on behalf of A-2 submitted thus:-- For Charge (a)- 193. The prosecution has miserably failed to establish conspiracy sought to be proved by examining PW23 Mr. Khandelwal. This submission requires to be accepted as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to hold that the judgment and order passed by the Special Court calls for any interference in acquittal appeal. 200. He referred to Ex.26 and submitted that the said document is signed by him but as deposed by PW4 the said document was authored by PW4 and approved by A-1 and, therefore, it cannot be held that he did anything wrong in mentioning in the said letter that cheque may be handed over to Anuj Kalia. It is his submission that even handing over of cheque to a person who had brought 35 lacs of units for being delivered to MUL cannot be termed in any way as dereliction of duty. 201. Learned senior counsel Mr. Sundaram on behalf of A-1 has given detailed written submissions and has inter alia submitted that the prosecution has failed to establish that-- a) A-1 mis-represented to the sub-committee of the MUL regarding transfer of funds to UCO Bank on UCO Bank's instructions through Grindlays Bank; b) A-1 mis-represented to the sub-committee by not putting to their knowledge the resolution of the Board dated 4th May, 1989; c) The charge of conspiracy is fabricated one; d) There was no mens rea for the alleged criminal breach of trust on the part of A- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such loaning of funds. 4.0 In an effort to maximise yield on surplus funds, it is proposed to invest funds in the units of UTI, Central Govt. securities, public sector bonds either through scheduled banks or directly. These investments, at times, are expected to fetch a higher rate of return than what is available on loaning of funds to PSUs without involving any risk as to the return of the principal and/or yield. 5.0 It is, therefore, proposed that the Board may permit the Sub-Committee formed by it for the purpose to invest surplus funds of the company from time to time in the purchase of units of UTI, Central Government and State Govt. Securities, public sector bonds either through scheduled banks or directly. 6.0 In March, 1989, MUL invested surplus funds in PSU Bonds, Units of UTI and Central Govt. Securities as contained in the Annexure. The Board may kindly accord ex post facto approval for such investments made to utilise the opportunity of high yield during such periods. 7.0 The Board may kindly approve proposals in para 5.0 and 6.0 above. 203. Much has been contended that the Board resolution dated 4.5.1989 (Ex.9) passed by the Board of Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrowing as sales or our investments. Therefore, it is proposed to show such borrowing as reduction in our investments. This has been discussed with Company Secretary also who is agreeable for such treatment. 3.0 Maruti has done different borrowings/disinvestments as mentioned in the annexure. Some of these have been done to place funds with other PSU's. Even though the rate of interest charges to the PSU's is lower than our cut-off rate yet these will result in additional interest advantage ranging from 1 to 2.5% p.a. for Maruti. 4.0 Maruti will have an interest advantage of approximately ₹ 27.00 lacs against such disinvestment made for meeting our funds requirement and for placement of funds with other PSU's. 5.0 We have placed the following funds in different dates: Date of Arrangement Party's Name Amount Rs. in Crores Interest Rule ?.a. Period 23.01.91 NFL 15.00 13% 30 days 30.01.93 MFL 10.00 14% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 15.3.91 were confirmed. Item No. 2The Committee passed the following resolutions:- RESOLVED that Maruti may place funds with M/s Can Bank Financial Service for investment in Bonds/Units/Govt. Securities' aggregating to ₹ 14.45 crores for a period of 43 days at an expected yield of 25% p.a. RESOLVED FURTHER that Maruti may place funds through UCO Bank for investment in Units aggregating to ₹ 10.84 crores for a period of 5 days at an expected yield if 21% p.a. The resolution was put to vote and carried unanimously. (4) Ex.40 dated 24.4.1991 AGENDA NOTE FOR THE MEETING OF COMMITTEE OF DIRECTORS FOR INVESTMENT OF FUNDS TO BE HELD ON 24.04.1991. 1.0. We have received a proposal for investment of ₹ 7.50 crores in Units through Grindlays Bank for a period of 2 days. The expected yield is 26.25% per annum. 2.0 We have received a proposal for investment of ₹ 30.00 crores in Units/PSU Bonds/Government Securities through Bank of America for a period of 29 days with effect from 2.5.91. The expected yield will be 23% p.a. Submitted for approval of the committee of Directors for the above placement. MINUTES OF THE MEETING OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GISTERED OFFICE. PRESENT Shri R.C. Bhargava - Chairman Managing Director Shri S. Natarajan - Director (Finance) Item No. 1Confirmation of the minute of the last Meeting held on 26.4.91. The minutes of the last meeting held on 26.4.91 were confirmed. Item No. 2The Committee passed the following resolutions:- RESOLVED that Maruti may place funds with UCO Bank for investment in Units aggregating to ₹ 10 crores for a period of five days w.e.f. 2.5.91 at an expected yield of 21% p.a. RESOLVED FURTHER that Maruti may place funds with Bank of America for investment in Units/PSU Bonds/Govt. Securities aggregating to ₹ 15 crores for investment in Units for a period of seven days w.e.f. 2.5.91 at an expected yield of 22% p.a. RESOLVED FURTHER that Maruti may place funds with M/s Infrastructure Leasing and Financial Services Limited by renewal of the inter corporate deposit of ₹ 5.50 crores @ 22% p.a. for a period of five days w.e.f. 2.5.91. The resolutions were put to vote and carried unanimously. 206. The aforesaid resolutions reveal that proposals for investment of funds in units through UCO Bank for a specified period with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This would indicate that whatever may be the documentation of purchase or sale of UTI units, the same would not reflect the true and real nature of transaction. Admittedly, in the case of borrowing, MUL was preparing documents so as to reveal that the transactions were sale of investments, may be in the UTI Units or other such securities. 210. Further, PW4 Mr. Rajan Ramgopal specifically admits that the name of the broker did not figure or reflect on the record of MUL in the event of transaction of investment being through broker. He has also admitted that MUL was investing its funds in securities through banks and also through brokers quoting on behalf of the banks. 211. Further, there is nothing on record to indicate that Mr. R.C. Bhargava, Chairman-Cum-Managing Director and Mr. S. Natrajan, Director (Finance), MUL who have passed the resolution for investment of funds, did not know that the funds were meant for A-5. They were throughout monitoring the transactions in question but are not examined by prosecution for reasons best known to it. This course adopted by a premier investigating agency in such a serious case, if there was read fraud or misappropriation, appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs; (c) Medasai Swaroop, the concerned Manager of the Canara Bank after preparing the cheques would hand over the same to him and he would in turn hand over the cheque to the representative of the bank or the brokers; (d) Because of the pressure of work he was not going to respective bank but the cheques were handed over to the representative of the bank or to the broker under the instruction of either A-1 or A-2; (e) During the relevant period foreign banks used to effect transfer of money from one city to anther much faster than the national banks and they were able to do so during banking hours of the same day; (f) The brokers who used to contact on behalf of the bank's clients and financial institutions during the relevant period included Mr. Ashwin Mehta; (g) The writing contained on all the vouchers and its language was his and he used expression as either through UCO bank or through ANZ Grindlays bank . 214. PW3 Halasyam, Chief General Manager (Finance), who was promoted as the Director (Finance) from 1st June, 1991 has also stated that (a) A-1 used to put a written note about the proposals for investments before the Director (Finance). With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investing funds in securities w.e.f. 30.5.92 and instead has been placing surplus funds only as inter corporation loans. 4(g). The investments of these funds were authorised by the Committee of Directors consisting of Managing Director and Director (Finance) within the parameters approved by the Board in its meeting held on 4.5.89. 5.1 ....As per the joint Venture agreement dt. 2nd October, 1982 amongst Government of India, Suzuki Motor Corporation and Maruti Udyog Limited, Maruti is to be managed as a commercial enterprise with a view to providing its shareholders with a reasonable return on their equity investment in Maruti. Maruti used both nationalised and foreign banks to optimise the yield. 5.2 These transactions were reported to the Board and none of the Directors had objected to this as they were not considered to be irregular. 7. No irregularities in investment of funds were ever pointed out in any interim/statutory audit/government audit report. For the first time, in Government auditor's review of accounts dated 28th August, 1992, it was observed that investments through foreign banks were not in conformity with BPE guidelines. 9(a). In all such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the MUL to JPC establishes that- (a) Such transactions were an effort to maximise the yield on surplus funds. Maruti Udyog is a joint venture company and is to manage as a commercial enterprise with a view to provide its shareholders reasonable return on their equity investments in Maruti. (b) The investment of these funds were authorised by the Committee of Directors consisting of Managing Director and Director (Finance). (c) The transactions were reported to the Board and none of the Directors had objected to this and they were not considered to be irregular. (d) For the first time in Government Auditors Review of Accounts dated 28th August, 1992, it was observed that investments through foreign bank were not in conformity with BPE guidelines. (e) In all such transactions of purchase of units funds, funds were transferred to UCO Bank, Bombay by way of bankers' cheques in favour of ANZ Grindlays Bank strictly in accordance with written instructions regarding remittance of funds by UCO Bank, Bombay. (f) There is absolutely no connivance between any Maruti official and Mr. V.N. Deosthali of UCO Bank or Harshad S. Mehta. (g) Investments were made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough brokers and the name of the broker did not figure or reflect on the record of MUL. (10) In such a case, it would be difficult to hold that A-1 or A-2 acted dishonestly in issuing cheques in favour of Grindlays Bank for transmitting the funds of ML to UCO Bank, Bombay. (11) No objection was raised during internal or statutory audit despite the fact that Comptroller and Auditor General had also audited the accounts. 219. For the reasons stated above, neither A-1 nor A-2 can be convicted for the alleged offences. No doubt A-2 is already acquitted by the Special Court. Case Against A-4 220. Before discussing the prosecution case against A3, I would deal with the prosecution case against A-4 who was working in the Clearing Department of Grindlays Bank, New Delhi. 221. A-4 is convicted under Section 120B r/w Sections 409/467/468/471 of IPC and Section 13(2) of the PC Act. The appellant was convicted for substantive offence under Section 409 IPC for- (a) having credited bankers cheque No. 645532 dt. 25.2.1991 for a sum of ₹ 5,05,03,250/- issued by Canara Bank favouring Grindlays Bank into account of A-5 [the amount was paid by A-5 through UCO Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for production of documents to the said bank during the said period. He did not remember if he had conducted any search and seizure from the said Bank with regard to the documents like attendance registered, duty roster or any other similar document showing the presence of particular officer at particular time. 227. For considering the contentions raised by the learned counsel for the parties, I would refer to what emerge from the evidence of the relevant witnesses:-- 228. PW9 Ravi Saluja states that the cheques so received by the ANZ Grindlays Bank for clearance were sent to the clearing department for further processing. The said department would verify and tally the particulars as appearing in the pay in slip and the related cheque. The centralized branch of ANZ Grindlays Bank then would make the consolidated statement and arrange to send the cheques received for clearance to the clearing house of RBI. There is also a category of cheque known as bankers' cheque, that is to say, a particular bank issues its cheques in favour of another bank. In such a case, the issuing bank can use the format of pay order also. On seeing Ex.28, he stated that it is inter bank cheque in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rediting the amounts of said five pay orders to the account of third party. He was asked about the category of customers regarded as High Networth customers. He replied--such classification is generally given by the concerned manager of the bank having regard to the deposits maintained by the customer or other business potentials. The services to be extended to the customers like high networth customers would be decided by the branch manager. In the cross-examination, it is his say that all the five pay orders which were shown to him being Ex.28, 30, 32, 34 and 36 were sent for inter Bank Clearance by the Grindlays bank. The amount of these pay orders was debited into the account of the issuing bank and credited into the account of Grindlays bank. The accounts of the issuing bank and payee were with the RBI. He admitted that it is only after credit of the proceeds of the said five pay orders into the Grindlays bank account that the proceeds thereof in turn were credited into the account of A-5. 230. He further stated that during the relevant period i.e. in the year 1990-91, to his knowledge, some other banks in this country were also following such practice. There was no prohibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such practice? A. Yes. (witness volunteers) RBI never objected to it probably it might not be aware of such practice. All the five pay orders which were shown to me being Ex.28, 30, 32, 34 and 36 were sent for inter Bank Clearance by the Grindlays Bank. It is correct that the amounts of the said pay orders were debited into the account of issuing bank and credited into the account of Grindlays Bank. The account of the issuing bank and payee bank are with the RBI. It is correct that it is only after credit of the proceeds of the said five pay orders in to the Grindlays Bank account that the proceeds thereof in turn were credited into the account of accused No. 5. 233. PW15 Kanwal Krishan Kuda with regard to the credit voucher dt. 26.4.1991 into the account of Harshad S. Mehta, states that the same was approved by him and it bears his initials. The entry appearing therein is correct and the same was prepared on the basis of credit advice received from the RBI. He could not recollect who was or who were the concerned officers of the treasury department, who would be giving such instructions as there were many such officers. 234. PW22 V. Rangarajan states that the banke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his initials are identified and nothing has been brought on record that he credited the said cheques in the account of A-5 or he was concerned with the credit of the said amount in favour of A-5. In the absence of any such evidence, the charge under Section 120B and substantive offences under Section 409 are not proved. 239. It is apparent from the testimony of I.O. that no effort was made to collect any material which would have shown where the appellant was posted during the relevant period nor any record like the duty register was seized by the I.O. He admits that in matters of debit and credit, various officers at different levels were involved. The prosecution has failed to produce any evidence oral or documentary which would go to show that the appellant had anything to do with the credit of the proceedings of the pay order into the account of A-5. 240. Hence, from the evidence as it stands, it cannot be stated that A-4 was in-charge of the clearing department and responsible for giving such credit in favour of A-5. In view of the aforesaid state of evidence, the conviction of A-4 for any offence including for the substantive offences under Section 409 IPC cannot be sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be concluded between the Head Office of the bank and MUL. c) The Bank (as a corporate entity, and a Govt. Company) could not lend its name to a private broker to enable him to obtain funds from any other Public Sector Undertaking, the identity of the private broker being kept secret. This would constitute a clear deceit upon a Public Sector Company - since it was done not for any commercial purpose but to deceive the Public Sector Undertaking into placing its funds with that Bank. The question of the deal being on behalf of the broker legitimately and commercially did not arise. d) It is submitted that the evidence of the officers of the UCO Bank that the Bank would act for the brokers, is being misconstrued. The banker can, on behalf of the broker, undoubtedly undertake such activities as are common in commercial usage. However, it is obvious that such an activity should not be illegal or to attain unlawful purposes i.e. to deceive another corporate entity. If MUL had authorised placement of funds only with PSUs, then it is obvious that it would not be in the interest of the UCO Bank to lend its name to a broker to obtain funds from a PSU - since it would constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that in the letter dated 13.3.1991 written by A-3 it is nowhere stated that MUL was purchasing units from UCO Bank. 245. With regard to crediting of funds in A-5's account, it is submitted on behalf of A-3 that the evidence on record discloses that it was not A-3 who allowed MUL funds to be wrongfully gained by A-5. MUL's funds were credited into the account of A-5 allegedly by A-4. The funds were already credited to A-5's account by Grindlays bank, New Delhi from where the same were transferred under the instructions of PW23 to A-5's account in Grindlays Bank, Bombay, UCO Bank received funds already credited to A-5's account in Grindlays Bank, Bombay. Moreover, when UCO Bank received those funds from Grindlays Bank, Bombay, the same were received under credit advices, specifically directing UCO Bank that the proceedings of the said cheques were for the credit of A-5's current account No. 1028 with UCO Bank. The credit advices for the five cheques are Ex. 126-A to Ex. 130-A. There was no illegality on the part of A-3 and further there is no evidence of any actual loss caused to anybody or of intention to cause loss to anybody. In the absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the investment was only for five days and expected yield was 21% per annum which normally no bank would pay. 250. He further referred to Ex.40 which is a resolution as well as agenda of the meeting which was held on 24.4.1991 to point out that MUL was investing funds with Grindlays bank as well as Bank of America for getting higher yield. 251. He referred to evidence of PW21 (Vol.6 page 1038 paragraphs 4 and 5) and pointed out that bank was agent was broker on behalf of its clients and for that it was getting commission and that commission was credited in the bank's account by debiting the same in the account of its clients. For this purpose, he referred to Vol. 25 page 6895 and relevant vouchers. 252. Lastly, he submitted that A-3 is not at all connected with the 5th transaction which took place without BRs because at the relevant time he was transferred to another branch. For this purpose, he referred to evidence of PW7, wherein it is stated that A-3 was transferred from 25.4.1991 to 15.5.1991 during which period last transaction took place. 253. He submitted that for BRs Ex.38 dated 13th March, 1991, Ex.39 dated 18th March, 1991 and Ex.41 dated 24th April, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eavy work in the office and that 30 to 40 transactions of such work were daily carried out. In the circumstances, from the fact that document was typed outside the bank, 'dishonesty' cannot be attributed to the accused. 257. It is submitted that once the conspiracy charge fails, the first three transactions are outside the jurisdiction of the Special Court. A-3 is not concerned with the fifth transaction. Hence, in any case the conviction recorded for charges pertaining to the first three and 5th transactions must be set aside on this ground alone. 258. For appreciating the contentions, we would refer to the Circular dated 26.7.1991, issued by the Reserve Bank of India, which reads thus:-- DEPUTY GOVERNOR BOD No. FSC.46/C 469-91/92 RESERVE BANK OF INDIA CENTRAL OFFICE SECRET BOMBAY. D.O.D 26TH July, 1991. Dear Shri Investment portfolio of banks Transactions in Securities It is a matter for great concern for us that certain banks are engaged in types of transactions in securities which they should not be undertaken. A list of such transactions is appended. (i) Ready forward (but-back) deals at rates which have no relevance to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further issue of BRs and in the final analysis only the BRs are exchanged and no security is delivered. Some of the banks have also been issuing BRs only behalf of their broker clients, without verifying whether their broker clients hold the securities covered by the relative BRs. 4. It will be absolutely essential for your bank to frame and implement a suitable investment policy to frame and implement a suitable investment policy to ensure that operations in securities are conducted in accordance with sound and acceptable business practices. While evolving the policy you are requested to keep in view the following guidelines: (i) Under no circumstances, the bank should hold a oversold position in any security, that is to say that no sale transactions should be put through without actually holding the security in its investment account. (ii) All the transactions put through by bank either on outright basis or ready forward basis and whether through the mechanism of/SGL Account or Bank receipt should be reflected on the same day in its investment Account and accordingly for SLR purpose, wherever applicable. (iii) Transactions between your bank and another bank shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey should not be undertaking and list of such transactions inter alia includes the sale transactions by issue of BRs without actually holding the securities and secondly issuing of BRs on behalf of their broker clients without safeguarding bank's interest. Thereafter, the RBI directed to frame and implement a suitable investment policy to ensure that operations is securities are conducted in accordance with sound and acceptable business practices. RBI also requested that while evolving the policy the guidelines mentioned in paragraph 4 of the Circular should be kept in mind and the bank should issue BRs covering their own sale transactions only and should not issue BRs on behalf of their constituents including brokers. The banks should be circumspect while acting as agents of their broker clients for carrying out transactions in securities on behalf of brokers. d) These guidelines would indicate that till the date of issue of guidelines banks were issuing BRs on behalf of their broker clients. It was their investment policy. Further, the restriction which was suggested for framing the policy was that banks should be circumspect while acting as agents of their brokers client ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. From the evidence on record it cannot be held that A-3 had issued BRs without being backed by sufficient number of securities i.e. UTI Units. No witness from the bank has stated that A-3 was required to maintain the account for such transactions. On the contrary, it has come on record that practice of maintaining register was dispensed wit because of increase of such work with the bank. Witnesses from MUL have specifically stated that looking at the BR it would be difficult to say that BRs were issued without securities. PW3 Halasyam admitted that looking at the BR of UCO Bank (Ex.4 dated 24.4.1991), no suspicion would arise on the face of it. PW7 Karkhanis has specifically stated that UCO Bank used to act as a routing bank and that such transactions were done through the broker's account and were not treated as transactions of UCO Bank. g) The evidence on record clearly establishes that for the 5th transaction A-3 cannot be held responsible, because at the relevant time he was transferred from Hamam Street Branch. This has been specifically sated by PW7 Karkhanis in his deposition. He has stated that in the month of April, 1991, accused No. 3 was transferred from Hama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various documents to the counter party was to put it on a proper notice. It is his further say that per day there used to be 30 to 40 switch transactions. During the internal audit and statutory audit of the relevant period there were no adverse comments over switch transaction. (ii) PW14 Prem Shanker Joshi has stated that as far as Hamam Street Branch of their bank was concerned, the said branch used to conduct the security transactions on behalf of their head office as well as on behalf of clients. Mr. Harshad S. Mehta was one of such clients. In case of sale transactions on behalf of their clients, they used to get written instructions from their clients, having necessarily their accounts with the bank. The instructions being for the sale of the security, they were ascertaining from their clients about the availability of the security with the bank or when he will deliver to the bank. On receipt of the security, they were preparing a cost memo as per instructions of their client as contained in his instructions letter. Without security in the hands of the bank, they were not preparing the cost memo and sending it to the counter party. He admitted that Hamam Street branch of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as under:-- ...You are advised to contact other banks through whom such transactions are routed and have detailed discussions with them regarding their experience, the commission they charge, the modus operandi and their opinion why other banks are not entering the field. You are also advised to contact other banks who are not having such transactions and have discussion with them with a view to find out why inspite of profitability in this area they are not entertaining this and give your report at an early date. 261. For routing facility, he explained that routing transaction is the transaction in which purchase and sale of the securities was done by the bank as an agent of its customer for a commission. The routing facility was offered to many brokers including A-5 in the year 1991 and such brokers availed of the said facility. Such routing facility was already in practice even before he joined as Divisional Manager in June, 1990. Some of the banks were offering such facilities. i) ON THE POINT OF FORGERY- 262. Resolutions passed by the MUL reveal that MUL was placing funds through UCO Bank in units. This phraseology used in the resolution does not reveal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase of 75 lac Units for value dated today @ 14,4500. Please arrange to remit the funds amounting to ₹ 10,83,75,000/- through ANZ Grindlays Bank, Sansad Marg, New Delhi. Thanking you, Yours faithfully, For UCO Bank, Sd/- (Manager) 264. From letters Exhibits 60 and 61, it is apparent that A3 has not stated that UCO Bank was selling units. It only mentions that for the purchase of units mentioned in those letters, the amount to be remitted through ANZ Grindlays Bank, New Delhi. Evidence on record establishes beyond any doubt that A3 was authorized to deal on behalf of the broker clients and if the broker client had instructed that amount be sent through Grindlays Bank, writing of such letter would not mean that he has committed any fraud. 265. For the allegation of forgery, it is to be stated that in the instant case, A-3 has been charged with forging the BRs Ex. 38 dated 13th March, 1991, Ex. 39 dated 18th March, 1991 and Ex. 41 dated 24th April, 1991, on the ground that UCO Bank did not hold the units for which the BRs were issued. 266. All the transactions are based upon the documents, which stand proved by the evidence of various witnesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni, aged about six months. The price of the car was paid by her. The transfer of the car was notified in the name of Nalini to the motor registration authority. The insurance policy was transferred in the name of Nalini after the proposal form was signed by Dr. Vimla. Subsequently, when the car met with the accident, Dr. Vimla filed two claim forms as Nalini. She also signed the receipts acknowledging the compensation money as Nalini. Dr. Vimla and her husband were prosecuted under Sections 120-B, 419, 467 and 468 of Indian Penal Code. The High Court convicted Dr. Vimla under Sections 467 and 468 of IPC. IN that set of circumstances, this Court held thus:-- ...Certainly, Dr. Vimla was guilty of deceit, for though her name was Vimla, she signed in all the relevant papers as Nalini and made the insurance company believe that her name was Nalini, but the said deceit did not either secure to her advantage or cause any non-economic loss or injury to the insurance company. The charge does not disclose any such advantage or injury, nor is there any evidence to prove the same. The fact that Dr. Vimla said that the owner of the car who sold it to her suggested that the taking of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another person, is said to do that thing dishonestly . Fraudulently is defined in Section 25 thus: A person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise . The word defraud includes an element of deceit. Deceit is not an ingredient of the definition of the word dishonestly while it is an important ingredient of the definition of the word fraudulently . The former involves a pecuniary or economic gain or loss while the latter by construction excludes that element. Further, the juxtaposition of the two expressions dishonestly and fraudulently used in the various sections of the Code indicates their close affinity and therefore the definition of one may give colour to the other. to illustrate, in the definition of dishonestly , wrongful gain or wrongful loss is necessary enough. So too, if the expression fraudulently were to be held to involve the element of injury to the person or persons deceived, it would be reasonable to assume that the injury should be something other than pecuniary or economic loss. Though almost always an advantage to one causes loss to another and vice versa, it need not necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity for the loan amount received by it and, therefore, A-5 was entitled to get it back; before issuance of the guidelines by the RBI, RBI had itself noted that many banks were issuing BRs on behalf of their brokers, there was no prohibition to the banks with regard to the issuance of the BRs on the behalf of their clients. Only thing which was required to be verified was whether there was sufficient security. The witnesses on behalf of bank have admitted that UCO Bank and other banks were giving routing facility to their clients and that routing transaction was a transaction in which purchase and sale of securities was done by the bank as an agent of its customer for a commission; resolutions by the MUL also reveal that the investment for the first four transactions was 'through UCO bank' and for the 5th transaction, the investment was with UCO Bank ; It was UCO Bank's investment policy to have such transactions. Hence, it cannot be stated that A-5 was having any dishonest intention; there is no allegation that A-3 gained by such transactions and there is no loss to the bank or to the MUL. No inference of 'dishonesty' or intention to defraud could reasonably be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an offence in accordance with law. Take for illustration--collecting donation of unaccounted money, even if it is practice or usage, it would be an offence. This is sought to be brought out on record in the cross-examination of I.O. Bhatnagar that PW23 Khandelwal has given a statement before him that A-5 gave a VIP suitcase containing cash to Sitaram Kesari. 274. Further, we are required to decide the case on the touchstone of ingredients of the offence punishable under IPC and there cannot be any doubt that those who are found guilty should be punished but the conviction must be on the basis of established criminal jurisprudence and not on moral or equitable ground or impression created or gathered by the prosecuting agency. It is also true that in the present case, dealing in public funds was to a large extent but that would not itself be a sufficiently ground for drawing any inference in favour of the prosecution particularly when there is no evidence on record that MUL or UCO Bank suffered any loss or any of accused Nos. 1 to 4 gained anything. On the contrary, there is evidence on record that UCO Bank got commission from the said transactions. 275. This Court in Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me available for use. 279. From the evidence on record, it is proved that- 1. Undisputedly there is no statutory prohibition that MUL or UCO Bank cannot grant loan to the individual. 2. In the present case, admittedly, there is no loss to the MUL or to the UCO bank. 3. It is not the prosecution version that accused Nos. 1, 2, 3 or 4 got any advantage or gain because of the five transactions. In any case, there is no evidence. 4. In first transaction, MUL took loan by handling over 35 lacs units of UTI. In other transactions, MUL gave the amount on the basis of bank receipts. Bank receipts were backed by the units. RBI directions which are issued in July 1991, nowhere prescribe that a transaction by the Bank on behalf of the broker clients if it is backed by the adequate securities is irregular or prohibited. 5. On behalf of MUL it has been stated before the JPC that the transactions were regular and there was no irregularity. No officer of the MUL has stated before the Court tat transactions were irregular. Witnesses examined on behalf of MUL are PW1 Bhargava who was a Legal Advisor, MUL and Company Secretary, PW3. Agharam Halasyam who was the General Manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of giving a facade of sale transactions and it establishes fraud. This submission cannot be accepted because of the resolutions of the MUL fixing days for repayment and the rate of interest meaning thereby if the amount is not returned on a particular date, the units would stand forfeited and for that limited purpose it is a sale transaction and if the amount is repaid with interest, units would be returned. Further, in case of sale or purchase of units, there would not be any question of payment of interest. Question of payment of interest would arise in cases of loan transaction. 12. As discussed above, resolutions passed by the MUL maker clear distinction of investing the amount with the bank or through the bank . May be that there was facit understanding as the loan cannot be given to A-5 by MUL, it should be routed through a bank. For this transaction, UTI units were handed over to the bank, therefore, there is no question of any fraud or mis-appropriation. In any case, for this purpose, A-5 is not liable. The resolutions were passed by the MUL, that the amount be given to UCO Bank for purchase/sale of units. Whenever the transactions were directed with the bank, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was misappropriation and, thirdly, it was dishonest. 284. Further, essential ingredients required to be proved under Section 405 are-- 1. Accused must be entrusted with some property or with any dominion over property. 2. He dishonestly misappropriates or dishonestly converts to his own use that property, or 3. 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 legal contract, or 4. Willfully suffers any other person to do so. 285. In this case, an essential ingredient which is required to be established would be 'dishonest misappropriation or use'. For this, it is contended that A-5 took loan from MUL through UCO Bank. If it is established that he took loan from MUL through UCO Bank, then there is no question of misappropriation because property belonged to him as he was the owner of the said amount. 286. For this purpose, let us consider the prosecution case in the light of the following illustrations-- A) Presume that A-5 received the amount by investment/loan from UCO Bank by depositing UTI Unites; or B) Presume that A-5 took loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay Branch got the money on the same day. It is pointed out that Grindlays Bank was not at all concerned with money except for transmitting the same to its beneficiary. 293. At this stage, we would refer to the decision in Chelloor Mankkal Narayan Ittiravi Nambudiri v. State of Travancore, Cochin AIR1953SC478 . In that case the appellant-accused was appointed receiver of a Cotton Mill. He demanded and received payment over and above the market price in respect of cotton bales allotted to a shopkeeper. He was charged for criminal breach of trust and misappropriating the extra money received by him without bringing it into the Mill's account. The Court dealt with the question--whether the extra money was given by the shopkeeper to the accused for and on behalf of the Mill or was given to him personally as a motive or reward for showing some favour. In that context, Court considered the definition of criminal breach of trust and held (in para 21) as under:-- It follows almost axiomatically from this definition that the ownership or beneficial interest in the property in respect of which criminal breach of trust is alleged to have been committed, must be in some person othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount taken on loan was paid with interest and commission was paid to UCO Bank. The transactions are already squared up, hence there is no question of any offence being committed by A-5. He further makes it clear that considering the course of dealing it is apparent that there is consensus agreement that monies from MUL were received for customer namely A-5, from the customers lender for handing over the same to the customer. Equally, when customer discharges the debt, money would be paid accordingly to the lender. He, therefore, submits that this was a tacit agreement between the parties. 297. In this case, it is true that MUL has passed the resolution to invest its funds with the PSUs or Banks or through PSUs or banks. The words 'through' would certainly mean that it is not with the banks. In any case, because of the resolutions passed by the MUL, it cannot be held that there was any prohibition for the MUL to invest its funds through the banks by giving loan to an individual. If bank intervenes as the broker taking its responsibility on behalf of its client then it cannot be said that the transactions are illegal or fraudulent. For this purpose, in earlier paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p or beneficial interest in the property was not with UCO Bank. 301. With regard to first transaction, it is to be stated that it is nobody's case that UCO bank sold and thereafter re-purchased the units to MUL and therefore it was entitled to get it back from MUL. As soon as the amount was re-paid by MUL, original owner of the UTI units was entitled to get it back and that was done by A-5. 302. Further, document Ex.58 (Vol.26 page 7056) and Ex. A-5(1) (Vol.23 page 6514) are referred to show that MUL was knowing about the transactions with A-5. Ex.58 is the letter dated 22nd January, 1991 written by UCO Bank to MUL requesting to hand over the delivery of units to Mr. Khandelwal; and Ex.A.5 (1) is the receipt dated 24.1.1991 issued by Mr. Khandelwal (an employee of A-5) on the letter-pad of A-5. Both these documents would also indicate that MUL was fully aware about the transaction with A-5. 303. Finally, an important contention raised by the learned counsel for the appellants that for the transaction Nos. 1 to 3 i.e. transactions dated 24.1.1991, 13.3.1991 and 18.3.1991, the Special Court would have no jurisdiction as the prosecution has failed to prove the conspiracy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly credited funds to the account of HSM instead of making payments to named banks/institutions. The Committee noted that the PSUs were the single largest source of surplus investible funds around ₹ 36000 crores between April 1990 and December 1992. In the investment of these funds guidelines and instructions were routinely flouted and no norms were observed. Neither DPE nor the Ministries concerned took any steps to ensure the compliance of their guidelines. Even the Ministry of Petroleum and Natural Gas which had made a review of investment of surplus funds by the PSUs under its administrative control in May 1990 closed its eyes knowing fully well that PSUs were investing with the foreign banks despite the guidelines of DPE that PSUs could have normal banking transactions only with nationalised banks. The PSUs have placed funds with banks and finance companies for very short periods, sometimes for only a few days and even for one day implying supply of funds for speculative purposes to earn higher return. These banks/finance companies issued BRs for the amount received. The PSUs after the maturity of investment returned the BRs and go their monies along with the yiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our investments. This has been discussed with Company Secretary also who is agreeable for such treatment. PW4 Mr. Rajan Ramgopal has admitted that the name of the broker did not figure or reflect on the record of MUL in the event of transaction of investment being through broker. (g) In any case, A1 and A2 who are sought to be prosecuted are not responsible for the said policy. The policy is framed by the Board and as per the said policy, Sub-Committee headed by the Chairman and the Managing Director of MUL and Financial Director has passed appropriate resolutions. It appears that they were in know of entire investments, but for the reasons best known to the prosecution, they are not prosecuted or examined as witnesses even though they were interrogated by the Investigating Officer. (h) A1 and A2 were promoted for their efficiency and good work. The same stand was taken by the MUL before the JPC despite knowing that there was so-called investigation by the CBI. (i) MUL has not suffered any loss. On the contrary, it has received substantial interest for short term investment for a few days. (j) UCO Bank has also earned commission which is reflected in its accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idelines issued by the RBI, it would not mean that A-5 has mis-appropriated the amount. He repaid the amount on fixed dates with stipulated interest. Question of payment of interest would arise in cases of loan transaction and normally bank would not borrow the amount at such a high rate of interest. The Bank has issued BRs and there is no evidence that BRs were not backed by the units. On the contrary, defence has led evidence to suggest that units were given as security. (u) for A-3 also, Investigating Officer has not bothered to verify property because admittedly A-3 was transferred from Hamam Street Branch at Bombay to Hingha Branch, Near Nagpur at the relevant time when 5th transaction was carried out between 2.5.1991 to 7.5.1991. (v) As mentioned above, Section 415 has tow parts. While in the first part, the person must dishonestly or fraudulently induce the complainant to deliver any property; in the second part, the person should intentionally induce the complainant to do or omit to do a thing. That is to say, in the first part, inducement must be dishonest or fraudulent. In the second part, the inducement should be intentional. In the present case, it is ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was one of the 32 cases filed by the Central Bureau of Investigation (in short the 'CBI') under the provisions of Special Court (Trial of offences relating to Transactions in Securities) Act, 1992 (in short the 'Special Court Act'). 311. Before constitution of the Court under the Special Court Act several enquiries were made in relating to securities scam which allegedly broke out in May 1992 in various types of transactions relating to government securities. The basic allegation was that these transactions were made in active connivance with the officials of banks, financial institutions and shareholders. One Committee known as Jankiraman Committee was appointed by the Reserve Bank of India (hereinafter referred to as the 'RBI') under the chairmanship of one Shri R. Jankiraman, the then Deputy Governor of the RBI. The Committee submitted its report between May 1992 and April 1993. First report in point of time was submitted by the Committee in May 1992 and it was indicated that the amount involved was estimated to be about rupees 4,300/- crores. The Government first promulgated an Ordinance which was replaced by the Special Court Act on 8th August, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 318. The stand of accused No. 1, Pramod and accused No. 2, Ambuj Jain was that they did not know the involvement of A-5, Additionally. A-1 took a stand that A-5, Harshad is broker of UCO Bank. So far as A-3 was concerned though he did not deny authorship of several letters which were placed on record by the prosecution to show alleged commission of forgery, stated that the transactions were put through under mere routing facilities and in any event so far as the last two transactions were concerned. He was not working in the concerned branch. He took a stand that though the letters produced by the prosecution to show that forgery had been committed as they were typed outside the office, the same was done due to pressure of work. Accused 4 took the stand that he was totally unconcerned with the transaction. Accused No. 5 took a stand that there was no meeting as alleged by the prosecution to present a case of conspiracy, and in any event he was totally unaware of the transactions and further, even accepting that there were some transactions they were under mere routing facility. Reference was also made that issuance of BRs while putting through transaction with MUL was under routin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly, the payment came to be made by and/or from the account of accused No. 5, Harshad. Bombay's office of A-5 by its letter to Bank of America, Bombay requested remittance of the amount by means of ITRO to its Delhi Branch for crediting into the account of MUL, Delhi. Accordingly, Bank of America, (Bombay and Delhi branches) arranged the payment thereof to MUL. On receipt of (SIC) the securities were delivered to Anuj Kalia (PW 16), an employee of A-5 Harshad at its Delhi Office who was instructed and deputed by Khandelwal (PW 23). The proposal submitted by A-1 indicated as if the transaction was between MUL and UCO Bank, Hamam Street, Bombay. Nothing was mentioned about the role of A-5 who was operating from behind the screen. At the reversal stage, accused No. 3, Deosthali addressed a letter dated 22.2.1991 (Exbt. 59) on the letter head of UCO Bank to MUL instructing it to remit the amount of ₹ 5,03,250/- through Grindlays Bank, Delhi. Letter was addressed by MUL to its bankers Canara Bank, Delhi to issue a day order favouring Grindlays Bank. The same was handed over to Anuj Kalia (PW 16). On instructions from Khandelwal (PW 23) the pay order was deposited directly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as reversal is concerned, the role of A-3 is very significant. The letter (Exbt. 59) was written by A-3. He accepted that he was the author and signatory of the letter. Exbt. No. 101 is a letter dated 25.2.1991 issued by the Delhi Office of A-5 to the Grindlays Bank, by which it was instructed to credit the proceeds of the pay order (Exbt. 28) to the account of A-5. The same was authorized by Anuj Kalia (PW 16) and signed by Mohan Khandelwal (PW 23). The current account number of A-5 was also mentioned in the letter. 326. From the statement of account of UCO Bank, Hamam Street Branch, Bombay (Exbt. 149) it is clear that there was no debit entry showing that the UCO Bank, Bombay have charged any commission for the transaction of 35 lakhs of units of UTI and there is also nothing to show that UCO Bank had charged the commission from A-5. From Exhibits 44 and 45 which are internal vouchers, it is clear that though names of Bank of America and UCO Bank have been indicated, there was no involvement of UCO Bank either in passing or receiving funds in its own account. On the contrary, evidence shows that in the first instance money was paid by A-5 though its bankers to MUL. There was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed by A-3 Deosthali. BY the said letter it was indicated to MUL that it (MUL) had purchased 70 lakhs of units. There was a request to remit funds through Grindlays Bank. The Agenda Note and the approval clearly show that MUL was to place funds through UCO Bank. 329. A reading of the Agenda Note and the Resolution clearly shows that the transaction was intended to be between MUL and UCO Bank. Much was made of the words through UCO Bank to contend that there was no prohibition on involvement of A-5. This has to be considered in the background of the stand of A-5. His stand was that the transaction was between him and MUL on principal-to-principal basis. But the material on evidence clearly shows that the intention was that MUL was to be the purchaser and the UCO Bank the seller. 330. Exbt. 38 is the BR issued by UCO Bank. The same was authored and signed by A-3. BR recites UCO Bank having received from MUL the concerned sum, being the cost of 70 lakhs of units of the face value of rupees 7 crores. It was stipulated that the security will be delivered when ready in exchange by this receipt is duly discharged. The said recital in the BR clearly from its plain reading woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank and there was no question of (SIC) with MUL on principal-to-principal basis. In the minutes of Sub-Committee for the investment, the committee had earlier approved the proposals as contained in the Agency Note. Exbt. 40(3) where the investment in the (SIC) question was to be made with Grindlays Bank. But later on the same was changed and it was resolved to be made with UCO Bank, Hamam Street Branch, Bombay as proposed by A-1-Pramod. Significantly, there was no written proposal either from UCO Bank or Grindlays Bank which has been received and placed before the Committee of MUL, it had given its approval to the proposal for investment with UCO Bank. As noted earlier in respect of the other transaction, there was no direct involvement of UCO Bank and it was A-5 creating a facade to give a picture to MUL as if the transaction was between it and UCO Bank. Transaction No. 5 336. So far as transaction No. 5 is concerned, there was no letter issued by UCO Bank, Hamam Street Branch, Bombay and proposal to MUL as was in the case of earlier transactions. The most significant aspect is that there was also no Bank Receipt (BR) issued by UCO Bank, Hamam Street Branch, Bombay favouri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by PW-23 on the letterhead of A-5 cancelling the receipt of 35 lakhs of units from MUL. It is, therefore, hard to believe that A-1 did not know that the ultimate beneficiary was A-5. A-1 deliver pay order for the second transaction to PW-16. It has to be noted that for the first time in this Court A-5 has taken the stand that the relevant transactions were in the nature of loan between A-5 and MUL. A-1 used to place the proposal before the Board and obtained approvals for the investments in question. A decision was taken by MUL for investing its funds with PSU's as deposed by PW-1. That clearly indicated that investments could only be in PSU's bonds. As per PW-3, MUL did not engaged the services of brokers for its transactions and A-1 used to give instructions on the basis of which letters addressed to banks were prepared by MUL clearly suggesting that the transactions were intended to be between MUL and UCO bank. Therefore, what was intended was that the transactions in securities were directly to be with UCO bank. 340. As per PW-4 it brought to the notice of A-1 that the pay order was being given to the Grindlays Bank in a transaction with UCO Bank. A-1's reply is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UCO bank is signed by A-3 (Exbt. 61). BR dated 19.3.1991 is signed by A-3 (Exbt. 39). Exbt. 157(1) is the signature of A-3 on the debit voucher of UCO Bank in the name of A-5. Exbt. 158(1), page 6893, is the signature of A-3 in the name of A-5. Similar is the case of Exbts. 159(1), 160(1), 161(1) and 162(1) where there are signature of A-3 on the debit vouchers of UCO Bank in the name of A-5. Transaction No. 4 - BR 106 dated 24.4.1991 covering security of 51 lakhs of units signed by A-3. Credit voucher Exbt. 163(1) is in the name of A-5 signed by A-3. Similarly in the case of Exbts. 164(1), 165(1), 166(1), 167(1) and 168(1). It is an accepted case that documents purporting to be prepared in the normal course were prepared outside the office. Evidence of PW-6 is significant in this regard. 346. One significant factor as deposed by PW-7 is that none of UCO's Bank Managers was authorized to deal with securities. If there was any genuine transaction for sale of security, the deal could have been concluded by the Head Office of the bank. Accused No. 3 wrote letters and made a representation that he has entered into transactions for the Bank. A-3 was not authorized to write a let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase involved in the transaction. In such a transaction, the difference in price is the profit and not a commission. For the 5th transaction neither there was a letter from the UCO bank nor a BR, which amply demonstrate that no security was delivered. Though it is possible as an argument that in respect of transactions 2, 3 and 4 certain securities were placed with A-3 by A-5, that really is of no assistance to A-5. If any security is received, the Bank ought to have made some payment and if the Bank has not paid to retain the security, it would have been required to deliver the securities based on the BR and/or its letters. In other words, UCO Bank's fund were payable to MUL, without having any legal right to retain any security which A-3 may have kept in his possession. 349. Another question which needs to be considered is whether UCO Bank received any consideration for the sale of MUL. The Banker's cheque issued by Canara Bank on MUL's account was received by Grindlay's Bank and credited to the account of A-5, and remitted to the Bombay Branch of Grindlay's Bank. There was an instruction from Grindlays Bank to credit the amount in the account of A-5 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d significantly there was no outward reference number given on them, as is the admitted usual practice. 357. For the 4th transaction there was only the BR, and no letter and for the 5th transaction there was neither letter nor BR. It is not disputed that there can be no oral transaction by banks. It must be reflected in the books of account. 358. Further, a bank cannot act as a broker under the Banking Act. It is not one of the permitted acts. There is also not a question paying of any commission on purchase/sale of transactions. The transactions are, therefore not transparent. 359. The counter party i.e. MUL does not appear to have noticed about the role of the brokers. The decisions in question did not refer to A-5. Harshad but to UCO Bank, but the beneficiary is A-5. The pay-in slips were filled up by PW-16 which indicate that he payment was made to A-5. Harshad and in fact there was no authorization from MUL in this regard. The cheques were account payee cheques. In Exhibit 38 dated 13.3.1991. A-3 has signed as Accountant . The document uses the expression cost . Though the receipt was from A-5, it was indicated as if it was from MUL. 360. All the relevant voucher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket. The evidence of PW 2 also throws some light on this aspect. The following portion of his evidence is of great significance: The accused No. 1 at that time stated that MUL could not deal or involve the brokers. Mr. Harshad S. Mehta stated that the deals would be between MUL and banks structured and suggested by him i.e. Harshad S. Mehta. Mr. Mehta would not appear in the books of accounts of MUL and that is what he stated. 366. Though, attempt was made to emphasize accused No. 1's role in informing A-5 that MUL could not deal or involve broker, the statement attributed to A-5 Harshad has also to be considered. An attempt was made to as if there was no broker involved. Accounts were to be presented in such a manner that the role of A-5 would remain hidden. 367. It is interesting as noted above, that so far as the last transaction is concerned, there is no letter or the BR. Though accused No. 5 was the mastermind in reality. It reflects the involvement of several persons to present legitimacy while in reality that was not so. Letters authored by A-3 made a clear representation to MUL as if it was transacting with UCO Bank. 368. It would be relevant to take no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any document or electronic record which he knows or has reason to believe to be a forged document or electronic record, shall be punished in the same manner as if he had forged such document or electronic record. 369. It would be appropriate to deal with the question of conspiracy. Section 120B of IPC is the provision which provides for punishment for criminal conspiracy. Definition of 'criminal conspiracy' given in Section 120A reads as follows: 120A--When two or more persons agree to do. or cause to be done,-- (1) an illegal act, or (2) an act which is not illegal by illegal means, such an agreement is designated a criminal conspiracy: Provided that no agreement except an agreement to commit an offence shall amount to a criminal conspiracy unless some act besides the agreement is done by one or more parties to such agreement in pursuance thereof . 370. The elements of a criminal conspiracy have been stated to be: (a) an object to be accomplished, (b) a plan or scheme embodying means to accomplish that object, (c) an agreement or understanding between two or more of the accused persons whereby, they become definitely committed to co-operate for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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