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CRIMINAL APPEAL NO.346 OF 2004 VINAYAK NARAYAN DEOSTHALI …APPELLANT VERSUS C.B.I. …RESPONDENT

REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.346 OF 2004
VINAYAK NARAYAN DEOSTHALI …APPELLANT

VERSUS

C.B.I. …RESPONDENT
J U D G M E N T

ADARSH KUMAR GOEL, J.

1. This appeal has been preferred under Section 10 of the Special Court
(Trial of Offences relating to Transactions in Securities) Act, 1992 (for
short “the Special Court”) against the Judgment and Order dated
20th January, 2004 passed by the Special Court constituted under the said
Act in Special Case No.1 of 1997 in R.C. No.9 (BSC)/94/BOM.
2. In the wake of report of enquiry committee constituted by the Reserve
Bank of India under the Chairmanship of Shri Janki Raman to enquire into
the allegation of unauthorized diversion of public funds belonging to
certain public sector banks and financial institutions by employees of such
banks and institutions in collusion with some brokers, the Act was enacted
for constitution of a Special Court for trial of criminal offences in
respect of transactions during the period 1st April, 1991 to
6th June, 1992 as provided under the Act. The object of the Act was
speedy recovery of public money allegedly diverted in security transactions
and to punish the guilty and to restore confidence and credibility of the
banks and the financial institutions.
3. The Special Court was to try notified persons jointly with
other connected persons. One of such named persons was the
broker- Harshad S. Mehta who died during the trial. The appellant was
Assistant Manager of the UCO Bank, Hamam Street Branch who was jointly
tried with Mehta on the allegation that during the period
12th March, 1991 to 24th April, 1991, he diverted funds of the Engineering
Export Promotion Council (for short “EEPC”) amounting to Rs.7.75 crores to
the private account of Harshad S. Mehta. Though the said funds were
transferred back to the EEPC, conduct of the appellant amounted to offences
under Sections 120-B, 409, 467, 471 of the Indian Penal Code and Sections
13(1)(c) and (d) of the Prevention of Corruption Act, 1988.
4. The charge has been held proved by the Special Court. It may be
noted that the appellant’s conviction by the Special Court for abusing his
official position in relation to five other transactions involving
diversion of funds to the account of late Mehta, has been earlier upheld by
this Court in Criminal Appeal No.1141 of 1999 decided on 14th January, 2003
reported in Ram Narayan Popli vs. Central Bureau of Investigation[1] We
also find reference to the conviction of the appellant by the Special Court
in two other cases giving rise to the filing of Criminal Appeal No.687 of
2006 and Criminal Appeal No.335 of 2005 in this Court.
5. In the present case, charges against the appellant as framed by the
Special Court are as follows :
“FIRSTLY: That during the period from August, 1990 to April 1991, you
the accused abovenamed, working as Assistant Manager, UCO Bank, Hamam
Street Branch, Mumbai did enter into a criminal conspiracy with Harshad
Shantilal Mehta, original accused No.1 (since deceased), a Share, Stock and
Securities Broker, Mumbai, the object whereof was to illegally divert the
funds of Engineering Export Promotion Council (EEPC) to the extent of
Rs.7.75 crores to the Current Account No.1028 of the aforesaid Harshad
Shantilal Mehta (since deceased), maintained with UCO Bank, Hamam Street
Branch, Mumbai, in the name of M/s Harshad S. Mehta, and thereby to obtain
undue pecuniary advantage to the said Harshad Shantilal Mehta (since
deceased), by you the accused abovenamed misusing your official position as
a Public Servant by corrupt or illegal means, under the garb of Securities
transactions, camouflaging the same as if the transactions were of UCO
Bank, while knowing or having reason to believe that the transactions were
in fact of the said Harshad Shantilal Mehta and that you thereby committed
an offence punishable under Section 120-B of the Indian Penal Code and
within my cognizance.

SECONDLY: That in pursuance of the said criminal conspiracy and in the
course of the same transaction, on or about 123, 1991, the said Harshad
Shantilal Mehta (since deceased), while purporting to act as a Broker of
UCO Bank, dishonestly issued two contract notes to EEPC, Mumbai, showing
purchase of 692 lakh units of UNITS 1964 Scheme at Rs.14.4585 per unit on
ready forward basis for the sale of the same securities on 22.03.1991 on
their behalf at Rs.14.50628 per unit as also issued false Delivery Orders
to the EEPC instructing them to receive the delivery of the aforesaid
securities from UCO Bank and also issued another Delivery Order of even
date to UCO Bank to deliver the said securities to EEPC knowing or having
reason to believe that UCO Bank could not deliver the said securities to
EEPC in the absence of the UCO Bank holding any such securities on account
of the said Harshad Shantilal Mehta (since deceased) and in furtherance of
the said conspiracy, and during the course of the same transaction, you the
accused abovenamed, being a Public Servant, and having been entrusted with
the funds or dominion over the funds of or under the control of UCO Bank,
Hamam Street Branch, Mumbai, dishonestly issued a Cost Memo dated
12.03.1991 in respect of the aforesaid sale of the said securities for a
total sum of Rs.99,99,988.20, knowing or having reason to believe that UCO
Bank had no such transaction with EEPC and also committed the offence of
forgery by issuing BR NO.111/91 of UCO Bank on the instructions of the said
Harshad Shantilal Mehta (since deceased) knowing or having reason to
believe the same to be false document, by fraudulently signing and issuing
the said BR, knowing or having reason to believe that the said BR was not
backed by securities, and in consideration thereof having received Bankers
Cheque No.054053 dated 12.03.1991 drawn on State Bank of India, Cuffe
Parade Branch, Mumbai, from EEPC for Rs.1 crore issued in favour of UCO
Bank, obtained undue pecuniary advantage in favour of the said Harshad
Shantilal Mehta (since deceased), without any public interest and committed
Criminal Misconduct by crediting the proceeds of the said Cheque directly
into the Current Account No.1028 maintained by the said Harshad Shantilal
Mehta (since deceased) in the name of M/s Harshad S. Mehta with UCO Bank,
Hamam Street Branch, Mumbai without any instructions in that behalf from
the issuing Bank, and in furtherance of the said criminal conspiracy and
during the course of the same transaction you the accused abovenamed
dishonestly received the credit of the said amount knowing or having reason
to believe the same to be stolen property viz, the property in respect of
which an offence of Criminal breach, of Trust had been committed and that
you thereby committed offences punishable under Section 120B of the Indian
Penal Code read with Sections 409, 411, 467, 471 of the I.P.C. and sections
13(2) read with 13(1)(c) and 13(1)(d) of the Corruption Act, 1988 and
within my cognizance.

THIRDLY: That in pursuance of the said criminal conspiracy – and during
the course of the same transaction, on or about 12.03.1991 you the accused
abovenamed, acting in your official capacity as Assistant Manager, UCO
Bank, Hamam Street Branch Mumbai, dishonestly and fraudulently issued a UCO
Bank Cost Memo dated 12.03.1991 in respect of the aforesaid ostensible sale
of the said securities for a total sum of Rs.99,99,980.20, knowing or
having reason to believe that UCO Bank had no such transaction with EEPC
and further, dishonestly issued UCO Bank BR No.111/91 favouring EEPC
knowing or having reason to believe that the same was not backed with
securities and that you the accused abovenamed thereby committed an offence
punishable under Section 120-B read with Section 467 of the Indian Penal
Code and within my cognizance.

FOURTHLY: That in pursuance of the said criminal conspiracy and during
the course of the same transaction, on or about 12.03.1991 you the accused
abovenamed used the abovesaid forged BR No.111/91 a genuine by forwarding
the same to EEPC and that you thereby committed an offence punishable under
Section 120-B read with Section 467 read with 471 of the Indian Penal Code
and within my cognizance.

FIFTHLY: That in pursuance of the said criminal conspiracy and during the
course of the same transaction, on or about 12.03.1991, you the accused
abovenamed, being a Public Servant and working your capacity as Assistant
Manager, UCO Bank, Hamam Street Branch, Mumbai, and in such capacity having
been entrusted with the funds or dominion over the funds of or under the
control of UCO Bank, Hamam Street Branch, Mumbai, having received an
Account Payee Banker’s Cheque No.054053 payable to UCO Bank and drawn on
the State Bank of India, Cuffe Parade Branch, Mumbai, for an amount of Rs.1
crore, in violation of express or implied contract touching the mode of
discharge of such trust, credited the same directly into the Current
Account No.1028 maintained by the said Harshad Shantilal Mehta (since
deceased) in the name of M/s Harshad S. Mehta, with UCO Bank, Hamam Street
Branch, Mumbai, without any instructions in that behalf from the issuing
Bank, and that you thereby committed an offence punishable under Section
120-B read with Section 409 of the Indian Penal Code and within my
cognizance.

SIXTHLY: That in pursuance of the said criminal conspiracy and during the
course of the same transaction, on or about 12.03.1991, you the accused
abovenamed, being a Public Servant, by abusing your official position as
Assistant Manager, UCO Bank, Hamam Street Branch, Mumbai and by corrupt or
illegal means, having received an Account Payee Banker’s cheque No.054053
for Rs.1 crore, payable to UCO Bank drawn on State Bank of India, obtained
for the said Harshad Shantilal Mehta (since deceased) obtained undue
pecuniary advantage without any public interest, and committed criminal
misconduct by illegally crediting the proceeds of the said cheque directly
into the Current Account No.1028 maintained by the said Harshad Shantilal
Mehta (since deceased) with UCO Bank, Hamam Street Branch, Mumbai, in the
name of M/s Harshad S. Mehta without any instructions in that behalf from
the issuing Bank, and that you thereby committed an offence punishable
under Section 120-B of the Indian Penal Code read with Section 13(2) read
with Sectin 13(1)(d) of the Prevention of Corruption Act, and within my
cognizance.

SEVENTHLY: That in pursuance of the said criminal conspiracy and
during the course of the same transaction, on or about 12.03.1991, you the
accused abovenamed, being a Public Servant, by abusing your official
position as Assistant Manager, UCO Bank, Hamam Street Branch, Mumbai having
received an Account Payee Bankers Cheque No.054053 for Rs.1 crore, payable
to UCO Bank drawn on State Bank of India, dishonestly misappropriated the
said funds by crediting the proceeds of the said cheque directly into the
Current No.1028 maintained by the said Harshad Shantilal Mehta (since
deceased), with UCO Bank, Hamam Street Branch, Mumbai, in the name of M/s
Harshad S. Mehta, without any instructions in that behalf from the issuing
Bank, and that you thereby committed and offence punishable under Section
120-B of the Indian Penal Code read with Section 13(2) read with 13(1)(c)
of the Prevention of Corruption Act, and within my cognizance.

EIGHTHLY: That in pursuance of the said criminal conspiracy and during
the course of the same transaction, on or about 23.04.1991, the said
Harshad Shantilal Mehta (since deceased), while purporting to act as Broker
for UCO Bank, dishonestly issued two Contract Notes to EEPC, Mumbai,
showing, purchase of 35 lakh units of UNITS 1964 Scheme at Rs.1500 per unit
on ready forward basis for the sale of the same securities on 08.05.1991 on
their behalf at Rs. 15.11096 per unit and also issued false Delivery Orders
to the EEPC instructing them to receive the delivery of the aforesaid
securities from UCO Bank and also issued another Delivery Order of even
date to UCO Bank to deliver the said securities to EEPC knowing or having
reason to believe that UCO Bank could not deliver the said securities to
EEPC in the absence of the UCO Bank holding any such securities on account
of the said Harshad Shantilal Mehta (since deceased), and in furtherance of
the said conspiracy, and during the course of the same transaction, you the
accused abovenamed being a Public Servant, and having been entrusted with
the funds or dominion over the funds of or under the control of UCO Bank,
Hamam Street Branch, Mumbai, dishonestly issued A Cost Memo dated
23.04.1991 in respect of the aforesaid sale of the said securities for a
total sum of Rs.5.25 crores, knowing or having reason to believe that UCO
Bank had no such transaction with EEPC and also committed the offence of
Forgery by issung BR No.153/91 of UCO Bank on the instructions of the said
Harshad Shantilal Mehta (since deceased) knowing or having reason to
believe the same to be false document by fraudulently signing and issuing
the said BR knowing or having reason to believe that the said BR was not
backed by securities, and in consideration thereof having received Banker’s
Cheque No.054337 dated 23.04.1991 drawn on State Bank of India, Cuffe
Parade Branch, Mumbai, from EEPC for Rs.5.25 crores in favour of UCO Bank
obtained undue pecuniary advantage in favour of the said Harshad Shantilal
Mehta (since deceased) without any public interest and committed criminal
misconduct by crediting the proceeds of the said Cheque directly into the
Current Account No.1028 maintained by the said Harshad Shantilal Mehta
(since deceased) in the name of M/s Harshad S. Mehta with UCO Bank, Hamam
Street Branch, Mumbai, without any instructions in that behalf from the
issuing Bank, and that you thereby committed offence punishable under
Section 120-B of the Indian Penal Code read with Sections 409, 471 of the
Indian Penal Code and Sections 13(2) read with 13(1)(c) and 13(1)(d) of the
Prevention of Corruption Act, and within my cognizance.

NINTHLY: That in pursuance of the said criminal conspiracy and during
the course of the same transaction, on or about 23.04.1991, you the accused
abovenamed acting in yours official capacity as Assistant Manager, UCO
Bank, Hamam Street Branch, Mumbai, dishonestly and fraudulently issued a
UCO Bank Cost Memo dated 23.04.1991 in respect of the aforesaid ostensible
sale of the said securities for a total sum of Rs.5.25 crores, knowing or
having reason to believe that UCO Bank had no such transaction with EEPC
and further dishonestly issued UCO Bank BR No.153/91 favouring EEPC or
having reason to believe that the same was not backed with securities and
that you the accused abovenamed thereby committed an offence punishable
under Section 120-B read with Section 467 of the Indian Penal Code and
within my cognizance.

TENTHLY: That in pursuance of the said criminal conspiracy and during
the course of the same transaction, on or about 23.04.1991, you the accused
abovenamed used the abovesaid forged BR No.153/91 as genuine by forwarding
the same to EEPC and that you thereby committed an offence punishable under
Section 120-B read with Section 467 read with Section 471 of the Indian
Penal Code and within my cognizance.

ELEVENTHLY: That in pursuance of the said criminal conspiracy and
during the course of the same transaction, on or about 23.04.1991 you the
accused abovenamed, being a Public Servant and working in your capacity as
Assistant Manager, UCO Bank, Hamam Street Branch, Mumbai, and in such
capacity having been entrusted with the funds or dominion over the funds of
or under the control of UCO Bank, Hamam Street Branch, Mumbai, having
received an Account Payee Banker’s Cheque No.054337 payable UCO Bank and
drawn on the State Bank of India, Cuffe Parade Branch, Mumbai, for an
amount of Rs.5.25 crores, in violation of express or implied contract
touching the mode of discharge of such trust, credited the same directly
into the Current Account No.1028 maintained by the said Harshad Shantilal
Mehta (since deceased) in the name of M/s Harshad S. Mehta, with UCO Bank,
Hamam Street Branch, Mumbai, without any instructions in that behalf from
the issuing Bank, and that you thereby committed an offence punishable
under Section 120-B read with Section 409 of the Indian Penal Code and
within my cognizance.

TWELTHLY: That in pursuance of the said criminal conspiracy and during
the course of the same transaction, on or about 23.04.1991 you that accused
abovenamed, being a Public Servant, by abusing your official position as an
Assistant Manager, UCO Bank, Hamam Street Branch, Mumbai, having received
an Account Payee Banker’s Cheque No.054337 for Rs.5.25 crores payable to
UCO Bank drawn on the State Bank of India, dishonestly misappropriated the
said funds by crediting the proceeds of the said cheque directly into the
Current Account No.1028 maintained by the said Harshad Shantilal Mehta
(since deceased) in the name of M/s Harshad S. Mehta, with UCO Bank, Hamam
Street Branch, Mumbai, without any instructions in that behalf from the
issuing Bank, and that you thereby committed an offence punishable under
Section 120-B read with Section 13(2) read with 13(1) of the Prevention of
Corruption Act, and within my cognizance.

THIRTEENTHLY: That in pursuance of the said criminal conspiracy
and during the course of the same transaction, on or about 23.04.1991 you
the accused abovenamed, being a Public Servant, by abusing your official
positional as an Assistant Manager, UCO Bank, Hamam Street Branch, Mumbai,
having received an Account Payee Banker’s Cheque No. 054337 for Rs.5.25
crores, payable to UCO Bank and drawn on the State Bank of India, Cuffe
Parade Branch, Mumbai, dishonestly misappropriated the said funds crediting
the proceeds of the said cheque directly into the Current Account No.1028
maintained by the said Harshad Shantilal Mehta (since deceased) in the name
of M/s Harshad S. Mehta, with UCO Bank, Hamam Street Branch, Mumbai,
without any instructions in that behalf from the issuing Bank, and that you
thereby committed an offence punishable under Section 120-B read with
Section 13(2) read with 13(1)(c) of the Prevention of Corruption Act, and
within my cognizance.

FOURTENTHLY: That in pursuance of the said criminal conspiracy
and during the course of the same transaction, on or about 24.04.1991 the
said Harshad Shantilal Mehta (since deceased), while purporting to act as a
Broker of UCO Bank, dishonestly issued to Contract Notes to EEPC, Mumbai,
showing purchase of 10 lakh units of UNITS 1964 Scheme at Rs.15.00 per unit
on ready forward basis for the sale of the same securities on 29.04.1991 on
their behalf at Rs.15.04110 per unit as also issued false Delivery Orders
to the EEPC instructing them to receive the delivery of the aforesaid
securities from UCO Bank and also issued another Delivery Order of even
date to UCO bank to deliver the said securities to EEPC knowing or having
reason to believe that UCO Bank could not deliver the said securities to
EEPC in the absence of the UCO bank holding any such securities on account
of the said Harshad Shantilal Mehta (since deceased), and in furtherance of
the said conspiracy, and during the course of the same transaction, you the
accused abovenamed, being a Public Servant, and having been entrusted with
the funds or dominion over the funds of or under the Control of UCO Bank,
Hamam Street Branch, Mumbai, dishonestly issued a Cost Memo dated
24.04.1991 in respect of the aforesaid sale of the said securities for a
total sum of Rs.1.50 crores, knowing or having reason to believe that UCO
Bank had no such transaction with EEPC and also committed the offence of
Forgery issuing BR No.16B/91 of UCO Bank on the instructions of the said
Harshad Shantilal Mehta (since deceased) knowing or having reason to
believe the same to be false document by fraudulently signing and issuing
the said BR knowing or having reason to believe that the said BR was not
backed by securities and in consideration thereof having received Banker’s
Cheuqe No.054353 dated 24.04.1991 drawn on the State Bank of India, Cuffe
Parade Branch, Mumbai, from EEPC for Rs.1 crore issued in favour of the UCO
Bank, obtained undue pecuniary advantage without any public interest for
the said Harshad Shantilal Mehta (since deceased) and committed Criminal
Misconduct by crediting the proceeds of the said Cheque directly into the
Current Account No.1028 maintained by the said Harshad Shantilal Mehta
(since deceased) in the name of M/s Harshad S. Mehta with UCO Bank, Hamam
Street Branch, Mumbai, without any instructions in that behalf from the
issuing Bank and that you thereby committed offence punishable under
Section 120-B of the Indian Penal Code read with Sections 409, 467, 471 of
the Indian Penal Code and Sections 13(2) read with 13(1)(c) and 13(1)(d) of
the Prevention of Corruption Act, 1988, and within my cognizance.

FIFTEENTHLY: That in pursuance of the said criminal conspiracy and
during the course of the same transaction, on or about 24.04.1991, you the
accused abovenamed, acting your official capacity as Assistant Manager, UCO
Bank, Hamam Street Branch, Mumbai, dishonestly and fraudulently issued a
UCO Bank Cost Memo dated 24.04.1991 in respect of the aforesaid ostensible
sale of the said securities for a total sum of Rs.1.50 crores, knowing or
having reason to believe that UCO Bank had no such transaction with EEPC
and further dishonestly issued UCO Bank BR No.168791 favouring EEPC knowing
or having reason to believe that the same was not backed with securities
and that you the accused abovenamed thereby committed an offence punishable
under Section 120-B of the Indian Penal Code read with Section 467 of the
Indian Penal Code and within my cognizance.

SIXTEENTHLY: That in pursuance of the said criminal conspiracy and
during the course of the same transaction, on or about 24.04.1991 you the
accused abovenamed used the abovesaid forged BR No.168/91 as genuine by
forwarding the same to EEPC and that you thereby committed an offence
punishable under Section 120-B read with Section 467 read with 471 of the
Indian Penal Code and within my cognizance.

SEVENTEENTHLY: That in pursuance of the said criminal conspiracy
24.04.1991 you the accused abovenamed, being a Public Servant and working
in your capacity as Assistant Manager, UCO Bank, Hamam Street Branch,
Mumbai, and in such capacity having been entrusted with the funds or
dominion over the funds of or under the control of UCO Bank, Hamam Street
Branch, Mumbai, having received an Account Payee Bankers Cheque No.054353
payable to UCO Bank and drawn on the State Bank of India, Cuffe Parade
Branch, Mumbai, for an amount of Rs.1.50 crores, in violation of express or
implied contract touching the mode of discharge of such trust, credited the
same directly into the Current Account No.1028 maintained by the said
Harshad Shantilal Mehta (since deceased) in the name of M/s Harshad S.
Mehta, with UCO Bank, Hamam Street Branch, Mumbai, without any instructions
in that behalf from the issuing Bank, and that you thereby committed an
offence punishable under Section 120-B of the Indian Penal Code read with
Section 409 of the Indian Penal Code and within my cognizance.

EIGHTEENTHLY: That in pursuance of the said criminal conspiracy
24.04.1991, you that accused abovenamed, being a Public Servant, by abusing
your official position as Assistant Manager, UCO Bank, Hamam Street Branch,
Mumbai, and by corrupt or illegal means having received an Account Payee
Banker’s Cheque No.054353 for Rs.1.50 crores, payable to UCO Bank and drawn
on the State Bank of India, obtained undue pecuniary advantage without any
public interest for the said Harshad Shantilal Mehta (since deceased) and
committed criminal misconduct by illegally crediting the proceeds of the
said cheque directly into the Current Account No.1028 maintained by the
said Harshad Shantilal Mehta (since deceased) with UCO Bank, Hamam Street
Branch, Mumbai, in the name of M/s Harshad S. Mehta, without any
instructions in that behalf from the issuing Bank, and that you thereby
committed an offence punishable under Section 120-B of the Indian Penal
Code read with Sections 13(2) read with 13(1)(d) of the Prevention of
Corruption Act, and within my cognizance.

NINETENTHLY: That in pursuance of the said criminal conspiracy
24.04.1991 you the accused abovenamed, being a Public Servant, by abusing
your official position as Assistant Manager, UCO Bank, Hamam Street Branch,
Mumbai, having received an Account Payee Banker’s cheque No.054353 of
Rs.1.50 crores, payable to UCO Bank drawn on State Bank of India,
dishonestly misappropriated the said funds by crediting the proceeds of the
said cheque directly into the Current Account No.1028 maintained by the
said Harshad Shantilal Mehta (since deceased) with UCO Bank, Hamam Street
Branch, Mumbai, in the name of M/s Harshad S. Mehta, without any
instructions in that behalf from the issuing Bank and that you thereby
committed an offence punishable under Section-120B of the Indian Penal Code
read with Section 13(2) read with 13(1)(c) of the Prevention of Corruption
Act, and within my cognizance.”

6. The EEPC was set up to promote export of engineering goods and
services under the Ministry of Commerce. It was operating a scheme called
the International Price Reimbursement Scheme (for short “IPRS”) with the
object of neutralizing price of steel for domestic exports at par with the
international market where prices were lesser. The scheme envisaged
compensating the exporters by way of reimbursement of the price difference.
The funds received by the EEPC through Joint Plan Committee (“JPC”) were
kept with the State Bank of India at Calcutta. PW-3, Girish Chandra an
officer of EEPC was running the scheme. Apart from the said funds, other
source of available funds with the EEPC was sale of premises at Tardey,
Mumbai to shift the office to rented premises in World Trade Centre which
was considered to be more suitable. Sale proceeds were kept with the State
Bank of India, Cuffe Parade Branch. During the period between 12th March,
1991 and 24th April, 1991, PW-3 issued three cheques in favour of the UCO
bank where the appellant was posted. Without instructions from EEPC, the
said amount was transferred to the private account of late Mehta. Though
the EEPC received contract notes and delivery orders in respect of the
three transactions and the documents were signed by PW-3, but this was
under a mistaken thought that he was merely signing a format prescribed by
the Bank. Thus, the appellant abused his position in collusion with Mehta
resulting in transfer of public funds to private account of an individual
unauthorisedly. Forged Bank Receipts (BRs) were issued by the Bank to EEPC
in lieu of physical delivery of securities, without such securities being
in existence. PW-4, Arup Mohan Patnaik, an officer of CBI, after
investigation, lodged the FIR on 30th November, 1994. Investigation was
further conducted by PW-13, Mr. S.K. Sareen, Inspector CBI, who collected
documents from EEPC, UCO Bank and State Bank of India and also recorded
statements of witnesses. He filed charge sheet against late Mehta and the
appellant.
7. Apart from producing the documents, the prosecution relied upon the
oral evidence of Mr. Chhadisingh-PW-1, Mr. Maitra-PW-2,
Mr. Girish Chandra-PW-3, Mrs. Sudha Kubal-PW-4, Mr. Ankur
Gupta-PW-5 and Mr. Babaji Firoz-PW-6, all of them working with EEPC in the
Regional Office at Mumbai in different capacities; Mr. B.D.
Raut-PW-7; Mr. Aarsiwala-PW-8 working with State Bank of India;
Mr. Anjaria-PW-9; Mr. Pinjani-PW-10 and Nilam Keni-PW-12 working with UCO
Bank, Hamam Street Branch, Mumbai, in different capacities. Rest of the
witnesses are Mr. Jain-PW-11, the Hand Writing Expert;
Mr. Patnaik-PW-14, who lodged the FIR and Mr. S.K. Sareen-PW-13 is the
Investigating Officer and had filed charge sheet against the accused.
The accused led defence evidence and examined DW-1-Mr. Atul Manubhai
Parekh, who was working in the office of Harshad Mehta at the relevant time
and Mr. Pradeep Anant Karkhanis-DW-2, who was working in the UCO Bank as a
Senior Manager at the relevant time.
8. Stand of the appellant is that the deposit in the account of late
Mehta was not on account of dishonest intention of the appellant. The Bank
had been offering facility to brokers for security transactions by charging
commission. Transactions were between brokers and the counter party. All
the documents were prepared in normal course of banking.
9. The Special Court rejected the defence of the accused and held that
transfer of funds to private account of late Mehta was without any
authorization by the EEPC. It was observed:-
“The entire evidence in this regard has gone unchallenged. The defence
of the accused is, however, that Hamam Street Branch of UCO Bank was having
such securities transactions on behalf of the clients and they were going
on since 1987, much before he joined the said branch in 1989. According to
him there were eighteen brokers getting such routine facility. This
facility was temporarily stopped for the period between May, 1991 and
March, 1992 and in March, 1992, similar facility was continued to be given
to the brokers. His defence is that the aforesaid three transactions were
between EEPC and HSM. No contract notes were ever sent to UCO Bank. The
Head Office was aware of such transactions. While admitting that all the
vouchers, cost memos and BRs related to the aforesaid three transactions
were prepared at his instance in his branch. His defence is that those
were performed in normal course of banking business. He states that he is
innocent and acting as per the procedure adopted by the bank.

The charge against the accused is that he had conspired with HSM for
diverting the funds of the EEPC, the public money, to HSM with dishonest
and fraudulent intention, the object of which was to give benefit of such
diverted money to HSM. It is also the charge against the accused that he
had no authority either from the EEPC or from the Bank Authorities to
credit the amount of the aforesaid three bankers’ cheques issued by SBI in
favour of the UCO Bank, to the HSM’s account No.1028 and, therefore, the
accused had misused his official position as a public servant, namely, the
Manager in Securities Department of Hamam Street Branch of UCO Bank, at
Mumbai.

The accused is also charged for having issued BR’s in respect of these
transactions without there being any backing of physical securities for
issuing such BRs and, therefore, it is alleged that the accused had
prepared the documents like cost memos and BRs by forging them and by
using them as genuine.

Since all the three transactions have been proved having taken place in the
manner aforesaid, it is clear that EEPC had transferred their funds from
their account in SBI to UCO Bank for the purpose of their short term
investments. The evidence of Girish Chandra-PW 3 clearly shows that as per
the instructions and circulars issued by the Central Government, he had
authority to make investments of the surplus funds of EEPC, either in
nationalized banks or in Government Securities or Government approved
securities and he had no authority to transfer the funds of the EEPC for
the benefit of any individual, including HSM. From the aforesaid
transactions, it is clear that all the three bankers’ cheques issued in
favour of the UCO Bank were credited into the account of HSM, being Account
No.1028. The transactions also show that the accused had issued cost memos
against EEPC for the transactions of sale of securities shown therein.
When the cheques were received the amount were credited to the account of
HSM. There were instructions under the delivery notes issued by HSM to
the UCO Bank that UCO Bank should deliver to EEPC certain number of units
1964 scheme, as shown in the delivery orders, at the indicated rates to UCO
Bank. The accused, therefore, had acted as pr the instructions of HSM.
However, this was contrary to the contract notes issued by HSM to EEPC,
which clearly indicated that in all the three transactions HSM was acting
as broker. Indication in the contract notes is that HSM had purchased
certain number of units of 1964 scheme for and on behalf of the EEPC and
the delivery orders issued to EEPC as also to UCO Bank, indicated that
EEPC has to receive the said Units from UCO Bank and UCO Bank had to hand
over those units to EEPC. This clearly indicates that HSM was acting as a
Broker and he was not the principal nor the counter party to those
transactions. Even then, UCO Bank had treated HSM as principal i.e.
counter party having direct contact with EEPC. The accused, therefore,
credited the amount received from SBI on behalf of the EEPC to the account
of HSM. In any event, the bankers’ cheques drawn on SBI, Account EEPC,
were in fact in favour of the UCO Bank only and not in favour of any other
party. Therefore, the accused could only have credited those amounts under
those three cheques only in UCO Bank account and nobody else’s account.
There were apparently no instructions from EEPC in that behalf. It,
therefore, clearly shows the meeting of mind of the accused and HSM in
illegally diverting the EEPC’s funds to HSM’s account and giving undue
pecuniary advantage to HSM. Therefore, the prosecution has established
that it is a criminal conspiracy between the two, the object of which was
to illegally divert the funds of EEPC, totally amounting to Rs.7.75 crores
to the current account of HSM in Account No.1028, enabling the HSM to
obtain undue pecuniary advantage of the same and that the accused had
misused his official position as public servant by camouflaging the
transaction as securities transaction.

It is also established that the accused issued BRs in lieu of the physical
delivery of securities, when the securities were not available with the
Bank at all. The burden to prove that the BRs were not backed by the
physical securities is on the prosecution. However, it is a negative
burden to be discharged and it is therefore lighter burden to discharge.
The witnesses namely, PW 10 Pinjani and Mrs. Kini-PW 12 have stated that
they used to maintain register for sale and purchase of the securities.
But they did not state that there were securities physically available with
the bank when cost memos and BRS were issued by the accused. Investigating
Officer has spoken about no securities being physically available with the
bank. The evidence of Anjaria-PW 9 also indicates that no register of
Units 1964 Scheme was maintained either security-wise or broker clientwise.
This established non existence of securities where accused issued BRs to
back them. Above evidence is sufficient to discharge the burden. It is
pertinent to note that even it is not the defence that physical securities
were available to back the BRs. Therefore, it is established that BRs
were issued without the backing of physical securities and in lieu of
physical securities.

It is undisputed position that HSM was dealing in securities. DW 1 Atul
Parekh has spoken about the delivery orders having been issued from the
office of HSM in respect of all the three transactions and that those were
the transactions of HSM. He has also stated that the letter at Exhibit A-
2(3) was written by Girish Chandra-PW 3 to Pankaj Shah, along with this
letter he had also sent bankers’ cheques drawn in favour of the UCO Bank
for Rs.1 crore. Girish Chandra – PW3 has admitted to have written this
letter. He however, states that the cheque was issued in favour of the UCO
Bank and not in favour of HSM. The letter mentions about discussion with
Pankaj Shah and Girish Chandra-PW3 on 11.3.1991 regarding investment of
Rs.1 crore, for the period between 12.3.1991 and 22.3.1991 @ 14%. The
letter also mentions about reversal of the transaction on 22.3.1991 and
sending back the bankers cheque along with accrued interest. It is
submitted on behalf of the accused that this indicated that the transaction
was between EEPC and HSM as counter party. However, the fact remains that
the cheque of Rs.1 crore was not issued in favour of HSM but it was in
favour of UCO Bank only. It is further to be noted that EEPC had not
issued any instructions to UCO Bank for debiting the amount of Rs.1 crore
in the account of HSM. In absence of these details, it cannot be said that
HSM was the counter party or principal with whom EEPC had direct
transactions. On the contrary it indicated that the payment of the cheque
of Rs.1 crore was to be made to UCO Bank. If this; is so, at the most HSM
can be said to be only broker and nothing else. Even then the accused, on
receiving the cheques in respect of these three transactions, credited the
amount to the account of HSM, was totally illegal.

Under these circumstances, the accused could have credited the amount of
three cheques into the account of UCO Bank only and not in the account of
HSM. In this regard it is also vehemently submitted on behalf of the
accused that there is an indication from letter dated 12th March, 1991
written by Girish Chandra to Pankaj Shah, who was working in the office of
HSM that there were some talks between Girish Chandra- PW 3 and HSM with
regard to their short term investment and in respect of the said two
transactions also there appears to have been some talk between the two.
Even so, there is no evidence to indicate that EEPC or Girish Chandra-PW 3
for that matter, had direct dealing with HSM as a counter party or
principal. All the bankers’ cheques issued by EEPC through SBI were in
favour of the UCO Bank alone, without any further instruction to UCO Bank
for depositing those amounts in the account of HSM. There is no evidence
to show that the EEPC had direct transactions with HSM, as a counter party.
This being so, the accused did not have any authority to divert EEPC’s
funds to the account of HSM and in doing so he had committed illegality.
The accused similarly did not have any authority to act for or on account
of HSM with the EEPC as counter party. The contract note and delivery
orders issued by HSM, on the contract note and delivery orders issued by
HSM, on the contrary indicate that UCO Bank was principal. The cheques
issued by EEPC were also in favour of UCO Bank. Under the circumstances,
it was clear that the cheques issued by EEPC in favour of the UCO Bank were
in favour of the UCO Bank alone and were not to be transferred to anybody
else’s account, including HSM. Therefore, the accused had no authority to
transfer or divert EEPC’s funds to the account of HSM and, therefore, he
had committed illegality, obviously with an intention to give HSM undue
pecuniary advantage of those funds. These circumstances, therefore,
clearly establish the criminal conspiracy between the accused and HSM as
also. The object of illegally diverting the EEPC’s funds to the account of
HSM enabling HSM to obtain undue pecuniary advantage by the accused by
misusing his position as public servant by corrupt or illegal means,
showing the transactions to be the securities transactions of HSM
camouflaging the same as if the transactions were of UCO Bank.”

10. We have heard learned counsel for the parties.
11. The contentions raised on behalf of the appellant is that the
documents in question were prepared by Mehta and the money was handed over
by the EEPC to Mehta. No loss was suffered by the EEPC nor any gain was
made by the appellant. The appellant had no dishonest intention and acted
as officer of the Bank in routine.
12. Learned counsel for the CBI supported the impugned order.
13. The question for consideration is whether conviction of the appellant
is sustainable on the basis of evidence on record.
14. We find that the following facts are undisputed and clearly stand
established on the record :
“(i) The EEPC is functioning under the control of Ministry of Commerce to
help export of engineering goods and services. It was operating
International Price Reimbursement Scheme with a view to neutralize the
price of Steel for domestic exporters. It had funds for disbursement.
Further it had funds on account of sale of office. IPRS was being operated
by PW 3, Girish Chandra. He made a deposit of a sum of Rs.7.75 crores with
the UCO Bank by way of three cheques in favour of the UCO Bank.

(ii) The appellant acting as Assistant Manager of the UCO Bank
transferred the amount to the account of Mehta which was apparently in
collusion with Mehta without any authority by EEPC. He issued Bank
Receipts in lieu of physical delivery of securities without such securities
being in existence.

(iii) The EEPC never instructed purchase of securities through Mehta nor
allowed the transfer of the amount in question to Mehta but the EEPC was
made to sign documents under a mistaken belief at the instance of the
appellant.”

15. PW-3, Girish Chandra who represented the EEPC fully supported the
prosecution version of having made deposit with the Bank and having not
authorized the diversion of the said amount in favour of any private party.
The said evidence has been duly accepted by the Special Court. The
appellant unauthorisedly credited the amount to Mehta’s account by abusing
his position in conspiracy with Mehta. The accused also issued bank
receipts for security transactions without physical existence of securities
which amounted to forgery. It is thus, safe to infer the abuse of position
by the accused-appellant in conspiracy with and to the benefit of Mehta.
Diversion of public funds by the accused amounted to criminal breach of
trust by committing forgery/use of forged documents as well as offence
under the provisions of the Corruption Act. PW-10, Pinjani and PW-12, Mrs.
Kini who were maintaining register for sale and purchase of securities
could not show that the securities in question were physically available
with the Bank when the bank receipts were issued by the accused which could
be done only if securities were available. The Special Court thus rightly
held the charge to be proved. It was not necessary to prove that the
accused had derived any benefit or caused any loss to the Bank. The fact
remains that action of the appellant involved unauthorized conversion of
public funds to private funds of an individual. Issuing of Bank receipts
for securities without existence of securities could not be justified
except for illegal benefit to a private individual. Patent illegality
cannot be defended in the name of practice or direction of higher
authorities. Mens rea is established from the fact that false Bank
Receipts were issued for non-existent securities.
16. Thus, the offences of conspiracy, forgery, misappropriation and
corruption stand established. It is not necessary to discuss the
ingredients of the said offences in detail as the matter has been gone into
earlier by this Court in respect of the appellant himself in the reported
judgment in Ram Narayan Popli (supra). We may only quote the conclusions
arrived at in the said case:

“About the offence of conspiracy :

356. After referring to some judgments of the United States Supreme Court
and of this Court in Yash Pal Mittal v. State of Punjab [(1977) 4 SCC 540]
and Ajay Aggarwal v. Union of India [(1993) 3 SCC 609] the Court in State
of Maharashtra v. Som Nath Thapa [(1996) 4 SCC 659] summarized the
position of law and the requirements to establish the charge of conspiracy,
as under: (SCC p. 668, para 24)

[pic]”24. The aforesaid decisions, weighty as they are, lead us to conclude
that to establish a charge of conspiracy knowledge about indulgence in
either an illegal act or a legal act by illegal means is necessary. In some
cases, intent of unlawful use being made of the goods or services in
question may be inferred from the knowledge itself. This apart, the
prosecution has not to establish that a particular unlawful use was
intended, so long as the goods or service in question could not be put to
any lawful use. Finally, when the ultimate offence consists of a chain of
actions, it would not be necessary for the prosecution to establish, to
bring home the charge of conspiracy, that each of the conspirators had the
knowledge of what the collaborator would do, so long as it is known that
the collaborator would put the goods or service to an unlawful use.” [See
State of Kerala v. P. Sugathan [(2000) 8 SCC 203] (SCC p. 212, para 14)]
358. Much has also been submitted that repayment has been made. That itself
is not an indication of lack of dishonest intention. Sometimes, it so
happens that with a view to create confidence the repayments are made so
that for the future transactions the money can be dishonestly
misappropriated. This is a part of the scheme and the factum of repayment
cannot be considered in isolation. The repayment as has been rightly
contended by the Solicitor-General can be a factor to be considered while
[pic]awarding sentence, but cannot be a ground for proving innocence of the
accused.

xxxxxxxxxx

About the offence of criminal breach of trust :

361. To constitute an offence of criminal breach of trust, there must be an
entrustment, there must be misappropriation or conversion to one’s own use,
or use in violation of a legal direction or of any legal contract; and the
misappropriation or conversion or disposal must be with a dishonest
intention. When a person allows others to misappropriate the money
entrusted to him, that amounts to a criminal breach of trust as defined by
Section 405. The section is relatable to property in a positive part and a
negative part. The positive part deals with criminal misappropriation or
conversion of the property and the negative part consists of dishonestly
using or disposing of the property in violation of any direction and of law
or any contract touching the discharge of trust.

xxxxxxxxxx

About the offence of forgery :

374. In order to constitute an offence of forgery the documents must be
made dishonestly or fraudulently. But dishonest or fraudulent are not
tautological. Fraudulent does not imply the deprivation of property or an
element of injury. In order to be fraudulent, there must be some advantage
on the one side with a corresponding loss on the other. Every forgery
postulates a false document either in whole or in part, however small.

xxxxxxxxx

377. The accused persons have tried to take shelter behind what they have
described as “market practices”. Such practices even if existing, cannot
take the place of statutory and regulatory functions. There is no public
interest involved in such practices and they cannot be a substitute for
compliance with the regulatory or statutory prescriptions. An attempt was
made to show that there was subsequent disapproval of the market practices;
at the point of time when the transactions took place there was no embargo.
It is their stand that the practices were a part of accepted norms. We do
not find anything plausible in these explanations. A practice even if was
prevailing, if wrong, is not to be approved. The subsequent clarifications
do not in any way put seal of approval on the practices adopted in the
past, on the other hand it condemns it.

xxxxxxxxxxx

About the Corruption Act :

379. Section 13(2) of the PC Act is intended to deal with aberrations of
public servants. In view of the finding that A-1, in furtherance of
criminal conspiracy, in his capacity as a public servant abused his
position by causing and/or allowing MUL’s funds to be utilized for the
wrongful gain of A-5, provisions of Section 13(1)(c) read with Section
13(2) are clearly applicable. Similar is the position
vis–vis A-3.”

17. In view of above, we are unable to interfere with the conviction of
the appellant. The same is affirmed. However, having regard to totality
of circumstances, we are of the view that ends of justice will be met if
sentence of imprisonment is reduced to the period already undergone. We
order accordingly.
18. The appeal is disposed of.

……………………………………………………….J.
(SUDHANSU JYOTI MUKHOPADHAYA)
……………………………………………………….J.
(ADARSH KUMAR GOEL)

NEW DELHI
DECEMBER 2, 2014

———————–
[1] (2003) 3 SCC 641

———————–
30

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