S. Mohan vs Central Bureau Of Investigation

Securities) Act, 1992 (for short `the said Act') are filed by

Accused No. 3 and 4 in Special Case No. 7/1994, being

aggrieved by the Judgment and Order dated

6th/7th/13th/14th August, 1998 convicting and sentencing

them.

2

2. These two appellants were tried alongwith two other

accused persons by the Special Court (Trial of Offences

Relating to Transactions in Securities) at Bombay and by

Judgment dated 14th August, 1998, these appellants were

found guilty of various offences. The appellant in Criminal

Appeal No. 906 of 1998 (third accused - S. Mohan) was

found guilty of offence punishable under Section 409 IPC

and was sentenced to undergo rigorous imprisonment for

seven years and a fine of Rs. 1 lakh, and with default,

sentence for a period of one and a half year. He was also

found guilty of the offences punishable under Sections 13(1)

(c ) and 13(1) (d) read with Section 13(2) of the Prevention of

Corruption Act and for this offence he was sentenced to

undergo rigorous imprisonment for a period of five years

and a fine of Rs. 50,000, in default of payment of fine,

sentence for a period of one year. He was also found guilty

of the offence punishable under Section 411 read with

Section 120B IPC and sentenced to undergo two years RI

and a fine of Rs. 50,000/- and in default sentence for six

months. The appellant in Criminal Appeal No. 910 of 1998

(fourth accused- Hiten P. Dalal) was found guilty of offences 3 punishable under Section 409 read with Section 120B IPC

and sentenced to undergo seven years rigorous

imprisonment and a fine of Rupees 1 lakh and with default,

sentence for a period of one and half years. He was also

found guilty of an offence punishable under Section 411

IPC and was sentenced to undergo imprisonment for a

period of two years and a fine of Rs, 50,000/-, and in

default, sentence for a period of six months. The sentences

were to run concurrently. The special court acquitted

accused 1 and 2.

3. In the year 1992, certain irregularities were detected

in various security transactions that had taken place

between certain financial institutions. The Reserve Bank of

India constituted a Committee known as "Janakiraman

Committee" to look into the real nature of these

transactions and to find out if any fraud or financial

irregularities had taken place in these transactions. It

appears that in the course of the enquiry by the

"Janakiraman Committee", it was found that large scale

irregularities and malpractices were noticed in transactions 4 both in the Government and other securities, indulged in by

some brokers in collusion with the employees of various

banks and financial institutions. It was noticed that these

irregularities and malpractices had led to the diversion of

funds from banks and financial institutions to the

individual accounts of certain brokers. The Central Bureau

of Investigation(CBI) made enquiries generally regarding all

security transactions and it seems that the CBI after

investigation of the case filed a report against four accused

before the Special Court alleging that these accused were

responsible for causing loss of Rs. 33 crores to Canara

Bank and various other allegations were also made against

these accused. Accused No. 1 was the Executive Vice

President and Chief Dealer, Accused No. 2 was the Asst.

Vice President and Accused No. 3 was the Asstt. Vice

President and Dealer, of Canbank Financial Services Ltd. at

the relevant point of time. Accused No. 4 was a Share and

Securities Broker.

5

4. Andhra Bank is a nationalized Bank and Andhra Bank

Financial Services Limited is a company wholly owned by

the Andhra Bank. Canara Bank is also a nationalized bank

and Canara Bank Mutual Fund (CBMF) is a Trust created

by the Canara Bank. The Canara Bank was the chief

trustee of the trust-CBMF. Canbank Financial Services

Limited(`CANFINA' for short) is a subsidiary company of

Canara Bank. The Chairman and the Managing Director of

Canara Bank was also the Chairman of Canbank Financial

Services Limited. The Managing Director of CANFINA was a

person deputed by Canara Bank and the Executive Director

also was appointed by Canara Bank. The trust, namely,

Canbank Mutual Fund under a scheme prepared by it

issued units known by the name "CANCIGO" in the shape

of credit sheets which provided a fixed rate of interest with a

stipulation that these credit sheets may not be transferred

for a period of one year. The CANCIGO Units could be

encashed only after the completion of this lock-in period of

one year from the date of issue. The scheme was operated

under the Rules framed by Canbank Mutual Fund. One of

the rules so framed imposed a restriction on the transfer of 6 these units but it permitted transfer of units to the heirs in

case of death of the holder and also in special

circumstances.

5. On August 28, 1991, Accused No. 4 wrote to Andhra

Bank enclosing an application form for CANCIGO Units

worth Rs. 11 crores requesting the Bank to sign the

application on his behalf. On August 29, 1991, Andhra

Bank Ltd. applied to the Canbank Mutual Fund, at the

request of the appellant Hiten P. Dalal, for the purchase of

CANCIGO Units of the face value of Rs. 11 crores. A cheque

drawn by the appellant Hiten P. Dalal for the sum of Rs. 11

crores was sent alongwith the application. The application

was signed by one Dhankumar on behalf of Andhra Bank

Ltd. Similarly, on Sepetember 14, 1991, the same appellant

Hiten P. Dalal through Andhra Bank Financial Services

Limited requested for purchase of CANCIGO Units of the

face value of Rs. 22 crores alongwith the application and a

cheque drawn by appellant Hiten P. Dalal for Rs. 22 crores

on his account with Andhra Bank. On the basis of these

two applications, Canbank Mutual Fund issued two credit 7 sheets of the units of CANCIGO one in the name of Andhra

Bank for Rs. 11 crores and the other in the name of Andhra

Bank Financial Services Limited for Rs. 22 crores. Though

these two credit sheets were issued on the basis of the

cheques drawn by the appellant Hiten P. Dalal, the credit

sheets were issued in the name of Andhra Bank and

Andhra Bank Financial Services Limited, respectively as

they had signed the application forms.

6. According to the prosecution, the appellant Hiten P.

Dalal who was a stocks and securities broker was indebted

to CANFINA in a sum of Rs. 25,01,67,129/-. It appears

that the appellant Hiten P. Dalal offered to sell the

CANCIGO Units of the face value of Rs. 33 crores to

CANFINA to square up his dues in the sum of Rs.

25,01,67,129/-. According to the presecution, accused 1 to

3 entered into a transaction with the appellant Hiten P.

Dalal who was the fourth accused, to purchase the

CANCIGO Units of the face value of Rs. 33 crores standing

in the name of Andhra Bank and Andhra Bank Financial

Services Limited though there was no letter of authority or 8 consent for such sale from either Andhra Bank or Andhra

Bank Financial Services Limited. The prosecution alleged

that these transactions were entered into by accused 1 to 3

on behalf of CANFINA knowing fully well that these

CANCIGO Units were not transferable and the appellant

Hiten P. Dalal was not competent to deal with them. The

prosecution alleged that after adjusting the amount due

from the appellant Hiten P. Dalal, a cheque was issued for

the balance amount of Rs. 7,98,32,871/- drawn in the

name of Andhra Bank with a letter to the Andhra Bank to

credit the proceeds of the cheque to the account of Hiten P.

Dalal. The prosecution alleged that by this method the

appellant Hiten P. Dalal thus got his debt to the tune of Rs,

25,01,67,129/- due to CANFINA wiped out and got a sum of

Rs. 7,98,32,871/- from CANFINA, even though CANCIGO

Units were not transferable and could not be transferred to

the name of CANFINA.

7. It is in this background all the four accused were

charged with having entered into a criminal conspiracy for

committing the offence of cheating and criminal breach of 9 trust and falsification of accounts and the offences under

Section 13(1)(c) and 13(1)(d) read with 13(2) of the

Prevention of the Corruption Act.

8. Under the Special Courts (Trial of Offences Relating to

Transactions in Securities) Act, 1992, Special Court was

established for the speedy trial of cases relating to

transactions in securities and disposal of properties

attached. The Special Court declared accused Hiten P.

Dalal as a "notified person" under this Act. Before the

Special Court, the Custodian made an application that

CANFINA be ordered to handover to him, the CANCIGO

Units worth Rs. 33 crores with accrued interest thereon.

The Custodian contended that Accused No. 4 could not

have transferred the CANCIGO Units which were not

standing in his name and the entire transaction was tainted

with illegality. He contended that therefore, no title was

transferred to CANFINA; and that as title remained with

Accused No. 4, he was entitled to the said CANCIGO Units.

Before the Special Court, the appellant Hiten P. Dalal and

the Andhra Bank and the Andhra Bank Financial Services 10 Limited did not make any claim in regard to the CANCIGO

Units. The Canbank Financial Services Limited claimed

before the Special Court that the CANCIGO Units covered

under the two certificates issued by CBMF were properties

belonging to them. The Special Court by order dated

22.9.1993, allowed an application filed by the custodian

and that Order was challenged before this Court. By the

judgment of this Court reported as Canbank Financial

Services Ltd. Vs. Custodian (2004) 8 SCC 355, it was

finally held that the CANFINA was entitled to succeed on

the transfer of CANCIGO Units of the value of Rs. 33 crores

in favour of CANFINA was legal and valid. It was also held

that CBMF must be presumed to have issued the CANCIGO

Units in the names of Andhra Bank and Andhra Bank

Financial Services with full knowledge that they would

enure to the benefit of Hiten P. Dalal; and therefore, the

transfer of CANCIGO Units in favour of CANFINA was valid

and legal as by reason of the transfer of possession of

CANCIGO Units in favour of CANFINA, a valid right has

been created therein and the same could not be attached in

terms of Section 3(3) of the said Act. The entire finding of 11 the Special Court in this case is to be appreciated in the

light of the decision rendered by this Court in Canbank

Financial Services Ltd. case(supra).

9. These two appellants were found guilty by the Special

Court mainly on the ground that the CANCIGO Units issued

by CBMF of the face value of Rs. 33 crores stood in the

name of the Andhra Bank and Andhra Bank Financial

Services Limited and the appellant Hiten P. Dalal was not

entitled to get transfer of these CANCIGO Units and that the

appellant S. Mohan (in Criminal Appeal No. 906 of 1998)

was instrumental in such transaction and thus entered into

a conspiracy with the accused no. 4. Both the appellants

have been found guilty of offences punishable under

Section 406 namely, Criminal Breach of Trust. It is

important to note that, in the instant case, there was no

complaint either by the Andhra Bank or the Andhra Bank

Financial Services Limited that these appellants committed

any criminal breach of trust. "Criminal Breach of Trust"

has been defined under Section 405 Indian Penal Code as

under:

12 "Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits "criminal breach of trust.

XXXX

Section 409 IPC deals with criminal breach of trust by

public servant, or by banker, merchant or agent.

10. Here, the CANCIGO Units stood in the name of the

Andhra Bank and Andhra Bank Financial Services Limited.

They apparently entrusted this property to accused no. 4

and allowed him to encash the same. In fact, Accused No. 4

had paid the consideration for purchasing the CANCIGO

Units in the names of Andhra Bank and Andhra Bank

Financial Services Ltd. It is true that if a person entrusted

with property dishonestly misappropriates that property,

such misappropriation in violation of any direction of law

prescribing the mode in which such trust is to be 13 discharged, or of any legal contract which the person has

made in regard to discharge of such trust, will be guilty of

criminal breach of trust. According to the prosecution, both

these appellants acted contrary to the express condition

that these CANCIGO Units were not liable to be transferred

within a period of one year and in spite of this, the Andhra

Bank as well as Andhra Bank Financial Services Limited

transferred the units in favour of the appellant Hiten P.

Dalal and enabled him to encash the CANCIGO Units with

the connivance of appellant S. Mohan and that constituted

the offence of Criminal Breach of Trust. It was alleged that

Accused No. 3 while employed by CANFINA, obtained for

Accused No. 4, a pecuniary advantage of Rs. 33 crores by

illegally purchasing CANCIGO Units and committed

criminal breach of trust in regard to the employer's funds of

Rs. 33 crores. It is important to note that these Units were

issued by CBMF. They had imposed restrictions regarding

transfer of CANCIGO Units. They have not filed any

complaint alleging that transfer of these Units by appellant

Hiten P. Dalal was contrary to rules. There is no express

law or statutory rules prohibiting the transfer of CANCIGO 14 Units except the terms of the scheme framed by CBMF.

They are not statutory rules and purely contractual. It is

also pertinent to note that neither the Andhra Bank nor the

Andhra Bank Financial Services Limited filed any complaint

alleging that the appellant Hiten P. Dalal acted contrary to

their directions. Nor did CANFINA complain that appellant

S. Mohan had committed criminal breach of trust in regard

to these transactions of CANCIGO Units. This Court in

Canbank Financial Services Ltd. case(supra) held (at para

38, 39, 40 and 41) as follows:

The Rules and Regulations framed by Canbank Mutual Fund in relation to the issuance of CANCIGO certificates do not have any statutory backing. The CANCIGOs had a lock-in period of one year which means that the holder thereof must not encash the securities within the aforementioned period. The question as regards the non-transferability of the units will have to be construed upon reading the Scheme in its entirety and in particular Condition 22 thereof, inn terms whereof the trustees were not required to maintain any register of CANCIGO-holders. In terms of Condition 24, the person whose name is shown in a CANCIGO certificate would be the only person to be recognized by the trustees as the holder of such CANCIGO and as having any right, title or interest in or to such securities. No trust created was also to be recognized.

Condition 19 creating a bar on transfer has to be construed in the aforementioned context. The bar on 15 transfer created was to have the effect that the same would not be binding on Canbank Mutual Fund as it was not bound to take any notice thereof and only the holder shall be recognized as having the right, title or interest on the CANCIGO............ CANCIGOs indisputably are valuable securities. They are otherwise capable of being transferred in terms of the established business practice, the Sale of Goods Act or the Transfer of Property Act. No legal bar has been created in transfer of the said securities. The scheme, thus, does not and could not have created an absolute legal bar on transfer of the CANCIGOs so as to invalidate the same.

The rules and regulations framed by Canbank Mutual Fund and the notes appended to the CANCIGO credit sheet differ in material particulars. Rules and regulations explain as to why an embargo on transfer has been placed i.e. not to recognize Respondent 2 for the dividends or for other liabilities arising out of transfer. A transfer violating the rules and regulations would only have the effect of the same being not binding on Canbank Mutual Fund. No other legal consequence flows therefrom. We have also noticed that the brochure merely states that the transfer is not permitted but provisions exist for grant of such permission. The appellant Bank as well as Canbank Mutual Fund are the subsidiaries of Canara Bank. The appellant cannot be estopped from raising either a limited or absolute title in them keeping in view the fact that they had paid a sum of 33 crores of rupees by way of consideration for transfer of interest of Respondent 2 herein in the said CANCIGOs." (The respondent 2 referred to as the present appellant Hiten P. Dalal)

11. It is not disputed that CANCIGO Units worth Rs. 33

crores were purchased by Andhra Bank or Andhra Bank 16 Financial Services Limited by making use of the money

owned by the appellant Hiten P. Dalal. These two financial

institutions impliedly agreed to lend their name and allowed

the appellant Hiten P. Dalal to purchase CANCIGO Units in

their name. It is also important to note that interest due on

the CANCIGO Units worth Rs. 33 crores received from

CBMF by Andhra Bank and Andhra Bank Financial

Services Ltd. were credited to the account of the appellant

Hiten P. Dalal. Therefore, it is clear for all practical

purposes that the CANCIGO Units worth Rs. 33 crores were

purchased by the appellant Hiten P. Dalal and he

transferred these units to CANFINA and CBMF did not raise

any objection in respect of transfer of the CANCIGO Units

by the appellant Hiten P. Dalal. If at all, it was for the

CBMF to raise any objection but they did not raise any

objection for the transfer of the CANCIGO Units. It has

been held by this Court in Canbank Financial Services Ltd.

(supra) that the custodian was not entitled to get the value

of the CANCIGO Units and that the CANFINA had a just

right to possess the CANCIGO Units to the exclusion of

Hiten P. Dalal. It is also not in dispute that CANFINA had 17 succeeded in getting the proceeds of these CANCIGO Units.

Therefore, no offence of Criminal Breach of Trust is

committed by the appellant Hiten P. Dalal. He has not

acted contrary to the direction of any person who has

entrusted these units to him and it is proved that it was the

appellant Hiten P. Dalal himself who was the apparent

owner of these units.

12. As regards appellant S. Mohan who was one of the

Asst. Vice- Presidents of CANFINA, the prosecution case is

that he had telephonically informed PW 6 Mr. Vernekar to

accept the CANCIGO Units. PW 6 Vernekar is an Officer of

the Canara Bank who had been authorized by the Board

Resolution to deal in Securities/Bonds and execute

securities transactions on behalf of CANFINA. He deposed

that he used to receive telephonic instructions from

Bangalore and recorded these instructions in rough

transaction sheets. He has proved the rough transaction

sheets including the rough transaction sheet on which Ex-

51A has been noted. PW-6 deposed that the Entry

pertaining to purchase of CANCIGO Units of the face value 18 of Rs. 33 crores from accused No. 4 was made on the basis

of the instructions received from accused no. 3, namely,

appellant S. Mohan. He also deposed that the appellant S.

Mohan sent an Inter Branch Advice No. 32894 by which the

funds were transferred from Bangalore to Bombay in order

to facilitate the payment. He deposed that the date 6th

February 1992 was written because CANFINA Bangalore

had purchased CANCIGO Units of face value of Rs. 33

crores on 6th February 1992. He also deposed that

appellant S. Mohan had told him that a sum of Rs.

25,01,67,129/- was recoverable from accused no. 4 against

some transactions and that this amount was to be adjusted

against the transaction of purchase of CANCIGO Units of

face value of Rs. 33 crores. All these evidence would only

show that the appellant S. Mohan was involved in the

transaction. The prosecution could not prove that there

was any illegality in these transactions. The only illegality

pointed out by the learned Counsel for the CBI is that these

CANCIGO Units were not liable to be transferred and the

Andhra Bank and Andhra Bank Financial Services Limited

could not have transferred it to the appellant Hiten P. Dalal. 19 So long as the CANFINA has no grievance or complaint

against the appellant S. Mohan that he acted contrary to

their directions and accepted the CANCIGO Units and paid

the money to the appellant Hiten P. Dalal, no offence is

made out against the appellant S. Mohan either of Criminal

Breach of Trust or conspiracy. In fact, PW 1 (Mr. Kini,

Executive Vice President) has admitted that CANFINA used

to regularly deal in CANCIGO Units, that neither the Audit

nor RBI made any remarks regarding transactions relating

to CANCIGO Units and all the transactions relating to

CANCIGO Units were in the ordinary course of business.

Neither Canara Bank nor CANFINA had initiated any

disciplinary proceedings against him. They have also not

disputed the genuineness of the CANCIGO Units which

were got encashed by the appellant Hiten P. Dalal.

13. The Managing Director of CANFINA (K.N. Kamath) was

examined as PW 16. He admitted that CANFINA did not file

any complaint with CBI regarding purchase of CANCIGO

Units of Rs. 33 crores; that according to CANFINA, the

CANCIGO Units were purchased for valuable consideration 20 in the normal course of business; that CANFINA stood by

the transactions of purchase of CANCIGO Units of Rs. 33

crores; that CANFINA was not induced to purchase the

CANCIGO Units of Rs. 33 crores by any false

representation.

14. In the circumstances, no ingredient of criminal breach

of trust is made out against either of the appellants.

15. The prosecution also could not prove any conspiracy

by these accused persons to commit any criminal acts. So

long as there was no such evidence, the offence of

conspiracy is not proved against these appellants.

16. The appellant Hiten P. Dalal has been found guilty for

the offence punishable under Section 411 alleging that he

dishonestly received the stolen property or retained the

same. No ingredients of this offence have been proved

against him. So long as the prosecution admits that the

CANCIGO Units worth Rs. 33 crores were purchased by

making use of the money owned by him, they were not 21 stolen property in the hands of the appellant Hiten P. Dalal.

Neither, the Andhra Bank nor the Andhra Bank Financial

Services Limited has any case that these CANCIGO Units

were stolen by the appellant Hiten P. Dalal. As the offence

of Criminal Breach of Trust is also not made, the conviction

of the appellant under Section 411 is not sustainable and is

liable to be quashed. So also, the appellant S. Mohan is not

liable for the conspiracy to commit offence under Section

411 IPC.

17. The appellant S. Mohan has been found guilty of

offence punishable under Section 13(1) ( c) and 13 (1) (d)

read with Section 13(2) of the Prevention of Corruption Act.

This appellant was one of the Asstt. Vice-Presidents of the

CANFINA dealing with CANCIGO Units. There is no

allegation that he committed any illegality. The allegation

against him is to the extent that he accepted the CANCIGO

Units though they stood in the name of the Andhra Bank

and Andhra Bank Financial Services Limited. These

CANCIGO Units were worth Rs. 33 crores and they were

accepted with the proper authorization by the higher 22 authorities in the CANFINA. It is highly improbable to

believe that appellant S. Mohan on his own decided to

accept CANCIGO Units worth Rs. 33 crores without any

instructions. CANFINA did not file any complaint alleging

any unauthorized transaction carried out by him. Now it

has been held by this Court that the entire transaction was

legal and the CANFINA was entitled to the proceeds of these

CANCIGO Units and not the "Custodian" under the Act.

Therefore, the appellant S. Mohan is not guilty of the

offence punishable under Section 13(1) (c ) and 13(1) (d)

read with Section 13(2) of the Prevention of Corruption Act.

18. The appeals filed by both the appellants are allowed.

The accused are not liable for any other offences and they

are acquitted of all the offences charged against them.

Their bail bonds stand cancelled.

...........................CJI (K.G. BALAKRISHNAN)

...............................J. (R.V. RAVEENDRAN) 23 ...............................J. (J.M. PANCHAL)

New Delhi May 16, 2008.