The Supreme Court has set aside the conviction of a former Indian Bank branch manager in a decades-old loan fraud and corruption case, holding that the prosecution case was “fabricated” and unsupported by reliable evidence.
The Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran granted the accused a clean acquittal and sharply criticised the Central Bureau of Investigation for failing both to frame and prove its allegations.
The former branch manager had been charged under Section 420 of the Indian Penal Code, read with Section 120B, and under Section 13(2), read with Section 13(1)(d), of the Prevention of Corruption Act, 1988. His conviction had been upheld by the High Court, prompting him to approach the Supreme Court.
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The prosecution alleged that the appellant, arrayed as Accused No. 1, had acted in connivance with Accused No. 2, a retired Indian Overseas Bank officer, while sanctioning loans in favour of two borrowers.
According to the prosecution, one borrower was a washerman who worked at the residence of Accused No. 2. It was alleged that he had been portrayed as a real estate businessman and recommended for a loan of ₹13.50 lakh. The appellant was also accused of hurriedly permitting the disbursal of ₹3.30 lakh even before the loan was formally sanctioned.
The prosecution further alleged that a loan of ₹10 lakh was sanctioned to another borrower for purchasing 21.39 acres of land. A property appraiser engaged by Indian Bank was accused of issuing an inflated valuation certificate, which allegedly facilitated the sanction of the loan.
The prosecution claimed that although the loans stood in the names of the two borrowers, the amounts were actually received and appropriated by the retired bank officer. Reliance was placed on purported signatures appearing on the reverse of certain cheques issued towards the loan disbursements.
Of the five persons originally arrayed as accused, two died before charges could be framed. The trial against another accused was separated because he was bedridden, and he was subsequently stated to have died. The trial eventually proceeded against the appellant and one other accused, who was acquitted.
After examining the evidence, the Supreme Court found that the prosecution’s case against the former branch manager was contradicted by the testimony of Indian Bank’s own officials.
The officer who had granted sanction for the appellant’s prosecution admitted during cross-examination that the loans in question had been sanctioned by the Assistant General Manager of Indian Bank’s Regional Office at Madras North.
Another senior bank official similarly confirmed that the loans had received approval from the Regional Office. In relation to the ₹10 lakh loan, the evidence showed that ₹8 lakh was sanctioned at the first stage and the remaining ₹2 lakh at the second stage.
The overdraft facility granted to the other borrower had also received approval from the Regional Office. Communications exchanged between the Anna Nagar Branch and the Regional Office were produced during the trial.
The Supreme Court consequently found that although the appellant’s involvement in processing the loans stood established, the evidence also demonstrated that the competent Regional Office had approved the facilities.
The Court found a serious evidentiary deficiency in the prosecution’s attempt to prove that the loan proceeds had been received by Accused No. 2.
The prosecution relied on signatures appearing on the reverse of several cheques, but it was unclear how those signatures had been identified as belonging to the retired bank officer. No document containing his contemporaneous or admitted signature was produced for comparison.
The prosecution had examined two retired Indian Overseas Bank officials who had worked with the alleged recipient. However, no attempt was made to show them the disputed signatures and ask whether they could identify them.
The Bench also noted that some of the cheques had been identified as having been received by the borrowers themselves and another individual. Against this evidentiary background, the claim that the loan proceeds had been diverted to Accused No. 2 was not satisfactorily established.
The Supreme Court was critical of several other aspects of the evidence led during the trial.
Two retired Indian Overseas Bank officials were examined to establish that they had not leased certain premises to the borrowers. The Court said it was unable to understand why this evidence had been introduced. It presumed that the prosecution was attempting to dispute the addresses mentioned in the loan applications, but the relevant bank officials had not testified about those addresses. No evidence establishing ownership of the premises was produced either.
Another prosecution witness, who was engaged in the furniture business, testified that Accused No. 2 had introduced him to the appellant and that the appellant had promised him a loan that was never granted. The Supreme Court described this evidence as “absolutely irrelevant,” observing that the trial was not meant to determine the appellant’s general character or conduct.
Several other witnesses testified about land transactions involving Accused No. 2 and denied selling property to the two borrowers. The Court, however, found that the evidence did not clearly disclose in whose names the relevant sale deeds had been executed.
Only photocopies of certain deeds were produced. Neither the original title deeds nor certified copies relating to the transactions were placed before the trial court. The title deeds for the properties actually mortgaged to Indian Bank were also not produced.
The Court said that, at its highest, the testimony merely indicated that Accused No. 2 was involved in purchasing real estate, sometimes on behalf of others. Such activity did not establish the appellant’s involvement in any offence. The Bench underlined that carrying on a real estate business was not illegal.
An Assistant Commissioner of Income Tax was examined to dispute an introduction recorded in the account-opening form of one of the borrowers. The officer denied knowledge of the introduction.
The Supreme Court noted, however, that the communication had purportedly originated from the office of Indian Bank’s Managing Director and stated that the applicant was known to the Income Tax officer. The person named in the communication from the Managing Director’s office was never examined by the prosecution.
The Court found that this unexplained gap further weakened the prosecution’s case.
The Supreme Court also rejected the conclusion that the mortgaged properties had been grossly overvalued when the loans were granted in 1991-92.
Only one valuation certificate was produced by the prosecution. No contemporaneous sale deeds, government guideline values or other material showing the actual market value of the mortgaged properties at the relevant time was placed on record.
The properties were ultimately auctioned in 2010, almost two decades after the loans had been granted. The Supreme Court observed that the Trial Court and the High Court had presumed, merely from the value realised in 2010, that the properties must have been worth substantially less when the loans were sanctioned.
The Bench held that such a conclusion could not be sustained in the absence of contemporaneous valuation evidence.
The evidence showed that Indian Bank had recovered its entire outstanding dues by auctioning the mortgaged properties.
One property connected with a borrower was sold for ₹1.17 crore, from which loan arrears of approximately ₹16.42 lakh were adjusted. In the case of the other borrower, mortgaged properties fetched ₹2.42 crore, while approximately ₹5.35 lakh was appropriated towards the outstanding loan account.
Another property was reportedly auctioned for ₹34.50 lakh. The official evidence indicated that the amounts realised from the auctions were substantially higher than the sums required to satisfy the loan accounts.
The Supreme Court expressed surprise that the excess money continued to remain with Indian Bank and that no apparent effort had been made to identify the legal heirs of the borrowers and return the surplus amount.
The Bench concluded that the prosecution had failed to establish that the borrowers were merely domestic employees used as fronts, that the loan amounts were appropriated by Accused No. 2, that the mortgaged properties were deliberately overvalued, or that the appellant had illegally sanctioned the loans.
Describing these allegations as “figments of imagination,” the Court held that the CBI had “failed miserably” not only in proving its case but also in properly framing it.
The Court observed that there was no incriminating circumstance against the property appraiser either. The evidence regarding real estate purchases did not establish criminality on the part of any of the accused.
“We are clear in our minds that the prosecution case set up is fabricated and has no legs to stand,” the Bench declared.
The Supreme Court set aside the judgments of both the Trial Court and the High Court.
The Court directed that the appellant be released immediately if he was in custody and was not required in any other case. If he had already been released on bail, his bail bonds would stand cancelled.
The Bench expressly clarified that it was granting the former branch manager a “clean acquittal” from all the allegations raised by the prosecution.
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