Holding

The agreement to commit a crime is essential for conspiracy, and it can be proved by circumstantial evidence; the accused A1, A3, and A5 were guilty of conspiracy and related offences, but A4 was not proved guilty, and A2's acquittal was proper.

Summary

The case involved five financial transactions between Maruti Udyog Ltd (MUL), a government company, and Harshad S. Mehta (A5), a broker, routed through banks. The CBI alleged that the accused conspired to divert MUL's surplus funds to A5 through fraudulent transactions. The Special Court convicted A1, A3, A4, and A5, acquitting A2. On appeal, the Supreme Court upheld the convictions of A1, A3, and A5, but reduced the sentences of A1 and A3 to the period already undergone, and acquitted A4. The Court held that the transactions were a facade to misappropriate public funds, and that market practices cannot override statutory requirements. The Court also dismissed the CBI's appeal against A2's acquittal.

Issues considered

Whether the criminal conspiracy was proved against the accused.
Whether the accused committed criminal breach of trust, cheating, and forgery.
Whether the Special Court had jurisdiction over the transactions.
Whether the evidence of the approver was reliable and sufficient.
Whether the accused were entitled to acquittal on the grounds of market practices and repayment.

Legislation cited

Indian Penal Code, 1860s. 120B, s. 403, s. 409, s. 420, s. 467, s. 471
Prevention of Corruption Act, 1988s. 13(1)(c), s. 13(2)
Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992s. 3(2)

Subjects

criminal conspiracycriminal breach of trustcheatingforgeryeconomic offencesmarket practicesSpecial Court ActPrevention of Corruption Act

Judgment

RAM NARAIN POPLI A
v.
CENTRAL BUREAU OF INVESTIGATION

JANUARY 14, 2003

[M.B. SHAH, B.N. AGRAWAL AND ARIJIT PASAYAT, JJ.] B

Penal Code, 1860; Sections 120B rlw Ss. 403, 409, 420, 467 and 4711
Special Court (Trial of Offences relating to Transactions in Securities) Act,
1992.
c
Financial transactions between Govt. Company, banks and brokers-
Irregularities therein-CB/filed cases against/we accused under the provisions
of Special Court Act-Misappropriation ofpublic funds, charges of cheating,
criminal breach of trust, criminal conspiracy and abuse of public offices-
Special Court convicted all except one of the accused -On appeal-Held, D
Agreement to commit crime is essential ingredient and overt act not necessary--
Criminal conspiracy-Direct evidence is rarely available, circumstantial
evidence proves complicity of accused in the crime-In the facts and
circumstances ofthe case, accused Bank employees intended to hide informaJion
about involvement of accused-broker in the financial transactions ta provide
benefit to him, which goes to prove conspiracy amongst the accused-Economic E
Offences.

Criminal breach of trust-Entrustment ofproperty, conversion to one's
own use or use in violation of law with dishonest intention-Necessary
ingredients established by the acts and =onduct of some of the accused-
Hence, they are rightly convicted for offence of criminal breach of trust. F
Forgery-Some of the accused found involved in making false Bank
Receipts and other documents with the intention to cause injury to Government
Company -Hence committed forgery.

Cheating-Some ofthe accused by their conduct impliedly inferredfrom G
the nature of transactions acted fraudulently and dishonestly to induce Govt.
company/banks in delivering valuable security/property-Hence committed the
offence of cheating.

Market practices-Approval of-Held, a wrong practice even though H
119
120 SUPReME COURT REPORTS [2003] I S.C.R.

A prevailing, cannot be treated as approved practice-Since no public interest
is involved, such a p>"(!ictice cannot be a substitute for Statutory & Regulatory
prescriptiott:S.

Prevention of Corruption Act, 1986; Ss. 13(J)(c) r/w S. 13(2): Public
Servant-Acts of Corruption-Involvement-Held, some of the accused-public
B servants, in jurtl#!r'ance of criminal conspiracy, abused their position by
causing!alif>wing the funds ofGovernment Company to be utilizedfor wrongful
gain of accused-broker-Hence provisions of Sections 13(1)(c) and 13(2)
attracted

Words and Phmses:
c
'Entru.stment' and 'Market practices'-Meaning of

Central Bureau of Investigation filed a case before the Special Court
under the provisions of Special (Trial of Offences relating to Transactions
D in Securities), Act, 1992 against accused Nos. 1 to S. Al and A2 were
officers of Maruti Udyog Ltd., a Govt. Company; A3 and A4 were bank
Officers and AS was a financial broker. According to the prosecution AS
in connivance with Al, A2, A3 and A4 involved in irregularities committed
in five financial transactions involving sale and purchase of securities
(Units of Units Trust oflndia) and reversal thereof. Several enquiries were
J....
E made in relation to said security scam. Reserve Bank of India appointed
the Jankiraman Committee; Besides, a joint Parliamentary Committee was
also appointed to enquire into the financial irregularities. Reports of both
the Committees were placed before the Trial Court.

The main allegation was that accused No.S hatched a criminal
F conspiracy with other accused and in collusion with accused nos.3 & 4 got
deposited surplus funds of MUL into Banks and finally transferred the
same in his favour. It was also alleged that Al & A2, without lawful
authority, dealt with AS and indulged in illegal financial transaction
intentionally to provide benefits to AS. All the five accused appellants were
G charged under Sections 409, 420, 467, 471 IPC and Sections 13(l)(c) r/w
Section 13(2) of the Prevention of Corruption Act. Special Court convicted
all the accused except accused no. 2 for committing various offences under
Indian Penal Code. Hence these appeals by Al, A3, A4 and AS. CBI filed
appeal against acquittal of A2. During the pendency of appeals, AS expired
and on the petition filed by widow of AS, appeal was ordered to be
H continued.
R.N. POPLI v. C.B.l. 121

lt was contemled for the appellants that the investment/loan involved A
in live transactions was for a slmrt period and at a higher rate of interest.
The amount was paid ba~k 11n due dates; that AS did not commit any
offence or offe11ces but the prosecution was a piece of political revenge
against AS fllr di•closing certain facts to the Press against the political
leaders; that the transactions were loan transactions because rate of
interest and period was settled before exchange of money in lieu of B
Government securities; that delay in lodging of FIR indicates that
)(
investigation was Intentionally kept alive by the CBI for undisclosed
motive; that cheques were drawn in favour of one of the Bank for
expeditious transmission of amount to AS to prevent monetory loss to him;
that there was no conspiracy to siphon off the surplus funds of MUL as C
the amount was lent on security and repaid with interest in time; that the
prosecution had tried to prove the theory of absurd conspiracy by the sole
evidence of approver PW23 without corroborating his evidence; that cross-
examination of PW16 was not allowed to corroborate the evidence of
PW23; that there was no evidence to establish that Bank Receipts were
issued without Units being available with the Bank; that by allowing the D
proceeds to be credited to the account of the c.ustomer, i.e A-5, the Bank
was neither g~Uty of negligence nor of any criminality, thus no officer of
the Bank could be held liable for the same; that PW23's insistence that
A2 was present In the alleged meeting between accused leads to the
irresistible inference that deposition about the alleged meeting was totally E
concoct!'d; llrnt the charge of conspiracy was cooked up to cover first three
transaction• wMeh were prior to issuance of the RBI Circular for stopping
illegal praetices; that the alleged link between the accused and in
furtherance of conspiracy doing of overt act that by involvement in alleged
irregularities in financial transactions, was broken by the fact that 13 other
transactio11s tool; place during the same period between AS and MUL; F
that the pardon granted to approver PW23 becomes inadmissible; that
the evidence of PW23 did not disclose any conspiracy; that the conviction
cannQt be based on sole evidence of approver; that there was no evidence
against ,.\2 and no material evidence was provided justifying any
interference in acquittal appeal; that the prosecution has failed to establish G
Al misrepresenting to MUL regarding transfer of funds to one of the Bank
at the instrqctions of the other Bank; that the charge of conspiracy was
fabricated one, there was no mens rea for alleged criminal breach of trust
on the part or Al; that charges under the provision of Section 13(l)(c) of
Prevention or Corruption Act and Section 409 IPC were without any
foundation; that PW7 and PW14, Officials of a Bank, could not H
122 SUPREME COURT REPORTS (2003] l S.C.R.

A differentiate whether Bank Receipts and letters pertain to the alleged
" transactions involving accused Bank officers and accused client broker;
that and prosecution has failed to examine material witnesses; that there
was no evidence to prove that A4 handled the cheque of one of the Banks
though PW16 accepted the cheque and forwarded it for encashment in
favour of accused AS; that A4 was not in any way party to any fraud;
B that the prosecution witnesses themselves deposed that cheques were
deposited in the account of the Bank and not in the account of AS; that
the RBI Circular nowhere prohibits the Banks to act on behalf of their
clients; that sine there was no illegality on the part of A3 in the transfer
of funds of MUL to AS and there was no evidence of any actual loss caused
C to anybody or of intention of causing loss to anybody; that A3 was not
connected with the 5th transaction as at the relevant time he was
transferred to another branch; that A3 was erroneously charged for
forging the Bank Receipts on the wrong assumption that the Bank did not -r-·
hold the units for which the BRs were issued.

D It was submitted for the respondent that these transactions were a
facade for a wrong transaction which could not be entered into by MUL
in favour of AS; that in view of the guidelines issued by RBI, MUL could
not give loan to AS for diverting the funds to MUL; that Al got issued
cheques for payment by one Bank in favour of another Bank which in turn
E transferred to the account of AS; that since the cheques for payment had
not been delivered to the representative of UCO Bank, the transaction was
not between MUL and UCO Bank; that since cheques were issued in
favour of Grindlays Bank for transferring the amount to UCO Bank, it
was not loan transaction between MUL and AS; that A3 was having no
authority to sell or purchase units with the Bank; and that since A3 was
F. having no authority to issue BRs/documents, he forged these documents
to provide benefits to AS. _.)...

Disposing of the appeals, the Court

HELD (By the Court):
G
(1) Criminal Appeal filed by the State against A2 is dismissed.
(2) Crimimtl Appeal filed by A4 is allowed and he is acquitted
of all the offences alleged against him.
(3) Criminal Appeal filed by Al, A3 and deceased AS are partly
H allowed. Conviction of Al, A3 and AS by the Special Court
R.N. POPLI v. C.B.I. 123
is confirmed. Sentence of Al and A3 is reduced to the period A
already undergone.

Per Pasaya!, J. (for himself and Agrawal, J.) :

1.1. From the statement of account of UCO Bank, Bombay it is clear
that there was no debit entry showing that the UCO Bank, Bombay has B
charged any commission for the transaction of certain units of UTI and
there is also nothing to show that UCO Bank had charged any commission
~
from A-5. From 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 receivlni: funds in its own account. On
the contrary, evidence shows that in tlie Orsi instance money was paid by
c
A-5 through its bankers to MUL. There was nothing to show that the
· payment was made to MUL through Bank of America under the
instructions of UCO Bank, Bombay. Similarly, at the stage of reversal,
the amount paid by MUL directly came to be credited in the account of
A-5 first in the Grindlays Bank, Delhi, then in the Grindlays Bank, D
Bombay and finally in the UCO Bank, Bombay. In all these three stages,
the amount went directly to the account of A-5. There was no involvement
of UCO Bank in financial aspects of the transaction, if the Bank, as claimed
by A-5, at all acted for him as routing Bank in the transaction. There is
_._
nothing to show that such payment was made under the instructions of
UCO Bank, Bombay. (286-C, D, E, F]
E

1.2. In the 2nd transaction, the BR authorised and signed by A3 and
Issued by UCO Bank recites that UCO Bank having receiyed from MUL
the concerned sum, being the cost of certain units of UTI, the security will
be delivered when ready in exchange "by this receipt" is duly discharged. F
It clearly indicates that UCO Bank had undertaken to MUL to deliver
security as and when the Units were ready in exchange for the BR. There
is also endorsement made in the BR reading as "discharged" with a rubber
stamp of MUL which is proved to be made by accused No. l as proved by
PW-3, an officer of MUL. This endorsement shows UCO Bank having
discharged its obligations to MUL under the said BR. Credit advice issued G
by UCO Bank Is in the handwriting of A-3. Although, In the narration of
credit voucher it was mentioned that certain units related to MUL, there
- '"' is no written record in that regard. Exbt. 128, which is the advice of
Grindlays Bank, does not justify the narration as appearing in the credit
voucher. The material on record clearly justifies a conclusion that the H
124 SUPREME COURT REPORTS [2003) I S.C.R.

A amount involved came from the account of A-5 and was paid to MUL.
There was no involvement whatsoever of UCO Bank though the stand of
MUL is that the transaction was between it and UCO Bank. As is the case
with the first transaction, the situation is somewhat similar so far as
transaction no. 3 is concerned. 1287-F, G, H; 288-A, B, C, DJ

B 1.3. In the fourth transaction MUL was dealing with UCO Bank and
there was no question of A-5 dealing with MUL on principal-to-principal
basis. In the minutes of Sub-Committee of MUL for the investment, the f.-
committee had earlier approved the proposals as contained in the Agenda
Note, where the investment in the security in question was to be made with
C Grindlays Bank. But later on, the same was changed and it was resolved
to be made with UCO Bank, Bombay as proposed by A-1. Significantly,
there was no written proposal either from UCO Bank or Grindlays Bank
which has been received and placed before the Committee of MUL. The
)- -
Committee had given its approval to the proposal for investment with UCO
Bank. In respect of the other transaction, there was no direct involvement
D 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. 1288-G, H; 289-A)

1.4. In transaction No.S, there was no letter issued by UCO Bank,
Bombay and proposal to MUL was similar to earlier transactions. The
E most significant aspect is that there was also no Bank Receipt (BR) issued
by UCO Bank, Bombay favouring MUL in respect of this transaction.
Notwithstanding these, the security was put through, the MUL parted with
money which went into the account of A-S in the same manner as in the
case of trans~tions 2 to 4. Another important aspect is that the monies/
funds were in fact credited eventually in the account of A-S with UCO
F Bank, Bombay. The debit and credit vouchers of the Bank amply prove
this. 1289-C, F]

2.1. A-1 concealed the receipt signed by PW-23 on the letterhead of
A-S cancelling the receipt of certain units from MUL. It is hard to believe
that A-1 did not know that the ultimate beneficiary was A-S. A-1 delivered
G 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 iii the nature of loan transaction between A-S and MUL. _,.L_
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
H its funds with PSU. That clearly indicates that investments could only be
R.N. POPL! v. C.8.1. 125
in PSU's bonds. [289-F, G] A
2.2. The plea that there was instruction by UCO Bank to issue pay

- order in favour of Grindlays Bank is clearly untenable because if the UCO
Bank intended that in its transaction the pay orders were to be issued to
Grindlays Bank, the same could not have been without any direction from
UCO Bank. In respect of fourth and fifth transactions, pay orders B

,. ~
'
continued to be issued to Grindlays Bank even though admittedly there
was no instruction from UCO Bank. In the fifth transaction, Al released
funds of MUL even in the absence of an authority letter or a security in
the form of Bank Receipt from UCO Bank. Payments made at the stage
of reversal by MUL were directly made to A-5. There was no authorization C
to purchase any securities from any brokers. There was no mention about
the intention that monies will be given on loan to any broker. Each
transaction, as reflected, was considered to be a placement of funds with
. ..,_
PSUs and there was no scope of any placement of surplus funds with
private person. It is unbelievable that A-1 did not know about the
involvement of A-5 when the receipt in respect of certain units was kept D
in the records of MUL. (291-A, B, C, DJ

2.3. In all the transactions the role of A-3 is very significant.
Investment of the first transaction indicates that the same was written on
the letterhead of UCO Bank and was signed by A-3 with reference to
certain units. So far as reverse entries are concerned, a letter was E
addressed by the UCO Bank, Bombay to MUL requesting MUL to remit
funds through ANZ Grindlays Bank. Transaction No.2-BR is in the
handwriting of A-3 and is signed by him. Carbon copy of credit voucher
of UCO Bank is in the handwriting of A-3 and also bears his signature. It
indicates that the amount was intended for A-5 being the amount of F
security, namely, units sold to MUL. Similarly Exbt. 151(1) shows that
A-3 signed on the debit voucher in the name of A-5 for certain amount.
]291-E, F, G]

2.4. One significant factor as deposed by PW-7 is that none of the
UCO Bank Managers were authorized to deal with securities. If there was G
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 letter unless he is permitted to do so
from the Head Office. A-3, therefore, did not have the authority to deal
with the Bank or to any arrangement. PWs. 14 and 21 deposed that only H
126 SUPREME COURT REPORTS (2003] I S.C.R.

A the Head Office can instruct on behalf of the Bank. A-3 fraudulently signed
documents showing different designations to misrepresent something which

-
in reality was not there. In reality he was the Assistant Manager. These
are clearly conducts of deceit and dishonest intention. On the basis of the
letters and BRs. MUL parted with its funds which went to the account of
B A-5. [292-D, F, GJ

2.5. Grindlays and UCO Bank never received money in their own·
right. They only collected the cheque for A-5, although the cheque in each -+;I;
(
case was non-negotiable payee cheque in favour of Grindlays Bank without
any instructions from MUL. UCO Bank did not sell or agree to sell, as
C A-3 had no authority either to sell or commit UCO Bank to any sale of
security on behalf of the Bank, even if it is accepted that the Bank had
purchased the security, it had become the property of Bank, and the
securities dealt with as an agent is not to be reflected in the books of the
Bank yet such recording is appropriate. In the instant case, the sale or
repurchase has not been passed through the Bank's books. The stand that
D Bank had received a commission is inconsistent with the stand that there
was a sale and repurchase involved in the transaction. In such a
transaction, the difference in price is the profit and not a commission. For

E
the 5th transaction neither there was a letter from the UCO Bank nor a
BR which amply demonstrate that no security was delivered. Though 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. The Banker's cheque issued by Canara
Bank on MUL's account was received by Grindlay's Bank and credited
F 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 respect of Banker's cheques of UCO Bank. Thus,
UCO Bank did not receive any money in the transaction.
(293-A, B, C, D, E, F)

G 2.7. For the first time before this Court A-5 took a stand that there
was a transaction between him and the UCO Bank. Hence A-5 was the
recipient of the money and he had derived benefit of it. (293-G)

2.8. Pay Orders of Canara Bank were collected by PW 16. These
were deposited as though he was the payee. It is clear from the descriptions
H in the pay-in slips, letters written by his agent/employees to Grindlays
R.N. POPLI v. C.B.I. 127
Bank giving clear instructions to remit the proceedings of Pay Orders to A
bis account. Receipts given by A-S in respect of the first transaction of
certain units of UTI were in the records of MUL. It is clear from the
.• resolutions and the minutes of discussion that MUL had not approved the
role or involvement of AS and it was not known to the Board that the
transactions were in reality with AS. The subterfuge adopted was to
conceal actual state of affairs and to present a totally distorted picture. B
(293-H; 294-A-BJ

2.9. A Bank cannot act as a broker under the Banking Act. It is not
one of tbe permitted acts. There is also not a question of paying of any
commission on purchase/sale of transactions. Hence, the transactions are C
not transparent. (294-HJ
2.10. MUL does not appear to have noticed about the role of the
brokers. The decisions in question did not refer to A-5, but to UCO Bank,
however, the beneficiary is A-S. The pay-in slips were filled up by PW-16
which indicate that the payment was made to A-S and in fact there was D
authorization from MUL in this regard. In Exhibit 38, A-3 has signed as
"Accountant". The document uses the expression "cost". Though the
receipt was from A-S, it was indicated as if it was from MUL. All the
relevant vouchers show as if the sale of units was to Grindlays' Bank.
Transactions show that payment was made to Grindlays Bank and not to
UCO Bank and there was no question of MUL issuing the cheque to E
Grindlays Bank. It would have been to UCO Bank, Grindlays Bank made
the payment and UCO Bank had nothing to do with MUL. The draft was
in the name of UCO Bank. In essence, UCO Bank has not received any
money from MUL. There was direction given by Grindlays Bank, New
Delhi. All the vouchers that have been produced show that same are put F
through Grindlays Bank. The vouchers of MUL clearly show as if the
transaction was between MUL and UCO Bank. (29S-A, B, C, DJ

2.11. The evidence on record clearly shows that PW 23 was not only
-, known to MUL but represented accused No.S and in particular to accused
No.I. Exbt. 58 is the letter of the UCO Bank, Bombay wherein MUL had G
been instructed to deliver certain units to PW 3 whose specimen signature
was attested by accused No. 3. Delivery of the said securities was effected
_ J_
to PW 23 by MUL and the receipt was passed by PW 23. The
acknowledgment is on the printed stationery i.e. letter head of A-S. In
respect of each of the transactions 2 to S, the pay orders issued by MUL
through its Bankers, Canara Bank towards the consideration of the H
128 SUPREME COURT REPORTS [2003] I S.C.R.

A security was handed over to PW 16 under instructions· of A-l or A-2. This
amply establishes that PW 23 was not a total stranger or unknown to
accused 1 and 2 as claimed. His association with accused S also Is clearly
borne out. It is unbelievable that to a stranger, PW 23, valuable securities
of crores of rupees and pay orders were delivered by MUL for which
B receipts were issued on the letterhead of A-5. The evidence also shows that
letters and the BRs issues by the UCO Bank, Bombay in the transactions
addressed to MUL were first received in the office of A-S and were then
passed on to MUL. (295-E, F, G, H; 296-A, DJ
An attempt was made to as if there was no broker involved. Accounts
C were to be presented in such a manner that the role of A-5 would remain
hidden.
2.12. So far as the Sth 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
D that was not so. Letters authored by A-3 made a clear representation to
MUL as if it was transacting with UCO Bank. [296-EJ
3.1. The essence of criminal conspiracy is an agreement to do an
illegal act and such an agreement can be proved either by direct evidence ....
or by circumstantial evidence or by both, and it is a matter of common
E experience that direct evidence to prove conspiracy is rarely available.
Therefore, the circumstances proved before, during and after the
occurrence have to be considered to decide about the complicity of the
accused. [299-C)
Halsbury's Laws of England (4th Ed. Vol.11, page 44, page 58),
referred to.
F
3.2. It is not always possible to give affirmative evidence about the
date of the formation of the criminal conspiracy, about the persons who
took part in it, about the object, which the objectors set before themselves
and about the manner in which the object of conspiracy is to be carried
G out, all this is necessarily a matter of inference. [301-C, DJ
3.3. The provisions of Section 120A and 120B IPC have brought the
law of conspiracy in India in line with the English Law by making the ..L
overt act unessential when the conspiracy is to commit any punishable
offence. [301-E)

H Regina v. Murphy, (1837) 173 ER S02, referred to.
R.N. POPLI v. C.B.I. 129
Russell on Crime (12th Ed. Vol. /, P.202) and "Criminal law" by A
Glanville Williams (Second Ed P. 382), referred jo.

3.4. Where the conspiracy alleged is with regard to commission of
a serious crime of the nature as contemplated in Section 1208 read with
the proviso to sub-section (2) of Section 120A IPC, then in that event mere
proof of an agreement between the accused for commission of such a crime B
alone is enough to bring about a conviction under Section 1208 and the
-" • ,.L proof of any overt act by the accused or by any one of them would not be
necessary. Sections 120-A and 120-8 IPC have brought the law of
conspiracy in India in line with English law by making an overt act
inessential when the conspiracy is to commit any punishable offence. In a C
case where criminal conspiracy is alleged, the Court must inquire whether
the two persons are independently pursuing the same end or they have
come together to pursue the unlawful object. The former does not render
- -< them conspirators but the latter does. For the offence of conspiracy some
kind of physical manifestation of agreement is required to be established.
The express agreement need not be proved. The evidence as to the D
transmission of thoughts sharing the unlawful act is not sufficient. A

.. . .-"-
conspiracy is a continuing offence which continues to subsist till it is
executed or rescinded or frustrated by choice of necessity. During its
subsistence whenever any one of the conspirators does an act or series of
acts, he would be held guilty under Section 120-8 of the Indian Penal Code. E
[302-F, G, HJ
S.C. Bahri v. State ofBihar, AIR (1994) SC 2420; E.K. Chandrasenan,
v. State of Kera/a, AIR (1995) SC 1066; Kehar Singh and Ors. v. The State
(Delhi Administration), AIR (1988) SC (1883), P. (1954); Ajay Agarwal v.
Union of India & Ors. JT (1993) 3 SC 203; Yash Pal Mittalv. State ofPunjab, F
[1977) 4 SCC 540 and State of Maharashtra v. Som Nath Thapa, [1996) 4
..__ sec 659, relied on.
3.5. It would be extremely difficult to find direct evidence in case of
criminal conspiracy. The circumstances and surrounding factors have to
be taken note of. In the instant case, the accused 1, 2 and 5 have submitted G
that the role of PW-5 as described is that he did not want to be directly
shown in the picture. In fact, A-1 wanted that MUL did not want to involve
__ J. brokers and did not want to deal with them. This itself a fatal blow to the
stand taken by the accused that there was no prohibition of acting through
brokers and the intention was that dealing would be directly with the Bank
and not through any broker or intermediary. Use of the expression H
130 SUPREME COURT REPORTS [2003] I S.C.R.

A "through" is indicative of the fact that emphasis was on securities being
not purchased in the open market, but "through" named PSU. These PSUs
were admittedly not brokers. They were either Banks or financial >r
. ·'
institutions. Evidence clearly shows that A-S wanted that he will not
...
directly come to the picture, and would not appear in the books of accounts
of MUL; but he would stand to gain by way of commission and brokerage
B from the Bank. The statement of A-1 that he would look into any good
proposals if A-S does not come to the picture shows that the actual state
of affairs was intended to be hidden from the MUL authorities and a totally -kh
I
distorted picture was sought to be given. These are factors which clearly
proves conspiracy. (306-E, G, H; 307-A)
c State of Kera/a v. P. Sugathan & Anr., [2000) 8 SCC 203, relied on.

4.1. Repayment itself is not an indication of lack of dishonest
intention. It so happens that with a view to create confidence the )- -
repayments are made so that for the future transactions the money can
D be dishonestly misappropriated. This is a part of the scheme and the
factum of repayment cannot be considered in isolation. The repayment
can be a factor to be considered while awarding sentence, but cannot be
a ground for proving innocence of the accused. (307-B)

4.2. To constitute an offence of criminal breach of trust, there must
...
--l...
E 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 appropriation of trust
as defined by Section 405. The Section relatable to property is in a positive
F
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.
(307-G, HJ
G
4.3. The term 'entrustment' is not necessarily a term of law. It may
have different implication in different context. In its most general
signification all it imports is the handing over possession for some purpose J..._
which may not imply the conferring of any proprietary right at all. When
a person misappropriates to his own use the property that does not belong
H to him, the misappropriation is dishonest even though there was an
R.N. POPLI v. C.B.I. 131
intention to restore it at some future point of time. [309-C, DI A
Jaswantrai Manila/ Akhaney v. The State of Bombay, AIR (1956) SC
• 575 and Jaikrishnadas Manohardas Desai and Anr. v. State ofBombay, AIR
(1960) SC 889, relied on.

4.4. In order to constitute an offence of forgery the documents must B
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.
[310-A, Bl c
4.5. 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 function. 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
D
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. Nothing plausible was found in these explanations. A practice
,J, even if was prevailing, if wrong, is not to be approved. The subsequent
clarifications do not in any way put seal the approval of the practices E
adopted on the past on the other band it contemns it. 1310-D-E-FI

4.6. When the factual background highlighted is considered in the
light of the various provisions, it is clear that the offences under the Indian
Penal Code alleged, have been established against the accused persons. The
Special Judge was justified in convicting Al, A3 and AS, [310-GI F
"-· 5, In view of the finding by the trial Court that A-1 in furtherance
of criminal conspiracy, in his capacity as 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(l)(c) read with Section 13(2) are
clearly applicable. Similar is the position vis-a-vis A-3. [310-HI G
6. The offences in these cases were not of the conventional or
traditional type. The ultimate objective was to use public money in a
carefully planned manner for personal use with no right to do it Funds of
the public bodies were utilized as if they were private funds. There was no
legitimacy in the transactions. Huge funds running into hundreds of crores H
132 SUPREME COURT REPORTS [2003) I S.C.R.

A of MUL, a Government Company, were diverted and all the concerned
accused persons A-1, A-3 and A-5 played dubious roles in these illegitimate
transactions. Their acts had serious repercussions on the economic system
of the country, and the magnitude of financial impact involved in the
present appeal is only tip of the iceberg. There were several connected cases
and some of the prosecution witnesses in the present case are stated to be
B accused in those cases. That itself explains the thread of self-perservance
running through their testimony. Therefore, the need to pierce the facadial
smoke screen to unravel the truth to lift the veil so that the apparent, which
is not real, can be avoided. The proverbial red herrings are to be ignored,
to find out the guilt of the accused. [311-A-B-C-D]
c State ofGujarat v. Mohan/al Jitamalji Porwal & Anr., AIR (1987) 1321,
relied on.

7. Cases involving offences which corrode the economic stability are
to be dealt with sternly. U is, however, noticed that A-5 has died during
D the pendency of the appeal, A-1 and A-3 were small flies who appear to
have been caught in the web of A-S's machinations. Apparent reason for
their involvement is greed and avarice. There may be substance in the plea
that higher ups of MUL and Banks can not certainly be unaware of the
goings on, and have not been proceeded with and given clean chit. Though
this is certainly a matter of concern, yet that cannot be a ground for taking
E a sympathetic view of A-1 and A-3's conduct. Considering the fact that
the occurrence took place a decade back, and the trial has spread over a
few years, and the death of A-5, custodial sentence for the period already
undergone would meet the ends of the justice. While fixing the quantum
of sentence, the fact that the amounts have been paid back was duly
considered. [311-H; 312-A, B, CJ
F
Per Shah, J. (Partly dissenting):

1.1. The SCAM Act was promulgated with a view to recover public
monies lost by certain banks and financial institutions in securities where
such losses arose as a result of such transactions. On the eontrary where
G there were no losses at all, the institution of the Special Court was wholly
unnecessary and the Special Court was not to try such transactions even
if they amounted to·some technical offences. If these two propositions are
correct, then there is simply no justification for the instant prosecution.
[155-D]
H 1.2. The MUL resolution for investment of surplus funds inter a/ia
R.N. POPLI v. C.B.I. 133
provides that it was open to MUL to invest the surplus funds in the units A
"" .
of Unit Trust of India through scheduled banks or directly to fetch higher
rate of interest than what is available on loaning of funds to PSUs without
invoking any risk as to return of the principal and/or yield. It is also
provided that Board has permitted the sub-committee which comprises
of Chairman-cum-Managing Director and Director (Finance) to invest
surplus funds of the Company in the purchase of units of UTI either B
. ..l.
through scheduled banks or directly. All the five transactions took place
after the sub-committee passed appropriate resolutions. In one of the
resolutions, it has been specifically mentioned that MUL may place funds
'with UCO Bank' in units for a period of five days as per the request from
UCO Bank. The change of wording in the last resolution clearly indicates c
that funds were placed with UCO Bank for investment in units for a period
of five days in anticipation of higher yield. In previous three cases, if in
--; reality the funds were placed with UCO Bank then the phrase 'through

- UCO Bank' would not have been used. This change of phrase reveals that
the nature of transactions was known to the Directors and that units were
to be purchased for a limited period through UCO Bank. D
(220-G, H; 221-A-B; 228-F, G, H; 229-A]
'-- 1.4. The various resolutions issued by. MUL (Maruti Udyog Ltd.)
... reveal that proposals for investment of funds in units through UCO Bank
for a specified period with the expected yield were received and it was
resolved that MUL may place funds in units "through UCO Bank" as per E
the proposal. In the resolutions, the period of as well as expected yield
was also mentioned which would indicate that as a matter of fact nature
of such transaction was nothing but loan. Purpose of having UTI units
was to secure repayment of loan. (228-E; 229-B(

1.5. During the last week of December, 1990 and in the month of
F
A.
January, 1991, the receipt of payments by MUL was relatively less and it
was required either to borrow funds or withdraw money from PSUs.
However, in the documentation, the borrowings were required to be shown
•· as sale of investments. This would indicate that whatever may be the
documentation of purchase or sale of UTI units, the same would not reflect G
the true and real nature of transaction. (229-C, E]
l_
1.6. There is nothing on record to indicate that Chairman-cum-
Managing Director and Director (Finance), MUL who have passed the
resolutions for investment of funds, did not know that disputed investment
of the funds were meant for A-5 but they were not examined by the H
134 SUPREME COURT REPORTS [2003] I S.C.R.

A prosecution for reasons best known to them. [229-G, HI
1.7. It is difficult to imagine that Superintendent of Police, CBI would
not be aware of the li:vidence Act which stipulates that he cannot depose
on behalf of two responsible persons of MUL i.e. the Chairman and
Managing Director of MUL and Director (Finance) of MUL. Whether they
B were aware of the fact that investment of the MUL funds to A-5 through
UCO Bank tould have been deposed only by them and not by Investigating
Officer. [230-CI +
2..1. The Report of Joint Parliamentary Committee clearly
C established that Al or A2 were not having any dominion over the MUL
funds. The assertions by the MUL before the JPC would certainly me~n
that Al or A2 have not done anything dishonestly with the intention of
causing wrongful gain to AS or wrongful loss to MUL or that Chairman
and Managing Director or the Director (Finance) were not knowing about
such transactions through UCO Bank. (235-D, E]
D
2.2. On the basis of evidence, it is also established that -
(1) Resolutions used the phrase "through UCO Bank" whenever
necessary. It also used the words 'with UCO Bank' or' '.with
Bank' whichever is the Bank as per the nature of the ...il -

E transaction.
(2) Documents maintained by MUL do not reveal true state of
affairs.
(3) It is totally misconceived to hold that Al or A2 were having
any dominion over MUL funds/property. funds were to be
F invested as per the decision of the Sub-Committee consisting
_,,i.
of Chairman-cum-Managing Director and the Director
(Finance).
(4) Resolutions passed by the Sub-Committee were approved by
the Board.
G (5) MUL has clarified that the funds were invested as a
commercial transaction for getting optimum yield and MUL
has not suffered any loss in the said transactions.
(6) Pending CBI inquiry, MUL considered that Al or A2 have
not committed any wrong and they were promoted
H subsequently.
R.N. POPLI v. C.B.I. 135
(7) As per suggestion of UCO Bank, cheques were issued by A
~ Canara Bank in favour of Grindlays Bank. This was a
commercial practice adopted by many Banks for tra11smitting
the funds at the earliest. This practice rightly or wrongly
was developed with the PSUs and financial institutions.
(8) PW4 admits that MUL used to invest in certain securities B
through brokers and the name of the broker did not figure
~
,L or reflect on the record of MUL.
(9) That Al_ or A2 had not acted dishonestly in issuing cheques
in favour of Grindlays Bank for transmitting the funds of
MUL to UCO Bank, Bombay.
c
(10) Internal or statutory audit did not raise objection despite
the fact that Comptroller and Auditor General had also
-~ audited the accounts.
For these reasons neither Al nor A2 can be convicted for the
alleged offences. No doubt A2 is already acquitted by the D
Special Court. (23S-F, G, H; 236-A, B, C, D, E, F]

\. 3.1. In view of the evidence, it can also be stated that all the five pay
orders in connection with these transactions were sent for inter bank
~- clearance by the Grindlays Bank. The amount was credited by "account
payee" and "non-transferable" pay orders in the account of Grindlays E
Bank. Under the circumstances, it is not necessary to discuss the relevant
provisions of Negotiable Instruments Act that 'account payee' 'non-
transferable' cheques cannot be credited in anybody else's account. As
such, the entire prosecution against A4 was based on an erroneous
assumption that A4 got the amount of 'account payee' cheque bearing
stamp 'non-transferable' credited straightway in the account of AS. There F
is nothing on record to establish who directed that the said amount should
be credited in the account of AS. IO did not verify at whose instance the
amount in question was specifically credited in the account of AS. Besides
the evidence of PW12 also reveals that there was a practice of crediting
the proceeds of the banker's cheques into the account of third party in G
case of high-networth customers. (241-G, H; 242-A, B, C(

3.2. While convicting the accused, the trial Court has not been able
to segregate the fact that even assuming that what was done by Grindlays
Bank was irregular that does not necessarily mean that it was done by
the appellant A-4. None of the witnesses of the bank have been able to H
I
'll
,,-...._

136 SUPREME COURT REPORTS [2003] I S.C.R.

A clearly point out as to when? the app-ellant was posted during the relevant
period nor his initials were identified and nothing has been brought on
record that he ~redited the cheques in the account of AS or he was
concerned with the credit ()f the amount in question in favour of AS. In
the absence of .ih.y such evidence, the charge under Section 120B and
B substantivt offences under Section 409 are not proved against A4.
4.1. It emerges from the evidence that RBI Circular/guidelines came
to be issued after the five transactions were over. The Circular specifically
requests the banks to evolve investment policy to ensure that operations
in securities are conducted in accordance with sound and acceptable
C business practices. Prosecution has not brought on record the policy
evolved by UCO Bank after issuance of this Circular. The guidelines would
indicate that till the date of issue of guidelines banks were issuing BRs on
behalf of their broker clients. There is no other prohibition under any law
or guidelines debarring the banks from issuing any BRs particularly when
the BRs were backed by necessary securities. (251-H; 252-B, E; 253-A, CJ
D
4.2. It is for the prosecution to establish that BRs were issued by A3
without being backed by UTI units. Admittedly, there is no such evidence.
On the contrary, there is sufficient evidence on record that for the first ./
transaction, MUL gave certain units for taking loan. As soon as the amount
was refunded on due date, the said units were also received from MUL
E by A-5. For the remaining three transactions admittedly BRs were received
and this is also 'stated in the reply given by MUL to JPC. For the 5th
transaction, as the BRs were not received by MUL, transaction was over
within five days, but there is no evidence that UCO Bank was not holding
the units for the said transaction. From the evidence on record it cannot
be held that A3 had issued BRs without being backed by sufficient number
F of securities i.e UTI Units. No witness from the Bank has stated that A3
was required to maintain the account for such transactions. On the
contrary, if has come on record that practice of maintaining register was
dispensed with because of inc.rease of workload with the Bank. The
evidence on record clearly establishes that for the 5th transaction A3
G cannot be held responsible, because at the relevant time he was transferred
from that Branch of UCO Bank. (253-D, E, G; 254-A, BJ

4.3. Resolutions passed by MUL also reveal that MUL was placing
funds through UCO Bank in units. This phraseology used in the resolution
does not reveal true colour of the transactions that MUL was not
H ·purchasing and selling the Units from UCO Bank nor UCO Bank was
R.N. POPLl v. C.B.l. 137
selling or purchasing the units from MUL, It only meant that the A
transactions were through UCO Bank. Seller or purchaser was a third
...,.. person. In this set of circumstances, to say that A3 prepared forged
documents that UCO Bank was selling or purchasing the units is totally
' misconceived and is against the documentary record maintained by MUL.
(257-E, F(
B
4.4. Evidence on record estallllshes 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. (260-B-CJ

4.5. A3 has been charged with forging the BRs on the ground that c
UCO Bank did not hold the units for which the BRs were issued. All the
transactions are based upon the documents, which stand proved by the
·-<
evidence of various witnesses of MUL, who signed the documents. The
transactions were through UCO Bank. There is nothing on record to show
that UCO Bank either purchased or sold the units to MUL. The charges D
proceed on an incorrect assumption that the BRs were issued on behalf
of UCO Bank. CBI has undertaken no investigation to discover whether
the BRs were backed up by securities belunging to AS. Once it is held that
... the UCO Bank, Bombay was entitled to deal on behalf of their clients, then
it would be difficult to hold that issuance of the said BRs by A3 was in
any way forgery punishable under the Indian Penal Code. Issuance of BRs E
- jit_ -

on behalf of broker clients was part of commercial transaction. Routing
facility was being given by the Bank to its customer prior to issuance of
RBI Circular. Even RBI Circular does not prohibit issuance of BRs if
properly backed by the security. The evidence on record nowhere
establishes that the Bank was not holding adequate securities before F
issuance of BRs. With regard to the allegedly forged typing of letters
outside the office of UCO Bank, evidence of PW6 shows that in 1991 there
was only one typewriter in the said Branch of UCO Bank to do heavy work
in the office. Under the circumstances, document was typed out side the
Bank. Hence, it would be difficult to infer that A3 did anything dishonestly,
fraudulently or to defraud. (260-D, E, F, G, H; 263-E] G
Dr. Vim/av. Delhi Administration, (1963] Supp. 2 SCR 585, relied on.
J.....
5.1. 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 H
138 SUPREME COURT REPORTS [2003] I S.C.R.

A impression created or gathered by the prosecuting agency. In the instant
case, dealing in public funds was to a large extent, but that would not itself
be a sufficient 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
B anything. On the contrary, there is evidence on record that UCO Bank
got commission from the said transactions. (265-G-H; 266-AI

State (Delhi Admn.) v. Laxman Kumar, (1985) 4 SCC 476 at 505, relied -l_ ..
I .
on.

C 5.2. Allegations in this case are that firstly, accused appropriated
cheques issued by Canara Bank in favour of Grindlays Bank to himself.
Secondly, that appropriation was misappropriation and, thirdly, it was
dishonest. Under Section 405 IPC, essential ingredient which is required
to be established would be 'dishonest misappropriation or use'. Primafacie,
there is no law prohibiting the transaction as in the instant case nor it
D can be held to be an offence under any law. In such a transaction, there
is no question of dishonest misappropriation. The Investigating Officer
PW25 in his cross-examination, has stated that according to him, after
the placement of funds with UCO Bank, the Bank would not be acting j
illegally if it places those very funds with a third party. (270-E, ff; 271-A, G)

E Manakkal Narayan lttiravi Nambudiri v. State of Tranvancore, Cochin
AIR (1953) SC 478, relied on.

5.3. MUL has passed a resolution to invest its funds with the PSUs
or Banks or through PSUs or Banks. The word 'through' would certainly
F mean that it is not with the Banks 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.
Managing Director and Director (Finance) of MUL would have stated that
G they were or were not aware that loan amount was for AS. It is admitted
that they were examined by the Investigating Officer who exercised his
discretion and arrived at the conclusion that they were not required to be
examined. In criminal prosecution, in such a situation, if any reasonable ,..L
doubt arises, benefit would be in favour of accused. Adverse inference
could have been drawn against AS if the amount was received by him
H without pledging any units with the Bank. It is the contention on behalf
R.N. POPLI v. C.B.I. 139

of A5 that UTI units were handed over to the Bank and on that basis BRs A
were issued by A3. However, prosecution has failed to establish that BRs
-+ were issued without being backed by the units. (274-B, C, D, E, F)

.,. 5,5. As 11er prosecution evidence the transfer of monies in favour of
AS from Canara Bank to UCO Bank at Bombay Branch via Grindlays
Bank, such irregular unjustifiable liractlces had developed with certain B
Banks and even SDI had give11 Sl1Ch facility to AS (as per JPC Report).
Under the circumstances, it cannot be held beyond reasonable doubt that
A5 committed any offence punishable under Section 403 or abetted offence
punishable under Section 405 IPC or has abetted any commission of
offence punishable under Section 468 r/w Section 464 IPC. For the cheque C
issued by the Canara Bank in favour of Grindlays Bank, there is nothing
on record that monies were meant for Grindlays Bank. (274-G, H; 275-A)

---< 6.1. Transaction nos. 1, 2 and 3 had taken place prior to cut-off date
prescribed under Section 3(2) of the SCAM Act Besides, prosecution has failed
) .
~ to prove beyond reasonable doubt that accused have committed any offence. D
Hence Special Court has no jurisdiction to deal these cases. (275-E, F]
6.2. There is no loss to MUL or to the Bank but as the loan amount is
given to A5 by MUL through UCO Bank and as the loan is re-paid by AS, it
cannot be held that AS committed the offence of mis-appropriation. (275-G]
E
6.3. In the instant case, it is very important to determine who is the
controlling agent behind the act of the Company (MUL). If the Board of
the MUL or the Management of the Bank were fully aware of such
transactions, subordinates who carry out the transactions could not be held
guilty as for the offences for which the accused are charged, mens rea must F
be proved. Therefore, those who are responsible for taking such decision,
could be prosecuted, but not those who are only carrying out directions
on the basis that it is a commercial policy of the Company (MUL) or the
Bank. As stated before JPC, it was an effort to maximise the yield or
surplus funds of MUL and there was no need for the company to take
any action against the officers. Prosecution has failed to prove its case G
against the accused. (280-F, G, HJ

CRIMINAL APPELLATE WRISDICTION: Criminal Appeal No.
1097 of 1999.

H
140 SUPREME COURT REPORTS [2003] 1 S.C.R.

A From the Judgment and Order dated 27128.9.99 of the Special Court,
Trial of Offences relating to Transactions in Securities Act, 1992, Mumbai
in S.C. No. 6 of 1994. +.
WITH
Crl. A. Nos. 1117, 1141, 1150/99 and 521 of 2000.
B
Barish N.Salve, Solicitor General (NP), Ram Jethmalani, Rak'esh
Dwivedi (NP); R.K. Jain, <;,.A. Sundram, Ms. Rani Jethmalani (NP), Ms.
Gouri Kamna Das, Ms. Gitanjali Malviya (NP) Saurabha Avasthi (NP),
PaIVez A Siddiqui, Ms'. Geetanjali Mohan, Barish Gulati, Mahesh Jethamalani
(NP), Ms. Kamini Jaiswal, Mrs. Shomila Bakshi, Ms. Bipakkhi Brothakur,
C Ms. Aishwarya Rao (NP), Ajay Bhalla, P.K. Jain, Aron K. Sinha, R.S.
Mhamane, A Subba Rao, P. Parmeswaran, Tara Chandra Sharma,
Ms. Aparajita Singh, Ms. Sushma Suri (NP), Ms. Mennakshi Sakhardande,
V. Madhukar, Adv. (NP), Ms. Gayatri Goswami (NP), Sidharth Chaudhary
(NP) and Amar Jyoti Sharma for the appearing parties.
(
D The Judgments/Order of the Court were delivered
SHAH, J. 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 'liCO ../
Bank') wherein Barshad S. Mehta A-5 is payee or recipient of the amount,
E which are mentioned hereunder:- -·"'· -

Trans. A-5 Dates Days Rate of Amt. Rs. Interest Amount No. From
To % Rs. Repaid (Rs)

01. Lent 24.01.91 25.02.91 32 12.75 4,99,45,000 5,58,250 5,05,03,250 to
F MUL
Remarks-MUL delivered 35 lacs Units of UT! to A5.

02. Borrow-13.03.91 25.03.9112 16.75 10,11,50,000 5,56,995 10,17,06,200

G -ed
Remarks-UCO gave BR to MUL for 70 lacs Units.

03. Borrow- 18.03.91 22.03.91521.0010,83,75,000 3,11,775 10,86,86,775
-ed
H Remarks-UCO gave BR to MUL for 75 lacs Units.
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 141

04. Borrow- 24.04.91 26.04.91 2 26.25 7,62,45,000 1,09,650 7,63,54,650 A
-ed

Remarks-UCO gave BR to MUL[or 51 lacs Units.
·05. Borrow- 02.05.91 07.05.91 5 25.00 10,39,50,000 2,99,090 10,42,49,090
-ed B
Remarks-Number of Units not known but only value stated in
chargehseet.

Undisputedly, (a) the receipt and the payment of amount was for a
fixed period; (b) interest rate was fixed and was received or paid as agreed; C
(c) for the first transaction, before receiving the money, MUL gave UTI units
as a security; for 2nd, 3rd and 4th transactions UCO bank issued Banks
Receipts (BRs); (d) the transactions are squared-up on fixed date i.e. the
amount is repaid on date fixed; (e) commission/brokerage is received and
credited by the UCO Bank for which there are credit entries in the account D
books; (f) there is no loss to the MUL and the UCO Bank; (g) accounts of
UCO Bank are audited, no objection is raised by internal or external auditors;
and (h) accounts of MUL are also audited and there is no objection raised by
the internal or external auditors to such transactions; (i) no suggestion that
any accused gained by such transactions except that A-5 got loan.
E
On the basis of the aforesaid special features of the prosecution story,
the Special Court, Bombay under Special Court (Trial of Offences Relating
to Transactions In Securities) Act, 1992, (hereinafter referred to as the "SCAM
Act") in Special Case No.6of1994 [RC.2(A)/93-ACU-VIJ] tried five accused
for the offences of cheating, criminal breach of trust, forgery by using forged
documents, abuse of public offices and dishonest misappropriation of the F
public funds under Section 120B read with Sections 420, 409, 467 and 471
of the Indian Penal Code (!PC) and Section 13(I)(c) read with Section 13(2)
of the Prevention of Corruption Act, 1988 (hereinafter referred to as "the PC
Act"). A-I Pramod Kumar Pritarn Lal Manocha, A-2 Ambuj Sushi! Kumar
Jain and A-3 Vinayak Narayan Deosthali were separately charged under G
Section 13(l)(c) read with Section 13(2) of the PC Act as also under Section
409 of !PC. 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 !PC for
fradulently and dishonestly using letter-heads and BRs of UCO Bank, Harnam H
142 SUPREME COURT REPORTS [2003] I S.C.R.

A 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.

By judgment and order dated 27th/28th September, 1999, the learned
B Special Judge acquitted accused No.2 and convicted accused Nos. l, 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 Harshad Shantilal Mehta
are convicted being the parties to criminal conspiracy alongwith Mr.
c Mohan D. Khandelwal (PW23) between the period of April - May,
1989 to May, 1991 in Bombay and Delhi, the object of which was to
divert the surplus funds of MUL lying with its account in Canara
Bank, Sansad Marg, New Delhi branch to the account of A-5 HSM
with ANZ Grindlays Bank, Sansad Marg, New Delhi branch and
D thereby committing offences of criminal breach of trust fraudulently
using forged documents, abuse of public offices, dishonest
appropriation of the amount of Rs.38,97,20,000 punishable under
Section 120-B r/w Sections 409, 467, 468 and 471 of IPC and Section
13(l)(c) read with Section 13(2) of the P.C. Act, 1988.

E 2. ACCUSED NO.I Pramod Kumar Pritamlal Manocha-
(i) A- I is convicted for furtherance of criminal conspiracy in' his
capacity as a public servant viz. being Deputy Manager (Finance)
ofMUL at the relevant time, for causing and/or allowing MUL's
fund wrongfully to be gained by A-5 HSM, being an offence
F punishable under Section 13(l)(c) read with 13(2) of the PC
Act, 1988;
(ii) A-1 is convicted for offence punishable under Section 409 of
IPC for committing criminal breach of trust in respect of property
of Maruti Udyog Limited, Delhi, then Government company of
G 35 lakhs Units of UTI, valued at Rs.4,99,45,000 by dishonestly
and in violation of specific directions of the Board of Directors
of MUL, delivering the same to Mr. Mohan D. K.handelwal
(PW23) in knowing that Mr. Khandelwal was an Attorney of
accused no.5 Harshad S. Mehta;

H (iii) A-1 is convicted for offence under Section 409 of IPC for
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 143
committing criminal breach of trust in respect ofMUL's property A
viz. Canara bank's bankers cheque no.645585 dated 13.3.1999
-+ (Ex.13) for a sum of Rs. I 0, 11,50,000 drawn in favour of
Grindlays Bank and made payees Ale only, by dishonestly
delivering the same to Mr. Anuj Kalia (PW16) knowing that the
said Mr. Anuj Kalia was an employee of accused no.5-HSM;
B
(iv) A-I is convicted for offence under Section 409 of IPC for
committing criminal breach of trust in respect ofMUL's property
viz. Canara Bank's Bankers Cheque No.863260 dated 2.5.1991
(Ex.36) for a sum of Rs. I 0,39,50,000 drawn in favour of
Grindlays Bank and made payees Ale only by dishonestly
delivering the same to Mr. Anuj Kalia (PW-16) knowing that c
the said Mr. Anuj Katia was an employee of accused no.5 -
HSM;
---< 3. ACCUSED N0.3 Vinayak Narayan Deosthali-
(i) A-3 is convicted for an offence under Section 13(l)(c) read D
with Sect'ion 13(2) of PC Act in furtherance of criminal
' io his capacity as a public servant viz. being Asst!.
conspiracy,
Manager of U~ Bank, Hamam Street Branch, Bombay which
is the Govern ent 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; E
(ii) A-3 is convicted under Section 467 of JPC 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 Rs.4,99,45,000 to
Bank of America, New Delhi by accused No.5 to MUL, Delhi F
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 G
intending that the same could be used for cheating;
(iv) A-3 is convicted under section 471 rlw section 467 and 468 of
IPC for having forged a letter dated 23.1.199 I (Ex.58) of UCO
Bank, Hamam Street Branch, Bombay knowing it to be a false
and forged document; H
144 SUPREME COURT REPORTS [2003) I S.C.R.

A (v) A-3 is convicted under Section 467 off PC for having forged on
or about 13. l.1991 the document to be a valuable security with
the banker receipt No.1121 dated 13.3.1991 (Ex.38) for
Rs.IO,l l,50,000 with intent to make MUL believe the UCO
Bank, Hamam Street Branch, Bombay was holding 70 lacs units
of UTI for the face value of 7 crores and which UCO Bank was
B to deliver to MUL;

(vi) A-3 is convicted under Section 468 of IPC for forging valuable
security with Bankers Receipt No.1121 dated 13.3.1991 (Ex.38)
of UCO Bank for the sum of Rs. I 0, 1.1,50,000 in the name of
MUL with the intent that the said document should be used for
C. cheating;

(vii) A-3 is convicted under Section 471 r/w sections 467 and 468 of
IPC for dishonestly using forged bankers receipt No.1121 for
the sum of Rs.I0,11,50,000 (Ex.38) as genuine;

D (viii) A-3 is convicted under Section 467 of IPC for having forged
at Bombay the letter dated 13.3.1991 (Ex.60) on the letter head
of UCO Bank, Hamam Street Branch, Bombay with the intent
to dishonestly authorize remittance of funds of MUL amounting
to Rs. I 0, 11,50,000 to Grindlays Bank knowing that the said
remittance was meant to cause wrongful gain to A-5;
E
(ix) A-3 is convicted under Section 468 of IPC for having forged the
letter dated 13.3.1991 (Ex.60) intending that it should be used
for cheating;
(x) A-3 is convicted under Section 471 r/w Sections 467 and 468
F of IPC for having fraudulently and dishonestly used the letter
dated 13.3.1991 (Ex.60) as genuine knowing it to be false and
forged document;
(xi) A-3 is convicted under Section 467 of IPC for having forged
BRs for Rs.I0,83,75,000 (Ex.39) with the intent to make MUL
G believe that UCO Bank was holding 75 lacs units ofUTI of the
face value of Rs.7,50,00,000 which UCO Bank, Hamam Street
Branch, Bombay was to deliver to MUL;

(xii) A-3 is convicted under Section 468 of IPC for having forged
valuable security viz. BR No. l 132 dated 18.3.1991 for
H Rs.10,83,75,000 (Ex.39) of UCO Bank intending that it should
l

R.N. POPLI v. C.B.I. [M.B. SHAH. J.) 145

be used for cheating; A
-+ (xiii) A·3 is convicted under Section 471 r/w Sections 467 and 468
of IPC for dishonestly using the BR No.1132 dated 18.3.1991
for Rs.10,83,75,000 (Ex.39) as genuine;
(xiv)A-3 is convicted under Section 467 of IPC for having forged B
valuable security of UCO Bank, Hamam Street Branch, Bombay
viz. BR No.166 dated 24.4.1991 for Rs.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 face value
of Rs.5, I 0,00,000 with UCO Bank to be delivered to MUL;
(xv) A-3 is convicted under Section 468 of IPC for having forged C
valuable security being BR No.166 dated 24.4.1991 for
Rs.7,62,45,000 (Ex.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 !PC for having fraudulently and dishonestly used the said BR D
dated 24.4.1991 (Ex.41) as genuine knowing it to be a false and
forged document;
4. ACCUSED N0.4 Ram Narayan Popli-
.. '<
(i) A-4 is convicted under Section 409 IPC for having dishonestly E
credited banker's cheques No.645532 dated 25.2.1991 for sum
of Rs.5,05,03,250 (Ex.28), 646402 dated 18.3.1991 for
Rs.10,83, 75,000 (Ex.32) and 863237 dated 24.4.1991 for
Rs.7,62,45,000 favouring Grindlays Bank into the account of
accused no.5 HSM ~ith Grindlays Bank, New Delhi instead of
crediting the said Cheque into the account of Grindlays Bank, F
New Delhi;
S. ACCUSED NO.S Harshad Shantilal Mehta-
(i) A-5 is convicted under Section 403 oflPC for having dishonestly
misappropriated four bankers' cheques to wit:-
G
(a) Cheque No.645585 dated 13.3.1991 for
Rs.10,11,50,000, (ii) cheque no.646402 dated 18.3.1991
for Rs.10,83, 75,000, (iii) cheque no.863237 dated 24.4.1991
for Rs.7,62,45,000, (iv) Cheque no.863260 dated 2.5.1991
for Rs.10,39,50,000 [Exs. 30, 32, 34 and 36] aggregating
to Rs.38,97,20,000 drawn by MUL on its bankers viz. H
146 SUPREME COURT REPORTS (2003) 1 S.C.R.

A Canara Bank, Sansad Marg Branch, New Delhi in favour
of Grind lays Banks.'

Against the said judgment anq order, A-1 Pramod Kumar Pritam Lal
Manocha has filed Criminal Appeal No.1117 of 1999, A-3 Vinayak Narayan
Deosthali has filed Criminal Appeal No. I 141 of 1999, A-4 Ram Narayan
B Popli has filed Criminal Appeal No. -1097 of 1999 and A-5 Harshad Shantilal
Mehta has filed Criminal Appeal No. 1150 of 1999. Against the acquittal
order of A-2 Ambuj Sushi! Kumar Jain, Central Bureau of Investigation has
filed Criminal Appeal No.521 of 2000.

C It is to be stated that pending hearing and disposal of these appeals A-
5 expired on 31.12.2001. Normally, appeal would have abated against him.
However, his wife filed Criminal Misc. Petition No.574 of2002 on 16.1.2002
for continuing the said appeal. By order dated 24.1.2002, we granted such
permission and appeal is heard on merits.

D The prosecution version is that A-1 Pramod Kumar Pritam Lal Manocha
was an employee (Dy. Manager) of MUL-a government Company as
provided under Section 6(l)(vii) of the Companies Act; A-2 Ambuj
Sushilkumar Jain was also an employee (Senior Executive) of MUL, who
joined MUL on 19.4.1989; A-3 Vinayak Narayan Deosthali was an employee
(Assistant Manager) of UCO Bank at Hamam Street Branch, Mumbai; A-4
E Ram Narayan Popli was an employee (Officer attached to the Remittance/
Clearance Section) of ANZ Grindlays Bank, Delhi Branch; and A-5 Harshad
Shantilal Mehta was a financial broker operating in money market and
securities. In short, it is the prosecution version that A- l to A-5 entered into
a criminal conspiracy to siphon off the funds of MUL in favour of A-5 for
F 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
G 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.
H
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 147
It is also the prosecution version that they [A I, A2 and A3] being A
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 were charged with an offence u/s 13(1)(c) of the
PC Act.
B
It is further stated by the prosecution that A-1 alongwith A-3, A-4 and
A-5 conspired to obtain funds from MUL under the pretence that the funds
were being drawn for purchasing securities from UCO Bank but diverted
these funds to the accounts of A-5 for which A-I and A-2 played the role of
misrepresenting to MUL and withdrawing the funds. A-3 forged documents C
which helped A-1 to secure the release of monies from MUL. A-1 conspired
alongwith A-3 and A-4 for making money available to A-5, who became the
prime beneficiary of the money. The bankers' cheques were handed over, on
the instructions of A-1 and A-2, to Anuj Kalia an employee of A-5.

SUBMISSIONS - D
Learned senior counsel Mr. Ram Jethmalani appearing for A-5 at the
outset submitted that from the aforesaid five transactions, it is apparent that
the investment/loan was for a short period. Yield - interest is at a higher
rate. According to him, the amount is received and paid on due dates. There
is no loss to MUL or to the UCO Bank and the Bank has received commission E
for the said commercial transactions. First transaction is loan taken by the
MUL through UCO Bank from A-5 on the basis of 35 lacs of UTI units given
by MUL to A5 through UCO Bank. It is his submission that in view of these
facts it is apparent that prosecution is motivated and the conviction of the
accused requires to be set aside.
F
For the prosecution, it is the contention of the learned Solicitor General
Mr. Harish N. Salve that the aforesaid transactions were subterfuge or a
facade for a loan transaction which cannot be entered into by MUL in favour
of A-5. It is his contention that in the background of the resolutions passed
by the Board of Directors of MUL and on the basis of the guidelines issued G
by the RBI, MUL could not giv~ loan to A-5 and, therefore, there was a
conspiracy between A-I and A-5 for diverting the funds of MUL by having
subterfuge of sale or purchase of units of UTI by the UCO Bank to MUL.
In furtherance of the said conspiracy, for 2nd to 5th transactions, A-I got
issued cheques by the Canara Bank in favour of Grindlays Bank which in
tum transferred the said amount in account of A-5, first at Delhi and thereafter H
148 SUPREME COURT REPORTS [2003) I S.C.R.

A at Bombay. ANZ Grindlays Bank's Bombay Branch issued cheque to UCO
Bank at Hamam Street and from there the amount was paid to A-5.

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
B 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
C creating forged documents.

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-
D 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 units by UCO Bank to MUL, the transactions
would have been straight forward between UCO Bank and MUL. It is the
prosecution version that brokering by bank is not allowed and, therefore, to
E contend that commission was paid to UCO Bank is not a just ground for
holding that there was no misappropriation or forgery. If there was a genuine
transaction then the cheques would not have been issued in favour of Grind lays
Bank for so-called expeditious movement of funds. If a person acts in a
manner which is sinister or contrary to law then it cannot be said that the
F transaction was as per the commercial practice. It is a case of forgery because
certain sets of documents are created where there is no real or genuine
transaction. It is also contended that A-3 was not having any authority to
purchase or sell units on behalf of the Bank. Secondly, he got letters. Exs.58,
60 and 6 I typed outside the office and nobody knows wherefrom the said
letters were got typed and this would not be in normal course of business.
G This would be a most relevant factor for judging whether his act was dishonest
or not. A-3 wrote a document, which he had no authority to write, with a
specific motive to enable the transaction to be completed and money pulled
out of MUL and he issued Bank Receipts (hereinafter referred to as 'BRs')
without having security, namely, having UTI units. The learned counsel admits
H that there is no direct evidence on record to establish that BRs were issued
R.N. POPLI v. C.B.l. (M.B. SHAH, J.] 149

without possessing the units but inference can be drawn that the same were A
-j. issued without holding units as A-3 has not maintained any record for this
purpose.

Contra, Mr. Jethmalani, learned senior counsel submitted that despite
the voluminous record consisting of 40 massive volumes, the case remains a
simple one. Admittedly, five transactions took place between MUL and A- B
5 during the period from end of January to beginning of May, 1991. As per
the first transaction, A-5 lent money to MUL. Loan period was for a period
of 32 days and the interest rate was 12.75%. MUL returned the loan amount
on due date with agreed interest. This was secured loan as MUL transferred
and delivered 35 lac units of UT! to A-5. Though, formally it was an out and C
out sale by MUL to A-5, it was understood that this was only to secure
repayment of the loan on due date.

It is the case of A-5 that except for first transaction 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 D
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. E
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
conter.ds that transactions were loan transactions because in all these F
transactions the rate of interest and number ~f 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 preliminary enquiry which started from 15.9.1992 as well
as in the charge-sheet submitted by the CBI on 15.12.1994 was that MUL G
gave loan to A-5 at a lower rate of interest and suffered loss.

The learned senior counsel submitted that FIR was lodged after
investigation for seven months and charge-sheet was submitted after more
than one year and eight months, which itself indicates that CBI knew that
there was no case to be put up before a Court and the investigation was kept H
150 SUPREME COURT REPORTS (2003) I S.C.R.

A alive for sordid and dishonest motive. He pointed out that-{ I) the CBI itself
.,
understood that the FIR was based upon the one single allegation that MUL +·" ·C

should have received more interest than it actually received. The charge-
sheet nowhere states that at the time of the FIR the nature of these five
transactions was misunderstood or that they changed their mind after
investigation; (2) paragraph 4 of the charge-sheet expressly confirms that the
B first transaction was loan transaction inasmuch as it is averred that MUL
borrowed the amount at a higher rate of interest at 12.75% per annum for 32
days against physical delivery of 35 lacs Units of the UTI; (3) paragraph 5 ~
of the charge-sheet refers to the transaction of· I3th March, 1991 which
describes it as an investment of I 0 crores and odd from MUL for a period
c of 12 days at the interest rate of 16.75% per annum. This is nothing but a
loan to Harshad S Mehta; (4) paragraphs 6, 7 and 8 contain similar descriptions
of the remaining transactions:-
~
He further submitted that cheques were drawn in favour of Grindlays
bank for expeditious transmission of amounts to A-5, the loan transactions
D were only for a few days and if couple of days are lost in realising the
amounts through normal banking pr~ctice, the accused was to lose lacs of
rupees. For this, he relied on evidence of prosecution witnesses that such
facilities were available only in foreign banks.
>-.
He contended that there is no evidence on record that Grindlays bank
E or the Canara bank had any objection to this course of dealing. He further
contends that there is no question of conspiracy to siphon off the surplus
funds of MUL as the amount was lent on security and repaid with interest on
due dates. He contends that prosecution has tried to prove the theory of so-
called absurd conspiracy by the sole evidence of approver PW23 and has
F failed to prove the same miserably. He pointed out that before taking loan,
units of UTI were deposited or were with the UCO Bank and there is no ,-4
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
G Bank have admitted that necessary record was not maintained by the bank
because of heavy pressure of work.
.J__
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
H no case against the accused. After investigation, it was discovered that the
R.N. POPLI v. C.B.I. [M.B. SHAH, J.) 151
BRs were indeed backed up by the securities, hence the CBI filed closure A
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.

In written submissions filed on behalf of A-5, it has been further stated
that the charge against A-5 reads as under: - B
"That you accused no.5 in furtherance of ihe aforesaid conspiracy did
·dishonestly misappropriate 4 banker's cheques to wit. Cheque
No.645585 dated 13.3.1991, cheque no.646402 dated 18.3.1991,
cheque no.863237 dated 24.4.1991 and cheque no.863260, dated C
2.5.1991 aggregating to Rs.38,97,20,000 drawn by MUL on its bank
to wit the Canara Bank, Connaught Place Branch in favour of the
ANZ Grindlays Bank and you thereby committed an offence under
Section 403 of the IPC."

It is contended that the point of determination is - whether this charge D
is legally sustainable. In other words whether borrowing money on four
occasions and returning it on the due date with interest is an offence under
Section 403 of the !PC? The answer to this point is - a resounding No.

The learned senior counsel further submitted that following are the
ingredients of the offence charged above: - E
(i) that the accused appropriated the cheques to himself;

(ii) that the appropriation was a misappropriation;
(iii) that it was dishonest.

He submits that the first ingredient is satisfied-A-5 appropriated the F
cheques or their proceeds to himself. A person misappropriates only when he
appropriates property to himself which in fact belongs to somebody else and
he does so without that person's consent. Grindlays bank had not negotiated
the loan for itself. Cheques were being issued for the purpose of lending
money by MUL to AS. The cheques and their proceeds were meant for the G
accused and it was the accused who was receiving it by a pay order in the
name of Grindlays Bank. It is not the prosecution case that the amount was
in fact meant for Grindlays bank but it is the prosecution case that the amount
was meant only for A-5.

It is argued that when in the four transaction the loan was advanced by H
152 SUPREME COURT REPORTS (2003) 1 S.C.R. ·

A MUL to A-5, it was done every time by a pay order. Under that pay order
issued by the Canara Bank, it was to pay a sum of money to Grindlays bank.
Grindlays bank acknowledged the receipt. This pay order had been given by
the Canara Bank to an employee of A-5. The very fact that this was so
handed over shows that Canara Bank must have received instructions from
B their own customer that the cheque be handed over not to an employee of
Grindlays bank but to some other person.

Further, it is submitted that the contention of the prosecution that the
Grindlays bank should have first credited the amount to itself and then after
some interval paid to its customer A-5, is without any substance as what has
C been do\le 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, Asstt. Manager, ANZ Grindlays Bank has fully supported the
D 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
E 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 if somebody suffers a loss. If the
banker is certain who the beneficiary of the cheque is, it may well pay out
in the certain belief that no loss will occur. It is a manifestly untenable
F proposition that a criminal breach of trust or misappropriation thereby takes
place. Even if it is assumed that the cheque was property of Grindlays bank,
the bank cannot be said to have committed any offence by passing on its
property to anybody it likes. By allowing the proceeds to be credited to the
account of its true customer, the Bank is neither guilty of negligence nor of
G any criminality. Similarly, no oCicer of the bank could be held liable for the
same and there is no question of any liability for A-5. There is no evidence
that Grindlays bank or the Canara bank had any objection to this course of
dealings. Certainly there was no intention to cause wrongful loss to anybody
because no loss has been caused and no unlawful means were used.

H Learned senior counsel referred to the decision in Dr. Vim/av. Delhi
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 153
Administration, [1963] Suppl. 2 SCR 585 and submitted that unlike the above A
case, every thing in the present case is above board, there is no deceit, there
is no falsehood· and suppression of truth.

It is contended that an approver's evidence cannot be accepted without
corroboration and certainly not when it is in conflict with the unchallenged
testimony of another prosecution witness. There was no justification for the B
Court to come to the conclusion that it is accused no.5 who is responsible for
these pay orders being credited directly in his account. Of course, it is without
prejudice to the arguments that the amount is not directly put into his account.

It is contended that even though it was necessary to recall PW16 for the
cross-examination on the new falsehoods which were introduced through the C
examination-in-chief and cross-examination of PW23, but the learned Judge
dismissed the application filed on behalf of A-5 and it has caused incalculable
damage. The illegality is of such vital importance that it vitiates the entire
trial and judgment.
D
The charge of conspiracy against A-5 is legally and factually absurd,
false and frivolous. The alleged conspiracy is supposed to have originated in
April/May, 1989. The sole prosecution witness who deposed about the alleged
meeting of April/May, 1989 is approver PW23. The evidence discloses that
PW23 had stated a willful falsehood in deposing about the said meeting. His
own sworn testimony unambiguously establishes that the meeting alleged by E
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 A I and A-2, he states that: "I cannot say about the frequency of visits of F
A-5, but I recollect he having visited Delhi once sometime in April, May,
1989."

PW23 makes passing reference to A-2's presence at the alleged meeting
so that it could be said that it was a condonable lapso of memory on his part.
On appreciation of his evidence, it cannot be said that he had an understandably G
vague memory regarding A-2'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 present at the
meeting, PW23's insistence that A-2 was so present, leads to the irresistible H
)

154 SUPREME COURT REPORTS [2003) I S.C.R.

A inference that his deposition regarding the alleged meeting is totally concocted.

It has come on record that PW23 disclosed regarding the alleged meeting.
only on I 0.8.1994. Indeed, the very suggestion by PW23 that a police officer
who interrogated him would not question him about the circumstances of five
transactions is absurd and incredible. The said meeting being a crucial aspect
B of the instant prosecution ought to have been referred to in the very first
statement of PW23. The fact that it was not so referred to conclusively
established that the meeting never took place and reference to it in PW23 's
later statement of I 0.8.1994 and in his judicial confession recorded u/s 164
CrPC was at the instance of the CBI to whose suggestions he readily acceded
C in view of an agreement to make him an approver. It is further contended by
the learned counsel for the appellant that in fact no such meeting ever.took
place and consequently. the conspiracy charge insofar as it is alleged to have
commenced from April/May, 1989 is unsubstantiated by any evidence and in
fact falsified by it as-

D (a) the veracity of PW23 has been destroyed in cross examination.
He denied his taped conversation and feigned ignorance of police
statement. He suppressed truth from the JPC.
(b) Para 160 at page 294 of the impugned judgment, contains a
legal error. The learned Judge treats as corroborative evidence
what in law and common sense is not corroborative evidence at
E
all. Learned Judge has held that evidence of Khandelwal is
corroborated from what followed thereafter in the form of various
transactions between MUL and A-5. It is contended that the
conspiracy of 1989 cannot be corroborated by transaction in
1991.
F
(c) In charge no. I. one of the objects of the conspiracy is alleged
to be 'dishonest misappropriation'. This has obviously reference
to the 34th charge against A-5. On the facts this charge cannot
be established. For the same reason the charge u/s 409 IPC
against A-5 cannot stand. The other section mentioned is 420.
G The learned Judge has recorded no conviction under this charge
and all the accused against whom this charge was framed are
deemed to be acquitted of this charge.

The charge of conspiracy is cooked up to cover first three transactions
which were prior to 1st April, 1991. Further, the RBI's Circular dated 09.9.1992
H Ex.148 recognizes that there was a practice followed even by the Scheduled
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 155

banks. When banks follow a particular practice they do so at least in the A
bonajide belief that the practice did not violate any law. If a practice is
-j 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. B

~ MOTIVATION BEHIND THE INSTANT CASE:

There are several salient features of the instant prosecution which clearly
show that the entire investigation has been dishonest.
c
It is almost trite to suggest that the SCAM Act was promulgated with
a view to recover public monies Jost by certain banks and financial institutions
~+ in securities where such losses arose 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 unnecessary and the D
Special Court was not to try such transactions even if they amounted lo some
technical offences. If the aforesaid two propositions are correct, then, there
is simply no justification for the instant prosecution.

The Joint Parliamentary Committee (JPC) succinctly set out the
·" dimensions of the scam in its report. The Committee highlighted various E
irregularities and fraudulent transactions undertaken by the Banks and Financial
Institutions etc. in the six reports submitted by it.

Yet, inspite of all the above mentioned features peculiar to the instant
case, the charge sheet in the present case was one of the earliest to be filed
against A-5. In view of the palpable lack of nexus between the instant F
.._ prosecution and legislative intent in enacting the SCAM Act the question can
arise as to why the CBI chose to investigate and prosecute the instant case.
This question has a clear answer that the CBI chose to pursue the instant case
and other cases in which PW23 had acted on behalf of A-5 in New Delhi in
transactions with public sector undertaking to intimidate and blackmail PW23 G
for not supporting A-5's public declaration from June, 1993 onwards that he
had paid the sum of Rs. 1 crore to the then Prime Minister at his residence
·
.l._ in Delhi. In simple words, if PW23-a vital witness in A-5's allegation
against the then PM-supported the allegation of A-5, then he would be
prosecuted along with accused no.5 in the instant case and other cases. If he
cooperated and did not support A-5, he would be granted a pardon in the said H
)

156 SUPREME COURT REPORTS (2003) I S.C.R.

A cases. The forum in which the cooperation of PW23 was sought for was in
proceedings before the JPC which inter alia was to inquire into A-S's allegation
against Slui Narsimharao, the then Prime Minister. Following consequences t-
of events conclusively establish the quid pro quo referred to between the CBI
and PW23.

B (a) In June, 1992, PW23 met the then Director CBI. This is admitted ....
by PW23. The Director told him that if he wanted to disclose
something, he should meet Mr. PC Sharma, the then DIG Special
~
Investigation Wing.
(b) PW23 met Mr. Sharma on a number of occasions thereafter.
c (c) JPC was informed by Mr. Sharma that PW23 was sent to him
as a 'source'. What was the source disclosed to Mr. Sharma has
not been revealed by the latter to the JPC as he did not wartt to
betray his source. ~-

(d) Notwithstanding the fact tl1at PW23 first met the CBI as a source,
D 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 x.
E
CBI about 4 cash withdrawals from banks in Bombay and Dellri
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 persecution.
F
(g) Although the CBI replied A-S's letter on 2S.2.1993 to the effect
that it was beyond their power to grant such protection, they .A
continued to make efforts in March, 1993 to obtain A-S's
narration on the said cash withdrawals. It is only after they
failed to obtain such a narration that the FIR in tlle instant case
G 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.
_,l._
IO PW25 says that decision to name PW16 in the FIR was that
of the Superintendent of Police V.D. Maheshwari and the
H investigating agency and that he had to agree with that decision.
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 157
Further, they decided not to cite PW23 as an accused in the FIR. A
(i) The evidence of VD Maheshwari as a court witness completely
-;
corroborates the fact that the FIR was registered not because the
investigating agency had applied its mind and such application
had revealed to it that the case prima facie disclosed offences
which deserved to be investigated but was to extort PW23's B
support in connection with the conditional disclosures that A-5
offered to make. Thus in his cross-examination on behalf of A-
:+ 5, he does not even remember the following-

(i) whether he questioned A-5 before the FIR was registered;

(ii) whether he interrogated any of the other accused in the
c
instant case before the FIR was registered;

(iii) whether he interrogated PW23;

(iv) whether he discussed the matter with the IO; D
(v) whether the IO submitted any written report on the outcome
of the preliminary enquiry;

(vi) whether at the time of registration of the FIR he had
determined the role of PWl6; E
(vii) why PW23 was not named as an accused in the FIR which
came to be registered;

(viii) whether he personally referred to any documents before
deciding to register the FIR. F
All the above circumstances reveal the non- application of mind
which the investigating agency displayed in filing the FIR. The only
circumstance that Maheshwari recalls is that the decision to lodge the
FIR was a unanimous one.
G
(j) The investigation concluded on 4.11.93 when the IO PW25
recommended the prosecution of all the accused including PW23.
Although the investigation had ostensibly concluded, no charge
sheet was filed. Obviously, the CBI was awaiting the outcome
of the event.
H
158 SUPREME COURT REPORTS (2003) I S.C.R.

A (k) The JPC prepared its report in December 1993. In January 1994,
the said report was made public. The report disclosed that PW23
fulfilled his part of the bargain with the CBI refusing to support +--
A-S's public claim that the cash withdrawals made by him in
November 91 were utilized for paying a sum of Rs.I crore to
the PM, which claim became public by virtue of a press
B conference held on 16.6.1993.
(I) In the very next month after the publication of JPC report, a
charge-sheet was filed in a case dealing with the funds of Power -f·.>
Finance Corporation in which A-5 and PW23 were cited as
accused.
c (m) On 26.5.1994 PW23 made an application u/s 306 read with
S.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.
D
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 ).<,
E
Dr. Ramkrishna Yadav, M.M., New Delhi who ultimately
recorded ·the judicial confession (Ex. I 39) of PW23 on
21.10.1994.
Ultimately, the application for grant of pardon was accepted
by the same Magistrate.
;f
Very soon, after the said pardon was granted, the charge
J_
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 ~
,..,
J 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
exercises jurisdiction; the fact that all five transactions were _,k
prior to the RBI circular of 26.7.1991; the allegation of A-5
against the then PM; the abdication by the IO of the powers and
l

R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 159

discretion vested in him by the CrPC to his superiors in the CBI A
in the matter of proceeding with this case; the total non-
application of mind of those superiors in lodging the FIR on
"'I
15.4.1993; the untenability of the charges both in law and in
fact against all the accused, the manifest incompetence and
negligence in investigation on the part of the CBI and the attempt
to wilfully suppress material and politically sensitive documents B
in the case all indicate that the present case far from sub-serving
the objects for which the Special Court was established, is a
colossal waste of public time and money, a travesty of justice
and an unfortunate reminder of how individuals subvert our
criminal justice system by causing institutions like the CBI to C
file cases which are only vehicles to subserve their own private
interests.

Lastly, the learned senior counsel for A-5 submitted that not only A-
S and others charged alongwith him be acquitted of all charges, but strictures
against the investigating agency for bringing the system of criminal justice D
administration into disrepute be passed.

Before dealing with the contentions raised by the learned counsel for
A-5 and CBI and before narrating submissions made by the counsel for rest
of the accused, we would first refer to: -
E
A. Allegations in the FIR and charge-sheet
B. Relevant Part of the Report of the Joint Parliamentary Committee
(JPC).

A. ALLEGATIONS IN THE FIR AND CHARGE-SHEET.
F
The FIR was recorded on 15.4.1993 by the CBI after Preliminary inquiry
which started on 15.9.1992, wherein it is inter a/ia stated as under:-

(i) During Jan., 1991 to May, 1991 Shri Pramod Kumar was
functioning as Dy. Manager (Finance) and Shri Ambhuj Jain
was functioning as Sr. Executive in the Corporate Finance Cell G
at the Corporate- Office of MUL, New Delhi, and they were
having control and dominion over the surplus funds of MUL
which they were handling for investments with various agencies.
These investments were being made in each case with the specific
approval of a Sub Committee for investments consisting of Shri H
)

160 SUPREME COURT REPORTS (2003] I S.C.R.

A R.C. Bhargava then CMD MUL and S. Natrajan, then Director .
(Finance) MUL. During this period MUL was a public sector
undertaking and these officials were public servants.
'r--
(ii) S/Shri Promod Kumar and Ambhuj Jain entered into a criminal
conspiracy during the period from January 1991 to May 1991
B 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 -f .-
the object to misappropriate the said surplus funds of MUL and
c 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. Deosthali
wrote a letter on 24.1.91 to MUL to effect physical delivery of ,,+-
D 35 lacs units of UTI to Sh. Mohan Khandelwal, the attorney ~f
Sh. Harshad S. Mehta and an amount of Rs.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 3 5 lac units of UTI. The
E physical delivery of 35 lac units was taken by Sh. Anuj Kalia ')<,
on the basis of receipt given by Sh. Mohan Khandelwal on the
letter head of Sh. Harshad S. Mehta. After expiry of 32 days the
principal amount together with interest totalling to Rs.5,05,03,250
was refunded by MUL on 2.5.91 for this refund Sh. Ambhuj
F Jain obtained banker's cheque in favour of ANZ Grindlays Bank
out of the account of MUL in Canara Bank, Sansad Marg, New
Delhi and the cheque was delivered to Sh. Anuj Kalia, an
)
employee of Sh. Harshad S. Mehta. Although the said cheque
was in the name of ANZ Grindlays Bank, Shri R.N. Popli, officer
of ANZ Grindlays Bank, Sansad Marg, New Delhi with oblique
G motive credited the same into the account of Shri Harshad S.
Mehta and then transferred it to his account in Bombay.

(iv) The transactions of 13th March, 18th March, 1991 and 24th
April, 1991 are referred to in para 5. The said paragraph itself
recites the number of days and the rate of interest.
H
R.N. POPLI v. C.B.I. [M.B. SHAH, J.) 161
For these investments, Banker's cheques were obtained by S/ A
Shri Pramod Kumar and Ambhuj Jain from the account of MUL
in Canara Bank, Sansad Marg, New Delhi in the name of ANZ
Grindlays Bank and the same were collected by Shri Anuj Kalia
who deposited the same into the account of Shri Harshad S.
Mehta in ANZ Grindlays Bank, Sansad Marg, New Delhi. As
these Banker's cheques were in the name of .ANZ Grindlays B
Bank, they should have been credited into the account of the
bank but Shri R.N. Popli in connivance with his co-conspirators,
credited the same into the account of Shri Harshad S. Mehta
unauthorisedly. On reversal of these investments the amounts
were credited in the account of MUL from the account of Shri C
Harshad S. Mehta.
-+. For the above investments, Shri V.N. Deosthali issued bogus
bank receipts unauthorisedly in pursuance of the said conspiracy.
With regard to the 5th transaction dated 2.5.1991, similar
averments are made in paragraph 7. D
(v) The enquiry into the said PE disclosed that MUL, Delhi during
the said period had invested its huge surplus amounts with other
banks and public sector undertakings on higher rate of interest.
Similarly, during the same period other public sector undertakings
had invested their funds at much higher rates then the rate of E
interest on which MUL had made aforesaid four investments.
(vi) S/Shri Pramod Kumar and Ambhuj Jain in pursuance of said
conspiracy misappropriated 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 F
pecuniary advantage to the co-conspirators and corresponding
loss to the MUL.
.. 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 G
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 aonum 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 aod odd from MUL for a period of 12 days at the H
)

162 SUPREME COURT REPORTS [2003] I S.C.R.

A interest rate of 16.75% per annum. (3) paragraphs 6, 7 and 8 contain similar
descriptions of the remaining transactions. (4) Para 3 of the FIR is the basis
for conspiracy during the period from January 1991 to May 1991.

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 were made
B in each case with the specific approval of Sub-committee for Investment
consisting of Mr. RC Bhargava, the then Chairman and Managing Director
(CMD), MUL and S. Natrajan then Director (Finance), MUL. Allegation in
the FIR is that for the first transaction MUL borrowed the amount at higher
rate of interest of 12. 75%. With regard to the remaining transactions it is
C alleged that MUL gave funds to A-5 at a lower rate of interest and thereby
pecuniary advantage accrued to the borrowers and MUL suffered
corresponding loss. Same is the position in the charge-sheet.

Further, there cannot be any dispute that the FIR and the charge-sheet
is the basis in a warrant triable case. Charges were also framed on the basis
D oi" FIR as well as other material produced by the investigating agency. The
CBI itself understood that MUL should have received more interest than it
ac.tually received. The charge-sheet nowhere states that at the time of lodging
of the FIR the nature of these five transactions was misunderstood.

Further, in the FIR as well as in the charge-sheet it is stated that
E conspiracy between the accused for the alleged transaction took place during
the period from January 1991 to May 1991.

B. RELEVANT PART OF THE REPORT OF JOINT
PARLIAMENTARY COMMITTEE (JPC).

F JPC noticed the findings of Janakiraman Committee's Report submitted ~
in May 1992 that unscrupulous brokers in collusion with certain bank officials
had manipulated securities transactions of banks and financial institutions for
their own purpose in a variety of ways and in clear violation of the established
rules, guidelines and prudent business practices. Parliamentary Committee
G also noticed (i) number of irregularities including extensive use of BRs for
ready forward transactions, (ii) issuance of number of. BRs on the basis of
one outstanding BR and issue of BRs having no backing of securities, (iii)
facilitating the brokers to take temporary position in Government securities
without involvement of their funds by putting the transactions through brokers
account and issuing BRs on behalf of brokers.
H
R.N. POPLI v. C.BJ. [M.B. SHAH, J.) 163
For the BRs, the Committee observed as under: A
4.6 "The three instruments widely misused in the irregular
transactions were (I) Bank Receipts (BRs); (2) Subsidiary
General Ledger (SGL) transfer forms; and (3) Bankers cheques.
BR is a non-transferable unstamped trust receipt issued by a
bank selling securities when it is not able to effect physical · B
delivery of the securities sold even after the receipt of the
purchase consideration for reasons such as the securities are
lying at another centre. 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 C
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 D
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 IOBl/IFCI/
>-· ICCl/NABARD etc. The RBI for the first time inter a/ia issued
instructions to banks in this regard in their Circular of 26. 7.1991 E
(Appendix-IX). A similar receipt issued by a non-banking
financial company is termed 'Security Receipt' (SR) and such
receipts also came to be freely used in security transactions.
4.32 The Committee is led to the conclusion that the BR system has
been considerably misused. Every step should, therefore, be taken F
to prevent recurrence of such things in future. There is need for
reforms of the BR system, for example, by way of reduction in
the period of its validity and imposing of severe penalties for its
misuse.
G
MANIPULATIONS TO FAVOUR BROKERS

..... CREDITING OF CHEQUES TO BROKERS' ACCOUNTS

12.14 The scrutiny of securities transactions in a number of banks
revealed that some banks were even handing over Account payee H

•
164 SUPREME COURT REPORTS (2003) I S.C.R.

A cheques drawn in favour of other banks to the brokers who got
them credited to their account ostensibly to assist the latter in
transferring funds quickly to meet their obligations. As per
informal understanding and in the name of market practice, the
payee-bank used to credit the proceeds to the accounts of the
broker constituents who brought the cheque to it for collection.
B These practices were in gross violation of the instruction that
the accounts of banks with RBI, should be utilised only for
genuine inter bank transactions and not for transfer of funds to
their clients. The total amount diverted to the brokers accounts
and the ultimate disposal of funds has not been determined.
c Some instances are however given below.
12.15 In respect of investment transactions between PFC and UCO
Bank during the period.July, 1990 to May, 1991, 16 bankers
cheques totalling Rs.394.23 crores were unauthorisedly issued
in favour of ANZ Grindlays which were irregularly credited to
D the account of HSM.

ROUTING OF TRANSACTIONS
12.24 Many brokers e.g. HSM, HPD, ADN, Excel & Co., NKA etc.
used some of the banks as 'routing' banks which carried iarge
volume of securities transactions for them. Thus Andhra Bank,
E
UCO Bank, BOK, Bank of Madura and ABFSL carried
transactions of the value of over Rs.77,000 crores for brokers
and others during April, 1991 to May, 1992. These banks, thus,
provided special privilege to a select few brokers by lending
their names to the transactions of these brokers totally
F disproportionate to the income derived and exposed themselves
to great risk by irregularly issuing their own BR or SGL transfer
forms against BR received or to be received in their favour.

SINGLE POINT CLEARANCE

G. 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/
H
R.N. POPLI v. C.B.I. [M.B. SHAH. J.] 165
institutions. Cheques drawn on UCO Bank had been credited to A
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 B
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 C
facility had enabled HSM to put through the transactions through
the Securities Division itself and also to get bankers cheques in
·+
favour of SBI credited to his account and issue of cheques against
the credits. The SB! in a note furnished to the Committee stated
that the letter dated 19.8.91 was not traceable but the letter D
dated 10.01.92 did make a reference of the same. The Committee,
however, obtained a copy of the letter dated 19.8.91 from HSM.
In this letter, HSM while requesting for the facility of obtaining
bankers cheques against presentation of bankers cheques in
.k
bank's favour argued that there would be no outlay of any funds
by the bank. On the contrary, a good amount of sum will be left E
in current account for the bank to enjoy the float.
12.30 In his letter dated I 0.01.92, ti1e broker repeated his request
and stated:

"to facilitate a single point clearance, we have to request F
you to let the activities of issuance and acceptance of
Banker's Cheques be conducted by the Securities Division.
This will facilitate us to meet the deadlines of inter-bank
clearing timings."
14.21 The Committee note that the PSUs were the single largest G .
source of surplus investible funds around Rs.36,000 crores
between April 1990 and December 1992 only. 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 H
166 SUPREME COURT REPORTS [2003] 1 S.C.R.

A 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 OPE that PSUs could have normal
banking transactions only with nationalised banks.

B PLACEMENT OF FUNDS FOR SHORT PERIODS-
14.98 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 offunds for speculative
purposes to earn higher return. These banks/finance companies
c issued BRs for the amount received. The PS Us after the maturity
of investments returned the BRs and got their moneys along
with the yield which was agreed to at the time of placement of
funds. Thus these transactions were in the nature of ready forward +-
deals instead of genuine investment transactions which was in
contravention of RBI guidelines issued on 11.4.1988 which stated
D
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 buy
back arrangements with non-bank clients.

E 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 PSUsl banks
F resulting in syphoning offunds of PS Us to brokers. It is reported that
22 PSUs had placed funds to the extent of over Rs. 12,000 crores
through Harshad S. Mehta which were syphoned of to him and his
groups of Companies. Some instances are given below: -

(i)
G (ii) In the case of Maruti Udyog Limited, it was found, that
funds ofMUL meant for purchase of units from UCO bank
were credited into the individual accounts of HSM. There
is a financial involvement of Rs. 33.63 crores.

(iii)
H
R.N. POPLI v. C.B.I. [M.B. SHAH, J.j 167

(iv) A
17.48 On 16th June, 1993 Shri Harshad Mehta held a press
conference in which he issued a copy of an affidavit of 24th
February, 1993 and briefed the press of the details of the 4
specific withdrawals of 2nd and 4th November, 1991 and its
subsequent disbursement. In a press conference held on the same B
day he released a copy of an affidavit dated 24th February,
1993 alleging that these were in connection with payment of Rs.
I crore to the P.M. on 4.11.1991.

18.5 HSM was summoned by the Committee again on 30.6.1993.
During evidence when his attention was drawn to the inherent C
contradictions between what he had deposed before the
Committee earlier and that given in the press conference he
-+ stated that he had been 'discrete' about the information given
by him to the Committee.
From the aforesaid part of the report, it is apparent that- D
(a) Some banks were even handing over account payee cheques
drawn in favour of other banks to the brokers who got them
credited to their account ostensibly to as,ist the latter in
transferring funds quickly to meet their obligations. As per
informal understanding and in the name of market practice, the E
payee bank used to credit the proceeds to the accounts of the
broker constituents who brought the cheque to it for collection.

(b) Routing of transactions facility was given to many brokers
including A-5.

(c) Single Point Clearance claimed by A-5 and given by SB!. F
(d) PSUs were investing the funds against the guidelines and
instructions.
(c) PSUs were investing funds for short periods for few days and
even for one day implying supply of funds for speculative G
purposes to earn higher return.
(f) In the investment of these funds guidelines and instructions were
routinely flouted and no norms were observed. Neither OPE nor
the Ministries concerned took any steps to ensure the compliance
of their guidelines.
H
168 SUPREME COURT REPORTS (2003] l S.C.R.

A RELEVANT PART OF EVIDENCE-
In the present case, the evidence runs into more than 40 volumes.
However, at the time of hearing of this matter, on behalf of A-5, five
transactions in question are admitted. Hence, it is not necessary to refer to or
consider the evidence pertaining to the transactions in question. If the
B prosecution and defence had concentrated on the real issues for determination
before the Special Court, it would have saved the Court's time in recordin~ -r--
evidence at such a length. Unfortunately, a practice is developed in criminal/
civil cases not to admit any document and thereby to prolong the litigation
with impunity. For the purpose of deciding these appeals, it is necessary to
C only refer to relevant part of evidence which learned counsel for the parties
have relied upon.

For this purpose, we would divide the evidence and submissions as +-
under:- [On behalf of] -

(a) MUL;
D
(b) UCO Bank;
(c) ANZ Grindlays Bank;
(d) other relevant witnesses, such as, PW16 Anuj Kalia, PW23
Mohan D. Khandelwal (Approver) and PW25 1.0. etc.
E
(a) WITNESSES FROM MUL
[PWI, PW3 and PW4)

PWl Brijendra Singh Bhargava stated that he was Legal Advisor of
MUL and at the relevant time Company Secretary and also internal legal
F 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 had 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
G duties was deployment of funds of MUL. He had power and authority to sign
cheques on behalf of MUL and to operate its account. Mr. S. Natrajan was
superior officer to A-1. +
A-2 was also an employee ofMUL since 1989. It is his say that surplus
funds available with MUL used to be invested with the publ!c .sector
H undertakings and the Board of Directors had delegated the poWefs of
R.N. POPLI v. C.B.l. [M.B. SHAH, l.] 169

deployment of funds to the sub-committee constituted by it. Such sub- A
committee comprised of Managing Director and Director (Finance), which
·1 would have final say in the deployment of funds, but there was a practice
reporting the same to the Board of Directors in its meeting. The Corporate
Finance department used to put up proposal for fund deployment before sub-
committee. The sub-committee would then take decision one way or the
other. He has produced relevant documents and the resolutions passed by the B
Board as well as the sub-committee.

It is his say that he was broadly aware of the activities of Funds
Investment Committee for the placement of funds. His office was also a
section of Corporate Finance, which was located in a big open hall and they C
all were sitting adjoining to each other. Only the Director (Finance) was
having closed cabin in the said hall, which has transparent glasses.

It is his further say that the fact that MUL was having surplus funds
was well known in the finance market and the large amount used to remain
idle in the bank. Company felt that there was need of optimum utilization of D
surplus funds to get best possible returns. It is his say that four transactions
of investment were approved by the sub-committee consisting of Mr. R.C.
Bhargava and Mr. S. Natrajan and there was also discussion with him in
respect of dis-investment of units of UT! on 24th January, 1991. It is his say
that the investment and dis-investment transactions were placed before Board
of Directors for information and Board had not raised any objection. E
In cross-examination, when he was asked whether he was aware that
the representatives of the brokers representing the counter parties used to
contact officials of the Corporate Finance Department, he stated, "according
to him, the Director of Finance might be knowing about the same.''
F
,_ He also admitted that there was a system of internal audit and a statutory
audit and aforesaid transactions would be covered by the same. Comptroller
and Auditor General of India had also audited the account of MUL for the
period in question arid they had made their comments as 'nil', which means
they made no comments in respect of said five transactions. G
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.

He admitted that after CBI enquiry, the management of MUL did not H
170 SUPREME COURT REPORTS [2003) I S.C.R.

A take any action against A 1 and A2 as it felt that A-I 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
B that A-2 Ambuj Sushilkumar Jain was also promoted by the management on
considering his perfonnance and merits.

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
C respect of its securities transactions including those transactions which are
subject matter of this case. It is his say that he was associated along with
Director (Finance) Mr. A.R. Halasyam and Mr. RC Bhargava, Chairman-
Cum-Managing Director for the preparation of the reply to be given to the
JPC. Besides, some officials from Corporate Finance were also associated in -+-
the process of preparation of replies. Reply was based on the information and
D record furnished and made available by Corporate Finance. It is his say that
Mr. R.C. Bhargava was summoned by JPC.

Next witness from MUL-PWJ Mr. Agharam Ramakrishnan Halasyam
was the General Manager (Finance) since 1985 till the end of I 989; in 1991
he was promoted as Chief General Manager (Finance) and thereafter was ).__
E promoted as Director (Finance) from Ist June, I 991. According to him, in
1991 MUL used to have surplus funds, which were invested in UTI and PSU
bonds. It also disinvested the same when funds were required. This was done
by the Corporate Finance Cell. For this purpose, Corporate Finance Cell used
to get quotations from different banks for different kinds of securities and
p Finance Cell used to evaluate quotations received from the banks in terms of
yields. After such evaluation, Director (Finance) used to be apprised and then
a decision would be taken depending upon the best yield possible. Thereafter,
an agenda used to be put up to the Director (Finance) for a final decision and
that A-1 used to convey such offers to Director (Finance) orally. A-1 also
used to put-up a written note about the proposals of investments before the
G Director (Finance). It is his say that such deals were directly discussed with
the counter party and such investment deals were not put through any
individual by MUL on principal to principal basis. He stated that in respect
of five transactions being the subject matter of this case, he was not having
any personal information. However, when he took over as a Director (Finance),
H the same policy about the placement of funds continued. It is also his say that
J

R.N. POPLI v. C.B.l. [M.B. SHAH. J.] i71
BR held by MUL is discharged when the duration of investment gets over. A
He admitted that looking at the BR of UCO Bank (Ex.41 dated 24.4.1991)
for identification) no suspicion would arise on the face of it. With regard to
all five transactions, he stated the same thing. In further cross-examination,
he admitted that issuance of BR necessarily indicates that the bank issuing it
would be holding the security covered under the said BR. The BR would also
acknowledge the receipt of monies from MUL for the purchase of security. B
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 C
yield. Jn 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.
D
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.
E
This fact was well known in the financial market. He also admitted that afrer
he took over as Director (Finance), he heard about some of the brokers on
behalf of some financial institutions/banks making offers to MUL. Such
services included delivery of securities, delivery of offers and other connected
documents including delivery of BRs. He further stated that essentially most
of the offers in respect of placement of funds which MUL used to receive F
)- were on telephone. In case of investment for a short period i.e. for couple of
days (for two or three weeks) there might not be written proposal and he had
heard this while discussing with A-1 and A-2. He also admits that with
regard to the JPC, he was concerned with the queries received by the MUL
and their response. One Mr. Surender Singh was then the concerned Secretary. G
He was a Director of MUL representing Government of India. He himself
and the Managing Director had occasion to discuss with him about the queries
received as also the response that MUL was to make. Response which MUL
gave was with the approval of Mr. Singh.

This witness has proved the agenda notes and resolutions passed by the H
172 SUPREME COURT REPORTS [2003) l S.C.R.

A Sub-Committee of MUL.

Prosecution has also examined PW4 Rajan Ramgopal, Executive, who
at the relevant time was posted as Accountant and working in Corporate
Finance Cell under A- I and A-2. In examination-in-chief, the witness has
stated that MUL through its Finance Cell used to deploy its surplus funds in
B Inter Corporate Deposit with Public Sector Undertakings and al~o invest in
securities through Banks and also through brokers quoting on behalf of the
banks. For this purpose, the office was receiving telephone calls directly
from the banks as also from brokers acting on behalf of the banks. Similarly,
MUL also used to make calls for the enquiries to the banks as also the
C brokers. It is his say that in case of incoming calls, the calling party would
disclose its identity and would inquire about A-1 or A-2. In case both being
busy then he used to take down the particulars furnished by the calling party
and then pass on to A-1 or A-2. The calling party would ask whether MUL
has any surplus funds for deployment in securities. They used to pass on the
said message to A-1 or A-2 and inform what the other party had offered.
D
He also states that the name of broker did not figure or reflect on the
record of MUL in the event of transaction of investment being through the
Broker. It is his further say that PW2 Mr. Meda Sai Swaroop, who was the
concerned Manager of the Canara Bank after preparing bankers' cheque as
E 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'
represel?tative. 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
F 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
G to contact them on behalf of their bank clients and financial institutions
during the relevant period were:-DSP Financial Services, Hemdev & Sons,
B.D. Agarwal & Co. and one Mr. Asit Mehta. Finally, he admits that 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' because
H transactions in question were between MUL and the concerned banks. He
/

R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 173
failed to give any explanation as to why he did not use the expression 'with A
bank' instead of 'through bank"

(b) WITNESSES FROM UCO BANK [PW7, PW14, PW21 and
DW.A-3(2) AND PW2 FROM CANARA BANK[.

PW7 Mr. Pradip Anant Karkhanis is a dismissed employee of UCO B
Bank. He is one of the accused in a security scam related case being case
no.5 of 1996 pending on the file of Sessions Court, Greater Bombay. He had
worked in the Hamam Street Branch during the period July 1976 to September
1980 and September 1990 to April 1992. During his second posting, he
worked as Sr. Manager and was over all in-charge of the said branch. It is C
his say that he was not familiar in detail with the working of the security
department of the said branch. The security department 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 deals in
-+
the security transactions, in case where such transactions were on behalf of
their bank and the same used to be concluded by the Head Office. The D
transactions in securities included both sale of such securities by UCO Bank
as also purchase. It was only the Head Office which was concluding deals of
sale of the securities, inviting the proposals etc. As per instructions of the
head office, Hamam Street branch used to receive the sale proceeds and
...... deliver the securities to the purchasing bank. The branch used to receive E
instructions in respect of such concluded deals from the head office over
telephone. During the relevant period there were no hard and fast rules and
any officer including the witness used to receive such telephonic instructions
from the head office in respect of security transactions. The securities sold
by their bank were not delivered in a physical form and their branch used to
issue mostly SGL Forms. In case of some of the financial institutions, the F
delivery used to be in a physical form of security. During his tenure in
Hamam Street Branch in one or two cases BRs were issued. As per format
of a BR at least two authorized officers were required to sign the BR. There
were three types of head office accounts with their branch i.e. Director Head
• Office (DHO), Inter Branch Transaction and Block Account. It was not G
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 H
174 SUPREME COURT REPORTS (2003] 1 S.C.R.

A 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 Jetter dated 23rd
-
B 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 agreed
that Switch transactions were the transactions conducted by the UCO Bank
for buying and selling the securities on behalf of its clients including brokers.
The negotiations in respect ofsuch transactions were conducted by the clients
C directly with the counter party. UCO Bank used to act as a routing bank in
such transactions. The said transactions were done through the brokers'
accounts and were not treated as transactions of UCO Bank. He did not
know whether such transactions were ever undertaken by their head office.
The Hamam street branch used to conduct its transactions on the instructions
of the head office and under the instructions of its clients on their behalf.
D UCO Bank used to undertake such transactions on behalf of its clients on
charging its commission and that the bank had made substantial profit by
undertaking such transactions. In 1990, he noticed that the bank has conducted
such transactions for about 9 brokers. In January, 1990, Mr. Barve who was
also one of the Managers in Hamam Street Branch informed the Divisional
E Manager and Zonal Manager the names of 18 such brokers for whom UCO
Bank was doing switch over transactions. Because of increase in deposits,
Hamam Street Branch of UCO Bank was upgraded from medium to large
branch. He has further stated that the bank was charging the commission for
routing such switch over transactions but did not agree that it was so doing
for lending its name as suggested. According to him, routing transaction
F means-UCO bank used to receive bank receipts from one bank and against
it the bank used to issue BRs to other bank. It is also his say that in some
cases their bank received bankers cheques from one bank and UCO bank
issued its bankers' cheques to another bank. Whenever switch over transactions
used to take place under the instructions of the brokers, the brokers'
G instructions to receive or deliver securities were sent to the counter party
...
along with the cost memos and BRs. The BRs and cost memos used to be of
UCO bank. The brokers instructions used to be on the letter head of the
broker. The purpose of sending brokers instructions along with various
documents to the counter party was to put it on a proper notice.

H It is his further say that although he was overall in charge of Hamam
R.N. POPLJ v. C.B.l. [M.B. SHAH, J.] 175

Street branch of UCO bank all the debit and credit vouchers of that branch A
were not being received by hin1 every day. He was fa1niliar 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 B
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 particulars 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 C
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 completed on the
very same day during the banking hours. There used to be auditing of the D
Hamam street branch. This auditing used to be done by internal auditors,
external auditors and also by the statutory auditors. Between September,
1990 to April, 1992 during his tenure one internal inspection and one statutory
audit took place in respect of Hamam Street branch. He had gone through
both these audit reports and no adverse comments were made over the switch E
transactions.

PWl4 Prem Shanker Joshi, who was Assistant Chief Officer in
Merchant Banking Division, situated at YWCA Building, Madam Cama Road,
Bombay, stated that in the year I 992, he was transferred as Manager in
Security Section of Hamam Street Branch of UCO Bank and thereafter he F
was promoted as Sr. Manager in the year 1993. To a que;tion-What was the
nature of the business conducted by the security cell?, -he replied- as far
as Hamam Street Branch 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 such client. In case of sale transactions G
on behalf of their clients, they used to get written instructions from their
clients, having necessarily their accounts with the bank. Such written
instructions would be addressed to the Branch Manager. 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 the time of delivering
of security to the bank. On receipt of the security, they were preparing a cost H
176 SUPREME COURT REPORTS [2003) I S.C.R.

A memo as per instructions of their client as contained in his instructions letter.
The officers working in the security department were authorised to sign the
cost memos and such authorised officer used to sign the same. Their bank
was receiving payment in accordance with the cost memo from the counter
party and on receipt of such payment they were delivering the security in
B question to the counter party. 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 UCO Bank, Hamam Street branch can issue a BR while dealing
on behalf of its client in the security transactions provided there is a back up
security of the client. He further stated that BR should not be issued on behalf
of the client in absence of security or back up security. In case of security
C 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
D 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
E 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 were issued in respect of Security Transaction put through on
behalf of the Head Office or the client.
F
It is his further say that for head office transactions they used to give
expressions such as HID i.e. Head Office Instructions to Deliver and HIR i.e.
Head Office Instructions to receive. For clients transactions they were using
expression of ID i.e. instruction to deliver i.e. sale and IR instructions to

G
receive i.e. purchase on behalf of clients. On seeing Ex.34, he stated that
there is an inscription at the left hand top comer reading as 'Payees Account
•
only' and that being so, the said instrument has to be deposited in the account
of Payee named in the said instrument i.e. UCO Bank. Such instrument like
the pay order shown to him cannot be deposited in the account of any third
party. Payer bank has to give covering letter instructing them to deposit the
H said pay order into the third party account, if so required. Such instruction
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 177
letter containing instructions of the payer bank are preserved along with other A
related records such as vouchers in their office. On seeing the delivery order
Ex.A-3(2), he stated that the said letter is the letter of instruction received
from A-5 Harshad S. Mehta addressed to UCO Bank without the name of its
branch. By reading the said letter, it is noticed that the same contains.
instructions to UCO Bank.
B
PW21 Mr. Makarand Vasant Shidhayajoined UCO Bank on 8.5.1972.
He has stated that he was named as one of the accused in five Security
related scam cases along with the other accused which are on the file of
Special Court. On 1.10.1982 he was promoted as an officer. During January,
1991 to May, 1991, he worked as an officer in Hamam Street Branch in C
security department. During the said period, V.N. Deosthali, A-3 also worked
in the said branch as an officer. He himself and A-3 were empowered and
-+ authorized to sign BRs, bankers cheques and all other related vouchers for
and on behalf of their bank. The head office used to conclude its deals in
Securities, and Hamam Street Branch used to execute the security deals of
their head office as per advice received from zonal office, MBD Department D
and Division Office. No officer or an employee working in Hamam Street
Branch was authorized to conclude any security deal on behalf of their head
office. Officers working in Hamam Street branch were not dealers and their
job was 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 E
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 his further say that no record in a form of security ledger or security
register broker wise was kept and maintained in respect ofsecurity transactions
of their broker clients. Initially, there used to be such record but because of F
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 were 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 G
order of Harshad S. Mehta addressed to UCO Bank containing instructions
to deliver 35 lakhs units of UT/ to MUL. The question put to the witness
was-whether the above document (Ex. I 06) is the sale of the security by the
broker client or the purchase? To that, he replied-by the said delivery order
Harshad S. Mehta has instructed UCO Bank to deliver 35 lakhs units to
MUL. He was unable to say whether the said delivery order represents sale H
178 SUPREME COURT REPORTS [2003] 1 S.C.R.

A of the security by Harshad Mehta to MUL. On seeing the carbon copy of
credit voucher of UCO Bank, Hamam Street Branch dated 13 .1.1991, he
stated that the same is in the handwriting of Mr. V.N. Deosthali (A-3) and
also bears his signature under the caption of Asstt. Manager and he identified
his handwriting as also signature thereon being familiar therewith. The same
B also bears initials of Mr. H.l. Naik, the cashier of the branch.. He further
identified the signature of A-3 Deosthali on a debit voucher dated 13.3.1991
of UCO Bank, Hamam Street Branch, being the commission from various
securities. He was further shown BRs of UCO Bank and he stated that the
same were issued by the UCO Bank, Hamam Street Branch and have been
signed by him in the caption of accountant and he signed the said BRs after
C he found the contents thereof to be true. With regard to the BR dt.29.4.1991
contain.ing signature on its reverse, it is his say that the signature on the
reverse of BR signifies reversal of the BR meaning thereby that the counter
party had received the security and obligation of UCO Bank, who had issl'f''
the said BR stood discharged.

D DW-A3(2) Mr. Sekharipuram Vasudevan Ramnathan-Chief
Officer, UCO Bank stated that he joined services of UCO Bank at c;alcutta
in the year 1969 as Probationary Officer. In June, 1990 he was brought to
Bombay Office as Divisional Manager in its Nariman Point Office and he
worked at the said office till October, 1992. Thereafter, he was transferred to
E Bhuvaneshwar, Orissa. Since February, 1993 he has been under suspension.
On seeing the letter dated 8.1.1991 written by Divisional Manager to Senior
Manager, Hamam Street Branch, he stated that the letter bears his signature
as being writer of the said letter and he identified the same. He also identified
the initials of Karkhanis on the same and stated that he- was working as
Senior Manger in the said UCO Bank's branch at Hamam Street. On seeing
F letter dated 17.3.1992 written by D.M. to Zonal Manager, Zonal Office,
General Admn. Department, Bombay, he stated that he was the a•Jthor of the
said letter and the same bears his signatures.

He has further stated that he is one of the accused in Special Case No. I
of 1993 on the file of the Special Court. In connection with the said case Mr.
G Bhaskar Raichoudhary the then Zonal Manager in the rank of DGM was
arrested in Special Case No. I 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
H transactions and how transactions in securities by means of BRs used to be
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 179

put through at the relevant time. A
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 B
own, it would issue its BR favouring the counter party bank. In case of
· I- 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 for a customer while issuing its BR, same position would exist as
far as back up of the security except that it would debit or credit, as the case C
may be in the customers account. No bank can issue its BRs in the name of
any party other than banks and financial institutions.

On seeing letter dated 8.1.1991, he stated that UCO Bank had stopped
the routing transactions facility to all the brokers and its customers earlier
to t/;e said letter. The brokers represented that their certain security D
transactions were in the pipelines to be routed through UCO Bank and hence
this letter was written. Since there were no definite guidelines, they had
certain apprehensions i.e. when pay orders for purchase and sale did not
come in time, they might not be able to send them in time and the clearing
,A··
may go against them. Therefore, routing facility of the brokers/customers
was stopped by the UCO Bank. He further stated that no officer of UCO E
Bank working in Ha1nam Street Branch was authorised to lend or borrow
monies on behalf of UCO Bank.

He explained the routing facility as-routing transactions 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
F
offered to many brokers including A-5 in the year 1991 and such brokers
availed ofthe said facility. Such routing facility was already in practice even

- before he joined as Divisional Manager in June 1990. Some banks were
offering such facilities. He was an accused in two special cases before the
Special Court and the said cases did not relate to the security transactions
concerning routing facility. He further stated that a bank can issue its BR
G

against physical security and SGLs held by it in addition to the BRs which
it may hold. He was aware about a meeting between the officers of RBI and
the officials of all the banks about reconciliation of outstanding banks receipts.
To his knowledge, there were no outstanding BRs against UCO Bank. One H
-t
\ /

180 SUPREME COURT REPORTS [2003) I S.C.R.

A Mr. R. Venkatakrishnan, the then GM, Treasury and Investment Management
Department attended the said meeting on behalf of UCO Bank. ~

Letter dated 8.1.1991 (Ex.231) written by the Divisional Manager, UCO
Bank, Divisional Office, Bombay to the Senior Manager, Hamam Street Branch
for switch transactions reads thus-
B
"Re: Switch Transactions.

We refer to your letter No.BR:002:91 dated l.l.1991 on the subject
-+·
matter.

After stoppage of the switch transactions by us, all the Brokers called
c 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 tL~
understanding that Branch will never run into a difficulty and day on
D 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 ~

E 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.

F (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 Branch so
that this can be sent in clearing in time. If there is a delay in
receiving the pay orders, bank will be perfectly in order to
G refuse to accept the same and allow the transaction. In case on
account of any brokers delay, bank is put into difficulty the
concerned broker will be paying interest to the bank at call __,...
money market rate for one day on the amount transacted on his
behalf.

H (4) Bank may at its discretion increase the commission ·which is
R.N. POPL! v. C.B.I. [M.B. SHAH, J.] 181
only Rs.300 per crore at present. A
(5) Special case should be taken that clearing particularly on
Saturdays does not go against us on account of switch
transactions. In fact, it will be better to avoid switch transactions
on Saturday.
(6) Only straight forward transaction either on SGL or BR should B
be routed through Bank and the brokers will have to give an
undertaking to this effect.

In the meantime, the undersigned is contacting the brokers separately and is
having discussions with them. Two such brokers have already had discussions C
with the undersigned. Shortly the matter will be discussed with a couple of
other brokers also. 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 D
with them with a view to find out why inspite of profitability in this area they
are not entertaining this and give at your report at an early date."

PW2 Meda Sai Swaroop, who was the Manager in the Parliament
Street branch of Canara Bank at New Delhi, stated that after preparing the
bankers' cheque, the same would be handed over as per instructions contained E
in the instructions letter or to the bearer of that letter. He has identified the
signatures of Anuj Kalia, to whom the bankers' cheque was handed over. It
is his say that in all the cheques in question there were cross lines on the left
hand top comer of the said pay order which indicate that the amount of the
said pay order was to be credited into the account of payee only as named F
therein i.e. Grindlays Bank. On the right hand top corner of the said pay
order, 'not transferable' was also printed. This would show that it was only
the payee 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 G
with the proceeds of the said pay order.

(c) WITNESSES FROM ANZ GRINDLAYS BANK
(PW9, PWl l, PWI2 and PW15 AND also PW22 Ex. RBI Officer]

PW9 Ravi Saluja, was an employee of ANZ Grindlays Bank. During H
182 SUPREME COURT REPORtS (2003) 1 S.C.R.

A the period 1990 tit! 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 has 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
B 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 of the cheque to be deposited. The cheques so received for clearance
were then sent to the clearing department for further processing. The said
C department would verify and tally the particulars as appearing in the pay-in-
slip and the related cheque. The centralized branch then would make the
consolidated statement and arrange to send the cheques received for cleara.nce
to the clearing house of RBI. There is also 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
D order also. If such bankers cheques are made payees account only then the
same are not transferable. On seeing Ex.28, he stated that it is inter bank
cheque in favour of Grindlays bank issued by Canara bank bearing stamp
'Payee A/c only' and 'not transferable' .. There is a rubber stamp of Grindlays
bank on its reverse indicating that the said banker's cheque is cleared. It is
E his say that Grindlays bank would dispose offthe proceeds of tile said cheque
as per the covering letter. It is his further say that without instructions of
Canara Bank, Grindlays bank could not credit the amount of the pay orders
Ex.28 and Ex.30 to any thirdparty's account. He identified A-4 R.N. Popli,
an employee of Grindlays bank, but stated that he was not aware about his
posting during the relevant period i.e. from the year 1990 to 31.5.1991.
F
PW/I Suraj Amarnath Tandon, Assistant Manager of ANZ Grindlays
Bank, stated that from March, 1990 to March, 1992 he worked as Second
Officer, Front Office in Sansad Marg branch. It is his say that on the receipt
of the instruction letter of the customer, their bank used to put its rubber
G stamp in token of receipt of such letter indicating date and time of its receipt.
On seeing the letter, Ex.73, dated 26.4.1991 of Harshad S. Mehta addressed
to the Manager Grindlays Bank, he has stated that by that letter Harshad S.
Mehta (their account holder) instructed them to issue a bankers cheque for
a sum of Rs.7,63,54,650 favouring Canara bank for the benefit of MUL. As
per the sa_id letter, they issued bankers' cheque on the date itself for the
H amount ~ mentioned above and handed over the same to the bearer of the
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 183
said letter, Mr. Anuj Kalia, who has received and acknowledged the receipt A
> of the said pay order by signing the same at the right hand bottom comer ·of
th.e 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.
B
PWl2 Ashok Kumar Anant Ram Mo·nga, 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 C
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 comer 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 D
cheque bearing endorsement 'not transferable' and 'payees account only',
therefore, cheque irrespective of whoever may have deposited, Grindlays
bank would not credit the amount of the said cheque into the account of any
third party other than in its own account. It is his further say that the entry
in respect of the amount as reflected in Ex. 71 (3) in statement of account and E
in the said. pay in slip will have to be authorised by the officer in charge of
the clearing department who was at the relevant time A-4 as the amount
involved was more than a lakh of rupees. He could not identifY the initials
appearing on the said pay in slip, who authorised the said entry. He stated
that in these types of transactions, two authorizations were required, the first
authorization related to giving credit to the third party which is generally F
given by Branch Manager marketing department who are known as
Relationships Manager or Account Manager and lastly the Funds Manager.
Only after the first authorization has been received the officer in-charge
would proceed to indicate his second authorization by authorising transactions
for posting on computer system i.e. the pay in slip is authorised to be used G
as authorised voucher for posting on computer system. During the period
when the transactions covered by Ex.28, took place there was a market practice
followed by various banks to present bankers cheques through a Special
Clearance settlement which is known as inter bank settlement. The objective
of drawing the bankers cheque was to provide speediest or fastest clearance
of such instruments which was not possible through other clearing 'settlements H
184 SUPREME COURT REPORTS (2003] I S.C.R.

A available to the customers, namely, MICR. If the instrument is cleared through
MICR cleafl\ilce, the customer gets funds only on third day. The other --<
settlement introduced by RBI in the year 1985 in response to the needs of the
business community as a mode of faster settlement or cheques, also took
minimum two days to provide clearance of cheques. He was shown entry
Ex.71(4) dated 13.3.1991 into the accounts of Harshad S. Mehta. He stated
B that the then officer in charge of clearing department had authorized the said
entry to be made in the statement of account. He could not recall the name
of the said officer who was in charge of clearing department. He agreed that
in 1991-92 there was a practice of crediting the proceeds of the bankers'
cheques i»to the account of third party other than its payee. However, it was
C e:Jctended to only certain high 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
their bank had allowed such credits. He further agreed that RBI had never
takefi 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
D 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
E 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 ifhe could not answer then it was being
taken to the Area Manager. The services to be extended to the customers like
F high networth customers would be decided by the branch manager. Such
decision could not be taken by the concerned officer who attended such
customers. 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 Grind lays bank. The amount of these pay orders was
G debited into the account of the issuing bank and credited into the account of
Grindlays bank. The account of the issuing bank and payee are with the RBI.
He admitted 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 A-5.

H PW15 Mr. Kanwal Krishan Kuda, Bank Officer, ANZ Grindlays
R.N. POPLI v. C.B.l. [M.B. SHAH, l.j 185
Bank stated that in the month of March, J991 he was posted in Sansad Marg A
Branch, New Delhi as Officer Jn-charge Remittance Department. He identified
A-4 R.N. Popli as the person working in the same branch in different
department of the pank. It ia his further say that he is also one of the accused
in a case w)]jQh has been Instituted by the CBI in the Court of Special Judge
at Delhi being CBI Case No.RC-2A/92 ACU-(1) which is still pending. It is
further stated that he is not conversant with handwritings, signatures or initials B
of A-4. The activities which they carried out in the Remittance Department
were Remittance of funds from one branch to another branch or another
bank, cheque collection, cheque purchases, standing orders etc. During the
course of his work, he came across Payees Account Cheque, Pay-in-Slip,
debit vouchers and credit vouchers. With regard to the credit voucher C
dt.26.4.1991 into the account of Harshad S. Mehta, it is his say 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. It is his further say that Grindlays Bank did not receive any
instructions from RBI for crediting the amount of the two vouchers shown to
him earlier into the account of Harshad S. Mehta, The cheques being the D
subject matter of the two credit vouchers shown to him were not deposited
in the department where he was working. The same were deposited in the
treasury department in the same branch. It was the treasury department to
which they 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 E
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.

PW22 V. Rangarajan is an ex-employee of RBI. He joined R.B.l. in
1961 as a Junior Officer and retired in 1997. It is his say that in December, F
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 G
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."

The witness was further questioned-Is it permissible to deposit an H
186 SUPREME COURT REPORTS (2003) I S.C.R.

A account payee bankers' cheque favouring another bank in the account of
unnamed persons as per the clearing house rules? The witness replied -
Clearing House rules relate to the settlement of cheque issued by one bank -"<
in favour of another bank and therefore the accounts of both the banks are
involved in this transaction.

B For hig~lighting the submission made by the learned counsel for the
accused, we would refer to the relevant questions and answers given by this
witness-

"Q. The practice of crediting proceeds of the Bankers cheques to
third parties is not prohibited by any Banking law or any
c guideline, rule or circular of the RBI.
A. (Witness refers to portion of the circular Ex.148 in para 2 reading
as under in answer to the said question;

'If any bank credits the account of a constituent who is
D not the payee named in the cheque without proper
mandate of the drawer, it does so at its own risk and
will be responsible for the unauthorised payment' ..
Q. (Witness is referred to portion of his depositfon in para 18 on
page 495 in question and answer form (witness is questioned).
E Whether the practice of crediting the proceeds of Bankers cheques
to unnamed beneficiaries was not violative of any specific
banking law or any RBI circular or guideline on the subject?

A. The same would not violate any Banking law as I understand.
As I am not aware of issuance of any prior circular on the
F subject I cannot say of !,ts violation.

Q. The circular Ex.148 was issued w~~,ih~_approval of the then
~-
Governor of RBI who was Mr. Venkataramana 'at the relevant
till_le.

(Witness is again referred to portion of Circular Ex.148 in the
G second para reading as:

'If an bank credL .......... for the unauthorised payment'.
-.y·
Q. Does the use of the word 'Unauthorised' referred to the fact that
the issuing bank may not have· authorised the payee bank to
H credit the amount into the account of third party?
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 187

A. Yes. The said aspect has been further clarified in the said circular A
(Witness refers to the following portion of the said circular)
reading as:-

'ln the case of 'account payee' cheques wherein a bank is
a payee, the payee bank should always ensure that there
are clear instructions for disposal of proceeds thereof from B
the drawer of the instrument'.

The Circular dated 09.9.1992 Ex.148 issued by the Reserve Bank of
India reads thus:-

'September 9, 1992. c
Bhadra 18, 1914 (Saka)

The Chairman/Chief Executives of
Scheduled Commercial Banks (excluding RRBs)

Dear Sir, D
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 E
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 F
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 G
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 thereof, or having any 'other
independent direction to that effect, the amount cannot be paid to the
constituent. If any bank credits the account of a constitue!lt who is H
188 SUPREME COURT REPORTS [2003) I S.C.R.

A not the payee, in the c~eque without proper mandate of the drawer,
it does so at its own risk and will be responsible for the unauthorised
payment. Payment systems require that the legal requirements laid
down in the various relevant laws are fully observed. In the case of
'Account Payee' cheques wherein a bank is a payee, the payee bank
should always ensure that there are clear instructions for disposal of
B proceeds thereof from the drawer of the instrument. If there are no
such instructions, the cheque should be returned to the sender. RBI
reiterates the position that crediting of proceeds of such cheques to
parties otherwise than in pursuance of clearly delineated instructions
of issuer of such cheques is unauthorised and should not be done
c under any circumstances. Banks cannot and also should not invoke
market practice in justifrcation of doing that, which is not supported
by law or recognised banking practice. These instructions should be
carefully noted. Banks which indulge· in any deviation from these
instructions would invite severe penal action.

D Kindly acknowledge receipt of this letter.

Yours faithfully,

Sd/-

(V. Rangarajan) --,....
(

E
Addi. Chief Officer'
(d) OTHER RELEVANT WITNESSES INCLUDING EVIDENCE
AGAINST A-5:
[PW23, PW25, PW16, CWl and DW5(8)
F
Learned senior counsel appearing on behalf of A-5 stated that the
evidence led by the prosecution for establishing the five transactions is not
required to be dealt with as he admits on behalf of A-5 that in 'four transactions
the amount was taken by A-5 and in first transaction he gave loan to MUL
G but as loan was given, he has not committed any illegality in taking loan
from MUL through UCO Bank. In this view of the matter, it is not nece_ssary
to discuss the evidence with regard to_ the receipt of the money by A-5
through UCO Bank. l-lowever, we would refer to the evidence of PW23,
PW25, PWI6, CWI and DW5(8) pertaining to A-5 and other accused.

H PW23 Mohan Das Khandelwal, a Share broker, who is approver in
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 189
this case stated that after doing B.Sc., MBA, he worked with Delhi Cloth & A
General Mills Co. Ltd. and State Bank of India upto the year 1986. Thereafter,
in 1990 he got membership of Delhi Stock Exchange. It is 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 B
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 C
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 Arunachala Building, Bara Khamba Road, New
Delhi. The said premises was purchased by one of the holding companies of D
Harshad S. Mehta. During his visit to Bombay, he came to know the company
as Mis Growmore Research & Assets Mangement Ltd., which was an umbrella
company to give the corporate identity and the office to be set up in Delhi.
The said office premises were acquired with the full knowledge of A-5 who
provided money for the same. E
It is his further say that he came across a person Anuj Kalia. He was
recruited as Executive in the said company somewhere in June or July, 1990.
Initially, when he met Mehtas in the year 1989, the business activities which
were thought over were research activities on Delhi based companies as well
as little bit of operations of Delhi Stock Exchange. The business activities F
were undertaken in the individual name of Harshad Mehta. Share market
operations were undertaken in the name of Harshad S. Mehta which was his
proprietary concern, he being a member of Bombay Stock Exchange. After
it was decided to set up office in Delhi as stated earlier, A-5 made another
-, trip to Delhi somewhere in April or May, 1989. In this trip, A-5 spoke about G
the activities in money market. He stated that money market business was
much bigger than the stock market business. He also told him that there were
many P.S.U. Companies in Delhi; these PSUs had large investable surplus
funds with them and that such large funds of PSUs in Delhi could be invested
in banks at Bombay. A-5 wanted him to keep liaison with certain PSUs. He
also wanted him to convey on his behalf money market trends, quotations H
190 SUPREME COURT REPORTS [2003] I S.C.R.

A etc. to such PSUs. He was supposed to convey the same to the functionaries
of the PSUs who were concerned in the investment of the funds. It was A-
S who used to inform him about the money market trend, rates of interest etc.
which he wanted him to convey to the functionaries of the PSUs. A-5 was
mostly in Bombay and he used to convey him the same over telephone.

B It is his say that a number of accounts with various banks were opened
in Delhi in the name of Harshad Mehta, in the name of his company and
other concerns including the account in the name of Ashwin S. Mehta. He
was one of the authorized signatories, being a Power of Attorney holder, to
operate the said accounts except one of the accounts which was opened in
C Citibank. He received the authority for the operation of some accounts which
were in the name of Harshad S. Mehta. Usually Mr. Anuj Kalia used to
attend to the bank's work.

During his visit to Delhi in April/May, 1989, A-5 made reference to
MUL and told that MUL had surplus investable funds as a PSU and they
D were very active. in money market. On his request, he fixed an appointment
of A-5 with accused no. I, 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
E 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 lot of
contacts with the banks in Bombay and he could offer to MUL excellent
deals in the money market.

F 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?

Witness replied-A- I 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
G banks, structured and suggested by him and his name would not appear in the
books of accounts of MUL and that is what he stated.

It is his further say that A-5 stated that he would stand to gain by way
of commission and/or brokerage from the banks and that MUL would benefit
by getting better deals. A-1 stated that he would look into any good proposals
H if A-5 did not come. into picture. The said meeting lasted for half an hour.
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 191
He agreed that in connection with the said meeting transactions took A
place between MUL and any banks at the behest of A-5.
)I
The first transaction was in January 1991. At that time, Harshad Mehta
was in Bombay and he was in Delhi. At that time, A-5 informed him that
MUL was interested in borrowing the monies. He told him that the securities
which MUL would offer were units of UTI, the bank lending the money B
would be UCO Bank, Hamam Street Branch, Bombay and that offer in that
respect would come from the said bank who would be showing it as an
-~
offeror.

It is further say of the witness that he came across a person named V.N.
Deosthali (A-3). He was an officer working in UCO Bank in its Hamam
c
Street Branch at Bombay. He learnt about the same from A-5. At subsequent
stage, he had occasion to meet Deosthali (A-3). He heard the name ofDeosthali
~ in the year 1990, it may be even early in the year 1989 in connection with
some other transactions with some other PSUs. He never came across the
name. of Deosthali before joining Harshad Mehta's company. In the year D
1989 or 1990, he heard the name of Deosthali from Harshad Mehta. He
identified A-3 sitting in the Court.

In January 1991 he received the letter Ex.58 of UCO Bank, Hamam
Street Branch, Bombay, dated 23rd January, 1991. As per the said letter, he
. ,..!..
was to collect 35 lacs units of UT! from MUL. He contacted A-1 for the
E
purpose of complying with the instructions as contained in the said letter.
Anuj Katia was deputed by him to collect the said security.

Instructions for transferring the proceeds of the pay orders of Canara
Bank favouring Grindlays Bank into the account of Harshad S. Mehta in his F
account in Bombay were given by him but he did so as per instructions
).- which he received from Harshad Mehta. He gave instructions in his official
capacity being in charge of Delhi office and also as per instructions ofHarshad
S. Mehta.
• He had no knowledge as to whether the Canara Bank, Parliament Street G
Branch issued any instructions to the 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 H
192 SUPREME COURT REPORTS [2003) I S.C.R.

A reversed at later stages.

He further stat.ed 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 occasions to
meet him during the year 1990-91 in the Parliament Street Branch of Grindlays
B 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 specific knowledge whether during the said period he was
C 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 from Bombay or
remittances which were to be made from Delhi to Bombay branch and he
requested him to expedite the process of the said work. A-4 appeared to be
very cooperative.

D On seeing Ex.203, which is a letter written by the witness expressing
his desire to make confessional statement, he stated that he was taken to the
Court of Chief Metropolitan Magistrate, Delhi. Mr. Bhatnagar was also present
at that time. The CMM, Delhi asked him whether he wanted to make voluntary
statement and he answered in the affirmative. The CMM assigned the matter
E to other Metropolitan Magistrate Mr. Yadav.

ln further cross-examination, he stated that the visit which he stated
earlier accompanied by A-5 in MUL was in its office at Kasturba Gandhi
Marg, New Delhi. The meeting took place in a hall type premises. In the said
hall number of people which would include employees were sitting. He further
F stated that their meeting was with A-1 and A-2 who were sitting in the said
hall. He was not known to the other employees of MUL who were silting in
the said hall. He .and A-5 were sitting across the table and in front of them
A-1 and A-2 were also sitting there and the said meeting was among four of
them.

G He was arrested by the CB[ in this case. It was in the month of August
1994 but he does not recollect the exact date. As far as he remembered, it
was on I 0th of August 1994. He presumes that CBI officer recorded his
statement on I 0th of August, 1994, which was read over to him and he found
the same having been correctly recorded.
H
R.N. POPLI v. C.ll.l. (M,B. SHAH, J.] 193

Witness was referred to the portion of the said statement reading as - A
'in the said meeting Mr. Harshad S. Mehta, accused no. I and accused no.2
were present'.~The witness stated that his statement before the Court is
correct. If in his statement recorded by CBI, he has not mentioned about the
presence of accused no.2 in the said meeting then it may be that he had not
stated about the same.
B
He agreed that Harshad S. Mehta elaborated to A-1 and A-2 about
excellent deals in the money market. A-1 showed interest in the deployment
of funds of MUL in the money market in the said excellent deals as stated
by A-5. At that time, A· I stated that MUL could not pay any brokerage to
the brokers. He furthet stated that .A-5 did not specifically state that he C
wanted to act as a broker between MUL and the banks. It is correct that A-
5 stated in the said meeting that he would get his brokerage from the concerned
banks. A- I 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. A I said that he would be open to any good suggestions and offers
or proposals in the money market. D
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?

The witness replied-ANZ Grindlays bank usually used to credit the E
amount on the basis of covering letter of Harshad Mehta issued by Delhi
Office. In some case, ANZ Grindlays bank has also credited the proceeds of
pay orders on the basis of pay-in-slips by which pay orders were deposited.

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 F
whether Anuj Kalia delivered such letters along with the said pay order to the
said bank. He did not inform A- I 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.
G
A suggestion was put to the witness that because officials of MUL
knew that the transactions were with Harshad Mehta and not with UCO
Bank, the MUL's officials contacted him and not UCO Bank.

The witness denied the suggestion and stated that since all letters, bank
receipts and securities involved in the transactions were received from Bombay H
194 SUPREME COURT REPORTS (2003) I S.C.R.

A office of Harshad S. Mehta through the Delhi Office, the officials of MUL
contacted him. He stated that he cannot say whether the officials of MUL
contacted ·UCO Bank, Bombay.

He denied the suggestion that he deliberately chose to forget the
transactions of 1990 to connect the transactions of 1991 in this case with the
B alleged meeting of 1989.

He was further questioned about recording of his statement by CBI
prior to l 0.8.1994.

He replied that CBI officials had called him earlier on number of
C occasions and questioned him and he gave them answers to such questions.
He· could not recollect whether CBI officials recorded his statement/s or not.

He again stated that on 10.8.1994 he was arrested. H~ was summoned
by CBI on two occasions in'June, 1993 for interrogation in this case. He was
D first called on l.6.1993 and then again on 15.6.1993. Mr. B.C. Bhatnagar
called him on both the occasions. On 1.6.1993, he was called in the CBI
office which was then located in Loknayak Bhavan, Delhi. He had received
written summons at that time. The summons mentioned about the MUL's
case. He could not recollect the exact time when the process of recording of
his interrogation commenced and ended but it was during the office hours
E between l 0 am to 5 pm. The process of interrogation continued on when the
officer Mr. Bhatnagar questioned him and he gave answers to his questions.
He could not recollect whether Mr. Bhatnagar at that time went Gn recording
his statements. On being shown para 32 of his deposition recorded by Mr.
Bhatnagar under Section 161 CrPC, he stated that by reading the statement,
he can say that he had not mentioned specifically the said fact in his statement
F before the CBI. He was further referred to his statement recorded on 15.6.1993
wherein he stated that 'earlier on arriv~I to office.on 4.ll.1991 (FN) Shri
Harshad S. Mehta had told him that he had to attend a meeting with PM on
·that day'. The witness denied having made such ·statement before the CBI.

G PW25 Mr. B.C. Bhatnagar, SP CBI stated that he was transferred 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
H for investigation. During the investigation conducted by him Shrl Maheshwari
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 195
being his superior remained in touch with this case as a supervisory authority A
... 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. B
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

During the course of investigation, one Mohan Khandelwal was arrested
by Dy.S.P. Shri Panwar. In August, 1994, he was transferred to BS&FC and C
was again associated with investigation of this case. Mr. Verma, the then SP,
Mr. JN Prasad, working as SP and Mr. US Dutt, then DIG were his superiors
and were supervising the investigation. On or about 3 lst August, 1994, Mr.
Mohan Khandelwal gave him a letter Ex.203, which was discussed by him
with his superiors. It was decided that in case Mr. Khandelwal discloses the
full facts he may be taken as an approver and his statement may be got D
recorded.

He further stated that he did not take possession of the visitors register
of MUL during investigation. He also did not ascertain that MUL at all
maintained such a register or not. He had ascertained the date of joining of E
A-2 with MUL as 19.4.1989 and that during the month of May, 1989 A-2
was on an orientation programme at the factory at Gurgaon. Except the
statement of Mohan Khandelwal, he was not aware when A-5 visited Delhi
during the month of April-May, 1989. He secured the statement of Mohan
Khandelwal with regard to the presence of A-1 and A-2 and about.the fact
of the meeting in April-May, 1989. F
On seeing the case diary he stated that he had recorded one statement
of Mohan Khandelwal on 1.6.1993. Prior to 15.6.1993, he had not recorded
any statement of Anuj Kalia. Between 15.4.1993 to 15.6.1993 he had not
interrogated Anuj Kalia.
G
In cross-examination, the witness stated that he does not remember if
during the course of investigation, he had checked up the various records of
Grindlays Bank, Sansad Marg Branch where A-4 was working and particularly
between February 1991 to May 1991. He also does not remember if he had
made any application/request for production of documents to the said bank H
196 SUPREME COURT REPORTS [2003) I S.C.R.

A during the said period and that he had conducted any search and seizure .from
the said bank with regard to the documents like attendance register, duty ,,.......
roster or any other similar document showing the presence of particular officer
at particular time. He agreed that he neither saw nor took into possession any
such record dated 25.2.1991, 13.3.1991, 18.3.1991, 24.4.1991 and 2.5.1991
B with regard to the presence of A-4 in the concerned bank on these dates.

He further stated that it is wrong to say that due to the five transactions
in question no pecuniary loss has been caused to MUL. He stated that the
loss 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
C 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
the Grindlays bank to ascertain the procedure of inter banking clearance. He
D 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.

E 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.

He agreed that he did not check up the record and the procedure of
inter banking clearance of the cheques of high value of the high networth
F customers of Bank of America, Hong Kong and Shenghai Banking Corp.,
Standard Chartered Bank or any other foreign bank. He denied that he had
deliberately not checked the said procedure with other banks as it would have
shown that the Grindlays Bank was also adopting the same procedure as
followed by other banks during the relevant period for inter banking clearances
G of high value cheques. He also denied the suggestion that he had deliberately
not checked up with Grindlays bank with regard to the attendance and posting
etc. of A-4 with the obvious purpose that such records would have falsified
the case of the prosecution in relation to A-4.

He also denied the suggestion that on 31.8.1994 Mohan Khandelwal
H was under tremendous pressure due to rejection of his application by the
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 197

Special Judge and the fact was in his knowledge and that the accused had no A
y other choice except to toe the line of CBI and to become an approver. He was
not aware of Mohan Khandelwal being involved in fi\·e or six other cases of
scams at the relevant time.

He also stated that it was one of the significant factors in the investigation
that loss had been caused to MUL. During the course of preliminary enquiry B
he had collected information which indicated pecuniary loss to MUL. Out of
...... the five transactions in question, the first one was a borrowing by MUL
whereas the remaining four were lending by MUL. The loss was caused to
MUL because MUL paid higher rate of interest in comparison to the rate of
interest paid by other PSUs on borrowings. He does not remember as to what
rate of interest was paid by MUL but it is mentioned in the charge-sheet. He
c
had seen the charge sheet. It does not carry any mention of other PSUs.
.......:i.. There is also no list showing the rate of borrowing by other PSUs. He admitted
that the rate of interest in the market fluctuates from day to day and hour to
hour. He investigated on the aspect as to on what rate of interest other PSUs
borrowed on 23.1.1991. He had not recorded the statements of any person D
from those PSUs. But he collected the data showing the borrowing rate !If
interest. He had collected such data from GAIL, Indian OIL and ONGC etc.
but it has not been made part of the charge-sheet, the reason being oversight.
_,,.1-. . He stated that it was wrong to suggest that the said data was deliberately
... ' suppressed because it would not indicate any loss to MUL. At that time, he E
did not consider it necessary to record the statement of the concerned officials ·
of the PSUs.

He could not remember if he had recorded the statement of any officials
of MUL on the point of loss. He does not recollect if MUL had other
borrowings on that day and if so at what rate. He agreed that MUL had not F
•:i.- lodged any FIR with regard to any of the five transactions in question .

He had recorded the statement of R.C. Bhargav and 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-I and A-2 were
liable for their acts as mentioned in the charge-sheet. So far as Mr. Bhargav
G
and Mr. Natrajan were concerned, they were found not involved directly.
They were involved not criminally but for approving the proposal put by A-
l 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 had bonafidely H
'
198 SUPREME COURT REPORTS [2003) I S.C.R.

A accepted the proposal put up by A-1 and A-2. A-1 and A-2 were the person
who were responsible for investing the amount with the banks for the benefits
of MUL. The approval by Mr. Bhargav and Mr. Natrajan was with the
application of mind.

Following Question was put to the witness-
B
(Q.) Do you now understand the distinction between 'advancing to'
and 'advancing through'?
~
. '
(A) Yes, when the advance is made to a person directly it is 'advance
to' and when there is a mediator then it is 'advance through'.
c The witness further stated that similarly there is a distinction between
'placing funds with' and 'placing funds through'. On seeing Ex:23, wherein
the placing of funds through UCO Bank is mentioned, he stated that so far
as this document is concerned the funds were placed through UCO Bank and
is
not to UCO Bank. Similarly, in Ex.24 the word used 'through'. In these
D two documents even after the use of the word 'through', his conclusion was
that the placement of funds by MUL was with UCO Bank and not with a
third person. The witness further clarified that the placement of funds was
with UCO Bank which offered the sale of units available with them and the
contents of the resolutions in Ex.23 and Ex.24 should be read with the Agenda
E Note and the letter of offer by UCO Bank. According to him, after 'the
placement of funds with UCO Bank, the Bank would not be acting illegally
if it places those very funds with a tl1ird party. He admitted that in-Ex.24
MUL had adopted a resolution on the same day placing the funds with Mis
Can Bank Financial Services for investment in bonds/units/government
securities. He denied that he and the Investigating Agency have protected
F Mr. Bhargav and Mr. Natrajan. He could not remember if he had recommended
the prosecution of Mr. Bhargav and Mr. Natrajan or tllat the Investigating
Agency rejected that recommendation for extraneous reasons.

The decision to name Anuj Katia in the FIR was of Mr. Malieshwari
G and the Investigating Agency and he had agreed. The decision to drop him
from the list of accused was his and that of investigating agency. After
recording statement of M. Khandelwal under Section 164 Cr.P.C. it was
decided to drop him from the list of accused. Till that time, he was an
accused. It was the decision of Mr. Maheshwari and the Investigating Agency
not to cite M. Khandelwal as an accused at the time of FIR. He does not
H know as to who was the particular person in the hierarchy of CBI whose
R.N. POPLI v. C.B.I. [M.B. SHAH, J.J 199

decision was not to cite M. Khandelwal as an accused in the FIR. As an IO, A
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. B
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 times Anuj Kalia was acting on his instructions. He had
mentioned the fact in his report that Anuj Katia was working under Mohan
Khandelwal. C
In further cross-examination, he stated that 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 on behalf of their D
clients, A-3 issued Bank Receipts single handedly. He did not remember if
A-3 was not in the branch of UCO Bank when the last two transactions took
place or that between 15.4.1991 to 15.5.1991 he had been transferred to
Hingna branch in Maharashtra. He agreed that he had not implicated the
L
officer who played the role of A-3 during last two transactions. He did not E
remember if the said officer was Mr. Shidey who performed the role of A-
3 after his transfer. On seeing the bank receipts Ex.A-5 (17) to Ex.A-5 (29),
he stated that he had not seen the same during the course of investigation of
this case. Those documents were not seized in this case.

He agreed to the suggestion that the statement dated 15.6.1993 of Mohan F
Khandelwal was not a statement connected with this case. He did not remember
if the statement dated 15.6.1993 came to be recorded only because a day
earlier i.e. on 14.6.1993 Harshad Mehta happened to convene a press
conference in which he leveled the allegations of having paid Rs.One crore
to Narsimha Rao, the then Prime Minister and in which Mohan Khandelwal
was a vital witness. He did not know if the said statement dated 15.6.1993 G
had been brought to the notice of Mr. Narasimha Rao and his advisors.

PW/6 Anuj Kalia stated that he was working as Management Trainee
with Mis Growmore Research and Assets Management Ltd. at New Delhi.
While working in the said company and in connection with the work of that H
200 SUPREME COURT REPORTS (2003) I S.C.R.

A company, he came across a person by name Harshad S. Mehta. It is stated
that the said company namely M/s Growmore Research and Assets
Management Ltd. was a family concern of A-5. During 1990 and 1991, A- ;
5 used to visit the said office at Delhi 011ce in a few months or so. During
the said period, A-5 was stationed in Mumbai. It is further say of this witness
B that he got himself appraised of the nature of the business of the said company
which was to conduct the research in Stock Market and to make investments
in stock market and similar services of broker.

The witness further stated that during his visits to Grindlays bank in
connection with the work of their company, he came across an officer by
C name R.N. Popli, (A-4) working with the said branch ofGrindlays Bank. and
that A-4 was attached to Remittances Department. Sometimes, he also worked
in other department.

The witness also stated that in connection with the office work, he had
occasion to visit the office of MUL situated at Kasturba Gandhi Marg, New
D Delhi on ft:w occasions. 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.l.1991 on the letter ·
E 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.

The witness stated that he had an occasion to collect bank pay order
p 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 appraised
and he was also not aware in respect of what transaction the said payment
G was made· for as he was simply told to collect the cheque.

On seeing the pay-in-slip dated 25.2.1991 [X-18 (Ex.100)) of ANZ
Grindlays bank, the witness stated that the same is pay in slip on the printed
format of ANZ Grindlays Bank. The same is written in his handwriting and
he identified the same. Tiie initials therein appear to be of A-4 but he was
H not sure about the same. He filled in the said pay-in-slip for depositing the
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 201

bankers' cheque issued by Canara Bank, Parliament Street Branch as per A
instructions of Mr. Khandelwal. The said pay-in-slip is the detached part
from its counter foil which remains in the book. The rubber stamp of the
Grindlays Bank dated 25.2.1991 appearing therein was put by the said bank
when the cheque was deposited. Such rubber stamp was also put by the said
bank on the counter foil of the said pay-in-slip.
B
On seeing Ex.26-MUL' s instruction letter dated 25.2.1991-the witness
stated that it is the letter on the strength of which he collected the pay order
Ex.28. The same bears his signature at two places marked as Ex.27( I) and
27(2) in the said letter. Handwritten portion thereon reading as "Mr. Sai
Swaroop Please deliver the cheque to Mr. Anuj Kalia" is the handwriting of C
A-2 and he identified the same being familiar therewith. He identified the
signature thereon marked as Ex.26 (2) as that of A-2 Ambuj Jain.

Further, on seeing Ex.IOI-covering letter dated 25.2.1991 on letter
head of Harshad S. Mehta addressed to the Manager, Grindlays Bank, New
Delhi-the witness stated that the hand written part of the said letter was D
written by him in his own handwriting and he identified the same. The same
has been signed by Mr. Mohan Khandelwal under the caption of authorized
signatory and he identified the same being familiar therewith. He wrote the
said letter under the instructions of Mr. Mohan Khandelwal. The said letter
was written for depositing the bankers' cheque of Canara Bank mentioned
therein into the account of A-5 as such letters used to be written for depositing E
bankers cheques into the said account.

On seeing Ex.102-detached part of pay-in-slip of Grindlays bank dated
13.3.1991-the witness stated that the same was in his handwriting and he
prepared the same for depositing bankers' cheque of Canara Bank, Parliament F
Street Branch, as per its number and amount mentioned therein into the
account of A-5.

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. I02 and Ex.30 to A-4 in Grindlays Bank. He handed over G
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.

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 H
202 SUPREME COURT REPORTS (2003) I S.C.R.

·· A co-relate 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
B amount mentioned therein into the account of A-5. ·He deposited the said
cheque by the. said slip under the instruction of Mr. Khandelwal.

On seeing Ex.26, which is an instruction letter dated 25 .2.1991 of
MUL to Canara Bank, Parliament Street Branch, the witness stated that he
read the name of Mr. Sai Swaroop in the said letter in a portion which has
C been marked as Ex.26(3). Mr. Sai Swaroop was the Manager of Canara Bank
attached to Parliament Street Branch at that time. He had occasions to meet
the said officer few times. He further stated that for collecting the letter
Ex.26, he had visited MUL's office but, to the best of his knowledge, he did .-y'
not deliver 35 lacs units of UTI to MUL when he collected the said_ letter.
He could not recollect as to whether in fact he delivered 35 lacs units of UTI
D into the office of MUL on 25.2.1991.

ln the cross-examination, the witness stated that he was questioned by
the CBI Officers in Scam related cases. He does not recollect exactly but
somewhere in Juty·or August, 1992 he first time came to be questioned. He 4...
E had received a process at that time from the CBI Officer. He does not remember
the name of the officer who questioned him. He denied the suggestion that
in the CBI Office he was told to implicate A-4 in this case and that he would
not be implicated in this case.

To the question that-during February and May, 1991 A-4 was not
F working in Remittance Department in Grindlays Bank in its branch at Sansad
Marg,~he replied that he was not knowing about his department but he 1'.
knew where he used to sit in the said branch.

CW1 Mr. Vishnu Deo Maheshwari, SP CBI stated that during the years
G 1991, 1992 and 1993 he was supervising investigation of cases relating to
anti corruption offences. In the year 1992-93 Mr. Amod Kanth, the then DIG
was his superior. Mr. B.C. Bhatnagar, the then Dy. ~.P. was amongst the
subordinate officers working under him during th~ said,period. He was asked --../..
to explain about his precise role in the process of supervision/investigation
of the MUL's case. He stated that he discussed.the evidence collected. by Mr.
H Bhatnagar who was the 1.0. of the case as also with senior officials;
,,
R.N. POPLI v. C.B.I. [M.B. SHAH, J.) 203
examination or interrogation of witnesses and to assess the documents collected A
as also the statements of witnesses and to discuss with 1.0. as well as senior
officers. Besides supervision of the investigation of the case, the then DIG
Mr. Amod Kanth ordered to examine one Mr. Mohan Khandelwal with the
assitance of IO about the MUL's .security transactions as well as cash
withdrawals during 1991-92 from the accounts of A-5, Accordingly, he B
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 C
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 D
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 ofany offence. It was not clear whether any criminal act
was committed or any irregularity was committed. He did not remember any
other role of Mr. Khandelwal that was discovered during the said period but
the fact that he was the constituted Attorney was discovered. He further did E
not remember as to why Mr. Khandelwal was not named as accused in the
FIR. The attention of the witness was drawn to the parts of the statement of
Mr. Khandelwal recorded on 15.6.1993 by him, which are as under:-

(i) For withdrawal of 25 lacs the self cheque signed by him was
given to Shri Anuj Kalia who brought the cash to the office and F
delivered to him when Shri Harshad S. Mehta was also present
in the office.
(ii) The VIP suit case containing the said cash brought by Shri Anuj
Kalia was handed over to Shri Harshad S. Mehta who took it in
the Honda Car of Shri Sunil Mittal and took away the ·money to G
some place not known to him.
(iii) Visited at ANZ Grindlays Bank along with Shri Anuj Kalia.
:.,..
(iv) The cheque was encashed and cash was brought to the office but
the suitcase containing cash remained in the office NE 118. H
204 SUPREME COURT REPORTS [2003) I S.C.R.

A (v) At about 3-4 p.m. Shri Harshad S. Mehta came to office in the
car of Shri Sunil Mittal and the suitcase containing cash lying in
NE 118 car was shifted to the car of Shri Sunil Mittal.
(vi) He, Sunil Mittal and Harshad S. Mehta went to residence of Shri
Sitaram Kesari, party Treasurer.
B (vii) There he remained along with them in the front room.
(viii)Later Shri Harshad S. Mehta and Sunil Mittal went inside the
connected room and the suitcase containing the cash was picked
up by somebody from the Bungalow (Residence of Shri Sitaram
Kesari) and taken inside that room.
c
(ix) While returning from that room Shri Kesari asked Harshad S.
Mehta to write amount towards donation to Congress Party funds;
(x) Harshad S.Mehta initialed in the note book produced by Shri
Ke sari.
D (xi) Then all three of them returned to office from where he remained
in the office and Shri Harshad S. Mehta along with Sunil Mittal
proceeded to Hotel;
(xii) Similar heavy cash withdrawal was also done on 4.5.1992 when
Rs.20 lacs were withdrawn from the same bank.'
E
The witness was questioned-whether the said evidence of Mr.
Khandelwal denying the recording of his said statement was true? The witness
replied 'No'. He had recorded the said statements. He said that Mr. Khandelwal
in his said statement recorded by him on 15.6.1993 had made the statement
as above at SI. Nos.(i) to (xii).
F
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
G 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.

DWS(S) Atul Manubhai Parekh stated that he is dealing with
H pharmaceuticals and chemicals since about last two years. Prior thereto, he
R.N. POPLI v. C.B.J. [M.B. SHAH, J.) 205
was in the employment of A-5 from June 1990 till June 1992. He was Asstt. A
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 securities both delivery on behalf of A-5 as also receipt B
on behalf of other parties.

Regarding the procedure of settlement of the deals and about his role,
the witness stated that after feeding the computer, the contract notes and
delivery orders were generated from the computer and handed over to him.
On receipt thereof, he used to depute the delivery boys to the concerned C
banks for the purpose of collecting or receiving the deliveries of the securities.
After collecting the securities, the same used to be sent to UCO Bank, Hamam
Street Branch, Bombay. The delivery boys would deliver the securities and
then collect the bankers cheques from UCO Bank and deliver again the said
bankers -cheques to the banks from where they had earlier collected the
, securities in question. D
UCO bank, Hamam Street Branch, Bombay was giving routing facility
for money market transactions to various brokers which included his master
A-5.

He used to do daily reconciliation with UCO Bank, Hamam Street E
Branch, Bombay in respect of the security position in the account of A-5 on
telephone. After confirming the position of the balance of the securities in a
form of BRs held by UCO Bank in the account of A-5, he would pass on the
same to the dealers of A-5. Without holding the securities by way of BRs,
UCO Bank would not issue BRs for and on behalf of A-5.
F
Apart from BRs the securities in the physical form of A-5 would also
lie with UCO Bank, Hamam Street Branch, Bombay. Whatever securities
received either by BRs, SGLs or physical for and on behalf of A-5, the same
used to remain with UCO Bank, Hamam Street Branch, Bombay. There used
to be generally surplus balance of securities in the account of A-5 with UCO G
bank, Hamam Street Branch, Bombay.

He agreed to the suggestion that UCO Bank, Hamam Street Branch,
Bombay issued its BR in respect of 70 lacs units of UT! on 13.3.1991 in
respect of the second transaction favouring MUL.
H
---<

206 SUPREME COURT REPORTS (2003) 1 S.C.R.

A He was in Bombay when A-5 was arrested. He was also arrested by
CBI in RC Case No.S(A)/92. He was aware that A-5 was kept in the CBI
· custody for well over 90 days. He was not knowing whether A-5 was under
CBI custodial interrogation.

ALLEGED CONSPIRACY
B
In this case, conspiracy is the basis for convicting the accused. Special
Court has mainly relied upon the evidence of PW23 for holding that
prosecution has established conspiracy on the basis of so-called meeting
between A-1, A-i, A-5 and PW23 Mohan Khandelwal in the month of April/
C Mar, 1989. For conspiracy, it is the prosecution version that Al 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
specific bar of granting loan by MUL to individuals.

Mr. Mahesh Jethmalani who appeared as amicus curiae for A-3,
D 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
E 13 other transactions took place in the year 1990 between A-5
and MlJL. All these tfansa~iions have been brought out in cross-
examination of PW23 and the relevant documents have been
proved by the defence through their defence witnesses.
. '

(b) Th~re can n9t be a ~on~piracy to siphon-off surplus funds when
the overt acts show that nothing of that kind happened even
F
once; monies were lent on security· and repaid with interest on I
the due date. ~

(c) .There was effort made to prove this absurd conspiracy based on
the sole evidence of the approver PW23. Now in this very case
it has been held by the previous Bench that the pardon granted
G to the approver by the Magistrate was invalid. Where the pardon
granted is without jurisdiction the use of the evidence may not
affect the validity of the entire proceedings by reasqn of the
curative provisions ofCr.P.C. but.certainly the evidence becomes
inadmissible. It is significant that the Solicitor General during
H his long arguments never once relied upon the evidence of the
R.N. POPLI v. C.B.I. (M.B. SHAH, l.] 207
approver. A
(d) The veracity of PW23 has been destroyed in cross-examination.
He denied his taped conversation and feigned ignorance of one
police statement. He suppressed truth from the JPC. Even if the
evidence of PW23 is taken at its face value, it does not disclose
any conspiracy viz. an agreement to commit an illegal act. B
(e) It is well-settled that an approver is not worthy of credit and his
evidence must be corroborated in all material particulars through
independent evidence. The conviction cannot be based on sole
evidence of an approver. It is submitted that in the instant case
there is no corroboration of the so-called conspiracy through any C
independent evidence; in fact the evidence of approver himself
does not disclose any conspiracy as alleged in the charge.

Learned senior counsel Mr. Jethmalani also referred to a note recorded
by 13 Members of JPC, wherein it is stated as under: -
D
" ....... The CBl's treatment of Shri Mohan Khandelwal, first as a
'source' and thereafter as an accused is mystifying, to say the least.
No satisfactory explanation about this was ever forthcoming'.

- It is submitted that from the aforesaid note inference is obvious - the
registering of preliminary enquiry in this case and other cases was an attempt
to threaten PW23 for not disclosing to the public what he had informed to
Shri Sharma, DIG Special Investigation Wing privately. The registering of
E

the cases had the desired effect-PW23 did not reveal his knowledge to
anybody because the agency to whom he had revealed it from June, 1992
onwards, had chosen not to use the information but to investigate cases in
which he could be roped in. Obviously, the filing of cases against PW23 F
intimidated him sufficiently not to divulge the information he was aware of.
He submitted that this is crystal clear from the evidence of CWl Mr. V.D.
Maheshwari wherein he has stated that Mr. Khandelwal in his statement
dated I 5.6.1993 disclosed that after withdrawing large amount from the bank,
A-5 along with Sunil Mittal went at the residence of Mr. Sitaram Kesari, G
Congress Party Treasurer and handed over the said arnoimt to him. To suppress
this, Mr. Khandelwal was made approver.

The learned counsel for all the accused contended that prosecution
'\ story of conspiracy between A I to A~ is absurd, subsequently developed and
cooked up. It is contended that one of the purposes for developing the story H
208 SUPREME COURT REPORTS (2003) I S.C.R.

A 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
B 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 by
sub-section (2) of Section 3 of the SCAM Act. Hence, it is submitted that the
allegation of conspiracy between the accused since 1989, apart from being
unreliable, is cooked up.

C For appreciating the contention, we would refer to the FIR which was
lodged on 15.4.1993. In the FIR, (in para 3) it has been mentioned that-

'S/Shri Pramod Kumar and Anibhuj Jain entered into a criminal
conspiracy during the period from January, 1991 to May, 1991 at
Delhi and Bombay with V.N. Deovasthali an officer of UCO Bank,
D . Hamam Street Branch, Bombay, R.N. Popli ofANZ Grindlays Bank,
Delhi and Shri Harshad S. Mehta, a broker, his employee Anuj Katia
and certain other unknown persons with the object to misappropriate
the said surplus funds of MUL and to provide pecuniary advantage
to Shri Harshad S. Mehta out of the funds to be invested by MUL by
abusing their official position as public servants.'
E
Similar allegations were made in the charge-sheet, which was filed on
15.12.1994 which reads as under:-.

'The investigation has further revealed that Pramod Kumar (A-I)
and Ambhuj Jain (A-2) entered into a criminal conspiracy and were
F member of the same during the period from January, 91 to May, 91
at Delhi and Bombay with V.N. Deosthali (A-3), then Asstt. Manager
UCO Bank, Hamam Street Branch, Bombay, R.N. Popli (A-4) of
ANZ Grindlays Bank, New Delhi, Harshad S. Mehta (A-5) a broker
and Mohan Khandelwal an attorney of Harshad S. Mehta, with the .
object to misappropriate the surplus funds of MUL and to provide
G pecuniary advantage to Harshad S. Mehta (A-5) by abusing their
official position as public servants.'

In respect of the aforesaid prosecution story that accused entered into
criminal conspiracy during the period-January, 1991 to May, 1991 - the
H prosecution has not. led'any~idence and it appears that it has given up the
210 SUPREME COURT REPORTS (2003) l S.C.R.

A sure when A-5 visited New Delhi, but he visited New Delhi once in April or
May, 1989 and the meeting took place in the office of MUL at New Delhi.
The atte11tion of the witness was also drawn to the hand written entry in the
visitors' register of the ONGC, New Delhi for the period 25.2.1989 till
4.11.1989, which reveals that A-5 was present in Delhi on 10.4.1989 and
B even assuming that A-5 stayed there for one week, as stated by the witness,
his stay would be up to 17.4 .1989. .

·On the basis of the aforesaid evidence, it has also been rightly contended
that the story developed by the prosecution that A-2 was present during the
said meeting is, on the face of it, absurd. For this purpose, it has been pointed
C out that by an office order dated 4-4:1989 Ex.At and Ex.A2 (5), A-2 was
appointed and thereafter he joined the MUL on 19.4.1989 as Junior Officer
on probation. He was sent for refresher course from 1st May. In this set of
circumstances, it would be difficult to believe that a raw junior officer who
was on probation would take part in alleged meeting and be a party to
conspiracy of dealing in MUL funds illegally or irregularly.
D
Further, PW23 has developed a story after his arrest on 10.8. t 994 that
A-2 was present ~n the meeting. PW23 has admitted in cross-examination
that he wa5 first summoned by CBI in June, 1993 for interrogation on two
occasions, i.e. on l.6.1993 and 15.6.1993. In further cross~examination, he ....
E admitted that neither he could recollect the exact date and time of the meeting
which took place in the premises of MUL nor remember the month of the
meeting. The witness has also stated that if in the statement recorded by the
CBI, he has not mentioned about the presence of A-2 in the said meeting,
then it may be, he has not stated about the same. The public prosecutor
admitted that it was an omission in the statement recorded by the CBI with
F · regard to the presence of A-2. From the aforesaid admission in the cross-
examination, it is apparent that A-2 was not present during the meeting and
that the prosecµtion 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.
G
It is also to be noted that the alleged rn,eeting took place in an open hall
where other employees of MUL were sitting in close proximity of A-l 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- I and that he himself,
H A-I, A-2 and Jagdish Kumar used to sit in a common hall; A-I had his table •

~ ·.: .. ·•...... ,.
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 211
with chairs meant for visitors and by the side of it and in front of him, there A
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
Finanee Cell of MUL, he had not heard the name of Harshad Mehta and that
he had never seen the said Mr. Mohan Khandelwal. Similarly, PW8 Jagdish B
- Kumar who was working in the Corporate Finance Department of MUL from
1981 to 3 .5 .1991 has not at all deposed about the alleged meeting. The other
employee who was also working in the said room is not examined by the
prosecution, therefore, it is submitted that PW23 has uttered a blatant falsehood
when he deposed before the court that alleged meeting took place in the
premises of MUL in the month of April or May, 1989. If such meeting had C
taken place as alleged by PW23 it would have been noticed by PW4 Rajan
Ramgopal, PW8 Jagdish Kumar and other employees.

From the aforesaid discussion, it is apparent that approvers' statement
for establishing conspiracy does not inspire any confidence.
D
Further, the evidence' led by the prosecution itself destroys the so-
called conspiracy hatched in April/May 1989 because the reply of A I as
stated by PW23 in the meeting was limited to the extent that MUL could not
deal with or involve the brokers and that he would look into any gooo
proposals if AS does not come into the picture. From this statement, no 'E
inference can be drawn that there was any conspiracy to misappropriate
MUL funds or commit fraud or to commit any illegal act. Further, for the
prosecution version that Al and A2 entered into a criminal conspiracy with
other accused between January 1991 to May 1991 as stated in the FIR (which
was recorded after preliminary inquiry) and in the charge-sheet (virtually
filed after more than two years of the preliminary inquiry), no attempt is F
made to prove the same. Subsequently developed prosecution version that
conspiracy was hatched in April/May, 1989 on the basis of approver's evidence
appears to be unreliable and baseless.

Next question would be (even though not argued) - Can we draw an G
inference from the transactions in question that there was any such conspiracy
fi'om January, 1991 to May,1991 between accused? ·

There is no circumstance on record for establishing any conspiracy
between A-1 and A-3 who was Assistant Manager of UCO Bank. There is
nothing on record to show that A-1 or A-2 had any talk with A-3 or A-4 with H
212 SUPREME COURT REPORTS [2003) I S.C.R.
• i·

A regard to the alleged conspiracy and that they were party to it. )-

However, let us consider that five transactions mentioned above took *
place and as MUL could not lend money to A-5 directly, the transactions
took place under the name of and through UCO Bank and in four transactions
UCO Bank in tum gave the said amount to A-5. It is pointed out that as there
B was conspiracy, A I and/or A-2 gave Account Payee cheques issued by Canara
Bank on behalf of MUL payable to Grindlays Bank to Anuj Katia
~
-
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
c UCO Bank gave cheque to A-5.

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
D were routing/switch transactions. PWl4 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 and such transactions were to be completed witl1in -...,I.._
the banking hours. DW-A3(2) Mr. Ramnathan, who was the Divisional
E
Manager of UCO Bank at Bombay Office has produced on record the letter
dated 08.1.1991 Ex.231 written by him indicating resumption of switch
transactions and that letter was written after discussing the subject with various
authorities including brokers, Zonal Manager and also with General Manager
and Dy. General Manager of UCO Bank.
F
It appears that such irregular and unjustified banking practice had ~
developed. But in view of the evidence for such routing/switch transaction
developed by the banks/brokers, it cannot be inferred that there was any
conspiracy between A I, A2 and A3 or A4 and AS. As stated above, this ~.

irregular practice is also discussed by JPC. The JPC had arrived at the
G conclusion that scrutiny of securities transactions in a number of banks revealed
that some banks were even handing over account payee cheques drawn in
favour of other banks to the brokers who got them credited to their account - --"
ostensibly to assist the latter in transferring the funds quickly to meet their
obligations. This was done as per infonnal understanding and in the name of
H market practice. The payee bank used to credit the proceeds to the accounts
I'

R.N. POPLI v. C.B.I. [M.B. SHAH, J.) 213
of the broker constituents who brought the cheque to it for collection. The A
JPC also observed that routing of transactions of many brokers including A-
5 had been carried out by banks. The banks were lending their names to the
transactions of these brokers and exposed themselves to great risk by irregularly
issuing their own BRs. Therefore, if this commercial practice was rightly or
wrongly developed in various banks or the PSUs, it cannot be inferred that B
there was any conspiracy between the banks and PSUs or that there Y(3S
consi>iracy between A-1, A-2, A-3, A-4 and A-5.

Further, in the present case, .there is no evidence on record that BRs
were issued by the UCO Bank without being backed by the security namely
UT! Units.
c
In this set of circumstances, it would be difficult to hold that prosecution
has proved the charge of criminal conspiracy under Section 120-B of IPC
against the accused.

I would also state that it is not properly understood by the prosecuting D
agency that by introducing or adding a new story in a criminal prosecution,
in most of the cases, it adversely affects or destroys 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.
E
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. F
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 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. G
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 some brokers in collusion with the banks and financial H
214 SUPREME COURT REPORTS (2003) I S.C.R.

A initltutions. The irregularities and mal-practices noticed by the RBI were
with regard to diversion of funds from banks and financial institutions to ·
individual account'S of certain brokers. Hence, the SCAM Act was enacted
which provid~s for establishment of a Special Court for tJt~ trial of offences
relating to transactions in securities and for matters conhected therewith or
B incidental thereto. The object of the Act is to deal with situation mentioned
above and in particular to ensure speedy rec!overy of huge amount involved,
to punish the guilty and moore ttlhfldence in and maintain the basic integrity
and credibility t>fthe bittlt<s and financial institutions. Under Section 5 of the
SCAM Ad; Specilll Court is to be established and one or more sitting Judges
of the Hi;h Court would have jurisdiction in respect of any offence referred
C t<> in sub-section (2) of Section 3 of the SCAM Act. Section 3(2) reads thus:-

'3. Appointment and functions of Custodian.-
(1)
(2) The Custodian may, on being satisfied on infonnation received
D. that any person has been involved in any offence relating to
transactions in securities after the /st day of April, 1991 and on
and before 6th June, 1992, notify the name of such person in the
Official Gazette.'

Hence, under the Act, jurisdiction of the Special Court is limited for
E offences relating to transactions in securities after the 1st April, 1991 and on
or before 6.6.1992 and the Court is required to follow the procedure prescribed
by the Code of Criminal Procedure for the trial of warrant cases before a
Magistrate. Sections 6 and 7 inter alia provide that the Special Court would
have exclusive jurisdiction to take cognizance of or to try such cases as are
F instituted before it or transferred to it as provided.

Further, it is to be clearly understood that the Act does not create any
new offence nor brings about any change in the procedure or raises any
presumption pertaining to an offence punishable under the IPC or P.C. Act,
which is to be tried under the Act. Therefore, the offences pertaining to
G misappropriation, criminal breach of trust or fraud and forgery are required
to be established by the prosecution on the touchstone of ingredients laid
down under the relevant provisions of Indian Penal Code and by following
the Evidence .Act. Hence, for conviction under Section 403 arid/or Section
405 IPC the prosecution is required to establish the ingredients of said sections
beyond reasonable doubt.
H
R.N. POPLI v. C.8.1. [M.B. SHAH, J.] 215
Therefore, as the prosecution has failed to establish the conspiracy, the A
jurisdiction of the Special Court would be limited only for the transactions
which took place after Isl 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
B
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.

The case of the prosecution against A-1 and A-2 is as follows:- C
(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-S. 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, D
knowingly entered into a series of transactions, which had the
result of making the funds of MUL available to AS .
. (b) A-I and A-2 were also admittedly public servants during the
material time. They abused their position and thereby conferred
a pecuniary advantage upon A-S and in any event while holding E
office as a public servant obtained a pecuniary advantage for A-
S against public interest. Thus, they were charged with an offence
u/s 13(1)(c) of the PC Act.

It is also pointed out that the evidence given by the prosecution witnesses
of the MUL inter a/ia establishes the following- F
(a) A-1 was the Deputy Manager and A-2 was senior exe~utive
working closely with him.
(b) 'F/iat MUL had taken a decision to invest its funds with PSUs. In
fa't:t it was clarified that investment would only be in PSU bonds. G
(c) A-I used to place the proposals before the Board and obtain
approvals for the investments in question.
( d) MUL did not engage services of brokers for its transactions.
(e) A-I and A-2 used to give instructions on the basis of which H
216 SUPREME COURt R~PORTS [2003) t S.C.R.

',A letters addressed to ba\\ks were prepared.
(f) The Banket;s cheques were handed over on the instructions of
A·l 'Ot A-2 to Anuj Kalia - an employee of A-5.
(g) The vouchers prepared in MUL clearly suggest that transaction
Was between MUL and UCO Bank. This has also been stated by
B PW4 in his cross-examination. In the circumstances, it is submitted
that it is very clear that the transaction, which was authorised,
y--
was ~a transaction in securities directly with UCO Bank.
(h) The fact that the pay order was being given to Grindlays Bank
in a transaction with UCO Bank was brought to the notice of A-
c I by PW4 to which A-l's reply was that it was the problem of
UCO Bank.
(i) The contention that A- I was instructed by UCO b.ank to issue
the pay order in favour of Grindlays Bank is unacceptable for
+-
the simple reason that in the fourth and the fifth transaction pay
D order continued to be issued to Grindlays Bank without any
direction from UCO bank.
G) In any event, there was no authorisation to purchase any securities
from any brokers. There was no mention of the monies being
-.I,._
given on loan to any broker. It bears emphasis that surplus funds
E were many times invested in securities in buy back transaction,
in that the arrangement would be to purchase a security and then
resell it within a stipulated time after the identified period at a
price which would include the cost of purchase plus the stipulated
interest. This ~ransaction was considered as placement of funds
with PSUs. The witnesses have clearly stated that the only
F
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.
G
(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).
H (c) He signed letter dated 18.3.1991 for issuing pay order in the
,'

R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 217

name of ANZ Grindlays Bank (Ex.31-third transaction) A
(d) He signet! 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).
B
The learned senior counsel Mr. Jain appearing on behalf of A-2 submitted
thus:-

For Charge (a)-

The prosecution lias miserably failed to establish conspiracy sought to C
be proved by examining PW23 Mr. Khandelwal. This submission requires to
be accepted as discussed above.

For Charge (b)-

A2 signed the letter dated 25.2.1991 (Ex.26) in routine manner and the D
same was put up by PW4 under the instructions of Al, who confinns the
same in his statement under Section 313 CrPC.

For Charge (c)-

The letter dated 18.3.1991 was written by PW8 after the decision with E
regard to investment had been taken by the sub-Committee and conveyed to
A· I. In his statement under Section 313 Cr.P.C., A· l admitted that MUL got
issued banker's cheque dated 18.3.1991 favouring ANZ Grindlays Bank as
per written instructions of UCO Bank. A2 signed the said letter being
authorised signatory. PW8 in his entire deposition has nowhere mentioned F
that the letter was written under instructions of A2. The said document can
)L
not be said to have been signed by A2 with any criminal intent and as such
this circumstance cannot be used against A2 for implicating him in the offences
alleged.

For Charge (d)- G
Letter dated 24.4.1991 was also written by PW8 after the decision for
< investment had been taken by sub-Committee and conveyed to Al and Al
confirmed that MUL got banker's cheque dated 24.4.1991 issued in the name
of ANZ Grindlays bank in respect of transaction between MUL and UCO
Bank. A2 signed the letter being authorised signatory. H
218 SUPREME COURT REPORTS [2003) I S.C.R.

A For Charge (e)-

No charge has been framed against A2 in respect of any BR. Since the
prosecution had cited document Ex.41 during arguments before this Court,
the same is being replied to by A-2 as under:-

B "A2 saw this BR at the ti!lle of discharge as authorised signatory after
MUL had got the money back and the transaction had got reversed.
When PW4 who was the custodian of all records of every transaction
and was maintaining BRs, put up the said BR for discharge before A2
for signing after MUL had got the money back, he signed the same
in a routine manner."
c
Under the circumstances, it is submitted that no criminality can be
imputed against A2 for signing this BR as an authorised signatory after the
reversal of the transaction. Hence, it is submitted that this circumstance also +
cannot be held against A2.
D Learned senior counsel further submitted that as there is no evidence
against A-2, the Special Court had rightly acquitted him and in the appeal
also learned Solicitor General appearing on behalf of CBI has not pointed out
any material evidence to hold that the judgment and order passed by the
Special Court calls for any interference in acquittal appeal.
E
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
Katia. It is his submission that even handing over of cheque to a person· who
F had brought 35 lacs of units for being delivered to MUL cannot be termed
in any way as dereliction of duty. .-(

Learned senior counsel Mr.Sundaram on behalf of A- I has given detailed
written submissions and has inter alia submitted that the prosecution has
G 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
H
R.N. POPLI v. C.B.I. [M.B. SHAH,),) 219

knowledge the resolution (If tho ftll8rd dated 4th May, I 989; A
(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-I;

(e) In any case, it would be totally unjustified to hold that Al was B
having any dominion over MUL's properties. There is no mis-
-~ representation nor any loss to the MUL, There is no evidence on
record suggesting that A-I WM knowing that the funds were
disposed of by UCO a.ml< in favour of A-5. MUL has given
funds to the UCO Bftnk and it ls not the function of MUL to
verify from UCO Bank as to how the said funds are utilised; c
(t) Th@ @h~rges under the provisions of Section 13(1Xc) of PC Act
·~ and Section 409 of IPC are without any foundation;
(g) The evidence of PW7 and PWl4, both officials from UCO Bank
have deposed that they could not differentiate whether BRs and
D
letters pertaining to the relevant transactions shown to them pertain
to a transaction conducted on behalf of their bank or on behalf
of the client broker; and

_,>... (h) Prosecution has failed to examine material witnesses, i.e., Mr.
R.C. Bhargava, Chairman-cum-Managing Director and Mr. S.
E
Natrajan, Director (Finance), even though they were available
all-throughout and who were examined by the JPC and IO.

FINDINGS:

I would first refer to the resolution dated 4th May, 1989 of the MUL F
)l for investment of surplus fund' and also the resolutions for investment for
the five transactions in question, which are proved and produced on record.
ln that resolution, the Board of MUL laid down guidelines for investment of
surplus funds by MUL, which read thus:-
"Resolutlon d11ted 4.5.1989 (Ex.9)
l!OARI) AGENDA ITEM N0.17 - G
INVESTMENT OF SURPLUS FUNDS BY MUL
1.0 In terms of the existing guidelines from the Board, MUL has
been loaning its surplus funds to Central Public Sector
Undertllkings consistent with the terms and conditions of the
approval" accorded by the Central Government u/s 3 70 of · H
fl
\

220 SUPREME COURT REPORTS (2003) I S.C.R.

A Companies Act, 1956.
2.0 A Sub-Committee comprising the Managing Director and Director ~

(Finance) has been delegated the authority by the Board to
facilitate taking faster decision in this regard. The details of
investment made are placed in the Board meeting for information.
B 3.0 Of late, the number of PSUs, who have surplus funds wanting to
loan funds to PSUs has increased. Some PSUs, who were earlier
-y-·
requiring temporary accommodation are now in a position to
give funds. As a result of this, there is an increasing competition
between PSUs affecting the yield on such loaning of funds.
c 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
D 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 -./.....
E 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
F yield during such periods.
.J(
7.0 The Board may kindly approve proposals in paras 5.0 and 6.0
above."
Much has been contended that the Board resolution dated 4.5.1989
(Ex.9) passed by the Board of Directors of MUL prohibits granting of loan
G in favour of individuals and, therefore, transactions by A-5 with MUL are
illegal and against the policy of MUL and, therefore, A-5 misappropriated,
even though temporariiy, the amount of MUL. The afore-quoted resolution ~.
inter alia provides that it was open to the MUL to invest the surplus funds
in the UTI units through scheduled banks or directly. The reason being, these
H investments were expected to fetch higher rate of interest than what is available
-
R.N. POPLI v. C.B.I. [M.B. SHAH, l.] 221
· on loaning of funds to PSUs without invoking any risk as to return of the A
..+· principal and/or yield. It is also provided that Board has pennitted the sub-
committee to invest surplus funds of the Company in the purchase of units
ofUTI either through scheduled banks or directly. It is admitted position that
on the basis of the resolution, sub-committee was constituted consisting of
Chainnan-cum-Managing Director and Director (Finance) for the purpose of B
investment.

It is also proved that all the five transactions took place after the sub-
committee passed appropriate resolutions.

RESOLUTIONS OF THE SUB-COMMITTEE
c
Resolutions along with agendas are: - (1) Ex.22 dated 01.2.1991, (2)
Ex.23 dated 13.3.1991, (3) Ex.24 dated 18.3.1991, (4) Ex.40 dated 24.4.1991
and (5) Ex.42 dated 02.5.1991. Relevant part of resolutions is reproduced
hereunder:-
D
(1) Ex.22 dated 01.2.1991

"MARUTI UDYOG LIMITED
(CORPORATE FINANCE)
No.MULIFIN./CF/91. E
1st February, 91.

Sub:- Funds Management

1.0 In November and December Maruti has placed lot of money in
Government Securities/Units and PSU Bonds through Banks. F
These investments have been made for a period of 3 months to
6 months on assured yield ranging from 16.25% to 22% per
annum.
2.0 During the last week of December and in January, the receipt of
• payments were relatively less. Maruti was required to borrow
funds or withdraw money from PSU's. One of the options G
available for borrowing was to sell our investments to other banks
with a understanding to buy back these investments after a gap
of 30 days or so. This amounts to borrowing of funds at low
rates, as Maruti will continue to get advantage of the high assured
yield. The bank with whom we have earlier invested the funds H
222 SUPREME COURT REPORTS [2003) I S.C.R.

A and the bank from whom we borrow the funds need not
necessarily be the same bank.
In our documentation we have to show the borrowing as
sales of our investments. Therefore, it is proposed to show such
borrowing as reduction in our investments. This has been
B 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
c 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 Rs.27 .00 -+ '
lacs against such disinvestment made for meeting our funds
D requirement and for placement of funds with other PSU' s.

5.0 We have placed the following funds in different dates:

Date of Party's Amount Interest Period
Arrangement Name Rs. in Crores Rate p.a: . -4._

E
23.01.91 NFL 15.00 13% 30 days

30.01.91 MFL' 10.00 14% 30 days

30.01.91 ILFS 5.50 16.25% Till 2.5.91
F
Submitted for kind approval for placement of funds and borrowings
mentioned the enclosed statement.
Sd/-
(PRAMOD KUMAR)
DEPUTY MANAGER (FINANCE)
G
Sd/- (S. Natrajan)
DIRECTOR (FINANCE)

Sd (R.C. Bhargava)
CMD"
H
R.N. POPLI v. C.B.J. [M.B. SHAH, 1.J 223
(2) EL23 dated 13.3.1991 A
"AGENDA NOTE FOR THE MEETING OF COMMITTEE OF
DIRECTORS FOR INVESTMENT OF FUNDS TO BE HELD
ON 13.03.1991.

We have received a proposal for investment of Rs.10.00 B
crores in Units through UCO Bank for a period of 12 days. The
expected yield will be 16.75% per annum.

Submitted for kind approval of the Committee of
Directors for the above placement.
c
MINUTES OF THE MEETING OF THE COMMITTEE OF
DIRECTORS FOR INVESTMENT OF FUNDS HELD AT THE
REGISTERED OFFICE ON 13.3.1991.

PRESENT
D
Shri R. C. Bhargava -Chairman & Managing Director

Shri S. Natarajan -Director (Finance)

Item No.I Confirmation of the minutes of the last
Meeting held on I 1.3. 91. E
The minutes of the last meeting held on
11.3.91 were confirmed.

Item No.2 The Committee passed the following
Resolution:- F

"' "RESOLVED that Maruti may place
funds in Units through UCO Bank
aggregating to Rs. I 0 crores for a period
of 12 days at an expected yield of 16.75%
p.a." G
The resolution was put to vote and canied unanimously.
\,,.
Sd/- Sd/-
R.C. BHARGAVA S. NATARAJAN
CHAIRMAN & MANAGING DIRECTOR DIRECTOR (FINANCE)" H
224 SUPREME COURT REPORTS [200J] 1 S.C.R.

A (3) Ex.24 dated 18.3.1991
AGENDA NOTE FOR THE MEETING OF COMMITTEE OF _ -+--
DIRECTORS FOR INVESTMENT OF FUNDS TO BE HELD
ON 18.03.1991.
1.0. We have received a proposal for investment of Rs.14.45 crores
B in Units/Government Securities/PSU Bonds through Can Bank
Financial Services for a period of 43 days. The expected yield is
25% per annum.
2.0. We have received a proposal for investment of Rs.10.84 crores
in Units through UCO Bank for a period of 5 days. The ex-pected
c yield will be 21% p.a.

Submitted for approval of the committee of Directors for the above
placement.

MINUTES OF THE MEETING OF THE COMMITTEE 0F
D DIRECTORS FOR INVESTMENT OF FUNDS HELD AT THE
REGISTERED OFFICE ON 18.3.1991.

PRESENT

Shri R.C. Bhargava -Chairman & Managing Director
E
Shri S. Natarajan -Director (Finance)

Item No.I Confirmation of the minutes of the last
Meeting held on 15.3.91.

F The minutes of the last meeting held on
15.3.91 were confirmed.

Item No.2 The Committee passed the following
resolutions:-

G "RESOLVED that Maruti may place
funds with Mis Can Bank Financial
Services for investment in Bonds/Units/
Govt. Securities' aggregating to Rs.14.45
crores for a period of 43 days at an
expected yield of 25% p.a."
H
R.N. POPLI v. C.B.l. [M.B. SHAH, J.) 225
"RESOLVED FURTHER that Maruti A
may place funds through UCO Bank for
. ' investment in Units aggregating to
Rs. I 0.84 crores for a period of 5 days at
an expected yield of 21 % p.a."

The resolution was put to vote and carried unanimously. B
Sd/- Sd/-
R.C. BHARGAVA S. NATARAJAN
CHAIRMAN & MANAGING DIRECTOR DIRECTOR {FINANCE)

(4) Ex.40 dated 24.4.1991 c
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 ofRs.7.50 crores in D
Units through Gril\(llays 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 Rs.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 E
expected yield will be 23% p.a.
Submitted for approval of the committee of Directors for the
above placement.

MINUTES OF THE MEETING OF THE COMMITTEE OF
DIRECTORS HELD ON 24.4.1991 FOR PLACEMENT OF F
FUNDS AT THE REGISTERED OFFICE.

PRESENT

Shri R.C. Bhargava -Chairman & Managing Director
'
Shri S. Natarajan -Director {Finance) G
Item No.I Confirmation of the minute of the
Meeting of the Committee of Directors
held on 22.4. 91.
The minutes of the last meeting held on
22.4.91 were confirmed. H
226 SUPREME COURT REPORTS (2003) 1 S.C.R.

_A Item No. 2 The Committee passed the following
resolutions:- +-
"RESOLVED that Maruti may place
funds with Mis Grindlays Bank for
investment in Units aggregating to
B Rs. 7.50 crores for a period of two days
at an expected yield of 26.25% p.a."
"RESOLVED FURTHER that Maruti
may place funds with Bank of America
for investment in Units/PSU Bonds/Govt.
c Securities aggregating to Rs.30 crores for
a period of 29 days beginning 2.5.91 at
an expected yield of 23% p.a."

The resolutions were put to vote and carried unanimously.

Sd/- Sd/-
D
R.C. BHARGA VA S.. NATARAJAN
CHAIRMAN & MANAGING DIRECTOR DIRECTOR (FINANCE)

MARUTI UDYOG LTD.
(Corporate Finance)
E 24.4.91

Investment with UCO Bank for 2 days.

The Committee has approved placement of Rs.7.50 crores with
Grindlays bank for 2 days at an expected yield of 26.25% p.a.
F Subsequently UCO Bank agreed to accept this funds at the same rate
and there was a certain reluctance on the part of Grindlays Bank to
accept the fund beginning 24.4.91. Accordingly, the placement has
been done with UCO Bank.

Submitted for ex-post facto approval please.
G
Sd/-
(PRAMOD KUMAR)
__j
DY. MANAGER (FINANCE)
Sd/- D(F)
H Sd/-CMD
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 227
(5) Ex.42 dated 02.5.1991. A.
AGENDA NOTE FOR THE MEETING OF COMMITTEE OF
DIRECTORS FOR INVESTMENT OF FUNDS TO BE HELD
ON 30.04.1991.

1.0 We have received a request from UCO Bank for placement of
Rs.I 0.00 crores in units. The placement will be for a period of B
5 days with effect from 02.5.91. The expected yield will be 21%
per annum.
2.0 We have received a request from Bank of America for placement
of Rs.15.00 crores in Units. The placement will be for a period
of 7 days With effect from 2.5.91. The expected yield will be C
22% per annum.
3.0 We have checked up with Mis ILFS who are agreeable to renew
the inter cofPorate deposit of Rs.5.50 crores @ 22% per annum
for a period of 5 days with effect from 02.5.91.
D
Submitted for kind approval of the committee of Directors for the
above placements.

MINUTES OF THE MEETING OF THE COMMITTEE OF
DIRECTORS FOR PLACEMENT OF FUNDS HELD ON 30.4.91
AT THE REGISTERED OFFICE. E
PRESENT

Shri R.C. Bhargava -Chainnan & Managing Director

Shri S. Natarajan -Director (Finance)
F
Item No.I Confinnation of the minute of the last
?Meeting held on 26.4.91.

The minutes of the last meeting held on
26.4.91 were confinned.
G
Item No.2 The Committee passed the following
resolutions:-

"RESOLVED that Maruti may place
funds with UCO Bank for investment in
Units aggregating to Rs.IO crores for a H
228 SUPREME COURT REPORTS (2003) l S.C.R.

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.
B Securities aggregating to Rs.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
c may place funds with Mis Infrastructure
Leasing and Financial Services Limited
by renewal of the inter corporate deposit
ofRs.5.50 crores@22% p.a. for a period
of five days w.e.f. 2.5.91."
D
The resolutions were put to vote and carried unanimously.

Sd/- Sd/-
R.C. BHARGAVA S. NATARAJAN
CHAIRMAN & MANAGING DIRECTOR DIRECTOR (FINANCE)
E
The aforesaid resolutions reveal that proposals for investment of funds
in units through UCO Bank for a specified period with an expected yield
were received and it was resolved that MUL may place funds in units "through
UCO Bank" as per the proposal.

F As against this, in Ex.42 dated 2.5.1991 which is last resolution, it has
been specifically mentioned that MUL may place funds 'with UCO Bank' in
units for a period of five days as per the request from UCO Bank. The change
of wording in the last resolution clearly indicates that funds were placed with
UCO Bank for investment in units for a period of five days with expected
yield of 21 % p.a. In previous three cases, if in reality the funds were placed
G with UCO Bank then the phrase 'through UCO Bank' would not have been
used. This change of phrase reveals that the nature of transactions was known
to the Directors and that units were to be purchased for a limited period
-~
through UCO Bank and for the last transaction the amount was placed with
UCO Bank. The afore-quoted resolutions also reveal that when the funds
H were placed, say as, with Bank of America, with Mis. Infrastructure Leasing
R.N. POPLI v. C.B.I. [M.B. SHAH, J.) 229
·and Financial Services Limited, with Grindlays Bank and others, it has used A
the word "with". However, when the purpose is otherwise, it has used the
+ word "through", say as, through Can Bank Financial Services, through Bank
of America etc.

Further, i.n the resolutions, the period of investment which is only for
few days (i.e. 12, 5, 2 and 5) is mentioned. It also mentions expected yield B
at 16.75%, 23%, 21%, 26.25% and 25% which would indicate that as a
matter of fa<;t nature of such transaction was nothing but loan. Purpose of
having UT! units was to secure repayment of loan, that is to say, in case of
failure to repay on due date, the units would stand forfeited. It is also clear
from para 2 of the resolution Ex.22 dated !st February, 1991. that during the C
last week of December and in the month of January, 1991, the receipt of
payments by MUL was relatively less and it was required to borrow funds
or withdraw money from PSUs. However, in the documentation, the
borrowings were required to be sho)Vn as sales of investments. The relevant
part of resolution reads as under:-
D
"...... .In our documentation we have to show the borrowing as
sales of 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."

This would indicate that whatever may be the documentation of purchase E
or sale of UT! 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 UT! Units or other such securities.

Further, PW4 Mr. Rajan Ramgopal specifically admits that the name of F
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 :invesiing its fub~s in securities through banks and also through
brokers quoting on behalf of the banks.

Further, there is nothing on record to indicate that Mr. R.C. Bhargava, G
Chairman-Cum-Managing Director and Mr. S. Natrajan, Director (Finance),
MUL who have passed the resolutions 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 H
_,

230 SUPREME COURT REPORTS [2003) I S.C.R.

A a serious case, if there was real fraud or misappropriation, appears to be
unusual. PW25 Investigating Officer Mr. Bhatnagar has admitted in his
evidence that he recorded the statements of Mr. R.C. Bhargava and Mr. -+
Natrajan during the investigation to ascertain if any other higher authority of
MUL was involved in the case and found that they were not involved
"directly". It is his say that the proposals put up by A-1 and A-2 were
B approved by Mr. Bhargava and Mr. Natrajan but they were not aware that the
investment in fact has been made with A-5 through UCO Bank. They had
bonafidely accepted the proposals put up by A-1 and A-2. It is difficult to ~

imagine that Superintendent of Police, CBI would not be aware of the Evidence
Act which stipulates that he cannot depose on behalf of aforesaid two
-'

c responsible persons of MUL i.e. the Chairman and Managing Director of
MUL and Director (Finance) of MUL. Whether they were aware of the fact
that investment of the MUL funds was with A-5 through UCO Bank could
have been deposed only by them and not by Investigating Officer.
_...,.,.. 1
Apart from these salient lapses, from the evidence of PWl Bhargava,
D who was Legal Advisor to the company, it emerges that-
(a) The five transactions were not only sanctioned by the sub-
committee consisting of Managing Director and Director (Finance)
but were also approved by the Board;

(b) Brokers representing the counter parties used to contact officials .........
E
of the Corporate Finance department and the Director (Finance)
might be knowing about the same, that means Mr. S. Natrajan
was knowing about the same;

(c) No objection was raised during the internal or statutory audit.
.
~

F Comptroller and Auditor General of India had also audited the
I-
account.
~
(d) MUL has not lodged any FIR nor made any grievance with
regard to the said transactions;
(e) After CBI enquiry; A-1 and A-2 were promoted for their better
G performance; and

(t) To the JPC necessary replies were given by the Board and Mr.
RC Bhargava was summoned by the JPC. ..J,
(g) Mr. Bhargava, Chairman-Cum-Managing Director and Mr.
H Natrajan, Director (Finance) of MUL were fully aware of all the
'
,r;

R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 231
transactions in question. A
PW4 also admits that-
(a) MUL used to invest in securities through brokers quoting on
behalf of the banks on the basis of tele~hone calls;

(b) The name of broker did not figure or reflect on the record of B
MUL in the event of transaction of investment being through the
brokers;
(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 tum hand over the cheque to the representative
of the bank or the brokers;
c
(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-I or
A-2;
D
(e) During the relevant period foreign banks used to effect transfer
of money from one city to another much faster than the national
banks and they were able to do so during banking hours of the
same day;
(t) The brokers who used to contact on behalf of the bank's clients E
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". F
'l' PW3 Halasyam, Chief General Manager (Finance), who was promoted
as the Director (Finance) from !st 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 regard to the five transactions G
in question, in cross-examination, he admits that he did not have
any personal information.
'~
(b) He admitted that looking at the BRs of UCO Bank, on the face
of i~ no suspicion would arise and that issuance of BRs necessarily
indicates that bank issuing it would be holding the security H
232 SUPREME COURT REPORTS [2003) l S.C.R.

A covered under the said BR. The BR also would acknowledge the
receipt of monies from MUL for the purchase of security.
+
(c) He agreed that MUL had not suffered any monetary loss in any
of the five transactions and got optimum yield and utilization
from the point of investment by MUL.
B (d) He also admitted that with regard to the queries raised by the
JPC, he and the Managing Director had discussed the same and
he had given response of MUL to JPC after getting approval
from Mr. Singh.

In that para-wise reply to JPC, it is inter alia stared as under:-
c
"l(b). The Government has not issued any guidelines in regard to the
investment of surplus funds ...... In an effort to maximise the yield
on surplus funds, the Board of Directors in its meeting held on ..,,..
4.5.1989 decided that surplus funds may be invested in the
purchase of units of UTI, Central and State Government securities
D and public sector bonds either through scheduled banks or directly.
Pursuant.to this decision, MUL has been investing surplus funds
through scheduled banks/wholly owned subsidiaries of
nationalised banks. The Sub-Committee of the Board earlier
nominated for PSU placements was authorised by the Board for 4-
E investments in these securities. Among others the meeting held
on 4.S.89 was attended by Secretary, Finance and Secretary
Industry. All the investments were made with the prior approval
of the Sub-Committee and placed before the Board for
information.

F 2(b). To the best of our knowledge, RBI has not issued any guidelines
which are applicable to companies incorporated under the
~
Companies Act for investment of surplus funds. MUL has
complied with all the rules and regulations prescribed under the
Companies Act, 1956 for investments of funds. Therefore, the
question of any violation does not arise.
G
2(c). One or more Govt. Directors have always been attending the
Board Meetings of MUL. There has not been any dissent on any
such investments. ~

4(e). After it was reported that some banks have committed
H irregularities in securities transaction, MUL stopped investing
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 233

funds in securities w.e.f. 30.5.92 and instead has been placing A
surplus funds only as inter corporate 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. B
' --..... 5.1 .... As per the joint Venture agreement di. 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 c
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.
D
7. No irregularities in investment of funds was ever pointed out in
any internal/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 confonnity with BPE guidelines.
E
9(a). In all such transactions of purchase of units, funds were transferred
to UCO Bank, Bombay by way of banker's cheques in favour of
ANZ Grindiays Bank strictly in accordance with the written
instructions regarding remittance of funds by UCO Bank,
Bombay. The funds were not credited by Maruti to the individual
account of Mr. Harshad Mehta. Maruti had no means to know or
F
any knowledge how UCO Bank, Bombay used the funds paid by
Maruti for purchase of units. The fact that the funds were credited
by UCO Bank came to the notice of MUL in October, 1992
when CBI started the enquiry. There is absolutely no connivance
between any Maruti official and Mr. V.N. Deosthali of UCO G
Bank or Mr. Harshad Mehta. These investments were made to
optimise returns for the company and were made through a public
~
sector bank. Maruti had no reason to suspect that the public
sector bank was not doing things in the straight forward manner.
Jn the first transaction, Maruti sold units worth RB.5 crores to
H
234 SUPREME COURT REPORTS [2003] I S.C.R.

A UCO Bank, Bombay and received the money on 24th January,
1991. Maruti, thereafter bought back the units after 32 days and +
the total cost of funds for this period amount to 12.75% per
annum. Other four transactions were for investment of Rs. I0.12
crores, Rs.10.84 crores, Rs.7.62 crore and Rs.10.39 crores for
period of 12 days, 5 days, 2 days and 5 days with the expected
B yield of 16.75%, 21%, 26.25% and 21% p.a. respectively. In the
circumstances, there is no need for the company to take any
action.

I O(a) The letters from UCO Bank, Bombay were addressed to Maruti
Udyog Limited and were received in the Finance Department.
c Maruti Udyog Limited followed the written instructions of UCO
Bank, Bombay regarding the remittance of funds through ANZ
Grindlays Bank. In the first case Maruti gave physical delivery
o(units and received back the same in February, 1991 after
expiry of 32 days. In respect of other 4 investments which were
D only for very short periods· no physical delivery of units was
taken. Maruti received Bank Receipts from UCO Bank, Bombay
for all transactions of investment except for the last investment
of Rs.10.39 crores for 5 days in May, 1991. These funds were
received back alongwith the expected yield. As UCO Bank,
Bombay did not deliver the Bank Receipt in the last case, Maruti
E altogether stopped dealings with UCO Bank."

The aforesaid para-wise reply given by the MUL to JPC establishes
that-

(a) Such transactions were an effort to maximise the yield on surplus
F 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
G (Finance).

(c) The transactions were reported to the Board and none of the -1_
Directors had objected to this and they were not considered to be
irregular.

H (d) For the first time in Government Auditors Review of Accounts
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 235
dated 28th August, 1992, it was observed that investments through A
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, B
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 to optimize return for the Company and
were made through a Public Sector bank. C
(h) Funds were received back along with expected yield.
(i) In the circumstances, there is no need for the Company to take
any action against the officers.

From the aforesaid evidence it is totally misconceived to contend that D
A-1 or A-2 were having any dominion over the MUL funds. The aforesaid
assertions by the MUL before the JPC would certainly mean that A 1 or A2
have not done anything dishonestly with the intention of causing wrongful
gain to AS or wrongful loss to MUL or that Chairman and Managing Director
Mr. Bhargava or the Director (Finance) were not knowing about such E
transactions through UCO Bank.

What can be stated from the evidence discussed above is:-

{I) Resolutions used the phrase "through UCO Bank" whenever
necessary. It also used the words 'with UCO Bank' or 'with F
Bank' which ever is the Bank as per the nature of the transaction.

(2) Admittedly documents maintained by MUL do not reveal true
state of affairs. Apart from oral evidence, this is reflected in the
Resolution Ex.22. ·

(3) It is totally misconceived to hold that A-1 or A-2 were having G
any dominion over MUL funds/property. Funds were to be
invested as per the decision of the Sub-Committee consisting of
Chairman-cum-Managing Director and the Director (Finance).
They were having dominion over such property. A-1 or A-2
were only required to carry out the directions issued by the Sub- H
236 SUPREME COURT REPORTS [2003) 1 S.C.R.

A Committee.
(4) Resolutions passed by the Sub-Committee were approved by the
Board .. None objected to it.
(5) Even after inquiry by the CBf, in ·reply given to JPC, MUL has
made its position clear that the funds were invested as a
B commercial transaction for getting optimum yield. All the
witnesses on behalf of MUL stated that MUL ha~ not suffered
any loss in the said transactions.
(6) Pending CBI inquiry, MUL considered that A-1 or A-2 have not
committed any wrong and they were promoted.
c (7) Issuing of cheques by Canara Bank in favour of Grindlays Bank
was as suggested by the UCO Bank (A-3).
(8) Further this ·was a commercial practice adopted by many banks
for transmitting the funds at the earliest. This practice rightly or
D wrongly was developed with the PSUs and financial institutions.
(9) PW4 Rajan Ramgopal admits that MUL used to invest in certain
securities through brokers and the name of the broker did not
figure or reflect on the record of MUL.
(IO) In such a case, it would be difficult to hold that A-I or A-2 acted
E dishonestly in issuing cheques in favour of Grindlays Bank for
transmitting the funds of MUL to UCO Bank, Bombay.
(11) No objection was raised dqring internal or statutory audit despite
the fact that Comptroller and Auditor General had also auditt:d
the accounts.
F For the reasons stated above, neither A- I 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

G 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. _j_

A-4 is convicted under Section 1208 r/w Sections 409/467/468/471 of
IPC and Section 13(2) of the PC Act. The appellant was convicted for
H substantive offence under Section 409 IPC for-
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 237

(a) having credited bankers cheque no.645532 dt.25.2.1991 for a A
sum ofRs.5,05,03,2~0 issued by Canara Bank favouring Grindlays
Bank into account of A-5 [the amount was paid by A-5 through
UCO Bank to MUL);
(b) having. credited bankers cheque no.646402 dt.18.3.1991 for a
sum of Rs.10,83,75,000 issued by Canara Bank favouring B
Grindlays Bank into account of A-5; and
(c) having credited bankers cheque no.863237 dt.24.4.1991 for a
sum ofRs.7,62,45,000 issued by Canara Bank favouring Grindlays
Bank into account of A-5.

In support of charges, prosecution has relied upon the evidence of 4 C
witnesses of Grind lays Bank, i.e., PW9 Ravi Saluja, PW 11 Su raj Tandon,
PWl2 Ashok Monga and K.K. Kuda PWl5 and PW22 Mr. V. Rangarajan,
an employee of Reserve Bank of India.

It is contended on behalf of prosecution that from the evidence of D
witnesses of ANZ Grindlays Bank, the following stands proved-

(a) That A-4 was the officer in charge of the clearing department
•
(PWl2)
(b) The entries in respect of these transactions would have to. be
authorised by the officer in charge of the clearing department- E
in view of the amount involved-and, therefore, it would be
authorised only by A-4 (PWl2).

Mr. Dwivedi, learned senior counsel appearing on behalf of A-4
submitted there is no evidence against accused for the offence for which he
is convicted. It is his contention that with regard to the handing over of F
cheque of Grindlays Bank, there is no evidence except that of Anuj Kalia
PWl6 that he accepted the said cheque and forwarded it for encashment. But
,. that would not mean that he was in any way party to any fraud.

Next he submitted that prosecution witnesses themselves deposed before
the Court that the cheques received by the Grindlays Bank were deposited in G
the account of Grindlays Bank and not in the account of A-5. For this purpose,
he referred to the evidence of PW9 Ravi Saluja, PWl 1 Suraj Tandon, PWI2
Ashok Kumar Monga, PWlS Kanwal Krishan Kuda. He further submitted
that even witness from Canara Bank PW2 Meda Sai Swaroop has also deposed
that cheques were credited in the account of Grindlays Bank. He also referred H
238 SUPREME COURT REPORTS [2003) I S.C.R.

A to evidence of PWl4 Mr. Prem Shanker Joshi. He relied upon evidence of
DW5(8) Atul Manubhai Parekh.

Finally, he has drawn our attention to the evidence of PW25 Mr. B.C.
Bhatnagar, the Investigating Officer, who deposed that there were number of
officers involved, and referred to the part of PW25's deposition, wherein he
B stated that-he does not remember if he had made any application/request 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 s;iid Bank
with regard to the documents like attendance register, duty roster or any other
similar document showing the presence of particular officer at particular
C time. •.... .,•
For considering the contentions raised by the learned counsel for th~
parties, I would refer to what emerges from the evidence of the relevant
witnesses:-

D 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
E 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 favour of Grindlays bank
issued by Canara bank bearing 'Payee Ale only' and stamped 'nottransferable'.
There is a rubber stamp of Grindlays bank on its reverse indicating that the
F said bankers cheque is cleared. He states that Grindlays bank would dispose-
of the proceeds of the said cheque as per the covering letter. He identified
A-4 R.N. Popli, an employee of Grindlays bank, but stated that he was not
aware about his posting during the relevant period i.e. in the year 1990 to
' '
31.5.I 991.
G PWl2 Ashok Kumar Anant Ram Monga states that he was overall in-
charge of the ANZ Grindlays Bank br~nch along with· the Manager and in
that capacity he used to hav~ supervision over the working of the concerned
clearing department. He states that in these types of transactions there are two
authorizations required, the first authorization relates to giving credit to the
H third party which is generally given by Branch Manager, Marketing
-~

R.N. POPUv. C.B.I. [M.B. SHAH, J.) 239
Department who is known as Relationship Manager or Account Manager and A
the Funds Manager. The objective of drawing the bankers cheque was to
provide speediest or fastest clearance of such instruments which was not
possible through other clearing settlements available to the customers, namely,
MICR. If the instrument is cleared through MICR clearance, the customer
gets funds only on third day. The other settlement which is high valued B
settlement which was introduced by RBI in the year 1985 in response to the
needs of the business community as a mode of faster settlement also took
minimum two days to provide clearance of cheques. He was shown entry
Ex.71(4) of dated 13.3.1991 into the accounts ofHarshad S. Mehta. He stated
that the then officer in charge of clearing department had authorized the said
entry to be made in the statement of account. He could not recall the name C
of the said officer who was in charge of clearing department. He agreed that
in 1991-92 there was a practice of crediting the proceeds of the bankers
cheques into the account of third party other than its payee. However, it was
extended to only certain high 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 D
their bank had allowed such credits. 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. 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 E
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 F
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 tum were credited into the account of A-5 .

He further stated that during the relevant period i.e. in the year 1990- G
91, to his knowledge, some other banks in this country were also following
such practice. There was no prohibitory order, direction, or guidelines from
the RBI prohibiting the banks to follow such practice during the relevant
period i.e. 1990-91. He stated that RBI was required to issue guidelines
prohibiting such practice somewhere in September/October, 1992 as many H
240 SUPREME COURT REPORTS [2003] I S.C.R.

A banks were indulging in such practices. It is his say that RBI has never taken
any action against the Grindlays bank in respect of Five pay orders shown to
him earlier. He also stated that Grindlays bank had not received any complaint
from MUL for crediting the amounts of said five pay orders to the account
of third party. It is his say that Grindlays Bank has not received any complaint
or claim in respect of said five pay orders from Canara Bank, UCO Bank or
B Harshad S. Mehta. The said parties have also not initiated any action in any
court of law in respect of negotiation of said five pay orders at any time.

We would refer to the following few relevant questions and their answers
given by this witness:-
c "Q. Having received the funds under the Pay order payee bank would
credit its proceeds into the account of the party depositing the
said pay order? ;:y
A. When the in~trumen't like pay order is drawn favouring Grindlays
bank then the same has necessarily to be deposit~d into pits i.e.,
D Grindlays Bank Account with RBI.

Q. Would it be correct to say that>if any bankers cheque is made
payees account and non transferable then in the ordinary course
the payee bank cannot credit the proceeds thereof in to the account -'L
of third party?
E
A. Yes

Q. If your customer gives the instruction for giving credit of the
proceeds of such pay order to any third party then the same
would be permissible?
F A. Yes, i1 the customer is in the list of high networth.

To the Court:-
*
Q. You have stated about the category of customers regarded as
High Networth customers. Could you elaborate?
G
A. 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.

Q. Such practice being in deviation of the usual practice, was the
H permission of the RBI obtained as far as your bank is concerned?
l

R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 241

A. No. A
Q. You have stated that RBI issued detailed guidelines somewhere
in September - October, 1992 expressly prohibiting such practice
of negotiation, does that not mean that RBI never approved of
such practice?
B
A. Yes. (witness volunteers) RBI never objected to it and probably
it might not be aware of such practice.

All the five pay orders which were shown to me being Ex.28,

/
J 30, 32, 34 ~nd 36 were sent for inter Bank Clearance by the
Grindlays Bank. It is correct that the amounts of the said pay C
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 accotmt of accused no.5." D
PWIS Kanwal Krishan Kuda with regard to the credit voucher
dt.26.4.1991 i.nto the account of Harshad S. Mehta, states that the same was
approved by him and it bears his initials. The entry appearing therein is
. .J- 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 E
of the treasury department, who would be giving such instructions as there
were many such officers.

PW22 V. Rangarajan states that the bankers cheque/pay order issued
by one bank favouring other bank are negotiated as under:-
F
"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."

) In view of the aforesaid evidence, it can be stated without any doubt
that all the five pay orders namely Exs.28, 30, 32, 34 and 36 were sent for G
inter bank clearance by the Grindlays Bank. The amount was credited in the
account of Grindlays Bank. Hence, it is established that the amount of "account
payee" and "non-transferable" pay orders were only credited in the account
of Grindlays Bank. In this set of circumstances, it is not necessary to discuss
the relevant provisions of Negotiable Instruments Act that "account payee" H
242 SUPREME COURT REPORTS [2003) I S.C.R.

A "non-transferable" cheques cannot be credited in anybody else's account. As
such, the entire prosecution against A-4 was totally on an erroneous assumption ~
that A-4 got the amount of "account payee" cheque bearing stamp "non-
transferable" credited straightway in the account of A-5.

If the amount is credited in the account of Grindlays Bank, question
B is-how is A-4 liable? There is nothing on record to establish who directed
that the said amount should be credited in the account of A-5.

The evidence led by the prosecution nowhere reveals that A-4 credited
the said amount into the account of A-5. IO has not verified at whose instance
C the amount which was credited in the Grindlays Bank account was specifically
credited in the account of A-5.

The evidence of PW12 Ashok Kumar Monga also reveals that there
was a practice of crediting the proceeds of the banker's cheques into the
account of third party in case ofhigh-networth customers like British Airways,
D Harshad Mehta's group and others and such category of customers was
generally given by the concerned Manager of the bank having regard to the
depositS maintained by the customers or other business potentials. While
convicting the accused, the trial court has not been able to segregate the fact
that even assuming that what was done by Grindlays Bank was irregular that
does not necessarily mean that it was done by the appellant. None of the
' ' E witnesses of the bank have been able to clearly point out as to where the
appellant was posted during the relevant period nor 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
F Section 120B and substantive offences under Section 409 are not proved.

It is apparent from the testimony of 1.0. 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 1.0. He admits that in matters of debit and credit, various officers at
G 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.

Hence, from the evidence as it stands, it cannot be stated that A-4 was
H in-charge of the clearing department and responsible for giving sue~ credit
R.N. POPLI v. C.B.I. [M.B. SHAH, J.) 243
in favour of A-5. In view of the aforesaid state of evidence, the conviction A
of A-4 for any offence including for the substantive offences under Section
409 IPC cannot be sustained.

CASE AGAINST A-3

The case of prosecution against A-3 is that:- B
(a) He abused his position as public servant by allowing use of
MUL's funds to be wrongly obtained by A-5 and, therefore, he
is guilty of the offence under Section 13{1)(c) r/w 13(2) of PC
Act.
(b) He fabricated a set of letters written on the letter head of UCO c
Bank representing fraudulently that UCO Bank was entering into
a transaction with MUL. He also created a set of BRs (signed by
him purporting to be an accountant although he was an Assistant
Manager).
(c) His fraudulent misrepresentations of showing a transaction of D
purchase/sale of securities between UCO Bank and MUL were
to enable A-1, A-2 and A-5 to misappropriate the funds ofMUL.
Therefore, apart from the charge of conspiracy a11ainst A-3, he
is also charged with the offence under Sections 467, 468 and 471
of IPC.
E
(d) He forged the BRs purporting to be the representation that a set
of securities was being held by UCO Bank on behalf of MUL
and the same had been sold by UCO Bank to MUL and thereby
committed an offence under Section 467 JPC.
(e) He forged the letters and he dishonestly made and/or signed the F
documents with the intention of causing it to be believed that
o+- such document was signed under the authority of UCO Bank. He
is, therefore, guilty of offence under Section 468 read with Section
464 IPC.
(f) Having forged the documents as aforesaid, he used these G
documents and, therefore, he is guilty of the offence as charged
under Section 471; and
(g) That the documenis created by A-3 were intended to misrepresent
the position of UCO Bank is also clear from the fact that the
identification {which should have been put on the document were H
244 SUPREME COURT REPORTS (2003] 1 S.C.R.

A it a transaction for and on behalf of a client) was not so placed
on the document. This is the evidence of PW14. The intention of
A-3 to misreprese?t to MUL that there would be a transaction
--
between MUL an4 UCO Bank is clearly established.

It is contended on behalf of the prosecution that from the evidence of
B the witnesses following stands proved:-

(a) That the documents were not prepared in the normal course of
business but outside the office. (PW6)

(b) That the UCO Bank's branch was not authorised to conclude
c deals (PW7). If there had to be a genuine transaction of sale of
securities between the UCO Bank and MUL then that deal would
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
D 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
E 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, undoubte.dly undertake
F 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 coq1orate entity. If
MUL had authorised placement of funds only with PS Us, then it
is obvious that it would not be in the interest of the UCO Bank
G to lend its name to a broker to obtain funds from a PSU - since
it would constitute a deceit upon the other PSUs.

(e) A-3 wrote letters which constituted a clear representation to MUL
that it was entering into a transaction with UCO Bank - it is -""-
apparent from the plain language of the letter. It is clear that A- ~
H 3 would not be authorised to write such letters unless he had
-.l.
R.N. POPLI v. C.B.L [M.B. SHAH, J.) 245
been pennitted to do so by the Head Office. On this apparent A
tenor, the letter would commit the UCO Bank personally to a
... transaction of sale/purchase of securities and A-3 was not

-
authorised to do so. The letters written by A-3, therefore, were
purporting to be with an authority which he did not possess and
purporting to commit the bank to an agreement thereby clearly
being forgery. PW14 and PW21 also (employees of UCO Bank)
B

- ---:
(f)
have pointed out that only Head Office used to give instructions
for deals on behalf of the Bank.

That the documents created by A-3 were intended to misrepresent
the position of the UCO Bank is also clear from the fact that the
identification, which should have been put on the document that c
it was a transaction for and on behalf of a client, was not so
placed on the document-this is the evidence of PW! 4. This
intention of A-3, therefore, to misrperesent to MUL that there
"'· would be a transaction between MUL and UCO Bank is clearly
established. D
The prosecution has further charged A-3 with forgery for writing two
letters, i.e. the letters (I) dated 23.1.1991 (Ex.58) (Charge nos.8, 10, 11) and
.. (2) dated 13.3.1991 (Ex.60) (Charge nos.17, 18, 19) on the letter-head of
UCO Bank, Harnarn Street Branch to MUL. Further, it was pointed out that
A-3 could not have written the letters Ex.58, 60 and 61 on behalf of UCO E
Bank.

Mr. Mahesh Jethmalani who appeared as amicus curiae for A-3 referred
to .the RBI policy circular dated 26.7.1991 and submitted that the said circular
nowhere prohibits the bank even after 26.7.1991 to act as broker on behalf
of their clients. It only provides that banks cannot issue bank receipts. Prior F
to that there was no such prohibition and it only provided that such BRs must
be backed by units/securities. He referred to the letter dated 13.3.1991 written
by A-3 to MUL [Ex.60] and Ex.23, which is an agenda note for the meeting
of the Directors for investment of funds to be held on 13.3.1991 and the
resolution of the same date passed by the Chainnan and the Managing Director G
as well as Director (Finance) of MUL. He submitted that in the letter dated
13.3.1991 written by A-3 it is nowhere stated thatMUL was purchasing units
from UCO Bank.

With regard to crediting of funds in A-S's account, it is submitted on
behalf of A-3 that the evid~nce on record discloses that it was not A-3 who H
246 SUPREME COURT REPORTS [2003) I S.C.R.

A allowed MUL funds to be wrohgfully gained by A-S. MUL's funds were
credited into the aG¢00\\\ of A-S allegedly by A-4. The funds were already
~·
I
credited to A:-5\s account by Grindlays bank, New Delhi from where the
saine were transferred under the instructions of PW23 to A-S's account in
Grindtays Bank, Bombay. UCO Bank received futtds already credited to A-
S's account in Grindlays Bank, Bombay. Moreo~t, when UCO Bank received
B those funds from Grindlays Bank, Botflbay, the same were received under
credit advices, speeificaHy direeting UCO Bank that the proceedings of the
said cheques were for th~ t:tedit of A-S's current account No.1028 with UCO
Bank, The credit edvices for the five cheques are Ex.126-A to Ex.130-A.
Ther-e ·was no illegality on 'the part of A-3 and further there is n·o evidence
C <>farty actual loss caused fo tiiybody or of intention to cause loss to anybody.
ln the absence of tlftY evidence of dishonest intent, the charge under the PC
Act must f'1il.

It is submitted on behalf of A-3 that charges of forgery have been
framed on the assumption that Exs.S8 and 60 are forged. The accused is
D convicted in Ignorance of the fact that banks were entitled in law to act as
agents for their customers and in UCO Bank this facility was offered to
several brokers including A-5 as it was a lucrative source of income to the
Bank. For this, reference is also made to the evidence of PW7 Karkhanis,
PWI4 Prem Shanker Joshi aild PW21 M.V. Shidhaya (both employees of
E UCO bank).

It is further contended that PW7 Karkhanis stated that the alleged letters
could not be written by A-3. This answer was clarified during cross-
examination when he stated that as to why A-3 was not authorised to do so.
He says that A-3 was not supposed to write such letters on behalf of UCO
F Bank as the Hamam Street Branch could only transact business on behalf of
brokers and could not transact business concerned wiih UCO bank's own
investment. The fact of the matter however is that when A-3 addressed the
letters, he was not dealing with the Bank's investment but with the securities
transactions of A-S. There is no evidence that letters such as Ex.58 and 60
could not be written by the Hamam Street Branch of UCO Bank when it was
G dealing on behalf of its account holders in transactions in securities. On the
contrary, addressing such letters would be a necessary part of the function of
acting as routing agents for their account holders, inasmuch as, it is part of
the function of an agent to communicate receipt and delivery instructions to
the counter party.
H
R.N. POPLI v. C.8.1. [M.B. SHAH, J.) 247
Learned counsel also high-lighted that resolutions passed by MUL A
indicate transactions were for loan. He also submitted that in the alleged
"""- meeting in April/May, 1989, if there was any such conspiracy then A-5
would not have acted as the broker for MUL in the year 1990. He submitted
' that in the year 1990 as per the record produced by the prosecution, A-5
acted as broker of MUL in 13 other transactions.
B
Similarly, he pointed out the resolution Ex.24 along with the agenda
_, and submitted that investment of Rs. I 0.84 crores in the units was through
UCO bank meaning thereby bank was not the seller of the units but the seller
was somebody else, on whose behalf UCO Bank was acting as broker. Further,
the investrneni was only for five days and expected yield was 21 % per
annum which normally no bank would pay.
c
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. D
He referred to evidence of PW21 (Vol.6 page 1038 paragraphs 4 and
5) and pointed out that bank was agent and 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. E
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 . F
•* He submitted that for .BRs Ex.38 dated 13th March, 1991, Ex.39 dated
18th March, 1991 and Ex.41dated24th April, 1991, A-3 has been erroneously
charged for forging the BRs on the assumption that UCO Bank did not hold
the units for which the BRs were issued. It is submitted that the charges
G
proceed on an incorrect assumption that the BRs were issued on behalf of
UCO Bank. B.Rs. were issued on behalf of A-5 and the same were backed
up by more than adequate units belonging to A-5. The charge of forgery is
accordingly misconceived and untenable.

He submitted that after RBI circular dated 26.7.1991, it was irregular H
248 SUPREME COURT REPORTS (2003) I S.C.R.

A for. banks to issue BRs on behalf of their broker clients. Prior to that date,
however, it was the practice @f' ueo Battk and other banks to issue BRs on
behalf of their broker di~ttts, tt is submitted that the question which arises
in the instant case is~ 'whether tile BRs issued by A-3 were backed up with
units belonging to A~5? Although nine charges have been framed on this
B aspect, the CBI has Uhdertaken no investigation whatsoever to discover whether
the BRi Were backed up by securities belonging to A-5~ Had the CBI
undertaken this simple exercise, this trial might never have seen the light of
.the day and the accuisetl would. not_ have been harassed. It is further pointed --;----~ .
out that in an 4lfnost identical case (RC 8 (BSC)/94/Bom.), the CBI investigated
the issue whether the BRs issued by UCO Bank (or A-3) were backed up by
C securities belonging to A-5. On discovering after investigation that the BRs
were indeed backed up by securities, the CBI filed a closure report Ex.A-5·
116 (p.6016 to 603~ vol.20) before the Court and the said report was accepted
on 17.3. 1997

It is also submitted that in any event, in the instant case, there is clear,
D precise and unrebutted evidence that each of the BRs issued by UCO Bank
and signed by A-3 was backed up by units, belonging to A-5, in excess of
the quantum of units for which BRs were issued. Not only are the. charges
pertaining to forgery of the BRs factually misconceived, as aforestated, but
the charge of forgery is based on a misconception of law. A document
E a
containing a false statement is not forged document.

It was next submitted that the argument of CBI that the letters were
typed outside the office of UCO Bank does not mean that these are forged
documents. The evidence of PW6 shows that in 1991 there was only one
typewriter in Hamam Street Branch of UCO bank which was being used
F since 1983 and there was heavy work in the office and that 30 to 40
transactions of such work were daily carried out. Jn the circumstances, from -+ '
the fact that document. was typed outside the bank,· 'dishonesty! cannot be
attributed to the accused

It is submitted that once the conspiracy charge fails, the first three
G 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. ·

For appreciating the contentions, we would refer to the Circular dated
H 26.7.1991, issued by the Reserve Bank of India, which reads thus:-
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 249

"DEPUTY GOVERNOR A

0.0.DBOD No.FSC.46/C RESERVE BANK OF INDIA
469-91/92 CENTRAL OFFICE
SECRET BOMBAY.

• 26TH July, 1991. B
Dear Shri

Investment portfolio of banks
Transactions in Securities

It is a maner for great concern for us that certain banks are
c
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 market rates, inter a/ia, with a view to window dressing D
their balance sheet/compliance of SLR requirements.

.. (ii) Double ready forward deals with a view to covering their oversold
position in a specific security.

(iii) Sale transactions by issue of Bank Receipts (BRs)/SGL forms E
without actually holding the securities/without having sufficient
balance in their SGL accounts.

(iv) Issuing BRs/SGL forms on behalf on their broker clients without
safeguarding banks' interest.

2. You may be aware that with a view to helping the banks to F
' "* overcome various deficiencies in the longterm securities market and
to enable them to manage their short-term securities market and to
enable them to manage their short-term cash deficit/surpluses more
efficiently, we have permitted banks to enter into buy-back deals in
Government securities among themselves (and not with their non- G
bank clients). It was our expectation that such deals will be undertaken
by the selling bank, only if it holds sufficient securities (either in the
physical form or in SGL account), at market related rates and such
deals will be properly reflected in their books of account. However,
we observe that certain banks have been resorting to this type of
transactions, without actually holding sufficient securities either in H
250 SUPREME COURT REPORTS (2003'] I S.C.R.

A physical fonn or in their SGL forms for want of sufficient balance),
at rates which have no relevance to market, with a view to window- ~., -"t,.
I

dressing their profitability/maintenance of SLR requirement with the
tacit understanding with the counter party banks. Some of the banks
appear to be taking outright oversold position in securities and. in
their desperate bid to cover t.he oversold position in a particular/
B securify/ies enter ·int~ doubie re11dy forward deals and other banks
oblige them in the matter.

3. Another disquieting feature observed is the extensive use of BRs
by banks. It has· been our intention to ensure that the banks do not
undertake sale transactions in securities without actually holding them
c and do not issue BRs unless they are in a position to deliver the
securities within a reasonal!le time. Contrary to our above expectation,
banks have been issuing BRs freely· (without regard to whether they
will be in a position to deliver the securities. there against within a
reasonable time) and against an initial outstanding BR, a series of
o· transaction are put through by further issue of BRs and in the finai ·
analysis only the BRs · are exchanged and no security is delivered:
Some of the banks have also been issuing BRs only on behalf of their
broker clients, without verifying whether their broker clients hold the
securities covered by the relative BRs.

E 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 co~ducted
in accordance with sound. and acceptable business l'ractices. While
evolving the policy you are requested to keep in view the following
guidelines: ·
F
(i) Vnder 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.
G (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~
H '
(iii) Transactions between your bank and another bank should not be
R.N. POPLI v. C.B.I. [M.S. SHAH.!.] 251
put through the b{Q\;ers' aQIJQunts. The brokerage on the deal A
payable to the hr-0ker, if any (If the deal is put through with the
help of ~. \lr~er) ~ould be clearly indicated on the notes/
m~lllllr'!ndu111 put up to the top management seeking, approval
fur putting through the transaction and operate amount of
brokerage paid, broke-wise, should be maintained. -
B
(iv) For issue of BRs, the banks shQuld adopt the format prescribed
by the IBA and sho11lll ~ldctly follow the guidelines prescribed
by them ill lllis riljll\l'd, Subject to above, the banks should issue
BRs coverini:, their own sale transactions only and should not
issue BRs on behalf of their constituents including brokers.
(v) The banks should be circumspect while acting as agents of their
c
broker clients for carrying out transactions in securities on behalf
of brokers.
(vi) Any instance ofrel\Jr11 ufSGL fonn, from the Public Debt Office
of the Reserve Bank for want of sufficient balance in the account D
should l>e immediately brought to our notice with the details of
the transactioo~.
5. We shall also be glad if a copy of the policy framework for
undertaking transactions in securities approved by your bank's Board,
is forwarded to us. E
6. Please acknow]eqge l'Qcelpt.
Yours sincerely,
Sd/-
(A. Ghosh)"
As stated by PW7 that SOL Form (Subsidiary General Ledger Form) F
can be only between the persons whose name figure on the ledger and the
bank. The advantage of SGL i~ that banks are required to maintain their
balance and every bank's name is with the Public Debts Office with the RBI.
When one bank is to sell security to any bank instead of physically moving
the security papers, they issue SOL Forms. They debit one bank and credit G
other bank.

From the evidence and above Circular, the following emerges-

(a) Admittedly, the aforesaid Circular is is~u~d after the five
transactions were over. H
252 SUPREME COURT REPORTS (2003) I S.C.R.

A (b) The aforesaid Circular specifically requests the banks to evolve
investment policy to ensure that operations in securities are
conducted in accordance with sound and acceptable business
practices by keeping in view the guidelines _mentioned in
paragraph (4). Prosecution has not produced 01t record policy
evolved by the UCO Bank after this circular.
B
(c) · The Circular also specifically reveals that certain banks were
engaged in type of transactions in securities which they 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
c clients without safeguarding bank's interest. Thereafter, the RBI
directed to frame and implement a suitable investment policy to
ensure that operations in securities are conducted in accordance
with sound and acceptable business practices. RBI also requested
that while evolving the policy the guidelines mentioned in
D 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.
E
(d) These guidelines would indicate that till the date of issue of
guidelines banks were issuing B& on behalf of Jheir 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 for
F carrying outtransactions in securities on behalfof brokers. This
would also indicate that there was no prohibition that bank should
not act on behalf of their broker clients for carrying out
transactions in securities. In any set of circumstances, the aforesaid
circular would reveal that till 26. 7.1991 many banks were adopting
the practice of issuing BRs on behalf of their broker clients and
G
the transactions were undertaken in securities on behalf of their
brokers. Hence, the RBI clearly recognizes that some banks were
indulging in such transactions. What was objected by the said
circular was that banks were issuing BRs without verifying
whether their broker clients were .holding the security covered
H by the relative BRs and thereafter the policy was suggested to all
R.N. POPLI v. C.B.I. (M.B. SHAH, J.) 253

that BRs should be issued covering their own sale transactions A
and they should not issue BRs on behalf of their constituents
including brokers. In this case, the aforesaid five transactions
have taken place prior to 26.7.1991, therefore, assuming that
UCO Bank has evolved such policy of not issuing BRs on behalf
of its brokers as directed by the RBI, then also it would not mean
that by issuing BRs priot to 26.7.1991, he has committed any B
irregularity. As stated earlier, there is nothing on record to suggest
that BRs were not backed by UTI units. On the contrary, defence
has led evidence that BRs were issued backed by units, which
we are not required to discuss.
(e) There is no other prohibition under any law or guidelines and the C
learned Solicitor General was not in position to point out any
other prohibition debarring the banks from issuing any BRs,
particularly when the BRs were backed by necessary securities.
(f) Further, it is for the prosecution to establish that BRs were issued
by A3 without being backed by UTI units. Admittedly, there is D
no such evidence. On the contrary, there is sufficient evidence
on record that for the first transaction, MUL gave 35 lacs units
for taking loan. As soon as amount was refunded on due date,
the said units were also received from MUL by A-5. For the
remaining three transactions admittedly BRs were received and E
this is also stated in the reply given by MUL to JPC. For the 5th
transaction, as the BRs were not received by MUL, transaction
was over within five days, but there is no evidence that UCO
Bank was not holding the units for the said transaction. 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 F
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 with because of increase of such work with the bank.
Witnesses from MUL have specifically stated that looking at the G
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 H
254 SUPREME COURT REPORTS [2003] I S.C.R.

A transactions of UCO Bank.
..li.;_,
(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
B has stated that in the month of April, 1991, accused no.3 was
transferred from Hamam Street Branch to Hingha Branch near
Nagpur. In the month of May, 199(he was again called back ---r----
to Hamam Street Branch but between 2nd May, 1991 to 7th
May, 1991, A-3 was not in Hamam Street Branch. He has also
stated that he would not be able to say who transacted the
c transaction dated 2nd May, 1991 with MUL. This also indicates
faulty investigation. Hence, for the fifth transaction, between
2nd May to 7th May, it has been brought on record by the _>-·
prosecution that A-3 was not working at the UCO Bank, Hamam
Street Branch. At the relevant time, he was transferred to Hingha
D Branch, Near Nagpur. Further, the resolution dated 30.4.1991
passed by the MUL clearly reveals that the funds were placed
with UCO Bank for investment in units for a period of five days
w.e.f. 2nd May, 1991 at an expected yield of 21% p.a. The
prosecution has failed to prove that A-3 paid the said amount to
A-5.
E
(h) The evidence of witnesses from the Bank reveals that such
transactions were the commercial practice of the Bank-
(i) PW7 Karkhanis has stated that UCO Bank, Hamam Street
Branch was doing business on behalf of brokers including
F A-5 Harshad S. Mehta. He admitted that Switch transactions
were the transactions conducted by the UCO Bank for buying
and selling the securities on behalf of its clients including
brokers.

The negotiations in respect of such transactions were
G conducted by the clients directly with the counter party. UCO
Bank used to act as a routing bank in such transactions. The
said transactions were done through the brokers accounts
. ...../
and were not treated as transactions of UCO Bank. The
Hamam street branch used to conduct its transactions on the
instructions of the head office and under the instructions of
H its clients on their behalf. UCO Bank used to undertake such
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 255

transactions on behalf of its clients on charging its A
commission and that the bank had made substantial profit by
undertaking such transactions. As per Mr. Barve who was
also one of the Managers, there were 18 such brokers.
Whenever switch transactions used to take place under the
instructions of the brokers, their instructions to receive or B
deliver securities were sent to the counter party along with
the cost memo and BRs. The BRs and cost memos used to
be of UCO bank. The brokers' instructions used to be on the
letter head of the broker. The purpose of sending brokers
instructions along with various documents to the counter
party was to put it on a proper notice. It is his further say C
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) PW/4 Prem Shanker Joshi has stated that as far as Hamam D
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 E
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 F
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
UCO Bank was not maintaining security account, either
security wise or otherwise, of the clients. BRs Exs.38, 39
.--- and 41 (I) were issued in respect of Security Transaction put G
through on behalf of the Head Office or the client. The
delivery order Ex.A-3(2) contains instructions to UCO Bank,
which was received by A-5 Harshad S. Mehta without the
name of its branch.
(iii) PW2 l Mr. Shidhaya has stated that one Harshad S. Mehta H
256 SUPREME COURT REPORTS (2003) I S.C.R.

A had his current account With their branch. 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. No record
in a form of security ledger or security register broker-wise
was kept and maintained in respect of security transactions.
B 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 such record was discontinued. "BRs were
issued by the UCO Bank, Hamam Street Branch and were
c signed by him in the caption of accountant after he found
that the contents thereto were true .. With regard to BR d~!ed
29.4.1991 containing signatures on its reverse, it is his say
that signatures on reverse of BR signifies reversal of the BR
meaning thereby that counter party had received the security
and obligation of UCO Bank, who had issued the BR stood
D discharged
(iv) DW.A3(2) Mr. Ramnathan stated 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.
E BRs could be issued on bank's own behalf as also on behalf
of its customers. When UCO Bank would act for a customer
while issuing its BR, same position would exist as far as
back up of the security except that it would debit or credit,
as the case may be in the customers account. No bank can
issue its BRs in the name of any party other than banks and
F
financial institutions. For switch transaction, it is pointed out
that on the representation and discussion of brokers they
were continued. In case of delay, bank would charge interest
at the market rate. Bank was also having discretion to increase
commission. Letter dated 8.1.1991 Ex.231 also informs the
G concerned officer at Hamam Street Branch 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
H other banks are not entering the field. You are also
R.N. POPLI v. C.8.1. [M.B. SHAH, J.) 257
advised to contact other banks who are not having such A
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."
For routing facility, he explained that routing B
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-S in the year
1991 and such brokers availed of the said facility. Such
routing facility was already in practice even before he C
joined as Divisional Manager in June, 1990. Some of
the banks were offering such facilities.

(i) ON THE POINT OF FORGERY-

Resolutions passed by the MUL reveal that MUL was placing D
funds through UCO Bank in units. This phraseology used in the
resolution does not reveal true colour of the transactions that MUL
was not purchasing and selling the Units from UCO Bank nor UCO
Bank was selling or purchasing the units from MUL. It only meant
that the iransactions were through UCO Bank. Seller or purchaser E
was a third person. In this set of circumstances, to say that A-3
prepared forged documents that UCO Bank was selling or purchasing
the units is totally misconceived and is against the documentary record
maintained by MUL.

Letters Exts.58, 59, 60 and 61 written by A-3 also do not reveal F
that UCO Bank was purchasing or selling units. The said letters are
as under:-

"Ex. 58

January 23, 1991. G
MARUTI UDYOG LTD.
11th FLOOR
JEEVAN PRAKASH
25, KASTURBA GANDHI MARG
· NEW DELHI - 110 001
H
258 SUPREME COURT REPORTS (2003) I S.C.R.

A Dear Sirs,
~
This has reference to your sale of 35 lac Units for value dated 24th
January, 1991 @ 14,27. We are arranging to remit the funds amount
to Rs. 4,99,45,000 thru Bank of America, New Delhi. You are
requested to hand over the physical delivery of the Units to Mr.
B Mohan Khandelwal, a specimen of whose signature is attested
hereinbelow.

Thanking you,
,___
Yours faithfully,
c For UCO Bank,
Sd/-
(Manager)
Signature of Mr. Mohan Khandelwal: sd >-
Attested
D For UCO Bank, Sd (Manager)

Ex.59 ·'
February 22, 1991.
_..____
Maruti Udyog Ltd.
E 11th Floor,

-
Jeevan Prakash
25, Kasturba Gandhi Marg,
New Delhi-110 001.
Dear Sirs,
F
This has reference to your purchase of 35 lac units for value d(lted
25th February, 1991 @ Rs.14,4295. Please arrange to remit the funds
amounting to Rs. 5,05,03,250 thru ANZ Grindlays Bank, Sansad Marg,
New Delhi.

G Thanking you,

Yours faithfully,
For UCO Bank
Sd/-
(Manager)'
-
H

·,., ~
I
R.N. POPLI v. C.B.I. [M.B. SHAH, J.) 259
Ex. 60. A
March 13, 1991.
MARUTI UDYOG LTD.
11th FLOOR
JEEV AN PRAKASH
25, KASTURBA GANDHI MARG B
NEW DELHI-I IO 001

Dear Sirs,

This has reference to your purchase of 70 lac Units for value dated
13th March, 1991 @ 14,4500. Please arrange to remit the funds C
amounting to Rs. IO,l l,S0,000 thru ANZ Grindlays Bank, Sansad
Marg, New Delhi.

Thanking you,

Yours faithfully, D
For UCO Bank,
Sd/-
(Manager)
.-+.
E
Ex. 61.

March 18, 1991.
MARUTI UDYOG LTD.
I Ith FLOOR
F
JEEV AN PRAKASH
25, KASTURBA GANDHI MARG
NEW DELHI - 110 001
Dear Sirs,

This has reference to your purchase of 75 lac Units for value dated G
today @ 14,4500. Please arrange to remit the funds amounting to Rs.
10,83,75,000 through ANZ Grindlays Bank, Sansad Marg, New Delhi.

Thanking you,

Yours faithfully, H
260 SUPREME COURT REPORTS (2003) I S.C.R.

A For UCO Bank,
Sd/-
(Manager)"
From letters Exhibits 60 and 6 I, it is apparent that A3 has not stated
that UCO Bank was selling units. It only mentions that for the purchase of
B 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.

C For the allegation of forgery, it is to be stated that in the instant case,
A-3 h~ 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.

All the transactions are based upon the documents, which stand proved
D by the evidence of various witnesses of MUL, who signed the documents.
The transactions were through UCO Bank. Further, there is nothing on record
to show that UCO Bank either purchased or sold the units to MUL. The
charges proceed on an incorrect assumption that the BRs were issued on
behalf of UCO Bank. The CBI. has undertaken no investigation whatsoever
E to discover whether the BRs were backed up by securities belonging ~o A-
. S. Further, once it is held that the UCO Bank, Hamam Street Branch was
entitled' to deal on behalf of their clients, then it would be difficult to hold
that issuance of the said BRs by A3 was in any way forgery punishable under
the Indian Penal Code. Issue of BRs on behalf of broker clients was part of
commercial transactions. Routing facility was given by the bank as proved
F prior to RBI Circular dated 26.7.1991. Even RBI circular does not prohibit
issuance of BRs if properly backed by the security. The evidence on record
nowhere establishes that the Bank was not holding adequate securities before
iss~ance of BRs. With regard to the alleged forged typing of letters outside
the office of UCO Bank, there is evidence of PW6, which shows that in 1991
G there was only one typewriter in Hamam Street Branch of UCO bank which
was being used since 1983 and heavy 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 out side the bank, 'dishonesty' cannot be
attributed to the accused.

H For this purpose, we would straightway refer to the decision rendered
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 261
by this Court in Dr. Vim/av. Delhi Administration, [1963] Supp. 2 SCR 585 A
wherein this Court held thus:-

"To summarize : the expression "defraud" involves two elements,
namely, deceit and injury to the person deceived. Injury is something
other than economic loss that is, deprivation of property, whether
movable or immovable, or of money, and it will include any harm B
whatever caused to any person in body, mind, reputation or such
others. In short, it is a non-economic or non-pecuiary loss. A benefit
or advantage to the deceiver will almost always cause loss or detriment
to the deceived. Even in those rare cases where there is a benefit or
advantage to the deceiver, but no corresponding loss to the deceived, C
the second condition is satisfied."

In that case, one Dr. Vim la purchased a car in the name of her minor
daughter Nalini, 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 D
Nalini after the proposal form was signed by Dr. Vimla. Subsequently, when
the car met with the accident, Dr. Vim la filed two claim forms as Nalini. She
also signed the receipts acknowledging the compensation money as Nalini .
. .. ~ Dr. Virula and her husband were prosecuted under Sections 120-B, 419, 467
and 468 of Indian Penal Code. The High Court convicted Dr. Vimla under E
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 F
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
sale of the car in the name of Nalini would be useful for income-tax G
purposes is not of any relevance in the present case, for one reason,
the said owner did not say so in his evidence for the other, it was not
indicated in .the charge or in the evidence. In the charge framed, she
was alleged to have defrauded the insurance company and the only
evidence given was that if it was disclosed that Nalini was a minor, H
262 SUPREME COURT REPORTS [2003] l S.C.R.

A the insurance company migh~ not have paid the money. But as we
have pointed out earlier, the entire transaction was that of Dr. V\mla
and it was only put through in the name of her made minor daughter
for reasons best known to herself. On the evidence as disclosed,
neither was she benefited nor the insurance company incurred loss in
any sense of the term."
B
For arriving at the said conclusion, the Court further referred to Sections
463 and 464 of IPC and held as under:- -;----

"The definition of "false document" is a part of the definition of
"forgery". Both must be read together. If so read, the ingredients of
c the offence of forgery relevant to the present enquiry are as follows,
(I) fraudulently signing a document or a part of a document with an
intention of causing it to be believed that such document or part of
a document was signed by another or under his authority; (2) making
of such a document with an intention to commit fraud or that fraud
D may be committed. In the two definitions, both mens-rea described
in s.464 i. e., "fraudulently" and the intention to commit fraud in s.
463 have the same meaning. This redundancy has perhaps become
necessary as the element of fraud is not the ingredient of other
intentions menth~ned in s. 463. The idea of deceit is a necessary
ingredient of fraud, but it does not exhaust it; an additional element
E is implicit in the expression. The scope of that something more is the
subject of many decisions. We shall consider that question at a later
stage in the light of the decisions bearing on the subject. The second
thing to be noticed is that in s. 464 two adverbs, "dishonestly" and
"fraudulently" are used alternatively indicating thereby that one
excludes the other. That means they are not tautological and must be
F
given different meanings. Section 24 of the Penal Code defines
"dishonestly" thus :
"Whoever does anything with the intention of causing
wrongful gain to one person or wrongful loss to another person,
is said to do that thing dishonestly".
G
"Fraudulently" is defined in s. 25 thus:

"A person is said to do a thing fraudulently if he does
that thing with intent to defraud but not otherwise".

H The word "defraud" includes an element of deceit. Deceit is
R.N. POPLI v. C.B.l. [M.8. SHAH, J.] 263
not an ingredient of the definition of the word "dishonestly" while it A
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 B
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 C
advantage to one causes loss to another and vice versa, it need not
necessarily be so. Should we hold that the concept of fraud" would
include not only deceit but also some injury to the person deceived,
it would be appropriate to hold by analogy drawn from the definition
of "dishonestly" that to satisfy the definition of "fraudulently" it
would be enough if there was a non-economic advantage to the D
deceiver or a non-economic loss to the deceived. Both need not co-
exist."

Hence, it would be difficult to infer that A-3 did anything
dishonestly, fradulently or to defraud. E
Gl For handing over 35 lac units, it is to be made clear that UCO
Bank has not purchased the said units or sold them to MUL. As
the said units were sold by the broker clients to A-5 through
UCO Bank, the units were required to be returned to A-5 and
that would be clear from Exhibit 58. This function is considered F
by the Banks as routing function as explained by the witnesses
of the bank which we h·ave referred to earlier.

(k) The commission for the transactions on behalf of A-5 was credited
in the bank account by debiting the same in the account of A-
5. If really A-3 was acting on his own behalf and not on behalf G
of bank, tlie commission amount would not have been reflected
in the bank's account. Finally, one of the important circumstance
required to be taken into consideration is : crediting of brokerage
charges/ commission for the said transactions by the UCO Bank.
If A-3 was having any guilty mind or dishonest intention, which H
264 SUPREME COURT REPORTS [2003] I S.C.R.

A is essential for convicting him for the offence punishable under.
Section 409 or other Sections of IPC, he would not have seen
that the brokerage charges/commission is credited in the account
of the UCO Bank.
(I) No objections were raised during the internal audit or statutory
B audit. PW14 Joshi states that in case of sale transactions on
behalf of their clients after obtaining written instructions and
about the availability of security with the bank they were preparing
cost memo and sending it to the counter party. This would also
indicate that BRs would not be issued without verifying
availability of security with the bank.
c
From the aforesaid discussion, it is required to be held that the
prosecution has miserably failed to establish that A-3 had issued BRs without
being backed by the sufficient security, namely UTI units; for the first
transaction, UTI units were belonging to A-5 which MUL had given as
D security 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 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
E 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
F 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 drawn. In this set of circumstances,
it would be difficult to hold that A-3 committed any offence and A-3 requires
G to be given benefit of doubt.

CASE AGAINST A-5

Before dealing with the case against A-5, it is to be stated that allegations
against him are serious. As per the Parliamentary Committee report, there
H were manipulations by some Banks in favour of such brokers. Parliamentary
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 265

Committee has also noticed that scrutiny of security transactions in number A
of banks reveals that some banks were even handing over account payee
cheques drawn in favour of olher banks to the brokers who got them credited
to their account ostensibly to assist the broker in transferring funds quickly
to meet their obligations. Many brokers including Harshad S. Mehta (A-5)
were getting routing facilities. Thus, banks provided special privilege to select B
few brokers by lending their names to the transactions of these brokers totally
disproportionate to the income derived and exposed themselves to great risk
·-< by irregularly issuing their BRs. The Committee also noted that A-5 was also
unauthorisedly given the facility of collection and credit of the banker's
cheque by SB! as per his instructions. The Bombay Main Branch of SB!
acting as the agent of SB! CAPS had debited SB! CAPS account and C
unauthorisedly credited funds to the account of A-5 instead of making
payments to named banks. The cheques drawn on UCO Bank had been
credited to the account of the same broker. For this purpose, the brokers
wanted the facility of single point clearance whereby the activities of issuance
and acceptance of bankers' cheques in their accounts may be conducted
through the security division of the SBI's main branch, Bombay. The D
Committee also noted that PSUs were single largest source of investable
funds and in the investment of these funds, guidelines and instructions were
routinely flouted and no norms were observed.

It is true that certain unauthorised facilities were given in banking E
transactions to A-5. However, for convicting A-5, it should be proved beyond
reasonable doubt that he had committed certain offences punishable under
the Act. It is true that if any illegal practice or usage is developed by banks
or PSUs it would not be a good defence because illegality committed by a
corporation or the concerned officer is required to be dealt with and punished
if it is an offence in accordance with law. Take for illustration - collecting F
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 LO. Bhatnagar that PW23 Khandelwal has given a statement before him
that A-5 gave a VIP suitcase containing cash to Sitaram Kesari.

Further, we are required to decide the case on the touchstone of G
ingredients of the offence punishable under !PC 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 H
266 SUPREME COURT REPORTS [?003] I S.C.R.

A to a large extent but that would not itself be a sufficient 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. I to 4 gained anything. On the contrary, there is evidence on
record that UCO Bank got commission from the said transactions. -

B This Court in State (Delhi Admn.) v. Laxman Kumar, [1985] 4 SCC
476 at 505 observed as under:-

"Mankind has shifted from the state of nature towards a civilized
society and it is no longer the physical power of a litigating individual
or the might of the ruler nor even the opinion of the majority that
c takes away the liberty of a citizen by convicting him and making him
suffer a sentence of imprisonment. Award of punishment following
conviction at a trial in a system wedded to rule of law is the outcome
ofcool deliberation in the court room after adequate hearing is afforded
to the parties, accusations are brought against the accused, the
D prosecutor is given an opportunity of supporting the charge and the
accused is equally given an opportunity of meeting the accusations
by establishing his innocence. It is the outcome of cool deliberations
and the screening of the material by the informed mind of the Judge
that leads to determination of the !is. If the cushion is lost and the
court room is allowed to vibrate with the heat generated outside it,
E the adjudicatory process suffers and the search for truth is stifled "

Keeping the aforesaid principle in mind, I would deal with the
prosecution case against A-5.

F Five transactions took place between the MUL and A-5 between the
end of Jan., 1991 and Qeginning of May, 1991. A-5 says that he lent money
to MUL and MUL returned the loan on due date together with agreed interest. )r
This loan was a secur.ed loan inasmuch as MUL transferred and delivered 35
lacs units of the UTI.

G The case of the prosecution is that there is an irresistible inference that
A-5 was involved thro1:1ghout in the case because:-

(a) the pay orders of Canara Bank were collected by his agent Mr.
Anuj Kalia;

H (b) the pay orders were deposited as if he was the payee, which is
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 267
clear from the apparent tenor of the pay in slip; A
·-...i. (c) there are letters written by his agents/employees to ANZ Grindlays
Bank asking them to credit the proceeds of the pay orders to his
account;

(d) receipts had been given by his office in respect of the first
transaction of 35 lacs units, which receipt found its way to the B
records of the MUL. In the face of this evidence, the defence of
- -1 Al and A2 that they had no knowledge of the involvement of A-
5 is patently untenable.

(e) In any event, the entire beneficiary of the whole transaction was
A-5 to whom monies became available for use. c
From the evidence on record, it is proved that-

I. Undisputedly there is no statutory prohibition that MUL. or UCO
Bank cannot grant loan to the individual.
D
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.
E
4. In first transaction; MUL took loan by handing 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
F
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 that transactions were
irregular.· Witnesses examined on behalf of MUL are PWl
G
Bhargava who was a Legal Advisor, MUL and Company
Secretary, PW 3 Agharam Halasyam who was the General
Manager (Finance) and PW4 Rajan Ramgopal who was working
as Executive. All have stated that transactions were on the basis
ofresolutions passed by the Sub-Committee which were approved
by the Board. If MUL Board decides to enter into such H
~'!'"

268 SUPREME COURT REPORTS [2003) I S.C.R.

A transactions, officers like Al and A2 or A5 cannot be held guilty.

6. No Bank Officer has stated that the transactions were illegal or >-~·

there was any irregularity. UCO Bank has received commission
for the said transactions.
7. In such circumstances, there is no question of misappropriation
B of the amount by taking loan. In any case alleged gain to A-5
was of taking loan for a very short period which is repaid on
agreed date with agreed interest. The loan was taken by pledging }-----'.'-
UTI Units. At the most, in the FIR it is stated that the amount
was given to A5 at a lower rate of interest and that in the first
c transaction, he charged more interest. This contention is also
without any substance because in first transaction A-5 only
charged 12.75% interest foi- the amount. As against that in all
subsequent four transactions, rate of interest given to the MUL
was 16.75%, 21%, 26.75% and 25% respectively.

D 8. Presuming what is stated in FIR is true that lower rate of interest
was charged, then also once it is loan transaction to A-5 there is
no question of misappropriation of the amount by A-5.
_.,
9. The next question is - whether the Bank receipts were backed
by units or not? For that purpose, prosecution has not led any -.---
E evidence. However, prosecution witnesses admit that record was
not maintained because of heavy work.

(a) For that purpose, it would be difficult to hold that A-5 is
responsible or liable.

(b) Even for A-3 there is no evidence to the effect that A-3 was
F required to maintain such accounts.
l(
(c) Witness [DW5(8) Atul Manubhai Parekh] examined on behalf
of A5 states that units were handed over to the Bank.

10. For the aforesaid transactions also Bank has received brokerage
G charges which is reflected in the Bank accounts. Neither the
·auditors of the Bank nor the higher officers have raised any
objection to such receipts. On the contrary as per the JPC report
-f
as well as RBI Guidelines, banks were indulging In such
transactions. As deposed by the witnesses, these transactions were
regular and routine transactions.
H
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 269
11. It is contended that in reality if it were loan transactions then A
there was no question 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 ifthe amount is repaid B
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 make clear
c
distinction of investing the amount "with the bank" or "through
the bank". May be that there was tacit 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- D
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 resolutions
--+ mentioned "with the bank" and in other places, it mentioned
"through the banks". This would indicate that the Chairman- E
cum-Managing Director and Director (Finance) of MUL were
having full knowledge that the transactions were loan transactions
in favour of persons other than the UCO Bank.

- Therefore, only question is - whether such transactions through the
bank could be held to be an offence either under Section 403 or Section 405
of !PC. Relevant Sections are as under:-

"403. Dishonest misappropriation of property.-Whoever
F

dishonestly misappropriates or converts to his own use any movable
property, shall be punished with imprisonment of either description G
for a term which may extend to two years, or with fine, or with both.

405. Criminal breach of trust.-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 H
270 SUPREME COURT REPORTS [2003] l S.C.R.

A 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 wilfully suffers any
other person so to do, commits "criminal breach of trust".

Sections 403 and 405 require dishonest misappropriation. The word
B "dishonestly" is defined under Section 24 IPC as under:-

"24. Dishonestly.-Whoever does anything with the intention of
causing wrongful .gain to one person or wrongful loss to another
person, is said to do that thing "dishonestly".

C What is punishable under Section 403 is dishonest misappropriation or
conversion to his own use any moveable property. Further as per the
Explanation, dishonest misappropriation for time being or for a short time is
also misappropriation within the meaning of the section. Hence, for establishing
the offence it is required to be proved that-

D 1. The property belongs to a person other than the accused.
2. The accused appropriated the said property or converted it to his
own use. And,
3. He did so 'dishonestly' - that is to say with the intention of ...
causing wrongful gain to one or wrongful loss to another person.
E
Allegations in this case are that firstly, accused appropriated cheques
issued by Canara Bank in favour of Grindlays Bank to himself. Secondly,
that appropriation was misappropriation and, thirdly, it was dishonest.

Further, essential ingredients required to be proved under Section 405
F are-
I. 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
G
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 -I
4. Willfully suffers any other person to do so.
H In this case, an essential ingredient which is required to be established
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 271
would be 'dishonest misappropriation or use'. For this, it is contended that A
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.

For this purpose, let us consider the prosecution case in the light of the B
following illustrations-

(A) Presume that A-5 received the amount by investment/ loan from
UCO Bank by depositing UT! Units; or
(B) Presume that A-5 took loan from MUL directly by pledging UTI C
units.

In both the aforesaid cases, it cannot be held that the said transactions
are illegal or irregular.

Then,
D
(C) There is a resolution by MUL that investment/loan cannot be
made by MUL with any individual. Admittedly, there is no such
statutory provision or rules prohibiting such investment.
Resolution permits investment with banks/PSUs.

In such case, presume that A-5 approaches bank to act on E
his behalf for getting investment from MUL by depositing units.
Bank writes letter for such investment, issues Bank Receipt,
receives money, pays it to A-5 as agreed by charging brokerage
which is considered to be a commercial transaction by a bank.

The question to be asked would be - whether any such transaction F
'through' bank would be an offence?

Primafacie, there is no such law prohibiting such transaction nor it can
be held to be an offence u_nder any law. In such a transaction, there is no
., question of dishonest misappropriation. The Investigating Officer PW25 Mr. G
Bhatnagar in his cross-examination, has stated that according to him, after
the placement of funds with UCO Bank, the Bank would not be acting illegally
if it places those very funds with a third party.

However, the prosecution case is made out on the ground that as MUL
was not giving any loan directly to individual (A-5), he manipulated and H
272 SUPREME COURT REPORTS [2003] I S.C.R.

A created subterfuge as if UCO bank was purchasing the UTI Units. For this
purpose, on behalf of MUL cheques were issued by Canara Bank in favour
of ANZ Grindlays Bank. Those cheques were deposited at Delhi Branch and
the amount was transferred in the name of A-5 at Grindlays Bank's Bombay
Branch. Thereafter, Grindlays Bank's Bombay Branch issued cheques in favour
B of UCO Bank and in turn UCO Bank gave credit of the said amount to A-
5.

Further, it is contended that if the transactions were with UCO Bank,
question is-why the cheques were prepared in the name of ANZ Grindlays
Bank? -There was no necessity of doing so.
c -Why the said cheques were handed over to the representative of A-
5?

Prosecution contends that as it was subterfuge, this irregular method
was adopted. Defence contends that it was known to MUL that amount was
D meant for A-5 and, therefore, this procedure was adopted for earliest release
of funds in favour of A-5. By this method, UCO Bank Bombay 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.

At this stage, we would refer to the decision in Chelloor Mankkal
E Narayan lttiravi Nambudiri v. State of Travancore, Cochin, AIR ( 1953) SC
478). 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-
F 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:-

"ft follows almost axiomatically from this definition that the c.:"
G 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 other than the accused and the latter must hold it on
account of some person or in some way for his benefit. In the case
before us, it is not disputed that if the sum of Rs.23, 100 was paid by
H PWl to the appellant by way of illegal gratification to induce the
R.N. POPLI v. C.B.I. [M.B. SHAH, J.] 273

latter to make an allotment of cloth in his favour, there could be no A
question of entrustment in such payment. The payee would then receive
the money on his own behalf and not on behalf of or in trust for
anybody else. The criminality of an act of this character would consist
in illegal receipt of the money and the question of subsequent
misappropriation or conversion of the same would not arise at all." B
Learned Solicitor General Mr. Salve contended that MUL had not
decided at any point of time to lend money to A-5. The so-called transactions
of lending money to A-5 or purchasing UTI Units from UCO Bank was mere
pretence by giving a cover of ostensible sale of units to MUL. If really, there
was a loan transaction between MUL and A-5, MUL would have issued pay C
order in favour of A-5, but in the present case, the pay orders - bankers'
cheques were issued by the Canara Bank in favour of Grindlays Bank and the
cheques were having endorsement of---crossed cheques, account payee, non-
transferable. After receipt of the said cheques, surprisingly, officer of Grindlays
Bank credited it in the account of A-5. Thereafter, A-5 again transferred it
in his account in Grindlays Bank at Bombay. He again issued the cheque D
through Grindlays Bank in favour of UCO Bank and UCO Bank transferred
the said amount in favour of A-5. He submits that if it was a real and genuine
transaction of money lending by MUL in favour of A-5, parties would not
have credited such subterfuge or pretence as if MUL was purchasing units
from UCO Bank, Bombay Office.
E
It is his further contention that in any case A3 Deosthali had no authority
to sell units to MUL. He pointed out relevant Sections of the Negotiable
Instruments Act for contending that the amount of crossed Ale Payee Cheque
having endorsement "non transferable" can not be paid to A-5. For this
purpose, he referred to various provisions of Negotiable Instruments Act, F
1881 (Chapter VI Section 78).

Learned senior counsel Mr. Jethmalani made it abundantly clear that he
confines his submissions to the effect that A-5 had only loan transactions
with MUL and the amount taken on loan was paid with interest and
commission was paid to UCO Bank. The transactions are already squared up, G
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 H
274 SUPREME COURT REPORTS [2003) I S.C.R.

A be paid accordingly to the lender. He, therefore, submits that this was a tacit
agreement between the parties.

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 word 'through'
would certainly mean that it is not with the banks. In any case, because of
B 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
fradulent. For this purpose, in earlier paragraphs, resolutions passed by the
C MUL are referred. Resolution dated 4.5.1989 (Ex.9) specifically provides
that to fetch higher rate of interest than what is available on loaning of funds
to PSUs, the Board has permitted the Sub-committee fonned by it for fhe
purpose to invest surplus funds of the company from time to time in the
purchase of units of UTI either through scheduled banks or directly. In any
case, the Managing Director and Director (Finance) ofMUL who had passed
D the resolutions for the transactions in question would have revealed the true
nature of the transactions. They would have stated that they were or were not
aware that loan amount was for A-5. It is admitted that they were examined
by the Investigating Officer Mr. Bhatnagar, who exercised his discretion an~
arrived at the conclusion that they were not required to be examined. In
E criminal prosecution, in such a situation, if any reasonable doubt arises,
benefit would be in favour of accused.

Further, adverse inference" could have been drawn against A-5 if the
amount was received by him without pledging any units with the bank. As
discussed above, it is the contention on behalf of A-5 that UTI units were
F handed over to the bank and on that basis BRs were issued by A-3. For this
purpose, witness is also examined. However, prosecution has failed to establish
that BRs were issued without being backed by the units.

For the transfer of the amount from Canara Bank to UCO Bank at
Bombay Branch via Grindlays Bank, it has come on record that such irregular
G unjustfiable practice had developed with certain banks. It has also come on
record that even SBI had given such facility to A-5 (as per JPC Report). In
such a state of prosecution evidence, it cannot be held beyond reasonable
doubt that A-5 committed any offence punishable under Section 403 or abetted
offence punishable under Section 405 of IPC or has abetted any commission
H of offence punishable under Section 468 r/w Section 464 IPC.
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 275
For the cheque issued by the Canara Bank in favour of Grindlays Bank, A
there is nothing on record that monies were meant for Grindlays Bank. As
pointed out by the learned counsel for A-5, the beneficial interest for the sa·id
amount remained in A-5. It is nobody's case that the UCO Bank itself has
sold or purchased the units and was entitled to have the cheque amount, that
is to say that ownership or beneficial interest in the property was not with B
UCO Bank.

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 UT! units was entitled to get it back and that C
was done by A-5.

Further, document Ex.58 (Vol.26 page 7056) and Ex. A-5 (I) (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 D
Ex.A.5 (I) is the receipt dated 24.l.1991 issued by Mr. Khandelwal (an
employee of A-5) on the Jetter-pad of A-5. Both these documents would also
indicate that MUL was fully aware about the transaction with A-5.

Finally, an important contention raised by the learned counsel for the
appellants that for the transaction nos. I to 3 i.e. transactions dated 24.1.1991, E
I 3.3.1991 and 18.3.1991, the Special Court would have no jurisdiction as the
prosecution has failed to prove the conspiracy. Admittedly, the said transactions
had taken place prior to cut-off date prescribed under Section 3(2) of the
SCAM Act, which is 1st April, 1991. In my view, the said submission requires
to be accepted. However, it is not required to be discussed further in view of F
the finding that the prosecution has failed to prove beyond reasonable doubt
that accused have committed any offence.

Finally, there is no loss to MUL or to the Bank but as the loan amount
is given to A:5 by MUL through UCO Bank and as the loan is re-paid by A-
5, it cannot be held that A-5 committed the offence of mis-appropriation. G
Further, while deciding criminal matters, where heat is generated outside
the Court room, it is the function of the Court to decide the matter after cool
deliberation on the basis of existing law and criminal jurisprudence and the
adjudicatory process should remain unaffected by such heat. Conviction or
acquittal in a system wedded to rule of law should be in a_ccordance with Jaw H
+
276 SUPREME COURT REPORTS (2003] 1 S.C.R.

A only. As observed in the case ofLaxman Kumar (supra) if the cushion is lost
and the Court room is allowed to vibrate with the heat generated outside it,
the adjudicatory process suffers and the search for truth is stifled. It is for the
Parliament to enact laws to meet white-coloured illegalities or irregularities
affecting the society.

B What emerges from the discussion of the entire evidence which, to
some extent, is reproduced in the earlier paragraphs is: -

(a) The SCAM Act does not create any new offence nor changes the
procedure as prescribed in the Code of Criminal Procedure nor
raises any presumption pertaining to an offence punishable under
c the Indian Penal Code or Prevention of Corruption Act. The
offences of mis-appropriation, criminal breach of trust or fraud
and forgery are required to be established by the prosecution on
the basis of existing criminal jurisprudence, which requires that
prosecution has to establish its case beyond reasonable doubt.
D Serious allegations would not be a ground for convicting the
accused unless there is sufficient evidence to connect the accused
with the crime.
Joint Parliamentary Committee found that many brokers
used some of the banks as "routing" banks which carried large
volume of securities transactions for them. The Bombay Main
E
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.
The Committee noted that the PSUs were the single
largest source of surplus investible funds around Rs.36000 crores
F
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
G 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 ofDPE that PSUs could have normal
banking transactions only with nationalised banks.

H The PSUs have placed funds with banks and finance
+
R.N. POPL! v. C.B.l. [M.B. SHAH. J.] 277
'
. ~
companies for very short periods, sometimes for only a few days
and even for one day implying supply of funds for speculative
A

purposes to earn higher return. These banks/finance companies
issued BRs for the amount received. The PS Us after the maturity
of investments returned the BRs and got their monies along with
the yield which was agreed to at the time of placement of funds.
Thus these transactions were in the nature of ready forward deals B
instead of genuine investment transactions.
(b) The prosecution version of conspiracy as stated in the FIR and
the chargesheet is contrary to what has been tried to be proved
by leading the evidence of witness, namely, Mr. Khandelwal PW
23. In the FIR and the chargesheet, it is stated that there was c
conspiracy in the month of January I 991. As against this, evidence
which is led is to the effect that conspiracy was hatched in April/
May 1989. That evidence is found to be totally unreliable.
Subsequently, developed prosecution version of conspiracy on
the basis of evidence of PW23 creates doubt with regard to the D
efficacy of the investigation.

(c) There are no circumstances on record from which reasonable
_....,. inference of conspiracy could be drawn as it \\<·as the practice
adopted by some of the Banks and Public Sector Undertakings
of short term investments of their extra funds. May be that the E
practice adopted by the banks or PSUs was unjustified or irregular.

(d) Jurisdiction of the Court under the SCAM Act is limited for the
transactions in Securities after the First Day of April, 1991 and
on or before 6th June, 1992. As the prosecution has failed to
prove the conspiracy, the accused cannot be convicted by the F
Court for the transactions dated 24.1.1991, 13.3.1991 and
18.3.1991.

Remaining 4th and 5th transactions are on 24.4. I 99 I
and 2.5. I 99 I for two days and five days respectively. Before the
5th transaction, A3 was transferred from the Hamam Street G
Branch.

(e) In the investment policy or lending policy as per the guidelines
framed by the MUL in I 989 (Ex.9) use of phrase 'through
Scheduled Banks' or 'directly' appears to be intentional. 'Through
Scheduled Bank' would indicate that the amount is not invested H
+

278 SUPREME COURT REPORTS [2003] 1 S.C.R.

A 'with the Bank'. Resolutions Exs. 22, 23, 24, 40 and 42 passed +-· _,
by the MUL for investment of funds as reproduced above also
reflect the same thing, namely "through bank" or "with the bank".

(t) Resolution Ex.22 dated 1.2.1991 reveals how the documents were
prepared to suit its purpose by the MUL. The relevant part of
B resolution reads thus-
" .... .In our documentation we have to show the borrowing
)- .
as sales of 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
c 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, A 1 and A2 who are sought to be prosecuted are not
D 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
E known to the prosecution, they are not prosecuted or examined
as witnesses even though they were interrogated by the
Investigating Officer.
(h) A 1 and A2 were promoted for their efficiency and good work.
The same stand was taken by the MUL before the JPC despite
F 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.
G) UCO Bank has also earned commission which is reflected in its
,
.,.
acc01.~nt.
G
(k) If there was any dishonest intention on the part of A-3, he would
not have credited the earned commission for the transactions in
the account books of the bank.
(l) No loss to the UCO Bank.

H (m) Neither the MUL nor UCO Bank has lodged any FIR for so-
R.N. POPLI v. C.B.l. [M.B. SHAH, J.] 279
,_ .... called mis-appropriation or fraud. A
(n) The prosecution has not even suggested that accused Nos. I, 2, 3
or 4 got any pecuniary advantage or gain by such transactions.

(o) Evidence led by the prosecution discloses that it was the practice
of the Bank to issue BRs for such type of transactions.
B
- ~
It was the duty of the prosecution to carry out necessary
investigation whether the BRs were backed by the units or not.
If the Investigating Officer fails to discharge its duty, no inference
can be drawn that BRs were not backed by security/units.
Prosecution has miserably failed to prove that A-3 issued BRs
without holding units as security or that BRs were not backed by c
units.

'"' PW3 Halasyam, Chief General Manager (Finance) of
MUL has stated that looking at the BRs of UCO Bank, no
' suspicion would arise and that issuance of the BRs necessarily
D
indicates that bank issuing it would be holding the security
covered under the BR.

(p) Mr. Ramanathan, Divisional Manager of UCO Pank at Bombay
~
Office at the relevant time has produced on record letter dated
8.1.1991 Ex.231 written by him stating resumption of switch
transaction after discussing the subject with various authorities E
including Zonal Manager, General Manager and Dy. Manager of
UCO Bank.

(q) On the evidence as it is, at the highest it was a failure on the part
of A 1, AZ and A3 to perform their duties or observe rules of
procedure in appropriate manner and may at the most be an F
administrative lapse.

(r) As discussed above, there is no evidence against A-2 and A-4 to
connect them with the crime.

(s) A-4 is prosecuted without collecting any evidence against him G
that he was responsible for crediting the amount in the account
of A-5. The prosecution has erroneously proceeded as if the
amount of pay orders issued in favour of Grindlays Bank was
directly deposited in the account of A-5.

(t) For A-5, it is to be held that he gave loan to MUL in first H
+

280 SUPREME COURT REPORTS (2003) I S.C.R.

A transaction and borrowed the amount in last four transactions.
These transactions were carried out through UCO Bank. +"
Therefore, assuming that those transactions were against the
guidelines 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
B 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.
c (u) For A-3 also, Investigating Officer has not bothered to verify
properly 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. t
D (v) As mentioned above, Section A 15 has two 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
E be dishonest or fraudulent. In the second part, the inducement
should be intentional.

In the present case, it is very important to detennine who
is the controlling agent behind the act of the Company (MUL).
If the Board of the MUL or the Management of the Bank were
F fully aware of such transactions, subordinates who carry out the
Jr4
transactions could not be held guilty as for the offences for which
the accused are charged, mens rea must be proved. Therefore,
those who are responsible for taking such decision, could be
prosecuted, but not those who are only carrying out directions on
the basis that it is a commercial policy of the Company (MUL)
G
or the Bank. As stated before JPC, it was an effort to maximise
the yield or surplus funds of MUL and there was no need for the _..,
company to take any action against the officers.

Hence, in my view, prosecution has failed to prove its
case against the accused.
H
+
R.N. POPLI v. C.B.I. [ARIJIT PASAYAT, J.] 281
In the result, Criminal Appeal No. I 097 of 1999 filed by A
Ram Narain Popli (A-4), Criminal Appeal No.1117 of 1999 filed
by Pramod Kumar Manocha (A-1), Criminal Appeal No.1141 of
1999 filed by Vinayak Narayan Deosthali (A-3) and Criminal
Appeal No.1150 filed by Harshad S. Mehta (A-5) are allowed
and they are acquitted of the charges, for which they were facing B
trial in this case. Criminal Appeal No.521 of2000 filed by Central
Bureau of Investigation against acquittal of A-2 stands dismissed.

ORDER OF THE COURT

In the result it is held that:-
c
(l) Criminal Appeal No. 521 of 2000 filed by the State against A2
Ambuj Sushi! Kumar Jain is dismissed.

(2) Criminal Appeal No. l 097 of 1999 filed by A-4 Ram Narayan
Popli is allowed and he is acquitted of all the offences alleged
against him. D
(3) Further, in view of the judgment rendered by the Majority,
Criminal Appeal Nos. 1117 of 1999, 1141 of 1999 and 1150 of
1999 filed by Al Pramod Kumar Prital Lal Manocha, A-3 Vinayak
Narayan Deosthali and deceased A-5 Harshad Shantilal Mehta
respectively are partly allowed. The order of conviction awarded E
by the Special Court in respect of Al, A3 and AS is confirmed.
However, sentence of Al and A3 is reduced to the period already
undergone.

Ordered accordingly.

ARIJIT PASAYAT, J. Notwithstanding my great respect for learned
F
)'-. Brother Shah's wisdom and erudition, I am unable to agree that some of the
appellants i.e. A-1, A-3 and A-5 deserve to be acquitted. My reasons with
which brother Agrawal also agrees, are as follows:

The present appeals relate to Special Case No.6/1994 which was one of G
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').

Before constitution of the Court under the Special Court Act several
enquiries were made in relation to securities scam which. allegedly broke out H
+.
282 SUPREME COURT REPORTS [2003] 1 S.C.R.

A 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
B 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, 1992.
c When the matter was brought to the notice of both Houses of Parliament,
a Joint Parliamentary Committee (in short the JPC') was appointed to enquire
into the irregularities.

Prosecution version was that there were five transactions conducted
D between January 1991 to May 1991 involving Rs.43,96,65,000 purportedly
as ready forward deals. The securities involved were units of Unit Trust of
India (in short UTI'). Two stages were involved in the transactions; the first
sale and purchase and the second reversal thereof. The bankers involved
were United Commercial Bank, Hamam Street Branch, Bombay, Canara Bank,
Sansad Marg, New Delhi, Bank of America, Bombay Branch and New Delhi -.lr-
E Branch, ANZ Grindlays Bank, Sansad Marg, New Delhi and ANZ Grindlays
Bank, Bombay Branch. The Government company involved was Maruti Udyog
Ltd. (in short MUL').

The reports of the Janakiraman's Committee and the JPC were placed
before the Trial Court and were exhibited as 237(1) and 237(2).
F
The basic allegation was that as a result of criminal conspiracy surplus >t
funds of MUL had been deposited in Canara Bank, New Delhi and were
diverted to the account of A-5, Harshad with Grindlays Bank, Delhi and
finally to UCO Bank, Bombay. It was the prosecution's case that there was
G no authority of accused 1 - Praniod and accused 2 - Ambuj Jain to deal with
A-5, Harshad and though he was the full beneficiary and he had been directly
benefited from the transaction, a picture was presented as if he had nothing
to do in the matter. Such illegal transactions were done with the aid and ~
assistance and direct involvement of A-3 (Deosthali) and A-4 (Popli).

H Accused Nos. 3 and 4 were proceeded against on. the basis that they
-
R.N. POPLJ v. C.B.I. [ARIJIT PASAY AT, J.] 283

were public servants with reference to Section 46(A) of the Banking A
Regulations Act, 1949 (in short Banking Act'). The five accused-appellants
were charged under Sections 409, 420, 467, 471 of the Indian Penal Code,
' -+ 1860 (in short the !PC') and Section l3(l)(c) read with Section 13 (2) of the
Prevention of Corruption Act, 1988 (in short the PC Act').

Reference was made to various documents to show how the transactio~s ' B
were conducted and how documents were fabricated to facilitate use of the
huge sums of money by A-5, Harshad. All the accused persons pleaded
innocence.

The stand of accused No. l, Pramod and accused No.2, Ambuj Jain
was that they did not know the involvement of A-5. Additionally, A-l took C
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 D
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 E
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 routing facility
by the UCO Bank. They were illegally permissible and there was no prohibition
for the same. There was adequate balance of securities money with UCO F
Bank at the relevant dates and UCO Bank issued its BRs relating to the
impugned transactions favouring MUL. Finally, it was submitted that all the
transactions were reversed and financial obligations were discharged and
met, and no amount was due or outstanding under the transactions in question.
Whatever had been done by and /or from the Bombay office with regard to
the impugned transactions was done under the instructions of PW-23, G
Khandelwal. The transactions in the securities between him and MUL were
conducted on principal to principal basis and the same were put through
UCO Bank under routing facility extended to him by it and MUL in particular
was very much aware of the said fact, namely that the transactions in question
were directly between MUL and him and that the same were on principal to H
{'

284 SUPREME COURT REPORTS [2003] I S.C.R.

A principal basis.

It was also pointed out that before the JPC there was no objection
· raised by the MUL as nothing was considered irregular.

The Trial Court had found that though representations were made that
B the units were there as security, in reality these were not there. The findings
in this regard are reproduced below:

"All these would show that case as has been sought to put forthwith
by Accused No. 5-HSM of there being sufficient balance of security
namely, Units in his account with UCO Bank, to meet the commitments
C about 4 transactions being Nos. 2 to 5 with MUL, in the circumstances
cannot be believed and accepted and therefore requires to be rejected
outright."

Each of the five transactions needs to be examined separately.

D Transaction No.I: This transaction dated .24.1 .1991 involves 35 lacs
. units of UTI as security and it is ostensibly shown to have been purchased
by MUL from UCO Bank, Hamam Street Branch, Bombay for a consideration
of Rs.4,99,45,000. There was a reversal as agreed on 25.2.1991. Accused No .
. 3, Deosthali addressed a letter dated 23 .1.1991 on the Jetter head of UCO '
E Bank of the concerned Branch to MUL stating that arrangement for payment
of consideration of the aforesaid sum would be made through Bank of America,
New Delhi with a further request to MUL to hand over the physical delivery
of the security to Mohan Khandelwal (PW 23). Admittedly, 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
F 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 the
amount, the securities were delivered to Anuj Katia (PW 16), an employee
of A-5 Harshad at its Delhi Office who was instructed and deputed by
G Khandelwal (PW 23). The proposal submitted by A-1 indicated as if the
transaction was be.tween 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 Rs.5,05,03,250 through Grindlays Bank, Delhi.
H Letter was addressed by MUL to its bankers Canara Bank, Delhi to issue a
R.N. POPLI v. C.B.l. [ARIJIT PASAYAT, J.] 285

pay order favouring Grindlays Bank. The same was handed over to Anuj A
Kalia (PW 16). On instructions from Khandelwal (PW 23) the pay order was
deposited directly into the account of Harshad (A-5) with Grindlays Bank,
Delhi by handing over the same to A-4, Popli, the concerned officer of the
Grindlays Bank. Letter was issued by the Delhi Office of A-5 instructing
Grindlays Bank for remittance of the amount by TT to its Bombay Branch B
which was done on the same day. Then the amount was paid by pay order
to UCO Bank, Hamam Street Branch, Bombay and the amount was credited
to the account of A-5.

A bare perusal of the method adopted shows that the same was
disinvestments borrowing transaction between MUL and UCO Bank though C
it was reflected to be a transaction as if MUL had borrowed money from
UCO Bank against the security as a ready forward deal, the consideration
was actually provided by Harshad through the Bank of America. In fact, the
interest that was paid by MUL did not go to UCO Bank but went ultimately
into the account of A-5 Harshad. Exbt. 58 is the letter dated 23.1.1991
addressed by UCO Bank, Hamam Street Branch, Bombay to MUL and it was D
signed at two places by A-3 Deosthali. There was no dispute that A-3 had
signed and addressed the letter.

Exbt. 54 is the letter dated 24.l.1991 addressed by the Bombay office
of A-5 to the Manager of Bank of America, Bombay by which instruction E
was given to transfer the amount involved to New Delhi in the account of
MUL. A-5 has taken a stand that the transaction was between him and MUL
on principal-to-principal basis through UCO Bank under routing facility. The
Agenda Note and the Resolution clearly show that MUL was not dealing
with A-5 on principal-to-principal basis. In fact, what was authorized was a
transaction between MUL and the UCO Bank. F
Certain very suspicious circumstances surround this transaction,
particularly, the role of A-3. The letter (Exbt. 58) was not typed in the office
of the UCO Branch. The typist (PW 6) has categorically stated that he has
not typed it. In fact A-3 had admitted that it was typed outside and he was G
responsible for the typing done outside. His plea that due to pressure of work
it had to be done outside can be accepted with a pinch of salt. It was for PW-
6 to say that there was pressure of work and, therefore, the letter was required
to be typed outside. There was no other instance, except the cases involving
A-5 and the other transactions to which reference shall be made subsequently,
that the letter was typed outside. So far as reversal is concerned, the role of H
+
286 SUPREME COURT REPORTS [2003) I S.C.R.

A 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. I 0 I 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
B signed by Mohan Khandelwal (PW 23). The current account number of A-
5 was also mentioned in the letter.

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
C lakhs of units of UTI and there is also nothing to show that UCO Bank had
charged any 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 through its bankers
>-
D to MUL. There was nothing to show that the payment was made to MUL '
through Bank of America under the instructions of UCO Bank, Bombay.
Similarly, at the stage of reversal, the amount paid by MUL directly came to
be credited in the account of A-5 first in the Grindlays Bank, Delhi, then
Grindlays Bank, Bombay and finally in the UCO Bank, Bombay. In all these
E three stages, the amount went directly to the account of A-5. There was no
involvement of any UCO Bank in financial aspects of the transaction, if the
Bank, as claimed by A-5, at all acted for him as routing bank in the transaction.
On the contrary, there is no involvement of UCO Bank either on 24.1.1991
and 25.2.1991 either in passing or receiving funds in it own account. At the
first instance, money was paid by A-5 through Bank of America to MUL.
F There is nothing to show that such payment was made under the instructions
of UCO Bank, Hamam Street Branch, Bombay.

Transaction No. 2

G Coming to the second transaction, it involved 70 lacs units of UTI.
Here MUL was the purchaser and UCO Bank, Hamam Street Branch, Bombay
was the seller. The date of the transaction is 13.3.1991. Here again, the
modus operandi for this transaction is almost identical to those involved in
Transactions 3, 4 and 5. In respect ofthe second transaction A-3 addressed
a letter dated 13.3.1991 to MUL on the letter head of the UCO Bank, Bombay
H instructing remittance of the amount involved. He issued under his signatory
+
R.N. POPLI v. C.B.I. [ARIJIT PASAYAT, J.] 287
Bank Receipt (BR) of UCO Bank favouring MUL in respect of the security. A
The letter and the BR were received at the first instance in the office of A-
5 at Delhi which then passed across to A-1 who then put up a proposal in the
form of Agenda Note before the Investment Committee showing as if the
transaction was between MUL and UCO Bank, Bombay and on this basis
approval was obtained. On the same day, as authorized signatory of MUL,
A-I instructed Canara Bank, Delhi to issue a pay order favouring Grindlays B
Bank by debiting the amount to the account of MUL and accordingly Canara
Bank issued its pay order for the amount directly to MUL. A-S's Delhi Office
instructed its bankers Grindlays Bank, Delhi for issuance of a banker's cheque
for the said amount favouring Grindlays for the benefit of MUL by depositing
the amount into the account of A-5. This is what was done. C
Exbt. 60 is the letter dated I 3 .3.1991 which was 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 lv1UL was to place
funds through UCO Bank. D
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 E
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.

Exbt. 38 is the BR issued by the UCO Bank. The same was authored F
and signed by A-3. BR recites UCO Bank having received from MUL the
concerned sum, being the cost of70 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 would indicate UCO Bank, Hamam Street
Branch having undertaken to MUL to deliver security, namely, 70 lakhs units G
when ready in exchange for the said BR. There is also endorsement made in
the said BR reading as "discharged" with a rubber stamp of MUL which is
proved to be made by accused No. I Pramod as proved by PW-3 Mr. Agharam
Ramkrishnan Halasyam, the officer of MUL. This endorsement shows UCO
bank having discharged its obligations to MUL under the said BR.
H
+
288 SUPREME COURT REPORTS [2003] I S.C.R.

A Credit advise dated 13.3.1991 (Exbt.150) issued by UCO Bank is in the
handwriting of A-3. Although, in the narration of credit voucher it was
mentioned that 70 lakhs of units related to MUL, there is no written record
in that regard. Exbt. 128 which is the advise of Grindlays Bank, does not
justify the narration as appearing in the credit voucher.

B The material on record clearly justifies a conclusion that the amount
involved came from the account of A-5 and was paid to MUL. There was no
involvement whatsoever of UCO Bank though the stand of MUL is that the
transaction was between it and UCO Bank. As is the case with the first
transaction, A-S's stand is that the transaction between him and MUL was on
C principal-to-principal basis which routed through UCO Bank. But, as noted
above in the reversal stage UCO Bank does not figure at all.

Third transaction

The situation is somewhat similar so far as transaction 3 is concerned.
D The amount in question came in the first instance from A-S's account with
Grind lays Bank on the basis of instructions, letter and approval from Grindlays
Bank, Bombay to Grindlays Bank, Delhi and from Grindlays Bank Delhi to
Canara Bank, Delhi in the account of MUL.

Fourth transaction
E
So far as fourth transaction is concerned, initially the proposal was for
investment of units valued at rupees 7.50 crores through Grindlays Bank for
a period of two days, but second note/proposal was put up by A- I which is
very significant. There was approval for placement of Rs.7.50 crores with
Grindlays Bank for 2 days at an expected yield of 26.2S% p.a. Subsequently,
F UCO Bank agreed to accept this fund at the same rate. There was some
reluctance on the part of Grindlays Bank to accept the fund beginning
24.4.1991. Accordingly, the placement has been done with UCO Bank.

A reading of the second note/proposal makes it clear that MUL was
dealing with UCO Bank and there was no question of A-5 dealing with MUL
G 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 Agenda Note, Exbt. 40(3) where the investment in the security in 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 Str~t Branch, Bombay
H as proposed by A-1- Pramod. Significantly, there was no written proposal
R.N. POPLI v. C.B.I. [ARIJIT PASAYAT, J.] 289
either from UCO Bank or Grindlays Bank which has been received and A·
placed before the Committee ofMUL, 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.
B
Transact,on No.5

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 C
also no Bank Receipt (BR) issued by UCO Bank, Hamam Street Branch,
Bombay favouring MUL in respect of this transaction. Notwithstanding these,
the security was put through and MUL parted with money which went into
the account of A-5 in the same manner as in the case of transactions 2 to 4.
Here again, A-1 placed a Agenda Note (Exbt. 42(3)) which reads as follows:
D
"We have received a request from UCO Bank for placement of
Rs. I 0.00 crores in units. The placement will be for a period of 5 days
with effect from 2.5.1991. The expected yield will be 21% per annum".

The Sub-Committee's approval was in the following terms:

"Resolved that Maruti may place funds with UCO Bank for investment E
of units aggregating to Rs.IO crores for a period of 5 days w.e.f.
2.5.1991 at an expected yield of 21 % per annum".

Another important aspect is that the monies/funds were in fact credited
eventually in the account of A-5 Harshad with UCO Bank, Hamam Street F
Branch, Bombay. The debit and credit vouchers of the bank amply prove
this.

Role of Accused No. I in the transactions are as follows:

I. Carbon copy of bank voucher on the letterhead of MUL approved G
and singed by A-I (Exbt.44).

2. Reverse entry on 25.2.1991, carbon copy of bank voucher of
MUL approved and signed by A-I (Exbt.45).
3. Transaction No.2- bank receipt dated 13.3.1001 of UCO bank,
Hamam Street Branch. The expression "discharged" is in the H
290 SUPREME COURT REPORTS [2003] I S.C.R.

A handwriting of A-1. The rubber stamp of MUL and signature
under the caption of authorized signatory is of A-1 (Exbt.38).

4. lnstructio.n letter of MUL dated 13.3.1991 addressed to Manager,
Canara Bank, Delhi to pay order referring the ANZ Grindlays
Bank singed by A-1 (Exbt.29).
B
5. Transaction No.3 - Agenda note for the meeting prepared by
A-1. (Exbt.24 ).

6. In the bank receipt of UCO bank, notings are made by A-1,
(Exbt.39).
c 7. Reversal of the entry, carbon copy of bank debit voucher, accounts
slips signed by A-1 (Exbt.48).

8. Transaction No.5 - Minutes signed by A-1 (Exbts.42 [l] to
[3]).

D 9. Instruction letter dated 2.5.1991 of MUL addressed to the
Manager, Canara Bank to issue pay orders in favour of Hong
Kong and Shanghai Banking Corporation and in favour of
Grindlays Banks signed by A-1 (Exbt.35).

10. For the 5th transaction, there was no BR and it has not been
E explained by A-1 as to how the transaction could take place
without BR.

A-1 concealed the receipt signed 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-
F 1 delivered pay order for the second transaction to PW-16. rt 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
G as deposed by PW-I. That clearly indicated that investments could only be
in PSU's bonds. As per PW-3, MUL did not engage 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
H with UCO bank.
-+

R.N. POPLiv. C.B.I. (ARIJlTPASAYAT, J.] 291
As per PW-4 it brought to the notice of A-1 that the pay order was A
being given to the Grindlays Bank in a transaction with UCO bank. A-1 's
reply is very significant. The stand taken by A-1 that there was instruction
by UCO Bank to issue pay order in favour of Grindlays Bank is clearly
untenable because if the UCO bank intended that in its transaction the pay
orders were to be issued to Grindlays Bank, the same could not have been
without any direction from UCO bank. The contention of A-1 is also not B
acceptable because in respect of fourth and fifth transactions, pay orders
continued to be issued to Grindlays Bank even though admittedly there was
no instruction from UCO Bank. In the fifth transaction, he released funds of
MUL even in the absence of an authority letter or a security in form of Bank
Receipt from UCO Bank. Payments made at the stage of reversal by MUL C
were directly made to A-5. There wa~ no authorization to purchase any
securities from any brokers. There was no mention about the intention that
monies will be given on loan to any broker. Each transaction as reflected was
considered to be a placement of funds with PSUs and there was no scope of
any placement of surplus funds with private person. It is unbelievable that A-
I did not know about the involvement of A-5 when the receipt in respect of D
35 lakhs of units was kept in the records of MUL.

Next comes the case of A-3.

In almost all the transactions the role of A-3 is very significant. E
Investment of the first transaction (Exbt.58) indicates that the same was
written on the letterhead of UCO bank and was signed by A-3 with reference
to 35 lakhs of units. So far as reverse entries are concerned, letter dated
22.2.1991 addressed by the UCO bank, Rajabahadur Building, Bombay to
MUL requested MUL to remit funds through ANZ Grindlays Bank.
(Exbt.59[1]}. Transaction No.2-BR dated 13.3.1991 is in the handwriting of F
A-3 and is signed by him. Carbon copy of credit voucher of UCO bank
(Exbt. 150) is in the handwriting of A-3 and also bears his signature. It
indicates that the amount was intended for A-5 being the amount of security,
namely, units sold to MUL. Similarly, Exbt.151{1) shows that A-3 signed on
the debit voucher in the name of Harshad Mehta for Rs.6,000.
G
In Exbt. 152(1), the signature of A-3 on the debit voucher of UCO
bank in the name of A-5 is there.

Exbt. 153(1) is the signature of A-3 on debit voucher of UCO bank in
the name of Harshad Mehta. H
+-

292 SUPREME COURT REPORTS [2003) I S.C.R.

A Transaction No.3 - letter dated 18.3 .1991 of UCO bank is signed by A- . +,,___
3 (Exbt.61 ). BR dated 18.3 .1991 is signed by A-3 (Exbt.39). Exbt. 157( I) 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 (I) and 162( 1) where there
are signature of A-3 on the debit vouchers of UCO Bank in the name of A-
B 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
singed by A-3. Similarly in the case ofExbts. 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
C significant in this regard.

· 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
D that he has entered into transactions for the Bank. A-3 was not authorized to
\-
write a letter unless he is permitted to do so from the Head Office. A-3,
therefore, did not have the authority to deal with the Bank or to any
arrangement. PWs. 14 and 2 I deposed that only the Head Office can instruct
on behalf of the Bank. A-3's signatures indicating various designations were
E fraudulent because it represented something which in reality was not there.
A-3 has signed in various documents, describing his designation differently. r
In letter dated 23. l.l 991 he has signed as Manager. He has attested signature
of Khandelwal (PW 23) "for UCO Bank". Similar is the position in letters
dated 22.2.1991 (Ext. 59), 13.3.1991 (Ext. 60), 18.3.1991 (Ext.61) where he
has signed as "Manager" for UCO Bank. In Exbt. 38 dated 13.3.1991, he
F signed as "Accountant". He issued the three letters in question to MUL and
four BRs describing himself as "Manager" on the letters and "Accountant"
on the BRs; though in reality he was the Assistant Manager. These are clearly
conducts of deceit and dishonest intention. On the basis of the letters and
(
BRs. MUL parted with its funds which went to the account of A-5. The
G letters and BRs. were handed over to A-5.

The BRs. which are in the format (either cyclostyled or Xeroxed re-
produced para 179 of the trial court's judgment) show that there is a
requirement for signatures at two authorized signatories i.e. Manager and
Accountant. In the case of concerned BRs., A-3 has signed Accountant in the
H space meant for Manager.
>-
!

R.N. POPLJ v. C.B.I. [ARlllT PASAYAT, !.] 293
Coming to the role of A-5, the key figure in the whole controversy A
'
+ several factors need to be noted. Grindlays and UCO bank never received
money in their own right. They only collected the cheque for A-5, although
the cheque in each case was non-negotiable payee cheque in favour of
Grindlays Bank without any instructions from Canara Bank or MUL. UCO
bank did not sell or agree to sell, as A-3 had no authority either to sell or
commit UCO Bank to any sale of security on behalf of the bank, even if it B

-·* is accepted that the bank had purchased the security, it had become the
property of bank, and the securities dealt with as an agent is not to be
reflected in the books of the Bank yet such recording is appropriate. In the
iDstant case, the sale or repurchase has not been passed through the Bank's
books. The stand that bank had received a commission is inconsistent with c
the stand that there was a sale and repurchase 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- D
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. E
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 F
·;- amount in the account of A-5 in respect of banker's cheques of UCO bank.
Thus, UCO Bank did not receive any money in the transaction.

For the first time before this Court A-5 took a stand that there was a
transaction between him and the UCO bank. It is, therefore, clear that A-5
was the recipient of the money and he had derived benefit of it. G
- ~ Certain important factual aspects need to be noted relating to the
transaction and the role played by A-5. Pay Orders of Canara Bank were
collected by Anuj Kalia (PW 16). These were deposited as though he was the
' payee. It is clear from the descriptions in the pay-in slips, letters written by
H
j
I

294 SUPREME COURT REPORTS [2003) I S.C.R.

A his agent/employees to Grindlays Bank giving clear instructions to remit the
proceedings of Pay Orders to his account. Receipts given by A-5 in respect + "'
of the first transaction of 35 lakhs of units were in the records of MUL. It
is clear from the resolutions and the minutes of discussion that MUL had not
approved the role or involvement of A-5 and it was not known to the Board
B that the transactions were in reality with A-5. The subterfuge adopted was to
conceal actual state of affairs and to present a totally distorted picture.

The stand of A-5 that MUL's counter party was UCO bank who was
acting for undisclosed principal is hard to believe.

The evidence of PW-23 is to the effect so far as the first transaction is
c concerned including question of brokerage, he did not inform MUL that the
funds were received from the account of A-5. PW 23 did not indicate to
MUL that A-5 was the ultimate principal or beneficiary or that the funds
were credited to the accounts of A-5 or funds were received from A-5.

D It is most significant to note that there was no letter from the Board on
the 5th transaction and even for the same transaction no BRs were received.

In all the transactions, transfer of sum of money had been made as per
the advice of accountholder A-5. Exbt. 82, is a letter dated 2.5.1991 addressed
to the Manager, Grindlays Bank, New Delhi for remitting the sum of money
;......
\
.
E to his account at M.G. Road, Bombay.

The Agenda Note prepared by accused No. I did not make any mention
of accused No.5, Harshad but referred to UCO Bank. In fact, A-1 has accepted
that the transactions were between MUL and UCO Bank and not with any
individual. The letters written by A-3 are admittedly not typed in the bank's
F office and significantly there was no outward reference number given on
them, as is the admitted usual practice.

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
G can be no oral transaction by banks; it must be reflected in the books of
account.

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
f
commission on purchase/sale of transactions. The transactions are, therefore,
t
H not transparent.
R.N. POPLI v. C.B.l. [ARIJIT PASAYAT. J.] 295

The counter party i.e. MUL does not appear to have noticed about the A
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 the payment was made to A-5, Harshad and
in fact there was no authorization from MU L in th is regard. The cheques
were account payee cheques. In Exhibit 38 dated 13.3.1991, A-3 has signed B
as "Accountant". The document uses the expression "cost". Though the
receipt was from A-5, it was indicated as if it was from MUL.

'All the relevant vouchers show as ifthe sale of units was to Grindlays'
Bank.

Transactions show that payment was made to Grindlays Bank and not C
to UCO Bank and there was no question of MUL issuing the cheque to
Grind lays Bank. It would have been to UCO Bank. Grindlays Bank made the
payment and UCO Bank had nothing to do with MUL. The draft was in the
name of UCO Bank. In essence, UCO Bank has not received any money
from MUL. There was no direction given by Grindlays Bank, Parliament D
Street. All the vouchers that have been produced show that same are put
through Grindlays Bank. The vouchers of MUL clearly show as if the
transaction was between MUL and UCO Bank.

Much stress has been laid by the appellants on the role of Khandelwal
(PW 23). The evidence on record clearly shows that Khandelwal was not E
only known to MUL but represented accused No.5, Harshad and in particular
to accused No.I, Pramod. Exbt. 58 is the letter of the UCO Bank, Hamam
Street Branch, Bombay dated 23.1.1991 addressed to the MUL. Herein, MUL
had been instructed to deliver 35 lakhs ofunits to Khan"iielwal whose specimen
signature was attested by accused No.3 Deosthali. Delivery of the said F
securities was effected to Khandelwal (PW 23) by MUL and the receipt was
passed by PW 23. Interestingly, the acknowledgment is on the printed
stationery i.e. letter head of A-5 Harshad.

In respect of each of the transactions 2 to 5 the pay orders issued by
MUL through its bankers, Canara Bank towards the consideration of the G
security was handed over to PW 16 under instructions of A-1 or A-2.

This amply est;,blishes that Khandelwal (PW 23) was not a total stranger
or unknown to accused I and 2 as claimed. His association with accused 5,
Harshad also is clearly borne out. It is unbelievable that to a stranger i.e. (PW
23) Khandelwal, valuable securities of crores of rupees and pay orders were H
296 SUPREME COURT REPORTS [2003) I S.C.R.

A delivered by MUL for which receipts were issued on the letterhead of A-5,
Harshad. The evidence also shows that letters and the BRs issued by the
+ ..
UCO Bank, Hamam Street Branch, Bombay in the transactions addressed to
· MUL were firsts received in the office of A-5 and were then passed on to
MUL.

B In respect of the conspiracy in April/May, 1989 it is of interest to note
that in the meeting i.e. 4th May, 1989 the Board of Directors of MUL resolved ~--
and decided to deploy the surplus funds into the money market. The evidence
of PW 3 also throws some light on this aspect. The following portion of his
evidence is of great significance:
c "The accused No. I 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." '"'
D Though, attempt was made to emphasize accused No.l'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-
a manner that the role of A-5 would remain hidden.
E
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.
F _,\-•
It would be relevant to take note of the various offences alreged to have
been committed under Sections 409, 420, 467, 468, and 471 of the Indian
Penal Code, 1860. The relevant provisions read as follows:

Section 409: Criminal breach of trust by public servant, or by banker,
G merchant or agent-

Whoever, being in any manner entrusted with property, or with
any dominion over property in his capacity of a public servant or in
the way of his business as a banker, merchant, factor, broker, attorney -
or agent, commits criminal breach of trust in respect of that property,
H shall be punished with imprisonment for life, or with imprisonment
'
R.N. POPLI v. C.8.1. [ARIJIT PASAYAT, J.] 297
of either description for a term which may extend to ten years, and A
shall also be liable to fine.
•. -t
Section 420: Cheating and dishonestly inducing delivery ofproperty·

- Whoever cheats and thereby dishonestly induces the person
deceived to deliver any property to any person, or to make, alter or B
destroy the whole or any part of a valuable security, or anything
which is signed or sealed, and which is capable of being converted
into a valuable security, shall be punished with imprisonment of either
description for a term which may extend to seven years, and shall
also be liable to fine.

Section 467: Forgery of valuable security, will etc.·
c
Whoever forges a document which purports to be a valuable
security or a will, or an authority to adopt a son, or which purports
to give authority to any person to make or transfer any valuable
security, or to receive the principal, interest or dividends thereon, or D
to receive or deliver any money, movable property, or valuable
security, or any document purporting to be an acquittance or receipt
acknowledging the payment of money, or an acquittance or receipt
for the delivery of any movable property or valuable security, shall
be punished with imprisonment for life, or with imprisonment of
either description for a term which may extend to ten years, and shall E
also be liable to fine.

Section 468: Forgery for purpose of cheating·

Whoever commits forgery, intending that the document or
electronic record forged shall be used for the purpose of cheating, F
shall be punished with imprisonment of either description for a term
which may extend to seven years, and shall also be liable to fine.

Section 471: Using as genuine a forged document or electronic record·

Whoever fraudulently or dishonestly uses as genuine any document G
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.

It would be appropriate to deal with the question of conspiracy. Section
\20B of !PC is the provision which provides for punishment for criminal H
298 SUPREME COURT REPORTS [2003) I S.C.R.

A conspiracy. Definition of 'criminal conspiracy' given in Section l 20A reads
as follows:
+ .~

"I 20A- When two or more persons agree to do, or cause to be done,-

( 1) an illegal act, or
B
(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
C agreement is done by one or more parties to such agreement in
pursuance thereof'.

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
D accused persons whereby, the) become definitely committed to co-operate
for the accomplishment of the object by the means embodied in the agreement,
or by any effectual means, (d) in the jurisdiction where the statute required
an overt act. The essence of a criminal conspiracy is the unlawful combination
and ordinarily the offence is complete when the combination is framed. From
E this, it necessarily follows that unless the statute so requires, no overt act
need be done in furtherance of the conspiracy, and that the object of the
combination need not be accomplished, in order to constitute an indictable
offence. Law making conspiracy a crime, is designed to curb immoderate
power to do mischief which is gained by a combination of the means. The
encouragement and support which co-conspirators give to one another
F rendering enterprises possible which, if left to individual effort, would have
been impossible, furnish the ground for visiting conspirators and abettors
with condign punishment. The conspiracy is held to be continued and renewed
as to all its members wherever and whenever any member of the conspiracy
acts in furtherance of the common design. (See: American Jurisprudence
G Vol.II See 23, p. 559). For an offence punishable under section 120-8,
prosecution need not necessarily prove that the perpetrators expressly agree
to do or cause to be done illegal act; the agreement may be proved by
necessary implication. Offence of criminal conspiracy has its foundation in
an agreement to commit an offence. A conspiracy consists not merely in the
intention of two or more, but in the agreement of two or more to do an
H unlawful act by unlawful means. So long as such a design rests in intention
R.N. POPLI v. C.B.I. [ARIJIT PASA YAT, J.] 299
only, it is not indictable. When two agree to carry it into effect, the very plot A
is an act in itself, and an act of each of the parties, promise against promise,
actus contra actum, capable of being enforced, if lawful, punishable if for a
criminal object or for use of criminal means.

No doubt in the case of conspiracy there cannot be any direct evidence.
The ingredients of offence are that there should be an agreement between B
persons who are alleged to conspire and the said agreement should be for
--. doing an illegal act or for doing illegal means an act which itself tnay not be
illegal. Therefore, the essence of criminal conspiracy is an agreement to do
an illegal act and such an agreement can be proved either by direct evidence
or by circumstantial evidence or by both, and it is a matter of common C
experience that direct evidence to prove conspiracy is rarely available.
Therefore, the circumstances proved before, during and after the occurrence
have to be considered to decide about the complicity of the accused.

In Halsbury's Laws of England (vide 4th Ed. Vol. I I, page 44, page
58), the English Law as to conspiracy has been stated thus: D
"Conspiracy consists in the agreement of two or more persons to do
an unlawful act, or to do a lawful act by unlawful means. It is an
indictable offence at common law, the punishment for which is
imprisonment or fine or both in the discretion of the Court.
E
The essence of the offence of conspiracy is the fact of combination
by agreement. The agreement may be express or implied, or in part
express and in part implied. The conspiracy arises and the offence is
com1nitted as soon as the agreement is made; and the offence continues
to be committed so long as the combination persists, that is until the

-. }-
conspiratorial agreement is terminated by completion of its F
performance or by abandonment or frustration or however, it may be .
The actus rues in a conspiracy is the agreement to execute the illegal
conduct, not the execution of it. It is not enough that two or more
. persons pursued the same unlawful object at the same time or in the
same place; it is necessary to show a meeting of minds, a consensus G
to affect an unlawful purpose. It is not, however, necessary that each
conspirator should have been in communication with every other."

There is no difference between the mode of proof of the offence of
conspiracy and that of any other offence, it can be established by direct or
circumstantial evidence. (See: Bhagwan Swarup Lal Bishan Lal etc. etc. v. H
\
300 SUPREME COURT REPORTS [2003) I S.C.R.

A State of Maharashtra, AIR (1965) SC 682 at p. 686.

It was held that the expression "in reference to their common intention"
in Section I 0 is very comprehensive and it appears to have been designedly
used to give it a wider scope than the words "in fu11herance of' in the
English law; with the result, anything said, done or written by a co-conspirator,
B after the conspiracy was formed, will be evidence against the other before he
entered the field of conspiracy or after he left it. Anything said, done or
written is a relevant fact only.

"as against each of the persons .believed to be so conspiring, as well
as for the purpose of proving the existence of the conspiracy as for
c the purpose of showing that any such person was a party to it''.

"In short, the section can be analysed as follows: (1) There shall be
a prima facie evidence affording a reasonable ground for a court to
believe that two or more persons are members of a conspiracy; (2) if
the said condition is fulfilled, anything said, done or written by any
D one of them in reference to their common intention will be evidence
against the other; (3) anything said, done or written by him should
have been said, done or written by him after the intention was formed
by any one of them; (4) it would also be relevant for the said purpose
against another who entered the conspiracy whether it was said, done
E or written before he entered the conspiracy or after he left it, and (5)
it can only be used against a co-conspirator and not in his favour."

We are aware of the fact that direct independent evidence of criminal
conspiracy is generally not available and its existence is a matter of inference.
The inferences are normally deduced from acts of parties in pursuance of a
F purpose in common between the conspirators. This Court in V.C. Shukla v.
State (Delhi Admn.), [1980] 2 SCC 665 held that to prove criminal conspiracy
there must be evidence direct or circumstantial to show that there was an
agreement between two or more persons to commit an offence. There must
be a meeting of minds resulting in ultimate decision taken by the conspirators
G regarding the commission of an offence and where the factum of conspiracy
is sought to be inferred from circumstances, the prosecution has to show that
the circumstances give rise to a conclusive or irresistible inference of an
agreement between two or more persons to commit an offence. As in all
other criminal offences, the prosecution has to discharge its onus of proving
the case against the accused beyond reasonable doubt. The circumstances in
H a case, when taken together on their face value, should indicate the meeting
R.N. POPLI v. C.B.l. [ARIJIT PASA YAT,!.] 301
of the minds between the conspirators for the intended object of committing A
an illegal act or an act which is not illegal, by illegal means. A few bits here
and a few bits there on which the prosecution relies cannot be held to be
adequate for connecting the accused with the commission of the crime of
criminal conspiracy. It has to be shown that all means adopted and illegal
acts done were in furtherance of the object of conspiracy hatched. The
circumstances relied for the purposes of drawing an inference should be prior B
in time than the actual commission of the offence in furtherance of the
alleged conspiracy.

Privacy and secrecy are more characteristics of a conspiracy, than of a
loud discussion in an elevated place open to public view. Direct evidence in C
proof of a conspiracy is seldom available; offence of conspiracy can be
proved by either direct or circumstantial evidence. It is not always possible
to give affirmative evidence about the date of the formation of the criminal
conspiracy, about the persons who took part in the formation of the conspiracy,
about the object, which the objectors set before themselves as the object of
conspiracy, and about the manner in which the object of conspiracy is to be D
carried out, all this is necessarily a matter of inference.

The provisions of Section 120A and 120B, !PC have brought the law
of conspiracy in India in line with the English Law by making the overt act
unessential when the conspiracy is to commit any punishable offence. The
English Law on this matter is well settled. Russell on Crime (12 Ed. Vol. I, E
p.202) may be usefully noted-

"The gist of the offence of conspiracy then lies, not in doing the
act, or effecting the purpose for which the conspiracy is formed, nor
in attempting to do them, nor in inciting others to do them, but in the F

- ,..
forming of the scheme or agreement between the parties, agreement
is essential. Mere knowledge, or even discussion, of the plan is not,
per se, enough."

Glanville Williams in the "Criminal Law" (Second Ed. P. 382) states-

"The question arose in an Iowa case, but it was discussed in terms of G
conspiracy rather than of accessoryship. D, who had a grievance
against P, told E that if he would whip P someone would pay his fine.
E replied that he did not want anyone to pay his fine, that he had a
grievance of his own against P and that he would whip him at the
first opportunity. E whipped P. D was acquitted of conspiracy because H
302 SUPREME COURT REPORTS [2003] I S.C.R.

A there was no agreement for 'concert of action', no agreement to 'co-
operate'.

Coleridge, J. while summing up the case to Jwy in Regina v. Murphy, [(1837)
173 ER 502 at p. 508] states:

B "I am bound to tell you, that although the common design is the
root of the charge, it is not necessary to prove that these two parties
came together and actually agreed in terms to have this common
design and to pursue it by common means, and so to carry it into
execution. This is not necessary, because in many cases of t~e most
clearly established conspiracies there are no means of proving any
c such thing and neither law nor common sense requires that it should
be proved. If you find that these two persons pursued by their acts the
same object, often by the same means, one performing one part of an
act, so as to complete it, with a view to the attainment of the object
which they were pursuing, you will be at liberty to draw the conclusion
D that they have been engaged in a conspiracy to effect that object. The
question you have to ask yourselves is, had they this common design,
and did they pursue it by these common means the design being
unlawful."

As noted above, the essential ingredient of the offence of criminal
E conspiracy is the agreement to commit an offence. In a case where the
agreement is for accomplishment of an act which by itself constitutes an
offence, then in that event no overt act is necessary to be proved by the
prosecution because in such a situation, criminal conspiracy is established by
proving such an agreement. Where the conspiracy alleged is with regard to
commission ofa serious crime of the nature as contemplated in Section 1208
F read with the proviso to sub-section (2) of Section 120A, then in that event
mere proof of an agreement between the accused for commission of such a
crime alone is enough to bring about a conviction under Section 1208 and
the proof of any overt act by the accused or by any one of them would not
be necessary. The provisions, in such a situation, do not require that each and
G every person who is a party to the conspiracy must do some overt act towards
the fulfilment of the object of conspiracy, the essential ingredient being an
agreement between the conspirators to commit the crime and if these
requirements and ingredients are established, the act would fall within the
trapping of the provisions contained in section 1208 See: S.C. Bahri v. State
of Bihar, AIR (1994) SC 2420.
-
H
R.N. POPLI v. C.B.I. [ARIJlT PASAYAT, J.] 303
The conspiracies are not hatched in open, by their nature, they are A
secretly planned, they can be proved even by circumstantial evidence, the
lack of direct evidence relating to conspiracy has no consequence. See: E.K.
Chandrasenan v. State of Kera/a, AIR (1995) SC 1066.

In Kehar Singh and Ors. v. The State (Delhi Administration),AIR (1988)
SC l 883 at p. 1954, this Court observed: B
"Generally, a conspiracy is hatched in secrecy and it may be
difficult to adduce direct evidence of the same. The prosecution will
often rely on evidence of acts of various parties to infer that they
were done in referenc,e to their common intention. The prosecution
will also more often rely upon circumstantial evidence. The conspiracy C
can be undoubtedly proved by such evidence direct or circumstantial.
But the court must enquire whether the two persons are independently
pursuing the same end or they have come together to the pursuit of
the unlawful object. The former does not render !hr Tl conspirators,
but the latter does. It is, however, essential that the offence of D
conspiracy required some kind of physical manifestation of agreement.
The express agreement, however, need not be proved. Nor actual
meeting of the two persons is necessary. Nor it is necessary to prove
the actual words of communication. The evidence as to transmission
of thoughts sharing the unlawful design may be sufficient. Conspiracy
can be proved by circumstances and other materials. See: State of E
Bihar v. Paramhans, (1986) Pat UR 688. 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 F
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, so long as it is G
known that the collaborator would put the goods or service to an
unlawful use. See: State of Maharashtra v. Som Nath Thapa, JT 1996
4 SC 615.
It was noticed that Sections 120-A and 120-B !PC have brought the law·
of conspiracy in India in line with English law by making an overt act H
304 SUPREME COURT REPORTS (2003] I S.C.R.

A inessential when the conspiracy is to commit any punishable offence. The
most important ingredient of the offence being the agreement between two
or more persons to do an illegal act. In a case where criminal conspiracy is
alleged, the court must inquire whether the two persons are independently
pursuing the same end or they have come together to pursue the unlawful
object. The former does not render them conspirators but the latter does. For
B the offence of conspiracy some kind of physical manifestation of agreement
is required to be established. The express agreement need not be proved. The
evidence as to the transmission of thoughts sharing the unlawful act is not
sufficient. A conspiracy is a continuing offence which continues to subsist till
it is executed or rescinded or frustrated by choice of necessity. During its
C subsistence whenever any one of the conspirators does an act or series of
acts, he would be held guilty under Section 120-B of the Indian Penal Code.

I may usefully refer to Ajay Agarwal v. Union of India and Ors., JT
(1993) 3 SC 203. It was held:

D xxx xxx xxx

"8 .... .It is not necessary that each conspirator must know all the
details of the scheme nor be a participant at every stage. It is necessary
that they should agree for design or object of the conspiracy.
Conspiracy is conceived as having three elements: (l) agreement; (2)
E between two or more persons by whom the agreement is effected;
and (3) a criminal object, which may be either the ultimate aim of the
agreement, or may constitute the means, or one of the means by
which that aim is to be accomplished. It is immaterial whether this is
found in the ultimate objects. The common law definition of 'criminal
conspiracy' was stated first by Lord Denman in Jones' case that an
F indictment for conspiracy must "charge a conspiracy to do an unlawful
act by unlawful means" and was elaborated by Willies, J. on behalf
of the judges while referring the question to the House of Lords in
Mulcahy v. Reg and House of Lords in unanimous decision reiterated
in Quinn v. Leathern:
G "A conspiracy consists not merely in the intention of two or more,
but in the agreement of two or more, to do an unlawful act, or to do
a lawful act by unlawful means. So long as such a design rest in
intention only, it is not indictable. When two agree to carry it into
effect, the very plot is an act in itself, and the act of each of the
H parties, promise against promise, actus contra actum, capable of being
R.N. POPLI v. C.B.l. [ARIJIT PASAYAT, J.] 305
enforced, if lawful; punishable of for a criminal object, or for the use A
of criminal means.'

This Court in B.G. Barsay v. State of Bombay held:

"The gist of the offence is an agreement to break the law. The
parties to such an agreement will be guilty of criminal conspiracy, B
though the illegal act agreed to be done has not been done. So too,
it is an ingredient of the offence that all the parties should agree to
do a single illegal act. It may comprise the commission of a number
of acts. Under Section 43 of the Indian Penal Code, an act would be
illegal if it is an offence or if it is prohibited by law."
c
In Yash Pal Mittal v. State of Punjab, [1977] 4 SCC 540 the rule was laid
as follows: (SCC p. 543 para 9)

'The very agreement, concert or league is the ingredient of the
offence. It is not necessary that all the conspirators must know each
and every detail of the conspiracy as long as they are co-participators D
in the main object of the conspiracy. There may be so many devices
and techniques adopted to achieve the common goal of the conspiracy
and there may be division of performances in the chain of actions
with one object to achieve the real end of which every collaborator
must be aware and in which each one of them must be interested.
There must be unity of object or purpose but there may be plurality E
of means sometimes even unknown to one another, amongst the
conspirators. In achieving the goal several offences may be committed
by some of the conspirators even unknown to the others. The only
relevant factor is that all means adopted and illegal acts done must be
and purported to be in furtherance of the object of the conspiracy F
even though there may be sometimes misfire or overshooting by
some of the conspirators.'

In Mohammad Usman Mohammad Hussain Maniyar and Ors. v.
State of Maharashtra, [1981] 2 SCC 443, it was held that for an
offence under Section 120B !PC, the prosecution need not necessarily G
prove that the perpetrators expressly agreed to do or cause to be done
the illegal act, the agreement may be proved by necessary implication."

After referring to some judgments of the United States Supreme Court
and of this Court in Yash Pal Mitra/ v. State of Punjab, [ 1977] 4 SCC 540,
and Ajay Aggarwal v. Union of India, [I $13] 3 SCC 609 the Court in State H
306 SUPREME COURT REPORTS [2003] I S.C.R.

A 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).

"24. The aforesaid decisions, weighty as they are, lead us to conclude
that to establish a charge of conspiracy knowledge about indulgence
B 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
c to nay 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 (2000] 8 SCC page 203 State of
D Kera/av. P. Sugathan and Anr.

As was observed by this Court in State of Kera/av. P. Sugathan and
Anr., [2000] 8 SCC 203, it would be extremely difficult to find direct evidence
in case of criminal conspiracy. The circumstances and surrounding factors
E have to be taken note of. In the instant case, the accused l, 2 and 5 have
submitted that the role of PW-5 as described is that he did not want to be
directly shown in the picture. In fact, A-1 wanted that MUL did not want to
involve brokers and did not want to deal with them. This itself deals of fatal
blow to the stand taken by the accused that there was no prohibition of acting
through brokers and the intention was that dealing would be directly with the
F bank and not through any broker or intermediary. Much has been made out ~·
of use of the word 'through' in the resolution. If the clear understanding of
A-1 was that the deal should not be dealt with or involved any broker then
the question of A-5 acting as broker does not arise. Use of the expression
"through" is indicative of the fact that emphasis was on securities being not
G purchased in the open market, but "through" named PSU. These PSU were
admittedly not brokers. Th~y were either Banks or financial institutions.
Evidence clearly shows that A-5 wanted that he will not directly come to the
picture, and would not appear in the books of accounts of MUL; but would
stand to gain by way of commission and as a brokerage from the Bank. The
statement of A-1 that he would look into any good proposals if A-5 does not
H come to the picture shows that the actual state of affairs was intended to be
R.N. POPLI v. C.B.I. [ARIJIT PASAYAT, I.] 307

hidden from the MUL authorities and a totally distorted picture was sought A
to be given. These are factors which does not go in favour of the accused as
contended, and on the contrary clearly proves conspiracy.

Much has also been submitted that repayment has been made. That
itself is not an indication of lack of dishonest intention. Some times, it so
happens that with a view to create confidence the repayments are made so B
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 awarding sentence, but cannot
be a ground for proving innocence of the accused.
c
Section 409 deals with criminal breach of trust by public servant or by
banker, merchant or agent. Section 405 defines criminal breach of trust. The
offence like the offence of criminal misappropriation is characterized by an
actual fraudulent appropriation of property. There is not originally wrongful
taking or moving as in the case of theft but the offence consists in wrongful D
appropriation of property, consequent upon a possession which is lawful. The
offence is distinguishable from criminal misappropriation because subject of
it is not the property which by some casual act or otherwise, but without
criminal means, comes into the offender's possession; but the property which
is entrusted to the offender by the owner or by others lawful authority and
which the offender holds subject to some duty or obligation to apply it E
according to the trust.

Sections 407 to 409 make special provisions for various cases in which
property is entrusted to the enumerated categories of persons who commit the
offence. The offence of breach of trust and dishonest misappropriation are F
sufficient to constitute an offence under the relevant provisions.

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. G
When a person allows others to misappropriate the money entrusted to him
that amounts to a criminal appropriation of trust as defined by Section 405.
The section relatable to property in a positive part and a negative part. The
positive part deals with criminal misappropriation or conversion of the properly
1
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 H
I
--y·
!

308 SUPREME COURT REPORTS (2003] I S.C.R.

A of trust.
__,..
In Jaswantrai Manila/ Akhaney v. The State of Bombay, AIR (1956)
SC 575), it was held that ifthe Managing Director of the Bank entrusted with
securities owned by the pledgor disposes of their securities against the
stipulated terms of the contract entered into by the parties with an intent to
B cause wrongful loss to the pledgor and wrongful gain to the Bank there can
be no question but that the Managing Director has necessarily mens rea y·
required by Section 405.

The tenn 'entrustment' is not necessarily a term of law. It may have
different implications in different context. In its most general signification all
c it imports is the handing over possession for some purpose which may not
imply the conferring of any proprietary right at all.

When a person misappropriates to his own use the property that does
+
not belong to him, the misappropriation is dishonest even though there was
an intention to restore it at some future point of time.
D
As noted by this Court in Jaikrishnq.das Manohardas Desai and Anr.
v. State of Bombay, AIR (1960) SC 889), to establish the charge of criminal
breach of trust, the prosecution is not obliged to prove the precise mode of •
conversion, misappropriation or misapplication by the accused of the property ~

E entrusted to him or over which/
he has dominion. The principal ingredient of
the offence being dishonest misappropriation or conversion which may not
ordinarily be a matter of direct proof, entrustment of property and failure in
breach of an obligation to account for the property .entrusted if proved may
in the light of other circumstances, justifiably lead to an inference of dishonest
misappropriation or conversion.
F
~
Section 420 deals with cheating and dishonestly inducing delivery of
property. The offence of cheating is made of two ingredients. Deception of
any person and fraudulently or dishonestly inducing that person to deliver
any property to any person or to consent that any person shall retain any
property. To put it differently, the ingredients of the offence are that the
G person deceived delivers to some one a valuable security or property, that the
person so deceived was induced to do so, that such person acted on such
inducement in consequence of his having been deceived by the accused and ~
that the accused acted fraudulently or dishonestly when so inducing the person. "
f-
To constitute the offence of cheating, it is not necessary that the deception ,.
H should be by express words, but it may be by conduct or implied in the

(
y

R.N. POPLI v. C.B.I. (AR!JIT PASAYAT, I.] 309
nature of the transaction itself. A
Section 467 relates to forgery of such documents as valuable securities
and of other documents mentioned.

Section 468 deals with forgery for the purpose of cheating. The offence
is complete as soon as there was forgery with a particular intent. B
Section 471 deals with using as genuine a forged document. For the
purpose of convicting an accused under Section 467 read with Section 471
!PC, it has to be shown that an accused either knew or has reason to believe
that the document was forged.
c
Section 463 defines forgery and Section 464 deals with making a false
+ statement. Section 463 reads as follows:

"463. Forgery-[Whoever makes any false documents or false
electronic record or part of a doculljent or electronic record with D

-
intent to cause damage or injury, to the public or to any person, or
to support any claim or title, or to cause any person to part with
property, or to enter into any express or implied contract, or with
intent to commit fraud or that fraud may be committed, commits
forgery."
E
In order to constitute forgery, the first essential is that the accused
should have made a false document. The false document must be made with
an intent to cause damage or injury to the public or to any class of public or
to any community.

The expression 'intent to defraud' implies conduct coupled with intention F
to deceive or thereby to cause injury. In other words, defraud involves two
conceptions namely, the deceit and injury to the person deceived, that is
infringement of some legal right possessed by him but not necessarily
deprivation of property. The term 'forgery' as used in the statute is used in
its ordinary and popular acceptation. G
The definition of the offence of forgery declares the offence to be
· completed when a false document or false part of a document is made with
specified intention. The questions are (i) is the document false (ii) is it made
by the accused and (iii} is it made with an intent to defraud. If at all the
questions are answered in the affirmative, the accused is guilty. H
-y

310 SUPREME COURT REPORTS [2003} I S.C.R.

A In order to constitute an offence of forgery the documents must be
made dishonestly or fraudulently. But dishonest or fraudulent are not +
tautological. Frauduleht 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
B a false document either in whole or in p~rt, however, small.

The intent to commit forgery involves an intent to cause injury. A y
person makes a false document who di*(mestly or fraudulently signs with an
intent or cause to believe that the doiument was signed by a person whom
·he knows it was not signed.
c A false description makes a document of forgery when it is found that
the accused by giving such false description intended to make out or wanted
it to believe that it was not he that was executing the document but another +
person.

D 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
E time when the transactions took place there was no embargo. It is their stand
that the practices were a part of a".cepted norms. We do not find anything
plausible in these explanations. A practice even if was pr~vailing, if wrong,
is not to be approved. The subsequent clarifications do not in any way put
seal the approval of the practices adopted on the past on thei other hand it
I

F contemns it.

When the factual background highlighted is considered in the light of
the various provisions,' it is clear that the offences under the Indian Penal
Code alleged have been established against the accused persons. The learned
Special Judge was, therefore, justified in convicting accused I, 3 and 5.
G Section 13(2) of the PC Act is intc;mded to deal with aberrations public
servants. In view of the finding that A-I ln furtherance of criminal conspiracy,
in his capacity as public servant abused his position by causing and/or allowing
MUL's fund~ to be utilized for the wrongful gain of A-5, provisions of
Section 13(l)(c) read with Section 13(2) are clear!~ applicable. Similar is the
H position vis-a-vis A-3. I
I. I
R.N. POPLI v. C.B.l. [ARIJIT PASAYAT, J.] 311

The offences in these cases were not of the conventional or traditional A
type. The ultimate objective was to use public money in a carefully planned
manner for personal use with no right to do it.

Funds of the public bodies were utilized as if they were private funds.
There was no legitimacy in the transactions. Huge funds running into hundreds
of crores of MUL, a Government company, were diverted and all the concerned B
accused persons A· I, A-3 and A-5 played dubious roles in these illegitimate
v
transactions. Their acts had serious repercussions on the economic system of
the country, and the magnitude of financial impact involved in the present
appeal is only tip of the iceberg. There were several connected cases and
interestingly some of the prosecution witnesses in the present case are stated C
to be accused in those cases. That itself explains the thread of self-perseverance
running through their testimony. Therefore, the need to pierce the facadial
+ smoke screen to unravel the truth to lift the veil so that the apparent, which
is not real can be avoided. The proverbial red herrings are to be ignored, to
find out the guilt of the accused.
D
The cause of the community deserves better treatment at the hands of
the Court in the discharge of its judicial functions. The Community or the
State is not a persona non grata whose cause may be treated with disdain.
The entire community is aggrieved if economic offenders who ruin the
economy of the State are not brought to book. A murder may be committed
in the heat of moment upon passions being aroused. An economic offence is E
committed with cool calculation and deliberate design with an eye on personal
profit regardless of the consequence to the Community. A disregard for the
interest of the Community can be manifested only at the cost of forfeiting the
trust and faith of the community in the system to administer justice in an
even handed manner without fear of criticism from the quarters which view F
white collar crimes with a permissive eye, unmindful of the damage; done to
the National Economy and NatiOnal Interest, as was aptly stated in State of
Gujarat v. Mohanla(Jitama/ji Porwal and Anr., AIR (1987) 1321)

Unfortunately ih the last few years, the country has seen an alarming
rise in white-collar crimes which has affected the fibre of the country's G
economic structure. These cases are nothing but private gain at the cost of
public, and lead 'to economic disaster.

The convictions of accused l, 3 and 5 are in order and are maintained.
A question about the sentence was raised. Normally, in cases involving
offences which corrode the economic stability are to be dealt with sternly. It H
312 SUPREME COURT REPORTS [2003) I S.C.R.

A is, however, noticed that A-5 has died during the pendency of the appeal. A-
l and A-3 were small flies who appear to have been caught in the web of A- +
S's machinations. Apparent reason for their involvement is greed and avarice.
There may be substance in the plea raised by the learned counsel for the
accused-appellants that higher ups of MUL and Banks can not certainly be
unaware of the goings on, and have not been proceeded with and given clear
B chit. Though this is certainly a matter of concern, yet that cannot be a ground
for taking a sympathetic view of A-1 and A-3's conduct. Considering the fact y
that the occurrence took place a decade back, and the trial has spread over
a few years, and the death of A-5, we feel custodial sentence for the period
already undergone (which we are told was for a number of months) would
c meet the ends of the justice. While fixing the quantum of sentence, we have
duly considered the fact that in the instant case the amounts have been paid
back, which as noted above, learned counsel for the prosecution conceded
was a factor for fixing the quantum of sentence. The fine amounts imposed
remain unaltered with the default sentence. Appeals by A-1, A-3 and A-5 are
dismissed subject to modification of sentence. We respectfully agree with
D conclusions of learned Brother Shah though not with the reasoning in their
entirety regarding dismissal of the appeals against acquittal of A-2, and setting •
aside the conviction of A-4.

S.K.S. Appeals disposed of. ~