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REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 335 OF 2005

VINAYAK NARAYAN DEOSTHALI … APPELLANT

VERSUS

CENTRAL BUREAU OF INVESTIGATION … RESPONDENT

JUDGMENT

N.V. RAMANA, J.

This appeal is directed against the judgment dated 3

rd

December, 2004 of the Special Court (Trial of offences relating to

transactions in Securities) at Bombay in Special Case No. 3 of 1995

whereby the Special Judge convicted and sentenced the appellant for

the offences under Sections 409/120B, 403, 477-A/109, IPC and

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

Corruption Act, 1988.

2.The prosecution story, briefly stated, is that during the year

1991, the appellant (accused No.1) while he was working as

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Assistant Manager in the Securities Department of UCO Bank,

Hamam Street Branch, Mumbai in connivance with a colleague of the

Bank (accused No. 2) hatched a criminal conspiracy with the

infamous share & stock broker of Bombay of those times, Harshad S.

Mehta (accused No. 3) with the object of cheating the UCO Bank by

causing wrongful loss to the Bank and effecting illegal gain to the

accused No. 3 (Harshad Mehta). It is alleged that for achieving the

object of conspiracy, the appellant despite being a public servant,

committed criminal breach of trust and misappropriated the funds of

Bank by manipulating the accounts to facilitate unlawful gains to

Harshad S. Mehta (accused No. 3).

3.The background of the case as unfolded by the prosecution is

that at the relevant time, UCO Bank had two Subsidiary General

Ledger (SGL) accounts with the RBI. The SGL is a type of Securities

Account floated by the Central Government. For making transactions

in these Securities, Banks and financial institutions have to open the

SGL account with the Public Debt Office of the Reserve Bank of

India. UCO Bank has two such SGL accounts with the Reserve Bank

of India. Out of the two SGL accounts owned by the UCO Bank, one

account with the number 032 was meant for the Bank’s Head Office’s

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own transactions and the other SGL account No. 065 was maintained

for the transactions done by constituents/brokers. When the Bank

itself purchased/sold a Government Security, the respective entry

was to be made in account No. 032 and if the Security was

purchased/sold by a broker client of the UCO Bank, the entry was to

be made in SGL account No. 065. As far as the entry in the books of

RBI was concerned, it was made in a particular account according to

the instructions given by UCO Bank for every transaction, as both the

accounts stood in the name of UCO Bank.

4.On 22

nd

March, 1991 UCO Bank sold Securities namely,

Government of India 11.5% 2009, worth Rs.20 crores to Indian Bank

(Ext. 250) from its SGL account No. 032 i.e. UCO Bank’s own

account. On the same day, UCO Bank purchased Securities namely,

Government of India 11.5% 2006, worth Rs.20 crores from Indian

Bank (Ext. 425).

5.On 5

th

April, 1991 UCO Bank re-purchased the earlier sold GOI

11.5% 2009 Securities from Indian Bank and sold GOI 11.5% 2006

Securities purchased earlier to Indian Bank. In other words, UCO

Bank reversed the earlier transactions. With the effect of repurchase

of Securities by the UCO Bank, RBI should have made the entry

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crediting the worth of those securities in SGL Account No. 032 of the

UCO Bank.

6.Whereas, due to a communication dated 13

th

April, 1991(Ext.

300) signed by the appellant accused in his position as Assistant

Accountant and the co-accused (not a party in the present appeal)

requesting the RBI to make entry in SGL Account No. DV SL 065, the

SGL Account No. 065 which was meant for the broker clients of the

UCO Bank and which had no balance on that date, showed the

balance of Securities worth Rs.20 crores. At that point of time, the

transactions of all other brokers stood squared off except in respect

of accused No. 3 (Harshad Mehta). Taking this wrong entry to his

advantage, accused No. 3—Harshad S. Mehta, being the

broker/client of the UCO Bank, sold GOI Securities 11.5% 2009,

worth Rs.15 crores (Ext. 413), which actually did not belong to him,

and thereby wrongfully gained and the UCO Bank suffered the loss. It

was none other but the appellant—accused No. 1, who passed the

Debit & Credit vouchers pertaining to the transaction (Exts. 295, 296

& 297). When these misdeeds came to light, the accused took steps

and made efforts to cover up the transactions.

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7.When the Securities Scam broke out in the year 1992, a special

cell was established by the CBI to deal with the cases arising out of

the scam. Accordingly, an FIR was registered on 30

th

December,

1993 against the accused invoking Sections 120B read with Section

409, 420, 468, 471, 477-A, IPC and Section 13(2) read with Section

13(1)(d) of the P.C. Act, 1988 and the case was committed to the

Special Court. The appellant was arrested on 12

th

May, 1997. The

Special Judge, after taking overall view of the matter, held the

appellant guilty of the offences and sentenced him to undergo

rigorous imprisonment for a period of one year and to pay an amount

of Rs.25,000/- towards fine, in default thereof, to further undergo

imprisonment for a period of three months. The special judge,

however, let the accused appellant to be on bail for a period of 12

weeks to enable him to approach the appellate Court.

8.Aggrieved by the judgment of the Special Judge, the appellant

filed this appeal under Section 10 of the Special Court (Trial of

Offences Relating to Transaction in Securities) Act, 1992. That is how

this appeal is before us.

9.Though there are three accused in this case, we are concerned

with accused No. 1—appellant herein only. The other two accused

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namely Makrand Vasant Shidhaye (accused No. 2) and Harshad S.

Mehta (accused No. 3) are not parties in the present appeal.

However, it is pertinent to mention that Makrand Vasant Shidhaye

(accused No. 2) had also preferred an appeal before this Court

against judgment of the Special Judge being Criminal Appeal No. 336

of 2005 which was listed before this Court on 11

th

November, 2014

when the following order was passed:

Criminal Appeal No. 336 of 2005

This appeal is listed against the common impugned

judgment along with Criminal Appeal No. 335/2005.

The learned counsel appearing on behalf of the appellant

is not present.

It is informed at Bar by the learned counsel for the

appellant in Criminal Appeal No. 335/2005 that Makrand

Vasant Shidhaye-appellant in Criminal Appeal No.

336/2005 died during the pendency of the appeal. In view

of such fact brought to our notice, the appeal stands

abated and disposed of.

So far as accused No. 3 (Harshad S. Mehta) is concerned, he had

died on 31

st

December, 2001 during the pendency of trial.

10.On 21

st

February, 2005 while admitting the appeal, this Court

granted interim relief to the appellant by suspending sentence of

imprisonment during pendency of the appeal before this Court.

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11.Learned counsel for the appellant—accused submitted that the

learned Special Judge failed to appreciate the evidence correctly and

erred in holding the accused guilty of the offences. The SGL

information concerning the securities re-purchased by the UCO Bank

on 5

th

April, 1991was received on 12

th

April, 1991. Since there used to

be a number of transactions by the clients/brokers and the re-

purchased SGL information was received after a gap of about one

week, a clerical and bona fide mistake was committed by the

appellant—accused in getting the securities credited into the SGL

account No. 065 instead of account No. 032 of the UCO Bank. There

was no participation by the accused in any conspiracy to benefit

accused No. 3, Harshad Mehta. It was purely a clerical error that

occurred in a casual way without any bad intention. In a normal way,

the accused signed the covering note dated 13

th

April, 1991 also

signed by accused No. 2 enabling the RBI to credit the securities into

SGL account No. 065. The accused—appellant had no mala fide or

dishonest intention to commit any fraud or cause loss to the UCO

Bank or to cheat it. The mistake happened mechanically without the

conscious involvement of the appellant. It is also evident from the

record that accused No. 2 himself admitted in his statement under

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Section 313, Cr.P.C. that it was he who struck off account No. 032

and wrote account No. 065 in the covering note (Ext. 300). Thus, the

appellant cannot be charged with a severe punishment for a

reasonable clerical mistake.

12.Learned counsel also submitted that the appellant was not

concerned with the routine work of the Hamam Street Branch of UCO

Bank. He was specially entrusted the duties of redemption and

reconciliation of securities. While discharging those duties, when the

appellant noticed the mistake, he immediately facilitated transfer of

Rs. 2 crores on 15

th

July, 1991 from the account No. 065 to account

No. 032 to set right the record. Learned Special Judge, has failed to

appreciate the fact in a true spirit that the SGL transfer forms (Ext.

235 and Ext. 240) concerning the securities sold by Harshad Mehta

to the tune of Rs.15 crores from SGL account No. 065, were not

signed by the appellant and the appellant has no role in that

transaction. This fact itself clearly establishes that the appellant was

not part of any conspiracy with accused No. 3 (Harshad Mehta). But

the Special Judge took a different and wrong view and erred by

holding that the appellant transferred securities worth Rs. 2 crores

lying in the account No. 065 to account No. 032 to cover up the

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transaction. There was no evidence on record to establish a link

between the accused—appellant and the accused No. 3 (Harshad

Mehta) forming a conspiracy between them and the prosecution has

utterly failed to prove this aspect and therefore, the appellant is

entitled for benefit of doubt.

13.Further contention of the learned counsel is that the appellant

was only an Assistant Manager of the Bank and scrupulously

implementing the decisions taken by his superiors. The appellant had

only performed his duties obediently for which he cannot be made a

scapegoat as if the appellant was solely responsible for the

transactions. The important factor, ignored by the learned Special

Judge while convicting the appellant, is that the appellant had not

earned any pecuniary gains for himself. The learned trial Judge under

a misconception went on believing the prosecution case. Only for the

simple reason of irregularity or negligence in discharging duties, the

appellant was given harsh punishment of sentence by the learned

Special Judge even though factually no loss was caused to the UCO

Bank. The view taken by the learned Special Judge that the acts of

the appellant have exposed the UCO Bank to a grave financial loss is

absolutely subtle and not based on the evidence. The prosecution

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has also admitted that no loss was caused to the UCO Bank. By any

stretch of imagination, the acts of the appellant cannot be construed

to label against him ‘criminal misconduct’ within the ambit of

Prevention of Corruption Act, 1988.

14.Disputing the quantum of sentence also, learned counsel for

the appellant submitted that the learned Special Judge while

sentencing the appellant ignored the element of proportionality in

imposing the punishment. Learned Special Judge has miserably

failed to appreciate the facts in their proper perspective and

committed a grave error in convicting the appellant and hence the

impugned judgment calls for interference by this Court.

15.On the other hand, learned Senior Counsel appearing for the

C.B.I., while supporting the judgment of the learned Special Judge,

submitted that the learned Special Judge passed the impugned

judgment after undertaking a thorough trial procedure. He came to

the conclusion only after having satisfied that the guilt of the accused

has been proved beyond reasonable doubt. Hence the Trial Court

committed no error in sentencing the accused.

16.She contended that the accused cannot plead innocence as he

played an active role in the conspiracy in benefitting accused No. 3

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(Harshad Mehta). In the process, he took the benefit of being an

employee of the UCO Bank, fully acquainted with the SGL

transactions, and committed the offence misusing his official position.

The transfer of 11.5% CGL 2009 securities for a value for Rs.20

crores into the SGL account No. 065 in the Public Debt Office of RBI

effected only with the maligned intention of the accused—appellant in

pursuance of his illegal object of providing wrongful gain to accused

No. 3 (Harshad Mehta). The conspiracy hatched by the accused

deprived UCO Bank of the interest that would have accrued on the

face value of securities amounting to Rs.20 crores. The illegal object

and the role played by the accused with full knowledge and intention

are established by a series of transactions which formed a continuous

chain and link of circumstances leading to the culpability of the

accused.

17.Learned counsel has drawn our attention to a Telex message

dated 23

rd

March, 1991 (Ext. 287) sent by the UCO Bank from its

Head Office to Zonal Office instructing for effecting the switch

transaction in favour of UCO Bank Head Office Account (SGL

Account No. 032). In spite of those clear instructions, the accused—

appellant with a view to benefit the accused No. 3, effected the

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transfer of Securities into the UCO Bank Constituents/Brokers

Account (Account No. 065). It is also evident from the record that at

the relevant time, all brokers’ transactions were squared off except

that of accused No. 3 (Harshad Mehta) who sold those wrongfully

transferred securities for his own benefit, causing loss to the UCO

Bank.

18.In pursuance of achievement of illegal object to cause wrongful

gain to accused No. 3, the appellant, being a public servant, abused

his position to a great extent. When the UCO Bank Head Office was

not informed about the development of the switch transaction with

reference to their Telex message dated 23

rd

March, 1991 (Ext. 287),

which transaction was admittedly being carried by the accused, the

Head Office issued another Telex message dated 6

th

April, 1991 (Ext.

466) inquiring about the transaction. Despite this second Telex

message from the Head Office, the accused did not respond to inform

the Head Office immediately and it is only on 11

th

April, 1991 the

accused sent a Telex message (Ext. 288) to the Head Office

informing execution of the transaction, that too concealing the truth.

Another link exhibiting the wrong intentions of the accused is that the

Bank Receipt (Ext. 299) dated 5

th

April, 1991 issued by Indian Bank

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was discharged by the appellant on 12

th

April, 1991 in favour of the

UCO Bank Head Office by signing on the reverse of it.

19.Learned senior counsel further contended that it was only when

the accused came to know that inquiries were being carried out by

the UCO Bank Head Office for the loss occurred to it due to non-

credit of the interest on the securities in question, the accused in

connivance with each other in a planned manner tried to cover up the

transactions and credited UCO Bank Head Office account through

four transactions. These transactions are:

(a)15

th

July, 1991 Transferred GOI securities 11.5% 2009 worth

Rs. 2 crores from UCO Bank’s SGL A/C No. BYSL 065

(Brokers’ account) to SGL A/C No. 032 (UCO Bank’s own

account) (Ext. 245)

(b)21

st

October, 1991 Transferred GOI securities 11.5% 2009

worth Rs.17 crores from the accused No. 3’s account of

State Bank of India to his State Bank of Saurashtra (Ext.

277) account.

(c)21

st

October, 1991 Again transferred GOI securities 11.5%

2009 worth Rs.17 crores from accused 3’s State Bank of

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Saurashtra account to UCO Bank’s Account No. 065 (Ext.

272).

(d)25

th

October, 1991 Finally these GOI securities 11.5% 2009

have been transferred from UCO Bank’s Account No. 065 to

its Account No. 032 (Ext. 282).

20.To further assert her argument that the accused in the process

of effecting those cover up transactions indulged in illegal acts,

learned senior counsel explained that even though there was no

instruction from the UCO Bank Head Office, the accused—appellant

directed the Reserve Bank to transfer securities worth Rs.2 crores

from Account No. 065 to Account No. 032 (cover up transaction ‘a’

above) blatantly misusing his position as a public servant. To prove

the chain of conspiracy, learned senior counsel took us through Ext.

277 which shows that Securities worth Rs.17 crores were transferred

from State Bank of India from the account belonging to accused No. 3

(Harshad Mehta) on 21

st

October, 1991 to State Bank of Saurashtra

(another account belonging to Harshad Mehta) and on the same day

they were again transferred from State Bank of Saurashtra to UCO

Bank SGL Account No. 065 (Ext. 272) and then to UCO Bank SGL

Account No. 032 on 25

th

October, 1991 (Ext. 282) without any

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instructions from the UCO Bank Head Office. In this way, the

accused, in connivance with each other tried to cover up the UCO

Bank Head Office Account.

21.Highlighting the crucial link of the conspiracy among the

accused in misusing the funds of UCO Bank to the tune of Rs.20

crores, learned senior counsel submitted that on 1

st

July, 1991

accused No. 3 wrote a letter to the UCO Bank (Ext. 413) requesting

to issue GOI 11.5% 2009 Securities worth Rs.15 crores to State Bank

of Saurashtra and State Bank of Hyderabad, though these Securities

in fact did not belong to him. Accordingly, Securities worth Rs.5

crores (Ext. 235) were transferred to the State Bank of Hyderabad

from UCO Bank SGL Account No. 065, without any instruction from

the UCO Bank. The Banker’s cheque dated 1

st

July, 1991 (Ext. 678)

received from State Bank of Hyderabad against those securities, in

favour of UCO Bank for an amount of Rs.5,07,195,62.22 (including

interest) was credited in the account of accused No. 3 (Harshad

Mehta). Similarly, on the same day i.e. 1

st

July, 1991 Securities worth

Rs.10 crores (Ext. 240) were transferred to the State Bank of

Saurashtra from UCO Bank’s SGL Account No. 065, without any

instruction from UCO Bank.

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22.The learned senior counsel finally submitted that the offences

with which the appellant was charged have been proved beyond

reasonable doubt and the Trial Court had not committed any error in

convicting the accused. She, therefore, prayed that the impugned

judgment does not deserve to be interfered with.

23. Heard the counsel on either side at length and gone through

the voluminous record placed before us. The issue that falls for

consideration is whether the learned Judge of the Special Court was

right in convicting the accused for the offences he is charged with and

whether the prosecution proved the guilt of the accused beyond

reasonable doubt?

24.Basing on the argument of both the parties, it appears that it is

the specific defence of the accused that absolutely there is no motive

or intention on his part in the alleged transactions and if at all

anything is done, it is purely a clerical bona fide mistake. Absolutely,

he has no mala fide intention to commit any fraud or crime. Having

noticed the irregularities that have taken place, he has taken steps to

transfer an amount of Rs.2.00 crores to the account No.032 from the

account No.065. He is not involved in any conspiracy or benefited by

the transactions and the learned Judge has failed to appreciate the

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evidence in its proper perspective and misguided himself in

convicting the accused. Whereas, on behalf of the CBI, arguments

were advanced supporting the judgment of the Special Court.

25. The CBI has adduced voluminous evidence to establish the

guilt of the accused. The whole issue revolves around the fact

whether the accused has got a role to play in the switch transactions

account and whether he was discharging the duties as a prudent man

and is it a bona fide mistake as he claims it to be.

26.It appears from the record and on a thorough examination of

the events that took place between April 1991 and October 1991, we

understand that on 22

nd

March, 1991 on which date UCO Bank’s

11.5% 2009 securities with face value of Rs. 20 crores were sold to

Indian Bank, UCO Bank has purchased similar value of securities

from Indian Bank viz., 11.5% 2006 GOI Securities for its SGL Account

No. 032. On 5

th

April, 1991 both the above transactions were

reversed. Resultantly, UCO Bank’s Account No. 032 should have got

back the aforementioned securities, but the same was wrongfully

transferred into UCO Bank’s SGL Account No. 065, being operated

by the Brokers. At that point of time, all brokers’ transactions who

were operating UCO Bank Account No. 065 got squared off except

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that of accused No.3. Taking this to his advantage, out of the

securities lying in the UCO Bank’s Account No. 062, Securities worth

Rs.15 crore, have been sold by the accused No. 3, though not

belonging to him actually, to the State Bank of Saurashtra and State

Bank of Hyderabad and the banker’s cheque issued in discharge of

those securities in favour of UCO Bank for an amount of

Rs.5,07,195,62.22 (including interest) was credited in the account of

accused No. 3 (Harshad Mehta).

27.The Telex messages dated 23.3.1991 (Ext. 287) and 6.4.1991

(Ext. 466) reveal that UCO Bank Head Office explicitly instructed for

switch transaction for its own Account (032). The communication

dated 13

th

April, 1991 (Ext. 300) sent by the accused Nos. 1 & 2

cannot be treated as a simple mistake considering the consequential

events. We have given our anxious and thorough perusal to the said

communication (Ext. 300) and found that the preparation of

communication and also the entry relating to the Securities in

question has been written by the accused No.1-appellant herein

himself. The entry indicates to transfer the securities into the UCO

Bank’s Account No. 065 (Brokers’ Account) together with two other

entries relating to other securities which were actually meant for

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transfer into the UCO Bank’s Account No. 065. We, therefore, cannot

accept the plea of appellant that it was merely a clerical mistake that

the Account No. 032 was struck off and Account No. 065 was

retained by accused No.2. The inclusion of securities in question in

the said communication by the appellant in his own handwriting,

establishes the fact that the appellant had willfully and with ulterior

motive prepared the communication.

28.It was claimed by the accused that he has transferred an

amount of Rs.2.00 crores from account No.065 to account No.032,

without there being any transaction which clearly shows that to get

away with enquiries of the Head Office, the accused has chosen to

transfer the money without there being any transaction and exhibits

the conduct of the accused. All the documents relating to switch

transaction between the UCO Bank and Indian Bank were signed by

the accused, being the responsible officer knowing pretty well that

these securities are purchased by the Head Office of UCO Bank,

which at any stretch of imagination cannot be termed as a mistake or

oversight, and above all, the debit and credit vouchers for transaction

in question were passed by the accused. On 12-4-1991, bank receipt

of Indian Bank dt. 5-4-1991 (Ex.299) was discharged and A1 signed

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on the reverse of bank receipt. Almost all the documents pertaining

to switch transaction are signed by him.

29. We have also perused the depositions of prosecution

witnesses. PW1—S. Nagrajan, the person who was working in RBI’s

Public Debt Office at the relevant time, in his deposition explained

how the SGL accounts are maintained. PW2—Harsukhlal Chhotalal

Parekh, the erstwhile Manager of UCO Bank’s Hamam Street Branch

asserted that when the transactions are taken place over SGL

accounts, necessary instructions are received by the Securities

Department of the Hamam Street Branch from concerned Broker.

Admittedly, the procedure of dealing with SGL accounts as explained

by PW1 and PW2 has not been followed in the case of securities in

question. The material on record unequivocally establishes that the

wrong entry in the account of UCO Bank SGL Account No. 065

effected to the advantage of Harshad Mehta (Accused No. 3) was not

occurred as a result of an inadvertent error, but a planned misdeed

done with mala fide intention.

30.Considering the whole scenario of the case, there is no doubt in

our minds that the accused, who is well acquainted with the banking

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activities and SGL transactions, created false documents and acted

contrary to the provisions and committed illegal acts which are writ

large on the face of record. It has been clearly recorded by the trial

Court that accused No.1 has already been convicted in two cases

and two more cases are pending. In one case, he has undergone

imprisonment for a period of one year and in another case,

imprisonment for a period of 9 months, which shows the conduct of

the accused, though that is not the basis for our conclusion. We are,

therefore, of the considered view that the appellant was part of the

conspiracy in facilitating trading of SGL securities to the benefit of

accused No. 3 (Harshad Mehta) and in the process, abused his

official position and violated provisions of banking laws. The facts and

circumstances of the case clearly show the participation of the

appellant in the criminal acts and misuse of his official position. In our

opinion, the prosecution has successfully proved the nexus between

the accused. The ingredients of the offences for which the accused is

charged has also been established beyond all reasonable doubt by

the prosecution by adducing voluminous documentary evidence as

well as oral evidence.

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31.For the foregoing reasons, we do not find any merit in the

appeal calling for our interference with the impugned judgment

passed by the learned Special Judge. Consequently, the appeal fails

and is dismissed accordingly. By this Court’s order dated 21

st

February, 2005 the substantive sentence of imprisonment remained

suspended during the pendency of appeal. The said order is hereby

recalled. The appellant may be taken into custody forthwith to serve

the period of imprisonment.

….…………………………………………...J.

(SUDHANSU JYOTI MUKHOPADHAYA)

…………… .....………………………………J.

(N.V. RAMANA)

NEW DELHI

JANUARY 12, 2015