The primary business of banks is to give loans and charge interest. However, before sanctioning the loan the bank has to do its due diligence and ensure that the borrower can pay back the loan so that the said loan does not turn into a Non-Performing Asset (NPA). For this purpose, the bank does due diligence which includes a number of things such as collection of customer verification...
The primary business of banks is to give loans and charge interest. However, before sanctioning the loan the bank has to do its due diligence and ensure that the borrower can pay back the loan so that the said loan does not turn into a Non-Performing Asset (NPA). For this purpose, the bank does due diligence which includes a number of things such as collection of customer verification reports, Income Tax reports of the borrower, brief confidential reports on individuals (borrower/guarantor), etc. depending on the type of loan which is being sanctioned.
The bank directs its panel advocates to give legal opinions on the immovable property offered as security by the borrower before sanctioning of loan. The role of an empaneled advocate is to check if the sale deed submitted by the borrower/mortgagor to the bank is genuine or fake and whether the same is actually registered in the records of the Sub-Registrar office. The advocate making the search of title is also supposed to check whether any registered charge/ mortgage exists on the property and if the property is free from any encumbrance. For this, he has to visit and refer to the records in the Sub-Registrar office. To check the records in the Sub- Registrar Office, a prescribed fee is required to be paid by the advocates for which a payment receipt is also provided. After verification of records, the advocates give a non-encumbrance certificate (NEC) along with the copy of the sale deed obtained from Sub-Registrar's Office and the payment receipt of the fee paid for the inspection of land records as a token of proof that the records have been inspected.
The NEC report is one of the most crucial documents based on which the bank sanctions the loan. However, in most bank fraud cases, it is found that the NEC report/Title search report is fake or wrong. The question that arises is whether panel advocates can be prosecuted on the basis of furnishing wrong reports.
In CBI vs. K. Narayana Rao, Criminal Appeal No. 1460 of 2012, the CBI filed a chargesheet against bank officers of a PSB for abusing their official position as public servants and for having conspired with private individuals for defrauding the bank by sanctioning and disbursement of housing loans to borrowers in violation of banks rules and guidelines. One of the persons arraigned as an accused was a panel advocate who allegedly gave a false legal opinion and failed to point out actual ownership of properties.
The Hon'ble Supreme Court exonerated him on the ground that merely giving a false legal opinion is not enough to fasten liability on an advocate. It has to be shown that the false legal opinion was given in furtherance of a criminal conspiracy with bank officials & borrowers so that the loan could be sanctioned which would otherwise not be sanctioned. The court further observed,
“A lawyer does not tell his client that he shall win the case in all circumstances. Likewise a physician would not assure the patient of full recovery in every case. A surgeon cannot and does not guarantee that the result of surgery would invariably be beneficial, much less to the extent of 100% for the person operated on. The only assurance which such a professional can give or can be given by implication is that he is possessed of the requisite skill in that branch of profession which he is practising and while undertaking the performance of the task entrusted to him, he would be exercising his skill with reasonable competence. This is what the person approaching the professional can expect. Judged by this standard, a professional may be held liable for negligence on one of the two findings, viz., either he was not possessed of the requisite skill which he professed to have possessed, or, he did not exercise, with reasonable competence in the given case, the skill which he did possess”.
This principle of law has been followed subsequently by the Hon'ble Supreme Court in Surendra Nath Pandey and others v. State of Bihar, (2020)18SC C 730.
In Ashok Kumar Garg vs. CBI, 2023:AHC-LKO:63375, the Hon'ble Allahabad High Court quashed the case against an advocate/valuer of a bank who was prosecuted for giving wrong opinion over property submitted as collateral by the borrower. In this case, a company took a loan from a bank and kept collateral security of co-accused persons. Since the property was situated in cantonment area, it could not have been mortgaged. However, the advocate opined that the property fell within the area of the municipal corporation and the title of the property was clear and marketable. Thus it was alleged that the advocate gave a clean chit to borrowers right over the land in question. The court quashed the case against the advocate on the ground that merely giving a wrong opinion without further evidence of the involvement of the accused in conspiracy does not amount to the criminal offence. At best it may amount to professional misconduct.
In Ramkinkar Singh v. State of Chhattisgarh, 2024:CGHC:44444-DB, a loan was obtained under Kisan Credit Card Scheme and agricultural land was give as collateral security by the borrower. Later the borrower failed to repay the loan and documents pertaining to land offered as collateral security were found to be forged as no such land existed in his name. The advocate who gave the NEC/Search report in favor of the borrower was also prosecuted. The Hon'ble Chhattisgarh High Court quashed the case against the advocate on the ground that a legal professional cannot be held criminally liable for negligence or improper legal advice.
In Subha Jakkanwar vs. State of Chattisgarh, Criminal Misc. Petition No.1614 of 2017, it was observed,
“However, while acting so the advocate does not assure to his client that the opinion so rendered by him is flawless and must in all possibility act to his gains. Just like in any other profession, the only assurance which can be given and may even be implied from an advocate so acting in his professional capacity is that he possesses the requisite skills in his field of practice and while undertaking the performance of task entrusted to him, he would exercise his skills with reasonable competence. The only liability that may be imputed on an advocate while so acting in his professional capacity is that of negligence in application of legal skills or due exercise of such skills”.
There is a need for the bank to devise a procedure for panel advocates to properly tender their legal opinion. The panel advocate should not tender his opinion on photocopies but should insist on certified copies of originals. The branch officials should independently enquire into the possession of the property, tenancy rights, ownership, litigation, etc. and no loan should be sanctioned without such inspection. It is incorrect to say that investigating agencies are left without any teeth in prosecuting panel advocates in bank fraud cases, however, there must be some link to show that the advocate was hands in glove with the principal conspirators. In order to make him an accused the prosecution has to show:-
- The panel advocate was an active participant in the criminal conspiracy to defraud the bank.
- There is evidence to connect him with other conspirators, e.g. his call records with the borrowers or parties to the loan.
- Petitioner met the accused persons at the relevant point of time.
- Evidence in the form of his past conduct in giving legal opinions in other cases
- Whether he gave an opinion without making a reasonable inquiry in the sub-registrar office.
- Whether he gained anything in an illegal manner
- Whether the panel advocate has submitted his report subject to some condition precedents before the bank can act on it. Whether the bank observed such safeguards.
This list is illustrative and certainly not exhaustive. As stated by the Hon'ble Apex Court, the offence of conspiracy is hatched in secrecy and there is seldom any direct evidence. Therefore the role of panel advocates in giving false legal opinion has to be seen from the lens of relevant circumstances.
The writer is an Assistant Public Prosecutor in the Central Bureau of Investigation. Views expressed are personal opinions.