Bank Doesn't Hold Customer's Deposit In Trust; Banker-Depositor Relationship That Of Creditor-Debtor: Supreme Court

The Supreme Court has observed that the money that is deposited by the customer in the bank is not held by it as a trustee but it becomes a part of the banker's fund who is under a contractual obligation to pay the sum deposited by a customer to him on-demand with the agreed rate of interest.

A bench comprising Chief Justice of India NV Ramana, Justice Surya Kant and Justice Hima Kohli made this observation while deciding the appeal of a former bank manager, who was convicted for offences relating to criminal breach of trust, cheating and falsification of accounts under Sections 409, 420 and 477A of the Indian Penal Code.

The Court observed :

Factual Background

C. Vinay Kumar (Accused No. 3) who was the Treasurer of the Nishita Educational Academy had opened Current Account No. 282 in Sri Rama Grameena Bank, Nizamabad Branch in his capacity as an authorized signatory of the Academy. The account was opened with an initial deposit of Rs. 5,00,000/-.

The appellant (N. Raghavender), Accused No.1, was the brother-in-law of Accused No.3 and was the bank's Branch Manager. The appellant and A. Sandhya Rani (Accused No. 2) who worked as a Clerk- cum-Cashier in the same Bank from 1991-1996 allegedly abused their respective position in the Bank and conspired with Accused no. 3 by allowing withdrawal of amounts up to Rs. 10,00,000/- from the account of the Academy, notwithstanding the fact that the account did not have the requisite funds for such withdrawal.

The alleged modus operandi of the accused persons was that the Appellant, in his capacity as a Branch Manager, issued 3 loose-leaf cheques and despite withdrawal of the said amount, the debit was deliberately not entered into the ledger book. The endorsement on the third cheque issued by the Appellant showed the payment in favour of Accused No.3 but the signature on the cheque did not tally with that of Accused No.3.

The Appellant was further accused of pre- maturely closing two FDRs on February 24, 1995 and February 25, 1995 for a sum of Rs. 10,00,000/- and 4,00,000/- respectively which stood in the name of B. Satyajit Reddy. As per the vouchers issued by the Bank, a total of Rs. 14,00,000/- were credited to account but only Rs. 4,00,000/- were shown in the ledger. The remaining Rs. 10,00,000/- were allegedly adjusted towards the secret withdrawal from account during 1994.

When the irregularities were noticed by the Auditor, the appellant was shifted from Nizamabad Branch to the Head Office and an internal inquiry was ordered. The same prompted the Bank's Chairman to make a written complaint to the Superintendent of Police, Central Bureau of Investigation at Hyderabad.

CBI registered a case u/s 409, 477(A), and 120B IPC, and Section 13(2) read with 13(1)(c) & (d) of the PC Act. After the investigation and filing of chargesheet the Special Judge CBI framed charges against the appellant and co accused.

The Special Judge thereafter on March 28, 2020 unequivocally acquitted all the accused of offences u/s 120B IPC and u/s 13(2) r/w Section 13(1)(c) of the PC Act. Accused No.2 and Accused No. 3 were further acquitted of all the other charges as well but the Appellant, however, was held guilty of offences punishable under Sections 420, 409 and 477A IPC as also u/s 13(2) r/w Section 13(1)(d) of the PC Act.

Aggrieved by the Trial Court's judgement, the appellant approached the High Court but the High Court while concurring with the findings held that the Appellant had misused his official position as the Bank Manager to prematurely encash the two FDRs, and thereafter transfer the amount into the account of the Academy.

Assailing the High Court's judgement the appellant approached the Top Court.

Submission of Counsels

Appearing for the appellant, Senior Advocate Siddharth Luthra submitted that the most serious accusation attributed to the Appellant was he unauthorizedly closed two FDR's belonging to B. Satyajit Reddy pre-maturely but neither was B. Satyajit Reddy examined by the CBI as a witness nor was his statement recorded during the course of internal auditing.

Relying on Hari Sao & Anr v. State of Bihar (1969) 3 SCC 107 and Mohd. Ibrahim & Ors v. State of Bihar & Anr (2009) 8 SCC 751, Senior Counsel argued that no loss to the Bank was caused as a result of the alleged misdemeanours of the Appellant and thus in such circumstances, no offence could be said to have been made out against the appellant.

Drawing force from the decision of this Court in Samsul Haque v. State of Assam (2019) 18 SCC 161, it was argued that if circumstances were not put to the accused in his examination under Section 313 Cr.P.C., they must be excluded from consideration because the accused did not have any chance to explain them. It was further claimed that there was total absence of mens rea as no benefit was drawn by the Appellant even if the cash was handed over to Accused no. 3, who had been acquitted.

Appearing for CBI, ASG Jayant K Sud submitted that to establish mens rea or criminality under Sections 420, 409 and 477A IPC, it was not necessary to prove that the Appellant had derived benefit or caused any loss to the Bank. It was also his contention that the Appellant was branch's custodian and had to take the entire responsibilities for the duties which he had failed to discharge. ASG argued that the onus stood shifted on the Appellant to show that he had complied with all transactions genuinely and all the requirements or conditions were adhered to.

Supreme Court's Analysis

The bench in the judgement authored by Justice Surya Kant at first discussed the ingredients necessary to prove a charge u/s 409, 420 and 477 A of IPC.

Unless It Is Proved That Accused, A Public Servant Or A Banker Etc. Was 'Entrusted' With The Property Which He Is Duty Bound To Account For And That Such A Person Has Committed Criminal Breach Of Trust, Section 409 IPC May Not Be Attracted

Referring to Sadupati Nageswara Rao v. State of Andhra Pradesh (2012) 8 SCC 547, the bench observed that the onus was on the prosecution to prove that the accused, a public servant or a banker was entrusted with the property which he is duly bound to account for and that he has committed criminal breach of trust.

The bench observed that entrustment of public property and dishonest misappropriation or use thereof in the manner illustrated under Section 405 were a sine qua non for making an offence punishable u/s 409 IPC("criminal breach of trust by a public servant, banker etc). The bench referred to the ingredients of the offence of "criminal breach of trust" under Section 405 of the Indian Penal Code.

"The crucial word used in Section 405 IPC is 'dishonestly' and therefore, it presupposes the existence of mens rea. In other words, mere retention of property entrusted to a person without any misappropriation cannot fall within the ambit of criminal breach of trust. Unless there is some actual use by the accused in violation of law or contract, coupled with dishonest intention, there is no criminal breach of trust. The second significant expression is 'mis-appropriates' which means improperly setting apart for one's use and to the exclusion of the owner," bench noted in this regard.

Laying down the ingredients u/s 409 IPC the Top Court observed,

"Accordingly, unless it is proved that the accused, a public servant or a banker etc. was 'entrusted' with the property which he is duty bound to account for and that such a person has committed criminal breach of trust, Section 409 IPC may not be attracted. 'Entrustment of property' is a wide and generic expression. While the initial onus lies on the prosecution to show that the property in question was 'entrusted' to the accused, it is not necessary to prove further, the actual mode of entrustment of the property or misappropriation thereof. Where the 'entrustment' is admitted by the accused or has been established by the prosecution, the burden then shifts on the accused to prove that the obligation vis-à--vis the entrusted property was carried out in a legally and contractually acceptable manner."

Unless The Complaint Showed That The Accused Had Dishonest Or Fraudulent Intention 'At The Time The Complainant Parted With The Monies', It Would Not Amount To An Offence Under Section 420 IPC And It May Only Amount To Breach Of Contract

Referring to the provisions u/s 420 IPC, the bench observed that in order to attract the provisions of Section 420 IPC, the prosecution has to not only prove that the accused has cheated someone but also that by doing so, he has dishonestly induced the person who is cheated to deliver property.

"It is equally well-settled that the phrase 'dishonestly' emphasizes a deliberate intention to cause wrongful gain or wrongful loss, and when this is coupled with cheating and delivery of property, the offence becomes punishable under Section 420 IPC. Contrarily, the mere breach of contract cannot give rise to criminal prosecution under Section 420 unless fraudulent or dishonest intention is shown right at the beginning of the transaction. It is equally important that for the purpose of holding a person guilty under Section 420, the evidence adduced must establish beyond reasonable doubt, mens rea on his part. Unless the complaint showed that the accused had dishonest or fraudulent intention 'at the time the complainant parted with the monies', it would not amount to an offence under Section 420 IPC and it may only amount to breach of contract," bench further said.

Aspect Of Fraudulent & Unlawful Withdrawal Of Rupees 10 Lakhs From Current Account

On this aspect the bench referred to the deposition of PW-1 and PW-3 in which it was deposed that in the ordinary course of business, the cheque holder ought to only utilize the cheques that are issued to him, but in certain contingencies or exceptional situations, the Bank could issue loose cheques also, the Top Court said,

"Since no explicit prohibition on issuing of loose cheques has been proved, the mere fact that the Appellant issued those loose cheques, is not sufficient to conclude that he acted unlawfully or committed a 'criminal misconduct'."

The Court noted that there was no sufficient evidence to come to the conclusion that the cheques were passed without sufficient funds in the account. So, the bench held that no loss was caused to the bank. Likewise, the bench held that sufficient evidence in the form of ledgers were not produced to come to the conclusion that the appellant had falsified accounts, so as to attract the offence under Section 477A IPC.

Aspect Of Unauthorised Premature Encashment Of 2 FDR's Belonging To B Satyajit Reddy

The bench in this observed that,

(i) B. Satyajit Reddy had made no complaint alleging any loss to him;

(ii) His written requests dated February 22 and February 24 have gone unrebutted;

(iii) The prosecution has surely proved payment of interest on those FDRs to B. Satyajit Reddy even after premature closure thereof, but that payment was made by the Appellant from his personal account and no public fund has been divested for such payment

(iv) B. Satyajit Reddy has been receiving interest even after premature encashment of the FDRs. He may or may not have got undue monetary gain but definitely he suffered no loss in any manner

Thus in the backdrop of the above, the bench while allowing the appeal opined that:

• No financial loss was caused to the Bank
• The record before us does not indicate that any pecuniary loss was caused to B. Satyajit Reddy or to any other customer of the Bank
• The material before us does not disclose any conspiracy between the accused persons. In the absence of any reliable evidence that could unfold a prior meeting of minds, the High Court erred in holding that Appellant and other accused orchestrated the transactions in question to extend an undue benefit to Accused No.3
• The Appellant committed gross misconduct by misusing his position as the Branch Manager. Notwithstanding the final outcome, the Appellant's abuse of powers clearly put the Bank at the risk of financial loss
• Despite dereliction of his duties, none of the acts proved against the Appellant constitute 'criminal misconduct' or fall under the ambit of Sections 409, 420 and 477-A IPC

Court criticizes CBI investigation

"We are also constrained to observe that in this case the CBI has either adopted a casual and callous approach or there was some hidden pressure to derail a fair investigation. The resultant effect is that though there is a strong suspicion of criminal breach of trust, cheating and/or fabrication of the Bank records against the Appellant, but such suspicion falls short of a conclusive proof to hold him guilty of the criminal charges. The best evidence having been withheld by the prosecution, the benefit of doubt must be extended to the Appellant, for no conviction can be sustained on the basis of conjectures and surmises. Non-production of the records of the Bank also adversely comments on the fairness and independence of the investigation conducted in the instant case," bench also observed.

Court disapproves appellant's conduct

Though the Supreme Court acquitted the appellant by giving him the benefit of doubt, it said that his conduct was unbecoming of a bank officer.

"Although he was clever enough to not trespass into the prohibited area(s) of Sections 409, 420 and 477-A IPC, he ran the risk of causing financial loss to the Bank", the Court said.

Therefore, the Bench held that the actions of the appellant constituted gross departmental misconduct and whis dismissal from service of the Bank was fully justified. The Bench, hence clarified that acquittal would not entitle him for reinstatement.

Case Title: N. Raghavender v. State of Andhra Pradesh, CBI| Criminal Appeal No. 5 Of 2010

Coram: CJI NV Ramana, Justices Surya Kant and Hima Kohli

Citation : LL 2021 SC 765

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