'Case That Rocked Entire Banking System': Supreme Court Refuses Bail To Yes Bank Founder Rana Kapoor In Money Laundering Case

A bench of Justices Sanjiv Khanna and SVN Bhatti was hearing a special leave petition filed by Kapoor challenging the decision of the Bombay High Court to deny his second bail application, which he had filed on the ground of prolonged incarceration.

"Normally, the period undergone is substantial. But, this is a case that rocked the entire banking system," Justice Khanna said right at the outset, "That's a fact." Was I not correct when I said his actions affected Yes Bank, he asked. "Did the Reserve Bank of India not have to step in to protect the investors?" During the last hearing, the Supreme Court judge had a minor disagreement in court with Kapoor's counsel and senior advocate Harish Salve over whether the Yes Bank founder had pushed the bank into a financial crisis by allegedly receiving illegal gratification in exchange for sanctioning bad loans to high-profile borrowers.

"Was what I said factually correct, or not? Did Yes Bank go into difficulty - yes or no?" Justice Khanna asked Senior Advocate Abhishek Manu Singhvi, who was appearing for Kapoor today. 

"No," Singhvi replied, "This did not rock the foundation..."

"Did Yes Bank go into difficulty?" Justice Khanna shot back.

"Of course it did. 'Difficulty' is a mild word. It went into a lot of difficulty. There was a bailout package," Singhvi answered, before adding:

"With the greatest humility, I say, this is not a relevant consideration for keeping a man behind bars...That it rocked the foundation of the economy. Secondly, it did not, in fact, rock the foundation of the economy. Allow me to place my submissions. There are three judgements - KA Najeeb, Sanjay Chandra, Sanjay Agarwal - which hold that Article 21, period of incarceration, right to liberty, undertrial, pre-conviction are vital considerations. That is paramount. Second, Kapoor has been behind bars since March 2020 and has been incarcerated for three years and five months. He has undergone more than the minimum sentence. He is just shy of completing 3.5 years in jail. Can these years he spent in jail be returned to him, if he were to be acquitted? Kindly see the totality of the situation."

The senior counsel also told the bench that after the initial complaint filed by the prosecution in July, there have been three subsequent complaints, giving rise to a 'very important issue under Article 21':

"This court will have to decide this in another case. This practice of filing successive driblets...creating liberty to do more investigation. This is non-ending and a very important issue under Article 21 someday. The investigation is never complete because there is always something more to do. Also note that the PMLA designated court - which is the sole court - is overburdened. The court itself has recorded this in one place, that it is overburdened."

However, the bench refused to be swayed. Justice Khanna said, "Dr Singhvi, we have understood what you had to say. But, this is not a case for us to interfere. Move after some time."

Singhvi pressed on, pointing out that a two-week-long moratorium was issued during a temporary restructuring exercise in March 2020 placing an embargo on withdrawals over Rs 50,000. "No depositor lost any money. The State Bank of India and consortium comes in, invests Rs 10,000 crores at a share price of Rs 10 per share. That share price is doubled. There is no loss of public money. But, Kapoor had demitted office in 2019. These are considerations this court will have to keep in mind. In Sanjay Chandra, evocative words were used..."

"There are some cases which are extraordinary," Justice Khanna replied. Kapoor will have to wait for some time, the judge told the senior counsel, who ultimately expressed his desire to withdraw the petition.

Cases involving loss of huge amounts of public money should be dealt with expeditiously : Supreme Court to Centre

"Mr Raju, what is the stage of trial?" Justice Khanna asked Additional Solicitor-General for India SV Raju. 

"In all these cases, where high stakes are involved or where there has been allegations that large amounts of money has been lost, you will have to take them on priority basis. Under the normal law, the period for investigation is 90 days. You go into 360 days...There is something wrong."

The law officer explained that the Enforcement Directorate faced difficulties in completing the investigation swiftly because of the complexities of the financial transactions under the scanner. "There are hundreds of shell companies. Moneys are sent abroad. The investigation for the money and the money trail is so difficult...Then they say you are filing in bits and pieces. Because we get information in bits and pieces."

"You cannot take it up like this. Let me also say, once they get bail, the matter will never be decided in the next ten years," Justice Khanna remarked.

ASG Raju said, "Even before getting bail, they will ensure that the trial is prolonged."

The Centre is capable of tackling that problem, the judge countered, before finally pronouncing:

"After some hearing, the senior counsel appearing for the petitioner seeks liberty to withdraw the present special leave petition at this stage and states that the petitioner if advised would file an application relying upon Section 436A of the Code of Criminal Procedure, 1973. Taking this statement on record, we dismiss the present special leave petition as withdrawn with liberty as prayed for. We clarify that we have not expressed any opinion on the merits."

Background

Rana Kapoor, the founder of Yes Bank, was first arrested by the Directorate of Enforcement in March 2020 under the Prevention of Money Laundering Act, 2002 on money laundering charges, in connection with the Yes Bank-DHFL scam and other alleged financial irregularities in the disbursement of loans by the bank to a number of high-profile borrowers.

In 2018, Yes Bank allegedly invested Rs 3,700 crore in short-term debentures of Dewan Housing Finance Limited (DHFL), the promoters of which – Kapil Wadhawan and his brother Dheeraj Wadhawan – have been named as the main accused in the Yes Bank-DHFL scam in which 17 banks were defrauded out of more than Rs 34,000 crores by the home loan provider. Besides this, Yes Bank also reportedly sanctioned a loan of Rs 750 crore to a subsidiary of DHFL. Officers from the investigating agency have claimed that the Yes Bank co-promoter sanctioned over Rs 30,000 crore in suspicious loans to various corporate entities, including DHFL – of which Rs 20,000 crore had turned non-performing assets (NPA). In lieu of these loans, Kapoor has received ‘kickbacks’ or illegal gratification in the accounts of his wife and two daughters, the ED has alleged.

Subsequently, Kapoor was charged in other loan fraud cases, such as an alleged Rs 4,300 crore fraud at the Punjab and Maharashtra Cooperative (PMC) Bank in Maharashtra. Not only is he under investigation by the Enforcement Directorate for money laundering, but he is also being probed for allegedly diverting public money between 2017 and 2019 in connivance with others and committing a criminal breach of trust, cheating, criminal conspiracy, and forgery.

His first bail application was rejected in February 2021 by the Bombay High Court. Justice Prakash Naik had observed:

“There is voluminous evidence showing involvement of the applicant in the crime. In the light of nature of evidence, no case for grant of bail is made out. It is settled law that while granting bail the Court has to keeping in mind the nature of accusations, evidence in support thereof. Huge loss of public fund is required to be viewed seriously.”

In May of this year, a single-judge bench of the Bombay High Court rejected his second bail plea – filed on ground of prolonged incarceration – was rejected as well, noting:

“The allegations against applicant is that applicant is involved in laundering of public money. He has allegedly hatched conspiracy with owners of DHFL for siphoning huge amount. Though the applicant is in custody for three years, the involvement of public money shows that charge is serious. There is apprehension of tampering evidence. Hence, on the ground that applicant is in custody from 8th March 2020, bail cannot be granted.”

Case Details

Rana Kapoor v. Directorate of Enforcement & Anr. | Special Leave Petition (Criminal) No. 7700 of 2023

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