SBI 'Takeover' of Yes Bank : SC Judge Sanjiv Khanna and Senior Advocate Harish Salve at Odds During Rana Kapoor's Bail Hearing

A bench of Justices Sanjiv Khanna, Bela M Trivedi, and Justice Ujjal Bhuyan was hearing a special leave petition filed by Kapoor challenging the decision of the Bombay High Court to deny even his second bail application, which he had filed on the ground of prolonged incarceration. The Yes Bank co-promoter has been behind bars since March 2020.

Senior Advocate Harish Salve, appearing for Rana, vehemently urged the bench to grant him bail in light of his being in custody for more than three years. “My Lords, if he is convicted, the minimum time he will be imprisoned for is three years, while the maximum punishment under the Prevention of Money Laundering Act is seven years. He has already spent more than three years in jail,” Salve said. He added, “Surely, at some point, the man should be given bail.”

“You are right in that normally bail would be granted,” Justice Khanna replied, before qualifying his statement by pointing out that Kapoor’s alleged conduct had caused widespread instability in the entire banking infrastructure:

“Normally bail would be granted. But the difficulty here is that this matter rocked the entire financial credibility of our banking system. That is why we have to [consider] thousands if not lakhs of people affected and the instability it caused.”

“Kapoor is the founder of Yes Bank and the simple allegation against him is that he gave Wadhawan and all a loan,” Salve responded, “In Yes Bank, there has never been any financial crisis.”

“No,” Justice Khanna disagreed. “Please be aware of the factual matrix. Yes Bank went into a big financial crisis. State Bank had to take it over,” the judge added.

When Salve disagreed, Justice Khanna pointed out that the State Bank of India (SBI) had to take over Yes Bank. “Yes Bank is still on its own, My Lords,” Salve insisted.

“No,” said Justice Khanna.

“Yes,” Salve replied, insisting that the private lender was never ‘taken over’. “Yes Bank is private. Very private. Totally,” the senior counsel insisted.

Additional Solicitor-General for India SV Raju told the bench at this point, “Kapoor has taken loans and taken loans in daughters’ names. 5,583 crores of investors are lost, moneys have been...”

“Not in Yes Bank,” Salve interjected.

“We will keep it on another day, Mr Raju,” Justice Khanna intervened. He also directed the counsel to read about the issue of Yes Bank’s financial crisis and whether the SBI had to take it over. “Please check this out.”

The matter will be heard again on Monday, July 17.

Reports suggest that the Reserve Bank of India (RBI) had in March 2020 floated a reconstruction plan to rescue Yes Bank, by virtue of which the State Bank of India initially acquired a 49 percent stake in the private lender struck by bad loans. Over the following years and pursuant to a policy of gradual equity dilution, the country’s top lender held a 26.14 percent stake in Yes Bank, as of December 31, 2022. However, the lock-in period which was a part of the RBI’s rescue plan ended in March 2023 and the SBI is reportedly expected to cut its stake further in the private sector lender.

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 into 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 observed:

“There is voluminous evidence showing the involvement of the applicant in the crime. In light of the nature of the evidence, no case for a grant of bail is made out. It is settled law that while granting bail the Court has to keep in mind the nature of accusations, and 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 the ground of prolonged incarceration, noting:

“The allegations against the applicant is that applicant is involved in the laundering of public money. He has allegedly hatched a conspiracy with the owners of DHFL for siphoning huge amounts. Though the applicant is in custody for three years, the involvement of public money shows that the charge is serious. There is apprehension of tampering evidence. Hence, on the ground that the 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