'Role Limited To Signing' : Supreme Court Upholds Discharge Of Ex-Central Bank Chairman In Corruption Case Over Credit Facility Misuse

The Supreme Court today (October 16) upheld the discharge of the former Chairman and Managing Director of the Central Bank of India from a cheating and corruption case for allegedly causing undue loss of over Rs. 436 Crores to the bank by hastily approving a loan.

A bench of Justice Abhay Oka and Justice Ujjal Bhuyan dismissed an appeal filed by the CBI challenging the judgment of the Gujarat High Court that had discharged the respondent, Srinivas Sridhar from the case.

“After perusing the entire material and taking it as correct, perhaps the only material that creates suspicion is the speed with which the proposal of the Company was sanctioned. As far as the respondent is concerned, considering his position and the role ascribed to him in the grant of sanction to the loan proposal of the Company, mere suspicion against him is not enough to frame a charge against him”, the Court held.

The case stems an FIR registered by the CBI Mumbai pertaining to offences under sections 420 (cheating), 468 (forgery), 471 (using forged documents), and 120-B (criminal conspiracy) of the IPC, and section 13(2) read with section 13(1)(d) of the Prevention of Corruption Act, 1988. The charge sheet, filed on August 8, 2014, arrayed seven individuals, including Sridhar.

The allegations centered around three financial facilities granted by the Central Bank of India to Electrotherm (India) Limited, the principal accused, between 2010 and 2011. These facilities included a short-term loan of Rs. 50 crore, a letter of credit limit of Rs. 100 crore, and Export Packing Credit (EPC) facilities amounting to Rs. 330 crore.

The CBI alleged that Electrotherm (India) Limited misused these facilities, particularly the Rs. 247.50 crore disbursed under the EPC facility, which was intended for procuring raw materials for a steel plant project in Tanzania. Instead of using the funds for the stated purpose, the company allegedly diverted the money to various bank accounts and builders and paid the premium to the Export Credit Guarantee Corporation (ECGC).

Further allegations involved the misuse of Standby Letters of Credit (SBLCs) opened by the Central Bank of India's Lal Darwaja Branch in Ahmedabad. The SBLCs included one for USD 15 million in favor of Apple Commodities Ltd., Hong Kong, for coal supply and another for Euro 2.05 million in favor of Castleshine Pte. Ltd., Singapore, for a Continuous Hot Strip Mill. The CBI contended that neither the coal nor the machinery was ever procured, resulting in a loss of Rs. 436.74 crore to the bank.

Sridhar applied for discharge before the Special CBI Court, which rejected his application. However, the High Court granted his discharge, leading the CBI to file the present appeal before the Supreme Court.

The CBI contended that the High Court conducted a “mini-trial” at the stage of framing charges, which was not permissible. It contended that to establish a conspiracy, it was unnecessary for every co-conspirator to know all details or participate from inception to conclusion.

The CBI argued that the material in the charge sheet raised a strong suspicion against the respondent, sufficient to frame charges. It further alleged that the EPC facility of Rs. 330 crore was hastily approved without proper recommendations from the zonal office, and the respondent, along with co-accused, played a key role in preparing and approving the Memorandum for the sanction of the credit facilities.

The Supreme Court noted that the allegations primarily were that Sridhar and others rushed the approval process for the Rs. 330 crore EPC facility without due appraisal or clearance.

The Court noted that witnesses – officials of the bank who described the procedures for sanctioning credit facilities were followed by the Loan Advisory Committee and the Management Committee. The Court also noted that the credit proposal was prepared and signed by senior bank officials before it was presented to Sridhar and approved by the Management Committee.

The Court found that there was no direct material implicating Sridhar in the misuse of the SBLCs or any other allegations related to the misappropriation of funds. The Court observed that Sridhar's role was limited to signing the Memorandum prepared by the Credit Department and participating in the Management Committee meeting, which approved the proposal.

The court noted that Sridhar signed the Memorandum only after it had been approved by the Chief General Manager (Credit) and other senior officials and participated in the Management Committee meeting where the proposal was approved. The proposal itself had gone through the proper internal channels, including being approved by 14 public sector banks and an international private bank. No evidence indicated that the respondent had personal knowledge of the conspiracy or directly benefited from the transactions, the Court observed.

The Supreme Court concluded that no case of criminal conspiracy or misconduct was made out against Sridhar and dismissed CBI's appeal.

"Only because the entire proposal was processed and cleared within a short span of time, no offence is made out against the respondent. Taking the material in the charge sheet as it is, complicity of the respondent is not made out", the Court observed.

Case no. – Criminal Appeal No. 2891 of 2023

Case Title – Central Bureau of Investigation v. Srinivas D Sridhar

Citation : 2024 LiveLaw (SC) 804