Supreme Court: Officers of private banks "public servants" under Prevention of Corruption Act

The Supreme Court has held that the Managing Director, and Executive Directors of a private bank
By: Admin | Update: 2016-02-24 13:16:35

Supreme Court: Officers of private banks

The Supreme Court has held that the Managing Director, and Executive Directors of a private bank will fall within the ambit of definition of “public servant” under the Prevention of Corruption Act.

Justices Ranjan Gogoi and PC Pant arrived at this decision after a conjoint reading of Section 2(c) of the Prevention of Corruption Act and Section 46A of the Banking Regulation Act, 1949 (BR Act). Additional Solicitor General Tushar Mehta appeared for CBI while Senior Advocates Mohan Parasaran and Sidharth Luthra appeared for the accused respondents.

Background

The case was a challenge by the CBI against a decision of the Bombay High Court which had upheld the decision of the lower courts that cognizance cannot be taken against the accused namely Ramesh Gelli Chairman and Managing Director, and Sridhar Subasri, Executive Director of Global Trust Bank, under the PC Act on the ground that they are not public servants.

Gelli and Sridhar had, in their capacity as Managing Director and Executive Director of a private bank by the name Global Trust Bank (GTB), had sanctioned higher credit limits to a company against regulations. The bank lost money due to the same and the illegalities came to light only after GTB merged with Oriental Bank of Commerce (OBC), a public sector bank.

It was alleged that GTB sanctioned and disbursed loans by throwing banking norms to winds and created a large quantum of Non-Performing Assets (NPA) thereby jeopardizing the interests of thousands of depositors, but painted a rosy financial picture. These loan transactions came to the light during audit after amalgamation of GTB with OBC, and it was noted that two accounts, namely that of M/s. Beautiful Diamonds Ltd. and M/s. Crystal Gems were used to siphon out funds of the Bank.

Besides other offences under IPC, the question was whether the Gelli and Sridhar could be prosecuted under PC Act as “public servants” since the offences were committed at a time when GTB had not merged with OBC and was still a private entity. Thus the question of law addressed by the court was whether the Chairman, Directors and Officers of Global Trust Bank Ltd. (a private bank before its amalgamation with the Oriental Bank of Commerce), can be said to be public servants for the purposes of their prosecution in respect of offences punishable under Prevention of Corruption Act, 1988 or not?

Provisions

Section 46A of Banking Regulation Act, 1949:

Chairman, director etc., to be public servants for the purposes of Chapter IX of the Indian Penal Code. – Every chairman who is appointed on a whole-time basis, managing director, director, auditor, liquidator, manager and any other employee of a banking company shall be deemed to be a public servant for the purposes of Chapter IX of the Indian Penal Code (45 of 1860).”

This provision was crucial to the outcome of the case. The provision made it clear that the managing director, director, auditor etc. were “public servants” for the purpose of Chapter IX of IPC. However, Sections 161 to 165A of Chapter IX of the Indian Penal Code were repealed and were substituted by the relevant provisions in the PC Act. However, the said change was not reflected in the wordings of Section 46A. Therefore, the petitioner had argued that the provision would not be applicable in the above provision. The question was whether the scope of “public servant as stated in the above provision could be imported into the PC Act as well. If it could be so done, the issue would be put to rest.

Section 2(c) (viii) of PC Act, 1988:

“public servant” means –

any person who holds an office by virtue of which he is authorised or required to perform any public duty;

Section 2(b) of PC Act, 1988:

“public duty” means a duty in the discharge of which the State, the public or the community at large has an interest”.

Arguments

The accused respondents argued that the accused are not public servants, and cognizance cannot be taken against them. They contended that a person cannot be said to have been performing a public duty unless he holds some public office, and the accused were not holding any public office during the period when the offences were committed. It was also contended that since Sections 161 to 165A in Chapter IX of IPC were repealed by Section 31 of PC Act, 1988, Section 46A of Banking Regulation Act, 1949 was rendered irrelevant to the prosecution. The petitioners also submitted that the relationship between the customer of a bank, and the bank is that of a creditor and debtor, and the transactions between the two are commercial in nature and consequently, no public duty is involved.

ASG Tushar Mehta argued that the accused were public servants in view of definition contained in Section 2(c) of PC Act, 1988. He also argued that a whole time Chairman, Managing Director, or Director of a banking company shall be deemed to be a public servant by virtue of Section 46A of the BR Act, 1949. Mehta also submitted that a private body discharging public duty or positive obligation of public nature actually performs public function.

Court’s pronouncement

The Court first proceeded to decide whether Section 46A would be applicable to PC Act also. It held that the object of PC Act was to widen the coverage of anti-corruption law.

“In view of definition of public servant in 25 Section 46A of Banking Regulation Act, 1949 as amended the Managing Director and Executive Director of a Banking Company operating under licence issued by Reserve Bank Of India, were already public servants, as such they cannot be excluded from definition of ‘public servant’. We are of the view that over the general definition of ‘public servant’ given in Section 21 of IPC, it is the definition of ‘public servant’ given in the P.C. Act, 1988, read with Section 46-A of Banking Regulation Act, which holds the field for the purposes of offences under the said Act. For banking business what cannot be forgotten is Section 46A of Banking Regulation Act, 1949 and merely for the reason that Sections 161 to 165A of IPC have been repealed by the P.C. Act, 1988, relevance of Section 46A of Banking Regulation Act, 1949, is not lost.”

The Court, therefore, held that merely because the legislature did not substitute the words “for the purpose of PC Act, 1988” in place of “for the purpose of Chapter IX of the IPC”, that in itself will not make Section 46A inapplicable.

“….when Prevention of Corruption Act, 1988 came into force, Section 46 of Banking Regulation Act, 1949 was already in place, and since the scope of P.C. Act, 1988 was to widen the definition of “public 26 servant”. As such, merely for the reason that in 1994, while clarifying the word “chairman”, legislature did not substitute words “for the purposes of Prevention of Corruption Act, 1988” for the expression “for the purposes of Chapter IX of the Indian Penal Code (45 of 1860)” in Section 46A of Banking Regulation Act, 1949, it cannot be said, that the legislature had intention to make Section 46A inapplicable for the purposes of P.C. Act, 1988, by which Sections 161 to 165A of IPC were omitted, and the offences stood replaced by Sections 7 to 13 of P.C. Act, 1988. 26. A law which is not shown ultravires must be given proper meaning. Section 46-A of Banking Regulation Act, 1949, cannot be left meaningless and requires harmonious construction.”

The Court, therefore, held that the Chairman and Managing Director and Executive Director and officers of GTB are public servants under PC Act.

“As such in our opinion, the Special Judge (CBI) has erred in not taking cognizance of offence punishable under Section 13(2) read with Section 13(1)(d) of PC Act, 1988. However, we may make it clear that in the present case the accused cannot be said to be public servant within the meaning of Section 21 27 IPC, as such offence under Section 409 IPC may not get attracted, we leave it open for the trial court to take cognizance of other offences punishable under Indian Penal Code, if the same get attracted.”


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