IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE V.RAMKUMAR THURSDAY, THE 10TH MARCH 2011 / 19TH PHALGUNA 1932 CRL.A.No. 614 of 2003() ----------------------- CC.34/1998 of SPL.COURT SPE/CBI-II & IV ADDL.SESSIONS COURT, ERNAKULAM .................... APPELLANT(S): ----------- JOSEPH ALAPPAT, PREVIOUSLY BRANCH MANAGER, PUNJAB NATIONAL BANK, QUILON BY ADV. SRI.B.RAMAN PILLAI SRI.GEORGE PHILIP SRI.R.ANIL SRI.RAJU RADHAKRISHNAN SRI.ANIL K.MOHAMMED RESPONDENT(S): ------------- C.B.I., COCHIN, REPRESENTED BY THE CENTRAL GOVERNMENT STANDING COUNSEL, HIGH COURT OF KERALA ADV. CHANDRASEKHARA PILLAI , STANDING COUNSEL FOR CBI. THIS CRIMINAL APPEAL HAVING BEEN FINALLY HEARD ON 07/03/2011, THE COURT ON 10/03/2011 DELIVERED THE FOLLOWING: V. RAMKUMAR, J. ............................................ Crl.Appeal No. 614 of 2003 ........................................... Dated: JUDGMENT In this appeal filed under Sec.374 (2) Cr.P.C. the appellant who was the first accused in Crime No. RC 2(A)/91 of the Special Police Establishment , CBI, Cochin and the sole accused in C.C. 14 of 1996 on the file of the Court of the Special Judge (SPE/CBI) - 1, Ernakulam, challenges the conviction entered and the sentence passed against him for offences punishable under Sec. 120 B read with Secs. 420, 468 and 471 I.P.C. and Sec. 13 (2) read with Section 13 (1)(d) of the Prevention of Corruption Act, 1988 (“the P.C. Act” for short). Crl.Appeal No. 614 of 2003 -:2:- 2. The case of the prosecution can be summarised as follows:- During the period 1988-1990 he first accused (Joseph Alappatt) was working as the Manager of the Quilon Branch of the Punjab National Bank (PNB for short). Some time in October, 1989 A1 & A2 (H.M. Shahabhuddin-Managing Partner, M/s. Barrels and Metals, Quilon), Shine Cottage, Pallithottam and now residing in Flat No. 5, Ponnamma Amma Bhavan, Kochupilamood, Quilon - 6 entered into a criminal conspiracy to cheat PNB, Quilon In pursuance of the said conspiracy, on 21-10-1989 A2 submitted a false loan application before A1 for a term loan of ` 75,000/- and cash credit limit of ` 3,00,000/- in the name of his unit Barrels and Metals. The term loan was for purchasing machinery for reconditioning empty barrels. Along with the loan application A2 had enclosed a forged quotation from a fictitious and non- existing firm by name M/s. Mohamamed Ismayil, Chinnakkada, Madurai for ` 97,225/- for the supply of drums, hydraulic testing Crl.Appeal No. 614 of 2003 -:3:- unit with hydraulic water pressure pump, gas welding unit etc. Knowing fully well that the loan application was false and the quotation submitted along with the loan application was forged, A1 sanctioned the term loan and cash credit limit on the same day by abusing his official position as public servant in order to obtain pecuniary advantage to A2 . A2 utilised the help of one Nawas, S/o. Fakkir Muhammed through M/s. Bakyia Finance, Madurai. A1 who was a public servant employed as the Manager of PNB by corrupt or illegal means or by otherwise abusing his position as such public servant had obtained for A2, pecuniary advantage to the extent of ` 75,000/- by sanctioning the loan amount knowing fully well that the loan application was false and the forged quotation was from a non-existing and fictitious firm by name M/s. Mohammed Ismayil, Madurai. A1 had allowed A2 to transfer ` 31,947/- from the cash credit loan amount to facilitate A2 to raise the margin money purportedly for the purchase of the said machinery and had also handed over to A2 directly a Crl.Appeal No. 614 of 2003 -:4:- demand draft for ` 106947.50 issued in favour of M/s. Mohammed Ismayil without crossing the Demand Draft so as to facilitate A2 to encash it. A2 thereafter encashed the D.D. without utilising the amount for purchasing machinery as stated in the loan application. A1 A2 have thereby committed offences punishable under Section 120 B read with Sections 420 , 468 and 471 I.P.,C. and Sec. 13 (2) read with Sec. 13 (1) (d) of the P.C. Act. 3. Originally the case was taken on file as C.C. 14 of 1998 by the Special Judge SPE/CBI, I where C.C. Nos. 9, 10 and 11 of 1993 in which A1 was a common accused was pending. After the disposal of C.C. Nos. 9, 10 and 11 of 1993 by the Special Judge, SPE/CBI-I , the present case namely C.C. 14 of 1998 was transferred by this Court to the Court of the Special Judge SPE/CBI-II where it was re-numbered as C.C. 34 of 1998. Since A2 was absconding, A1 (the appellant herein) alone faced trial in C.C. 34 of 1998. Crl.Appeal No. 614 of 2003 -:5:- 4. On the appellant (A1) pleading not guilty to the charge framed against him by the court below for the aforementioned offences the prosecution was permitted to adduce evidence in support of its case. The prosecution altogether examined 15 witnesses as P.Ws 1 to 15 and got marked 41 documents as Exts. P1 to P41 . 5. After the close of the prosecution evidence, the appellant was questioned under Sec. 313 (1)(b) Cr.P.C. with regard to the incriminating circumstance appearing against him in the evidence for the prosecution. He denied those circumstances and maintained his innocence. He had the following to submit before the trial court:- Duties such as inspecting the units of the borrower and supplier, preparing the confidential report of the borrower and the guarantor, preparation of the agreement of guarantee for term loans and cash credit, preparation of the limit proposal for the term loan and cash credit etc. were all the delegated pre-sanction duties of the loans officer who at the relevant time was P.W. 6 (Ayyappan) . He never had any occasion to doubt the integrity or honesty of P.W.6 while he was working Crl.Appeal No. 614 of 2003 -:6:- under him. P.W.6 had 2 ½ years of experience in the loan Section of the Trivandrum Branch of PNB before he joined the Quilon Branch. The post sanction inspection also was the duty of the loans officer as per the office orders issued by the Bank. When he joined the Quilon Branch it was only a Scale - II Manager's Branch. As a result of his work , the Quilon Branch which was only a Scale - II Manager's Bank was first upgraded as a Scale -III Manager's Branch and soon a Scale - IV Manager's Branch. During his tenure in that branch a loan of Rs. 28 crores which was sanctioned by the head office to the Kerala Cashew Development Corporation was to be released through the Quilon Branch and as per the orders of the head office he was to personally inspect all the 36 factories of the KSCDC every fifteen days . KSIDC used to submit foreign bills for ` 40 lakhs and if anything went wrong in the verification of the bills , he would be held responsible by the Bank as he had signed all the bills for the Bank. The Bank was given a target of more than three crores of rupees in the priority sector loans to be achieved by him before the end of March 1990. When he had such a heavy workload in the Quilon Branch, it was not possible for him to achieve the heavy target of priority sector loans without the help of the loans officer in whom he reposed complete confidence. But he personally ensured that all the loans were covered by collateral security worth more than the loan amounts . When P.W.6 the loans officer conducted the pre-sanction inspection, studied the audited Crl.Appeal No. 614 of 2003 -:7:- balance sheet of the borrower and found out that the party had sufficient means and had recommended the loan for his sanction, he had done so in good faith. The application for the cash credit and term loan was submitted to the loans officer one month before the sanction of the loan. Thereafter the bank had taken the valuation report and legal opinion from the concerned authorities. The loans officer had filled up the date in the blank loan application on behalf of the borrower at the time of preparing the loan documents. He had put the same date for the sanction of the loan also. This does not mean that the loan was sanctioned on the same day on which the loan application was submitted. The project report was submitted along with the loan application by the party to the loans officer. It was the duty of the loans officer to verify whether the project report was signed by the borrower. The Manager cannot verify each and every document in such a big branch. The value of the land and building offered as collateral security belonging to Muhammed Kunju and Fathima Kunju exceeded more than Rs. 8 lakhs . The same property was offered as security for Shangrilla Paints Products which was a sister concern of barrels and metals. The term loan amount given to Shangrilla Paints Products was only ` 1.50,000/-. The Bank usually allows offering the same collateral security for two loans in the value of the security covers both the loans. It was the loans officer who had filled up the loans papers by verifying the documents including the Crl.Appeal No. 614 of 2003 -:8:- quotation and project report submitted by the borrower. He had never asked P.W.6 (Ayyappan) to fill up the documents and recommend the loan . If he had forced P.W.6 to prepare the documents and recommend the loan, P.W.6 could have recorded the same in the Deviation Register and informed the Regional Office. P.W.6 did not do so . He had not mentioned about it in the statement given by him to P.W.2 Prasad who conducted the inspection. P.W. 10 (Navas) who is the endorsee of Ext.P34 Demand Draft has stated that he does not know who the payee Muhammed Ismail was . So P.W.10 was taking a draft from a person without knowing who that person was. He would further say that there was a signature on the draft when it came to his possession and that he does not know whose signature it was or the person who had signed on the reverse of the Demand Draft. He was presenting the Demand Draft for payment through the Lakshmivilas Bank which had a duty under the negotiable Instruments Act to verify and find out the genuineness of the payee as well as endorsee thereunder. The CBI never questioned Shahabhuddin (A2) about the genuineness of the certificate and they were completely relying on P.W.10 who had encashed the D.D. without knowing the payee or the endorsee . If according to P.W.10, there was no person as Muhammed Ismayil known to him, then how could he take a D.D. payable to Muhammed Ismayil and get it encashed through a bank with the help of Bakya Finance. He had taken Crl.Appeal No. 614 of 2003 -:9:- collateral security of landed property covering more than the loan amount and had issued the draft. Thereafter it was the duty of the loans officer to get the draft crossed and to send it along with a covering letter by registered post to the supplier. If such a thing had not happened , then it was P.W.6 Ayyappan and not the Manager who was responsible for the lapse. In fact, sending the Demand Draft by Registered Post is a clerical duty which had to be supervised and checked by the loans officer. The Manger had only over all responsibility and he in his capacity as the Manager had protected the Bank's interest by taking collateral security . He has been prosecuted without any just ground. 6. The accused examined the Manager of the Kollam Branch of PNB working since 29-05-2000 and got marked Exts. D7 and D7 (a) term loan Register and the relevant entry in the said Register to prove that the term loan advanced in this case was closed by the borrower M/s. Barrels and Metals by remitting Rs. 1,88,689.10. The appellant also got marked Ext.D8 certified copy of general instructions regarding advances. Crl.Appeal No. 614 of 2003 -:10:- 7. The learned Special Judge after trial, found the appellant guilty of offences punishable under Sections 120 B and 420 I.P.C. and Sec. 13 (2) read with Sec. 13 (1)(d) of the P.C. Act. Accordingly, for his conviction under Sec. 13 (2) read with Sec. 13 (1) (d) of the P.C. Act, he was sentenced to rigorous imprisonment for one year and to pay a fine of Rs. 5,000/- and on default to pay the fine to suffer simple imprisonment for three months . For the conviction under Sec. 420 I.P.C. the appellant was sentenced to rigorous imprisonment for one year. The substantive sentences were directed to run concurrently. It is the said judgment which is assailed in this Appeal. 8. The only point which arises for consideration in this appeal is as to whether the conviction entered and the sentence passed against the appellant (A1) are sustainable or not ? THE POINT: Crl.Appeal No. 614 of 2003 -:11:- 9. I heard Advocate Sri. B. Raman Pillai, the learned counsel appearing for the appellant and Advocate Sri. N. Chandrasekhara Pillai, the learned Standing Counsel for the C.B.I. PROSECUTION WITNESSES 10. P.W. 1 (B.R. Kher) was the Zonal Manager at Chennai of PNB. It was his complaint sent as Ext.P1 which resulted in the registration of the F.I.R. P.W.2 (S.K. Prasad) was the Chief Manager in charge of advances at the zonal office of PNB Madurai.. P.W.3 (T.S.S. Krishnan) is the Manager of P.N.B, Kollam. He succeeded the appellant in December, 1989. He produced certain documents relating to the advances given to M/s. Barrels and Metals as per Ext.P2 letter. However, most of the documents produced in the case were not the originals but were certified copies. Exts. P3 to P38 are the documents proved through him. Crl.Appeal No. 614 of 2003 -:12:- (P.W.4 C.T. Sreekumar ) was the Administrative Officer of the National Insurance Company, Kollam Divisional Office. He was a witness who was present at the time search by the CBI on 4-3- 1991 of Ponnamma Amma Bhavan at Pallithottam, Quilon. He is an attestor to Ext.P28 search list. P.W.5 (K. Asokan) is a Civil Engineer and approved valuer of Land and Buildings. Eventhough he had valued the properties mortgaged in favour of the PNB, the prosecution did not mark through him his valuation report which was however marked through P.W.3 as Ext. P38. P.W.6 (Ayyappan) was the Assistant General Manager of PNB, Quilon. He was originally A2 in the FIR but was deleted from the array of accused at the time of filing the final report. Exts. P29 to P31 and Exts. D3 and D4 were marked through him. P.W.7 (Nageswaran) was working as an officer of the Madurai Branch of PNB during 1989 -1990. Ext. P31 series were marked through him. P.W. 8 (R.M. Kumarappan) was the Manager of the Madurai Crl.Appeal No. 614 of 2003 -:13:- Branch of Lekshmi Vilas Bank. He had purchased Ext.P31 D.D. from Pakya Finance who presented the D.D. along with other instruments for a total amount of Rs. 2,45,053/-. Ext.P31 D.D. issued in favour of Muhammed Ismayil was seen endorsed to one Navas (P.W.10) who in turn endorsed to Pakya Finance which had discounted the D.D. through Lekshmi Vilas Bank. P.W. 9 (Subrahmania Iyer) who is a retired Engineer proved Ext.P23 Valuation Certificate regarding the immovable property mortgaged to the PNB. P.W. 10 (Navas) is a person who had endorsed Ext.P31 D.D. to Pakya Finance . P.W.11 (P.K. Gupta) proved Ext.P35 sanction to prosecute A1. P.W.12 (J.J. Shainsha) was the postman of Madurai Head Post Office who returned undelivered to the sender Ext.P36 registered cover received by him on 13-04-1991 from the CBI, Kochi. His endorsement was that since the address of the addressee namely, Muhammed Ismayil, Chinnakkada Street, South Gate, Madurai, Crl.Appeal No. 614 of 2003 -:14:- was insufficient and not known. P.W.13 (Anantharaman) who was a Senior Manager in the Zonal office of the PNB had deputed P.W.1 to enquire into the loans and advances given from the Kollam Branch . Ext.P37 is a portion (pages 27 to 33) of his inspection report pertaining to M/s. Barrels and Metals. P.W. 14 (T.V. Lekshmanan) was the Inspector C.B, I. Kochi who registered Ext.P39 F.I.R. on the basis of Ext. P1 complaint submitted by P.W.1. He conducted the investigation up to 25-5- 1992. He had endorsed the search warrant issued from the Court to the Inspector, Balakrishnan, who conducted the search and the residence of Shahabudheen (A2) on 4-3-1991 as evidenced by Ext.P 28 search list. On 26-2-1991 he conducted search of the residential flat of A1 at Bangalore as evidenced by Ext.P40 search list . He had received various documents pursuant to letters sent by him to the PNB and other institutions. Crl.Appeal No. 614 of 2003 -:15:- P.W. 15 (Ramesh Kumar) was the Inspector of C.B.I. who conducted the investigation from 24-6-1992 and filed the final report on 30-6-1995 after deleting the name of Ayyappan (P.W.6) from the array of accused. DEFENCE EVIDENCE D.W. 1 (Sasidhara Panicker) was the Senior Manager , PNB. He proved Ext.D7 certified extract of the ledger regarding the term loans in the Quilon Branch of PNB. Ext.D7 (a) is the relevant entry pertaining to the C.C. account of M/s.. Barrels and Metals to show that the loan was fully cleared on 29-09-1998 by paying Rs. 1,88,689.10 while closing the accounts. He also proved Ext.D8 certified copy of the General Instructions relating to advances of the PNB. Ext.D1 is the copy of the Circular dated 2- 09-1989 of the head office of PNB. Ext.D2 is the marked portion of the deposition of P.W.13 (Anantharaman) when he was Crl.Appeal No. 614 of 2003 -:16:- examined as P.W.10 in three earlier cases (C.C. No. 9, 10 and 11) of 1993) in which the appellant herein was the common first accused . Ext.D3 is the statement dated 16-3-1990 givenbyP.W.6 (Ayyappan) to P.W.2 at the time of the enquiry conducted by P.W.2 . Ext.D4 is the certified copy of the office order dated 9-08-1989 showing the delegation of duties assigned to the officers including Ayyappan (P.W.6) of the Kollam Branch of the PNB. Ext.D5 is the marked portion in the deposition of P.W.6 (Ayyappan ) who was examined as P.W.23 before the court below in C. C. Nos. 9, 10 and 11 of 1993. Ext.D5 (a) is another marked portion of Ayyappan in the very same deposition. Ext.D6 is the marked portion of the deposition of P.W.15 (Ramesh Kumar) who was examined as P.W. 26 in C.C. Nos 9, 10 and 11 of 1993. ARGUMENT ON BEHALF OF THE CBI Crl.Appeal No. 614 of 2003 -:17:- 11. Adv. Sri. Chandrasekhara Pillai, the learned counsel for the C.B.I. made the following submissions in support of his fervent plea for dismissal of the appeal:- Ext.P3 is the loan application dated 21-10-1989 submitted by A2 (Shahabudeen) to the PNB seeking a term loan of ` 75,000/- for his proprietary concern by name Barrels and Metals, Quilon for the purpose of re-conditioning of barrels. Along with Ext.P3 A2 had submitted Ext.P4 bogus quotation purportedly issued by one M/s. Muhammed Ismayil of Chinnakkada Street, Madurai. It was knowing fully well that M/s. Muhammed Ismayil was a bogus firm that A1 sanctioned the loan for ` 75,000/- and allowed a cash credit facility of ` 3,00,000/- to the loanee. Margin money is to be supplied by the loanee . Instead, A1 deducted the margin money of ` 25,000/- from the cash credit facility which was to be utilised only for purchasing raw materials . A1 had thus sanctioned a sum of Rs. 1,06,947.50 including margin money . Ext.P31 Demand Draft in favour of Crl.Appeal No. 614 of 2003 -:18:- Muhammed Ismayil & Company (the supplier) was not sent by registered post to the supplier . The said D.D. was handed over by A1 to A2 (the loanee) instead of the supplier. Going by the testimony of P.W.10 Ext.P31 Demand Draft was credited in the account of A2 in the PNB, Quilon by Lekshmi Vilasom Bank, Madurai, after it was endorsed by P.W.10 towards Subrahmanyam, Manager of Pakyam Finance, Madurai. P.W.10 further proves that it was A2 who handed over Ext.P31 Demand Draft to P.W.10 requesting him to encash the same and credit the money to the account of A2. If A2 had obtained custody of Ext.P31 Demand Draft, it could be presumed that he got it either from A1 or from the Bank. Instead of going into the hands of the supplier, the D.D. had gone into the hands of A2, the loanee and it was not crossed. This amounted to culpable deviation of the banking procedure . It has also been shown that Muhammed Ismayil & Company alleged to be the supplier is a non-existing firm . P.W.12 who was working as a postman in Madurai for the Crl.Appeal No. 614 of 2003 -:19:- past 36 years could not find any such firm when he attempted to deliver Ext.P36 registered letter sent by the C.B.I. The said evidence of P.W.12 is corroborated by the testimony of P.W.10 who has also deposed that there is no such firm by name Muhammed Ismayil & Company at Chinnakkada Street, Madurai. P.W.6 (Ayyappan) was made a scapegoat by the defence Ext. D3 previous statement of Ayyappan given to P.W.2 Prasad and Ext.D4 Office Order showing the delegation to duties are to be understood in the light of the testimony of P.W.6 that it was on the strength of oral direction of A1 that he recommended the loan. Moreover, in Ext.D3 the duties which are to be performed by A1 have not been delegated . Merely because the loanee has subsequently closed the loan by remitting the amounts as evidenced by Ext.D7 (a) it will not wipe off the offence. Such subsequent remittance can be taken into account only for mitigating the punishment. Vide Central Bureau of Investigation v. A. Ravishankar Prasad & Others - 2009 Crl. LJ 3437, Crl.Appeal No. 614 of 2003 -:20:- Bechaarbhai S. Prajapati v. State of Gujrat - (2008) 11 SCC 163, Smt. Rumi Dhar v. State of West Bengal & Anr. - 2009 AIR SCW 2890. A1 was thus misusing his official position by sanctioning the loan without adhearing to the established banking procedure and norms. A2 was dishonestly encashing the D.D. through P.W.10 and money belonging to the PNB was thus siphoned off by A1 and A2 without any public interest . The conviction entered and the sentence passed by the Special Court do not call for any interference. JUDICIAL EVALUATION 12. I am afraid that I find myself unable to agree with the above submissions made on behalf of the C.B.I. P.W.1 who was the Zonal Manager of PNB at Chennai had no direct knowledge about the disbursal of the loan in question. He preferred Ext.P1 complaint before the CBI on 24-1-1991 on the basis of the enquiry reports of P.W2 (Prasad) and P.W.13 (Annatharaman) . The Crl.Appeal No. 614 of 2003 -:21:- enquiry report of P.W.2 was neither produced nor marked in the case presumably with the intention of suppressing the statement of Ayyappan given to P.W.2 on 16-3-1990 in which he had admitted that he was the officer in-charge of the loans section and everything relating to the processing of loan application and finally recommending the same was done by him. It must be borne in mind that in Ext.P1 complaint submitted by P.W.1 the accused were not only the appellant herein (A1) but also the borrowers including A2 and the loans officer Ayyappan (P.W.6) . The examination of P.W.2 without his statement under Sec. 161 Cr.P.C. was objected to by the defence but the said objection was overruled. P.W.2 confessed that Ayyappan had given him a voluntary statement without any pressure or influence exerted on him. He further confessed that he did not question the appellant who was the manager of the Quilon Branch of PNB eventhough the reason given