RELIGARE FINVEST LIMITED vs STATE OF NCT OF DELHI
CRIMINAL APPEAL NO 2242 of 2023
Facts:
1.RFL filed a commercial suit seeking to recover ₹791 Crores from (the erstwhile) Laxmi Vilas Bank (hereafter “LVB”). The claim was based on the allegations that LVB misappropriated Fixed Deposits (“FDs”) furnished as security by RFL and its group companies, namely RHC Holding Pvt. Ltd. (hereafter “RHC Holding”) and Ranchem Pvt. Ltd. (hereafter “Ranchem”), to secure short-term loans.
2.Subsequently, on 23.9.2019, RFL lodged a criminal complaint asserting that officials of LVB had conspired with RHC Holding and Ranchem. This led to the registration of FIR4 by the Economic Offences Wing under Sections 409 and 120B of the Indian Penal Code, 1860. The contents of the FIR alleged that RFL had placed four FDs with a combined value of ₹750 Crores as security for short-term loans. LVB extended loans to RHC Holding and Ranchem, utilizing these FDs as security. When RHC Holding and Ranchem defaulted on their loan payments, LVB debited an amount of ₹723.71 crores from RFL’s current account without obtaining proper authorization or prior notice.
3.Reserve Bank of India (hereafter “RBI”) placed LVB under “Prompt Corrective Action”. A chargesheet was filed against ten bank officials of LVB; however, LVB itself was not implicated as an accused. The Chief Metropolitan Magistrate took
cognizance of these offenses on September 17, 2020.
4.On November 17, 2020, RBI imposed a moratorium7 on LVB in terms of Section 45(2) of the Banking Regulation Act, 1949. On November 25, 2020, due to LVB’s unstable financial condition, the Central Government directed its non-voluntary amalgamation to DBS. On February 12, 2021, a supplementary chargesheet or final report was filed, to implead LVB, represented through its director, (now DBS Bank India Limited after amalgamation), as an accused along with bank officials and the companies RHC Holding and Ranchem.
5.LVB revoked the FDs worth ₹729 Crores and also benefited by earning ₹115 crores, in interest. It was alleged that the parties involved acted in connivance with each other and committed acts of commission and omission in furtherance of the conspiracy to cheat the complainant company. DBS filed a Criminal Miscellaneous Case10 before the Delhi High Court Court, seeking to quash the supplementary chargesheet dated 12.2.2021 and summoning order dated 16.2.202111 contending inter alia that LVB had ceased to exist due to the non-voluntary amalgamation scheme and that DBS should not face prosecution for the acts and omissions of the entity which it merged with, as directed by the Government of India and the RBI.
6.Petition was rejected by the Delhi HC. This appeal is filed against the order of Delhi HC.
Issue: whether a transferee entity (here, a successor bank) can be fastened with corporate criminal liability for the offences which the amalgamating entity- the erstwhile LVB is accused of ?
Arguments:
On behalf of RBL:
1.Counsel argued that High Court ought not to have indefinitely stayed the summoning order, especially when it observed that quashing the summoning order against DBS would not be in public interest. This is more significant because the High Court denied such interim measure in its previous order dated 17.12.2021.
2.It was argued that the direction to approach RBI for clarification is beyond the scope of the original petition as DBS did not assert or seek relief in its quashing petition for the parties to approach the RBI for clarification. This direction essentially imposes a new obligation on the parties involved. If the High Court deemed it necessary to seek RBI’s view, it should have ideally impleaded RBI as a necessary party.
3.RFL argued that criminal proceedings do not automatically abate upon the amalgamation of a company. LVB gained from the illegal transaction, and DBS is benefited from the assets of LVB, which included misappropriated funds obtained from RFL’s fixed deposits. Moreover, Clause 3(3) of the scheme incorporates the notion of criminal accountability, and there is no such bar on transferring criminal liability onto the transferee bank.
On behalf of DBS:
1.Counsel argued that the acts outlined in the chargesheet occurred well before the appointed date of the amalgamation, i.e., 27.11.2020. LVB was not implicated as an accused prior to the appointed date and was only added in the supplementary chargesheet. Before the amalgamation, LVB had no ties to DBS. LVB existed as a distinct and separate entity without being part of the same group or affiliate of or in any manner associated with DBS in any capacity.
2.It was submitted that it is well settled principle that only the actual wrongdoer can only be punished for its wrongdoing, and no vicarious criminal liability can be inherited by a transferee company. It was submitted that after the amalgamation, particularly, a non-voluntary scheme of amalgamation necessitated to safeguard the public interests, LVB ceased to exist and criminal proceedings against LVB shall abate. The transfer pertained to civil liability, with no provision concerning the continuation of criminal proceedings for the transferee company. Moreover, it was submitted that criminal proceedings cannot be transferred through a contract or statute, let alone by a scheme.
3.It was submitted that while one arm of the Government, namely the RBI and the Central Government, took proactive measures by formulating the Scheme under Section 45(7) of the Banking Act to safeguard the interests of LVB’s depositors, employees, and others, another arm of the Government, represented by Respondent No. 1, cannot vitiate the process by imposing criminal liability against DBS for the past actions of LVB.
Decision: Hon’ble SC allowed the appeal by DBS Bank.
Rationale:
1.Hon’ble SC held that Every scheme of amalgamation is statutory and sanctioned under the Banking Act. Such amalgamation is to ensure that the interests of the depositors, the creditors and others who had invested, or given credit to in the erstwhile bank, before its sickness, and that the general public are protected. It aims at securing larger public interest and health of the banking industry.
2.It further held that If one sees this and the overall objective of the scheme, it is to ensure recovery of what are the bank’s dues and ensuring protection of the creditors. Clause 3 (3) of the scheme, therefore, has to be considered from this backdrop. In this context, the express mention of directors and such other individuals in the proviso means that it is to that extent only that prosecutions or other criminal proceedings can continue; in the ordinary sense, criminal liability can neither be attributed to DBS nor its directors, brought in after the amalgamation, whose appointments were approved by the RBI.
3.It also noted that the criminal liability of the individuals now attributed to DBS are actions of (1) Anjani Kumar Verma, (2) S. Venkatesh, (3) Pradeep Kumar and (4) Parthsarathi Mukherjee. They were all officials of LVB. Their individual responsibility and accountability in criminal law, is and remains unaffected by the amalgamation. Therefore, there is in fact, no involvement of DBS Bank, revealed in the charge sheet filed by the Delhi Police.
4.It further held that In the present context, the public’s confidence in the banking industry was at stake, when RBI stepped in, imposed the moratorium and asked DBS to take over the entire functioning, management assets and liabilities of the erstwhile LVB. To permit prosecution of DBS for the acts of LVB officials (who are in fact, facing criminal charges) would result in travesty of justice.
Order Copy: