Court’s Decision
The Kerala High Court dismissed the petition filed under Article 227 of the Constitution seeking to quash the Special CBI Court’s order directing further investigation in a ₹15 crore bank loan diversion case. The Court upheld the Special Judge’s finding that the role of bank officials could not be brushed aside as mere negligence and directed the CBI to conduct an “effective and expeditious further investigation.” Justice A. Badharudeen held that the petitioner’s challenge “lacked bona fides” and appeared intended to shield the bank officers who might have colluded in the fraudulent acts.
“The intention of the first accused to be a saviour of accused Nos.4 and 5 protrudes, after lifting the curtain in front of him,” the Court remarked, highlighting a possible “unholy nexus” between the borrower and the bank officials.
Facts
The case originated from a complaint filed by the Regional Manager of the State Bank of India, alleging that Heera Constructions Company Pvt. Ltd. and its directors had availed a ₹15 crore loan for their project ‘Heera Lake Front’ in Thiruvananthapuram but failed to repay it. The loan account was later classified as a Non-Performing Asset (NPA) when the company diverted sale proceeds and sold secured properties—both collateral and primary—without the bank’s consent.
The CBI initially registered an FIR in 2019 under Sections 120B, 420, and 406 of the Indian Penal Code and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988. After investigation, the CBI excluded the bank officials from the array of accused, stating there was no evidence of dishonest intention. However, the Special CBI Court rejected this finding and ordered further investigation, prompting the present challenge by the first accused.
Issues
- Whether the CBI Special Court erred in directing further investigation after the agency had twice excluded bank officials from the list of accused.
- Whether negligence on the part of bank officers, without mens rea, could warrant criminal culpability.
- Whether the first accused had locus to challenge the further investigation ordered against the bank officials.
Petitioner’s Arguments
The petitioner contended that the CBI had already conducted two investigations and found no evidence of corruption or conspiracy involving bank officials. He argued that the loan default was purely a commercial dispute and that the Special Court’s order for further investigation was “unwarranted and oppressive.” It was further urged that the freezing of assets by the Enforcement Directorate had prevented repayment and that continuing the CBI probe would only prolong his ordeal. The petitioner maintained that “no element of criminal conspiracy” existed and that the investigation had attained finality.
Respondent’s Arguments
The CBI and the counsel for the State Bank of India argued that the Special Court’s direction was justified, as serious lapses by the bank’s senior officers warranted deeper scrutiny. The CBI highlighted portions of its earlier report acknowledging “gross negligence” by Assistant General Manager Ramaswamy and Deputy Manager Veena Das, who had failed to scrutinize documents while issuing a No Liability Certificate to a third party, thereby enabling the accused to sell mortgaged properties illegally. The Bank also informed that the loan had been transferred to the Special Assets Recovery Branch for recovery proceedings.
The CBI maintained that the investigation had overlooked key aspects, such as why no escrow account was opened, how the borrower continued transactions through other banks, and under what circumstances the bank extended the loan despite arrears.
Analysis of the Law
The High Court analyzed the scope of judicial interference under Article 227 with orders of subordinate criminal courts. It reiterated that the supervisory jurisdiction should not be invoked to stifle legitimate investigations, especially where the Special Court has found prima facie material warranting deeper scrutiny. Justice Badharudeen emphasized that mere “negligence” cannot always absolve public officials from criminal responsibility if surrounding circumstances indicate conscious facilitation of wrongdoing.
The Court noted that the Special Judge had rightly focused on the absence of an escrow account — a mandatory requirement in builder finance transactions — which would have ensured that sale proceeds were routed through the lending bank. The failure to open such an account and the silence of the bank officials, despite knowing that HCCPL diverted funds through other banks, created a strong suspicion of collusion.
Precedent Analysis
While the judgment did not explicitly cite other precedents, it relied conceptually on established jurisprudence governing further investigation under Section 173(8) of the CrPC and judicial restraint in interfering with such directions. The reasoning aligns with the principles laid down in Vinay Tyagi v. Irshad Ali (2013) and CBI v. Rajesh Gandhi (1997), where courts held that if material irregularities or incomplete investigation are apparent, the trial court can always direct further probe. The Court’s reasoning here also echoes the dictum that “negligence amounting to recklessness” can cross into criminal misconduct under the Prevention of Corruption Act when it facilitates fraud.
Court’s Reasoning
The Court found that the CBI’s initial reports failed to explain why bank officers allowed the company to sell mortgaged flats and collateral assets without permission, why the loan period was extended despite non-repayment, and why no escrow account was opened. It held that the Special Judge’s observations raised “serious questions of possible complicity” which could not be dismissed as mere carelessness.
“The report of the investigating officer giving them a clean chit… within the orbit of negligence or dereliction of duty could not be justified,” the Court observed.
The Court further reasoned that the petitioner’s eagerness to challenge an order directing investigation against bank officials indicated a concealed motive. It noted that “his attempt to annul the order against accused Nos.4 and 5 exposes an unholy nexus,” suggesting that the accused sought to protect officials who facilitated the alleged fraud.
Conclusion
The High Court upheld the Special Judge’s order, finding no merit in the petitioner’s challenge. It directed the CBI to complete the further investigation within two months and file its report before the Special Court. The interim stay on investigation was vacated.
“Negligence of duty cannot be used as a shield where circumstantial evidence points to complicity,” Justice Badharudeen underscored.
Implications
The judgment reinforces judicial intolerance toward superficial investigations in economic offences. It underscores that when public officials’ negligence borders on deliberate facilitation, courts must ensure a thorough probe. The ruling signals that borrowers and bank officers acting in concert to divert loan proceeds will face scrutiny under both IPC and PC Act provisions. The decision also discourages accused persons from obstructing investigations under the guise of procedural finality.
FAQs
1. What was the main issue in this case?
The key issue was whether the CBI Special Court was right in ordering further investigation against bank officials after they were excluded from the chargesheet in a ₹15 crore loan diversion case.
2. Why did the Kerala High Court uphold the further investigation?
The Court found that serious lapses — such as absence of an escrow account, unauthorized sale of mortgaged flats, and bank officers’ silence — raised doubts about possible collusion that needed to be investigated.
3. What does this judgment signify for banking and corruption cases?
It emphasizes that negligence by bank officials, when it facilitates fraudulent transactions, can amount to criminal misconduct, and courts can ensure comprehensive investigation even after a chargesheet is filed.