Court’s Decision
The Patna High Court set aside the conviction of a former Branch Manager of North Bihar Gramin Bank, who was earlier held guilty under Section 409 of the Indian Penal Code (Criminal Breach of Trust by public servant or banker) for alleged financial irregularities amounting to ₹96.97 lakh in loan sanctions. Justice Jitendra Kumar held that the conviction was based on conjectures and not supported by cogent evidence.
The Court categorically held that, “the audit report and the observations of the Auditor are at best only opinions.”
Further, the Court held:
“There is no cogent evidence to prove the prosecution case beyond reasonable doubts. The impugned judgments of the Trial Court as well as the Appellate Court are based only on perverse appreciation of evidence.”
Accordingly, both the trial and appellate court judgments were quashed, and the petitioner was acquitted of all charges.
Facts
The petitioner, a former Branch Manager of North Bihar Gramin Bank, was alleged to have sanctioned several loans between 2005 and 2008 in gross violation of banking norms, resulting in a financial loss of ₹96.97 lakh. The allegation arose from an audit report pointing to irregularities in the disbursement of Kisan Credit Card (KCC), General Credit Card (GCC), Short-term Cooperative Credit (SCC), and Long-term Loan (LTL) schemes covering 309 accounts.
The bank’s Area Manager lodged a complaint, asserting that many loans were granted without proper documentation, including the absence of loanees’ addresses and parentage, suggesting that fictitious persons may have been involved.
The Trial Court convicted the petitioner under Section 409 IPC and sentenced him to three years of rigorous imprisonment and a fine of ₹10,000. This was upheld by the Sessions Court in appeal.
Issues
- Whether the prosecution was vitiated due to the absence of sanction under Section 197 of the Criminal Procedure Code?
- Whether the petitioner could be convicted under Section 409 IPC based solely on audit reports and without production of primary evidence such as loan ledger books?
Petitioner’s Arguments
The petitioner argued that being a public servant, his prosecution was unsustainable in law without prior sanction from the competent authority under Section 197 CrPC. It was also contended that the prosecution failed to prove that the petitioner misappropriated funds or obtained unlawful gain from the loans sanctioned. The petitioner further submitted that none of the ledger books showing alleged irregularities were produced as evidence and some of the loanees had themselves deposed in favour of the petitioner.
Respondent’s Arguments
The State and the Bank argued that the petitioner, despite being a public servant, was not entitled to protection under Section 197 CrPC because he could be removed without the sanction of the government. They submitted that the conviction was based on well-appreciated evidence and findings of fact and did not warrant interference in revision.
Analysis of the Law
The Court examined the statutory requirement under Section 197 CrPC and held that employees of nationalised banks are not covered under the protection granted by the provision unless they cannot be removed without government sanction. Relying on several Supreme Court precedents, including:
- A. Sreenivasa Reddy v. Rakesh Sharma [(2023) 8 SCC 711],
- S.K. Miglani v. State (NCT of Delhi) [(2019) 6 SCC 111], and
- K. Ch. Prasad v. J. Vanalatha Devi [(1987) 2 SCC 52],
The Court held that sanction under Section 197 was not required in this case.
On the merits of the conviction under Section 409 IPC, the Court explained that the offence requires:
- Entrustment of property;
- Dishonest misappropriation or use of the entrusted property;
- Mens rea or dishonest intention.
Mere irregularities or administrative lapses, absent proof of dishonest intent or misappropriation, cannot constitute criminal breach of trust.
Precedent Analysis
The Court relied on several authoritative judgments interpreting Section 409 IPC and the scope of criminal breach of trust:
- N. Raghavendra v. State of AP, (2021) 18 SCC 70 – highlighting that entrustment and dishonest misappropriation are essential.
- Mir Nagvi Askari v. CBI, (2009) 15 SCC 643 – clarified that mere deviation from banking norms without dishonest intent would not suffice.
- Ram Narayan Popli v. CBI, (2003) 3 SCC 641 – emphasized that breach of trust requires dishonest use or disposal of property.
- Sudhir Shantilal Mehta v. CBI, (2009) 8 SCC 1 – reiterated the three key ingredients of Section 409 IPC.
The Court distinguished between administrative irregularity and criminal breach of trust and held that the prosecution failed to prove dishonest intent or misappropriation.
Court’s Reasoning
The High Court held that no ledger books or primary documentary evidence proving loan irregularities were presented in court. The audit report and auditor’s deposition were treated merely as opinion evidence. The Court observed that:
“The best evidence to prove the allegation… was the ledger books… But no ledger books… has been produced by the prosecution.”
The Court also noted that the defence produced loanees as witnesses, who confirmed that they had received loans and that there were no irregularities. This weakened the prosecution’s claim that fake accounts had been created.
Moreover, the High Court emphasized that its revisional jurisdiction under Sections 397 and 401 CrPC is limited and cannot be used to re-appreciate evidence unless findings are perverse or result in miscarriage of justice—which, in this case, they were.
Conclusion
The Court concluded that the conviction was not supported by legally admissible and reliable evidence. The reliance on audit reports without corroborating primary documents was insufficient to uphold the conviction under Section 409 IPC.
Thus, the High Court:
- Allowed the criminal revision petition;
- Set aside the judgments of both the Trial Court and the Appellate Court;
- Acquitted the petitioner of all charges; and
- Discharged the bail bonds.
Implications
This judgment reaffirms the principles that:
- Conviction under Section 409 IPC requires proof of dishonest intent and misappropriation, not just administrative lapse.
- Audit reports, in the absence of primary records like loan ledgers, are insufficient to prove criminal breach of trust.
- Bank officials of nationalised banks do not enjoy protection under Section 197 CrPC unless their removal requires government sanction.
- High Courts, in revisional jurisdiction, cannot re-appreciate evidence unless lower court findings are perverse or unjust.
Referred Cases Summary
- A. Sreenivasa Reddy v. Rakesh Sharma – Held that public sector bank officials are not protected under Section 197 CrPC.
- S.K. Miglani v. State (NCT of Delhi) – Reiterated that nationalised bank managers can be prosecuted without prior sanction.
- N. Raghavendra v. State of AP – Clarified the essential ingredients of Section 409 IPC.
- Mir Nagvi Askari v. CBI – Stressed on the need for evidence of misappropriation for a conviction under Section 409 IPC.
- Sudhir Shantilal Mehta v. CBI – Defined the necessary conditions for invoking criminal breach of trust.
- Ram Narayan Popli v. CBI – Emphasized dishonest intention and misappropriation as key elements of the offence.
FAQs
1. Can a bank official be prosecuted without sanction under Section 197 CrPC?
Yes, if the official is not removable only with government sanction. As per Supreme Court rulings, nationalised bank officials do not fall under Section 197 protections unless their removal requires such sanction.
2. Is an audit report enough to prove criminal breach of trust?
No. An audit report is merely an opinion. Without primary documentary evidence like loan ledgers or proof of misappropriation, such reports cannot establish guilt under Section 409 IPC.
3. What is needed to convict under Section 409 IPC?
There must be proof of entrustment, dishonest misappropriation or misuse of the property, and a clear intent to defraud or cause loss, as per multiple Supreme Court rulings.