4 April, 2016
In a recent decision in Central Bureau of Investigation vs. Ramesh Gelli , a division bench of the Supreme Court has held that a Chairman, Director or other employee of a bank, including a private bank as under Section 46A of the Banking Regulation Act, 1949 (BR Act) shall be construed as a Public Servant for the purposes of the Prevention of Corruption Act, 1988 (POCA).
Facts and CBI Prosecution: –
The matters before the Supreme Court were appeals filed by the Central Bureau of Investigation (CBI) against an order dated February 5, 2007 passed by the Bombay High Court, by which the Bombay High Court held that the CBI's cognizance of the Chairman and Managing Director and Executive Director of Global Trust Bank (GTB) was illegal for the reason that they are not Public Servants for the purposes of POCA.
CBI's prosecution of GTB's officials was in relation to various embezzlements, breaches of process and financial fraud allegedly perpetrated by GTB in consort with its borrowers. The CBI charge sheeted the officials of GTB under various Sections of the Indian Penal Code, 1860 (IPC) for cheating and forgery read with Section 13 (2) of POCA which deals with criminal misconduct by a public servant.
While at the time of the alleged offences and the charge sheet, GTB was a private bank; it subsequently merged with the Oriental Bank of Commerce – a scheduled public bank.
The Question for Interpretation: –
The question of law before the Supreme Court was the following:
"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?"
The question called for the exercise of judicial interpretation to bridge the gap in legislation owing to the peculiar interplay between the relevant provisions of the POCA, the BR Act and the IPC. Section 2 (c) of the POCA defined a "public servant", and sub-section (viii) is of particular relevance and reads as follows:
"(c) "Public Servant" means
(vii) any person who holds an office by virtue of which he is authorised or required to perform any public duty"
Section 2 (b) of the POCA defines "public duty" as follows:
"2. (b) "public duty" means a duty in discharge of which the State, the public or the community at large has an interest.
Explanation.- In this clause "State" includes a corporation established by or under a Central, Provincial or State Act, or an authority or a body owned or controlled or aided by the Government or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956);"
While a bare reading of the above two Sections of POCA would point to a wide understanding of what constitutes exercise of public duty, the Supreme Court was quick to clarify that the mere performance of public duties by the holder of any office would not attract the applicability of Section 2 (c) of POCA since that would have the effect of cancelling out the distinguishing features that set the holder of a private office apart from the holder of a private office.
Judgment dated February 23, 2016 in Civil Appeal Nos. 1077 to 1081 of 2013 and Writ Petition (Crl.) No. 167 of 2015
The Supreme Court then turned to Section 46A of the BR Act, which reads as follows:
"46A. 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)."
For the purposes of POCA, Sections 161 to 165A of the Chapter IX of the IPC were repealed by Section 31 of POCA, and the offences in Chapter IX find place as Sections 7 to 12 of POCA.
Purpose and Interpretation: –
The Supreme Court observed that the amendments to POCA which had the effect of rendering the provisions of Chapter IX of the IPC as not being applicable to POCA ought to have been followed-up with a corresponding insertion to Section 46A of the BR Act deeming the Chairman, director, etc. of a bank as a Public Servant for the purposes of Sections 7 to 12 of POCA.
However, this amendment to Section 46A of the BR Act was never carried out, and therefore it was before the Supreme Court to deduce and interpret as to whether the omission to incorporate the relevant provisions of POCA into Section 46A of the BR Act could be construed as a wholly unintended legislative omission which the can be filled in by judicial interpretation.
The Supreme Court observed that from the statement of objects and reasons to the bill which introduced POCA, it can be seen that POCA was intended to make the anti-corruption law more effective by widening its coverage. The Supreme Court also observed that in the earlier Prevention of Corruption Act, 1947, the provisions of Chapter IX of the IPC were not omitted, and were in fact the penalising provisions for the offence of corruption.
On the import of word "office",the Supreme Court relied on its decision in P.V. Narasimha Rao vs. State and a catena of other decisions and concluded that "the word "office" is of indefinite connotation, and in the present context, it would mean a position or place to which certain duties are attached and has an existence which is independent of the persons who fill it."
By this rationale, the Supreme Court held that the accused in the case at handare Public Servants for the purposes of POCA.
Consequences, and the way forward: –
The judgment of the Supreme Court is a stern message to private banks that irrespective of their private status, they are very much under an obligation to ensure that they carry out their public duty in accordance with the provisions of POCA. POCA is a long-arm statute in that it gives the authorities wide-ranging powers to pull-up officers of Banks as public servants for a wide range of offences. The decision of the Supreme Court has no doubt upped the ante for banks to bring into their fold efficient regulatory compliance systems and internal governance systems to ensure that the decisions and actions of the bank and its officers are in compliance with the provisions of POCA.
For further information, please contact:
Sawant Singh, Partner, Phoenix Legal
sawant.singh@phoenixlegal.in
