Co-op Banks Granting Loans To Borrowers Outside Service Area Not Misappropriation Without Pecuniary Loss: Kerala High Court
The Kerala High Court has held that grant of loans by a co-operative bank to persons residing outside its service area does not, by itself, constitute criminal misconduct or misappropriation in the absence of pecuniary loss or wrongful gain.
Justice A Badharudeen made the observation while allowing a criminal miscellaneous petition seeking quashment of a final report before the Enquiry Commissioner and Special Judge, Kottayam.
The case arose based on a complaint that the Elamgulam Service Co-operative Bank had irregularly granted loans, including Bill Discount Advances (BDAs) and Cash Credit (CC) facilities, in violation of its by-laws and without requisite sanction.
The prosecution alleged a criminal conspiracy among bank officials and certain beneficiaries to misappropriate funds amounting to ₹23,29,370.25. Charges were invoked under Sections 13(2) read with 13(1)(c) and (d) of the Prevention of Corruption Act, 1988, and Sections 409, 420, 477A and 120B of the IPC.
The allegation against the petitioner was that the accused no. 11 illegally gave membership to the petitioner who is residing out of the service area of Elamgulam Service Co-operative and also granted a loan of Rs. 4 lakh and that such sanction formed part of the alleged conspiracy.
The Court noted that the loans were granted after obtaining sufficient security and the petitioners had repaid the amount in full. It was further observed that the release deeds were executed by the bank after closure of liability and there was no case that eligible members were denied loans in order to divert funds to the petitioners.
“It emerges that the petitioners herein availed loans when the same were sanctioned by the Bank on getting security for realisation of the loans in the event of default. Thereafter, the petitioners properly repaid the loans and the entire liability was closed. In such a case, how it could be found that there is misappropriation or pecuniary loss to the Bank or any other person, particularly, when the prosecution has no case that any members of the Bank were denied loans for diverting and granting of the money meant for loans in favour of the petitioners and those who are not residing within the service area of the Bank.” Court noted.
The Court observed that even if granting loans to persons outside the service area amounted to an improper action under co-operative norms, such irregularity would not automatically attract criminal liability under the Prevention of Corruption Act or IPC.
“When a Co-operative Society/ Bank grants loan to a person outside its service area, that may be considered as an improper action, but the same by itself would not attract any offences.” Court noted.
The Court held that no prima facie case was made out against the petitioners and allowed the petition.
It thus directed the Enquiry Commissioner and Special Judge, Kottayam to quash the final report against the petitioner.
Case Title: Lucy Kuriakose and Anr. v State of Kerala and Anr.
Case No: Crl. M C 7858/ 2025
Citation: 2026 LiveLaw (Ker) 111
Counsel for Petitioners: Sergi Joseph Thomas, A Mohammed
Counsel for Respondents: Rajesh A (Spl. PP), Rekha S (Snr. PP), K P Sreekumar