'CBI Failed Miserably' : Supreme Court Acquits Former Indian Bank Manager In Loan Fraud Case

The Supreme Court on Tuesday (September 1) acquitted a former Indian Bank Branch Manager in a 1991 loan fraud case, holding that the CBI failed miserably not only in proving the allegations but also in properly framing the case, which the Court described as “fabricated” and having “no legs to stand.”

“The CBI has failed miserably in not only proving its case but also in framing the case.”, the Court said, while also calling for a report from the Indian Bank's Anna Nagar Chennai Branch Manager for keeping the excess money received by them in auction after satisfying the loan account. The Court expressed concern over the fact that the bank had apparently retained the surplus amount instead of disbursing it to the persons legally entitled to it.

“…we are concerned as to how the Indian Bank kept the excess money in auction received by them, without disbursal to the legal heirs, even if the predecessors-in-interest were arrayed as accused in this case….”, observed a bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran.

“Having found the case to be fully fabricated, we call for a report from the Branch Manager, Indian Bank, Anna Nagar Branch, who is impleaded herein as a respondent with regard to the loan accounts which are the subject matter of this case booked by the CBI and the satisfaction of the same as also utilisation of the money received on auction sale of the mortgaged properties.”, the court ordered.

The case related to loans sanctioned in 1991 when the Appellant (A1) was serving as Branch Manager at the Indian Bank's Anna Nagar Branch.

The CBI alleged that the Appellant had colluded with A2, a retired officer of Indian Overseas Bank, to sanction loans in favour of A4 and A5, who were allegedly being used as fronts for A2.

An FIR was registered against the Appellant under Section 420 of the Indian Penal Code, 18601 read with Section 120B and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988.

According to the prosecution, A4, who worked as a washerman at A2's residence, was projected as a real estate businessman and was sanctioned a loan of ₹13.50 lakh. Another loan of ₹10 lakh was sanctioned to A5 for purchasing 21.39 acres of land.

The prosecution further alleged that the loans were illegally sanctioned and that the properties offered as security had been overvalued.

Aggrieved by the High Court's decision to uphold the conviction rendered by the trial court, the Appellant moved to the Supreme Court.

Setting aside the conviction, the judgment authored by Justice Chandran said that CBI failed to bring on record convincing evidence connecting Appellant with any alleged misappropriation or fraudulent activity.

It observed that allegations that A2 had purchased properties or acted as a middleman in the names of A4 and A5 did not establish the prosecution case against Appellant.

The Court was particularly critical of the manner in which the CBI had constructed its case.

“A2 is said to have purchased a number of properties or acted as a middleman, in the name of A4 and A5 or by himself, but that does not prove the prosecution case as against A1…A4 & A5 were domestic helps of A2, that the loans sanctioned were in fact appropriated by A2, that the mortgaged properties were overvalued, that A1 sanctioned the loans illegally are all just figments of imagination. The CBI has failed miserably in not only proving its case but also in framing the case,” the Court observed.

Another key issue was the alleged overvaluation of properties mortgaged against the loans. The Court observed that the prosecution had produced only one valuation certificate and had not produced contemporaneous sale deeds or government-fixed market values showing what the properties were actually worth when the loans were sanctioned in 1991-92. The properties were auctioned nearly two decades later, in 2010.

Importantly, the Court noted that the bank had recovered the loan amounts through the auction of the mortgaged properties. In some instances, the auction proceeds substantially exceeded the amounts appropriated towards the loans. The Court expressed concern that excess money remained with the bank without steps being taken to identify and pay the legal heirs.

As a result, the appeal was allowed.

“We find absolutely no reason to sustain the conviction of the accused and set aside both the orders of the Trial Court and the High Court. The accused, if in custody, shall be released forthwith, if not required in any other case and if the accused is already released on bail, the bail bonds shall stand cancelled.”, the Court ordered.

The Court has nevertheless kept the matter alive for a limited purpose. It directed the Branch Manager of Indian Bank's Anna Nagar branch to submit a report on the loan accounts, the recovery of the dues and the utilisation of the money received from the auction of the mortgaged properties. The bank has also been directed to produce the relevant title deeds.

The case will next be listed on October 5, 2026, for the Court to examine the bank's report and issue further directions concerning the excess auction proceeds.

Cause Title: V. Balakrishnan Versus State

Citation : 2026 LiveLaw (SC) 882

Click here to download judgment

Appearance:

For Appellant(s) : Mr. S. Nagamuthu, Sr. Adv. Mr. M.P. Parthiban, AOR Ms. Priyaranjani Nagamuthu, Adv. Mr. Bilal Mansoor, Adv. Mr. Shreyas Kaushal, Adv. Mr. S. Geyolin Selvam, Adv. Mr. Alagiri K, Adv. Mr. Abhishek S, Adv.

For Respondent(s) : Mr. Davinder Pal Singh, A.S.G. Mr. Mukesh Kumar Maroria, AOR Mr. Shubham Prakash Mishra, Adv. Mr. Khushal Kolwar, Adv. Mr. Abhinav Mishra, Adv. Mr. S.N.Terdal, AOR