Irregularities In Sanctioning Loan Needs Thorough Examination: Calcutta High Court Refuses To Quash Criminal Case Against Co-op Bank Executives

The Calcutta High Court has refused to quash criminal proceedings against the Vice Chairperson and Directors of the Tamluk Ghatak Co-operative Bank who are accused by the Deputy Registrar of Cooperative Societies, Burdwan, of inter alia cheating, criminal breach of trust, etc. during the sanctioning of a loan.

In directing for the instant case to proceed towards trial, a single-bench of Justice Shekhar B Saraf held:

Allegations outlined in the FIR do indeed amount to an offence against the accused individuals and reveal the presence of a cognizable offence. Secondly, it is evident that the accusations are neither ludicrous nor implausible, as there exist substantial reasons to proceed with the case against the accused parties. Lastly, this Court is of the view that there is no justifiable cause to quash the proceedings, as they are not tainted with malicious intent or motivated by any ulterior motive seeking retribution against the accused, driven by personal animosity or private grudges It is imperative to comprehend that the term "entrustment" in this context denotes the delegation of the authority to sanction loans to the customers of the cooperative bank, subject to adhering to the guidelines duly established by the competent authority. It is my considered view that such authority was vested in the petitioners. Consequently, allegations of irregularities arising during the disbursement of loan amounts have been brought to my attention, and I firmly opine that these issues necessitate thorough examination by the lower court.

It was submitted by the petitioners that in 1996, a proposal for loan amount of Rs 36 lakhs had been made by one Mata Prasad Jaiswal, which was sanctioned from the Bank’s resources, with an interest of 18% per annum.

Petitioner had assured to repay through six-yearly instalments, and as collateral had deposited a plot of land, a building, lien of fixed deposit, cash certificate and an LIC policy in favour of the bank.

The National Bank for Agriculture and Rural Development (“NABARD”) had informed the bank that it would not be able to provide refinance assistance, since the amount exceeded the limit of Rs 10 lakhs.

Jaiswal subsequently became a nominal member of the bank, and made payments of approx. Rs 39 lakhs against the disbursed sum of Rs 32 lakhs, when the sanctioned amount was Rs 36 lakhs, due to certain defaults which led to recovery proceedings.

In 1998, a complaint under various sections of the IPC which tantamount to cheating, criminal misappropriation, etc. were lodged against the petitioners, by the Deputy Registrar of Co-operative Societies, Western Zone, Burdwan, which led to criminal proceeding being initiated.

Petitioners argued that the loan was sanctioned and disbursed on the basis of the collateral deposited by the petitioner, and that as of 2008, the borrower had repaid approx. Rs 39 lakhs.

It was argued that there was no evidence to show that the petitioners had misappropriated any funds and that substantial amounts of collateral security had been pledged by the borrower before the bank sanctioned the loan amount.

Petitioners counsel argued that they had taken prompt steps when the borrower had defaulted initially, which suggested that they were not remiss either in granting the loan, or in attempting to recover it, leading to ‘net zero loss’ for stakeholders of the bank.

It was submitted that sanctioning a loan did not tantamount to entrustment, u/s 409 IPC, since it was being provided based on the borrower’s ability to repay, as well as the fact that legal measures had been initiated once the borrowers had failed in repayment and that in any case, the ingredients of dishonest or criminal intent, were absent from the present case.

Counsel argued that the Bank had initiated civil proceedings against the borrower for his default in making timely payments, and that a dispute “which was inherently civil in nature” had been portrayed as a criminal case, since substantial repayments had already been made, thereby defeating the allegations u/s 409 IPC.

It was finally argued that while there were no materials on record to prove the alleged criminal intention of the petitioner, they were entitled under NABARD schemes, as well as the WB Cooperative Societies Act, to provide loans to the Bank’s nominal members, out of its own resources.

Opposite parties/complainants on the other hand, argued that the main reason why the petitioners were being investigated in the present case, was that they had sanctioned a loan of Rs 36 lakhs, outside the prescribed limit of Rs 10 lakhs under the WB Cooperative Bank Guidelines.

It was argued that the collateral land on the basis of which the loan was sanctioned was valued only at Rs 1.27 lakhs and that the petitioners not only sanctioned a loan outside the statutory limit, but also against a security value which was much lower than the sanctioned amount, showing a collusion between borrower and lender.

In taking note of the submissions made by all the parties, the Court looked at the guidelines laid down by the Apex Court under which criminal proceedings may be quashed and held that the present case was not one which fell into the aforesaid guidelines.

Notwithstanding the argument of ‘zero loss’ and in noting the inconsistencies exhibited by the petitioners in sanctioning the loan, as well as the potential breach of ‘entrustment,’ the Bench directed the Trial Court to probe into the matter, and held:

It has been brought to the attention of this Court that the value of the land, as indicated in the registered deed dated July 07 1994, which was provided as collateral security, appears to be lesser in comparison to the amount of the sanctioned loan. Such a circumstance undoubtedly raises concerns and warrants careful scrutiny by the appropriate court, i.e., the Tamluk Court where the ongoing proceedings are being conducted. It is also alleged that while sanctioning the loan amount, the guidelines and the bye-laws of the Bank were not properly followed by the petitioners, and in my opinion this factual nature is to be decided by Trial Court concerned.

Case: Shri Jagannath Goswami & Ors. Vs The State Of West Bengal & Anr

Coram: Justice Shekhar B Saraf

Citation: 2023 LiveLaw (Cal) 251

Click Here To Read/Download Judgment