Bank Can Initiate Criminal Action If Account Declared Fraud, Even After Invoking SARFAESI Act: Karnataka High Court

"Clause 8.1 (Of the master circular issued by RBI) mandates that the amount involved in the fraud, if it is more than Rs.25.00 crores and up to Rs.50.00 crores, the Bank would complain to the Banking Security and Fraud Cell of the CBI "irrespective of the involvement of a public servant. Therefore, there can be no submission that the CBI cannot be complained of in a Bank fraud which does not involve any public servant."

It added, "The Master Circular mandates that the Bank shall complain to the CBI if the amount involved is between Rs.25.00 crores to Rs.50.00 crores. Therefore, the jurisdiction of the CBI is amount specific, as depicted in the Master Circular and it cannot be said that the CBI does not get any jurisdiction to entertain complaints where there are no public servants."

The bench also noted that Apex Court has considered the purport of the circular issued by the RBI and held that they have statutory flavour as they are guidelines and administrative instructions issued in terms of the Banking Regulation Act.

Relying on the judgement of the Apex court in the case of CENTRAL BANK OF INDIA v. RAVINDRA AND OTHERS the bench said, "The Five Judge Bench of the Apex Court clearly holds that the guidelines/directives issued by the RBI, to have a statutory flavour. If it is held by the Apex Court that those guidelines have statutory flavour, the contention of the learned senior counsel that the CBI would not get jurisdiction unless it is conferred by the statute tumbles down. The CBI does have jurisdiction in terms of what is depicted in the Master Circulars and such Master Circulars are held to have a statutory flavour."

As regards the contention of the petitioners that these offences cannot be looked into as there is no public servant involved in the case at hand, the bench referred to Delhi Special Police Establishment Act, 1946 under which the Central Bureau of Investigation takes its genesis.

It then said, "The Government of India in terms of Section 3 has issued notification which forms part of the CBI Manual as to what are the offences that can be investigated into by the CBI which forms part of the Indian Penal Code. Both Sections 420 and 120B of the IPC, form a part of the said notification. Therefore, the contention that the CBI would not get jurisdiction to enquire into any offence other than the offences under the Act is again rendered unacceptable."

It added, "The matter is still at the stage of investigation. The CBI is investigating the matter and not yet filed its final report. It is too early in the day for the petitioners to contend that no Bank official being named as accused, the offence under the Act is unnecessarily made, only to empower the CBI to conduct investigation are all contentions that cannot be countenanced at this stage."

The matter requires to be investigated into on every aspect – role of public servants and also the role of the petitioners, "as it is prima facie brought out in the complaint against the petitioners and giving up of the staff qua their accountability is also, prima facie, is a matter to be investigated into", said the court.

The bench also said it is too premature for the Court to interfere in the allegations of the nature that is made in the case at hand. 

Case Title: ASSOCIATE LUMBERS PRIVATE LIMITED v. STATE BY CENTRAL BUREAU OF INVESTIGATION

Case No: CRIMINAL PETITION No.7325 OF 2022

Citation: 2022 LiveLaw (Kar) 387

Date of Order: 30TH DAY OF SEPTEMBER, 2022

Appearance: Senior Advocate Ashok Haranahalli, Senior Advocate HASHMATH PASHA, Senior Advocate C V Nagesh, Advocate SHRAVANTH ARYA TANDRA, Advocate PRADEEP NAYAK for petitioners.

SPP P.PRASANNA KUMAR, FOR R1;

Advocate V.B.RAVISHANKAR, FOR R2

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