‘A’ was the Branch Manager for the bank called ‘X.’ He worked along with ‘B,’ his subordinate, working as a clerk-cum-cashier. ‘C’ was A’s close relative and opened a Current Account in the said Bank as Academy’ Y’s’ treasurer. The account number was ‘282’, with an initial deposit of ?5 Lakh. Let’s further assume that ‘D’ was a long-term client of the bank, holding two Fixed deposits, to the tune of ?10 Lakh and ?4 Lakh each.

A, by virtue of his authority within the bank, issued three loose-leaf cheques in favor of C, totaling to ?10 Lakh, caring less about the insufficiency of funds in C’s account. For as amusing as this sounds, he also did not enter the transactions in the official record.

Further, A also withdrew the sum of 14 Lakhs from D’s FDRs and furthered them to C’s account. However, he continued to pay interest to D (allegedly) to cover the withdrawal of his money.

One day D called the bank to collect the interest accrued on the total sum of ?14 Lakhs, and the ‘fraudulent’ transactions came to light to the Bank authorities. A was fired, and an internal audit commenced to uncover the irregularities.

On first reading the case, it seems like A has defrauded and cheated the bank and must be penalized for it. However, in the case of N. Raghavender v. State of Andhra Pradesh, CBI, A, that is, N. Raghavender was subsequently acquitted.

This paper aims to analyze the question of law presented in front of the Courts in the said case and attempts to answer the question left by the Court for Academic Discussion.

The Court concurred with the contention of the ASG, recognizing the limitations imposed against Section 136. The Court prohibits itself from engaging in a decided case, where there only arises a question of fact or a mixed question of law and fact. The only exception to such a scenario is where the Courts have misjudged a piece of material evidence or have not examined it at all.

Concerning the case at hand, The Court held that the task of the lower courts, including the High Court, is not limited to deciphering evidence but includes applying relevant laws to the matter presented before it. The Court also acknowledged the inconsistencies as mentioned by the Appellant in his defense [Argument of the Appellant 5]. The Courts also had, inter alia, mixed up the charges against the accused since he was first tried for the issuance of three loose-leaf cheques but was convicted for the Fraudulent closure of the two FDRs.  Keeping in mind the principle of Criminal Law that

‘It is better to acquit a suspicious than convicting one innocent.’[14]

The Courts determined that it was within their power to delve into this matter.

The Bench of three Justices pondered the applicability and scope of Section 409, 420, 477A of the Indian Penal Code. Through all the three sections, the common essence can be understood as the elements of Fraud, Undue Advantage, Deceit, and Misappropriation. Apart from these sections, other provisions of the law were also used extensively, including section 313 of the CrPC, The Prevention of Corruption Act, etc.

The Appellant was charged with ‘Criminal breach of trust by a banker,’[15] the Court, while examining this charge, referred to the case of Sadhupati Nageswara Rao v. State of Andhra Pradesh.[16] While establishing the ingredients of Section 409, the Court reiterated that the expression, criminal breach of trust, as defined under Section 405, must first be proven. As noted by the Court, the most essential element was establishing Entrustment and Misappropriation.

In relation to the present matter, the Courts noted that the relation between the depositor and the bank is that of a creditor-debtor[22]. The money deposited by the former is not held on trust by the bank, and the latter is free to use the money in any way as they deem fit before the depositor calls upon it. 

Further, the Court stated that the only person to explain the facts was B. Satyajit Reddy. Accepting the contention of the Appellant [Argument of the Appellant-1] that the non-examination of material witness proved Fatal to the Prosecution’s case, the Court refused to make any assumptions about the genuineness of the two letters written by Reddy.

Section 420 of the IPC criminalizes cheating and dishonestly inducing the delivery of property. The Division bench, in this case[23], followed the judgments of cases, such as the Binod Kumar case[24] , in establishing the required ingredients as-

While deliberating on the said provision, the Court noted that the accused must exercise a guilty conscience when the complainant parted with the money or property.[36] The act of the Appellant would qualify as an offense under Section 420 if it were proven that the Appellant cheated Mr. Reddy by pre-maturely closing his FDR without his consent.

The Court decided in favor of the Appellant due to the absence of any neutral evidence to rebut the genuineness of the two letters written by Mr. Satyajit Reddy. It also stated that without conclusionary proof of a guilty intention, the Appellant was entitled to the benefit of the doubt.[37]

This decision of the Court finds its support in several cases and the noted words of Hari Singh Gour,[38] who stated that the only factor distinguishing cheating from misrepresentation is the intention of the accused to cause wrongful loss to the other party or gain to self.

This provision criminalizes the act of falsification of accounts. The Court provided that to prove a charge U/S 477A, the following must be established-

Apart from this, while examining the Appellant’s last argument, about sections 409 and 420 being inherently contradictory, the Court took note of their contentions. However, it decided that the question had to be addressed in an Appropriate case subsequently. The Court also took notice of the gross misconduct by the Appellant in his works against the orders and norms of the bank. Although the Appellant was cautious not to attract criminal liability through his works, he ran the risk of causing a loss to the bank. The Court thus upheld the termination of the Appellant’s services and rescinded his rights to any compensation.

The Appellant in the N. Raghavender case argued at length that the charges under Sections 409 and 420 could not be leveled together. While raising the contention, they highlighted that the essential ingredient under Section 409 is the entrustment of property, while a case under Section 420 can be made only where the accused dishonestly induced the victim to deliver the property.[42] A similar argument has been raised by several other accused, claiming sections 409 and 420 to be Anti-thesis.[43] For example, in the case before the Punjab High Court, Justice Ranjit Singh noted,

‘Obviously, entrustment and deceiving cannot go together.’[44]

The distinction between the offense of Criminal breach of trust, and dishonest inducement of delivery of property, was brought out eloquently by the Courts in Mahindra and Mahindra Financial Services Ltd and another v. Delta Classic Pvt. Ltd.[45] The primary ingredient to establish the former offense is entrustment, i.e., an absence of a guilty mind at the time of handing over the property. The accused gains a guilty intention after being given possession or right over the property in question. As opposed to this, in Section 420, it is essential that the accused had a guilty mind at the inception of the event, i.e., he gained a right over the property employing cheating or fraud. In light of the said difference, the Court, in this case, noted that one cannot commit cheating and criminal breach of trust in the ‘same breath.’[46]

However, this is not the only stance taken by the Courts. In the case of Vadivel v. Packialakshmi,[47] the Court appreciated the difference between criminal breach of trust and cheating, as in the former, the delivery of property is voluntary, but in the latter, it is fraudulently induced. But the two offenses remain ‘mutually exclusive’[48] and different in their basis.

On the other hand, in the Wolfgang Reim case,[49] the Delhi High Court explicitly mentioned that one could not be charged with criminal breach of trust simultaneously, owing to the inherent difference in the presence of mens rea in both charges. This view of the Court was also upheld by the Haryana High Court.[50]

Even though the Supreme Court has not addressed this question of law, it seems reasonable to concur with the opinion of a majority of the High Courts in stating that the two offenses have bases contrary to one another, and charges under both cannot be sustained together.

The Appellant was charged with Section 477-A against the transaction of ?10 Lakhs from account 282. To establish a charge under this Section, it is pertinent to prove the presence of an intent to deceive or defraud. The Courts, while acquitting the Appellant, took notice of conflicting evidence and decided so mainly because-

This raises a very pertinent question: Can mens rea be established in the absence of any loss to the complainant or gain made by the accused?

As understood from the US decision of Durland v. the United States,[51] it is unnecessary to prove that someone was defrauded because the essential element is ‘scheme to defraud.’ Whether or not the accused succeeded in his scheme is inconsequential. A similar stance was taken by Hilbery J. as approved in Dr. Vimla v. Delhi Administration.[52] The respected justice, in that case, noted that the accused must have an intention to make the complainant act to his detriment, and it was not necessary to prove that the latter suffered an actual loss. The Court further noted that the injury caused to the person deceived might not necessarily be economical. Deprivation of right also constitutes an actionable injury. Also, in the case of Kotamraju Venkatrayadu v. Emperor,[53] the learned Chief Justice noted that intent to defraud relates to the intention of causing either a wrongful loss or wrongful benefit. It is not necessary that the accused intends to cause both.

In the present case, the Appellant skirted around the usual practice of the bank in issuing the three cheques in question. This is certain when the following conduct is viewed together[57]-

The Court, however, decided to acquit the Appellant since there was no harm caused to the bank and since conclusionary evidence was absent. This decision of the Court finds its support in the ratio of A. Jayaram v. State of Andhra Pradesh,[59] wherein the Court noted that the evidence adduced must be ‘unimpeachable’ and ‘convincing’ to establish guilt beyond any reasonable doubt. In the absence of such conclusionary proof, the Courts give the benefit of the doubt to the accused.

When this is viewed against some of the decisions of foreign jurisdictions, there arise some doubts on the validity of the verdict. For example, in United States v. D’Amato,[60] the Court explained that the victims need not actually be defrauded to establish an intent of defraud. However, the Prosecution must show that some harm was ‘contemplated’ by the accused. Thus, the doubtless inference of the Accused’s act must be an intention to cause harm to the complainant.[61] In Australia, for example, the essence of the word defraud is understood as damage to the complainant, as opposed to an advantage derived by the offender.[62]

Thus, even though the Appellant made no gain, and the bank suffered no actual loss, it is evident that the act of the Appellant was reckless and intended to deceive the bank about the exact details of transactions from Account No. 282. The Appellant also had an easy case to dispose of if it had provided the three additional ledgers as evidence. However, he did not do so; thus, it can also be inferred that there were some discrepancies in the ledger. The only question that arises then is: whether the Court could consider circumstantial evidence conclusive of the Appellant’s guilt?

The Court, in its decision, noted that the relation between a banker and depositor is merely that of a creditor-debtor. The bank does not hold the latter’s money through any fiduciary relationship. The Courts have reiterated this point in several decisions like Bank of Baroda v. Govind Ram Agarwal.[63] In this case, the complainant had deposited his money with the bank in a Fixed Deposit account, similar to the present case. However, the Court noted that since the money was not held on trust, there was no entrustment of property to attract Section 405 and 409. As indicated in Anz Grindlays Bank PIC. And Anr. v Shipping And Clearing (Agents),[64] the money saved in banks is not trust money which the bank must preserve and not use. On the contrary, they are lent to others, and the bank’s role is that of a debtor rather than a trustee. Referring to the case of Attorney-General of Canada, it was noted that the banker’s responsibility is “mutuum not commodatum.”[65]

As established in the Debobrata Gupta case,[69] to establish entrustment of property, the property must be handed in trust, where there exists a fiduciary relationship between the parties. There must also be evidence of such direct entrustment.[70] Therefore, the element of entrustment was not satisfied in the present case. The decision of the Court to acquit the Appellant under Section 409 was thus valid.

The Appellant was charged under Sections 409 and 420 concerning the pre-mature closure of the two FDRs. Even though the Appellant could not be charged under Section 409 for the lack of any entrustment, the charge under Section 420 must be analyzed. For section 420 to be applicable, it must be shown that the property was delivered by deceitful and intentional inducement.[71] Even though it is implicit that the accused must believe in the falseness of the guarantee or representation made by him, it was reiterated by the Courts in G. Laxminarayan Naidu v. Chitiboina Yerraiah.[72]

In the present case, the Appellant claimed that he had written permission from Mr. Reddy to transfer his FDR to account number 282. However, after reviewing the following circumstances, it prima facie appears that there was a case of dishonest inducement-

After a deeper understanding of the elements required to constitute offenses that N. Raghavender was charged with, the Supreme Court reasoning can be understood better. Although the Appellant was acquitted, it also becomes evident that this was done only because of the absence of Material Evidence. When one views the subsequent conduct of the Appellant, following both the transactions in question, the doubt of innocence becomes faint. For example, the Appellant narrowly escaped charges under Section 477A because the Prosecution failed to provide the required Ledger Books as evidence. The arguendo about him not benefitting personally from the transaction could also have been rebutted by a closer examination of the fact that his wife had collected the cheque dated 23^rd March 1994. This contradicts his assertions that the cheques were contained by Accused No.3. However, the other presence of other technicalities also pushes the case towards the benefit of the accused. For example, the Court noted that the banker is not a trustee[77] for the money deposited by the customers. The relation between them is that of a creditor-debtor, and the bank is free to use the funds deposited by the customer until he calls upon the bank to repay it[78]. Thus, the customer or the depositor does not entrust the bank with its money; it is the bank that entrusts it with its employees. In the second transaction, it seems ex facie that the Appellant committed a wrong and did not have any authorizations from Reddy. This is evident from the practice of him paying interest to B. Satyajit Reddy after the withdrawal of his FDR. Even though the amount was not paid using public funds, the subsequent conduct of the Appellant could have been viewed by the Courts in finding him guilty. The Courts have noted that where the exact modus operandi cannot be ascertained, misappropriation can be proved based on the truth or falsity of the Accused’s statements.[79] Therefore, it would be valid to infer that the Appellant enjoyed the Benefit-of-the-doubt by the Court due to the Prosecution’s failure in examining evidence independently.

Statutes-

1.       N. Raghavender v. State of Andhra Pradesh, CBI, Writ Petition No.10509 Of 2019

37.    Revision vs By Advs.Sri. Sayed Murthala, Crl.Rev.Pet.No. 471 of 2004

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