There were anomalies between the two statutes which the SC has now clarified. This has huge implications for banks, regulators and consumers.
While IDBI Bank’s officers may launch an agitation to demand that government holding remains above 51%, the accountability of private bankers has been tightened significantly by a landmark judgement of the Supreme Court of India (SC). The case pertains to the Ketan Parekh scam that saw the collapse of Global Trust Bank (GTB). It is well documented that Ramesh Gelli, then a high-flying banker, was close to most of the scam-accused and the corporates which colluded with him. The egregious flouting of lending norms in order to bail out Ketan Parekh destroyed GTB’s finances.
Investigations had shown that GTB lent money to corporate houses and allowed the funds to be transferred to Ketan Parekh via multiple transfers in a single day. While the details of the case are forgotten by the public and the corporate houses involved got away with their collusion, it is judicial orders that make us realise how and why cases drag on for decades. In GTB’s case, the Reserve Bank of India (RBI) quickly covered up its regulatory failure and avoided massive losses to depositors and shareholders by forcing a merger between GTB and a reluctant Oriental Bank of Commerce (OCB) in 2004.
Mr Gelli and company almost evaded accountability by taking advantage of a loophole. Twelve years later, the SC has ruled that Mr Gelli, the Bank’s executive director, Sridhar Subashri, and others were public servants under the Prevention of Corruption Act (PCA) and are liable to be tried under its stringent provisions. In doing so, the SC bench of Justices Ranjan Gogoi and PC Pant, in separate but concurring orders, overturned a Bombay High Court judgement which had let them off because of a serious omission in a legal amendment.
The apex court decided to go into the legislative intent in amending the PCA, which was to “make the anti-corruption law more effective and widen its coverage” by expanding it to cover whole-time “chairman, managing director, director, auditor, liquidator, manager and any other employee” for the purposes of Chapter IX of the Indian Penal Code (45 of 1860).
Poor attention to detail by the law ministry meant that changes in the Indian Penal Code, in line with changes to the PCA, were not accompanied by a simultaneous amendment to Section 46A of the Banking Regulation Act (BRA). The SC order, in dealing with this omission said, “Section 46-A of Banking Regulation Act, 1949, cannot be left meaningless and requires harmonious construction.” Pertinently, the substance of Section 46A would not be defeated merely because the Prevention of Corruption Act deleted a few Sections from the Indian Penal Code without making corresponding changes to the BRA.
Sherbir Penang, a lawyer who specialises in white-collar crime and criminal compliance, says in his blog that the SC order “comes against the backdrop of India battling a major non-performing asset crisis, where several banks have been accused of sanctioning loans without following due process. It is highly likely (and hoped) that law enforcement will explore the ‘quid pro quo’ angle more seriously now that private bank officers can be charged with the PCA.” Following the judgement, Mr Penang says, “Officers of private banks must understand the nuances of criminal liability that the PCA would cast on them, which is a considerable departure from the earlier substantive position of the law.” In Ramesh Gelli’s case, the matter goes back to the trial court after SC’s clarification on the conflict between provisions of the PCA and BRA. However, the significance of the judgement lies in its timing, when bad loans of several large industrialists are set to come in for deep scrutiny. Will the government actually use PCA for cases like Kiingfisher, Bhushan Steels, Winsome Diamonds, etc?