Case Note & Summary
The matter arose in the ongoing proceedings of Delhi Development Authority v. Skipper Construction Co. & Anr., before the Supreme Court of India, concerning alleged deliberate misuse of power by bank officials in extending bank guarantees to the Skipper group of companies, which caused loss to the banks. The Court was seized of the question whether former Chairman and Managing Director and directors of New Bank of India and Canara Bank, including R.C. Suneja, Tajwar Rehman Sawhney, Sudershan Lal, S.S. Ranade, J.K. Sawhney, and the legal representatives of late B.R. Ratnakar, were guilty of intentional abuse of power. The Court also considered the responsibility of Reserve Bank of India nominees on the Canara Bank board, namely R.R. Pradhan, M.R. Kotdawala, J.P. Awasthi, and workman director D. Seetharamma. Pursuant to earlier orders, notices had been issued, and responses were filed by the individuals and banks, including Canara Bank and Punjab National Bank into which New Bank of India had merged. The Reserve Bank of India was to file its response. The core legal issue was whether the officials had misused their power in extending bank guarantees and the extent of loss caused, which would determine their liability. The Court reasoned that since the Reserve Bank of India is the authority to regulate and monitor banking activities, the enquiry should be conducted by RBI through an Enquiry Committee comprising two Deputy Governors. The Justice Saharya Commission Report, which had been submitted earlier, was directed to be forwarded to RBI and treated as relevant but not conclusive evidence, with an opportunity for the concerned persons to rebut its findings. The Court also directed that the Enquiry Committee should give notices to both banks and all persons responsible, determine their responsibility and extent, and submit a report to the Court within three months. Properties of R.C. Suneja, his wife and children remained subject to earlier orders. The order required the Governor of RBI to take appropriate steps. The final decision was an interim direction for inquiry, without determining individual liability at that stage, thus favoring neither party conclusively.
Headnote
A) Banking Law - Abuse of Power in Bank Guarantees - Enquiry by Reserve Bank of India - Not mentioned, Not mentioned - The Court considered whether former Chairman and Managing Director and directors of New Bank of India and Canara Bank were guilty of deliberate misuse of power in extending bank guarantees to Skipper group and liable for loss caused. The Court held that RBI, being the authority to regulate and monitor banks, should enquire into the matter through a Committee of two Deputy Governors. Held that the Enquiry Committee should determine responsibility and extent of responsibility and submit report within three months. (Paras 1-3) B) Evidence - Commission Report - Evidentiary Value - Not mentioned, Not mentioned - The Justice Saharya Commission Report was ordered to be forwarded to RBI and treated as relevant piece of evidence but not conclusive evidence. The persons concerned were entitled to show that the findings were not correct or tenable. Held that the Report is not binding on the Enquiry Committee or persons concerned. (Paras 1-3) C) Interim Measures - Restraint on Properties - Protection of Bank Interests - Not mentioned, Not mentioned - Properties of R.C. Suneja, his wife and children as per list filed by him were subjected to earlier orders dated January 31, 1997. Held that the properties shall remain subject to the Court's orders pending inquiry. (Paras 1-3)
Issue of Consideration
Whether former bank officials of New Bank of India and Canara Bank were guilty of deliberate and/or intentional misuse/abuse of power in extending bank guarantees to Skipper group of companies, and what loss they caused to the banks; and the appropriate mechanism for determining their responsibility.
Final Decision
The Supreme Court directed the Governor of Reserve Bank of India to nominate two officers of the status of Deputy Governors to act as an Enquiry Committee. The responses/explanations filed by parties and two copies of the Justice Saharya Commission Report shall be forwarded to RBI and form part of the record. The Commission Report shall be relevant evidence but not conclusive. The Enquiry Committee shall give notices to both banks and to persons responsible, determine responsibility and extent, and submit report to the Court within three months. Persons who have already appeared in this Court shall appear before the Committee at Delhi on February 20, 1977. Properties of R.C. Suneja, wife and children remain subject to earlier orders. A copy of the order to be communicated to Governor RBI, who shall take appropriate steps.
Law Points
- Reserve Bank of India is the authority to regulate and monitor banks
- deliberate misuse of power by bank officials in extending bank guarantees is to be enquired into by RBI
- commission report is relevant but not conclusive evidence
- persons concerned entitled to rebut findings
