Arvind Sethi v. Union of India

1. Heard learned counsel for the petitioner and learned counsel for the respondent-CBI.

2. The petitioner by this writ petition challenges the order dated 27/9/2019 passed by the Special Court for CBI at Greater Bombay in discharge application Exhibit 193 in CBI Special Case No.4 of 2018.

3. There are in all fourteen accused. The petitioner is the accused no.3 in the charge-sheet. The prosecution case in brief is as follows:- The CBI, EOW, Mumbai had registered the case bearing No. R.C. 14/E/2017/CBI/EOW/Mumbai dated 31.08.2017 for 2024:BHC-AS:964 the offences punishable under Sections 120-B of Indian Penal Code (for short ‘IPC’) r/w Sections 420, 468, 468, 411 and 471 of IPC and Sections 13(2), 13(1)(d) of Prevention of Corruption Act against present petitioner and other accused on the basis of written complaint received from D.G. Kallatti, the DGM of Central Bank of India against M/s. Ashok Property Developers and M/s. Aashish Communications System and its Director/Guarantor. It is the case of the prosecution that the accused entered into criminal conspiracy in the year 2011-12, cheated the Central Bank of India, Peddar Road Branch, Mumbai and Mumbai Main Office, Mumbai of its funds to the tune of Rs.17 Crores. By creation of false and fabricated documents, the accused misutilized the credit facility suppressing material information. The accused offered immovable property as collateral security by over valuating it for availing credit facility. The petitioner failed to exercise due diligence and caution while processing and sanctioning the loan which worked to the advantage of the borrowers.

4. The petitioner, at the relevant time, was the Assistant General Manager of the main branch at Mumbai. In the summary of the charge-sheet and the final report the role of the petitioner is spelt out which is thus:-

(I) That Sh. Arvind Atma Sethi (A-3) was functioning as

Head of the Branch, Mumbai Main Office branch of Complainant i.e. Central Bank of India during the relevant period. While he was working as Branch Head, he had fraudulently processed and forwarded the loan application pertaining to M/s Aashish Communication Systems. During this process he intentionally with an intend to help the accused firms, avoid the pre-sanction inspections. Similarly, he did not obtain the credit status report, knowing that the credit worthiness of the accused firms as well as proprietors of the firm. He considered inflated valuation report submitted by Sh. Hitendra Virendra Gangwar (Accused/Suspect) knowing that the value of the collateral property is much lesser than the value arrived by the Sh. Hitendra Virendra Gangwar (Accused/Suspect). The end use of the loan proceeds were also not monitored and allowed non underlined business dealings.

(II) Thus, the Central Bank officer/Public Servant Sh.

Arvind Atma Sethi (A-3) had abuse of official position and entered into a criminal conspiracy with other accused persons Sh. Ashok Kumar Singh (A-1), Sh. Aashish Kumar Singh (Accused/Suspect), Sh. Mehul Pandey (Accused/Suspect), Sh. Janardhan Durgaprasad Pandey (Accused/Suspect) and others committed an offence of cheating to the complainant bank for tune of Rs. 17 Core was serious in nature and due to this Bank has suffered financial loss.

5. In the affidavit-in-reply, the role of the petitioner is spelt out in detail. The same is reproduced thus:- Role of Accused Mr. Arvind Atma Sethi the then AGM of the Complaint Bank

(i) Applicant/accused Arvind Sethi in M/s Ashish

Communications Systems, the main charges were as follows. The proposal for sanction of credit facilities to the tune of Rs. 25.00 Crore was processed by him. He failed to observe the lending norms, before submission of the proposal for sanction, he failed to ensure that due diligence, pre sanction inspection of the business as well as of property offered as security is conducted. The valuation done by the valuer M/s. Rachana Valuers & Surveyors is on the higher side. Mr. Sethi, violated the terms of sanction and allowed to disburse Term Loan of Rs. 5.00 Crores, without ensuring the contribution of margin by the party, without ascertaining creation of assets by ensuring that post sanction inspection is done. The firms, in whose favor the payment of Term Loan has been released are not in existence and the amount was diverted. No assets created out of Bank's Loan, Mr. Sethi failed to ensure end use of the Bank's Loan and the account turned NPA and the Bank suffer loss to the tune of Rs. 1341.56 Lacs. A copy of the Loan proposal is annexed as Annexure ‘I’.

(ii) Applicant/accused Arvind Sethi process the proposal without observing lending norms, he failed to do due diligence, pre sanction inspection of the business as well as the property offered as a collateral security. He did not obtain existing bankers' status/confidential report. External credit rating of the account was not obtained. Stock inspections and visit to the unit were not done. The valuation done by the Valuer M/s Rachana Valuers & Surveyors was on higher side. While disbursing the loan, Shri Arvind Sethi has not taken due care and disbursed term loan of Rs 5.00 crores without ensuring the contribution of the margin by the party, without ascertaining creation of assets by conducting post sanction inspection. Mr. Sethi did not ensure genuineness of the quotations submitted by the party for release of term loan. Shri Arvind Sethi did not verify the genuineness of the audited balance sheet & Income tax return submitted with the loan application by the party. He did not contact Chartered Accountant M/s Kamal Nayan Singhal & Co who purportedly audited the balance sheet of three financial years to confirm its genuineness. Mr. Sethi did not ensure genuine induction of capital of Rs. 3.75 crores in the business.

(iii) Applicant/accused Arvind Sethi did not ensure compliance of KYC norms and did not carry out due diligence in the account, including enquiry on the borrower and its Proprietor/Guarantor from market reports and sources Credit Status Report/Confidential Report from existing Banks on the borrower Proprietor/Guarantor not ensured Assets and Liabilities statements of Proprietor and Guarantor duly certified by Chartered Accountant are not obtained and their duly certified net worth statements from the CA was not obtained / not cross verified from financial reports. He did not ensure conducting of pre sanction inspection.

(iv) Applicant/accused Arvind Sethi did not ensure to obtain External Credit rating on the account and the same is not held on record before recommending the proposal. Periodical stock audit /inspection as well as periodical inspection of security in the account was not conducted/ensured. Balance Sheet of the borrower as on 31/03/2013 not obtained. Post sanction inspection not conducted. The valuation of properties mortgaged as collateral security in the account are observed to be on very higher side as compared to the purchase value of the same as per "Agreement of Sale" executed during the period 2007 and 2008, He failed to ensure realistic valuation of the properties and accepted the same without any enquiry.

(v) Entries in the account indicate that internal transfers of funds from one account to another account without bonafide commercial transactions. He thus failed to monitor the affairs in the account and thereby facilitated diversion of funds without ensuring its end use. Compliance of following terms of sanction was not ensured before disbursement. Failed to obtain details of the amount Rs. 3.75 Crores infused as capital from the relatives not routed through the bank accounts and not verified its genuineness. The term loan was released on 20.12.2012 when COD was 1.9.2012, without obtaining prior permission from competent authority.