CBI Can Investigate Private Persons If Fraud Involves Public Sector Bank: Kerala High Court Dismisses Plea to Quash Canara Bank Fraud Case

Valuers Cannot Claim Immunity If They Participate in Fraudulent Schemes – The Kerala High Court has ruled that the Central Bureau of Investigation (CBI) retains jurisdiction to investigate and prosecute private individuals in financial fraud cases involving public sector banks, even if no public servants are implicated. In a significant judgment Justice K. Babu dismissed a plea seeking to quash criminal proceedings against a bank panel valuer accused of facilitating a fraudulent credit scheme that caused Canara Bank a loss of ₹80 lakh.

The petitioner, V. Subramanian, accused No.6 in Sessions Case No. 35 of 2007, had sought to quash the summons and all subsequent proceedings on the ground that the CBI lacked jurisdiction since the charges under the Prevention of Corruption Act, 1988 (PC Act) were dropped when it was found that no public servants were involved. Rejecting this contention, the court held, "The CBI is empowered to investigate banking frauds involving public sector banks and to prosecute private persons if the investigation reveals cognizable offences, regardless of the absence of public servants as accused."

The case stemmed from a fraudulent scheme during 1998-1999, in which accused individuals conspired to cheat Canara Bank’s Overseas Branch in Ernakulam by securing loans using false documents. The accused, including bank officials and private individuals, allegedly availed credit facilities worth ₹80 lakh in the name of M/s Dharaja Ventures Private Limited by pledging non-existent land as collateral.

According to the prosecution, "The accused created and submitted forged sale deeds, patta, encumbrance certificates, and other documents to fabricate a security interest over a non-existent property in Tamil Nadu. The fraud was orchestrated with the help of bank officials and professionals, including the petitioner, a panel valuer of the bank, who prepared a false valuation report."

Subramanian was accused of preparing a valuation report for a non-existent 48.58-acre property in Suriyur Village, Tiruchirappalli District, Tamil Nadu. The report falsely described the property as being situated near Bharathidasan University and inflated its value to ₹72.87 lakh, enabling the accused to secure the loan.

The CBI registered FIR No. RC 10(A)/2004-CBI/KER on March 16, 2004, charging the accused under Sections 120B (criminal conspiracy), 420 (cheating), 467 (forgery), and 471 (using forged documents as genuine) of the IPC, along with Section 13(2) r/w 13(1)(d) of the PC Act, 1988. However, the investigation ultimately found no involvement of public servants, leading to the deletion of PC Act charges.

The petitioner argued that since no public servants were implicated, the CBI had no authority to continue investigating and prosecute the case. Dismissing this argument, the High Court held, "The CBI’s jurisdiction is not confined to cases involving public servants alone. If a fraud involves public sector banks, the CBI is fully competent to investigate and prosecute all offenders, including private individuals."

Referring to the Supreme Court’s ruling in State through CBI v. Jitender Kumar Singh [(2014) 11 SCC 724], the court emphasized that the CBI is "empowered to complete the investigation and file charge sheets even when PC Act offences are ultimately not made out." It further noted that the final report, once it dropped PC Act charges, was correctly filed before the Chief Judicial Magistrate (CJM), Ernakulam, and not before the Special CBI Court.

Subramanian contended that he was merely performing his professional duty as a valuer and should not be held criminally liable. Rejecting this defence, the court held, "A valuer cannot seek immunity if he knowingly participates in a fraudulent scheme by certifying false documents. When a professional’s actions aid in the commission of an offence, he cannot claim that he was simply discharging his official duty."

The court further observed, "Where the factual foundation for an offence is laid down, the court must be reluctant to quash proceedings at the initial stage. The petitioner’s contention that he was only a valuer cannot be accepted when there is prima facie evidence showing his active involvement in the conspiracy."

Citing Amit Kapoor v. Ramesh Chander [(2012) 9 SCC 460], the judgment reiterated that at the stage of framing charges, the court must only examine whether a prima facie case exists and should not engage in a detailed evaluation of evidence.

The petitioner raised additional procedural challenges, arguing that the case was improperly committed from the CJM to the Additional Sessions Court-III, which also functions as a Special CBI Court. He further claimed that multiple charge sheets had been filed, creating ambiguity about the charges against him.

Rejecting these objections, the court clarified that the Chief Judicial Magistrate acted in accordance with Section 306(5) Cr.P.C. when committing the case to the Sessions Court after granting pardon to two co-accused. The Sessions Court then correctly transferred the case to the Additional Sessions Court-III. Addressing the petitioner’s concerns about multiple charge sheets, the court stated, "There is only one final report. The fact that it was initially filed before the Special CBI Court and later directed to the CJM does not vitiate the proceedings."

On the petitioner’s claim that summons were incorrectly issued under the name of the Special CBI Court instead of the Additional Sessions Court-III, the court found this to be a clerical error, noting, "The error in the summons does not affect the jurisdiction of the trial court, nor does it cause any prejudice to the accused."

Emphasizing that economic offences must be dealt with expeditiously, the court directed, "The trial court shall complete the proceedings and dispose of the case within six months from the date of receipt of a certified copy of this judgment."

Dismissing the writ petition, the High Court concluded, "This is not a fit case for quashing proceedings at this stage. However, the trial court shall independently evaluate the evidence and arrive at its own conclusion based on the materials presented by both the prosecution and the defence."
Date of Decision: March 7, 2025