SRI B T MOHAN v. STATE OF KARNATAKA

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REGISTERED BY THE RESPONDENT KEMPEGOWDANAGAR POLICE

STATION, VISVESHWARAPURAM SUB DIVISION BENGALURU FOR

THE ALLEGED COMMISSION OF OFFENCE P/U/S.120-B, 420, 417,

406, 506 OF IPC AND SEC.22 OF THE BANNING OF UNREGULATED

DEPOSIT SCHEME ORDINANCE 2019 AND SEC.9 OF THE

KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN

FINANCIAL ESTABLISHMENT ACT 2004 PENDING ON THE FILE OF

THE PRINCIPAL CITY CIVIL AND SESSIONS JUDGE AT

BENGALURU.

CRL.A.NO.2087/2022

BETWEEN:

SRI. SHRINIVAS B.L

S/O T.N. LAKSHMINARAYANA

AGED ABOUT 64 YEARS

NO.C-1405, BRIGADE GATE WAY APARTMENT MALLESHWARAM, BENGALURU - 560 055. …APPELLANT

(BY SRI. SATISH M. DODDAMANI., SR. ADVOCATE

SRI. MARUTHI G.B. - ADVOCATE)

AND:

1. STATE OF KARNATAKA

BY KEMPEGOWDANAGAR PS,

BENGALURU

REPRESENTED BY,

HIGH COURT OF KARNATAKA,

BENGALURU-560 001.

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2. SRI. PRADEEP K

S/O GANESH BHAT

AGED ABOUT 45 YEARS

OCC: ENGINEERS

R/AT NO.15, 7^THMAIN

4^THCROSS, NAVODAYANAGARA

J.P. NAGARA, 8^THPHASE

BENGALURU - 560 076. …RESPONDENTS

(BY SRI. KIRAN .S JAVALI - SPP-I A/W SRI. S. VISHWAMURTHY - HCGP FOR R-1; R-2 SERVED AND UNREPRESENTED) THIS CRL.A. FILED U/S.16 OF THE KARNATAKA PROTECTION

OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENT

ACT, 2004 BY THE ADVOCATE FOR THE APPELLANT PRAYING THAT

THIS HONORABLE COURT MAY BE PLEASED TO SET ASIDE THE

ORDER ON BAIL APPLICATION PASSED BY THE PRL. CITY CIVIL

AND SESSION JUDGE AT BENGALURU IN CRIME NO.158/2022

DATED 07.11.2022 AND ALLOW THE APPEAL AND ENLARGE THE

APPELLANT / ACCUSED NO.4 ON BAIL IN CRIME NO.158/2022

FOR THE ALLEGED OFFENCES PUNISHABLE UNDER SECTIONS

120B, 406, 420, 417, 506 OF IPC, SECTION 22 OF THE BANNING

OF UNREGULATED DEPOSIT SCHEME ORDINANCE 2019 AND

SEC.9 OF THE KARNATAKA PROTECTION OF INTEREST OF

DEPOSITORS IN FINANCIAL ESTABLISHMENT ACT 2004 AND

RELEASE HIM.

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THESE CRIMINAL APPEALS, COMING ON FOR FINAL

DISPOSAL, THIS DAY, THE COURT DELIVERED THE FOLLOWING:

JUDGMENT

Crl.A.No.2066/2022 is filed by accused No.2 seeking setting aside the order dated 07.11.2022 passed in Crime No.158/2022 by the Principal City Civil and Sessions Judge, Bengaluru.

2. Crl.A.No.2087/2022 is filed by accused No.4 seeking setting aside the order dated 07.11.2022 passed in Crime No.158/2022 by the Principal City Civil and Sessions Judge, Bengaluru, whereunder the bail applications of accused Nos.2 and 4 came to be rejected by common order sought in respect of Crime No.158/2022 registered for the offence punishable under Sections 406, 417, 420, 506, 120-B of IPC, Section 9 of Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 and Section 22 of Banning of Unregulated Deposit Schemes Act, 2019.

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3. Crl.A.No.2109/2022 is filed by accused No.3 seeking setting aside the order dated 15.11.2022 passed in Crl.Misc.No.10569/2022 whereunder anticipatory bail petition of appellant/accused No.3 came to be rejected sought in Crime No.158/2022 registered for the offence punishable under Sections 406, 417, 506, 120-B of IPC, Section 9 of Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 (for short 'KPIDFE Act') and Section 22 of Banning of Unregulated Deposit Schemes Act, 2019 ('BUDS Act').

4. Heard learned counsel appearing for the appellants in all three appeals and Sri Kiran S.Javali, learned SPP for respondent - State.

5. The case of the prosecution is that one Pradeep.K., S/o Ganesh Bhat has filed a complaint on 21.10.2022 stating that he is a Software Engineer at Intel Company and he is a member of Kuruhinashetti Souharda Credit Cooperative Ltd,

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J.P.Nagar, Bengaluru (for short 'society') and he had kept fixed deposit of Rs.60 Lakhs with the said society. It is further stated that the complainant requested the society to prematurely close the fixed deposit. However, the same has not been accepted by the officials of the society. Several other account holders of the society have invested money in the form of fixed deposits in the said society.

6. It is further stated that form 2011-2016, 2016-2021 and 2021-2026 those persons who are elected as office bearers for the aforesaid period had lent mortgage loan and different types of loans to the borrowers and that the members of the same family were also granted loan and the society officials instead of accepting the original title deeds for mortgage loan, have released the loan amount only based on the photocopies of the title deeds. It is further stated that the act of the Board members of the society from 2011-2016, 2016-2021 and 2021 onwards has caused total loss of Rs.90

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crores to the society as on June, 2022. Subsequent to resignation of the office bearers who were elected in 2022, Administrator has now been appointed to the said society. It is further stated though the society was able to recover part of the money lent to different account holders, the office bearers instead of distributing the aforesaid sum equally to the account holders, have distributed the same to the account holders of their blood relatives and thus, have committed the offences.

7. The complaint came to be registered in Crime No.158/2022 of Kempegowda Nagar Police Station for the offence punishable under Sections 120-B, 406, 420, 417, 506 of IPC, Section 9 of KPIDFE Act and Section 22 of BUDS Act. The said crime is registered against 23 accused persons. Accused Nos.2 and 4 who were arrested are in judicial custody and they filed bail applications which came to be rejected by common order dated 07.11.2022. The said order

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has been challenged in Crl.A.No.2066/2022 by accused No.2 and Crl.A.No.2087/2022 by accused No.4. Accused No.3 apprehending his arrest has filed Crl.Misc.No.10569/2022 seeking anticipatory bail and the same came to be rejected by order dated 15.11.2022 which has been challenged by accused No.3 in Crl.A.No.2109/2022.

8. Learned counsel for the appellant in Crl.A.No.2066/2022 contends that earlier a case came to be registered in Crime No.122/2022 of Kempegowda Nagar Police Station on the complaint of one R.Madan against 14 accused persons for the offence punishable under Sections 120B, 420, 417, 406, 506 of IPC, Section 9 of KPIDFE Act and Section 22 of BUDS Act and this appellant / accused No.2 was not arrayed as accused. But as he was a Director of society apprehending his arrest he filed

Crl.Misc.No.9238/2022 seeking anticipatory bail and the same came to be allowed 01.10.2022. It is his further

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submission that when this appellant / accused No.2 went to comply the conditions of the said order to the Police station, he came to be arrested in Crime No.158/2022 in which he was arrayed as accused No.2. It is his further submission that the allegation in the complaint is non return of fixed deposit amount. There is no allegation of any ponzi scheme and there is no allegation of any exorbitant interest. The only allegation is that the loan has been advanced on the basis of photocopies of the title deeds without proper securities etc. It is his further submission that this Crime No.158/2022 being the second FIR is not permissible and on that aspect he has placed reliance on the decision of the Hon'ble Apex Court in the case of Surender Kaushik and others vs. State of Uttar Pradesh and others ((2013) 5 SCC 148), wherein reliance was placed on the decision in the case of T.T.Antony vs. State of Kerala (2001) 6 SCC

181).

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9. It is his further submission that this appellant / accused No.2 has been earlier granted anticipatory bail in Crime No.122/2022 and there is no appeal challenging the said order by the respondent - State and his arrest in the second FIR in Crime No.158/2022 is not permissible. It is his further submission that as per definition of Section 2(e) of Karnataka Souharda Sahakari Act, 1997, 'Co-operative' means a co-operative including a co-operative bank and which has the words 'Souharda Sahakari' in its name and the definition of 'Co-operative Bank' in Section 2(ee) of the Act means a co-operative engaged in or having as its primary object, the business of banking. It is his further submission that definition of 'Financial Establishment' under Section 2(4) does not include a co-operative society and therefore, the provisions of KPIDFE Act are not attracted. It is his further submission that there is no fraudulent default by the members of the management of the society in repayment of deposit and therefore, the offences under the provisions of

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KPIDFE Act is not attracted. It is his further submission that accused Nos.6, 7, 8 and 18 who were the Directors have been granted anticipatory bail by the Special Court. Therefore, appellant / accused No.2 is entitled for grant of bail on the ground of parity. It is his further submission that there is no allegation of any mis-appropriation by the Directors and there is recovery of loan amount to the tune of Rs.15 crores within a period of 1^1/2months. Appellant / accused No.2 was a Director till the year 2021 and as now the Administrator has been appointed, the appellant / accused No.2 has no access to the documents and he is ready to co-operate with the investigating officer in the investigation. Appellant / accused No.2 is aged 71 years and two stents have been implanted and his wife is suffering from 4th stage lungs cancer. Without considering all these aspects, learned Sessions/Special Judge has passed the impugned order which requires interference by this Court.

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With this he prayed to allow the appeal and grant bail to appellant / accused No.2.

10. Learned counsel for appellant / accused No.4 in Crl.A.No.2087/2022 has reiterated the arguments advanced by the learned counsel for the appellant in Crl.A.No.2066/2022. He contended that all the accused in Crime No.122/2022 have been granted anticipatory bail. This appellant / accused No.4 has been arrested in Crime No.158/2022 on 22.10.2022. There is no specific allegation against the appellant / accused No.4 in the complaint. Appellant / accused No.4 was a Director and not President in the year 2011. It is his further submission that definition of 'Financial Establishment' under Section 2(4) excludes a co- operative society and therefore, Section 9 of KPIDFE Act is not attracted. Accused Nos.6 to 14, 16 to 18 have been granted anticipatory bail and accused No.23 is granted bail by the Sessions / Special Court. Interim bail has been

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granted to accused Nos.2 and 4 by this Court and it is in force till today and there is no allegation of any misuse of the liberty granted to them. It is his further submission that power conferred by Cr.P.C. are not curtailed by the State enactment. Appellant / accused No.4 is aged 64 years and suffering from age related ailments. Without considering all these aspects, learned Sessions/Special Judge has passed the impugned order which requires interference by this Court. With this he prayed to allow the appeal and grant bail to appellant / accused No.4.

11. Learned counsel for appellant / accused No.3 in Crl.A.No.2109/2022 would contend that this appellant / accused No.3 is not a Director and he has introduced opening of two savings bank accounts and two loan accounts. He is holding fixed deposit to the tune of Rs.50 lakhs in the co- operative society. It is his further submission that this appellant / accused No.3 has been arrested in the first FIR in

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Crime No.122/2022 and he has been granted bail. Therefore, he cannot be arrested in the second FIR i.e., in Crime No.158/2022. Appellant / accused No.3 is aged 75 years and he has underwent brain surgery for four times and he is suffering from memory loss. Accused No.6 to 8 and 18 who were Directors have been granted anticipatory bail in Crime No.158/2022. Therefore, this appellant / accused No.3 is entitled for grant of anticipatory bail. Without considering all these aspects, learned Sessions/Special Judge has passed the impugned order which requires interference by this Court. With this he prayed to allow the appeal and grant anticipatory bail to appellant / accused No.3.

12. Learned SPP representing respondent - State in all the three appeals would contend that the object of Karnataka Souharda Sahakari Act, 1997 has to be looked into where the co-operative society has been formed based on self help, mutual aid, wholly owned, managed and controlled by

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members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles. It is his further submission that definition of 'co-operative' in Section 2(e) and definition of 'co-operative bank' in Section 2 (ee) are not attracted as no license has been produced / obtained under Section 5 of the Banking Regulation Act, 1949. It is his further submission that the society is not a bank and it is a self help group though collects money and they are accountable for its repayment with interest. Section 18(2) of the KPIDFE Act bars to entertain a petition under Section 438 of Cr.P.C. The failure to return deposit attracts the offence under Section 9 of the KPIDFE Act. It is his further submission that Section 9A has been inserted in the KPIDFE Act by Karnataka Act 24 of 2022 which provides for clubbing of subsequent FIRs into the earliest case and order to carry on common investigation and filing of common final report under Section 173 of Code of Criminal Procedure before the Special Court within which jurisdiction the earliest

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First Information report was registered. It is his further submission that the offence alleged against the accused persons is an economic offence which is a class by themselves. It is his further submission that as per substituted Section 9 by Karnataka Act No.06 of 2021, as per sub-section (3) every person who, at the time the offence was committed, was in conduct of its business, as well as the financial establishment, shall be deemed to be guilty of the offence and shall be liable to be proceeded against the punished accordingly. It is his further submission that failure to return the deposit attracts Section 9(3) of the KPIDFE Act. The investigation is in progress. If the appellants are granted bail / anticipatory bail, then there are chances of hampering investigation and tampering prosecution witnesses. It is his further submission that KPIDFE Act overrides all other Acts. Considering all these aspects, the Special / Sessions Court has passed the impugned order which does not call for any interference. With this, he prayed to dismiss the appeals.

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13. The accusation in the first information is that the accused persons who are the Directors who collected the deposits from the members and failed to return the said deposit amount with interest and lent mortgage loan without deposit of original title deeds and committed the offences alleged against them. The complainant and other members have kept the deposit in Kuruhina Shetty Souharda Credit Cooperative Limited, J.P.Nagar, Bengaluru. It is submitted that the said society is governed by the provisions of Karnataka Souharda Sahakari Act, 1997. The definition of 'Co-operative' and 'Co-operative Bank' are extracted as under:

2(e) Co-operative" means a co-operative including a co-operative bank doing the business of banking registered or deemed to be registered under Section 5 and which has the words 'Souharda Sahakari' in its name and for the purposes of the Banking Regulation Act,1934 (Central Act 2 of 1934), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for

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Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981)", it shall be deemed to be a co- operative society;

2[(ee) "Co-operative Bank" means a Co-operative engaged or having as one of its objects, the business of banking.

14. As per the said definition of 'co-operative' the Kuruhinashetty Souharda Credit Cooperative Limited is doing business of banking and has words 'Souharda Sahakari' in its name and therefore, it is deemed to be a co-operative society. The ' Financial Establishment ' has been defined in Section 2(4) of the KPIDFE Act which reads thus:

"Financial Establishment" means any person or a group of individuals accepting deposit under any scheme or arrangement or in any other manner but does not include a corporation or a co-operative society owned or controlled by any State Government or the Central Government or a banking company as defined under clause (c) of Section 5 of the Banking Regulation Act, 1949 (Central Act X of 1949).

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15. The co-operative society owned or controlled by the State Government or the Central Government or a banking company under clause (c) of Section 5 of the Banking Regulation Act, 1949 are excluded from the definition of Financial Establishment. The Kuruhinashetty Souharda Credit Cooperative Ltd even though a co-operative society is not owned or controlled by the State Government or the Central Government. Therefore, the contention of learned counsel for the appellants that it is not a financial establishment cannot be accepted.

16. There is accusation against the appellants and other accused that they have not returned the deposit to the members and committed offence under Section 9 of the KPIDFE Act and Section 22 of BUDS Act. To attract offence under Section 9 of the KPIDFE Act, the prosecution has to establish that the accused have fraudulently defaulted in repayment of deposit on maturity along with benefit in the

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form of interest, bonus, profit or any other form. Even for offence under Section 4 punishable under Section 22 of BUDS Act, the prosecution has to establish fraudulent default in deposit or return of the deposit on maturity or rendering any specified service promised against such deposit. There is no allegation against the Directors of the Society of mis- appropriation of funds of society or use of funds for personal use. As per the audited balance sheet, the co-operative society has kept deposit to the extent of Rs.14,84,68,000/- in Guru Raghavendra Souharda Bank and Rs.11,15,00,000/- in Charan Cooperative Bank. The cooperative society / Directors did not repay the deposit to the members of the society as Guru Raghavendra Souharda Bank went under loss in which the huge amount is invested in fixed deposit. There is also recovery of loan amount to the extent of Rs.15 crores within a period of 1^1/2months. Therefore, at this stage, it cannot be said that the accused persons fraudulently

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defaulted in repayment of deposit amount. It is for the prosecution to establish the same at trial.

17. Section 9A of the KPIDFE Act which came to be inserted by Karnataka Act 24 of 2022 which reads thus:

9A Cognizance of offence and power to club case.-

(1) Offence under this Act are cognizable and Non- bailable.

(2) Notwithstanding anything contained in any other law for time being in force, if multiple First Information Reports are registered either in one Police station or in various police stations of the District or Commissionerate or in various police stations of the State against the same accused person or Financial Establishment relating to fraudulent default, then such an officer as may be prescribed may order for clubbing of subsequent registered First Information Reports into the earliest case and order to carry on common investigation. Further the common Final Report be filed under Section 173 of Code of Criminal Procedure, 1973 before the Special Court, within which jurisdiction the earliest First Information report was registered and that Special Court or any other Special Court designated for trial of such offence shall try the same."

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18. Sub-section (2) of Section 9A provides for clubbing the subsequent registered FIRs into the earliest case and order to carry on common investigation and filing of final report under Section 173 of Cr.P.C. before the Special / Sessions Judge within which jurisdiction the earliest FIR was registered. The earliest FIR is registered in Crime No.122/2022 of Kempegowda Nagar Police Station. Appellants who were arrayed as accused in Crime No.158/2022 is the subsequent FIR. Therefore, as per the provisions contained under Section 9A(2) of KPIDFE Act, 2004, the subsequent FIR registered in Crime No.158/2022 is required to be clubbed with earlier FIR in Crime No.122/2022.

19. Appellant in Crl.A.No.2109/2022 who is arrayed as accused No.3 in subsequent FIR in Crime No.158/2022 has already been arrested in earlier FIR in Crime No.122/2022

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and he has been granted bail. Therefore, the arrest of this appellant/accused No.3 in subsequent FIR is not permissible.

20. Appellant in Crl.A.No.2066/2022 who is arrayed as accused No.2 has been granted anticipatory bail in FIR registered in Crime No.122/2022 and now he has been arrested in subsequent FIR in Crime No.158/2022. Therefore, in view of grant of anticipatory bail to accused No.2 in Crime No.122/2022, he is entitled for grant of bail in subsequent FIR in Crime No.158/2022.

21. Appellant in Crl.A.No.2087/2022 who is arrayed as accused No.4 in subsequent Crime No.158/2022 has been granted anticipatory bail in the earlier FIR in Crime No.122/2022. Therefore, he is entitled for grant of bail in this subsequent FIR registered in Crime No.158/2022. Apart from that accused Nos.2 to 4 are also entitled for grant of bail / anticipatory bail on medical grounds. More so, accused Nos.2 and 4 have been granted interim bail by this court and

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they have not misused the liberty. Appellants have undertaken to cooperate with the investigation. The offence alleged against the accused are not punishable either with death or imprisonment for life. Without considering all these aspets, the impugned orders are passed which requires to be set-aside by granting bail to accused Nos.2 and 4 and anticipatory bail to accused No.3. Hence, the following:

ORDER

All the three appeals are allowed. Accused Nos.2 and 4 are ordered to be released on bail and accused No.3 is ordered to be released on bail in the event of his arrest subject to the following conditions:

i. Appellants - accused Nos.2 and 4 shall execute a personal bond for a sum of Rs.5,00,000/- (Rupees Five Lakh only) each with two sureties for the likesum to the satisfaction of the trial Court.

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ii. Appellant - accused No.3 shall execute a personal bond for a sum of Rs.5,00,000/- (Rupees Five Lakh only) with two sureties each for the likesum to the satisfaction of the Investigating Officer.

iii. Appellant - accused No.3 shall voluntarily surrender before the Investigating Officer within 15 days from this day and execute bail bond and furnish surety.

iv. Appellants - accused Nos.2 to 4 shall cooperate with the investigation and make themselves available for interrogation whenever required.

v. Appellants - accused Nos.2 to 4 shall not directly or indirectly make any inducement, threat or promise to any witness acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or to the Police Officer.

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vi. Appellants - accused Nos. 2 to 4 shall not obstruct or hamper the Police investigation and not to play mischief with the evidence collected or yet to be collected by the Police.

The trial Court shall not be influenced by any of the observations made in this judgment at trial.

Sd/-

JUDGE

DKB