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SC allows prosecution of ex-Grindlays officials

BS Law Correspondent

The Supreme Court on Wednesday allowed the Enforcement Directorate to launch prosecution against the former top managers of Grindlays Bank and Standard Chartered Bank involved in foreign exchange violations, subject to certain conditions.

The persons concerned will be given an opportunity to be heard before May 31, and the prosecution will not proceed till the cross-appeals pending before the apex court are disposed.

Three years ago, the Supreme Court had directed that pending the disposal of the cross-appeals by the government and the banks against the judgment of the Bombay high court, prosecution against the bank officers shall not be proceeded with.

The Centre has been trying to modify that order because according to the Foreign Exchange Management Act, which replaced the Foreign Exchange Regulation Act, such prosecutions should be launched before May 31. The new law has placed a two-year deadline to limit litigation.

Additional solicitor-general Kirit Raval told a Bench consisting of Justice D P Mohapatra and Justice P Venkatarama Reddi that if the prosecutions were not launched before the deadline, no action could be taken against the managers despite their involvement in foreign exchange violations, leading to a revenue loss of $80 million.

The main appeals have been admitted, but if prosecution is not launched before the deadline, no action could be taken even if the government wins, he said.

Senior counsel K K Venugopal, representing the Grindlays Bank officers, submitted that they had not been given an opportunity to be heard under Section 61 of FERA, and therefore, they could not be prosecuted without complying with the statutory requirements.

Venugopal said the managers were being charged vicariously for the wrongdoing of others because, technically, they were at the helm of affairs.

The bank has folded up its activities in the country and the officers are now employed with other banks. If they were prosecuted now, they would suffer humiliation and loss of jobs, he added.

Counsel for Standard Chartered Bank T R Andhyarujina said most of the 40 officers involved in the scam had either retired or resigned, while many of them were abroad. Therefore, they would not be able to defend themselves in the three weeks before the deadline.

He blamed the government for the legal strategy that put the officers in this situation.

According to FERA, every person in charge at the time the offence has been committed shall be deemed guilty. However, the person can prove that the offence was done without his knowledge or he had exercised due diligence to prevent the offence.

When the officers and the banks moved the Bombay high court against the prosecution, the writ petitions challenging proceedings against them were dismissed.

The banks and the government were also dissatisfied with the judgment, and moved the Supreme Court raising various questions regarding the fundamental rights of the executives vis-a-vis the misdeeds of the company.

They have alleged that prosecution against them would violate their rights under Articles 14 and 21 (right to equality and right to life) and their reputation would be damaged.

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