Private bank officers as public servants: A dilemma

Evaluating the implications of the Supreme Court of India’s judgement to consider private bankers as public servants

Updated: Aug 16, 2016 11:35:09 AM UTC
A landmark judgment passed by the Supreme Court of India earlier this year held private bank officers as public servants under the Prevention of Corruption Act, 1988 (Shutterstock)

A landmark judgment (Central Bureau of Investigation, Bank Securities & Fraud Cell v. Ramesh Gelli and Others) passed by the Supreme Court (SC) of India on 23 February 2016, held private bank officers as public servants under the Prevention of Corruption Act, 1988 (hereafter referred to as PC Act) – thus establishing a new precedent for any forthcoming cases in this regard. Post the clarification from the apex court on the rationale behind this decision, the ruling was subjected to a mixed composition of responses from various banking fraternity stakeholders. In essence, the connection which the SC has laid drawn, by drawing a connection between relevant provisions of the Banking Regulation Act, 1949 (BR Act), Indian Penal Code, 1860 (IPC) and PC Act, was warranted, given the circumstances of the case in question.

In the case in trial, the respondents had contended that the bank, was a private sector bank, before its amalgamation with a public sector bank, and hence they were not public servants. This made them avoid liabilities such as disproportionate property asset cases.

How the case transpired

SC examined the object for which the PC Act was enacted repealing sections under IPC and further relied on the statement of objects and reasons of the Prevention of Corruption Bill, which was intended to make the existing anti-corruption laws more effective by widening their coverage and by strengthening the provisions.

SC relied on the definition of ‘Public Servant’ and ‘Public Duty’ given in the PC Act: Public Servant: Section 2(c) (viii) - is a person who holds an office by virtue of which he is authorized or required to perform any public duty, is a public servant
Public Duty: Section 2(b) - means a duty in the discharge of which the State, the public or the community at large has an interest

SC considered Section 46A of BR Act as the most relevant one, which read as under: -
Section 46A: Every chairman who is appointed on a whole-time basis, managing director, director, auditor, liquidator, manager and any other employee of a banking company shall be deemed to be a public servant for the purposes of Chapter IX of the Indian Penal Code (45 of 1860)

The court concluded that merely for the reason that corruption related Sections 161 to 165A of IPC has been repealed by the PC Act; relevance of Section 46A of BR Act is not lost.

SC further mentioned that the unequivocal legislative intent to widen the definition of ‘Public Servant’ by enacting the PC Act cannot be allowed to be defeated by interpreting and understanding the omission in Section 46A of the BR Act to be incapable of being filled up by the court, hence the court held that that the accused respondents are public servants for the purpose of the PC Act by virtue of the provisions of Section 46A of the BR Act.

Challenge for private banks
In the past, private banks have dealt with matters related to corruption by conducting domestic enquiries against employees and taking appropriate action, which could include termination. In the present context however, it would be important for the private banks to understand the nuances of this law and its applicability to its employees, which can pose a serious reputational threat to bank as any aggrieved private party can directly file the complaints with enforcement agencies.

The dilemma for complainants would be whether they should resort to filing a complaint with the State Anti-Corruption Bureaus or with the Central Bureau of Investigation. In the case of complaints with regard to corruption, the amount involved is immaterial unlike in fraud cases which are filed with CBI and State Police depending amount involved in fraud as prescribed by RBI in its Master Circular “Frauds – Classification & Reporting”.

PC Act would be a complete new domain for the private banks. In light of the changes led by SC, private banks would need to:

• Revisit the existing policies and amend the same, outlining what constitutes offence under the respective laws
• Conduct  training and awareness sessions for all employees and in particular, for employees in sensitive roles
• Follow guidelines issued by the Central Vigilance Commission
• Follow instructions given by Reserve Bank of India in its circular “Internal Vigilance in Private sector/foreign Banks” dated May 26, 2011

- By Arpinder Singh, Partner and National Leader, Fraud Investigation & Dispute Services, EY India. Views expressed are personal.

The thoughts and opinions shared here are of the author.

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