K.V. Krishnamurthy Iyer And Ors. vs The State Of Madras

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 6 October 1952

Coram: Mahajan J., Chandrasekhara Aiyar

In the matter of K.V. Krishnamurthy Iyer and others versus The State of Madras, the Supreme Court of India delivered its judgment on 6 October 1952. The judgment was authored by Justice Chandrasekhara Aiyar, who also constituted the bench for this decision. The case before the Court comprised a group of appeals that challenged an order issued by the High Court of Judicature at Madras on 14 August 1951. The appeals were entertained by the Supreme Court on the basis of special leave. The appellants had earlier filed several petitions in the High Court concerning the Hanuman Bank Conspiracy Case, seeking to set aside a total of sixty-seven charges that had been framed against them by the Special Magistrate of Tanjore. The High Court responded by annulling all of the charges, but it directed that a fresh trial be conducted for the appellants—who were among the accused—on the specific allegation of conspiracy to falsify bank accounts and to fabricate a false balance-sheet during the period from October 1946 to April 1947. In addition, the High Court decided to withdraw the case from its own jurisdiction under Section 526(1)(e) of the Criminal Procedure Code and issued a further direction under Section 526(2) that the trial be conducted by warrant procedure without the presence of a jury. The High Court also made a strong recommendation to the Government that a Director of Prosecutions be appointed on a fixed salary comparable to that of a High Court judge, for the purpose of handling this case and other similarly complex prosecutions.

The factual background that gave rise to the appeals was set out in detail. The Hanuman Bank had been incorporated in the town of Tanjore in 1933, initially with an authorized capital of twenty thousand rupees. That authorized capital was increased to five lakh rupees in 1943 and subsequently to seven lakh rupees in 1946. The individuals identified as accused in the case held various positions within the bank. Accused 1, a retired chief engineer of the Public Works Department, served as the President of the Board of Directors. Accused 2, a former clerk of the Registration Department, was the Managing Director. Accused 3, previously a clerk in a coffee plantation, was one of the promoters and also a director. Accused 4, a practising doctor at Nagapattinam, was another director. Accused 5 acted as the bank’s auditor from its inception, while Accused 6 was his assistant. Accused 7, 8, 9, and 10 occupied the offices of Secretary, Accountant, Assistant Secretary, and Inspector respectively. Accused 11 functioned as the agent of the Nagapattinam branch, and Accused 12 was an ordinary clerk. Accused 13 served as the agent at Madras from 1945 after having been employed by the bank since 1937. Accused 14, the son of the Managing Director (Accused 2), after enrolling as an advocate, was said to have been appointed as the agent of the Mathura branch. Accused 15 joined the bank as a clerk in 1943 and became a branch agent in 1948. Accused 16, the elder brother of Accused 2, held the directorship from 1937 to 1940. Accused 17, another brother of Accused 2, had no official connection with the bank, while Accused 18, the nephew of Accused 2, served as a director until 1940. Accused 22 through Accused 28 were long-standing constituents of the bank who had been granted substantial overdraft facilities. On 9 December 1946, the Reserve Bank of India wrote a confidential letter to the Secretary of the Hanuman Bank, drawing attention to the requirement under Section 42(6)(a) of the Reserve Bank Act that an application for registration as a scheduled bank be made, because the previously disclosed balance-sheet showed an authorized capital exceeding five lakh rupees.

The Reserve Bank wrote a confidential letter to the Secretary of the Hanuman Bank drawing attention to Section 42 (6) (a) of the Reserve Bank Act, which required the bank to make an application for registration as a schedule bank because the balance-sheet then in force disclosed an authorized capital exceeding five lakhs. It was alleged that in December 1946 and January 1947 the officials of the bank resorted to wholesale and fictitious manipulation of accounts in order to conceal a shortage of assets amounting to Rs 5,31,704-12-0. The allegation further stated that a false balance-sheet had been prepared, passed and signed by accused 1 to 4, accused 5, accused 7 and accused 8, together with other directors of the bank. On 15-7-1947 the bank suspended payment. An application for winding up was filed in the High Court on 26-7-1947, and a winding-up order was pronounced on 5-11-1947, with Brahmayya and Co. appointed as official liquidators. In August 1947 accused 1 lodged a complaint against accused 2, 7, 8, 9, 10 and 14, directing the matter to be investigated by the C. I. E. Subsequently, on 29-9-1948 a charge-sheet was drawn up against twenty-eight persons, alleging a conspiracy dating back to 1938 to commit criminal breach of trust under Section 409 of the Indian Penal Code and falsification of the bank’s accounts under Section 477A of the Indian Penal Code.

The trial of the accused commenced in November 1948. During the proceedings more than six thousand exhibits were filed and two hundred and three witnesses were examined. The trial continued for two years, and after the prosecution evidence was completed the magistrate issued an order on 8-7-1950 stating, “The prosecution has been closed today. The evidence let in speaks of several facts and acts against the accused committed individually, jointly and collectively at various branches and at several places spreading over a period of nearly ten years. The charge-sheet is a bald one in that it does not make mention of many of such facts and acts… It is therefore necessary before proceeding further with the case that the prosecution should place before the Court in writing briefly a summary of its case as has been disclosed by the evidence against the accused individually or jointly and the section of law under which such acts constitute an offence.” In compliance with that direction the prosecution submitted a written statement of the case covering seventy-eight typed pages, a document which the High Court later described as having been glanced through in amazement. The magistrate then proceeded to examine the accused, a process that occupied four months. Argument hearings began in December 1950 and continued until March 1951. During this period the magistrate fell ill and retired. Meanwhile the Assistant Public Prosecutor filed an application to convert the proceeding into a preliminary register case and to commit it to the Sessions Court. A new magistrate subsequently took over the case and ordered that the accused be tried by the Court of Session.

The High Court, sitting under Justice Mack, set aside the earlier order and instructed the magistrate to frame charges, if any, against the accused after discharging those against whom no case had been established. The Court also directed the Assistant Public Prosecutor to give the magistrate full assistance by crystallising and simplifying the prosecution case as far as possible. In compliance with this direction, the Assistant Public Prosecutor furnished the magistrate with a draft comprising sixty-seven charges. The magistrate then proceeded to frame those charges against all the accused except persons numbered nineteen, twenty and twenty-one, who were discharged. At this juncture the petitions that gave rise to the present appeals were filed in the High Court and were first considered by Justice Mack and later by a Division Bench. Before the Bench the Public Prosecutor argued that it was utterly impossible to try any of the accused in a single trial on the basis of such unintelligible and impossible charges. He urged that the trial should be confined to the accusation of conspiracy to falsify bank accounts wholesale in December 1946. It was suggested that the way out of the deadlock was to isolate the charge of conspiracy to falsify the accounts and try that charge separately. The High Court examined the respective contentions of the Public Prosecutor and of the counsel for the petitioners and, after referring to the observations of Lord Wright in Emperor v. Gopal Raghunath, AIR 1929 Bom 128 (A), expressed the following view: “We do not think Lord Wright could have visualized the possibility of a case such as this, where after a trial before a magistrate lasting for 2 1/2 years a confused conglomeration of charges has resulted, bewildering not merely any defending counsel, but also any trying Court and on the basis of which no further trial can possibly proceed on a vast accumulation of matter indiscriminately flung into the case. As regards magisterial discretion it has unfortunately been quite impossible for the magistrate who framed these charges to exercise any at all. He was called upon to deal with what appears to us an impossible situation and to frame charges on a vast mass of material with which even his predecessor, who sedulously piled it up at the instance of the prosecution, found it beyond his capacity to deal. He therefore merely accepted the draft charges presented to him by the Assistant Public Prosecutor. We are in sympathy with his helplessness and the predicament in which he found himself. He is a revenue magistrate without any legal training and we cannot blame him for accepting the guidance of the Assistant Public Prosecutor of Madras who must bear full responsibility for the charges framed in this case. The present impasse is not the result of the law which presumes a certain amount of commonsense, practicability and responsibility not only in the accusation of a criminal conspiracy but also in its conduct of such a prosecution. We can find nothing whatsoever wrong or ‘mala fide’ in the accusation of”.

The Court noted that the alleged conspiracy to falsify accounts dated from December 1946 was marred by a fundamental flaw: the books, documents and papers of the bank that was under liquidation had been indiscriminately thrust into the case without any attempt to select material or to crystallise specific charges that could be used to bring the offenders to justice. In the Court’s view, the Assistant Public Prosecutor had, in effect, entangled himself, the case, the trying magistrate and the Court itself in a Gordian-knot of complication that was beyond untangling, and which, in the Court’s estimation, could be cut through only by a metaphorical hatchet. Consequently, the Court expressed no hesitation in quashing all of the charges that had been framed, not on the technical ground of misjoinder but for the broader reasons articulated earlier in the judgment. It was the Court’s opinion that, in light of these observations, the petitions for relief should have been allowed and the proceedings terminated. The Court further observed that the charges were not merely vague and unintelligible; they were also impracticable to try in a single trial without producing confusion. Under those peculiar circumstances, the High Court was justified in exercising its inherent powers to quash the charges even before the trial reached a conclusion. The Court found no justification in the High Court’s order for a fresh “de novo’’ trial given the situation that had arisen. All of the accused had already endured a protracted trial lasting two and a half years, a trial which, according to the High Court, resulted in charges that were impossible to try in a single proceeding. The Court described the most extraordinary aspect of the High Court’s judgment as the fact that it proceeded without any enquiry or trial and released certain persons from retrial in an arbitrary manner, doing so without determining their culpability. The High Court’s own words were quoted at length: “We are unable to accept the suggestion that accused 22 to 28 should also be included in this conspiracy charge. They were constituents of the bank whose accounts were juggled with in a manner of which they may not have been aware. The auditor’s assistant, accused 6, accused 11, the agent of the Nagapattinam branch against whom several charge-sheets are pending, accused 17 and 18, we do not consider need be tried any further on any count in this unwieldy conspiracy case. Accused 4, though a director who signed the balance-sheet, is a doctor practising in Nagapattinam. The prosecution has not made all directors who signed it vicariously liable and in fact has examined two of them, K. Narayanaswami Ayyar, P. W. 181, and S. Swaminatha Sastri, P. W. 139, as prosecution witnesses. In quashing these charges we do not think there should be any further trial of accused 4, 6, 11, 16, 17, 18 and 22 to 28 on any counts in this charge-sheet, though we do not exonerate them from culpability, in view of the protracted trial to which they have been subjected.” The Court concluded that the grounds relied upon by the High Court for absolving those accused, invoking the powers under Section 561-A of the Criminal Procedure Code, were absolutely untenable.

The Court noted that the exclusion of certain individuals from the original case meant that a retrial of only the remaining defendants would leave the prosecution with a fragmented and weakened case, and such a retrial was not warranted, particularly because the liquidator could still pursue civil remedies against the delinquent parties; the Court further expressed that any continuation of criminal proceedings against those excluded persons would constitute unnecessary harassment and would likely result in injustice. The Court could not understand why the matter had been transferred to the High Court nor why the right of trial by jury under Section 267 of the Criminal Procedure Code had been denied to the accused, and it concluded that the High Court had exceeded its jurisdiction by acting arbitrarily without considering the prejudice to the accused. Instead of allowing the prosecution to decide its own course after the earlier charges were set aside, the High Court had taken upon itself the role of directing how the prosecution should proceed, specifying the charges to be tried and the manner of trial. The Court found that the High Court’s direction to try twelve accused who were residents of Tanjore district at a distant and expensive venue in Madras, some two hundred miles away, would impose serious hardship on the accused, potentially depriving them of effective means of defence and thereby risking a miscarriage of justice; it also observed that the procedure ordered by the High Court could strip the accused of their normal right of appeal and expose them to the possibility of heavier penalties than they might otherwise face. The Court recognised that the prosecution had been handled inefficiently by the Government’s counsel and the magistrates, resulting in a situation where individuals who might have committed serious offences could escape liability; however, over the years the accused had not been provided with charges that they could reasonably meet, making such an outcome unavoidable, and consequently the Court held that further trial of these accused would not advance the cause of justice. Accordingly, the Court felt compelled to set aside the High Court’s order directing a fresh or de novo trial of the appellants, the appeals were allowed, the order for a de novo trial was vacated, and the earlier order that had quashed the charges was affirmed.