VINAYAK NARAYAN DEOSTHALI Vs C.B.I.
Bench: SUDHANSU JYOTI MUKHOPADHAYA,N.V. RAMANA
Case number: Crl.A. No.-000335-000335 / 2005
Diary number: 60172 / 2005
Advocates: KAMINI JAISWAL Vs
ARVIND KUMAR SHARMA
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REPORTABLE
IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 335 OF 2005
VINAYAK NARAYAN DEOSTHALI … APPELLANT
VERSUS
CENTRAL BUREAU OF INVESTIGATION … RESPONDENT
JUDGMENT
N.V. RAMANA, J.
This appeal is directed against the judgment dated 3 rd
December, 2004 of the Special Court (Trial of offences relating to
transactions in Securities) at Bombay in Special Case No. 3 of 1995
whereby the Special Judge convicted and sentenced the appellant for
the offences under Sections 409/120B, 403, 477-A/109, IPC and
Section 13(2) read with Section 13(1)(d) of the Prevention of
Corruption Act, 1988.
2. The prosecution story, briefly stated, is that during the year
1991, the appellant (accused No.1) while he was working as
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Assistant Manager in the Securities Department of UCO Bank,
Hamam Street Branch, Mumbai in connivance with a colleague of the
Bank (accused No. 2) hatched a criminal conspiracy with the
infamous share & stock broker of Bombay of those times, Harshad S.
Mehta (accused No. 3) with the object of cheating the UCO Bank by
causing wrongful loss to the Bank and effecting illegal gain to the
accused No. 3 (Harshad Mehta). It is alleged that for achieving the
object of conspiracy, the appellant despite being a public servant,
committed criminal breach of trust and misappropriated the funds of
Bank by manipulating the accounts to facilitate unlawful gains to
Harshad S. Mehta (accused No. 3).
3. The background of the case as unfolded by the prosecution is
that at the relevant time, UCO Bank had two Subsidiary General
Ledger (SGL) accounts with the RBI. The SGL is a type of Securities
Account floated by the Central Government. For making transactions
in these Securities, Banks and financial institutions have to open the
SGL account with the Public Debt Office of the Reserve Bank of
India. UCO Bank has two such SGL accounts with the Reserve Bank
of India. Out of the two SGL accounts owned by the UCO Bank, one
account with the number 032 was meant for the Bank’s Head Office’s
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own transactions and the other SGL account No. 065 was maintained
for the transactions done by constituents/brokers. When the Bank
itself purchased/sold a Government Security, the respective entry
was to be made in account No. 032 and if the Security was
purchased/sold by a broker client of the UCO Bank, the entry was to
be made in SGL account No. 065. As far as the entry in the books of
RBI was concerned, it was made in a particular account according to
the instructions given by UCO Bank for every transaction, as both the
accounts stood in the name of UCO Bank.
4. On 22nd March, 1991 UCO Bank sold Securities namely,
Government of India 11.5% 2009, worth Rs.20 crores to Indian Bank
(Ext. 250) from its SGL account No. 032 i.e. UCO Bank’s own
account. On the same day, UCO Bank purchased Securities namely,
Government of India 11.5% 2006, worth Rs.20 crores from Indian
Bank (Ext. 425).
5. On 5th April, 1991 UCO Bank re-purchased the earlier sold GOI
11.5% 2009 Securities from Indian Bank and sold GOI 11.5% 2006
Securities purchased earlier to Indian Bank. In other words, UCO
Bank reversed the earlier transactions. With the effect of repurchase
of Securities by the UCO Bank, RBI should have made the entry
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crediting the worth of those securities in SGL Account No. 032 of the
UCO Bank.
6. Whereas, due to a communication dated 13th April, 1991(Ext.
300) signed by the appellant accused in his position as Assistant
Accountant and the co-accused (not a party in the present appeal)
requesting the RBI to make entry in SGL Account No. DV SL 065, the
SGL Account No. 065 which was meant for the broker clients of the
UCO Bank and which had no balance on that date, showed the
balance of Securities worth Rs.20 crores. At that point of time, the
transactions of all other brokers stood squared off except in respect
of accused No. 3 (Harshad Mehta). Taking this wrong entry to his
advantage, accused No. 3—Harshad S. Mehta, being the
broker/client of the UCO Bank, sold GOI Securities 11.5% 2009,
worth Rs.15 crores (Ext. 413), which actually did not belong to him,
and thereby wrongfully gained and the UCO Bank suffered the loss. It
was none other but the appellant—accused No. 1, who passed the
Debit & Credit vouchers pertaining to the transaction (Exts. 295, 296
& 297). When these misdeeds came to light, the accused took steps
and made efforts to cover up the transactions.
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7. When the Securities Scam broke out in the year 1992, a special
cell was established by the CBI to deal with the cases arising out of
the scam. Accordingly, an FIR was registered on 30 th December,
1993 against the accused invoking Sections 120B read with Section
409, 420, 468, 471, 477-A, IPC and Section 13(2) read with Section
13(1)(d) of the P.C. Act, 1988 and the case was committed to the
Special Court. The appellant was arrested on 12 th May, 1997. The
Special Judge, after taking overall view of the matter, held the
appellant guilty of the offences and sentenced him to undergo
rigorous imprisonment for a period of one year and to pay an amount
of Rs.25,000/- towards fine, in default thereof, to further undergo
imprisonment for a period of three months. The special judge,
however, let the accused appellant to be on bail for a period of 12
weeks to enable him to approach the appellate Court.
8. Aggrieved by the judgment of the Special Judge, the appellant
filed this appeal under Section 10 of the Special Court (Trial of
Offences Relating to Transaction in Securities) Act, 1992. That is how
this appeal is before us.
9. Though there are three accused in this case, we are concerned
with accused No. 1—appellant herein only. The other two accused
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namely Makrand Vasant Shidhaye (accused No. 2) and Harshad S.
Mehta (accused No. 3) are not parties in the present appeal.
However, it is pertinent to mention that Makrand Vasant Shidhaye
(accused No. 2) had also preferred an appeal before this Court
against judgment of the Special Judge being Criminal Appeal No. 336
of 2005 which was listed before this Court on 11 th November, 2014
when the following order was passed:
Criminal Appeal No. 336 of 2005
This appeal is listed against the common impugned judgment along with Criminal Appeal No. 335/2005.
The learned counsel appearing on behalf of the appellant is not present.
It is informed at Bar by the learned counsel for the appellant in Criminal Appeal No. 335/2005 that Makrand Vasant Shidhaye-appellant in Criminal Appeal No. 336/2005 died during the pendency of the appeal. In view of such fact brought to our notice, the appeal stands abated and disposed of.
So far as accused No. 3 (Harshad S. Mehta) is concerned, he had
died on 31st December, 2001 during the pendency of trial.
10. On 21st February, 2005 while admitting the appeal, this Court
granted interim relief to the appellant by suspending sentence of
imprisonment during pendency of the appeal before this Court.
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11. Learned counsel for the appellant—accused submitted that the
learned Special Judge failed to appreciate the evidence correctly and
erred in holding the accused guilty of the offences. The SGL
information concerning the securities re-purchased by the UCO Bank
on 5th April, 1991was received on 12th April, 1991. Since there used to
be a number of transactions by the clients/brokers and the re-
purchased SGL information was received after a gap of about one
week, a clerical and bona fide mistake was committed by the
appellant—accused in getting the securities credited into the SGL
account No. 065 instead of account No. 032 of the UCO Bank. There
was no participation by the accused in any conspiracy to benefit
accused No. 3, Harshad Mehta. It was purely a clerical error that
occurred in a casual way without any bad intention. In a normal way,
the accused signed the covering note dated 13 th April, 1991 also
signed by accused No. 2 enabling the RBI to credit the securities into
SGL account No. 065. The accused—appellant had no mala fide or
dishonest intention to commit any fraud or cause loss to the UCO
Bank or to cheat it. The mistake happened mechanically without the
conscious involvement of the appellant. It is also evident from the
record that accused No. 2 himself admitted in his statement under
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Section 313, Cr.P.C. that it was he who struck off account No. 032
and wrote account No. 065 in the covering note (Ext. 300). Thus, the
appellant cannot be charged with a severe punishment for a
reasonable clerical mistake.
12. Learned counsel also submitted that the appellant was not
concerned with the routine work of the Hamam Street Branch of UCO
Bank. He was specially entrusted the duties of redemption and
reconciliation of securities. While discharging those duties, when the
appellant noticed the mistake, he immediately facilitated transfer of
Rs. 2 crores on 15th July, 1991 from the account No. 065 to account
No. 032 to set right the record. Learned Special Judge, has failed to
appreciate the fact in a true spirit that the SGL transfer forms (Ext.
235 and Ext. 240) concerning the securities sold by Harshad Mehta
to the tune of Rs.15 crores from SGL account No. 065, were not
signed by the appellant and the appellant has no role in that
transaction. This fact itself clearly establishes that the appellant was
not part of any conspiracy with accused No. 3 (Harshad Mehta). But
the Special Judge took a different and wrong view and erred by
holding that the appellant transferred securities worth Rs. 2 crores
lying in the account No. 065 to account No. 032 to cover up the
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transaction. There was no evidence on record to establish a link
between the accused—appellant and the accused No. 3 (Harshad
Mehta) forming a conspiracy between them and the prosecution has
utterly failed to prove this aspect and therefore, the appellant is
entitled for benefit of doubt.
13. Further contention of the learned counsel is that the appellant
was only an Assistant Manager of the Bank and scrupulously
implementing the decisions taken by his superiors. The appellant had
only performed his duties obediently for which he cannot be made a
scapegoat as if the appellant was solely responsible for the
transactions. The important factor, ignored by the learned Special
Judge while convicting the appellant, is that the appellant had not
earned any pecuniary gains for himself. The learned trial Judge under
a misconception went on believing the prosecution case. Only for the
simple reason of irregularity or negligence in discharging duties, the
appellant was given harsh punishment of sentence by the learned
Special Judge even though factually no loss was caused to the UCO
Bank. The view taken by the learned Special Judge that the acts of
the appellant have exposed the UCO Bank to a grave financial loss is
absolutely subtle and not based on the evidence. The prosecution
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has also admitted that no loss was caused to the UCO Bank. By any
stretch of imagination, the acts of the appellant cannot be construed
to label against him ‘criminal misconduct’ within the ambit of
Prevention of Corruption Act, 1988.
14. Disputing the quantum of sentence also, learned counsel for
the appellant submitted that the learned Special Judge while
sentencing the appellant ignored the element of proportionality in
imposing the punishment. Learned Special Judge has miserably
failed to appreciate the facts in their proper perspective and
committed a grave error in convicting the appellant and hence the
impugned judgment calls for interference by this Court.
15. On the other hand, learned Senior Counsel appearing for the
C.B.I., while supporting the judgment of the learned Special Judge,
submitted that the learned Special Judge passed the impugned
judgment after undertaking a thorough trial procedure. He came to
the conclusion only after having satisfied that the guilt of the accused
has been proved beyond reasonable doubt. Hence the Trial Court
committed no error in sentencing the accused.
16. She contended that the accused cannot plead innocence as he
played an active role in the conspiracy in benefitting accused No. 3
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(Harshad Mehta). In the process, he took the benefit of being an
employee of the UCO Bank, fully acquainted with the SGL
transactions, and committed the offence misusing his official position.
The transfer of 11.5% CGL 2009 securities for a value for Rs.20
crores into the SGL account No. 065 in the Public Debt Office of RBI
effected only with the maligned intention of the accused—appellant in
pursuance of his illegal object of providing wrongful gain to accused
No. 3 (Harshad Mehta). The conspiracy hatched by the accused
deprived UCO Bank of the interest that would have accrued on the
face value of securities amounting to Rs.20 crores. The illegal object
and the role played by the accused with full knowledge and intention
are established by a series of transactions which formed a continuous
chain and link of circumstances leading to the culpability of the
accused.
17. Learned counsel has drawn our attention to a Telex message
dated 23rd March, 1991 (Ext. 287) sent by the UCO Bank from its
Head Office to Zonal Office instructing for effecting the switch
transaction in favour of UCO Bank Head Office Account (SGL
Account No. 032). In spite of those clear instructions, the accused—
appellant with a view to benefit the accused No. 3, effected the
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transfer of Securities into the UCO Bank Constituents/Brokers
Account (Account No. 065). It is also evident from the record that at
the relevant time, all brokers’ transactions were squared off except
that of accused No. 3 (Harshad Mehta) who sold those wrongfully
transferred securities for his own benefit, causing loss to the UCO
Bank.
18. In pursuance of achievement of illegal object to cause wrongful
gain to accused No. 3, the appellant, being a public servant, abused
his position to a great extent. When the UCO Bank Head Office was
not informed about the development of the switch transaction with
reference to their Telex message dated 23rd March, 1991 (Ext. 287),
which transaction was admittedly being carried by the accused, the
Head Office issued another Telex message dated 6th April, 1991 (Ext.
466) inquiring about the transaction. Despite this second Telex
message from the Head Office, the accused did not respond to inform
the Head Office immediately and it is only on 11th April, 1991 the
accused sent a Telex message (Ext. 288) to the Head Office
informing execution of the transaction, that too concealing the truth.
Another link exhibiting the wrong intentions of the accused is that the
Bank Receipt (Ext. 299) dated 5th April, 1991 issued by Indian Bank
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was discharged by the appellant on 12th April, 1991 in favour of the
UCO Bank Head Office by signing on the reverse of it.
19. Learned senior counsel further contended that it was only when
the accused came to know that inquiries were being carried out by
the UCO Bank Head Office for the loss occurred to it due to non-
credit of the interest on the securities in question, the accused in
connivance with each other in a planned manner tried to cover up the
transactions and credited UCO Bank Head Office account through
four transactions. These transactions are:
(a)15 th July, 1991 Transferred GOI securities 11.5% 2009 worth
Rs. 2 crores from UCO Bank’s SGL A/C No. BYSL 065
(Brokers’ account) to SGL A/C No. 032 (UCO Bank’s own
account) (Ext. 245)
(b)21 st October, 1991 Transferred GOI securities 11.5% 2009
worth Rs.17 crores from the accused No. 3’s account of
State Bank of India to his State Bank of Saurashtra (Ext.
277) account.
(c)21 st October, 1991 Again transferred GOI securities 11.5%
2009 worth Rs.17 crores from accused 3’s State Bank of
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Saurashtra account to UCO Bank’s Account No. 065 (Ext.
272).
(d)25 th October, 1991 Finally these GOI securities 11.5% 2009
have been transferred from UCO Bank’s Account No. 065 to
its Account No. 032 (Ext. 282).
20. To further assert her argument that the accused in the process
of effecting those cover up transactions indulged in illegal acts,
learned senior counsel explained that even though there was no
instruction from the UCO Bank Head Office, the accused—appellant
directed the Reserve Bank to transfer securities worth Rs.2 crores
from Account No. 065 to Account No. 032 (cover up transaction ‘a’
above) blatantly misusing his position as a public servant. To prove
the chain of conspiracy, learned senior counsel took us through Ext.
277 which shows that Securities worth Rs.17 crores were transferred
from State Bank of India from the account belonging to accused No. 3
(Harshad Mehta) on 21st October, 1991 to State Bank of Saurashtra
(another account belonging to Harshad Mehta) and on the same day
they were again transferred from State Bank of Saurashtra to UCO
Bank SGL Account No. 065 (Ext. 272) and then to UCO Bank SGL
Account No. 032 on 25th October, 1991 (Ext. 282) without any
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instructions from the UCO Bank Head Office. In this way, the
accused, in connivance with each other tried to cover up the UCO
Bank Head Office Account.
21. Highlighting the crucial link of the conspiracy among the
accused in misusing the funds of UCO Bank to the tune of Rs.20
crores, learned senior counsel submitted that on 1st July, 1991
accused No. 3 wrote a letter to the UCO Bank (Ext. 413) requesting
to issue GOI 11.5% 2009 Securities worth Rs.15 crores to State Bank
of Saurashtra and State Bank of Hyderabad, though these Securities
in fact did not belong to him. Accordingly, Securities worth Rs.5
crores (Ext. 235) were transferred to the State Bank of Hyderabad
from UCO Bank SGL Account No. 065, without any instruction from
the UCO Bank. The Banker’s cheque dated 1st July, 1991 (Ext. 678)
received from State Bank of Hyderabad against those securities, in
favour of UCO Bank for an amount of Rs.5,07,195,62.22 (including
interest) was credited in the account of accused No. 3 (Harshad
Mehta). Similarly, on the same day i.e. 1st July, 1991 Securities worth
Rs.10 crores (Ext. 240) were transferred to the State Bank of
Saurashtra from UCO Bank’s SGL Account No. 065, without any
instruction from UCO Bank.
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22. The learned senior counsel finally submitted that the offences
with which the appellant was charged have been proved beyond
reasonable doubt and the Trial Court had not committed any error in
convicting the accused. She, therefore, prayed that the impugned
judgment does not deserve to be interfered with.
23. Heard the counsel on either side at length and gone through
the voluminous record placed before us. The issue that falls for
consideration is whether the learned Judge of the Special Court was
right in convicting the accused for the offences he is charged with and
whether the prosecution proved the guilt of the accused beyond
reasonable doubt?
24. Basing on the argument of both the parties, it appears that it is
the specific defence of the accused that absolutely there is no motive
or intention on his part in the alleged transactions and if at all
anything is done, it is purely a clerical bona fide mistake. Absolutely,
he has no mala fide intention to commit any fraud or crime. Having
noticed the irregularities that have taken place, he has taken steps to
transfer an amount of Rs.2.00 crores to the account No.032 from the
account No.065. He is not involved in any conspiracy or benefited by
the transactions and the learned Judge has failed to appreciate the
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evidence in its proper perspective and misguided himself in
convicting the accused. Whereas, on behalf of the CBI, arguments
were advanced supporting the judgment of the Special Court.
25. The CBI has adduced voluminous evidence to establish the
guilt of the accused. The whole issue revolves around the fact
whether the accused has got a role to play in the switch transactions
account and whether he was discharging the duties as a prudent man
and is it a bona fide mistake as he claims it to be.
26. It appears from the record and on a thorough examination of
the events that took place between April 1991 and October 1991, we
understand that on 22nd March, 1991 on which date UCO Bank’s
11.5% 2009 securities with face value of Rs. 20 crores were sold to
Indian Bank, UCO Bank has purchased similar value of securities
from Indian Bank viz., 11.5% 2006 GOI Securities for its SGL Account
No. 032. On 5th April, 1991 both the above transactions were
reversed. Resultantly, UCO Bank’s Account No. 032 should have got
back the aforementioned securities, but the same was wrongfully
transferred into UCO Bank’s SGL Account No. 065, being operated
by the Brokers. At that point of time, all brokers’ transactions who
were operating UCO Bank Account No. 065 got squared off except
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that of accused No.3. Taking this to his advantage, out of the
securities lying in the UCO Bank’s Account No. 062, Securities worth
Rs.15 crore, have been sold by the accused No. 3, though not
belonging to him actually, to the State Bank of Saurashtra and State
Bank of Hyderabad and the banker’s cheque issued in discharge of
those securities in favour of UCO Bank for an amount of
Rs.5,07,195,62.22 (including interest) was credited in the account of
accused No. 3 (Harshad Mehta).
27. The Telex messages dated 23.3.1991 (Ext. 287) and 6.4.1991
(Ext. 466) reveal that UCO Bank Head Office explicitly instructed for
switch transaction for its own Account (032). The communication
dated 13th April, 1991 (Ext. 300) sent by the accused Nos. 1 & 2
cannot be treated as a simple mistake considering the consequential
events. We have given our anxious and thorough perusal to the said
communication (Ext. 300) and found that the preparation of
communication and also the entry relating to the Securities in
question has been written by the accused No.1-appellant herein
himself. The entry indicates to transfer the securities into the UCO
Bank’s Account No. 065 (Brokers’ Account) together with two other
entries relating to other securities which were actually meant for
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transfer into the UCO Bank’s Account No. 065. We, therefore, cannot
accept the plea of appellant that it was merely a clerical mistake that
the Account No. 032 was struck off and Account No. 065 was
retained by accused No.2. The inclusion of securities in question in
the said communication by the appellant in his own handwriting,
establishes the fact that the appellant had willfully and with ulterior
motive prepared the communication.
28. It was claimed by the accused that he has transferred an
amount of Rs.2.00 crores from account No.065 to account No.032,
without there being any transaction which clearly shows that to get
away with enquiries of the Head Office, the accused has chosen to
transfer the money without there being any transaction and exhibits
the conduct of the accused. All the documents relating to switch
transaction between the UCO Bank and Indian Bank were signed by
the accused, being the responsible officer knowing pretty well that
these securities are purchased by the Head Office of UCO Bank,
which at any stretch of imagination cannot be termed as a mistake or
oversight, and above all, the debit and credit vouchers for transaction
in question were passed by the accused. On 12-4-1991, bank receipt
of Indian Bank dt. 5-4-1991 (Ex.299) was discharged and A1 signed
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on the reverse of bank receipt. Almost all the documents pertaining
to switch transaction are signed by him.
29. We have also perused the depositions of prosecution
witnesses. PW1—S. Nagrajan, the person who was working in RBI’s
Public Debt Office at the relevant time, in his deposition explained
how the SGL accounts are maintained. PW2—Harsukhlal Chhotalal
Parekh, the erstwhile Manager of UCO Bank’s Hamam Street Branch
asserted that when the transactions are taken place over SGL
accounts, necessary instructions are received by the Securities
Department of the Hamam Street Branch from concerned Broker.
Admittedly, the procedure of dealing with SGL accounts as explained
by PW1 and PW2 has not been followed in the case of securities in
question. The material on record unequivocally establishes that the
wrong entry in the account of UCO Bank SGL Account No. 065
effected to the advantage of Harshad Mehta (Accused No. 3) was not
occurred as a result of an inadvertent error, but a planned misdeed
done with mala fide intention.
30. Considering the whole scenario of the case, there is no doubt in
our minds that the accused, who is well acquainted with the banking
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activities and SGL transactions, created false documents and acted
contrary to the provisions and committed illegal acts which are writ
large on the face of record. It has been clearly recorded by the trial
Court that accused No.1 has already been convicted in two cases
and two more cases are pending. In one case, he has undergone
imprisonment for a period of one year and in another case,
imprisonment for a period of 9 months, which shows the conduct of
the accused, though that is not the basis for our conclusion. We are,
therefore, of the considered view that the appellant was part of the
conspiracy in facilitating trading of SGL securities to the benefit of
accused No. 3 (Harshad Mehta) and in the process, abused his
official position and violated provisions of banking laws. The facts and
circumstances of the case clearly show the participation of the
appellant in the criminal acts and misuse of his official position. In our
opinion, the prosecution has successfully proved the nexus between
the accused. The ingredients of the offences for which the accused is
charged has also been established beyond all reasonable doubt by
the prosecution by adducing voluminous documentary evidence as
well as oral evidence.
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31. For the foregoing reasons, we do not find any merit in the
appeal calling for our interference with the impugned judgment
passed by the learned Special Judge. Consequently, the appeal fails
and is dismissed accordingly. By this Court’s order dated 21st
February, 2005 the substantive sentence of imprisonment remained
suspended during the pendency of appeal. The said order is hereby
recalled. The appellant may be taken into custody forthwith to serve
the period of imprisonment.
….…………………………………………...J. (SUDHANSU JYOTI MUKHOPADHAYA)
…………….....………………………………J. (N.V. RAMANA)
NEW DELHI JANUARY 12, 2015