DBS Bank not liable for legal violations by officials of Lakshmi Vilas Bank prior to amalgamation: Supreme Court

The Supreme Court on Monday held that criminal proceedings cannot stand against the DBS bank in connection with violations of law by officials of the erstwhile Lakshmi Vilas Bank before the two entities merged. [Religare Finvest Limited vs State of NCT of Delhi and anr].A bench of Justices S Ravindra Bhat and Aravind Kumar noted that the criminal proceedings in question were attributable to the actions of four officials of Lakshmi Vilas Bank (LVB), prior it its amalgamation with DBS Bank. "Their (LVB officials') individual responsibility and accountability in criminal law, is and remains unaffected by the amalgamation. Therefore, there is in fact, no involvement of DBS Bank, revealed in the charge sheet filed by the Delhi Police," the bench explained..Further, a clause in the amalgamation scheme approved by the Reserve Bank of India (RBI) with respect to LVB and DBS Bank also supported the position that DBS Bank could not be held liable for the criminal actions of LVB's officials prior to the amalgamation. "In the ordinary sense, criminal liability can neither be attributed to DBS nor its directors, brought in after the amalgamation, whose appointments were approved by the RBI," the Supreme Court added..Therefore, the Supreme Court quashed the case against DBS, given that the legal violations were attributed only to LVB officials."Therefore, the pending criminal proceedings (arising out of FIR – 189/2019 registered at P.S. Economic Affairs Wing, New Delhi), to the extent it involves DBS, which was the subject matter of the impugned judgment and all consequent proceedings arising therefrom (to the extent of involvement of DBS), are hereby quashed," the Court's judgment stated. .The Court was dealing with an appeal filed by DBS against a Delhi High Court order that had refused to quash criminal proceedings against it and its directors.The High Court, however, had granted an interim stay on a summons issued to DBS until the RBI clarified its position on the issue.The RBI had earlier, in 2020, sanctioned the a non-voluntary amalgamation of LVB into DBS, after LVB's financial condition became unstable.Meanwhile, Religare Finvest Limited filed a case alleging that LVB had misappropriated fixed deposits to the tune of ₹791 Crores, which were kept with the bank as security towards short-term loans..The Delhi High Court's order was challenged in appeal by Religare Finvest as well before the Supreme Court, since the High Court had stayed the criminal proceedings against DBS..The Supreme has now allowed DBS Bank's appeal and dismissed Religare's appeal. The Delhi High Court order that had refused to quash the case against DBS Bank has been set aside and the criminal case against the bank has been quashed. "In the present context, the public’s confidence in the banking industry was at stake, when RBI stepped in, imposed the moratorium and asked DBS to take over the entire functioning, management assets and liabilities of the erstwhile LVB. To permit prosecution of DBS for the acts of LVB officials (who are in fact, facing criminal charges) would result in travesty of justice", the Supreme Court added..Senior Advocates Rana Mukherjee and Jana Kalyan Das with advocate Sandeep Devashish Das appeared for Religare Finvest Limited. Senior Advocates Mukul Rohatgi and Jayant Bhushan with advocate Malak Manish Bhatt appeared for DBS Bank.Advocates Shreekant Neelappa Terdal, Bhanwar Pal Singh Tandon, Susheel Tomar, and Chetan Jadon represented the Delhi Police..[Read judgment]