In June 2018, Religare Finvest Limited (RFL) initiated a commercial suit against Lakshmi Vilas Bank (LVB) to recover ₹791 crores, alleging misappropriation of fixed deposits (FDs) provided as security by RFL and its affiliated companies, RHC Holding and Ranchem, to secure short-term loans.
In September 2019, RFL lodged a criminal complaint, leading to the registration of an FIR by the Economic Offences Wing under Sections 409 and 120B of the Indian Penal Code. The FIR alleged that RFL had placed four FDs worth ₹750 crores as security for short-term loans. LVB extended loans to RHC Holding and Ranchem, using these FDs as security. When RHC Holding and Ranchem defaulted on their loans, LVB debited ₹723.71 crores from RFL’s current account without proper authorization or prior notice.
Due to financial instability, the Reserve Bank of India (RBI) placed LVB under “Prompt Corrective Action.” Subsequently, on November 17, 2020, RBI imposed a moratorium on LVB, and on November 25, 2020, the Central Government directed its non-voluntary amalgamation with DBS Bank India Limited.
A chargesheet was filed against ten bank officials of LVB; however, LVB itself was not initially implicated as an accused. On February 12, 2021, a supplementary chargesheet was filed, impleading LVB (now represented by DBS Bank India Limited) as an accused, along with bank officials and the companies RHC Holding and Ranchem. The allegations involved a conspiracy to siphon off funds belonging to RFL.
Summons were issued to DBS (accused No. 12) on February 16, 2021. DBS filed a case before the Delhi High Court seeking to quash the chargesheet and summoning order, arguing that it should not face prosecution for the acts of the merged entity (LVB). The Delhi High Court declined to quash the summoning order against DBS, stating that doing so may disrupt the purpose of the amalgamation scheme. The court directed the parties to seek clarification from the RBI regarding the continuation of criminal proceedings against the transferee bank. Additionally, the court stayed the summoning order against DBS until the RBI provided clarification. DBS and RFL both appealed to the Supreme Court, with DBS contesting the refusal to quash the proceedings, and RFL arguing that the court should not have deferred the issue to the RBI and should have dismissed the request for quashing outright.
The Supreme Court’s decision in this case carries significant implications for corporate entities involved in such amalgamations, as well as for the broader legal framework governing corporate transactions and criminal accountability.
Through a comprehensive analysis of statutory provisions, precedents, and the specific circumstances of the amalgamation, the Court’s judgment sets a crucial precedent for future cases in this complex legal arena.