In a landmark ruling, the Supreme Court of India quashed criminal proceedings against HDFC Bank, emphasizing that a juristic entity like a bank cannot possess “mens rea,” or criminal intent, which is an essential component for proving most offenses under the Indian Penal Code (IPC). The judgment was delivered by a bench comprising Justice B.R. Gavai and Justice K.V. Viswanathan.
Background of the Case
The case originated from an October 2021 search operation by the Income Tax Department at the premises of Smt. Sunita Khemka and others in Patna. During the operation, a bank locker (No. 462) was identified at HDFC Bank’s Exhibition Road Branch, which was subject to a prohibitory order dated October 5, 2021, issued under Section 132(3) of the Income Tax Act. The order barred the operation of lockers, bank accounts, and fixed deposits held by Khemka and her associates.
On November 1, 2021, the Income Tax Department issued a partial revocation order, lifting restrictions on specific bank accounts but not the bank locker. However, on November 9, 2021, HDFC Bank officials allowed Khemka to access her locker, allegedly misinterpreting the revocation order. This prompted a complaint from the Deputy Director of Income Tax, resulting in the registration of an FIR against bank officials for offenses including cheating (Section 420), criminal breach of trust (Section 409), and conspiracy (Section 120B).
Legal Issues Involved
The appeal before the Supreme Court involved critical legal issues, including:
1. Mens Rea Requirement: Whether a juristic person like a bank can possess mens rea necessary to establish criminal offenses under the IPC.
2. Interpretation of Orders: Whether bank officials acted with criminal intent by misinterpreting the revocation order regarding the locker’s access.
3. Scope of High Court’s Powers under Section 482 CrPC: The extent of inherent powers available to the High Court to quash an FIR if no prima facie offense is established.
Supreme Court’s Observations
The Supreme Court, while quashing the FIR, made several pivotal observations that clarified the role of mens rea in criminal liability for juristic persons:
– On Juristic Persons and Mens Rea: “A juristic entity like a bank cannot possess mens rea, which is a fundamental ingredient for offenses under Sections 406, 409, and 420 of the IPC,” the Court stated. The bench further noted that while bank officials are responsible for the actions of the bank, attributing mens rea to the bank as an entity is legally untenable.
– On Criminal Breach of Trust: The Court held that criminal breach of trust requires evidence of dishonest misappropriation or conversion of entrusted property, which was absent in this case. “There was no allegation of misappropriation or conversion of the locker contents for personal use by the bank officials,” the judgment noted.
– Misinterpretation of Orders: The Court recognized that the bank officials’ actions were based on an inadvertent misinterpretation of the partial revocation order. “Good faith misinterpretation does not amount to criminal intent,” the bench asserted.
Arguments by Counsel
Senior Advocate Neeraj Kishan Kaul, representing HDFC Bank, argued that the FIR lacked elements necessary to establish criminal liability, particularly the intent to deceive or misappropriate. He emphasized that the bank officials acted in compliance with their understanding of the revocation order, with no evidence suggesting malicious intent.
In contrast, Advocate Manish Kumar, appearing for the State of Bihar, contended that the bank’s actions resulted in a breach of the prohibitory order, warranting an investigation to ascertain whether a cognizable offense was committed.
The Supreme Court allowed the appeal, setting aside the Patna High Court’s decision that had previously refused to quash the FIR. It held that “continuing the criminal proceedings against HDFC Bank would result in undue hardship,” given the absence of criminal intent and misappropriation.
