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The Supreme Court has quashed criminal proceedings under the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act against bank officials in a case involving the alleged denial of rehabilitation benefits to a borrowing company. The court ruled that allegations of economic boycott or failure to provide financial relief cannot, by themselves, justify criminal prosecution under the Act. It said that specific allegations of caste-based insult or discrimination against the accused are required to establish criminal liability under the law.
A Bench of Justices J B Pardiwala and K Vinod Chandran passed the order while allowing an appeal filed by Chavan Dharmendar and others. The case arose from an FIR registered on February 4, 2019, at the CID Police Station in Hyderabad, Telangana. The allegations were related to a dispute over business loans, non-performing assets (NPAs) and the alleged failure of State Bank of India (SBI) officials to provide rehabilitation benefits to Hritasha Infra Projects Private Limited, a small-scale industry.
According to the company’s director, Y Rajasekhar, the company had been receiving credit facilities from SBI since 2010 and had also provided collateral security for the loans. However, the company’s loan accounts became non-performing assets in 2016 after it suffered financial losses. The promoters claimed that they had repaid a term loan of Rs 2.90 crore and later paid another Rs 45 lakh to the bank in an attempt to regularise the account.
The promoters alleged that despite their efforts to repay the loans, certain bank officials discriminated against them on the basis of caste. They also accused the officials of forging documents and providing false or misleading information to senior authorities, allegedly resulting in actions that caused injury or annoyance to the company’s promoters. The complainants claimed that these actions attracted Section 3(1)(q) of the SC/ST Act.
The complaint further alleged that small-scale businesses managed by members of the Scheduled Castes and Scheduled Tribes were facing economic boycotts. According to the complainants, rehabilitation packages and substantial concessions had been provided to industries owned by influential entrepreneurs from higher castes, while similar relief was denied to their company. They also alleged that the bank had violated Reserve Bank of India (RBI) circulars and guidelines by refusing to extend a rehabilitation package.
The Supreme Court examined the allegations and found that there was no specific claim that any of the accused bank officials had insulted or humiliated the company’s directors because of their caste. The Bench observed that the dispute primarily concerned banking transactions, loan recovery and the alleged denial of rehabilitation benefits. It held that these issues did not justify initiating criminal proceedings against the bank officials under the SC/ST Act.
The court also referred to inconsistencies in the complainants’ claims regarding the company’s management. It noted that the complainants had described the company as a small-scale industry predominantly managed by women belonging to the Scheduled Castes and Scheduled Tribes. However, the Managing Director, who was arrayed as the second respondent in the case, was not a woman.
The Bench further clarified that the alleged violation of RBI guidelines or circulars could not, by itself, become the basis for criminal prosecution simply because the company’s directors belonged to the Scheduled Castes or Scheduled Tribes. It was not convinced that the criminal case should continue on the basis of the allegations made against the bank officials.
However, the court clarified that the complainants could approach the appropriate legal forum, including the Debts Recovery Tribunal, to raise their grievances. Issues concerning alleged violations of RBI guidelines, denial of rehabilitation benefits and the use of false information to initiate recovery action could be examined in the relevant recovery proceedings. The appropriate authority would determine whether these allegations were legally valid and whether they had any effect on the bank’s recovery action.
The accused had also argued that the documents alleged to have been forged or fabricated had been furnished by the company’s directors, who had stood as guarantors for the loan account. The High Court had earlier refused to interfere with the criminal proceedings, relying on decisions concerning the obligations of banks under the Central Government and RBI framework for the revival and rehabilitation of micro, small and medium enterprises (MSMEs).
The Supreme Court disagreed with the High Court’s approach and held that the circumstances did not justify criminal prosecution under the SC/ST Act. It allowed the appeal and quashed the proceedings arising from the FIR registered at the CID Police Station in Hyderabad on February 4, 2019.
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