I. Legal Framework

1. BNS / IPC - Core Offences:

• Sec 318 BNS [420 IPC] - Cheating
• Sec 316 BNS [406/409 IPC] - Criminal Breach of Trust [CBT]. Sec 316(5) BNS is aggravated CBT by banker, merchant, public servant entrusted with property.
• Sec 336, 338, 340 BNS [465, 467, 468, 471 IPC] - Forgery, forgery for purpose of cheating, using forged document as genuine.
• Sec 335, 336 BNS [477A IPC] - Falsification of accounts
• Sec 61 BNS [120B IPC] - Criminal Conspiracy - almost always charged in banking frauds.

2. Special Statutes:

• Prevention of Corruption Act, 1988 Sec 13(1)(a), 13(2) - Criminal misconduct by public servant. Applies to officers of Public Sector Banks as they are public servants under Sec 2(c).
• Negotiable Instruments Act, Sec 138 - Criminal liability for dishonour of cheque for insufficiency of funds - strict liability offence to protect credibility of banking instruments.
• Banking Regulation Act, 1949 Sec 46 - Penalty for false statements, failure to produce books.
• RBI Act, 1934 Sec 58B - Offences by banking companies.
• IT Act, 2000 Sec 66C, 66D, 43 - Identity theft, cheating by personation using computer - for internet banking frauds, phishing.
• Prevention of Money Laundering Act, 2002 Sec 3 & 4 - Projecting proceeds of crime from scheduled banking offences as untainted property.
• BNS Sec 111 - Organised Crime now includes economic offences.

II. Essential Ingredients & Case Laws

A. Criminal Breach of Trust by Banker - Sec 316(5) BNS [409 IPC]

Ingredients laid down by Supreme Court:

1. Entrustment of property or dominion over property to accused who is banker/public servant
2. Dishonest misappropriation or conversion or use or disposal in violation of law/contract

N. Raghavender v. State of Andhra Pradesh, CBI (2021) SCC: Supreme Court acquitted bank officer charged under Sec 409 & 420. Held in absence of cogent and unimpeachable evidence to prove misappropriation of bank funds and mens rea to deceive, it is not safe to convict under 409 or 420. Mere irregularity in sanctioning loan without dishonest intention is not criminal.

State of UP v. Krishna Gopal & Anr. [Judgment on Sec 409, 420, 477A] 2023: SC set aside conviction of bank manager, reiterating relationship between bank and customer is debtor-creditor, not entrustment. Unless prosecution proves property was entrusted in specific capacity and dishonestly misappropriated, Sec 409 fails. The Court explained distinction between cheating and CBT.

Som Nath Puri v. State of Rajasthan (1972) AIR 1490: Bank employee who falsified counterfoils and misappropriated deposits held liable under Sec 409. His subsequent conduct of falsifying records proved dishonest intention.

B. Cheating in Loan Frauds - Sec 318 BNS [420 IPC]

Ingredient: Fraudulent or dishonest inducement at the very inception. Supreme Court has repeatedly held cheating and criminal breach of trust are independent and distinct offences, cannot co-exist on same facts.

Satish Kumar v. State (Delhi) 2023: SC quashed cheating case against directors who defaulted in payment of Rs 1.19 cr, holding criminal proceedings cannot be used as short-cut for civil recovery. Mere non-payment does not amount to cheating unless dishonest intention existed at time of loan.

CBI v. R. Venkatakrishnan (2009) - Harshad Mehta scam case: Former MD of UCO Bank convicted for CBT and cheating for allowing illegal diversion of securities funds. SC upheld conviction, holding banker who allows funds to be used contrary to banking norms commits CBT.

CBI v. Keshub Mahindra equivalent for banking: In CBI v. A. Ravishankar Prasad (2008) 11 SCC 626 - Large loan taken on forged documents with conspiracy between borrower and bank manager = offence of cheating, forgery and PC Act.

C. Falsification of Accounts - Sec 335 BNS [477A IPC]

Employee wilfully falsifies books with intent to defraud.

Central Bank of India v. Tarseema Devi Case: Manager making false entries to hide NPAs held liable under Sec 477A and Sec 13 PC Act.

D. Cheque Dishonour - Sec 138 NI Act

This is a deeming criminal liability. To protect efficacy of banking operations.

Goa Plast (P) Ltd. v. Chico Ursula D'Souza (2004) 2 SCC 235: Objective is to ensure credibility of cheque as payment instrument.

Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129: Jurisdiction of Sec 138 case is where cheque is dishonoured, later amended by Sec 142(2) NI Act to place of payee's bank.

Aneeta Hada v. Godfather Travels (2012) 5 SCC 661: Company is principal offender under Sec 138, directors can be proceeded only if company is arrayed as accused. Corporate criminal liability principle.

E. Corporate and Vicarious Liability of Directors / Bank Officers

Banking offences are often committed by companies through its officers. Indian law does not recognise automatic vicarious criminal liability.

Sunil Bharti Mittal v. CBI (2015) 4 SCC 609 - Landmark:

When company is the offender, vicarious liability of Directors cannot be imputed automatically in absence of statutory provision. Individual can be held liable only if (i) sufficient evidence of active role coupled with criminal intent, or (ii) statute expressly provides for liability of directors.

This is constantly applied in banking fraud cases. Prosecution must show directing mind involved.

Standard Chartered Bank v. Directorate of Enforcement (2005) 4 SCC 530: A company can be prosecuted for offence requiring mens rea, even if mandatory punishment is imprisonment, court can impose fine.

ICCS: Sunil Bharti Mittal principle reiterated in Shiv Kumar Jatia v. State of NCT (2019): No vicarious liability unless specific role attributed.

F. Settlement Does Not Always Wipe Criminality

Supreme Court Half Yearly Digest on Banking Law 2025: In case involving Rs 25.89 lakh fraud under Sec 120B, 420, 468, 471 IPC + PC Act, SC quashed criminal proceedings after OTS of Rs 52.79 lakhs with bank, holding continuation would be abuse of process where bank itself settled.

But contrast: CBI v. Maninder Singh (2016): OTS in loan fraud does not automatically quash criminal case if serious fraud involving public money. Court must examine nature of offence.

G. Bank's Vicarious Civil + Criminal Context

Supreme Court in Bank Vicariously Liable for Conduct of its Employees [2023 Livelaw]: Recipients of fixed deposit cannot suffer at cost of criminal conduct of bank officials - Bank held vicariously liable for conduct of employees. While criminal liability remains personal, civil liability to customer shifts to bank.

III. Types of Banking Offences Where Criminal Liability is Invoked

1. Loan Frauds: Creation of fake documents, over-valuation of security, diversion of funds. Charges: 120B+420+468+471+409+ PC Act Sec 13.
2. Cyber Banking Frauds: Phishing, vishing, unauthorized EFT. Charges: BNS Sec 318 + IT Act 66C, 66D.
3. Money Laundering: Layering of bank fraud proceeds. Once scheduled offence under IPC/BNS is registered for >1 cr, ED can register ECIR. Bombay HC in Nagani Akram Mohammad Shafi v. Union of India (2025) held BNS offences under Sec 318(4), 338, 340(2) can be treated as scheduled offences under PMLA even though PMLA schedule still mentions IPC.
4. Insider Offences by Bank Staff: Unauthorized credit, single-window frauds, kite flying.

IV. Punishment Matrix Post BNS

• Cheating [Sec 318(4)]: upto 7 years + fine
• CBT by banker [Sec 316(5)]: upto life or 10 years + fine
• Forgery of valuable security [Sec 338]: upto 7 years
• Falsification [Sec 335]: upto 7 years
• Organised economic offence [Sec 111]: 5 years to life

V. Defence Points Courts Consider

1. Absence of mens rea at inception
2. Transaction is civil breach of contract, not criminal
3. No entrustment proved - debtor-creditor relationship
4. No active role of director - Sunil Bharti Mittal protection
5. Full and final settlement approved by bank / DRT - may lead to quashing under Sec 528 BNSS [482 CrPC].

In short, for banking offences Courts insist on proof of dishonest intention from inception, entrustment, and active participation. Mere irregularity, business loss, or loan default is not criminal. But where conspiracy between borrower and banker to defraud public money is proved, Courts impose stringent liability including under PC Act and PMLA.