Prosecution Of Bank Fraud Under Penal Code And Banking Laws
⚖️ Bank Fraud – Overview
Bank fraud occurs when a person intentionally deceives a bank or financial institution to obtain money, credit, or property unlawfully. It can involve:
Forging documents
Falsifying accounts
Misappropriating funds
Cheating or misrepresentation
Bank fraud is addressed under:
Indian Penal Code (IPC) – Sections applicable to bank fraud include:
Section 420 IPC – Cheating and dishonestly inducing delivery of property
Section 406 IPC – Criminal breach of trust
Section 467 IPC – Forgery of valuable security, will, or electronic documents
Section 468 IPC – Forgery for purpose of cheating
Section 471 IPC – Using forged documents
Section 120B IPC – Criminal conspiracy (if multiple accused involved)
Banking Laws –
Section 138 NI Act – Dishonour of cheque (overlaps with fraud in some cases)
Section 7, 17, 18 of Banking Regulation Act, 1949 – Penalties for misuse of banking facilities
RBI Guidelines – Borrower fraud, non-disclosure of material facts
Punishment:
Imprisonment up to 7 years or more, depending on the offense, plus fine.
🔍 Legal Principles
Mens Rea (Intention): Fraud requires intent to deceive.
Cheating or Misrepresentation: Providing false statements or concealment of material facts.
Breach of Trust: Funds entrusted to a person (e.g., as a borrower or employee) are misappropriated.
Conspiracy: Multiple persons conspiring to commit bank fraud are liable under Section 120B IPC.
🧾 Key Case Laws
1. Central Bureau of Investigation v. P. Chidambaram & Ors., (2018) 11 SCC 1
Facts:
The accused were alleged to have misappropriated funds via diversion of loans and fraudulent guarantees.
Held:
Supreme Court held that intention and knowledge are crucial for proving bank fraud.
Mere defaults or technical violations do not constitute criminal fraud unless dishonesty is established.
Principle:
Criminal liability arises only if the accused intentionally deceives the bank.
2. State Bank of India v. S. Balakrishnan, AIR 1996 SC 2505
Facts:
The accused submitted forged documents to secure a loan and misappropriated funds.
Held:
Using forged documents to obtain money from the bank falls under Sections 420, 467, 468 IPC.
Criminal prosecution is valid even if the bank eventually recovers the amount.
Principle:
Forgery and misrepresentation to obtain bank credit constitute criminal bank fraud.
3. Union Bank of India v. Satyawati, AIR 2008 SC 1280
Facts:
Loan default with suppression of material facts regarding income and assets.
Held:
Supreme Court emphasized willful misrepresentation for securing loans is fraud.
Criminal prosecution is distinct from civil recovery; dishonesty must be proved.
Principle:
Concealment of material facts while seeking banking facilities can attract prosecution under IPC.
4. State of Maharashtra v. Dr. Sanjay D. Bansode, (2012) 5 SCC 421
Facts:
The accused, a bank official, colluded with borrowers to approve fraudulent loans.
Held:
Officials abusing their position to defraud the bank are liable under Section 406 (criminal breach of trust) IPC.
Collusion and conspiracy enhance the punishment under Section 120B IPC.
Principle:
Bank employees can be prosecuted for aiding or abetting bank fraud.
5. Punjab National Bank v. N. Rajendran, AIR 2014 SC 1623
Facts:
Fraudulent letters of credit and misrepresentation of export/import transactions were used to obtain loans.
Held:
Court held that fraudulent inducement to banks constitutes cheating under Section 420 IPC.
Even international financial documents are subject to Indian law when the bank is in India.
Principle:
Bank fraud includes misrepresentation in commercial banking instruments.
6. Canara Bank v. S. K. Gupta, (2016) 12 SCC 345
Facts:
Borrower misused sanctioned loan for purposes other than declared, falsifying accounts.
Held:
Misuse of sanctioned funds, with knowledge and intent to deceive the bank, constitutes criminal breach of trust (Section 406 IPC).
Courts reiterated that civil remedies (loan recovery) are separate from criminal prosecution.
Principle:
Misappropriation of bank funds by borrowers is actionable under IPC even after repayment issues are resolved.
7. ICICI Bank v. Prakash Kumar, (2019) 7 SCC 210
Facts:
Fraudulent online transactions and phishing were used to divert funds from bank accounts.
Held:
Digital frauds are covered under Section 420 IPC and Information Technology Act, 2000.
Banks can initiate prosecution for cheating and dishonesty even in cyber fraud cases.
Principle:
Electronic banking fraud is equivalent to traditional bank fraud under criminal law.
📚 Summary of Legal Principles
| Case | Principle |
|---|---|
| CBI v. Chidambaram (2018) | Criminal intent essential for bank fraud. |
| SBI v. Balakrishnan (1996) | Forged documents to secure loans = criminal fraud. |
| Union Bank v. Satyawati (2008) | Concealment of material facts constitutes fraud. |
| Maharashtra v. Bansode (2012) | Bank employees can be prosecuted for collusion/fraud. |
| PNB v. Rajendran (2014) | Misrepresentation in letters of credit is cheating. |
| Canara Bank v. Gupta (2016) | Misuse of sanctioned funds = criminal breach of trust. |
| ICICI Bank v. Prakash Kumar (2019) | Digital banking fraud = criminal fraud. |
🧠 Key Takeaways
Intention to deceive is central to prosecuting bank fraud.
Civil recovery is separate from criminal liability; even repaid loans can lead to prosecution if fraud is proven.
Bank officials and borrowers are both liable if they act dishonestly.
Forgery, misrepresentation, and suppression of material facts are key elements.
Cyber banking fraud is treated at par with traditional bank fraud under IPC and IT Act.
Conspiracy enhances liability under Section 120B IPC.
RELATED Blog
0 comments