Criminal liability of panel lawyers in bank fraud cases

The main business of banks is to make loans and charge interest. However, before sanctioning the loan, the bank must do due diligence and ensure that the borrower can repay the loan so that the said loan does not turn into a non-performing asset (NPA). For this purpose, the bank conducts due diligence which includes a number of things such as collecting customer verification reports, income tax reports of the borrower, short confidential reports on individuals (borrower/guarantor), etc., depending on the type of loan he has. is sanctioned.

The bank directs its lawyers to give legal opinions on the immovable property offered as security by the borrower before sanctioning the loan. The role of an in-house lawyer is to verify whether the deed of sale submitted by the borrower/mortgagor to the bank is genuine or fake and whether it is actually registered in the records of the Sub-Registrar’s office. The solicitor doing the title search should also check if there is any charge/mortgage recorded on the property and if the property is free of any encumbrances. For this he has to visit and refer to the records in the office of the Sub-Registrar. To verify the records in the Sub-Registry of the office, the advocates have to pay a prescribed fee for which a payment receipt is also provided. After checking the records, the solicitors issue a certificate of non-encumbrance (CEN) together with the copy of the sale deed obtained from the Sub-Registrar’s Office and the payment receipt of the fee paid for checking the land records as proof that the records have been checked.

The NEC report is one of the most essential documents on the basis of which the bank sanctions the loan. However, in most bank fraud cases, the NEC report/title search report is found to be false or wrong. The question that arises is whether the groups’ lawyers can be prosecuted based on the provision of false reports.

In CBI v. K. Narayana RaoCriminal appeal no. 1460 of 2012, the CBI filed a complaint against bank officers of a PSB for abusing their official position as public servants and conspiring with private individuals to defraud the bank by sanctioning and granting home loans to defaulting borrowers. of banks rules and guidelines. One of the people sued as a defendant was a panel lawyer who allegedly gave a false legal opinion and did not indicate the true ownership of the properties.

The Honorable Supreme Court acquitted him on the ground that merely giving a false legal opinion is not sufficient to impose liability on a lawyer. It must be shown that the false legal notice was given in furtherance of a criminal conspiracy with bank officials and borrowers so that the loan could be sanctioned which would otherwise not be sanctioned. The court also observed,

“A lawyer does not tell his client that he will win the case under all circumstances. Also, a doctor would not assure the patient of complete recovery in every case. A surgeon cannot and does not guarantee that the outcome of surgery would be invariably beneficial, much less up to 100% for the person being operated on. The only assurance that such a professional can give or be given by implication is that he has the necessary skills in that branch of the profession he practices and, while performing the task entrusted to him, will exercise his skill with reasonable competence . This is what the person approaching the professional can expect. Judged by this standard, a professional may be held liable for negligence on one of two findings, namely, that he either did not possess the necessary skill which he purported to possess, or that he failed to exercise reasonable skill in the given case, the skill he had”.

This legal principle was later followed by the Supreme Court of Justice in Surendra Nath Pandey and others v. State of Bihar(2020) 18SC C 730.

In Ashok Kumar Garg v. CBI2023:AHC-LKO:63375, the Hon’ble Allahabad High Court quashed the case against an advocate/valuer of a bank who was prosecuted for giving a wrong opinion on the property deposited as security by the borrower. In this case, a firm took a loan from a bank and kept the co-defendants’ collateral. Since the property was located in the cantonment area, it could not have been mortgaged. However, counsel opined that the property was within the purview of the municipal corporation and that the title to the property was clear and marketable. Thus, it was alleged that the lawyer gave a clean house to the debtors right over the land in question. The court dismissed the case against the lawyer on the ground that the mere expression of a wrong opinion without other evidence of the accused’s involvement in the conspiracy does not constitute a crime. At best, it may amount to professional misconduct.

In Ramkinkar Singh v. State of Chhattisgarh2024:CGHC:44444-DB, a loan was obtained under Kisan Credit Card Scheme and agricultural land was given as security by the borrower. Subsequently, the borrower failed to repay the loan and it was found that the documents relating to the land offered as collateral were forged as there was no such land in his name. The lawyer who gave the NEC/Search report in favor of the borrower was also pursued. The Chhattisgarh High Court struck out the case against the lawyer on the ground that a legal professional cannot be held criminally liable for negligence or improper legal advice.

In Subha Jakkanwar Vs. Chattisgarh StateCriminal Miscellaneous Petition no. 1614 of 2017, was retained,

“However, while so acting, the lawyer does not assure his client that the opinion thus given by him is faultless and he must, in every possible way, act for his benefit. As in any other profession, the only assurance that can be given and may even be implied from a lawyer so acting in his professional capacity is that he possesses the necessary skills in his area of ​​practice and while performing his duties – were entrusted. , he would exercise his skills with reasonable competence. The only liability that can be imputed to a lawyer while so acting in his professional capacity is that of negligence in the application of legal powers or the proper exercise of such powers.“.

The bank needs to develop a procedure for the groups’ lawyers to properly present their legal opinion. Panel Counsel should not submit his opinion on the photocopies but should insist on the certified copies of the originals. Branch officers should independently investigate property possession, tenancy rights, ownership, disputes etc. and no loan should be sanctioned without such inspection. It is incorrect to say that the investigating agencies are left toothless in pursuing the commission lawyers in bank fraud cases, however, there must be a link to show that the lawyer was hand in glove with the main conspirators. To make him accused, the accusation must show:

• Panel counsel was an active participant in the criminal conspiracy to defraud the bank.
• There is evidence linking him to other conspirators, for example, his call records with borrowers or loan parties.
• The petitioner met the accused persons at the relevant time.
• Evidence in the form of his past conduct in giving legal opinions in other cases
• If he gave an opinion without making a reasonable inquiry in the office of the sub-registrar.
• If he earned something illegally
• If counsel for the panel filed his brief subject to conditions precedent before the bank could act upon it. If the bank has complied with such guarantees.

This list is illustrative and certainly not exhaustive. As the Supreme Court has stated, the crime of conspiracy is created in secret and there is rarely direct evidence. Therefore, the role of expert panel lawyers in giving a false legal opinion must be viewed in the light of the relevant circumstances.

The writer is a deputy prosecutor in the Central Bureau of Investigation. The opinions expressed are personal opinions.