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Religare Finvest Limited vs State of NCT of Delhi

Criminal Appeal · 2023 INSC 819Decided 11 Sept 2023
Criminal Appeal No. 2242 of 2023
S. Ravindra Bhat · Aravind Kumar

Background

Religare Finvest Ltd. (RFL) alleged that officials of the now-defunct Laxmi Vilas Bank (LVB) conspired with certain group companies to misappropriate over Rs. 700 crores of RFL's fixed deposits, leading to an FIR and later a chargesheet against LVB and several bank officials. Before the chargesheet could proceed, the RBI, citing LVB's financial instability, ordered its compulsory (non-voluntary) amalgamation into DBS Bank India. DBS was then summoned as an accused in the criminal case as LVB's successor, and it sought to quash the prosecution against itself, arguing it could not inherit criminal liability for what LVB's own officials allegedly did before the merger. The Delhi High Court neither quashed nor upheld the prosecution outright. It stayed the summons and asked the parties to seek the RBI's interpretation of the amalgamation scheme's relevant clause.

Decision Breakdown

The Supreme Court held that criminal liability is personal and cannot automatically pass from a dissolved company to the entity that absorbs it, unless a law or scheme specifically says so. Examining the RBI's amalgamation scheme for LVB, the Court found its clause on continuing legal proceedings against the transferee bank was expressly qualified by a proviso making only individual LVB directors/officers (not the bank itself) liable to continued prosecution, and the actual chargesheet named specific LVB officials, not DBS or its own staff, as culpable. Since RBI itself later clarified that criminal proceedings against a transferor bank's officials do not carry forward to the transferee bank, and since forcing DBS (which stepped in at RBI's request to rescue depositors) to face this prosecution would harm public confidence in the banking system, the Court quashed the criminal proceedings against DBS entirely and dismissed RFL's appeal.

Lesson Learnt

When one company (especially in a bank rescue/merger ordered by a regulator) absorbs another, it does not automatically inherit criminal liability for the acquired company's past wrongdoing, only the individuals who actually committed the offence remain personally liable, unless the law or merger scheme explicitly extends liability to the new entity.

Official source (sci.gov.in)View Judgment (PDF)

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