Karnataka HC upholds CID charges against SBI, PNB executives in ₹78.5 crore Metal Closures fraud case

In a significant ruling reinforcing accountability in banking operations, the Karnataka High Court has upheld the charge sheet filed by the Criminal Investigation Department’s Economic Offences Division (CID-EOD) against senior executives of State Bank of India (SBI) and Punjab National Bank (PNB) in connection with a ₹78.5 crore fraud case involving Bengaluru-based Metal Closures Pvt. Ltd.

Dismissing eight petitions filed by the bankers, Justice MG Uma observed that the lenders had misused provisions of the SARFAESI Act to dispossess Metal Closures without declaring its account a non-performing asset (NPA). The court directed the Debts Recovery Tribunal (DRT) to adjudicate a ₹413.65 crore compensation claim filed by the company within six months.

Fraud Allegations and Bank Action
Metal Closures, a leading metal packaging manufacturer and supplier to global majors such as Coca-Cola, Pepsi, Heineken, and Carlsberg, alleged that its CFO and deputy CFO colluded with executives of SBI and PNB to forge foreign letters of credit, divert imported materials, and make unauthorised RTGS payments.

Instead of probing these irregularities, the banks invoked SARFAESI proceedings, which the company argued were initiated illegally. The CID probe later confirmed irregularities, citing the removal of stock worth ₹4.5 crore, sale of equipment to competitors, diversion of funds to sham companies, forgery of signatures, and even disruption of utilities and wage payments during bank possession.

Court’s Findings
In its July 23 order, the High Court noted contradictions in the banks’ claims on when the account turned NPA—first May 2014, later January 2010—even though SBI had sanctioned fresh working capital of ₹10 crore just weeks earlier. The court also pointed out that Metal Closures had repaid over ₹100 crore between 2010 and 2014, questioning the legitimacy of the banks’ NPA classification.

Rejecting the banks’ defence that their possession was merely “symbolic” and therefore protected under Section 32 of the SARFAESI Act, the court cited the Supreme Court’s Transcore vs Union of India ruling, holding that possession under SARFAESI must be judged on facts, not semantics.

Industry and Legal Impact
The case, lawyers said, underscores the need for greater oversight of banking powers under SARFAESI. “This judgment vindicates our stand that the SARFAESI process was misused to deliberately dismantle a thriving business,” said B Prashanth Hegde, Managing Director of Metal Closures. He cited the Supreme Court’s observation in Mardia Chemicals vs Union of India that lenders, when armed with drastic powers, must exercise a higher degree of good faith.

Metal Closures, which had employed 650 people at its peak, resumed operations after banks withdrew possession in 2017. Its compensation claim is now pending before the DRT.

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