a day ago
Karnataka HC upholds CID charge sheet against SBI and PNB executives in Rs 78.5 crore fraud case
The Karnataka High Court has upheld a 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 an alleged ₹78.5 crore fraud involving Bengaluru-based Metal Closures Pvt. Ltd.
Dismissing eight petitions filed by the bank officials, Justice M.G. Uma, in an order dated July 23, 2025, found no merit in the executives' claim that their actions were protected under Section 32 of the SARFAESI Act. The court also held that the distinction made by the petitioners between 'symbolic' and 'actual' possession was inconsistent with the legal framework.
Metal Closures, established in 1977, was a major supplier of packaging products to global FMCG and beverage companies such as Coca-Cola, Pepsi, Heineken, Carlsberg, and Panasonic, employing over 650 people at its peak. In 2014, it banked with a consortium led by SBI, with PNB, UCO Bank, and Union Bank as to Managing Director B. Prashanth Hegde, irregularities by the company's CFO and deputy CFO, including unauthorised foreign letters of credit and forged RTGS payments, were carried out in collusion with certain bank executives. Instead of investigating these allegations, the consortium banks invoked the SARFAESI Act, despite the account not being classified as a Non-Performing Asset (NPA).The CID probe concluded that the SARFAESI Act was used to 'shut down Metal Closures' and assessed the company's losses at ₹78.5 crore during nearly two years of bank possession. The charge sheet cited serious irregularities, including removal of stocks worth ₹4.5 crore, sale of equipment to competitors, unauthorised RTGS payments of ₹8.89 crore, and payments of ₹6.26 crore by a senior PNB executive to sham firms linked to his son.
Other findings included forgery of the MD's signature, confirmed by the State Forensic Laboratory, power disconnections, non-payment of wages, removal of servers and data, and the dismantling of an LPG installation that was central to operations.
The High Court noted contradictions in the banks' stand on the NPA classification. While the banks initially claimed the NPA date as May 28, 2014, they later shifted it to January 31, 2010, even though a working capital sanction of ₹10 crore was extended on May 10, 2014. The court also observed that the company had repaid more than ₹100 crore between 2010 and 2014 and questioned how the account could have become an NPA either in 2010 or 2014.
The order further noted that SBI withdrew its first SARFAESI possession notice in July 2015 after its legal department found the action to be unlawful. Referring to Supreme Court rulings, including Transcore v. Union of India, the court reiterated that 'possession' under the SARFAESI Act must be interpreted based on facts rather than distinctions claimed by banks.
Following the banks' withdrawal of auditors and security agencies in 2017, Metal Closures resumed operations. The company has since filed a ₹413.65 crore compensation claim before the Debts Recovery Tribunal (DRT). The High Court has directed the DRT to decide the matter within six advocates Dhyan Chinappa and Anant Mandgi represented Metal Closures. Commenting on the ruling, MD B. Prashanth Hegde said, 'This judgment vindicates our stand that the SARFAESI process was misused to deliberately dismantle a thriving business. It also sends a strong message that banking powers must be exercised with integrity, transparency, and in strict compliance with the law.'He also cited Supreme Court observations in Mardia Chemicals Ltd. v. Union of India and Keshavlal Khemchand & Sons Pvt. Ltd. v. Union of India, which stressed the need for lenders to exercise their powers in good faith and with due deliberation, given the wider consequences for industry, employment, and the economy.
