Co-operative Bank Granting Loans Outside Service Area Without Pecuniary Loss Or Wrongful Gain Cannot Constitute Criminal Misconduct, Kerala High
Deekshitha Sharmile
The High Court of Kerala Single Bench of Justice A. Badharudeen held that a co-operative bank's decision to extend loans to persons residing outside its designated service area does not, on its own, amount to criminal misappropriation or misconduct unless the prosecution establishes a pecuniary loss to the bank or an unlawful gain to the borrowers. The court arrived at this conclusion while considering a petition filed by two accused persons — both loan recipients of a service co-operative bank in Kottayam — seeking to set aside criminal proceedings that had been pending against them for nearly fifteen years. Finding that the loans were duly secured, fully repaid, and that no member of the bank had been deprived of credit as a consequence, the court quashed the final report and the trial court proceedings as against the petitioners.
The matter arose from allegations of misappropriation of funds in a co-operative bank. The prosecution alleged that certain officials of the bank conspired with other individuals to sanction loans and advances without proper authorization, thereby causing financial irregularities. Among the accused were two petitioners who were alleged to have obtained loans despite residing outside the service area of the bank.
The petitioners contended that they had applied for loans by providing sufficient security, which the bank duly sanctioned. They further submitted that the loans were repaid in full along with interest, and the bank subsequently executed release deeds returning their documents. The prosecution relied on allegations of conspiracy, misappropriation, and falsification of accounts, invoking provisions of the Prevention of Corruption Act, 1988, and the Indian Penal Code. The bank also filed statements narrating the events leading to the registration of the case.
The court observed that the Special Public Prosecutor, though supporting the allegations in the final report, "failed in his endeavour to justify whether any illegal pecuniary advantage was obtained by the petitioners, or by any other accused, as alleged by the prosecution."
The court further noted that "the petitioners herein availed loans when the same were sanctioned by the Bank on getting security for realisation of the loans in the event of default. Thereafter, the petitioners properly repaid the loans and the entire liability was closed. In such a case, how it could be found that there is misappropriation or pecuniary loss to the Bank or any other person, particularly, when the prosecution has no case that any members of the Bank were denied loans for diverting and granting of the money meant for loans in favour of the petitioners and those who are not residing within the service area of the Bank."
On the question of lending outside the service area, the court observed that "when a Co-operative Society/Bank grants loan to a person outside its service area, that may be considered as an improper action, but the same by itself would not attract any offences."
The court stated that "none of the offences alleged against the petitioners would attract prima facie" and that "it is not justifiable to find that the petitioners herein committed the offences punishable under" the relevant provisions of the Prevention of Corruption Act and the Indian Penal Code, so as to proceed with trial.
The court concluded that the entire prosecution against the petitioners was "liable to be held as an abuse of the process of the court."
The court allowed the petition and directed that "Annexure A1 final report and the case pending as CC 36/2010 on the files of the Enquiry Commissioner and Special Judge, Kottayam, as against the petitioners stand quashed. Registry is directed to forward a copy of this order to the jurisdictional court for information and compliance."
Advocates Representing the Parties
For the Petitioners: Sri. Sergi Joseph Thomas, Shri. A. Mohammed
For the Respondents: Special Public Prosecutor Sri. Rajesh A, Senior Public Prosecutor Smt. Rekha S, R2 by Sri. K. P. Sreekumar
Case Title: Lucy Kuriakose & Another v. State of Kerala & Anr.
Neutral Citation: 2026 : KER:13358
Case Number: Crl.M.C No.7858 of 2025
Bench: Justice A. Badharudeen
