SBI manager argued he needed government sanction to be prosecuted. The Supreme Court said no.

An SBI general manager allegedly helped siphon Rs 22.5 crore in corporate loans. To escape trial, he argued he was a public servant needing government sanction. The Supreme Court's reply: you're not that kind of public servant.

The loan was sanctioned. The money moved. Then it vanished.

By the time the CBI knocked on the door of the State Bank of India's Hyderabad branch, Rs 22.5 crore had been diverted from a corporate loan into accounts that had no business receiving it. The man at the centre of the investigation was A. Sreenivasa Reddy, an Assistant General Manager of SBI. His defence was elegant: he was a public servant, and no court could prosecute him without the government's prior permission.

The Supreme Court disagreed. And in doing so, it drew a line that affects every nationalised bank employee in the country.

When the CBI came calling

In October 2013, the CBI's Bangalore branch registered an FIR (a written complaint that starts a police investigation) against six people. The allegation: a conspiracy to cheat SBI by sanctioning a Rs 22.5 crore corporate loan to a company that had no intention of repaying it. The money was diverted. The company defaulted. The bank was left holding the papers.

Reddy was the senior officer who had approved the loan. The chargesheet filed in December 2014 accused him of criminal conspiracy (Section 120-B IPC), cheating (Section 420 IPC), forgery (Section 468 IPC), using forged documents as genuine (Section 471 IPC), and criminal misconduct under the Prevention of Corruption Act (PC Act).

But before the trial could begin, Reddy's lawyers spotted a procedural crack.

The sanction that came and went

Under Section 19 of the PC Act, a public servant cannot be prosecuted for corruption without prior sanction from the authority competent to remove them. In February 2015, SBI's Chief General Manager declined to grant that sanction. Then, two months later, the same authority reviewed its decision and granted it.

The High Court of Telangana struck down that sanction in 2018, calling it legally unsustainable. The CBI appealed. The Division Bench upheld the single judge's order. By mid-2019, the PC Act charges against Reddy were dead.

But the IPC charges—conspiracy, cheating, forgery—remained alive. The trial court refused to discharge Reddy from those, holding that Section 197 of the CrPC (a provision requiring government sanction before prosecuting certain public servants) did not apply to him.

Reddy went to the High Court seeking full discharge. The High Court said no. He then appealed to the Supreme Court.

The question that hung over the case

Could a senior bank officer walk free from a Rs 22.5 crore cheating case simply because the government had not given its permission to prosecute him? The answer depended on a single legal question: was Reddy the kind of public servant who needed government sanction under Section 197 CrPC?

Section 197 CrPC protects public servants from frivolous prosecution by requiring that they cannot be taken to court for acts done in their official capacity without the government's prior nod. But the provision only applies to public servants who are not removable from office save by or with the sanction of the Government.

Reddy argued he was exactly that kind of public servant. The CBI and the bank said he was not.

Why nationalised bank employees are different

The Supreme Court bench of Justice B.R. Gavai and Justice J.B. Pardiwala examined the legal architecture of nationalised banks. Under the State Bank of India Act, the power to appoint and remove officers like Reddy rests with the bank's own board or its designated authorities—not with the central government.

The court drew a distinction that is often missed: being a "public servant" under the Prevention of Corruption Act does not automatically make you a "public servant" entitled to Section 197 CrPC protection. The two categories overlap but are not identical.

Section 197 CrPC borrows its language from Article 311 of the Constitution (which protects civil servants from arbitrary dismissal). The test is not whether you work for a government-owned entity. The test is whether the government itself—not the bank, not the board, not the managing director—has the final say on your removal.

For nationalised bank employees, the answer is no. The bank can fire them. The government cannot.

When official duty becomes a cloak

The court also examined a second question: even if Section 197 CrPC applied, would sanction have been needed for the acts Reddy was accused of?

The test, the court said, comes from a line of precedents including Parkash Singh Badal v. State of Punjab and K. Ch. Prasad v. Smt. J. Vanalatha Devi. The question is whether the impugned act has a reasonable connection to the public servant's official duty. If a police officer shoots someone while on patrol, there is a connection—the act happened during duty. If the same officer shoots someone to settle a personal grudge, there is no connection—the uniform was just a cloak.

In Reddy's case, the court found that sanctioning a loan was squarely within his official duty. But the allegation was not that he sanctioned a loan badly. The allegation was that he conspired with borrowers to sanction a loan he knew would be diverted. That, the court held, was not an act done in the discharge of official duty. It was an act done under the colour of official duty—a distinction that matters.

As the court noted, citing Gokulchand Dwarka Das Morarka v. King, if the official duty is merely a cloak for illicit acts, the protection of Section 197 CrPC does not apply.

What the court actually decided

The Supreme Court dismissed Reddy's appeal. Section 197 CrPC, it held, does not apply to nationalised bank employees because they are not removable by or with the sanction of the government. The IPC prosecution for cheating, conspiracy, and forgery could continue without any government sanction.

But the court also made a second holding that is equally important. Even if Section 197 CrPC had applied, the alleged acts—conspiring to divert loan money—had no reasonable nexus with Reddy's official duty. The protection would have failed on that ground too.

The PC Act charges had already been quashed by the High Court for want of valid sanction. The Supreme Court did not disturb that. But the IPC charges survived. Reddy would have to face trial.

THE PLAY: If you are a nationalised bank employee facing IPC charges, do not assume Section 197 CrPC protects you—the government does not control your removal, so the shield does not cover you.

The difference between two sanctions

The case also clarified a point that often confuses practitioners. Sanction under Section 19 of the PC Act and sanction under Section 197 of the CrPC serve different purposes. The PC Act sanction protects public servants from corruption prosecutions. The CrPC sanction protects them from general criminal prosecutions for acts done in official duty.

One can exist without the other. The refusal of PC Act sanction does not automatically bar IPC prosecution. And the absence of CrPC sanction does not automatically bar PC Act prosecution. Each stands on its own footing.

In Reddy's case, the PC Act sanction was quashed. But the IPC prosecution survived because Section 197 CrPC never applied in the first place.

The trial will now proceed on the charges of conspiracy, cheating, and forgery. The government's permission was never needed. The bank's own disciplinary process will have to run its own course. And the Rs 22.5 crore remains unaccounted for.