Case Brief: CHAND KOCCHHAR v. ICICI BANK LIMITED

Introduction

The case of Chanda Kochhar vs. ICICI Bank Limited & Ors. is a significant legal matter involving allegations of corruption and financial misconduct, stemming from the sanctioning of a ₹1,875 crore loan by ICICI Bank to the Videocon Group. The case centers on Chanda Kochhar, the former Managing Director and Chief Executive Officer (CEO) of ICICI Bank, and her husband, Deepak Kochhar, a businessman. The Central Bureau of Investigation (CBI) claims that the loan, which was granted between 2009 and 2012, was extended in violation of the banking regulations and ICICI Bank’s internal credit policies. The CBI alleges that this loan was part of a quid pro quo arrangement in which Videocon Group’s promoter, Venugopal Dhoot, made an investment of ₹64 crore into Deepak Kochhar’s company, NuPower Renewables, through a circuitous route involving other companies.

The Kochhars were arrested by the CBI in December 2022 in connection with the case, but they questioned the validity of their detention. In February 2023, the Bombay High Court deemed their arrest “illegal,” criticising the CBI for its casual, mechanical attitude and failed to apply its thoughts prior to making the arrest. The High Court also called the arrest an abuse of power. Despite this result, the CBI has filed an appeal in the Supreme Court, seeking to overturn the High Court’s order and legitimise the arrests.

The case raises critical issues about corporate governance, regulatory compliance, and accountability in India’s banking system. It also raises concerns about the enforcement of anti-corruption legislation and the role of investigating agencies in high-profile cases involving powerful individuals. As the Supreme Court considers the case, its decision is expected to have far-reaching consequences for both business and legal procedures in India, particularly in terms of investigating and prosecuting financial wrongdoing within huge institutions.

FACTS

Chanda Kochhar, ICICI firm’s former Managing Director and CEO, began working for the firm on April 17, 1984. She served several positions in the bank until being named CEO in May 2009, a post she held until her reappointment in 2014. Mrs. Kochhar was granted Employee Stock Option Plans (ESOPs) from April 2007 to March 2017, with each grant contingent on her performance, conduct, and other disclosures to the bank, following the bank’s internal policies and SEBI requirements.

The issue surrounding Mrs. Kochhar’s term at ICICI Bank arises from a loan that the bank provided to the Videocon Group, led by Venugopal Dhoot. The loan of ₹1,875 crore was sanctioned between 2009 and 2012. The Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI) claim that the loan was sanctioned under dubious conditions, including allegations of financial malfeasance and quid pro so.

Venugopal Dhoot allegedly invested ₹64 crore in Deepak Kochhar’s company, NuPower Renewables, following the loan approval. The ED and CBI allege that this transaction was a bribe paid to Chanda Kochhar in exchange for a favourable loan approval. She is facing charges of violating banking regulations, money laundering, and corruption.

In response to the claims, Chanda Kochhar and her husband, Deepak Kochhar, insisted that there was no quid pro quo and that all transactions were lawful. Mrs. Kochhar’s viewpoint was further supported by a law company engaged by ICICI Bank, which determined that the claims were without merit. Mrs. Kochhar also claimed that she disclosed her husband’s business ties with the Videocon Group to ICICI Bank, which was aware of the transactions.

Mrs. Kochhar took leave in June 2018 due to the investigation into the claims, and in October 2018, she requested early retirement, which the bank accepted. However, in January 2019, after the inquiry uncovered major violations by Mrs. Kochhar, ICICI Bank cancelled her early retirement benefits and ESOPs, claiming her involvement in actions that violated the bank’s Code of Conduct.

Chanda Kochhar opposed ICICI Bank’s decision, claiming that her association with the bank ended with her early retirement clearance. In November 2019, she filed a writ suit challenging the bank’s termination of her benefits, which was dismissed by the Bombay High Court in March 2020 due to contractual reasons.

In February 2020, the Enforcement Directorate also filed a case under the Prevention of Money Laundering Act (PMLA) against Mrs. Kochhar and her husband. However, in November 2020, the Adjudicating Authority dismissed the allegation, stating that no proceeds of crime or money laundering had been established.

ISSUES

1. Whether ICICI Bank, after approving Mrs. Kochhar’s request for early retirement, could treat her departure as a “termination for cause” effective from the day of her retirement.
2. Mrs. Kochhar wants specific performance of the letter dated October 4, 2018, in which ICICI Bank accepted her early retirement request. She requests reinstatement of her Employee Stock Options (ESOPs) through the Employee Stock Option Scheme (ESOS).
3. ICICI Bank aims to cancel Mrs. Kochhar’s retirement benefits, including vested and unvested ESOPs, and claw back the bonuses she received, alleging that her departure from the bank should be viewed as “termination for cause.”
4. The legality of ICICI Bank’s decision to treat Mrs. Kochhar’s separation as a “termination for cause” following an internal investigation into claims against her resulted in her benefits withdrawal.

 ARGUMENTS

• On December 26, 2016, ICICI Bank hired a legal firm to conduct an independent investigation into claims in the media. Mrs. Kochhar took part in the inquiry and provided both oral and written submissions in December 2018.
• Mrs. Kochhar has committed major violations of the Code of Conduct, according to the inquiry report issued on January 27, 2019, by Justice Srikrishna (Retired). Mr. Chinoy contended that after Mrs. Kochhar’s retirement on October 4, 2018, the inquiry was no longer relevant to any disciplinary action, but rather to establishing the impact on certain payments. ICICI Bank acknowledged that, other from these benefits, the investigation would have no impact on her retirement.
• Mr. Chinoy argued that ICICI Bank’s decision to treat her retirement as a “termination for cause” was incorrect and violated the Retirement Agreement. The inquiry report had no bearing on her retirement benefits or the justification for this move. He further pointed out that ICICI Bank’s affidavit mentioned a “Undertaking of Good Conduct” dated July 19, 2016, which only pertained to post-retirement conduct.
• Mr. Khambata contended that the letter dated October 4, 2018, was part of ICICI Bank’s Early Retirement Scheme (ERS), which permitted the withholding of benefits in circumstances of non-compliance with good conduct.

DECISION

In the case of Chanda Kochhar v. ICICI Bank Limited (ICICI Bank-Videocon Case), the Bombay High Court addressed alleged violations committed by ICICI Bank’s former CEO and Managing Director, Chanda Kochhar, in relation to her involvement in approving loans to the Videocon Group, which was accused of failing to repay these loans.

The petitioner, Chanda Kochhar, contested the charges against her, claiming that the claims were without substance and that the loans were approved in accordance with the bank’s internal rules. Kochhar claimed that her actions were consistent with her professional responsibilities and had been duly approved by the bank’s board. The loans to Videocon were made based on the bank’s commercial judgement, and she said that there was no undue influence or violation of banking regulations.

However, after assessing the facts of the case, the Court affirmed the actions of the Central Bureau of Investigation (CBI) in launching an investigation against Kochhar. The Court determined that there was prima facie evidence that the loans were provided under questionable circumstances, including potential conflicts of interest involving Kochhar’s husband, who had business with the Videocon Group. The Court emphasised that such financial transactions involving large sums of money, as well as the potential links to other individuals with financial interests, required a comprehensive examination to determine the integrity of the transaction and any possibilities  breach of fiduciary duty.

The Court emphasised the significance of preserving the financial system from all forms of wrongdoing, especially when the activities of high-ranking executives in a financial institution are called into question. The Court emphasised that approving huge loans without proper protections or transparency risks undermining public trust in the financial sector.

In its conclusion, the Court dismissed Kochhar’s plea, finding that a probe into the alleged malfeasance was not only warranted but also required to promote accountability and openness in financial dealings. The Court determined that the allegations against Kochhar, when considered, indicated the likelihood of unlawful behaviour, particularly the conflict of interest in her choices, and so required additional investigation.

The Court also supported the role of investigating organisations like the CBI in holding high-profile banking executives accountable for their acts, especially when financial irregularities are suspected. The Court emphasised that the law must run its course, particularly where the public interest and the integrity of financial systems are at stake. It concluded by permitting the CBI to continue its investigations into Kochhar’s role in the contentious loan transactions, reiterating the need for strict checks and balances in the banking industry.

In essence, the Court’s ruling reiterated the importance of accountability in the financial industry, ensuring that those in positions of power be held accountable for their conduct and maintaining the integrity of India’s banking system from potential fraudulent activities.

ANALYSIS

The Chanda Kochhar v. ICICI Bank Limited case emphasises the importance of corporate governance and financial integrity in India’s banking sector. Chanda Kochhar, the former CEO of ICICI Bank, was accused of misusing her position to authorise loans to the Videocon Group based on personal relationships. Despite her claim that the loans were lawful business transactions, the Court upheld the requirement of an investigation into her behaviour.

The Court stressed that claims of conflict of interest and abuse of authority required investigation, especially when considerable quantities of public money were involved. It determined that there was prima facie evidence that Kochhar’s approval of the loans may have been influenced by her personal contacts, thus violating her fiduciary duties to ICICI Bank.

The verdict underlines the necessity of responsibility in financial institutions, particularly among top executives tasked with making major financial decisions. The Court recognised the role of investigating institutions, such as the Central Bureau of Investigation (CBI), in questioning high-profile persons to ensure that the financial system is transparent and free of undue influence. By rejecting Kochhar’s appeal and allowing the inquiry to proceed, the Court emphasised the need of conducting a thorough investigation when there is reasonable suspicion of impropriety in big financial transactions. This decision strengthens the judiciary’s responsibility in protecting the integrity of corporate governance and financial institutions, establishing an important precedent for future cases involving suspected financial malfeasance.