Why the District and High Courts acquitted Nubri investment case but SC convicted it

In February 2013 an interesting transaction took place when the RICBL invested Nu 100 mn at 9 % interest rate in the private investment firm Nubri Capital, but three days later Nubri reinvested Nu 108 mn back in RICBL at 11.75 %.

The senior most person involved in this transaction through the Asset and Liability Committee (ALCO) of RICBL was the RICBL ED Sonam Dorji who was one of the promoters of Nubri Capital paying Nu 5.33 million (mn) as its paid up capital and held 27.67 % of the shares to later offload it to hold 10 %.

The ACC investigated the complaint based on an RAA report which pointed out the strange transaction and also an anonymous complaint.

The report was sent by the ACC to the OAG in 2018 and in 2019 the OAG filed the charges in the Thimphu District court primarily against Sonam Dorji for conflict of interest, abuse of function and forgery.

The OAG also charged two RICBL GMs Yeshi Jamtsho and Mr. Kinzang Dorji for violation as they had entered a plea bargain deal with the ACC too cooperate in the investigation.

Acquittals by lower courts

On the issue of the conflict of interest the Thimphu District Court in April 2022 deferred the judgment saying that while there was circumstantial evidence the OAG could not prove it beyond a reasonable doubt. This means that only if additional evidence can be brought in the future then there can be prosecution.

It was felt that he did not have any influential power and it was not his sole decision.

Sonam was charged for forging his declaration of conflict of interest letter to the former RICBL CEO in March 2013 as the letter falls on a Losar day.

However, the Dzongkhag court here acquitted him saying it was not forged.

He was also acquitted of abuse of function.

The two GMs were also acquitted.

The OAG appealed to the High Court which essentially upheld the District Court verdict in July 2022.

The OAG appealed the verdict with the Supreme Court.

This was now becoming an important test case as if the Supreme Court also acquitted the case then in the future all financial transactions between financial institutions even with obvious conflicts of interest would be acceptable.

SC reverses judgments

The Supreme Court reversed the judgments of the lower courts on the case.

The court convicted Sonam Dorji for failure to declare conflict if interest under sections 63(1) and (2) of the ACC Act 2011, and awarded an imprisonment term of 2 years.

The court said that Sonam Dorji despite holding 10% shares in Nubri Capital Private Limited attended and participated in all the Asset and Liability Committee meeting in which decisions pertaining to investment in Nubri was made without declaring his conflict.

Moreover, most of the committee members of ALCO consisted of officials below his rank and his attendance in the meeting could have influenced the members’ decision. It was further observed that he had only declared his conflict of interest during the ALCO meeting held on 23.03.2013 but he had not recused himself from the discussions as indicated by his signatures on the meeting minutes.

The Court also convicted Sonam Dorji of committing forgery and awarded an imprisonment term of 2 years.

This was because the Court held that the letter submitted by Sonam Dorji declaring his conflict of interest to the CEO on 12.03.2013 was indeed forged as the date on which the letter was submitted falls on a Losar holiday.

Further, the dispatch book and the dispatch register maintained by the PA to the CEO did not have any records of this letter which was corroborated by the statements submitted by Jigme Tshewang (ADM. Head) and Chandra Kala Gurung (messenger).

Sonam Dorji’s claim that the office remained open during the aforementioned date is irrelevant to the present issue as the office was operational only for the purpose of statutory audit.

The Court also found Sonam Dorji guilty of abusing his functions under Section 58(1) and (2) of the ACC Act and awarded him an imprisonment term of 2 years.

The court observed that Section 14 (a) of the Regulations for the Issue of Corporate Bonds states that an issuer shall create an escrow account with any commercial banks. However, he violated this requirement by instructing Yeshi Jamtsho and Kinzang Dorji to execute the contract with Nubri abusing his position as the second in command and while the CEO was absent.

The court said ALCOs decision was a contravention of the financial prudential principles since its decision should be profit maximization for RICBL rather it benefitted Nubri by 2.75% which is a loss for RICBL. Moreover, RICB has no clear justification for investing Nu.100 mn with Nubri at 9% 3 days before it borrowed Nu.108 mn from Nubri at 11.75%.

 It was also observed that RICBL had ignored the objections issued by the RMA directing RICBL to invest the Bond Redemption Fund in any of the commercial banks. The Company Registrar of the Ministry of Economic Affairs had also issued a directive to relocate the fund from Nubri to a Financial institution. The non-adherence to the directives is a clear violation of the requirement as specified under Section 14(a) of the Regulations for the issue of Corporate Bonds.

The court said this shows the intention of Sonam Dorji to retain the money with Nubri to reap the benefits by abusing his position.

The Court in accordance with Section 210 of CCPC awarded a concurrent imprisonment term of 2 years to Sonam Dorji who was allowed to pay in lieu of his imprisonment.

Kinzang Dorji and Yeshi Jamtsho were charged with a violation as per the conditions specified in the plea bargain agreement signed with OAG. They were made to pay a fine of Nu. 11,250.

The ACC and OAG were ordered by the Court to assess the loss incurred by RICBL within 2 months from the date of judgment. The aim of this is ensure recovery of the amount from Nubri.

The Supreme Court verdict establishes a clear line where conflict of interest applies.

While the lower courts are going by the literal and conservative applications of the law which led to acquittal even when there is loss to RICBL and conflict of interest, the Supreme Court has taken a wider view of the case and given a judgment that can be cited as a precedent in future too.

Clerical error?

There was some controversy after a judgment copy to Kinzang Dorji had an error where even the ACC and OAG had been convicted for not getting a valuation of the loss.

The Supreme Court said there were no two orders from the Supreme Court. It said all judgments were same except for the copy issued to Kinzang Dorji.

“We have accidentally issued the draft copy (not final) to Kinzang Dorji although it was signed. We found out about the mistake and has recalled the same person and issued the same judgment that we issued to other parties la. You can cross-check with the copy issued to OAG,” said the Supreme Court.

A source said that in all courts and the Supreme Court a judgment is not finalized straight away but it undergoes numerous drafts and changes based on legal principles, debate and deliberations.

The drafts start happening in the respective bench of the Supreme Court Justice and then a draft is presented to the other Justices and the Supreme Court where more deliberations take place and drafts happen there too until a final judgment comes out and everybody signs.

It looks like one of the earlier drafts mistakenly got sent as a judgment to one of the litigants though the other judgment copies did not have mistakes in them.

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