State Bank of India has won a landmark judgement against the liquidators of the defunct Bank of Credit and Commerce International.

The judgement means that the London branch of SBI will not be liable for any of the $10 billion debts incurred by BCCI prior to its closure in 1991, resulting in one million small depositors around the world losing their deposits.

Larger depositors who also lost their money included government organisations and government investment funds from many countries around the world.

In his landmark judgement, reinforced by last week's appeal ruling, Justice Patten ruled that SBI was completely innocent of participating in fraudulent money raising schemes devised by BCCI managers.

BCCI, managed by Pakistanis and funded by Gulf sheikhs, was a prime bank in 1983. When it ran into trouble because of unsecured loans to VIP customers and losses incurred in silver trading, it tried to balance its books through questionable book keeping.

In the words of Justice Patten, "BCCI embarked on a systematic and wide-scale fraud involving the manipulation of account balances, with the twin objectives of concealing losses and boosting apparent profits."

He added, "As a result of the fraudulent practises...the audited accounts of BCCI Overseas for the year ended 31 December 1983 showed pre tax profits of $136,340,000. The accounts should have actually shown a loss before tax of at least $ 45,497,000."

The BCCI strategy was to raise loans for shell companies and then use the money to credit its loss accounts. SBI was one of four Indian banks in London that was tapped by BCCI.

When BCCI crashed in 1993, its liquidators sought the co-operation of all financial institutions with whom it had links.

They were all asked to contribute to a compensation pot of $ 11 billion.

When SBI refused to comply, arguing it was innocent of any wrong doing, it was taken to court by BCCI's liquidators.

Justice Patten's judgement has now vindicated the bank's stand and saved shareholders, including the Reserve Bank of India, an estimated $125 million.

Other Indian banks who also loaned money to BCCI are also expected to benefit from SBI's victory.