Transfer Valimiki Development Corporation Probe To CBI To Ensure Integrity Of Banking Industry: Union Bank Of India To Karnataka High Court

While emphasizing the need for transferring the investigation into the Valmiki Development Corporation "scam" to the CBI, the Union Bank of India told the Karnataka High Court on Tuesday (September 24) that the transfer is necessary to ensure that the integrity of the banking industry as a whole is maintained. 

A single judge bench of Justice M Nagaprasanna was hearing a petition by Union Bank of India seeking a direction to the government to transfer the probe being carried out in the alleged scam in regards to the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd to the Central Bureau of Investigation. 

At the outset senior advocate BV Acharya, appointed for State, raised a preliminary question on the maintainability of the plea. He said that the dispute is between the State and the Union Government. 

To this the high court orally said, "I do not agree with that not at all, it is not a dispute between state and Union". Acharya however said that the petition relies on a circular issued by Central Government which forms the foundation of the petition as to whether such circulars can interfere with powers of state government and police.

The court however orally said that it shall answer the matter on merits. Acharya meanwhile referred to the Supreme Court's decision in the case of State of West Bengal v. Union of India. 

To this the high court orally asked, "Did the SC says it is a dispute between state and central govt and only it is to hear the case?". Meanwhile Acharya said that the jurisdiction of all other courts are barred when there is dispute between State and Central Government. 

The high court however orally said, "This may require an answer. I was not aware of this. We will decide on maintainability first". 

Beginning his submissions, Attorney General (AG) R Venkataramani appearing for the petitioner bank said that the petition does not rely on Delhi Special Police (DSP) Act.

"We are not in the scope/domain of DSP Act. It is an act of 1940, Banking regulation came in 1949...There is a special legislation to mandate the functioning of a banking entity. When RBI finds that bank frauds require attention, RBI issues master circular under section 35A. It is not qualified by DSP act. State government would ordinarily yield for investigation by CBI. But there are circumstances where state will say what is the need for CBI to investigate," he added.

For context Section 35A of the Banking Regulation Act pertains to the power of the Reserve Bank to give directions. The provision entails that the RBI may issue directions if it is satisfied that it needs to do so in "public interest" or "in the interest if banking policy" or "to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or prejudicial to the interests of the banking company" or "to secure the proper management of any banking company generally". 

The provision states that these directions have to be complied by the banking company/companies. The RBI, the provision states, on a representation made to it or on its own motion, modify or cancel any such direction issued by it and while modifying or cancelling it may impose conditions as it thinks fit.

Referring to the  to DSP Act the AG said, "Today a banking institution occupies a core of economic discipline of a country; anything which impleads the fiscal disciplines will have a large impact and implications. Bank discharges wide range of function now. If RBI issues master circular to ensure integrity of bank. RBI says a specialized agency will be suited to look into any offences either in relation to bank or committed by instrumentality of bank, or outsider who use the bank". 

He further submitted that Section 35A can be read as indoor directions to the bank but it cannot be read it narrowly. He further submitted that he was not looking at an offence committed by an "officer or outsider" or the class of offence is committed. The focus was on the aspect that the integrity of banks must be maintained, the AG emphasized. 

The AG further submitted that the RBI's master circular states that the CBI will be only authority which can probe certain class of offences and the DSP Act is kept out. 

"RBI then designates under Sec 35A that CBI will be the investigating agency.The master circular says CBI will be the only authority to investigate a certain class of offences. To do this RBI does not require to go to Central govt. DSP act is kept out. RBI in its wisdom has said that i do not require the assistance of Central government to ask CBI to investigate under the Banking Regulation Act," the AG said. 

At this stage the high court orally said, "The bank has registered a complaint; now you are asking this complaint to be investigated by CBI". To this the AG said that under the master circular the only agency which can investigate is the CBI. 

To this the court orally remarked, "Because it is state owned corporation and Union bank has complained against state owned corporation". Meanwhile Acharya said that "subject to correction" the petitioner bank had only given a representation to the Chief Secretary for transfer of the case to the CBI and had not lodged a complaint itself. 

The AG however argued, "Suppose there is no master circular or Sec 35A at all. How would I look at this communication? Since file is already assigned and occupied by CBI this request does not make any difference at all. I think there is a certain misconception about the letter. It is not the law on the subject". 

Referring to the letter written by the bank to the CBI the AG said that it amounted to "virtually lodging" a complaint with CBI, wherein the entire events were set out. He further submitted that the RBI's Master circular is binding on the bank and that the scheme is outside of the DSP Act.

"To ensure integrity of Banking industry. The FIR lodged by Chairman of corporation, was including conspiracy by banking officials. But later the investigating agency found a way out and CBI need not come in by exonerating the banking officials. This is the best way you thought of shutting out CBI. If there is involvement of MD of the bank be it, but let the investigating agency exclusively given the power to investigate.  In public life many things happen. It is important that Banking regulation Act and RBI authority go untrampled. CBI will necessarily investigate this matter, it may reach same conclusion as state agency has arrived at, perhaps CBI may even drop the investigation. At the threshold saying CBI is alien is to be questioned," the AG said. 

At this stage the court orally said that the senior counsel appearing for the respondents had said that the petitioner bank cannot choose the investigator.

To this AG said that this was a principle in the broader sense, however the bank was not choosing. "If bank says i do not want CBI then i can understand. Bank is bound by what RBI says," he added. 

The AG further emphasized that "we are marching into a digital area where anything can happen" and as the RBI's master circular and Section 35A are not under challenge, thus the bank is bound to go to the CBI. 

He said that he had looked at the details of accused in the chargesheet, wherein some are members of the corporation, some outsiders. He said that the money had come into the bank and flown out, adding that the bank has been "used as a tool". 

He submitted that questions such as why are the accused involved and what is the conspiracy/reason behind the money going out requires an investigation. 

"A doubt arises as to why the chargesheet would like to close it the way it does. That is my submission on the preliminary objection raised," the AG said. 

After some hearing the high court listed the matter on September 30. 

Background

The Valmiki case came to light after an official of the corporation Chandrasekaran who worked as a Superintendent died by committing suicide and left a note containing an allegation of multi-crore corruption in the corporation.

In a six-page suicide note recovered by the police, Chandrasekaran mentioned the names of three officials and alleged corruption worth crores in the corporation, demanding action against the named officials. Subsequently, the Scheduled Tribes Welfare Minister, B Nagendra resigned and is presently in custody of the Enforcement Directorate.

A Rajashekar, Managing Director of the KMVSTDC, had filed a complaint on May 29, saying Rs 94.73 crore money was siphoned off from the corporation's account maintained in the Union Bank of India (UBI), fake signatures on board resolutions were made to illegally transfer the amount to various accounts.

A case has been registered against UBI bank officials at the High Grounds police station on May 28 for offences of cheating and other provisions and they have approached the court seeking quashing of the offence which is also pending and an interim order of not taking any coercive action is made.