Karnataka High Court Rejects Plea To Transfer Probe In Valmiki Corporation "Scam" To CBI

The Karnataka High Court on Wednesday (November 13) dismissed a petition filed by Union Bank of India seeking a direction to the government to transfer the probe being carried out in the alleged scam regarding the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd,  to the Central Bureau of Investigation (CBI).

A single judge bench of Justice M Nagaprasanna while pronouncing the verdict orally said, "I have not accepted the interpretation of Section 35A (Banking Regulation Act) to become a ground for reference to CBI. If I permit that every banking institution may ask. DSP Act may become redundant". 

A detailed copy of the order is awaited. 

The high court had reserved its order on September 30 after hearing the parties on the plea filed by Union Bank of India, seeking a direction to the government to transfer the probe being carried out in the alleged scam to the Central Bureau of Investigation (CBI).

The court had reserved its order on the maintainability of the bank's petition on two things—Whether (petition) it should be sent to Apex court under Article 131. Whether under Sec 35A of the Banking Regulation Act without touching upon the Delhi Special Police Act, the petition is maintainable seeking investigation by the Central Bureau of Investigation on the basis of the master circular issued by Reserve Bank of India.”

The Karnataka government had opposed the plea filed by the Union Bank of India and told the court that the state Police has the power to investigate the case in the alleged scam pertaining to the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd, which cannot be interfered with by the central government.

During the hearing, senior advocate B V Acharya appearing for the state government had said, “The power of investigating a case rests with the state police, it is a statutory power and it cannot be interfered with by the Central Government.”

Raising a preliminary objection on the maintainability of the petition filed by the bank, he had said that it was a dispute between the Central Government and State Government and only the Supreme Court has the jurisdiction to decide on the issue and not the High Court.

Acharya had further contended, “Investigation what we have done is not attacked by them (Bank). They don't say it is done without jurisdiction or tainted or unfair. Therefore, if the power of the state to investigate is not questioned, then the question is whether CBI has the requisite power.” He added that the “Master Circular issued by the RBI cannot confer power on CBI to register a case or investigate it".

Further pointing to how the Central government was trying to take over the case, he had then said “Here the contention is raised by Union Bank of India, which is a constituent of the Central Government and is represented by the Attorney General”.

Referring to the decision of the Apex court in State of West Bengal v. Union of India he had also said, “The crux of the matter is that the dispute is between Centre and State and it is to be decided by SC in regard to Article 131 of the constitution. High courts have no jurisdiction".

Meanwhile Senior Advocate Professor Ravivarma Kumar appearing for the Corporation had contended that the question before the court was "whether a river can rise above its source". He had said, “Though it is deemed that CBI is a police station, it cannot investigate all crimes, it can only investigate those crimes which are notified”.

“Here the issue that exists is about whether the right to investigate is that of the CBI or state government. The state government contention that this is covered by Article 131 of the Constitution is well founded. They (Bank) cannot come before this court and ask for transfer as it is a dispute between the State Government and CBI.Direction issued by RBI is not binding on the Central or State government. Section 35A of the Banking Regulation Act does not give any right to any person to seek CBI inquiry,” the senior counsel had said.

Attorney General (AG) R Venkataramani appearing for the petitioner bank had earlier told the court that the transfer is necessary to ensure that the integrity of the banking industry as a whole is maintained.

He had said, "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 the DSP Act. State government would ordinarily yield for investigation by the CBI. But there are circumstances where the state will say what is the need for the CBI to investigate".

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".

Referring to Delhi Special Police (DSP) Act the AG had 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 had then submitted that Section 35A can be read as indoor directions to the bank but it cannot be read it narrowly. He had earlier 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 had emphasized.

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

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.

In the chargesheet the police have dropped the bank officials.

Case Title: UNION BANK OF INDIA AND State of Karnataka

Citation: 2024 LiveLaw (Kar) 467

Case No: WP 17274/2024