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

A single bench of judges Justice M Nagaprasanna while delivering the oral verdict he said: “I have not accepted the interpretation of Section 35A (Banking Regulation Act) to become a reason for referral to the CBI. If they allow, any banking institution can ask. DSP Act may become redundant“.

A detailed copy of the order is awaited.

The high court 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 investigation into the alleged scam to the Central Bureau of Investigation (CBI). .

The court reserved its order on the upholding of the bank’s application on two things—Whether (the petition) should be referred to the Apex court under Article 131. Either under Sec. 35A of the Banking Regulation Act, without touching the Special Delhi Police Act, the petition is maintainable, seeking an inquiry by the Central Bureau of Investigation on the basis of the general circular issued by the Reserve Bank of India.”

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

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

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

The Acharya further argued: “The investigation of what we did is not attacked by them (the Bank). They do not say that it is done without jurisdiction, defective or unjust. Therefore, if the power of the state to investigate is not questioned, then the question is whether the CBI has the requisite power.” He added that “Master Circular issued by RBI cannot confer power on CBI to register a case or investigate it”.

Further indicating how the central government was trying to take over the case, he then said “Here the challenge is raised by the Union Bank of India, which is an arm of the central government and is represented by the Attorney General.“.

Referring to the decision of the Apex Court dated State of West Bengal v. Union of India he had also said: “The point of the matter is that the dispute is between the Center and the State and is to be decided by the SC in terms of Article 131 of the constitution. High courts have no jurisdiction”.

Meanwhile, senior counsel Professor Ravivarma Kumar, who appeared for the corporation, argued that the question before the court was “whether a river can rise above its source”. He had said:Although the CBI is considered to be a police department, it cannot investigate all crimes but only those crimes which are reported.“.

“Here the issue that exists is whether the right to investigate is that of the CBI or the State Government. The contention of the State Government that this is governed 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 the CBI. The direction issued by the 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 a CBI inquiry,” the lead lawyer had said.

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

He had said:We are not in the field/domain of DSP Act. It is a 1940 act, banking regulation came in 1949…There is special legislation to mandate the operation of a banking entity. When RBI finds that banking frauds require attention, RBI issues master circular under section 35A. It is not qualified by the DSP Law. The state government would usually yield for the CBI investigation. But there are circumstances in which the state will say what is needed for the CBI to investigate”.

For context, Section 35A of the Banking Regulation Act deals with the power of the Reserve Bank to give directions. The provision states that the RBI can issue directions if it is satisfied that it is necessary to do so in the “public interest” or “in the interest of banking policy” or “to prevent the affairs of any banking company from being conducted in a manner prejudicial to the interests of depositors or prejudicial to the interests of the banking company’ or ‘to ensure the proper management of any banking company in general’.

Referring to the Delhi Special Police (DSP) Act, the AG said, “Today a banking institution occupies a core of a country’s economic discipline; everything that implements fiscal disciplines will have great impact and implications. The bank now downloads a wide range of functions. If RBI issues master circular to ensure bank integrity. The RBI says a specialized agency will be able to look into any crimes either in relation to the bank, committed by the bank’s instrumentalities or from outside using the bank.“.

He then submitted that section 35A can be read as inside instructions to the bank but cannot be read narrowly. He had earlier argued that he was not looking at an offense committed by an “officer or foreigner” or the category of offense being committed. The emphasis was placed on the aspect that the integrity of the banks must be maintained, AG emphasized.

The AG had then argued that the RBI’s master circular states that the CBI will be the only authority that can investigate certain classes of crimes and that the DSP Act is kept out.

Background

The Valmiki case came to light after a Chandrasekaran corporation official working as a superintendent committed 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 named three officials and alleged corruption worth crores in the corporation, demanding action against the named officials. Later, Scheduled Tribes Welfare Minister B Nagendra resigned and is currently in the custody of the Enforcement Directorate.

One Rajashekar, managing director of KMVSTDC, filed a complaint on May 29, saying Rs 94.73 crore was withdrawn from the corporation’s account maintained at Union Bank of India (UBI), forged signatures on board resolutions to illegal transfer. amount to different accounts.

A case was registered against UBI bank officials at High Grounds police station on May 28 for offenses of cheating and other provisions and they approached the court seeking quashing of the offense which is also pending and an interim injunction not to take any coercive action . it is done.

In the charge sheet, the police left the bank officials.

Case Title: UNION BANK OF INDIA AND State of Karnataka

Case no: WP 17274/2024