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The Karnataka High Court delivered a significant ruling on Wednesday, rejecting the Union Bank of India's plea to hand over investigations into a Rs 94.73 crore embezzlement from the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation to the Central Bureau of Investigation (CBI). The court asserted that a circular issued by the Reserve Bank of India (RBI) under section 35A of the Banking Regulation Act of 1949, mandating CBI investigations for bank fraud exceeding Rs 50 crore, is not a valid justification for referring the case to the CBI. Justice M Nagaprasanna, presiding over the case, underscored the importance of respecting the established legal framework, stating that the interpretation of section 35A as a ground for CBI referral would render the Delhi Special Police Establishment (DSPE) Act redundant, as any bank could potentially invoke the rule to circumvent state-level investigations.
The case, which has garnered political attention due to the involvement of former Congress minister B Nagendra, arrested by the Enforcement Directorate (ED) on money laundering charges, raises concerns about the misuse of public funds. While the ED alleges that Nagendra diverted funds from the corporation for Lok Sabha elections in the Bellary constituency, Nagendra, after his release on bail, alleged coercion by ED officials into falsely implicating Chief Minister Siddaramaiah and Deputy Chief Minister D K Shivakumar. The SIT (Special Investigation Team), however, did not find evidence to implicate Nagendra in a criminal case and did not include him in its first chargesheet. The Union Bank of India, after filing a separate complaint with the CBI, which subsequently registered a case of cheating, fraud, and corruption, sought a reference for the entire investigation to the CBI. This led to the court case, raising the crucial question of whether section 35A empowers the RBI to mandate CBI investigations.
The court decisively ruled against the Union Bank's interpretation of section 35A, emphasizing that the Act does not grant banking institutions the power to choose the investigating agency in a particular state. Such an interpretation, the court argued, would undermine the legal structure and the DSPE Act. The court acknowledged the severity of the fraud and the need for public confidence in investigations, suggesting the involvement of independent agencies. However, it maintained that this cannot be achieved by twisting the interpretation of section 35A. The court clarified that while the CBI, which is investigating the bank's complaint, can pursue further investigations and bring in individuals even if they are dropped by the state police, such actions must adhere to established legal procedures.
The background of the scam involves allegations of corruption and political motives. The Congress government accuses the BJP of a witch hunt targeting Siddaramaiah through the ED investigation. The Rs 94.73 crore scam surfaced in May 2024, when an accounts officer in the corporation committed suicide following the disappearance of funds deposited in a new account. The SIT's investigation revealed that the funds were siphoned off to accounts in Telangana and Andhra Pradesh, linked to individuals involved in a similar scam in Chhattisgarh. The scam led to Nagendra's resignation and triggered calls for Siddaramaiah's resignation. Over 20 individuals have been linked to the fraud, with 14 arrests made by the SIT. Notably, no bank officials have been arrested or charged despite their names appearing in the FIR. The case highlights the need for transparent and independent investigations into alleged corruption and the importance of safeguarding public funds.
The high court's decision to dismiss Union Bank's plea underscores the significance of upholding legal frameworks and respecting state jurisdictions in investigations. It remains to be seen how the CBI investigation proceeds and whether it will shed more light on the intricate network of individuals and institutions involved in the alleged embezzlement. The case underscores the importance of a strong and impartial legal system to address financial irregularities and ensure public trust.