S. 35A Banking Regulation Act Doesn’t Empower Any Banking Industry To Choose Investigating Agency Of Probe Conducted In A Particular State: Karnataka HC

The Karnataka High Court held that Section 35A of the Baking Regulation Act, 1949 (BRA) does not empower any banking industry to choose the investigating agency of the investigation conducted in a particular State.

The Court held thus in a Writ Petition filed by the Union Bank of India seeking a direction to transfer and entrust investigation of a crime registered under Sections 149, 409, 420, 467, 468, and 471 of the Indian Penal Code (IPC) to the Central Bureau of Investigation (CBI).

A Single Bench of Justice M. Nagaprasanna observed, “The State Government has, on a complaint so registered by the 6th respondent, registers a crime in Crime No.118 of 2024. Certain Banking officials were also accused at the time of registration of crime. They are all dropped while filing the charge sheet. The investigation is complete and the charge sheet is filed. In the considered view of this Court, Section 35A of the Act will not give teeth to any banking industry to choose the investigating agency of the investigation being conducted in a particular State. If this would be permitted, it would be doing violence to the statute itself. This renders the DSPE Act redundant, as existence of CBI is under DSPE Act, and it can intervene in any State only in terms of the DSPE Act or when such investigations are handed over to the CBI by the Apex Court or this Court.”

The Bench further remarked that, when the Ministers or high functionaries who are involved in particular allegations and those allegations are being investigated into, such investigations must be entrusted to independent agencies which are not under the control of the State Government and it is only then it would instil public confidence in the investigation or provide credibility to such investigation.

Attorney General of India (AGI) R. Venkataramani, Senior Advocates Kiran S. Javali, and Vibha Dama Makhija represented the Petitioner while Special Public Prosecutor (SPP) B.V. Acharya and Senior Advocate Ravi Varma Kumar represented the Respondents.

Factual Background -

The Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Limited, a Government of Karnataka undertaking had held its Savings Bank account in a branch of Union Bank of India. The said Corporation instructed the Bank to transfer the said account into another branch. Considering this request, the Bank transferred the same and upon transfer, the Corporation subscribed signatures for banking business and authorized the Managing Director and the Accounts Officer to operate the account independently. It was alleged that the money to the tune of Rs. 94,73,08,500/- was distributed to various accounts by the Branch on the basis of forged documents including authorization letter by one Junior Accounts Officer of the Corporation. Based on this, a crime was registered by the State Government under the relevant provisions of the IPC.

The CBI registered an FIR for offences under Sections 120-B, 409, 420, 467, and 468 of the IPC read with Sections 13(2) and 31(1)(a) of the Prevention of Corruption Act, 1988 (PC Act). Both the State Government and CBI independently investigated. During this time, the Petitioner submitted a request/representation to the Additional Chief Secretary, Home Government referring to the complaint registered by CBI and State and seeking reference of the entire case to the hands of the CBI to ensure free and fair investigation. Thereafter, the Writ Petition was filed before the High Court.

The High Court in view of the facts and circumstances of the case, noted, “The issue that is projected by the petitioner is with regard to siphoning of several crores of the funds belonging to the Corporation. It projects a very sorry state of affairs of the State. M/s Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Limited was incorporated on 26-07-2006 to carry on the business of extending financial and technical assistance to the members belonging to Scheduled Tribe community in the State of Karnataka to create avenues for their economic development, to assist unemployed Scheduled Tribes and to support agricultural labourers belonging to Scheduled Tribes and so on and so forth.”

The Court added that the funds belonging to the scheduled tribes ought to have been treated with great care and it shocks its conscience that funds of scheduled tribe community also is subject matter of scam of misappropriation of funds belonging to a scheduled tribe development corporation.

“It is a matter of record that a sitting member of the Legislative Assembly and certain high functionaries are allegedly involved in the alleged misappropriation of funds. … interpretation of Section 35A, if permitted to any banking institution to seek transfer of investigation to the hands of the CBI, it would be giving Section 35A the powers that the Statute itself does not confer”, it said.

The Court further elucidated that a caveat, that would not put any shackles on the hands of the Court to refer any matter, to any independent investigating agency in exercise of its jurisdiction under Article 226 of the Constitution read with Section 482 of the Criminal Procedure Code (CrPC) or otherwise, but that cannot be in a case projected for interpretation of Section 35A and if it were to be any other interpretation, the Court would have considered the issue.

“Section 35A, as observed hereinabove, is only empowering the RBI the supervisory and complete control of the affairs of any banking institution. Merely because certain officers of the Union Bank of India/the petitioner are accused at the stage of registration of crime and the fact that the Union Bank of India, as necessary in law qua the Bank, has approached the CBI, would not mean that this Court would accept such far fetched interpretation of Section 35A”, it also observed.

Accordingly, the High Court dismissed the Writ Petition.

Cause Title- Union Bank of India v. State of Karnataka & Ors.

Appearance:

Petitioner: AGI R. Venkataramani, Senior Advocates Kiran S. Javali, Vibha Dama Makhija, and Advocate V.R. Vinay Kumar.

Respondents: SPP B.V. Acharya, Senior Advocate Ravi Varma Kumar, AAG V.G. Bhanuprakash, HCGP Thejesh P., SPP P. Prasanna Kumar, Advocates Aditya Bhat, and Sudhanva D.S.

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