4 BJP leaders move Karnataka High Court for CBI probe into Rs 94 crore tribal welfare fund scam

The BJP leaders have sought a direction to the CBI to investigate a First Information Report dated June 3, 2024 registered by the agency and a status report on the probe.

Earlier this month the high court had dismissed a plea filed by the Union Bank of India for handing over to the CBI investigations into the embezzlement of Rs 94.73 crore of funds of the Karnataka Scheduled Tribes Development Corporation. B Nagendra, a former Congress minister was arrested in connection with the case in July.

The high court, while dismissing the plea on November 13, observed that the matter was fit to be probed by an independent agency other than the state police who are investigating the matter.

The Union Bank of India had cited circulars issued under section 35A of the Banking Regulation Act of 1949 by the Reserve Bank mandating investigation of fraud worth more than Rs 50 crore at banks to central investigating agencies.

“I have not accepted the interpretation of section 35 A to become a ground for reference to CBI. If I permit that then every banking institution may ask. The DSPE (Delhi Special Police Establishment) Act will become redundant,” the high court judge observed while dismissing the plea.

The case has political undertones in Karnataka on account of the arrest of former Congress minister Nagendra by the ED for money laundering even as a Karnataka Police special investigation team (SIT) did not find evidence to implicate the ex-minister in a criminal case for the fraud.

After his release last month on bail, Nagendra alleged that he was forced by ED officials to name Karnataka Chief Minister Siddaramaiah and his deputy D K Shivakumar in the case. The ED has alleged that funds diverted from the ST corporation were used for the Parliament polls by Nagendra in Bellary Lok Sabha constituency.

A total of Rs 94.73 crore of funds deposited by the Karnataka Valmiki ST Development Corporation with the Union Bank of India’s MG Road branch in Bengaluru in March 2024 was siphoned off to 18 accounts linked to a firm in Telangana. The police filed a case against bank officials and others. The SIT, however, did not name the bank officials or former ST welfare minister Nagendra in its first chargesheet.

The Union Bank of India also filed a separate complaint with the CBI and a case of cheating, fraud and corruption was registered by the central agency as well. The bank also approached the Karnataka government seeking to hand over the entire probe to the CBI on June 19, 2024. Two days later, the bank approached the high court for the same.

The court also observed that an independent probe is appropriate but would not allow an interpretation of section 35A of the Banking Regulation Act as suggesting a CBI probe in all banking-linked cases in states.

“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, 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. But that cannot be an interpretation of Section 35A of the Act, as is projected by the learned Attorney General,” the court observed.

The new petition for a CBI probe has been filed by a section of BJP leaders in Karnataka who are considered to be opposed to the leadership of state BJP president B Y Vijayendra, the son of former chief minister B S Yediyurappa.

How the scam came to light

The Rs 94.73 crore ST Development Corporation scam surfaced on May 26, 2024 after an accounts officer in the corporation reportedly died by suicide following the disappearance of a portion of Rs 187 crore deposited from the state treasury and other bank accounts in a new account opened for the corporation in the MG Road branch of the Union Bank of India.

The scam forced the resignation of the then Congress minister for tribal welfare Nagendra. The SIT probe found that the funds were siphoned to 18 primary accounts in Telangana and Andhra Pradesh created by Satyanarayana Verma, who is accused in a similar scam in Chhattisgarh in 2022, and his associates. The funds were subsequently routed to over 170 secondary accounts from where they were withdrawn.

Over 20 people have been linked to the fraud so far with 14 of them arrested by the SIT. The accused include six officials of the Union Bank of India, two officials of the tribal corporation in Karnataka – its MD Padmanabha G J and accounts officer Parashuram Dugganavar – and eight private individuals, including close associates of Nagendra.