Today, on Nov 13th, the Karnataka High Court dismissed Union Bank’s request to transfer the Valmiki Corporation financial scam investigation to the CBI, affirming that state police have statutory authority. Justice Nagaprasanna emphasized that only the Supreme Court can resolve jurisdictional disputes and clarified that Section 35A of the Banking Regulation Act does not mandate a CBI inquiry, reinforcing state autonomy.
Karnataka: On Wednesday (Nov 15th), the Karnataka High Court dismissed Union Bank of India’s plea to transfer the investigation of the Valmiki Corporation multi-crore financial scam to the Central Bureau of Investigation (CBI).
“A river cannot rise above its source,” argued the wrestlers’ advocate, emphasizing that the state police have the rightful authority to carry out the investigation. Justice M. Nagaprasanna’s ruling reiterated the boundaries of the Banking Regulation Act and affirmed that only the Supreme Court, under Article 131 of the Constitution, can address conflicts between state and central authority on this issue.
Court Reaffirms State Police Authority
Justice Nagaprasanna clarified that he did not accept Union Bank’s interpretation of Section 35A of the Banking Regulation Act as grounds to mandate a CBI investigation. The court held that “the state police retain statutory powers for investigation,” emphasizing that this authority should not be undercut by central directives, unless specified under unique provisions.
The Karnataka government had opposed Union Bank’s plea, arguing that “the investigation power rests with the state police,” and cannot be transferred without significant justification. Senior advocate B.V. Acharya, representing the state, argued that transferring the investigation to the CBI would violate the autonomy of the state police, a crucial component of India’s federal structure. He noted,
“The power to investigate is statutory and cannot be interfered with by the Central Government.”
A Matter of Jurisdiction: Union Bank’s Argument Rejected
Union Bank’s counsel, Attorney General R. Venkataramani, argued that the case required central intervention due to the large-scale corruption within the Valmiki Corporation. The bank referenced the Reserve Bank of India’s (RBI) master circular, issued under Section 35A, which directs certain high-value fraud cases to the CBI to maintain the integrity of the banking sector. However, the court held that
“Section 35A of the Banking Regulation Act does not grant authority to seek a CBI inquiry.”
The Attorney General further argued that the “CBI’s involvement would ensure the integrity of the banking sector,” given the scale of the alleged fraud. But, as Justice Nagaprasanna noted,
“The RBI’s master circular cannot override the jurisdiction of the state police or the DSP Act.”
The Valmiki Corporation Case: Background and Impact
The Valmiki Corporation scam gained attention after an official from the corporation, Chandrasekaran, allegedly committed suicide, leaving a note accusing officials of siphoning off over ₹94 crore. This note led to an internal investigation, resulting in charges against officials within the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation. Following these revelations, Minister B. Nagendra resigned and is now under Enforcement Directorate custody.
The case saw a complaint filed by the corporation’s Managing Director, alleging that bank officials used forged signatures to transfer funds to unauthorized accounts. Despite these accusations, the state police investigation has so far not pursued charges against Union Bank officials.
A Test of Constitutional Limits
This verdict from the Karnataka High Court reaffirms the principle of “state jurisdiction over local matters” and clarifies the scope of the Banking Regulation Act’s provisions. The court’s decision could set a significant precedent on the limits of CBI intervention, especially when local law enforcement agencies have already undertaken investigative responsibilities. Justice Nagaprasanna’s decision highlights the need for cooperation between state and central authorities without infringing on established jurisdictional boundaries.
With the investigation ongoing under the Karnataka police, this decision emphasizes that “the power of the state police is fundamental and cannot be superseded by central agencies without due cause.” The court’s stance is expected to influence similar cases where jurisdictional boundaries between state and central law enforcement are contested, further underscoring the judiciary’s role in upholding constitutional mandates.
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