Valmiki scam not a Centre-State dispute: Karnataka High Court refutes State's argument against CBI probe

The State of Karnataka Tuesday opposed the petition filed by the Union Bank of India before the Karnataka High Court seeking a probe by the Central Bureau of Investigation (CBI) into the alleged multi-crore Maharishi Valmiki Corporation scam (Valmiki Corporation) [Union Bank of India v. State of Karnataka and ors].

Appearing for the State, Senior Counsel BV Acharya told a single-judge Justice M Nagaprasanna that the present case was that of a dispute between the State and the Centre.

Acharya cited the Supreme Court’s July 2024 judgment in the matter of the State of West Bengal vs Union of India to argue that the jurisdiction of all courts except the Supreme Court would stand barred when it is a dispute between the State and the Centre.  

Justice Nagaprasanna, however, said that while the Court will hear the matter on the issue of maintainability as well as on merits, he disagreed with the State’s submission that the present case was that of a dispute between the Union and the State.

“I don't agree with that. It is not at all a dispute between the State and the Union. It is a dispute between an individual and the Corporation that has siphoned off the funds. And the Union Bank is here wanting a CBI probe. Where is the Centre and the State?” Justice Nagaprasanna said.

The alleged scam pertains to misappropriation of Valmiki Corporation funds. It came to light in May this year after the Corporation's accounts superintendent, Chandrashekhar, died by suicide at his residence. Chandrashekhar had left behind a note alleging misappropriation of the welfare funds.

Soon after, the Karnataka government constituted a Special Investigation Team to probe the allegations while the Enforcement Directorate (ED) too began a separate probe.

As per the ED, around ₹90 crore was illegally transferred from the Valmiki Corporation’s Union Bank of India account to several unauthorised accounts.

Interestingly, a first information report (FIR) was registered against ED officers probing Valmiki Corporation case but Justice Nagaprasanna had stayed that probe.

The bank later approached the Court for CBI probe.

The High Court then sought the State government's response in the matter in July this year.

Attorney General (AG) R Venkatramani, who appeared for the Union Bank of India in his personal capacity today, disputed the State's submissions.

Venkatramani told the Court that the case of West Bengal vs Union of India cannot be cited here since the present case was completely out of the purview of the Delhi Special Police Establishment Act (DSPE Act) of 1946.

The AG said that the Union Bank of India demanding CBI probe into the alleged scam was not based on the premise of the DSPE Act. Instead, Venkatramani said the Reserve Bank of India’s Master Directions mandated that the CBI must probe cases of financial and banking frauds if the amount involved in such fraud exceeded ₹3 crore.

“There is a special legislation to mandate the functioning of a banking entity. When RBI finds that bank frauds require attention, RBI issues master circular under section 35A. It is not qualified by DSPE Act. We have seen banking frauds of all sorts from across the country. I looked into the details of the accused in the chargesheet. Some are outsiders, some are officials of the Valmiki Corporation. And the Bank has been used as a tool for getting into it and getting out of it. Why did the corporation allow this? Why would the Corporation have shared its bounty with outsiders? Only a proper investigation will reveal all this,” the Attorney General said.

The Court will hear the matter further on September 30.