Karnataka High Court
Union Bank Of India vs State Of Karnataka on 13 November, 2024
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
1
Reserved on : 30.09.2024
Pronounced on : 13.11.2024 R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF NOVEMBER, 2024
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.17274 OF 2024 (GM - RES)
BETWEEN:
UNION BANK OF INDIA
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKINGS) ACT
HAVING ITS CENTRAL OFFICE AT NO. 239
VIDHAN BHAWAN MARG, NARIMAN POINT,
MUMBAI - 400 021
MAHARASHTRA
REGIONAL OFFICE SITUATED AT
NO.10/A, CHANDRA KIRAN
FIRST FLOOR, BENGALURU - 560 001.
REPRESENTED BY ITS REGIONAL HEAD
J.MAHESHA.
... PETITIONER
(BY SRI R VENKATARAMANI, ATTORNEY GENERAL OF INDIA A/W
SRI KIRAN S.JAVALI, SR.ADVOCATE;
SMT.VIBHA DAMA MAKHIJA, SR.ADVOCATE;
SRI V.R.VINAY KUMAR, ADVOCATE)
2
AND:
1. STATE OF KARNATAKA
REPRESENTED BY ITS CHIEF SECRETARY,
DR.AMBEDKAR VEEDHI,
BENGALURU - 560 001.
2. THE DIRECTOR GENERAL AND
INSPECTOR GENERAL OF POLICE
KARNATAKA STATE POLICE,
HEADQUARTERS,
NO.2, NRUPATHUNGA ROAD,
BENGALURU - 560 001.
3. THE STATION HOUSE OFFICER
HIGHGROUNDS POLICE STATION,
BENGALURU - 560 052.
4. THE DIRECTOR GENERAL OF POLICE
CRIMINAL INVESTIGATION AGENCY
SPECIAL UNITS AND ECONOMIC OFFENCES
CID HEADQUARTERS
CARLTON HOUSE,
BENGALURU - 560 001.
5. CENTRAL BUREAU OF INVESTIGATION
BANKING SECURITIES FRAUD BRANCH
36, BELLARY ROAD, 2ND FLOOR
CBI COMPLEX, GANGANAGAR
BENGALURU - 560 032
REPRESENTED BY ITS
JOINT DIRECTOR.
6. KARNATAKA MAHARSHI VALMIKI
SCHEDULED TRIBES DEVELOPMENT
CORPORATION LTD.,
REPRESENTED BY
A. RAJASHEKAR, GENERAL MANAGER
3
AT NO.10, 3RD FLOOR, KHADI BHAVAN
JASMA DEVI BHAVAN ROAD,
BENGALURU - 560 052.
... RESPONDENTS
(BY SRI B.V.ACHARYA, SPL.PP A/W
SRI V.G.BHANUPRAKASH, AAG AND
SRI THEJESH P., HCGP FOR R-1 TO R-4;
SRI P.PRASANNA KUMAR, SPL.PP FOR R-5;
PROF.RAVI VARMA KUMAR, SR.ADVOCATE FOR
SRI ADITYA BHAT, ADVOCATE FOR R-6;
SRI SUDHANVA D.S., ADVOCATE FOR I.A.NO. 1/2024
FOR IMPLEADING APPLICANT )
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA READ WITH SECITON 482 OF
CR.P.C., PRAYING TO DIRECT THE RESPONDENT NO.1 TO 3 TO
TRANSFER AND ENTRUST THE INVESTIGATION OF THE CASE
CRIME NO. 118/2024 VIDE ANNEXURE – Q, LEVELING OFFENCES
PUNISHABLE UNDER SECTIONS 149, 409, 420, 467, 468, 471 OF
THE INDIAN PENAL CODE TO THE RESPONDENT NO.4-CENTRAL
BUREAU OF INVESTIGATION AND FURTHER DIRECT THE R-4 TO
CARRY OUT SPEEDY AND EXPEDITIOUS INVESTIGATION IN THE
AFOREMENTIONED CASE WITHIN A SPECIFIED TIME.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 30.09.2024, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
4
CORAM: THE HON’BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The petitioner/Union Bank of India is knocking at the doors of
this Court seeking a direction by issuance of a writ in the nature of
mandamus directing respondents 1 to 3/the State and its wings to
transfer and entrust the investigation in Crime No.118 of 2024
registered for offences punishable under Sections 149, 409, 420,
467, 468 and 471 of the IPC to the 5th respondent/Central Bureau
of Investigation (‘CBI’ for short).
2. The facts, in brief, germane are as follows:-
This petition is preferred by the Union Bank of India, a body
corporate constituted under the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970. The backdrop to the filing
of the present petition is that the 6th respondent/Karnataka
Maharshi Valmiki Scheduled Tribes Development Corporation
Limited (‘the Corporation’ for short), a Government of Karnataka
5undertaking had held its Savings Bank (‘SB’) account in a branch of
Union Bank of India at Vasanthnagar, Bangalore. 6th respondent
represented by its Managing Director and the Accounts Officer are
said to have instructed the Bank to transfer the said SB account
into M.G. Road Branch of the Bank. Considering the request of the
6th respondent, the petitioner/Bank is said to have transferred the
SB account to M.G. Road Branch. Upon transfer, respondent No.6
is said to have subscribed signatures for banking business on the
specimen signature card and has authorized the Managing Director
and the Accounts officer to operate the SB account independently.
Certain transactions took place. Money belonged to the Corporation
is sent to various accounts, both in the State of Karnataka and in
Tamilnadu. The money to the tune of `94,73,08,500/- was
distributed to various accounts by the Branch on the basis of forged
documents including authorization letter by one Shivakumar, Junior
Accounts Officer of the 6th respondent. Based upon the said
incident a crime comes to be registered by the State Government in
Crime No.118 of 2024 for the aforesaid offences.
6
3. Parallelly, against the officials of the Bank, the petitioner
placed the matter before the CBI, as the alleged fraud involved was
beyond `50/- crores. The CBI registers FIR in No.RC0782024E001
for offences punishable under Sections 120-B, 409, 420, 467, 468
of the IPC r/w 13(2) and 31(1)(a) of the Prevention of Corruption
Act, 1988 (‘PC Act’ for short). Both the State Government and the
CBI independently investigate. The horizon of investigation differs,
as the offences under the PC Act as also under the IPC were alleged
in the crime registered by the CBI, but the State Government has
registered the crime for offences under the IPC. On 19-06-2024
during the subsistence of investigation at both the ends, the
petitioner submits a request/representation to the Additional Chief
Secretary, Home Department, Government of Karnataka referring
to the complaint registered by the CBI and the complaint registered
by the State and seeking reference of the entire matter to the
hands of the CBI to ensure free and fair investigation. Two days
thereafter i.e., on 21-06-2024 the subject petition is filed.
4. Heard Sri R. Venkataramani, learned Attorney General of
India appearing for the petitioner; Sri B.V.Acharya, learned Special
7Public Prosecutor appearing for respondents 1 to 4; Sri P.Prasanna
Kumar, learned Special Public Prosecutor for respondent No.5 and
Prof. Ravi Varma Kumar, learned senior counsel appearing for
respondent No.6.
SUBMISSIONS:
Petitioner:
5. The learned senior counsel and Attorney General of India
Sri R Venkataramani, representing the petitioner/Bank, would urge
the following contentions:
(i) According to the learned Attorney General, Section 35A
of the Banking Regulation Act, 1949 (‘Act’ for short)
confers such powers on the Reserve Bank of India, to
give directions from time to time to banking companies
regarding affairs of any banking company, if those
affairs are prejudicial to the interest of any banking
company.
(ii) It is his vehement submission that powers conferred
under Section 35A of the Act would clothe the petitioner
also to seek any fraud involving banking transactions in
8the country to be taken up together for investigation at
the hands of an independent entity – in the case at
hand the CBI.
(iii) He would contend that the banks are obliged to act in
terms of these directions, which are statutory in
character and report instances of fraud, above a certain
value only to the CBI.
(iv) He would contend that in the light of the facts obtaining
in the case at hand, which has multi-state dimensions,
SIT constituted by the State will not do justice to
investigation. Therefore, on interpretation of Section
35A, it has to be handed over to the CBI.
(v) It is his further contention that the Managing Director of
the Corporation is a high ranking official and the
Chairman B. Nagendra is a sitting member of the State
Legislative Assembly. Therefore, it is important that
the investigation should be impartial. He would thus
contend that on interpretation of Section 35A, matter
should be handed over to the CBI.
9
(vi) Section 35A of the Act would take within its sweep
every act by every banking institution wherever it is
situated, in the length and breadth of the country. He
would submit that the role of RBI in the banking
industry has been statutorily defined. The Act confers
RBI to issue circulars/directions in public interest. The
circulars issued by the RBI are a product of its
executive authority and this is independent of any other
law or scheme in regard to investigation relating to any
Bank.
(vii) The learned Attorney General. on the face of the case,
would contend that the petitioner/Bank has complained
to the CBI to commence investigation in terms of the
Master Circular. The fact that, in the meanwhile, the
jurisdictional police in the State began to act on the
complaint given by the 6th respondent, cannot take
away the right of the CBI independently acting, without
being subject to the Delhi Special Police Establishment
Act, 1946 (‘DSPE Act’ for short). It is his submission
10that DSPE Act need not be brought into the picture at
all. Section 35A of the Act is enough for the Bank to
seek a direction at the hands of this Court to refer all
the matters to the CBI. He would place reliance upon
several judgments of the Apex Court and that of this
Court to buttress his submission, that the power of this
Court under Article 226 of the Constitution to direct
investigation by a particular agency is unbridled. He,
therefore, seeks allowing the petition and entrusting the
entire investigation or any proceeding pending on the
issue of the Corporation to the hands of the CBI.
Respondents:
6. Per contra, the learned senior counsel Sri B.V. Acharya and
Prof. Ravi Varma Kumar would in unison project a threshold bar, of
maintainability of the petition. It is their vehement submission that
under Article 131 of the Constitution of India, this becomes a
dispute between a wing of the Centre, and the State. If it is a
dispute between a wing of the Centre and the State, no High Court
has jurisdiction to entertain the petition and the matter should be
11placed before the Apex Court under Article 131 of the Constitution.
Both the learned senior counsel would contend that Section 35A of
the Act would not clothe the Bank, to seek a direction that
investigation should be transferred to the CBI, which is formed
under the DSPE Act. The Act nowhere confers the power to
unilaterally ask for such transfer, unless it is in compliance with
Section 6 of the DSPE Act, which deals with consent of the State.
They would admit the power of this Court to entrust investigation to
any agency, but not the request made by the petitioner seeking
transfer of the subject investigation to the CBI. They would also
seek to place reliance, on two judgments qua maintainability, of the
Apex Court and the Division Bench of this Court, to buttress their
submissions.
7. The learned Attorney General of India would join issue to
clarify that he is in no way taking support from the DSPE Act, to
transfer the matter to the CBI. His entire submission is without
even going into the DSPE Act. He would again iterate that Section
35A of the Act has enough power to seek such transfer. Therefore,
he would contend that one need not get into the argument of Article
12
131 of the Constitution. However, he would seek to distinguish the
judgments relied on by both the learned senior counsel appearing
for the respondents.
8. I have given my anxious consideration to the submissions
made by the respective learned counsel and have perused the
material on record.
9. The afore-narrated facts are not in dispute. From the
submissions that are made for which the judgment is reserved, two
pivotal issues emerge viz.,
(1) Whether the matter should be placed before the
Apex Court owing to Article 131 of the
Constitution of India?
(2) Whether section 35A of the Act would empower
the RBI to seek a direction like the one that is
sought in the case at hand to refer the matter to
the CBI?
10. Issue No.1:
Whether the matter should be placed before the
Apex Court owing to Article 131 of the
Constitution of India?
13
Since the contention qua Article 131 of the Constitution is
projected to be the threshold bar, I deem it appropriate to answer
it, at the outset. Section 131 of the Constitution of India reads as
follows:
“131. Original jurisdiction of the Supreme Court.–
Subject to the provisions of this Constitution, the
Supreme Court shall, to the exclusion of any other court,
have original jurisdiction in any dispute–
(a) between the Government of India and one or
more States; or
(b) between the Government of India and any State
or States on one side and one or more other
States on the other; or
(c) between two or more States,
if and in so far as the dispute involves any question
(whether of law or fact) on which the existence or extent
of a legal right depends:
Provided that the said jurisdiction shall not extend to a
dispute arising out of any treaty, agreement, covenant,
engagement, sanad or other similar instrument which, having
been entered into or executed before the commencement of this
Constitution, continues in operation after such commencement,
or which provides that the said jurisdiction shall not extend to
such a dispute.”
(Emphasis supplied)
Article 131 deals with original jurisdiction of the Supreme Court.
The Apex Court, to the exclusion of any other Court, shall have
14original jurisdiction, in any dispute between Government of India
and one or more States; between Government of India and any
State or States on the one side and one or more other States on
the other side; or between two or more States. This becomes
subject matter of interpretation by the Apex Court in its judgment
in the case of STATE OF WEST BENGAL v. UNION OF INDIA1.
It becomes necessary to notice what fell for consideration before
the Apex Court, and what was held by it on the relief sought by the
petitioner therein. The Apex Court holds as follows:
“I. INTRODUCTION:
1. The present suit has been filed by the State of West
Bengal against Union of India seeking the following reliefs:i. “Pass a Judgment and Decree declaring that
registration of cases by the Defendant after
withdrawal of Notification under Section 6 of the
DSPE Act by the Plaintiff is unconstitutional and non-
est;
ii. Pass Judgment and Decree thereby restraining and
forbearing the Defendant from registering any case
and/or investigating a case in connection with
offences committed within the territory of State of
West Bengal after withdrawal of the consent under
Section 6 of the DSPE Act by the State;
iii. Pass a Judgment and Decree declaring that the action
of the Defendant in registering cases by the
Defendant after withdrawal of Notification under
Section 6 of the DSPE Act by the Plaintiff is violative
1
2024 SCC OnLine SC 1684
15of Constitution of India as well as violative of the
basic structure of the Constitution and the principle of
federalism;
iv. Pass a Judgment and Decree thereby quashing all
cases registered by the Defendant after withdrawal of
Notification under Section 6 of the DSPE Act by the
Plaintiff and transmit those records to the Plaintiff for
registration of regular cases by the police force of the
Plaintiff;
v. Ad-interim order restraining the Defendant from
proceeding with any investigation on an FIR and any
proceeding arising therefrom, registered after
November 16, 2018 when the consent under Section 6
of the DSPE Act was withdrawn by the Plaintiff, other
than investigation with respect to an FIR
filed/registered on an order of a competent court of
law;
vi. Pass a Judgment and Decree granting such other and
further reliefs that are deemed fit in the facts and
circumstances of the case.”
2. On filing of the suit, preliminary objections have been
raised by the defendant – Union of India with regard to the
maintainability of the present suit. Through this judgment, we
have dealt with the contentions of the parties on the aspect of
maintainability.
… … ….
II. SUBMISSIONS OF DEFENDANT:
4. The basic objection with regard to tenability of the suit
is based on Article 131 of the Constitution of India (for short,
“the Constitution”). The learned Solicitor General submitted
that, upon interpretation of Article 131 of the Constitution, it is
clear that the provisions of Article 131 of the Constitution are
subject to the other provisions of the Constitution. He therefore
submitted that, since the issue involved in the present lis is also
an issue arising in certain appeals pending before this Court,
under Article 136 of the Constitution, a fresh suit under
Article 131 of the Constitution would not be tenable. It is
submitted that the term “subject to the provisions of this
Constitution” has to be interpreted as “subject to the other
16
provisions of the Constitution including Article 136″. It is
therefore submitted that, since the issue with regards to the
same subject matter is pending before this Court under
Article 136 of the Constitution, a suit for the same purpose
under Article 131 of the Constitution is barred.
… …. …
6. While making a reference to the term “subject to the
provisions of this Constitution” in Article 131 of the Constitution,
the learned Solicitor General submitted that, since the subject
matter of the present suit is also pending before this Court or
the High Courts under Article 136 or 226 of
the Constitution respectively, the present suit would not be
tenable.
… … …
61. Section 6 of the DSPE Act reads thus:
“6. Consent of State Government to exercise of
powers and jurisdiction.–Nothing contained in section 5
shall be deemed to enable any member of the Delhi Special
Police Establishment to exercise powers and jurisdiction in
any area in a State, not being a Union Territory or railway
area, without the consent of the Government of that State.”
62. A perusal of Section 6 of the DSPE Act would reveal
that nothing contained in Section 5 shall be deemed to enable
any member of the DSPE to exercise powers and jurisdiction in
any area in a State, not being a Union Territory or railway area,
without the consent of the Government of that State.
63. A perusal of the entire scheme would therefore
reveal that right from the constitution of the special
police force which is called DSPE, issuance of
notifications specifying the offences or classes of
offences which are to be investigated by the DSPE,
superintendence and administration of DSPE and the
extension of powers and jurisdiction of DSPE to the areas
beyond the Union Territories, it is the Central
Government which is vitally concerned with. Not only
that, only such offences which the Central Government
notifies in the official gazette, can be investigated by the
DSPE. Under Section 4 of the DSPE Act, except the
offences under the PC Act in which the superintendence
17
will be with the CVC, the superintendence of the DSPE in
all other matters would vest with the Central
Government.
64. If the powers and jurisdiction of the members
of the DSPE are to be extended to any area including
railway areas, in a State not being a Union Territory, the
same cannot be done unless the Central Government
passes an order in that regard. The statutory scheme
makes it clear that, for extending such powers under
Section 5 of the DSPE Act, it cannot be done without the
consent of the Government of that State under Section 6
of the DSPE Act.
65. In that view of the matter, we find that the
contention of the learned Solicitor General that even if
the CBI, being an independent agency, is considered to
be an instrumentality of the State under Article 12 of
the Constitution, it cannot be equated to the term
Government of India as contemplated under
Article 131 of the Constitution, in our view, holds no
water.
66. We further find that the very establishment,
exercise of powers, extension of jurisdiction, the
superintendence of the DSPE, all vest with the
Government of India. In that view of the matter, in our
opinion, the reliance placed by the learned Solicitor
General on the judgment of this Court in the case of State
of Bihar v. Union of India (supra), is not well placed. In
our view, the CBI is an organ or a body which is
established by and which is under the superintendence of
the Government of India in view of the statutory scheme
as enacted by the DSPE Act.
… … …
75. In our opinion, Article 131 of the Constitution is
a special provision which deals with the original
jurisdiction of this Court in case of a dispute between the
Federal Government and the State Governments. It
provides for a special jurisdiction to this Court to decide
any question on which the existence or extent of a legal
right depends. Any dispute either between the
18
Government of India and one or more States; or between
the Government of India and any State or States on one
side and one or more other States on the other; or
between two or more States which involve a question on
which the existence or extent of a legal right depends are
covered by this provision. A special provision has been
made for deciding the question on which the existence or
extent of a legal right between the special parties
mentioned therein has been provided. Therefore, the
words “subject to the provisions of this Constitution” will
have to be considered in that context. The jurisdiction
under Article 131 of the Constitution would only be
subject to any other provision in the Constitution which
provides for entertaining a dispute between the parties
mentioned therein. We could notice only one such other
provision in the Constitution, which is Article 262, which
reads thus:
“262. Adjudication of disputes relating to
waters of inter-State rivers or river valleys.–(1)
Parliament may by law provide for the adjudication of any
dispute or complaint with respect to the use, distribution
or control of the waters of, or in, any inter-State river or
river valley.
(2) Notwithstanding anything in this Constitution,
Parliament may by law provide that neither the Supreme
Court nor any other court shall exercise jurisdiction in
respect of any such dispute or complaint as is referred to
in clause (1).”
(Emphasis supplied)
The issue before the Apex Court was suit filed by the State of West
Bengal against the Union of India. The prayer sought was to pass a
judgment and decree declaring registration of cases by the
defendant/Union of India after withdrawal of notification of general
19
consent under Section 6 of the DSPE Act by the State of West
Bengal, to be unconstitutional and non est. After detailed reasoning,
the answer lies at paragraph 75 supra. The Apex Court holds that
under Article 131 of the Constitution of India, the original
jurisdiction of the Court would arise when the dispute is between
the Federal Government and the State Government and the dispute
is between Government of India and more States and Government
of India and other States.
11. The facts before the Apex Court were filing of a suit by
the State of West Bengal against the Union of India. The facts
obtaining in the case at hand are distinguishable without much ado.
There is no Union of India filing any case against the State
Government in the case at hand. It is the Union Bank of India
which is seeking a direction for transfer of the matter to the CBI.
Whether it should be done or not, is on the merit of the matter.
Therefore, to project a threshold bar, placing reliance on Article 131
of the Constitution to be applicable in the case at hand, is neither
here nor there, such legal maundering is unacceptable. In the
considered view of this Court there is no dispute between the Union
20
of India and the State within the parameters laid down by the Apex
Court, in paragraph 75, of its judgment, extracted supra.
12. Much reliance is placed upon the judgment rendered by
the Division Bench of this Court to contend that the Division Bench
follows the aforesaid judgment of the Apex Court and answers the
issue. The Division Bench of this Court in the case of
BASANAGOUDA R PATIL AND STATE OF KARNATAKA 2holds as
follows:
“…. …. ….
85. As regards maintainability of the petitions under
Article 131 and as regards DSPE Act, it is relevant to refer to a
recent pronouncement of the Hon’ble Apex Court in the case of
THE STATE OF WEST BENGAL vs. UNION OF INDIA
(ORIGINAL SUIT No.4/2021). In the said judgment, the
Hon’ble Apex Court has held thus:
“We find that, in the present suit, the plaintiff is
raising the legal issue as to whether after withdrawal of the
consent under Section 6 of the DSPE Act, the CBI via the
defendant – Union of India can continue to register and
investigate cases in its area in violation of the provisions of
Section 6 of the DSPE Act. The same has been sought to be
attacked by the defendant – Union of India by raising
various contentions challenging the maintainability of the
suit. In our considered opinion, the contentions raised by
the defendant, do not merit acceptance and for the reasons
given hereinbefore, are rejected. The preliminary objection
is, therefore, rejected. However, we clarify that the
aforesaid findings are for the purposes of deciding2
W.P.27220 of 2023 c.w W.P.670 of 2024 decided on 29th August 2024
21preliminary objection and will have no bearing on merits of
the suit. The suit shall proceed in accordance with law on its
own merits.”
86. In the present cases, this court finds it pertinent to
examine the precedent set in State of West Bengal v. Union
of India, which firmly establishes the maintainability of suits
under Article 131 of the Constitution of India when a dispute
concerns the existence or extent of a legal right between the
Central Government and a State Government. The court in that
case, affirmed that even if the legal right in question does not
directly stem from the Constitution, the Supreme Court retains
original jurisdiction to adjudicate such disputes.
87. These writ petitions raise complex questions
regarding the interplay between the powers of the State and
Central Governments in the context of CBI investigations. The
petitioner challenges the State’s withdrawal of consent for a CBI
investigation into alleged offences under the Prevention of
Corruption Act, 1988, against the Deputy Chief Minister of
Karnataka, contending that the withdrawal is arbitrary, mala
fide, and impedes the on-going investigation.
87. The respondents, including the State Government and
the Deputy Chief Minister, argue that the initial consent granted
to the CBI was void ab initio due to procedural irregularities and
statutory violations. They further assert that the State’s
withdrawal of consent is legally valid and within its powers.
88. The CBI maintains that the withdrawal of consent
does not affect pending investigations and that it is obligated to
complete the investigation and file its final report. The CBI
disputes the respondents’ claims regarding the invalidity of the
initial consent and the alleged procedural irregularities.
89. In these matters, the core issue pertains to the
jurisdiction of the Central Bureau of Investigation (CBI) to
operate within a State’s boundaries following the State
Government’s withdrawal of consent. This directly impacts the
State’s authority and control over its police force, a matter that
is constitutionally significant. The dispute involves interpreting
the Delhi Special Police Establishment (DSPE) Act in conjunction
with the constitutional provisions regarding the division of
22
powers between the Central Government and the State
Government.
90. The Court, after carefully considering the arguments
presented and the relevant legal provisions, notes that the
dispute essentially involves a conflict between the State
government and the CBI, which operates under the
superintendence of the Central Government. The issues raised
concern the interpretation of statutory provisions like the DSPE
Act and the Prevention of Money Laundering Act (PMLA), and
their relationship with constitutional provisions regarding the
division of powers between the Central Government and the
State Government.
91. Drawing upon the rationale established in the State
of West Bengal v. Union of India case mentioned supra, this
court finds that these writ petitions clearly fall within the ambit
of Article 131 of the Constitution of India. The dispute involves a
legal question concerning the extent of the Central
Government’s authority to deploy the CBI within a State, that
has withdrawn its consent. The resolution of this dispute will
directly impact the legal rights and jurisdiction of both the
Central and State Governments, making it a fit subject for
adjudication under the Supreme Court’s original jurisdiction as
per Article 131 of the Constitution of India.
92. In light of these considerations, we hold that the
present writ petitions are not maintainable. The dispute, at its
core, is between the CBI, representing the Union Government,
and the State Government. Such disputes, which involve
questions about the extent of the Central Government’s
authority and the State’s autonomy, are more appropriately
addressed within the exclusive original jurisdiction of the
Hon’ble Supreme Court under Article 131 of the Constitution of
India.
93. Accordingly, the writ petitions are dismissed as not
maintainable. However, the petitioners are granted liberty to
pursue appropriate remedies before the Hon’ble Supreme Court
under Article 131 of the Constitution of India.
23
94. Thus, both the writ petitions viz., W.P.No.27220/2023
and W.P.No.670/2024 are hereby dismissed as not
maintainable.”
The facts obtaining before the Division Bench were different and
therefore are distinguishable with the facts and the contentions
urged in the case at hand, again without much ado. Above all, the
Division Bench was following the judgment of the Apex Court in the
case of STATE OF WEST BENGAL supra. Therefore, the
submission of the learned Attorney General of India that Article 131
of the Constitution of India is not even applicable in the case at
hand becomes acceptable and there is no threshold bar for this
Court to consider the issue brought up by the petitioner/Union Bank
of India in the subject petition. The issue is answered accordingly.
13. Issue No.2:
Whether section 35A of the Act would empower the RBI
to seek a direction like the one that is sought in the
case at hand to refer the matter to the CBI?
Now coming to the nub of the submissions. The sheet
anchor of the learned Attorney General of India is Section 35A of
the Act. It reads as follows:
24
“35-A. Power of the Reserve Bank to give
directions.–(1) Where the Reserve Bank is satisfied that–
(a) in the public interest; or
(aa) in the interest of banking policy; or
(b) to prevent the affairs of any banking company
being conducted in a manner detrimental to the
interests of the depositors or in a manner
prejudicial to the interests of the banking company;
or
(c) to secure the proper management of any banking
company generally;
it is necessary to issue directions to banking companies
generally or to any banking company in particular, it may,
from time to time, issue such directions as it deems fit,
and the banking companies or the banking company, as
the case may be, shall be bound to comply with such
directions.
(2) The Reserve Bank may, on representation made
to it or on its own motion, modify or cancel any direction
issued under sub-section (1), and in so modifying or
cancelling any direction may impose such condition as it
thinks fit, subject to which the modification or
cancellation shall have effect.”
(Emphasis supplied)
Section 35A of the Act empowers the Reserve Bank of India to issue
directions. To whom is also found in Section 35A of the Act which is
to any banking company. It clearly enumerates to prevent the
affairs of any banking company being conducted in a
25
detrimental manner, prejudicial to the interest of depositors,
directions may be issued or in public interest. Section 35 of the Act
reads as follows:
“35. Inspection.–(1) Notwithstanding anything to
the contrary contained in Section 235 of the Companies
Act, 1956 (1 of 1956), the Reserve Bank at any time may,
and on being directed so to do by the Central Government
shall, cause an inspection to be made by one or more of
its officers of any banking company and its books and
accounts; and the Reserve Bank shall supply to the
banking company a copy of its report on such inspection.
(1-A) (a) Notwithstanding anything to the contrary
contained in any law for the time being in force and without
prejudice to the provisions of sub-section (1), the Reserve Bank,
at any time, may also cause a scrutiny to be made by any one
or more of its officers, of the affairs of any banking company
and its books and accounts; and
(b) a copy of the report of the scrutiny shall be furnished
to the banking company if the banking company makes a
request for the same or if any adverse action is contemplated
against the banking company on the basis of the scrutiny.
(2) It shall be the duty of every director or other officer or
employee of the banking company to produce to any officer
making an inspection under sub-section (1) or a scrutiny under
sub-section (1-A) all such books, accounts and other documents
in his custody or power and to furnish him with any statements
and information relating to the affairs of the banking company
as the said officer may require of him within such time as the
said officer may specify.
(3) Any person making an inspection under sub-section
(1) or a scrutiny under sub-section (1-A) may examine on oath
any director or other officer or employee of the banking
company in relation to its business, and may administer an oath
accordingly.
26
(4) The Reserve Bank shall, if it has been directed
by the Central Government to cause an inspection to be
made, and may, in any other case, report to the Central
Government on any inspection or scrutiny made under
this section, and the Central Government, if it is of
opinion after considering the report that the affairs of the
banking company are being conducted to the detriment of
the interests of its depositors, may, after giving such
opportunity to the banking company to make a
representation in connection with the report as, in the
opinion of the Central Government, seems reasonable, by
order in writing–
(a) prohibit the banking company from receiving fresh
deposits;
(b) direct the Reserve Bank to apply under Section 38 for
the winding up of the banking company:
Provided that the Central Government may defer, for
such period as it may think fit, the passing of an order under
this sub-section, or cancel or modify any such order upon such
terms and conditions as it may think fit to impose.
(5) The Central Government may, after giving
reasonable notice to the banking company, publish the
report submitted by the Reserve Bank or such portion
thereof as may appear necessary.
Explanation.–For the purposes of this section, the
expression “banking company” shall include–
(i) in the case of a banking company incorporated
outside India, all its branches in India; and
(ii) in the case of a banking company incorporated in
India–
(a) all its subsidiaries formed for the purpose
of carrying on the business of banking
exclusively outside India; and
27
(b) all its branches whether situated in India
or outside India.
(6) The powers exercisable by the Reserve Bank
under this section in relation to regional rural banks may
(without prejudice to the exercise of such powers by the
Reserve Bank in relation to any regional rural bank
whenever it considers necessary so to do) be exercised
by the National Bank in relation to the regional rural
banks, and accordingly, sub-section (1) to (5) shall apply
in relation to regional rural banks as if every reference
therein to the Reserve Bank included also a reference to
the National Bank.”
(Emphasis supplied)
Section 35 deals with inspection. The Reserve Bank of India has
power to inspect any banking company or a body corporate.
‘Company’ is defined under the Act. Section 5 deals with
interpretation of the words found in the statute. ‘Company’ is
defined at sub-section (d) of Section 5. It reads as follows:
“5. Interpretation.– In this Act, unless there is
anything repugnant in the subject or context,–
… … …
(d) “company” means any company as defined in
Section 3 of the Companies Act, 1956; and includes
a foreign company within the meaning of Section
591 of that Act;”
(Emphasis supplied)
28
Company means any Company defined under Section 3 of the
Companies Act. ‘Prescribed’ means prescribed by the Rules made
under the statute. Circulars are issued by the RBI in exercise of its
power under Section 35A of the Act. Those circulars issued are held
to have a flavor of a statute. This is the settled principle of law, as
the Apex Court in the case of ICICI BANK LIMITED v. OFFICIAL
LIQUIDATOR OF APS STAR INDUSTRIES LIMITED3, considers
this issue of circulars / guidelines issued by the RBI, to have a
statutory flavour holding thus:
“Brief analysis of the BR Act, 1949
30. The BR Act, 1949 provides for the comprehensive
definition of “banking” so as to bring within its scope all
institutions which receive deposits for lending or investment and
to give RBI a control over banking companies. It is an Act to
consolidate and amend the law relating to banking. Section 2
clarifies that the 1949 Act shall be in addition to and not in
derogation of the Companies Act, 1956 and any other law for
the time being in force save as therein expressly provided.
31. Section 5(1)(a) is the interpretation section. It* [Ed.:
Section 5(b) defines “banking”.] defines “banking” to mean
“accepting deposits for lending”. This is principal business of a
bank. Section 5(c) defines “banking company” as any company
which transacts the business of banking. Thus, a banking
company has to be a company in the first instance. Section
5(ca) defines “banking policy” to mean any policy which is
specified from time to time by RBI in the interest of banking
system or in the interest of monetary stability or economic3
(2010) 10 SCC 1
29growth having due regard to the interest of the depositors and
efficient use of these deposits.
32.Part II deals with “business of banking
companies”. Section 6(1) in Part II says that in addition
to the business of banking, a banking company may
engage in any one or more of the forms of business
enumerated in clauses (a) to (o). It covers borrowing,
lending, advancing of money; acquiring and holding and
dealing with property (security) or right, title and
interest therein; selling, improving leasing or turning into
account or otherwise dealing with such security; doing all
such other things as areincidental or conducive to the
promotion or advancement of the business of the
company and any other form of business which the
Central Government may notify. Thus, Section 6(1) has a
general provision and the provision which enumerates
topics/fields in which the banks can carry on their
business.
33. Section 8 begins with non obstante clause. It says
that no banking company shall deal in the buying or selling of
goods except in connection with the realisation of security.
Section 9 also begins with a non obstante clause. It deals with
restrictions on disposal of non-banking assets. Both Sections 8
and 9 are prohibitions and restrictions under the Act which are
covered by the expression “save as except provided” in Section
2 of the Act. As stated earlier, the BR Act, 1949 is in addition to
the Companies Act, 1956 or any other law for the time being in
force and its provisions shall not be treated to be in derogation
of any other law save and except to the extent of any activity
which is prohibited or restricted (see Section 2).
34. Section 12 says that no banking company shall carry
on business unless it satisfies certain conditions. Section 17
refers to creation of reserve fund. Section 18 refers to creation
of cash reserve. Section 20 refers to restrictions on loans and
advances.
35. Section 21 deals with the power of RBI to
control advances by banking companies. Section 21
empowers RBI to frame policies in relation to advances to
be followed by banking companies. It further says that
30
once such policy is made all banking companies shall be
bound to follow them. Section 21(1) is once again a
general provision empowering RBI to determine policy in
relation to advances whereas Section 21(2) empowers
RBI to give directions to banking companies as to items
mentioned there i.e. in Section 21(2). Under Section
21(3) every banking company is bound to comply with
directions given by RBI at the peril of penalty being
levied for non-compliance. Section 35-A says that where
RBI is satisfied that in the interest of banking policy it is
necessary to issue directions to banking companies it
may do so from time to time and the banking companies
shall be bound to comply with such directions. Thus, in
exercise of the powers conferred by Sections 21 and 35-A
of the said Act, RBI can issue directions having statutory
force of law. Section 36 deals with further powers and
functions of RBI. Under Section 39 it is RBI which shall be
the Official Liquidator in any proceedings concerning
winding up of a banking company.
36. The above analysis of the various provisions of the
1949 Act shows that RBI is empowered to regulate the business
of the banking companies. That, RBI is empowered to control
management of banking companies in certain situations. It is
empowered to lay down conditions on which the banking
companies will operate. It is empowered to regulate paid-up
capital, reserve fund, cash fund and above all to lay down
policies in the matter of advances to be made by the banking
companies, allocation of resources, etc. While laying down such
policies under the said Act, RBI can lay down parameters
enabling banking companies to expand its business. For
example, RBI’s permission is required to be obtained if a
banking company seeks to deal in “derivatives”. It is a business
which will not fall in clauses (a) to (o) of Section 6(1) and yet
RBI can lay down guidelines and directions enabling banking
companies to deal in derivatives like futures and options.
37. The point we are trying to make is that apart
from the principal business of accepting deposits and
lending the said 1949 Act leaves ample scope for the
banking companies to venture into new businesses
subject to such businesses being subject to the control of
the regulator viz. RBI. In other words, the 1949 Act
31
allows banking companies to undertake activities and
businesses as long as they do not attract prohibitions and
restrictions like those contained in Sections 8 and 9. In
this connection we need to emphasise that Section
6(1)(n) enables a banking company to do all things as
are incidental or conducive to promotion or advancement
of the business of the company. Section 6(1) enables
banking companies to carry on different types of
businesses. Under Section 6(1), these different types of
businesses are in addition to business of banking viz.
core banking. The importance of the words “in addition
to” in Section 6(1) is that even if different businesses
under clauses (a) to (o) are shut down, the company
would still be a banking company as long as it is in the
core banking of accepting deposits and lending so that its
main income is from the spread or what is called as
“interest income”. Thus, we may broadly categorise the
functions of the banking company into two parts viz. core
banking of accepting deposits and lending and
miscellaneous functions and services. Section 6 of the BR
Act, 1949 provides for the form of business in which
banking companies may engage. Thus, RBI is empowered
to enact a policy which would enable banking companies
to engage in activities in addition to core banking and in
the process it defines as to what constitutes “banking
business”.
38. The BR Act, 1949 basically seeks to regulate
banking business. In the cases in hand we are not
concerned with the definition of banking but with what
constitutes “banking business”. Thus, the said BR Act,
1949 is an open-ended Act. It empowers RBI (regulator
and policy framer in matter of advances and capital
adequacy norms) to develop a healthy secondary market,
by allowing banks inter se to deal in NPAs in order to
clean the balance sheets of the banks which
guideline/policy falls under Section 6(1)(a) read with
Section 6(1)(n). Therefore, it cannot be said that
assignment of debts/NPAs is not an activity permissible
under the BR Act, 1949. Thus, accepting deposits and
lending by itself is not enough to constitute the “business
of banking”. The dependence of commerce on banking is
so great that in modern money economy the cessation
32
even for a day of the banking activities would completely
paralyse the economic life of the nation. Thus, the BR Act,
1949 mandates a statutory comprehensive and formal
structure of banking regulation and supervision in India.
39. The test to be applied is–whether trading in NPAs
has the characteristics of a bona fide banking business. That
test is satisfied in this case. The Guidelines issued by RBI dated
13-7-2005 itself authorises the banks to deal inter se in NPAs.
These guidelines have been issued by the regulator in exercise
of the powers conferred by Sections 21 and 35-A of the Act.
They have a statutory force of law. They have allowed the banks
to engage in trading in NPAs with the purpose of cleaning the
balance sheets so that they could raise the capital adequacy
ratio. All this comes within the ambit of Section 21 which
enables RBI to frame the policy in relation to advances to be
followed by the banking companies and which empowers RBI to
give directions to banking companies under Section 21(2).
These guidelines and directions following them have a statutory
force.
40. When a delegate is empowered by Parliament to
enact a policy and to issue directions which have a
statutory force and when the delegatee (RBI) issues such
guidelines (policy) having statutory force, such
guidelines have got to be read as supplement to the
provisions of the BR Act, 1949. The “banking policy” is
enunciated by RBI. Such policy cannot be said to be ultra
vires the Act. The idea behind empowering RBI to
determine the policy in relation to advances is to enable
banking companies to expand their business of banking
and in that sense such guidelines also define–as to what
constitutes banking business.”
(Emphasis supplied)
The Apex Court considers the purport of circulars issued by the
Reserve Bank of India. The Circulars so issued, no doubt, have a
statutory force, but on whom they would become binding is also
33
elucidated by the Apex Court. It is undoubtedly binding on any
Banking institution in the nation. The issue would be whether,
Section 35A of the Act would clothe such power upon any banking
institution, like the petitioner, in the nation, to invoke the said
provision – Section 35A and seek entrustment of investigation in
any crime, to the hands of any particular agency, in the case at
hand the CBI. Any crime would mean, crimes that are pending
before the respective State Governments in which the State is
investigating into the matter.
The Issue:
14. The issue in the lis sprung from certain allegations of
misappropriation of funds. In furtherance of which, as observed
hereinabove, two crimes are registered – one by the State and the
other by the CBI. Why did the Bank go before the CBI is in terms
of a Circular issued by the RBI under Section 35A of the Act.
Observing that wherever the amount of alleged fraud exceeds `50/-
crores, the matter shall be investigated only by the CBI. The
petitioner being a banking company is undoubtedly bound by it.
Therefore, it has knocked at the doors of the CBI.
34
15. 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.
16. 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
35
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.
Therefore, funds belonging to the scheduled tribes ought to have
been treated with great care. It shocks the conscience of the Court
that funds of schedule tribe community also is subject matter of
scam of misappropriation of funds belonging to a schedule tribe
development corporation.
17. 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. 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
36
cannot be on an interpretation of Section 35A of the Act, as is
projected by the learned Attorney General.
18. As observed hereinabove, the case at hand projects
interpretation of Section 35A of the Act to be the sheet anchor for
claiming entrustment of investigation to the hands of the CBI. This
is unacceptable, as 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. A caveat, that would not put any
shackles on the hands of this Court to refer any matter, to any
independent investigating agency in exercise of its jurisdiction
under Article 226 of the Constitution of India read with Section 482
of the Cr.P.C. or otherwise. But that cannot be in a case projected
for interpretation of Section 35A. 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
37
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. Non
acceptance of the submission of the learned Attorney General of
India would not however mean that the CBI which is investigating
into the crime registered by the petitioner cannot draw those
persons into the web of proceedings, even if they are dropped by
the State in Crime No.118 of 2024 or any other person accused in
the crime, but that can happen only in accordance with law. The
observations made in this order will not come in the way of any
action by the petitioner in accordance with law.
19. Insofar as judgments relied upon by the respective
learned Counsel, they project no qualm about the principles laid
down therein. They are not necessary to be considered, as the issue
in the case at hand is to be considered on the judgments that are
noticed hereinabove. Quoting all the judgments of both the parties
would only generate bulk of this judgment and would not take the
cause of the petitioner any further.
38
20. For the aforesaid reasons and on the observations, the
petition lacking in merit, stands dismissed.
Consequently, I.A.No.1 of 2024 also stands disposed.
Sd/-
(M. NAGAPRASANNA)
JUDGE
bkp
CT:MJ