MSC Bank fraud: ED neither complainant nor a victim, can’t be heard on closure report, says court

The special ACB court rejected ED’s plea seeking permission to intervene and oppose the Mumbai Police’s report seeking to close the Maharashtra State Cooperative (MSC) Bank fraud case.

The Enforcement Directorate (ED) is neither the complainant nor a victim, the special anti-corruption bureau (ACB) court has said, while rejecting a plea of the agency seeking permission to intervene and oppose the Mumbai Police’s report seeking to close the Maharashtra State Cooperative (MSC) Bank fraud case.

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“One investigation agency being not happy with the work of other investigation agency and therefore wants to intervene, this itself is foreign to criminal law,” observed the special court.

The economic offences wing (EOW) of the Mumbai Police has, in September, filed a closure report in the alleged ₹25,000-crore fraud at MSC Bank. EOW filed a C-summary report before the special anti-corruption bureau (ACB) court after its special investigation team (SIT) found no criminal aspects to be investigated in the case.

ED, which started investigation into money laundering aspects of the purported fraud, had approached the special court seeking permission to intervene and oppose the closure report. The agency claimed that as the high court (HC) has directed to register an FIR, no contrary report can be filed by the agency.

The plea was rejected by the special court on November 26. However, the detailed order was released on Tuesday.

The special court held, “It was not expected that the investigation to get influenced by the findings given by the Hon’ble High Court and [Mumbai Police] was expected to carry out investigation in fair manner in accordance with the law. Accordingly, it was open for the investigation officer to submit report under section 173 of the Criminal Procedure Code (CrPC); same can be a charge sheet or can be closure report in the form of summaries (sic).”

“It is only the person lodging the complaint, or injured or aggrieved person who is entitled for hearing in the proceeding for dropping of a case. The intervener (ED) does not fall in any of the above categories,” said the court.

The complaint pertained to thousands of crores obtained in loans by sugar cooperatives, spinning mills and other processing units from district and cooperative banks.

MSC Bank, the apex bank that controlled credit to the co-operative sector in the state, was handled by then ruling politicians. It landed in trouble in 2011 after an inquiry report by National Bank for Agriculture and Rural Development (NABARD) found the bank was in red with a negative of ₹144 crore. The report indicted the board of directors of the bank for financial mismanagement that led to ballooning of non-performing assets. This was largely due to handing out of loans to sugar co-operatives and spinning mills in violation of all norms.

The Mumbai Police in its closure report, however, justified the actions and claimed no case was made out. ED, then, questioned the probe.

In its plea, ED had claimed that during their investigation they referred to reports of NABARD available since 2000-01. “On perusal of the said reports, it is found that NABARD has pointed out various irregularities in its every inspection report from the period 2000-01 onwards. The said irregularities pertain to working of the Board of Directors (BoD) of the bank, size of the various committees of the bank, documentation and proposing of loan proposal, sanctioning of the loan proposals, non-compliance of various RBI circulars and directions from NABARD, etc,” ED claimed.

The central agency has further claimed, “During the course of investigation, it was found that loans were given to the sugar mills/companies controlled by relatives of the directors of the bank without assessing loan repayment capacity of the sugar mills/companies.”

The agency also alleged that the bank did not follow the process stated under the SARFAESI Act, 2002 while auctioning defaulting Sugar Sahkari Kharkhana (SSK).

“It is also found that though the reserve price was decided based on the valuation of the valuers, the same was not disclosed in the advertisement as well as in the tender form of the above said 5 SSKs. Therefore, the offer amounts were received well below the reserve price and the SSKs were sold below the reserve price,” the agency claimed.

ED further alleged that, “Some SSKs were indirectly sold to the then director/office-bearers of the bank and the financial investigation in this regard raises suspicion about transparency in the auction proceedings conducted for sale of the said SSKs.”