Madras High Court

LARGE-SCALE FRAUD, CONSPIRACY, AND MISAPPROPRIATION OF BANK FUNDS INVOLVING BANK OFFICIALS, BORROWERS, BUILDERS, AND VALUERS

For Professionals in Engineering, Valuation, and Land Administration

Madras High Court

State Bank of India vs. Central Bureau of Investigation
Decision Date: 09 April 2025
Coram: Justice M. Nirmal Kumar

1. Background of the Case

The petitioner, Regional Manager of State Bank of India (SBI), Chennai South Zone, West Tambaram, filed this writ petition seeking a direction to the Central Bureau of Investigation (CBI) to register a First Information Report (FIR) based on a complaint dated 08.03.2023.

The complaint alleged large-scale fraud, conspiracy, and misappropriation of bank funds involving bank officials, borrowers, builders, and valuers in sanctioning a housing term loan of ₹5.5 crores at the SBI Medavakkam Branch, Chennai.

2. Gist of the Complaint (08.03.2023)

The key allegations are as follows:

(i) Authority to File Complaint

The petitioner, as Regional Manager, was authorized under Regulations 76 & 77 of the SBI General Regulations, 1955 to lodge complaints.
The Retail Assets Central Processing Centre (RACPC), Tambaram handled processing, sanctioning, disbursement, inspection, and documentation of loans.

(ii) Loan Sanction to Borrower

One Mr. A. Murugan applied for a Housing Term Loan (HTL) for development and purchase of a flat at “R.J. Brook Square,” Kundalahalli Village, K.R. Puram, Bengaluru, promoted by M/s R.J. Rishikaran Projects Pvt. Ltd.
He projected himself as the proprietor of M/s Arun Agency, Chennai.
The then Branch Manager Mr. T.K. Balaji sanctioned the loan of ₹5.5 crores on 31.12.2018 after due diligence and forwarded the proposal to RACPC.
HTL Account No. 38154161278 was created.

(iii) Serious Procedural Violations

Income Tax Documents Manipulated
- Borrower’s IT Returns (AY 2015–16 to 2018–19) were allegedly signed by Branch Manager Mr. T.K. Balaji instead of RACPC officials.
- Proper verification of borrower’s PAN/Income credentials was skipped.
Dubious Valuation Reports
- Two valuation reports (24.12.2018 & 26.12.2018) for ₹7.56–7.58 crores were relied upon.
- Valuers Mr. A.V.S. Balasubramanya and Mr. C. Ethiraj (M/s G. Shyam Sunder & Associates) later denied issuing them.
- Their appointment records were missing.
- RACPC failed to cross-check authenticity before recommending sanction.
Inflated Project Costs & False Income Projections
- Builder, in collusion with borrower, inflated project cost to ₹7.43 crores to obtain higher credit.
- Rental income was projected as ₹2.16 lakhs per month on the basis of a mere letter from a valuer — without proof.
- Borrower falsely claimed to have paid ₹1.5 crores as margin money via Kotak Mahindra Bank cheque (not true).
Disbursement Irregularities
- Loan was disbursed in instalments to builder without physical inspections.
- Borrower’s claim of “95% work completion” (17.08.2019) was false.
- Sale deed registration and creation of equitable mortgage in bank’s favour were not completed.
Commission & Kickbacks
- Loan was sourced by Mr. K. Balasubramanian (Housing Loan Counselor) though recorded in name of another person.
- He received ₹2,72,445/- commission, of which ₹1.35 lakhs was given in cash to Branch Manager Mr. T.K. Balaji.

(iv) Fraud Exposed in Later Inspection

During inspection on 02.10.2021, RACPC AGM and present Branch Manager confronted the builder.
Builder admitted that he paid ₹1 crore from loan proceeds to borrower Mr. Murugan.

(v) Conspiracy and Fraud

The following persons were alleged to have colluded with mala fide intent to cheat the Bank:
- Mr. A. Murugan (Borrower)
- M/s R.J. Rishikaran Projects Pvt. Ltd., Bengaluru, represented by MD Mr. Rathnakar Shetty (Builder)
- Mr. T.K. Balaji (then Branch Manager, SBI Medavakkam)
- Mr. K. Balasubramanian (Housing Loan Counselor)
- Valuers Mr. A.V.S. Balasubramanya and Mr. C. Ethiraj (M/s G. Shyam Sunder & Associates)
They allegedly:
- Created fabricated documents.
- Inflated valuations.
- Misrepresented borrower’s credentials.
- Fraudulently diverted loan funds.
Loss to SBI:
- ₹7,00,25,642/- in Housing Term Loan Account.
- ₹34,09,773/- in SBI Suraksha Account.

(vi) Legal Provision Invoked

Complaint was lodged with approval under Section 17A of the Prevention of Corruption Act, 1988 against all accused.

3. Court’s Findings & Decision

The complaint disclosed serious allegations of fraud, misappropriation, and conspiracy involving bank officials, borrower, builder, and valuers.
These acts, prima facie, warranted criminal investigation by an independent agency.
Since the allegations involved banking fraud of public money, CBI was the appropriate agency to investigate.

4. Final Order

The Writ Petition was allowed.
The Court directed the CBI to register an FIR based on the petitioner’s complaint dated 08.03.2023 and proceed with investigation in accordance with law.
No costs awarded.

✅ Key Takeaway:
The judgment reinforces that in cases of banking fraud, inflated property valuations, and collusion of bank officials with borrowers/builders, courts will ensure that CBI investigates thoroughly to protect public money and accountability under the Prevention of Corruption Act, 1988.

SOURCE