5 Sep 2010

SFIO to investigate bank frauds: Supreme Court

Dealing with a public interest litigation highlighting before the Supreme Court the issue of "increase of the non-recovered loans advanced by the public and private sector banks in India" i.e. the Non-Performing Assets of NPAs, the Court in a recent decision in Common Cause (A Regd. Society v. Union of India has passed directions to be followed by the Serious Fraud Investigation Office so as to ensure that banking frauds were brought down in the country and those behind these offences were brought to the book.

The Supreme Court passed these directions taking note of the fact that the "Finance Ministry of the Union Government is reported to have admitted that 27 nationalised banks had written off a staggering amount of Rs.4,010/- crores as bad debts during 1994-95 and 1995-96" and also the submission of the petitioner society that "most of the bad debts are on account of defaults made by men of substantial means and influence and if proper checks are introduced to ensure that loans and advances are not given to fraudulent borrowers, the NPAs will get substantially reduced". 

In this background, the Supreme Court passed the following directions;

10. The Union Government, however, must ensure that SFIO is effective in detecting and preventing bank frauds by influential people. We find that the Central Government has constituted a Committee of Experts under the Chairmanship of Shri Vepa Kamesam, Ex-Deputy Governor of Reserve Bank of India, with the following terms of reference:
(a) Assessment of the need for and details of a separate stature to govern the constitution and functioning of SFIO; 
(b) The nature and details of the legislative changes as may be required in existing laws, to enable effective functioning of SFIO including prosecution of offences detected by it;
(c) The mechanism for referral of cases to SFIO and coordination of activities of SFIO with other agencies/organizations of the Central and State Governments, including investigating;
(d) Powers of SFIO and its investigation officers;
(e) Specification of offences and penalties to enable effective conduct of investigation agencies and the need for Special Courts for trial of corporate fraud cases; and
(f) Other matters consequential to or in pursuance of the above.
We have no doubt that this Committee of Experts under the Chairmanship of Ex-Deputy Governor of Reserve Bank of India will suggest effective measures, legislative or administrative, to ensure that bank frauds are prevented in future and the NPAs are kept to the minimum. We hope and trust that this Committee under the Chairmanship of Ex-Deputy Governor of Reserve Bank of India will consider the suggestion to make the SFIO (or any similar body) a statutory authority having sufficient powers and having the required autonomy to be able to effectively deal with the problems of bank frauds and NPAs. A copy of this order will be placed by the respondent No.1 before the Committee of Experts.

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