Onmanorama Explains | Why Karuvannur bank fraud was a multipronged organised scam

CPM's Thrissur district leadership kept Karuvannur bank fraud under wraps
Karuvannur Service Cooperative Bank. Photo: Manorama Online

On October 9, senior CPM leader and former finance minister T M Thomas Issac told reporters in Kochi that the "decay" in banks, including Karuvannur Service Cooperative Bank in Thrissur, was an opportunity to make corrections in the sector.

"It will be corrected because political parties are accountable to the people," he said and added that the government would correct the wrongdoings, punish the wrongdoers, and along with that, protect the sector.

But on the same day, the Directorate of Enforcement (ED), the central agency with the mandate to investigate money laundering cases and violations of foreign exchange, told a special court in the same city that the state government's agencies such as the Crime Branch and the Department of Cooperation and the cooperative societies under it were not sharing information and documents related to the case.

But CPM's Kannur strongman and state committee member P Jayarajan told reporters on October 10 that it was not ED but the State government's Crime Branch that found out the bank had given 'benami loans' worth Rs 103 crore, based on the documents shared by the Department of Cooperation.

"The central agency was out to destroy the cooperative sector," he said. Jayarajan was reiterating the sentiments and statements of the state government, starting from Chief Minister Pinarayi Vijayan.

G Sudhakaran, another former minister in Pinarayi Vijayan's first government and senior CPM leader, told a news channel on October 7 that those who are claiming to defend the cooperative movement were hurting it more with their words than the rivals. "That is because of their ignorance and ineptitude," he said.

He said the government should come clean on the issue, and leaders responsible for the bank should cooperate with the central agencies.

What is the scam that has roiled up the CPM? Is it just another financial irregularity? What is the humanitarian cost of the fraud? Here's a lowdown.

What and where is Karuvannur Service Cooperative Bank?

Karuvannur Service Cooperative Bank is a century-old agricultural society in Thrissur district. It was set up in 1921 at Porathissery, a small village that later became a grama panchayat and is now part of the Irinjalakuda municipality – 24 km from Thrissur town.

According to the society's bylaw, the bank can function only at Porathissery, Madayikonam, and Irinjalakuda villages – all within Irinjalakuda municipality – in Mukundapuram taluk. The society has five branches. The CPM, which controls the bank, had instituted a committee headed by C K Chandran, a member of the District Secretariat – the party's highest decision-making body in a district – to steer the bank. In practice, this committee was above the 13-member board of directors of the society.

What is the deposit base of the bank?

In 2018-2019, when the bank was in the throes of the scam but not publicly acknowledged, its deposits peaked at Rs 402 crore. That year, the society slipped into red for the first time in more than five years and reported a loss of Rs 13.73 crore. Till then, its profit hovered around Rs 2 crore to Rs 3 crore.

Now, its deposits have shrunk to Rs 282 crore, and its depositor base to 23,648. In stark contrast, its loan outgo has ballooned to Rs 514 crore, including the principal amount of Rs 385 crore. That is, its credit-deposit ratio (the amount of money raised as a deposit and how much of the deposit has been given as a loan to the customers) stood at 136 per cent when prudent banking practices put it around 70 per cent to 75 per cent.

How was the scam perpetrated?

The ED's original case hinged on a complaint filed by the secretary in-charge of the bank Sreekala E S with Irinjalakuda police on July 14, 2021. She accused a clique of employees of swindling around Rs 100 crore from the bank by giving more than one loan to the same person, re-mortgaging properties of borrowers without their consent or knowledge, and extending those loans to unrelated third parties. The loan amount was then siphoned out through bank transactions and in cash.

ED's investigation also unearthed another bigger and nefarious scam called 'loan takeover' allegedly executed by private financier and accused no. 1 Satheesh Kumar P. (More on that later.)

What is the size of the scam?

While the ED has not put a figure on the size of the scam, the bank's new government-appointed administrative committee said the scam was worth Rs 103.3 crore. The Thrissur Deputy Registrar of the Department of Cooperation pegged the scam at Rs 113 crore as the official sought to recover that amount from the bank's directors and officials. But bankers say that even genuine borrowers would hesitate to repay the loan and Karuvannur's entire Rs 514 crore is at risk till it recoups the money.

What is the period of the scam?

The Thrissur Deputy Registrar of the Department of Cooperation said in his 2022 report that the frauds were perpetrated in two five-year terms – from 2011 to 2016, and from 2016 to 2021. ED said the bank had been defrauded since 2010.

But M V Suresh, a former local secretary of the CPM and then manager of Karuvannur bank, said he had spotted financial corruption in 2005 and reported it to the then CPM District Secretary Baby John, who instituted an inquiry. "When no action was taken, I reported the irregularities to the next district secretary A C Moideen," said Suresh, who is now with the BJP.

Suresh is among the early complainants who gave their statements to ED. Several complainants said the police refused to register an FIR in 2017 and 2018 when several borrowers received foreclosure notices from the bank for loans they never took.

What happened after the complaint was filed?

On July 21, 2021, the seventh day after Sreekala filed her police complaint, the case was transferred to the State Crime Branch, a wing of Kerala Police that investigates "serious offences which have statewide ramifications", according to its website.

The Crime Branch registered 16 FIRs based on complaints filed by depositors and victims whose title deeds were misused by the bank's employees to give loans to unrelated persons.

Cases were registered under sections 406 (criminal breach of trust), 420 (cheating), 409 (criminal breach of trust by a banker), 465 (forgery), read with 34 (crime done with common intention) of the Indian Penal Code.

When did the ED join the investigation?

August 2, 2021, 19 days after the Crime Branch registered the case, ED's Kochi Zone recorded an Enforcement Case Information Report (ECIR) under the Prevention of Money Laundering Act (PMLA). An ECIR is a formal entry of a complaint based on an FIR.

The ED always held the position that an FIR (first informational report) was essential for it to record an ECIR. It changed its position only in September 2021 to record an ECIR without an FIR in the National Herald case, in which Sonia Gandhi and Rahul Gandhi are accused. After recording a case in the Karuvannur bank scam, the ED conducted its first search (raids) a year later on August 22 and 23, 2022.

Who are the key players of the scam?

Bank secretary in-charge Sreekala, in her police complaint in July 2021, named the then secretary of the society Sunil Kumar T R, the bank's manager Biju M Kareem, senior accountant Jilse C K, society member and agent Kiran P P, Bijoy A K, who was the society's agent to distribute Rubco's furniture and mattresses in Ernakulam and Thrissur districts, and the society's supermarket accountant Reji Anil.

PR Aravindakshan, Jils | Photo: Manorama
Wadakkanchery municipal councillor Aravindakshan PR; former senior accountant at Karuvannur bank CK Jilse. Photo: Manorama Online

In its investigation, the ED zeroed in on private financier Satheesh Kumar P (56); estate player and society member Kiran P P (33); Wadakkanchery municipal councillor Aravindakshan P R (56), a confidant of CPM state committee member A C Moideen; and bank's senior accountant Jilse C K (45). They were arrested and arraigned as Accused No. 1 to 4, respectively, in September.

What is the 'loan takeover' scam and Satheesh Kumar's alleged role in it?

Several complainants said they were struggling to repay their loans taken from cooperative societies when Satheesh Kumar offered to take over their debt at an exorbitant interest rate of 10 per cent per month. They gave their consent because he allegedly promised to find them a new cooperative bank or branch that would give them new loans at cheaper interest rates in around 10 days. The restructuring of their loan would have helped the borrowers bring down their EMIs. But in reality, Satheesh Kumar allegedly mortgaged his clients' title deeds at the second bank and took huge loans without their knowledge. Conniving bank employees would transfer the loan amount to bank accounts of the choice of Satheesh Kumar, or give the money to him in cash, leaving the borrowers saddled with a bigger and unmanageable debt.

Satheesh Kumar, Enforcement Directorate logo. Photo: Manorama Online

He had allegedly defrauded around 150 borrowers in at least 14 cooperative banks in Thrissur, said Congress leader and former MLA Anil Akkara, who is closely working with the victims and helping them file police complaints.

In Karuvannur bank, manager Biju Kareem sanctioned a loan of Rs 3 crore using the title deed of a loan applicant without her knowledge in 2016. The loan of Rs 50 lakh each was disbursed to six benami borrowers. ED's remand report said Satheesh Kumar was the beneficiary of the Rs 3 crore.

How did the bank employees allegedly defraud the bank?

Title deeds of genuine borrowers were re-mortgaged to issue loans to unrelated members of the bank. Most of the loans were worth Rs 50 lakh and issued based on reports filed by manager Biju Kareem, said the report filed by Thrissur Deputy Registrar.

The loan amounts are transferred to accounts that do not belong to the borrowers.

When the financial year ended in March, these loans were renewed on the computer without the presence of the borrowers. Their loans were issued without the recommendations of the board of directors or approval of the bank president Divakaran, it said.

Kiran P P, the real estate agent, received 50 loans amounting to Rs 24.56 crore in his name and the names of others, according to the joint registrar's report. The loan has grown to Rs 48.57 crore, when the report was submitted in August 2022.

ED has said that of the Rs 24.56 crore, Kiran gave Rs 14 crore was given to Satheesh Kumar, who has denied it.

Senior accountant Jilse C K mortgaged his one property and took three loans worth Rs 50 lakh each in the names of three different persons.

He then mortgaged his father's property and took six loans worth Rs 2.75 crore in the names of six persons, including his wife and father. Not a rupee was repaid.

What did the government do about the fraud?

In 2017 and 2018, several members of the Karuvannur Service Cooperative Society started receiving foreclosure notices for loans they did not take. They approached the bank, and then the Assistant Registrar of the Department of Cooperation at Mukundapuram taluk to cancel the recovery notice. But their complaints were not accepted. The police also refused to lodge their complaint, said Suresh.

On October 9, 2021, the Minister of Cooperation V N Vasavan refuted allegations saying the police received the first complaint in January 2019, when Kadakampally Surendran was the minister. Police registered the case on January 16, 2019, he said. He did not elaborate on the action taken.

In August 2019, the Department of Cooperation initiated an inquiry into scams. The department's Assistant Registrar Omana K L, Inspectors Resmi P C, and Preetha V V completed the inquiry and submitted a damning report on October 10, 2020. No action was taken on the report.

Three years later in August 2022, the Department of Cooperation's Joint Registrar of Thrissur submitted a report to the government saying the scam in Karuvannur bank was perpetrated in two terms: 2011 to 2016 and 2016 to 2021.

The report estimated that liability to the bank because of illegal practices stood at Rs 112.87 crore. It said the money should be recovered from the 20 directors who served during the two terms and the three officials -- secretary Sunil Kumar T R, manager Biju M Kareem, and accountant Jilse C K -- who allegedly perpetrated the crime.

Did the Crime Branch find these fraudulent practices?

The Crime Branch relied on the report filed by the Deputy Registrar which listed out the alleged roles of each of the errant employees.

Two months after registering the case, the Crime Branch in August 2021 arrested all those employees -- then secretary Sunil Kumar T R, bank member Kiran, senior accountant Jilse C K, junior accountant Reji Anil Kumar, commission agent Bijoy A K, and former branch manager Biju M Kareem.

In September 2021, it arrested the bank's president K K Divakaran, a senior CPM leader, and society directors Jose Chamkrampilly, Baiju T S and Lalithan V K, accusing them of conniving with the employees to swindle the bank. Most of them spent around 100 days in prison before they got bail.

Were the bank directors involved?

A former bank director E C Antu said the board of directors was a rubber stamp and decisions were taken by the party-appointed committee headed by C K Chandran. Applications for loans up to only Rs 5 lakh were placed before the board, said Sughathan, another director. Director Lalithan said he had informed the CPM members about the suspected fraud but they assured him not to worry because the party inquiry was underway. "I came to realise the gravity of the fraud when the Crime Branch arrested me on September 13, 2021," he said this September.

Are politicians involved in the scam?

Currently, the ED has arrested only CPM's Wadakkanchery councillor Aravindakashan. But he is considered close to CPM's top leader A C Moideen.

But the central agency, in its remand report, said that "Karuvannur bank fraud is an organised crime" where investigation has so far revealed high-profile links, including politicians, police officers, and bureaucrats at local, district, and state administrations.

During the search at the house of accused no. 1 Satheesh Kumar, the ED seized a mobile phone that had "incriminating" recordings of calls between him and Aravindakshan, the report said.

How is Aravindakshan involved?

ED has found that a huge amount has been transferred from the bank accounts of Satheesh Kumar and his brother Sreejith P to Aravindakshan's bank account with SBI in 2015, 2016, and 2017.

But he reportedly told ED that the honorarium he received as a councillor was his only source of income. Before becoming a politician, he was an autorickshaw driver.

His 90-year-old mother has also received Rs 63.56 lakh in her bank account though her only known source of income is the welfare pension of Rs 1,600 per month. The councillor has not given any explanation.

He visited Dubai once with Satheesh Kumar in 2012-2013 and twice with another person. ED alleged that the trips were made to find clients for real estate properties back home.

How did the scam blow up in the face of the government?

The CPM-led by the bank and the government department maintained a tight lip on the scam till 2021 though they had been investigating the case since 2018, and knew about the irregular practices since 2005.

The scam became a community crisis when former member of Porathissery grama panchayat T M Mukundan (63) ended his life on July 22, 2021, a day after the Crime Branch took over the investigation into the case.

Mukundan was harassed by the Karuvannur Service Cooperative Bank to return a loan of Rs 50 lakh he never borrowed. His suicide triggered massive protests and depositors rushed to withdraw their money. The bank imposed restrictions, which are still in place.

A year later, Philomena Devassy (70), who had Rs 30 lakh in the bank, died without getting adequate treatment. Her family said the bank ignored several requests to release money for better treatment. After her death on July 27, 2022, the family protested with her body in front of the bank.

Depositors with lakhs of rupees in their accounts had to borrow money at high interest rates for weddings in their families, construction of houses, and for treatment.

What's in store for the depositors and borrowers whose title deeds were fraudulently misused?

The government has repeatedly assured that the depositors' money would be returned. It has not set a time frame. For the borrowers, whose title deeds were fraudulently used by the bank employees, the road to justice will be longer.

In August 2022, the Department of Cooperation estimated that Rs 112.87 crore should be recovered from 20 directors and three employees.

A year before that on August 4, 2021, Minister for Cooperation V N Vasavan said in the Assembly that the properties of all the accused involved in the scam would be confiscated to recover the money. There is little progress on that front.

As of now, the ED has attached assets worth Rs 30.70 crore of commission agent Bijoy A K. In a statement on December 6, 2022, the ED said it attached 20 immovable properties consisting of plots and buildings in Kerala, two luxury cars, and Rs 5.48 lakh in both Indian and foreign currency, and Rs 35.87 lakh in balances in 57 bank accounts of Bijoy and his firms.

It said the bank had sanctioned and disbursed loans worth Rs 26.60 crore in cash to Bijoy without any collateral as part of a systematic conspiracy hatched in 2010. The title deeds could be extricated only after the legal procedures are concluded.

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