In a significant blow to the professional auditors linked to the Sri Guru Raghavendra Sahakari Niyamitha Co-operative Bank fraud, a Bengaluru Sessions Court has rejected the anticipatory bail applications of three Chartered Accountants. The court, presided over by Judge Hemanth Kumar C.R., delivered the order on January 31, 2023, citing the gravity of the financial misappropriation involving public funds.

Professional Negligence or Collusion? The Case Against the Auditors

The petitioners, Madhuraja Rai, Ganesh P, and V.V. Gurumurthy, are professional Chartered Accountants who served as statutory auditors for the embattled Guru Raghavendra Sahakari Niyamitha Co-operative Bank. The allegations against them, brought forward by K. Shridhar, Joint Director of Co-operative Societies, suggest that they knowingly or negligently failed to flag massive financial irregularities during their audit tenures.

According to the prosecution, the auditors conducted “defective” audits for the financial years ranging from 2014-15 to 2018-19. During a re-audit authorized under the Karnataka Co-operative Societies Act, authorities discovered that the bank had been swindling money by issuing loans to fictitious persons while denying depositors access to their Fixed Deposits (FDs). The failure of the auditors to unearth this multi-crore fraud is seen by the state as a criminal omission.

Legal Charges and the Basavanagudi Police Investigation

Following the discovery of the audit lapses, the Basavanagudi Police registered Crime No. 140/2022. The auditors face serious charges under:

• Section 420 of the IPC: Cheating and dishonestly inducing delivery of property.
• Section 477A of the IPC: Falsification of accounts.
• Section 109(12A) of the Karnataka Co-operative Societies Act: Willfully making false observations in an audit report.

The petitioners argued that they were merely professionals working based on documents and vouchers provided by the bank management. They claimed to have no personal knowledge of the fraudulent transactions and even highlighted that Petitioner No. 2, Ganesh P, was himself a victim who had lost Rs. 40 lakhs in fixed deposits to the bank’s collapse.

Prosecution Opposes Bail Citing Public Interest

The Public Prosecutor strongly opposed the grant of anticipatory bail, emphasizing that the scam has affected thousands of innocent investors, many of whom are senior citizens who lost their life savings. The state argued that the auditors colluded with the bank’s CEO to provide rosy financial pictures, thereby luring more people to invest in a failing institution.

The prosecution further contended that since the investigation is in a critical stage, granting bail could lead to the destruction of evidence or the intimidation of witnesses, especially given the scale of the “swindled public money which runs into several crores of rupees.”

Why the Court Rejected the Bail Plea

Judge Hemanth Kumar C.R. noted that the bank had effectively cheated several investors of hundreds of crores. The court found that as professional auditors, the petitioners had a duty to unearth such massive fraud, and their failure to do so led to catastrophic losses for the public.

“The petitioners have failed to unearth the fraud, they being the professional auditors of the said bank,” the court observed. Given that the investigation is ongoing and involves a massive amount of public money, the court concluded that the petitioners had not made out sufficient grounds for protection from arrest.

Future Outlook for the Scam Investigation

The Guru Raghavendra Sahakari Niyamitha scam remains one of the largest financial frauds in Karnataka’s history, with misappropriations pegged at over Rs. 2,000 crore. While some depositors have received partial compensation through insurance, many others remain in legal limbo. The rejection of this bail petition signals a tough stance by the judiciary against professionals who fail in their statutory duties, potentially opening the door for more rigorous custodial interrogation of those involved in the bank’s oversight.

Timely intervention of the Government helped Guru Raghavendra Depositors

This video provides a deep dive into the human stories of the depositors affected by the scam and the government’s response to the crisis.