On October 9, ex-finance minister and seasoned CPM leader, T M Thomas Issac stated at a press event in Kochi, that the systemic issues seen in banks, including Thrissur’s Karuvannur Service Cooperative Bank, were opportunities for reform. He asserted that political outfits owe it to the public to fix the issues, punish those responsible and safeguard the sector.
However, in an ironic twist, on that same day, the Directorate of Enforcement (ED), a central agency mandated to investigate money laundering and foreign exchange violations, complained to a special court in Kochi that state entities like the Crime Branch, Department of Cooperation and cooperative societies affiliated with them were withholding information and documents relevant to the case.
However, the following day, CPM’s heavyweight from Kannur and state committee member, P Jayarajan countered that it was the state government’s Crime Branch that uncovered the bank’s ‘benami loans’ amounting to Rs 103 crore based on documentation provided by the Department of Cooperation. Jayarajan accused the central agency of trying to dismantle the cooperative sector, which echoed the sentiment of the state government spearheaded by Chief Minister Pinarayi Vijayan.
In a discussion with a news outlet on October 7, G Sudhakaran, a former minister under Vijayan and high-ranking CPM member, lashed out at those vocally defending the cooperative movement, arguing that their words caused more harm than their adversaries. He adamantly called for transparency from the government and demanded that the leaders responsible for the bank cooperate fully with the central agencies.
So, what’s the fuss about the CPM? Is this merely financial misconduct? What is the human cost? Here are the details.
Firstly, the Karuvannur Service Cooperative Bank is a century-old agrarian society located in the Thrissur district, set up in 1921.
In 2018-2019, the bank’s highest deposit amount was Rs 402 crore, despite the growing scam which had yet to be publicly acknowledged. However, the bank’s deposits have now dropped to Rs 282 crore and the number of depositors has reduced to 23,648.
Now, it’s prudent to ask:
Contents
What is the Karuvannur Service Cooperative Bank?
The Karuvannur Service Cooperative Bank, established in 1921, is a long-standing agrarian society in the Thrissur district.
What was the highest deposit amount in 2018-2019?
Despite the unfolding scam, the bank’s deposits in 2018-2019 peaked at Rs 402 crore.
How have the bank’s deposits and depositor base changed recently?
Today, the bank’s deposits have dropped to Rs 282 crore and the depositor base has decreased to 23,648.
The Enforcement Directorate (ED) built its initial case around a complaint made by the bank’s secretary in-charge, Sreekala E S, to the Irinjalakuda police in July 2021. She claimed that a group of employees had taken nearly Rs 100 crore from the bank, giving multiple loans to one person. Borrowers’ properties were re-mortgaged without their knowledge. These loans were then passed on to unconnected third parties. The money was siphoned off through bank transactions and cash withdrawals.
The ED uncovered a larger ‘loan takeover’ scam during its investigation, orchestrated by alleged private financier, and first accused, Satheesh Kumar P.
The bank’s new government-appointed administrative committee reported the scam size to be Rs 103.3 crore. The Thrissur Deputy Registrar of the Department of Cooperation indicated it could be as much as Rs 113 crore. Concerns were raised about the whole loan book – Rs 514 crore – due to fears that honest borrowers might refuse to settle their loans until the swindled funds were retrieved.
According to the 2022 report by the Thrissur Deputy Registrar of the Department of Cooperation, the fraud took place during two five-year periods, from 2011 to 2016 and 2016 to 2021. However, the ED stated that the fraud commenced in 2010. Former local secretary of the CPM and former manager of Karuvannur bank, M V Suresh, claimed that he noticed financial corruption as early as 2005 and reported it to higher authorities.
Suresh, among other complainants, gave statements to the ED. In 2017 and 2018, there were allegations that the police declined to file First Information Reports (FIRs) when various borrowers got foreclosure notices from the bank for loans never solicited.
After Sreekala lodged her police complaint, the case was transferred to the State Crime Branch, a department of Kerala Police that investigates serious offenses impacting the whole state, after seven days. Subsequently, 16 FIRs were filed based on depositor and victim complaints stating title deed misuse by bank employees to grant loans to unrelated borrowers.
The ED joined the investigation on August 2, 2021. 19 days after the Crime Branch registered the case, the ED’s Kochi Zone noted down an Enforcement Case Information Report (ECIR) under the Prevention of Money Laundering Act (PMLA).
Frequently Asked Questions
What was the nature of the fraud committed?
The scam involved a group of employees fraudulently giving loans to the same person, remortgaging borrowers’ properties without their consent, and further extending those loans to unrelated third parties. These funds were then transferred to other accounts or withdrawn in cash.
How much money was involved in the fraud?
Although the ED has not provided an exact figure, estimates range from Rs 103.3 crore according to the bank’s new government-appointed administrative committee, to Rs 113 crore cited by the Thrissur Deputy Registrar of the Department of Cooperation.
When did the fraud take place?
The scam was perpetrated over two separate five-year periods – from 2011 to 2016 and then from 2016 to 2021, according to an inspection report released in 2022. However, the ED believes the fraud began in 2010.
The Enforcement Directorate unravelled the Karuvannur bank scam a year later, delving deeper into it on August 22 and 23, 2022.
Important personalities assumed to be involved in this scandal include society secretary Sunil Kumar T R, bank manager Biju M Kareem, senior accountant Jilse C K, society member Kiran P P, Bijoy A K (Rubco’s furniture and mattresses distributor), and the supermarket accountant Reji Anil.
Further investigation led to the arrest of Satheesh Kumar P, a private financier; Kiran P P, an estate player; Aravindakshan P R, a municipal councillor; and Jilse C K, the bank’s senior accountant.
The modus operandi of the scam involved an unlawful mechanism called the ‘loan takeover’ scam. In essence, Satheesh Kumar would take over the debt of those grappling to pay loans at a hefty interest rate of 10% per month. He would lure clients under the pretense of finding them a new cooperative bank or branch offering low-interest loans in return. However, Satheesh ended up mortgaging the client’s title deeds and progressed to take massive loans without the client’s consent, thereby straining the client with increasingly unmanageable debt.
Congress leader Anil Akkara reported that around 150 borrowers fell victim to the scam, spanning across 14 cooperative banks in Thrissur. Citing one case in particular, Biju Kareem, the bank manager of Karuvannur, was found guilty of taking out a loan of Rs 3 crore in 2016 using the title deed of an unaware loan applicant.
The report by Thrissur Deputy Registrar elucidated that the scam entailed issuing loans to unrelated members of the bank by re-mortgaging the title deeds of genuine borrowers. The loan amounts, typically worth Rs 50 lakh, were then moved to accounts unrelated to the borrower. The fraudulence extended to renewing these loans on the computer sans the presence or conscience of the borrower.
##### Frequently asked questions:
###### Who are the key actors involved in the scam?
The scam integrated multiple parties, including society secretary Sunil Kumar T R, bank manager Biju M Kareem, senior accountant Jilse C K, society members and agents Kiran P P and Bijoy A K, and supermarket accountant Reji Anil. Additionally, private financier Satheesh Kumar, estate player Kiran P P, municipal councillor Aravindakshan P R, and the bank’s senior accountant Jilse C K were also arrested and charged in the scam.
###### What is the ‘loan takeover’ scam and Satheesh Kumar’s role in it?
The ‘loan takeover’ scam was where Satheesh Kumar offered to take over the debt of individuals struggling to pay their loans, at an exorbitant interest rate of 10% per month. He would persuade the clients by promising to find them a new, cheaper loan within a ten-day window. However, he wound up mortgaging the client’s title deeds without their knowledge and taking out substantial loans, leaving clients burdened with increased, unmanageable debt.
###### How did bank employees join in the fraud?
Bank employees took part via re-mortgaging the title deeds of genuine borrowers to issue loans to unrelated bank members. The loans, majorly worth Rs 50 lakh, were given based on reports produced by the bank manager. The loan amounts were then channeled to unrelated bank accounts. These loans were renewed at the end of the financial year without the borrower’s knowledge or presence, often without the endorsement of the board of directors or bank president approval.Kiran P P, a real estate agent, managed to acquire fifty loans which totalled Rs 24.56 crore under different names. Including accumulated interest, this amount had almost doubled to Rs 48.57 by August 2022, at which point the joint registrar submitted their report.
Apparently, out of that original Rs 24.56 crore, Kiran transferred around Rs 14 crore to Satheesh Kumar, who denies these claims entirely.
In another scenario, senior accountant Jilse C K employed his own property to secure three separate loans amounting to Rs 50 lakh, each under a different name.
He then used his father’s property as collateral, taking six additional loans totalling Rs 2.75 crore under different names, again using his wife and father among the others. These loans have not been repaid.
So that’s the fraud. But how did the government respond?
In 2017 and 2018, many members of the Karuvannur Service Cooperative Society received foreclosure notices for loans they claim they never took out. Complaints to the bank and the Assistant Registrar of the Department of Cooperation went unheeded. Even the police refused to take these complaints seriously.
In a statement dated October 9, 2021, V N Vasavan, the Minister of Cooperation, responded to these allegations, saying the first complaint reached the police in January 2019. A case was then officially registered January 16, 2019. However, Vasavan does not elaborate further on actions taken.
In August 2019, the Department of Cooperation started its own investigation into potential scams. The department finished its inquiry by October 2020, yet no action was taken on their report which was incredibly condemning.
In August 2022, a report was sent to the government from the Joint Registrar of the Department of Cooperation in Thrissur. It estimated that these unlawful actions had created a liability of Rs 112.87 crore for the bank. The report suggested that this amount should be recovered from the twenty directors who served during the scam period and the three primary culprits – secretary Sunil Kumar T R, manager Biju M Kareem, and accountant Jilse C K.
Relying on the report filed by the Deputy Registrar, which provided alleged roles for each employee implicated, The Crime Branch began making arrests in August 2021. Anyone implicated, including the 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, were all arrested.
Further arrests followed in September 2021. These included Bank president K K Divakaran, a senior CPM leader, and society directors Jose Chamkrampilly, Baiju T S and Lalithan V K. All of these individuals were in jail for around 100 days before they were granted bail.
Some of the former bank directors have since claimed that the board of directors had no decision-making power but rather acted merely as a rubber stamp. Actually, only applications for loans up to Rs 5 lakh were put before the board. Lalithan, one of the directors, said that despite having informed CPM members of his concerns about potential fraud, they reassured him not to worry as they trust the party.
## Frequently Asked Questions
### How did the joint registrar respond to the scams?
In August 2022, the Joint Registrar of the Department of Cooperation in Thrissur sent a report to the government suggesting that these unlawful practices had imposed a liability of around Rs 112.87 crore on the bank. The report advised to recover this liability from the twenty directors who served during the fraudulent period and from the three main culprits – secretary Sunil Kumar T R, manager Biju M Kareem, and accountant Jilse C K.
### What kind of action did the Department of Cooperation take?
The Department of Cooperation initiated an investigation into possible scams in August 2019. It completed the inquiry and concluded with an extremely damning report by October 2020, but shockingly, no action was taken based on this report.
### Were there any penalties such as arrests or imprisonment?
Yes, two months after case registration, The Crime Branch began making arrests in August 2021. Those who were implicated, including then secretary Sunil Kumar T R, bank member Kiran, senior and junior accountants Jilse C K and Reji Anil Kumar, commission agent Bijoy A K, and former branch manager Biju M Kareem, were all arrested. More arrests in September 2021 saw the bank’s president K K Divakaran and society directors Jose Chamkrampilly, Baiju T S and Lalithan V K being taken into custody. There was an approximate jail term of 100 days before they were granted bail.The former manager of Karuvannur Service Cooperative Bank, K. K. Eapan, stated that he was unaware of the massive fraud until his arrest by the Crime Branch on September 13, 2021.
As for the politicians’ involvement, the ED has so far arrested only Aravindakashan, a councillor from the CPM’s Wadakkanchery. Aravindakashan is known to be close to A C Moideen, a leader of the CPM. The ED mentions in its report that the fraud is an organized crime with links to politicians, police, and bureaucrats at different government levels.
Satheesh Kumar, the first accused, recorded incriminating phone calls with Aravindakshan, which the ED seized in a raid on his house. Massive transfers from Satheesh Kumar and his brother’s bank accounts to Aravindakshan’s account across 2015, 2016, and 2017 have been detected. However, Aravindakshan’s only income source, he claims, is his councillor honorarium.
The enhacement of the scam arrived when ex-member of Porathissery grama panchayat, T M Mukundan, ended his life after being harassed to repay a loan he never took. This event led depositors to withdraw their money en masse, causing the bank to impose restrictions that are still active.
As for the predicament of the depositors and borrowers, the government has repeatedly assured them that their money would be returned, and the misused title deeds would be returned.
#### Frequently Asked Questions
1. **Are any politicians linked with the scam?**
At present, only one political figure, Aravindakashan, a councillor from CPM’s Wadakkanchery, has been arrested in connection with the scam. Nevertheless, it is widely believed that he has strong links with A C Moideen, a prominent CPM political leader.
2. **How is Aravindakshan related to the scam?**
Investigations by the ED have shown that large sums of money were transferred to Aravindakshan’s account in 2015, 2016, and 2017 from the bank accounts of Satheesh Kumar and his brother. Interestingly, these transfers appear dubious since Aravindakshan’s claimed income is merely his councillor’s honorarium.
3. **What will happen to the borrowers and depositors who have been affected by the scam?**
The government has assured both borrowers and depositors that their monies will be refunded and the title deeds that were fraudulently misused will also be returned.
The Reserve Bank of India (RBI) shut down Karuvannur based Karuvannur Service Co-operative Bank amid the scam that transpired in mid-July last year. The closure was as a result of a scam that involved Rs. 435 crores. Notably, the RBI has assured depositors that their money will be refunded, yet no specific timeline has been set. Unfortunately, for borrowers whose title deeds were falsely employed by the bank’s staff, the path to justice appears to be much longer.
As per the Department of Cooperation’s estimates in August 2022, approximately Rs 112.87 crore should be reclaimed from 20 directors and three staff members. A year prior, in August 2021, V N Vasavan, the Minister for Cooperation, stated in the Assembly that the accused’s properties would be seized to regain the lost funds. However, little has been done in this regard.
Currently, the Enforcement Directorate (ED) has seized assets valued at Rs 30.70 crore from the commission agent Bijoy A K. This asset seizure, as reported by the ED on December 6, 2022, includes 20 real estate properties comprised of plots and buildings throughout Kerala, two luxury vehicles, Rs 5.48 lakh in both Indian and foreign currencies, and Rs 35.87 lakh in balances across 57 bank accounts under Bijoy and his companies.
The ED further claims that the bank dishonestly approved and disbursed loans amounting to Rs 26.60 crore in cash to Bijoy without any collateral in 2010. The title deeds can only be returned after all the legal proceedings are resolved.
### Frequently Asked Questions
#### What happened to Karuvannur Service Co-operative Bank?
In July 2021, Karuvannur Service Co-operative Bank was involved in a scam of Rs 435 crores which resulted in its shutdown by the Reserve Bank of India. The path to justice for borrowers victimized in this scam appears to be slow due to the systematic conspiracy employed by the bank’s employees.
#### What action has been taken against the accused in the scam?
So far, the Enforcement Directorate has seized assets worth Rs 30.70 crore from commission agent Bijoy A K. These seized assets consist of real estate properties, luxury cars, cash in Indian and foreign currencies, and bank account balances. However, no substantial measures have been undertaken to recover the funds from the 20 directors and three employees implicated in the scam.
#### What’s the future for the bank and the depositors?
Although the RBI has shut down the bank, it has promised that depositors’ money will be returned. The timeline for this is unclear. The bank’s future remains uncertain with no immediate resolution in sight.
