|Union Minister for Minority Affairs was found jointly guilty of defrauding a co-operative bank in Karnataka.|
GOVIND KRISHNAN V. Bangalore | 3rd Nov 2012
The newly appointed Union Minister for Minority Affairs Rahman Khan was found jointly guilty of defrauding the Amanath Co-operative Bank in Karnataka of Rs 53.25 cr by the RBI and the Karnataka Registrar of Co-operative Societies.
RBI inspections reports and audit reports from the Directorate of Cooperative Audit from 2003 to 2009 indicate that Khan, who stepped down as president of the Amanath Co-operative Bank in 2002, together with nine other former directors and several bank officials caused a loss of Rs 102.03 cr to the bank. Besides siphoning off crores through creating fictitious accounts, hundreds of crores were given in loans to concerns in which the relatives of Khan and other directors had direct investments, breaking RBI norms. Unjustifiable concessions in repayment of principal and interest on loans, and overdrafts, were given to firms belonging to Khan’s wife, sons and son-in-law, as well as relatives of other directors.
In 2007, the government appointed a CEO to take over the running of Amanath Co-operative Bank and an enquiry was conducted into the scam by the deputy registrar of co-operative societies. In February 2011, the state government registered an FIR against Khan for cheating Amanath Bank through benaami loans and the bank initiated action to recover the money lost from Rahman Khan and 17 others involved in the scam. The bank proposed to recover Rs 10.78 cr from Khan who was the then deputy chairman of the Rajya Sabha. However, a single judge bench of the High Court granted a stay on the proceedings after Khan moved the court.
The order of the Joint Registrar for Co-operative Societies (Urban Bank Cell), based on the enquiry report of the deputy registrar of co-operative societies says: “Fictitious loan accounts have been created at Amanath Co-operative Bank Ltd, Bangalore, during the years 1998 to 2002, and money has been misutilised (sic) out of these accounts. Further eight new accounts were sanctioned to conceal these fictitious loan accounts. Amount pertaining to these accounts, house building advance, loans granted to 165 employees and amount drawn from the building fund at Central Office of the Bank aggregating amount of Rs 5,325.00 lakhs (53.25 crore) have been misappropriated. It is proved that bank has sustained loss of Rs 10,203.48 lakhs (102.03 crores) on account of all these irregular transactions.”
The scam cheated not only the investors of the co-operative bank, but even its employees. The management sanctioned housing loans of Rs 5 lakh each to 165 employees and then drew them back as contribution for a housing project that remained on paper. Even before the deputy registrar’s enquiry fixed the blame in 2007, the RBI had detected the fraudulent transactions and the subsequent efforts to cover it up. “At later stage, records were fabricated by converting the existing loans as fresh loans, subsequent to March 2002. The loans included an amount of Rs 905 lakh (9.05 lakh) purportedly sanctioned to the bank’s own employees towards house construction,” the 2003 RBI inspection report says.
In November 2009, Amanath Bank , which was established in 1977 as a co-operative for poor Muslims, published its audited balance sheet with the full list of high-profile defaulters. It included some of the most prominent names of the Muslim community in Bangalore and several bigwigs from the construction sector. The list included the names of Rahman Khan, and directors Ziaullah Sharief, Sadath Ali Khan, Ateeq Ahmed, Aziz Mohammed, Hyder Ali Jeevabhai and Jameela Khaleel and held them responsible for “misappropriation and causing loss to the bank”, “sanctioning benaami loans” and “irregularities with regard to the construction of the Bank’s Central Office and Illyas Nagar Branch”. It also held the directors and Ziaullah Sharief, one of Rahman Khan’s successors as president of the bank, responsible for misappropriating funds and committing irregularities by misusing the One Time Settlement (OTS) scheme. The OTS schemes, which can be used to waive principal and interest on loans, mainly benefitted relatives and family members of the bank’s former presidents and directors. At least 28 firms connected to direct to top bank officials received waivers, and write-offs between 1997 and 2006. This included the waiver of Rs 10 crore in principal and interest in loans given to Rahman Khan’ son-in-law’s company Wama Designers and Builders and Wama Transcription Services
The Sunday Guardian was the first newspaper to do a detailed inquiry into the financial affairs of the Amanath Bank and Rahman Khan’s role in the scam and published the story on 31 January 2010. When Rahman Khan, the then deputy chairman of the Rajya Sabha was contacted, he denied involvement in the scam and claimed that the Registrar of Co-operative Society’s order to prosecute him was politically motivated and the reports “concocted”. “It is all political. I am the founder of the bank. In 25 years, I brought the bank from Rs 3 lakh and up to a scheduled bank. By any stretch of imagination, can anyone say that I can kill that bank?” he had said.