The ruling Congress in Karnataka is upbeat after having retrieved Rs 76 crore of the Rs 89.63 crore allegedly siphoned off the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation. It has now set about to prove that it is a “responsible” government ready to act and be held accountable, even if it involves asking its own minister to step down and face arrest.
But, it cannot be ignored that it is the very corporation that had put the state government on the mat.
Congress leader and Shivajinagar MLA Rizwan Arshad said the government has swiftly and effectively responded to the issue and, in the process, has been able to retrieve most of the lost money. He told News18 that in a functioning government, there will be instances where people try to cheat it or the people.
“What is important to note is how quickly the government took steps to rectify it and ensure it does not occur in the future. Our government has taken this seriously, and we have recovered most of the money. We have booked those involved and sent them behind bars. That is how a responsible government works, and we have done that,” he said.
Now, just ahead of Valmiki Jayanti celebrations, Chief Minister Siddaramaiah announced that the state government will release the full funds allocated to the corporation, and that there is no dearth of funds. He said the special investigation team (SIT) probing the case told the government that it will retrieve the remaining Rs 13 crore.
“With this, the complete amount of money misappropriated will be recovered,” he said.
In the Valmiki corporation misappropriation of funds case, Rs 187 crore was allegedly transferred to the MG Road branch of Union Bank of India in an allegedly unauthorised transaction. Of this, Rs 94 crore were siphoned off and directed to fake accounts. After the death by suicide of a government official, Rs 5 crore was reversed into the main account taking the stolen amount to Rs 89.63 crore.
Two agencies are investigating the case – an SIT set up by Siddaramaiah and the Enforcement Directorate (ED).
‘Not guilty, it’s a bank scam’
The ED, in its chargesheet, called former minister Nagendra the “kingpin” in the case. On the basis of its probe, he was arrested on July 12 on charges of money laundering while he was minister of the welfare of STs.
Nagendra was granted bail on October 14 for cases involving elected representatives in Bengaluru after a special court ruled that the ED had not shown evidence of him receiving and using the money.
The court noted that the central agency had not provided evidence showing that Nagendra received or used the funds allegedly diverted from the corporation. It also pointed out that he had not been named an accused by the SIT.
The court instructed the former minister to cooperate with the investigation and stay away from threatening or tampering with witnesses. It also asked him to appear before the investigating officer when required.
Soon after his release, Nagendra claimed that he was innocent and being framed; rather, he was being used as a tool to destabilise the Congress government in Karnataka by the BJP. He alleged that the agency harassed him for three months while he was in jail.
“Though I have no role in this scam, I was arrested… The BJP has been putting pressure on the ED and, through me, trying to destabilise the government in Karnataka. This is a conspiracy by the BJP,” he alleged.
Nagendra further claimed to be pressured to implicate Siddaramaiah and Deputy CM DK Shivakumar in the scam. He stressed that there was no connection between the government and the scam; instead, it was a bank scam where the government is being pulled in.
“I rejected it, saying that when I have no role in it, where is the scope for their (CM and Deputy CM) involvement?” he said.
“It is a bank scam, and the money was transferred without written orders. The bank officials did this without checking KYC at a time when there was a code of conduct (during the Lok Sabha polls) in place. There is no involvement of the state government or me in this,” he added.
Congress minister Santosh Lad, who has known Nagendra for several decades, backed the leader and said he believes Nagendra has no involvement in the Valmiki case.
“According to me, I don’t think Nagendra is involved. I have known him for many decades. The biggest conspiracy seems to be hatched by the bank employees, directors and bankers, who found the opportune moment during elections to go about the act. This is all subject to investigation by the agencies that include the SIT, ED, and CBI (Central Bureau of Investigation). I am sure that Nagendra will come out clean. The fact that the court has granted him bail is a respite for him and for the party,” Lad told News18.
What is the scam? Who all were arrested?
The alleged scam emerged after the death of Chandrashekhar, an accounts superintendent from the Valmiki corporation, on May 26. His six-page suicide note disclosed the immense pressure he faced to facilitate unauthorised fund transfers exceeding Rs 80 crore.
Following this, Nagendra was arrested on July 12 in connection with embezzling funds during his tenure as a minister. The money laundering case originated from an FIR filed by the Karnataka police and the CBI, alleging that crores were misappropriated from the corporation accounts and laundered through fake accounts and shell companies.
The Valmiki corporation was founded in 2006 and is located in Bengaluru. It aims to uplift the socioeconomic status of STs in Karnataka and provides welfare schemes, including self-employment loans, microcredit, land purchase assistance, and irrigation facilities. It functions under a board of directors, chaired by the managing director, with oversight from government departments such as social welfare, finance, and planning.
After Chandrashekhar’s death, an FIR was registered based on his note, exposing a larger scam within the corporation. Two officials were suspended and Nagendra resigned on May 29.
According to information, part of Rs 187 crore deposited into the corporation’s account at the Union Bank of India, MG Road branch, went missing. The SIT probe showed that the funds were siphoned off to 18 primary accounts in Telangana and Andhra Pradesh, allegedly created by an accused, Satya Narayana Verma, who was involved in a similar scam in Chhattisgarh in 2022. The money was then routed to over 170 secondary accounts before being withdrawn.
More than 20 people have been linked to the scam, with 14 arrests made so far, including six Union Bank of India officials and two corporation officials, along with Nagendra and his close aides.
The SIT continues to investigate the roles of Nagendra and Congress MLA Basanagouda Daddal in the alleged scam. It has obtained statements suggesting the former minister’s involvement, but no direct evidence has been found.
The ED, meanwhile, has called him the “mastermind” in the case and filed a chargesheet against him, leading to his arrest.
This scandal caused an uproar in both Houses of the state legislative assembly. Opposition parties demanded Siddaramaiah’s resignation, holding him “morally responsible” for the fraud.
What are the probe findings?
The SIT investigation found that Verma transferred the funds to over 170 secondary accounts, from which the money was subsequently withdrawn.
The ED, during its probe, identified Nagendra as the mastermind behind the scam, implicating him and 24 others. Described by the agency as the “kingpin” of the operation, he was arrested under the Prevention of Money Laundering Act (PMLA) on July 12. The chargesheet stated that Nagendra attempted to destroy evidence, including mobile phones, to obstruct the investigation. Despite ongoing recoveries and arrests, the ED has continued to uncover the full extent of the scam.
The agency said Nagendra orchestrated the transfer of the corporation’s account to Union Bank of India’s MG Road branch without proper authorisation, where Rs 187 crore, including Rs 43.33 crore from the state treasury under the Ganga Kalyana Scheme, was deposited in violation of government guidelines.
The investigation shows that Rs 89.63 crore was siphoned off through shell accounts, with Rs 15 crore used to influence voters in the Lok Sabha elections in constituencies like Ballari, Kudligi and Kampli.
According to the ED chargesheet, voters were given Rs 200 each while polling booths received Rs 10,000. A portion of the funds was also used for Nagendra’s personal expenses, including luxury vehicle purchases and household costs. Key aides, such as Verma and Vijay Kumar Gowda, were directly involved in diverting these funds, as per the ED.
In its chargesheet, the ED detailed how the misappropriated funds were laundered through fake bank accounts and converted into cash, gold and assets. Search operations uncovered incriminating documents linking Nagendra and Daddal to the fraud. The agency also mentioned that Rs 20.19 crore of the diverted money was used to support a candidate in the 2024 elections from the Ballari constituency.
SIT and ED cross swords
The investigation has led to tension between the SIT and the ED, and have been at odds throughout the case. While the ED chargesheet directly implicated Nagendra, the chargesheet filed in August by the SIT did not mention him.
Nagendra was granted bail despite the ED filing a complaint that Rs 20.10 crore of the diverted funds had been used for the Lok Sabha elections and for his personal use. The special court noted that there was no recovery of funds at the former minister’s behest, and Rs 81 crore had been recovered from other accused.
A demand for a CBI probe is pending in the Karnataka High Court. The state government has accused the ED of targeting Siddaramaiah, who is also the state finance minister. It alleges that the agency is conducting a politically motivated “witch hunt”, and has filed a case against senior ED officials claiming that they attempted to coerce witnesses into falsely implicating the chief minister.
“The only job the ED does today is to enable the targeting of political opponents and strengthen the BJP. What did the ED achieve by becoming involved in this scam? Did they recover the money, which is primarily their job? No. That was done by the SIT. Did they book anybody else? No. Did they find any other evidence apart from what was uncovered by the SIT? No. Except to target Nagendra politically and, through him, force the creation of a political battle against our CM and other leaders, what did the ED do?” Arshad asked.
In August, the ED sought custody of Verma, a key figure in the fraud, but the high court intervened after the SIT took the accused into custody for 10 days on August 3 for allegedly forging documents and creating fake accounts. The ED had previously uncovered that some of the stolen funds were allegedly used to purchase a large quantity of liquor ahead of the general elections, further fuelling the political controversy.
Case against ED officials
On July 18, state ministers held a press conference accusing the ED of conspiring, at the BJP’s behest, to frame Siddaramaiah. State revenue minister Krishna Byregowda alleged that during the investigation into the scam, individuals were being pressured to give false statements against senior state government officials.
A case was filed against two ED officials for allegedly pressuring a government official to implicate Siddaramaiah and the state finance department. The complaint was lodged by Kallesh B, additional director of the social welfare department, at the Wilson Garden police station in Bengaluru.
According to the complaint, ED official Murali Kannan interrogated Kallesh on July 16, asking him 17 questions. However, Kallesh alleged that Kannan pressured him to implicate Nagendra, “the highest authority” (implying Siddaramaiah), and the finance department in the scam.
Kallesh further alleged that another ED official, Mittal, threatened to frame him if he did not comply. Mittal allegedly demanded that Kallesh write a statement alleging that funds meant for the Valmiki corporation were diverted to the personal accounts of Siddaramaiah and the finance department. On July 23, Karnataka stayed the investigation against the two ED officers.
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