Madras High Court slams Tamil Nadu government, CBI for lack of coordination in financial fraud cases

The Madurai Bench of the Madras High Court has criticised Tamil Nadu government and the Central Bureau of Investigation (CBI) for the lack of coordination in financial fraud cases. “The indifference and turf war have derailed the entire purpose of justice,” it said.

The court was hearing two separate petitions filed by the State Bank of India (SBI), seeking a direction to the CBI to take necessary action based on its complaints relating to massive loan frauds involving ₹13.11 crore and ₹3.84 crore, respectively.

Justice B. Pugalendhi said that despite the alarming magnitude of the frauds and their clear qualification under RBI and Ministry of Finance guidelines for referral to the CBI, the matter had languished without an investigation or even registration of an FIR not due to legal complexity, but due to bureaucratic indifference and institutional arrogance on the part of the State government and the CBI.

“What the court was faced with was not merely a procedural delay, but a systemic failure of two public authorities, whose indifference and turf war have derailed the entire purpose of justice. This is not an administrative lapse, but a deliberate erosion of accountability,” the judge said.

“The damage caused by this kind of conduct is not limited to one case. What is at stake is the public’s faith in the justice system. The petitioner bank, a statutory institution, complied with all procedural guidelines under the RBI and Ministry of Finance circulars, and yet, neither the Centre nor the State was willing to act, unless compelled by judicial direction. This is nothing short of a breakdown of institutional responsibility,” the court said.

According to the judge, when agencies entrusted with the task of protecting the law engage in passive resistance or selective permissions, they betray their constitutional obligations. “Justice is delayed not due to complexity, but due to ego and politics. The court cannot, and will not, be a silent spectator to such abdication of responsibility,” the judge said, and issued a set of directions.

He said that when the fraud amount exceeds the prescribed threshold, the CBI is not only entitled but also obligated to act on the complaint received from a public sector bank, subject to the State’s consent. Once such consent (even if specific to named individuals) is granted, an FIR should be registered without further delay, especially when the complaint clearly discloses a cognisable offence.

“It is neither reasonable nor practical to expect the CBI to identify all individuals involved in the fraud at the stage of complaint or before initiating an investigation. Investigation is inherently a fact-finding process, and the identities of unknown public officials or private persons are often revealed only during the course of such investigation,” Justice Pugalendhi said.

“The practice of repeatedly asking the CBI to re-send proposals for consent, without assigning any substantive reasons, ought to be discouraged. This practice delays investigations, undermines administrative efficiency, and may indirectly facilitate the escape of offenders from legal scrutiny. The State government should maintain institutional consistency in handling requests for consent, and not treat each matter as an isolated event requiring redundant paperwork once a proposal has already been vetted. It is the duty of the Central and State governments to work in tandem to set the mechanism in motion, and not act in such a manner that creates roadblocks while going after such offenders,” the court said.

It directed the Chief Secretary and the Zonal Head, CBI, to review the procedural delays and put internal accountability mechanisms in place. Both the State government and the CBI should be reminded that their loyalty lies with the Constitution and the rule of law, and not convenience, comfort, or political expediency, the court observed, and directed the CBI to proceed with the complaints.