BENGALURU: Allegations of loan irregularities exceeding Rs 1,000 crore at the Karnataka State Cooperative Apex Bank have reached the Karnataka High Court, with a public interest litigation (PIL) seeking a detailed investigation into alleged financial lapses and action against those responsible.
The petition, filed by Pavan Kumar, alleges that the bank sanctioned loans for non-agricultural purposes, extended fresh credit to accounts already classified as non-performing assets (NPAs), and failed to comply with several statutory and banking regulations. It further alleges that the Registrar of Cooperative Societies failed to initiate proceedings under Section 69 of the Karnataka Cooperative Societies Act, 1959, despite audit findings and documentary evidence pointing to the alleged irregularities.
The PIL seeks directions to the authorities to initiate inquiry, inspection, and surcharge proceedings under Sections 64, 65, and 69 of the Act. It also seeks preservation of loan files and other records relating to the institutions identified in the statutory audit reports.
The petition was scheduled for hearing on October 16, 2026. The allegations are based primarily on the Apex Bank’s statutory audit reports for the financial years 2024-25 and 2025-26. The reports were obtained by the petitioner through applications under the Right to Information Act, 2005.
According to the petition, the audit reports record recurring deficiencies in the bank’s lending practices. These allegedly include loans sanctioned to private companies, educational trusts, and sugar factories for purposes unrelated to agriculture; fresh lending to accounts already classified as NPAs; and loan assessments that allegedly overstated borrowers’ repayment capacity by counting certain figures twice.
The petition also alleges that loans were sanctioned during 2024-25 against shares of companies in which the bank’s own directors had interests. The petitioner contends that such lending would violate Section 20 of the Banking Regulation Act, 1949, and has sought a formal examination of the transactions by the competent authorities.
The audit report for 2025-26 allegedly identified further non-compliance with the Banking Regulation Act, including Sections 9, 19, and 21, read with Section 35A. The petition also alleges a failure to charge monthly interest on loans extended to the non-agricultural sector, raising questions about the monitoring and administration of such credit facilities.
The documents submitted with the PIL reportedly contain details of borrower institutions, loan account numbers, sanctioned amounts and observations recorded by the statutory auditors. The petitioner has cited these records to argue that the allegations warrant a comprehensive investigation rather than routine administrative directions.
The Karnataka State Cooperative Apex Bank plays a significant role in the state’s cooperative credit system.
According to its statutory disclosures cited in the petition, it provides short-term, medium-term and long-term rural credit to farmers through district central cooperative banks and primary agricultural credit cooperative societies. It also extends loans to self-help groups and provides working capital and term loans to cooperative and private sugar factories.
As a scheduled bank, it undertakes other banking activities, including retail lending to specified categories. The petitioner has argued that alleged irregularities in such an institution could affect depositors, farmers and cooperative institutions that depend on the cooperative banking network.
Pavan Kumar had submitted a detailed complaint to the Registrar of Cooperative Societies on February 23, 2026, seeking action under Sections 64, 65 and 69 of the Karnataka Cooperative Societies Act. The complaint reportedly identified 10 specific instances of alleged lending irregularities involving more than Rs 1,000 crore.
However, the petitioner alleges that the Registrar did not initiate the requested proceedings. He has approached the High Court under Articles 226 and 227 of the Constitution, seeking judicial intervention over what he describes as the authority’s inaction.
The petition states that the Registrar had earlier issued an order under Section 68 of the Cooperative Societies Act directing the Apex Bank to rectify deficiencies identified in the audit reports. The bank was reportedly asked to correct the shortcomings within 30 days.
According to the petition, the Registrar issued further communications to the bank on April 10, June 2 and July 13, 2026, seeking compliance reports. The petitioner alleges that the bank had not submitted a report confirming that the audit deficiencies had been rectified.
Section 68(2) of the Act requires a cooperative society’s board to periodically report the rectification of audit deficiencies to the Registrar and other specified authorities until the shortcomings have been addressed. Where deficiencies are identified during an audit, the report must also be sent to the Director of Cooperative Audit, as applicable under the provision.
The petitioner argues that issuing directions to rectify audit deficiencies is insufficient if the authorities do not take further action when compliance is allegedly not reported. He has contended that Sections 64 and 65 provide for inquiry and inspection. In contrast, Section 69 empowers the competent authority to initiate surcharge proceedings against persons found responsible, after providing them an opportunity to present their defence.
The PIL alleges that the Registrar failed to exercise these powers despite the audit observations and the complaint submitted in February. It also refers to a communication dated June 27, 2025, arguing that no legal impediment existed to initiating proceedings under Sections 69 and 111 after that date.
The petitioner has sought a writ of mandamus directing the Registrar to initiate proceedings under Section 69 and take appropriate action in accordance with the law. He has also asked the court to examine the alleged failure to act on the statutory audit findings and his complaint.
In addition to the main relief, the petition seeks interim protection to prevent the alleged irregularities from continuing while the case is pending. It expresses concern that the bank could sanction further loans to the institutions named in the complaint or alter or destroy relevant records.
The petitioner has therefore requested directions to preserve all loan files and documents relating to the institutions mentioned in the audit reports until the writ petition is finally decided. He argues that failing to preserve the records could render the proceedings ineffective and expose public funds and depositors’ money to further risk.
