RBI cool to Centurion lapses

RBI cool to Centurion lapses
SUNIL JAIN

NEW DELHI, OCT 9: Much like the MA Chidambaram case where the Madras High Court pulled up the Reserve Bank of India failing to do its job as a regulator, is the case of what can be called Dr Muhammed Majeed versus Centurion Bank. Though the amounts involved are much smaller -- a few crore rupees versus Rs 171 crore in the case of the MA Chidambaram firm MCC Finance Ltd -- the principle is the same: the RBI appears to have taken things lightly.

The country's top financial regulator simply asked Centurion Bank to put its house in order when the problem was brought to its notice, but did not inspect it subsequently to ensure compliance, or to penalise it for its major lapses. Despite sending a fax to Centurion Bank last month, and several reminders after that, Centurion chose not to reply to this reporter's queries.

The Case: Majeed, a Bangalore-based NRI exporter of chemicals, and the Centurion Bank story really began in mid-1998. Typically, Majeed would issue a cheque in the name of Centurion Bank -- the cheques were issued from Majeed's accounts in Centurion Bank itself -- and whenever he did this, he was issued post-dated cheques, with an interest component of around 18 per cent built in. Each time, the post-dated cheque was signed by S Ramamoorthi, assistant vice-president in Centurion Bank. Between June 1998 and April 1999, Majeed issued cheques worth Rs 4.96 crore to Centurion, and was paid this back along with interest charges.

Around April 1999, however, things began to go wrong. Majeed issued a cheque of Rs 80 lakh to Centurion on April 12 and another for Rs 44 lakh on June 9. As always, he was issued post-dated bankers' cheques -- for Rs 83,59,014/- and Rs 46,72,080/- -- signed by the same Ramamoorthi. Neither of these, however, were honoured by Centurion Bank.

A few days before Majeed presented the cheque of Rs 83,59,014/- to Centurion Bank, he received a letter from Centurion's advocates (Vivek Chandy & Associates) saying the banker's cheques he held were worthless as they had been obtained by fraud. Chandy said Majeed was acting in cahoots with S Ramamoorthi; that Majeed was issuing cheques in the name of Centurion Bank, these were then routed through Ramamoorthi to various clients of Centurion who needed money and didn't mind paying a higher rate of interest; Ramamoorthi then issued banker's cheques to Majeed to include this interest amount. Chandy said all of this was illegal, that Ramamoorthi had no authority to issue such banker's cheques, that banker's cheques were always signed by two officials and never just one, that banker's cheques were never issued against fixed deposits, and so on.

Centurion also placed advertisements in various papers saying that one of their officials, S. Ramamoorthi had fraudulently obtained a blank Banker's Cheque Book, and that cheques from this book were fake and would not be honoured. Centurion also filed a police complaint against Ramamoorthi and suspended him.

Therefter, several letters flew between Majeed's lawyers and Centurion's. Majeed also filed a case against SEBI (Centurion was having a public issue at that point). This was dismissed since the court felt that Majeed's only motive was to get his money back and not really the public issue. He then filed an Special Leave Petition in the Supreme Court which was also dismissed.

The Unanswered Questions: Let's assume that Majeed and Ramamoorthi were colluding the way Centurion Bank alleges. The fact is that Majeed did issue cheques in Centurion Bank's name, and these were clearly deposited somewhere. Equally clearly, Centurion Bank was issuing banker's cheques to him and this money obviously came from some account within the bank.

So, if Majeed and Ramamoorthi were indeed colluding, so were several other officers in the bank who allwed cheques issued by Majeed to be deposited in the bank; who then allowed these monies to be given to third parties; who allowed the third parties to pay interest and the principal back to a Centurion bank account; who allowed funds from this bank account to be paid back to Majeed; and who allowed Ramamoorthi's fraudulent banker's cheques to be honoured.

So, how come the RBI never even looked into the possibility of this huge fraud network in the bank? And why didn't the RBI inspect Centurion later, to ensure foolproof systems were in place to prevent this from happening later? There are no official repliesaenturion later, to ensure foolproof systems were in place.