Author: Krisha Shah, Law Graduate from Jitendra Chauhan College of Law
To the Point
On June 7, 2025, the CBI Special Court in Madurai delivered its verdict, sentencing a former Indian Overseas Bank senior manager and three associates for orchestrating a fraudulent scheme involving the disbursement of ₹3.38 crore in loans to bogus Self-Help Groups (SHGs). This case has become a landmark in banking fraud jurisprudence, highlighting how systemic lapses and collusion between banking staff and NGOs can defraud rural credit schemes.
Use of Legal Jargon
1) Criminal Conspiracy (Section 120B IPC)
A criminal conspiracy arises when two or more individuals form an agreement to either commit an act that is prohibited by law or to accomplish a lawful act through methods that are themselves unlawful.
2) Cheating (Section 420 IPC)
Dishonestly or fraudulently inducing another person to deliver property or do something they wouldn’t do if the truth were known.
3) Forgery (Section 468 IPC)
Falsification of documents with intent to cheat.
4) Using Forged Document as Genuine (Section 471 IPC)
Knowingly using a document one knows to be forged, as if it were genuine.
5) Public Servant Misconduct (Section 13(1)(d) r/w 13(2), PCA, 1988)
Misusing one’s official capacity to secure financial gains either for personal benefit or for others.
6) Fiduciary Duty
A duty of trust and care owed by bank officials in their official capacity. Breach of this may amount to criminal misconduct.
7) Willful Blindness
Legal doctrine holding that a person cannot escape liability by intentionally avoiding knowledge of wrongdoing (used in bank fraud cases).
8) Constructive Criminal Liability
When liability is extended to individuals indirectly responsible for the crime, due to their role or oversight failure.
9) Misappropriation of Public Funds
Illegal diversion or unauthorized use of government-sanctioned funds, especially in welfare schemes.
10) Vicarious Liability
Holding a superior or institution responsible for the unlawful acts committed by its agents or subordinates.
11) Mens Rea
Guilty mind or intent to commit a crime — crucial for establishing fraud and conspiracy.
12) Modus Operandi
The pattern or method used by accused persons in executing a crime — often used to show prior planning or conspiracy.
13) Siphoning of Funds
Illegally diverting or withdrawing money from an authorized source for personal gain.
14) Predicate Offence
The base offence (e.g., cheating or forgery) that leads to further charges such as criminal conspiracy or corruption.
15) Judicial Precedent
Previous court decisions that serve as a legal standard for deciding future cases of similar nature.
The Proof
I. Facts Established by the Prosecution
1. Creation of Fictitious SHGs
The CBI found that several SHGs to whom loans were sanctioned were non-existent. Reused identity documents, forged signatures, and fabricated SHG records like meeting minutes and resolutions were submitted to create a false impression of legitimacy. Multiple applications had identical handwriting, clearly indicating that the paperwork was filled out by a single person.
2. Collusion Between Bank and NGO
B. Ravichandran, the then Senior Manager of IOB, sanctioned ₹3.38 crore in SHG loans solely based on documents provided by the NGO, without any field verification or scrutiny. Mandatory checks were completely bypassed, and there was no follow-up on the end-use of funds—strongly pointing to deliberate collusion.
3. Beneficiary Testimonies
Several listed SHG members deposed that they had never applied for any loan and were unaware of such borrowings in their name. Some confirmed that their identity proofs were misused without consent, further confirming the fraudulent creation of SHGs.
4. Forensic Evidence
A handwriting expert confirmed that many signatures across different SHG applications were written by the same hand. Several documents were created on the same day, suggesting they were fabricated as part of a coordinated effort.
II. Arguments Raised by the Accused
1. Bank Official (B. Ravichandran)
Ravichandran contended that he acted in good faith based on the documentation submitted by the NGO. He maintained that any errors were merely procedural lapses rather than acts of criminal intent. He further argued that field verification responsibilities were delegated to subordinate staff, and that he was not personally involved in verifying the existence of the SHGs.
2. NGO Representatives
The NGO staff claimed that their role was limited to facilitating SHG formation and documentation, while the bank retained full discretion over loan approvals. They denied any involvement in forgery or misrepresentation and asserted that they had no knowledge that the SHGs were fictitious.
III. CBI’s Counter-Arguments
1. Planned and Systematic Fraud
The CBI contended that the pattern and volume of fraudulent SHG loans reflected a well-planned conspiracy. The repeated use of forged documents and uniform procedures across applications indicated that the fraud could not have been accidental or isolated.
2. Active Collusion Between Bank and NGO
It was argued that the fraud was facilitated through deliberate coordination between the bank official and the NGO. The absence of verification records, including field visits and beneficiary checks, demonstrated that both parties knowingly bypassed essential due diligence protocols.
3. Knowingly Processed Forged Documents
The CBI demonstrated that the bank official knowingly accepted manipulated documents and proceeded with loan approvals despite clear irregularities. This indicated deliberate participation in diverting public funds by facilitating loans to non-existent SHGs.
IV. Court’s Judgement
(CBI Special Court, Madurai – 07.06.2025)
1. Conviction under IPC and PCA Provisions
The Court found all four accused guilty beyond reasonable doubt. They were convicted under:
a) Section 120B IPC – Criminal Conspiracy
b) Section 420 IPC – Cheating
c) Sections 468 & 471 IPC – Forgery and Use of Forged Documents
d) Section 13(1)(d) read with Section 13(2) of the Prevention of Corruption Act, 1988 – Criminal Misconduct by a Public Servant
The Court held that the evidence—both documentary and testimonial—proved that the accused had knowingly entered into a conspiracy to defraud Indian Overseas Bank by disbursing loans to non-existent SHGs.
2. Key Judicial Findings
In its reasoning, the Court clarified that procedural lapses cited by the defence were not mere negligence but part of a calculated conspiracy involving both the bank official and the NGO. It observed that the misuse of official authority and acceptance of forged documentation reflected intentional abuse of position for wrongful gain. It further emphasized that private facilitators (NGO) and public officials are equally accountable when involved in the diversion of public funds.
3. Sentence Imposed
Given the serious nature of the offence and the breach of public trust, the Court sentenced all four convicts to seven years of rigorous imprisonment. Additionally, the Court imposed differential monetary fines based on the role and extent of involvement of each accused:
a) ₹21 lakh on B. Ravichandran (former IOB Manager),
b) ₹29.63 lakh on Rajaram (NGO associate), and
c) ₹11 lakh each on Kalpana and Lavanya (NGO staff).
This sentencing underscores the judiciary’s strong stance against corruption and institutional fraud in public welfare schemes, especially when committed by individuals in positions of authority and trust.
Abstract
This case revolves around the fraudulent disbursal of SHG loans by Indian Overseas Bank’s Trichy branch during 2014–2015. The accused, including B. Ravichandran (then Senior Manager, IOB), and three others affiliated with an NGO, orchestrated the scam by sanctioning loans to fictitious SHGs.
After a detailed investigation by the CBI and a protracted legal battle, the CBI Special Court at Madurai convicted all four on June 7, 2025. The judgment emphasized the need for stricter internal controls and monitoring of public sector bank partnerships with civil society intermediaries.
Case Laws
1. CBI v. Ramesh Gelli & Others, (2016) SCC OnLine SC 867
Summary:
The Supreme Court held that senior officials of private banks—such as former Global Trust Bank CMD Ramesh Gelli—can be classified as “public servants” under the Prevention of Corruption Act when performing public functions such as disbursing loans. The Court upheld charges of criminal conspiracy, cheating, and breach of fiduciary duty in cases where bank officials sanctioned loans in violation of established prudential norms.
Relevance to SHG Loan Scam:
This judgment laid the foundation for prosecuting bank officers under anti-corruption laws. It supports the principle that bank officials can be held criminally accountable for misusing their authority in public lending, as seen in the IOB SHG fraud.
2. Gopal Bansal v. CBI, Delhi High Court, 2023
Summary:
The Delhi High Court upheld the conviction of M.S. Bansal, a former Punjab National Bank branch manager, for facilitating fraudulent loans to shell companies by deliberately bypassing mandatory verification protocols. The Court found him guilty of criminal conspiracy, forgery, and cheating under IPC, and misconduct under the Prevention of Corruption Act.
Relevance to SHG Loan Scam:
This case reinforces that intentional negligence in loan sanctioning—particularly when done in collusion with private actors—constitutes prosecutable fraud. It parallels the SHG scam where IOB officials approved loans to fictitious entities without verification.
3. CBI v. Sanjiv Kamlakar Inamdar & Others, CBI Special Court, Ahmedabad, Judgment dated November 2021
Summary
Sanjiv Kamlakar Inamdar, former Senior Manager at Punjab National Bank’s Ambawadi branch, was convicted for sanctioning ₹40 lakh in loans using forged documents, in collusion with two private individuals. All three were sentenced to five years’ simple imprisonment. Inamdar was fined ₹7.5 lakh, and the others ₹7 lakh each.
Relevance to SHG Loan Scam
This case illustrates how bank–private party collusion in document forgery and procedural violations leads to direct penal consequences. It mirrors the IOB scam, where loans were fraudulently disbursed to non-existent SHGs with forged documentation.
Conclusion
The SHG loan scam at Indian Overseas Bank’s Trichy branch highlights the serious risks posed by internal collusion within public sector institutions. The 2025 conviction in State v. B. Ravichandran & Others affirms the effectiveness of CBI investigations and reflects the judiciary’s firm stance against corruption in banking.
This case reinforces the urgent need for stronger internal controls, transparent SHG verification processes, and greater accountability of both bank officials and associated intermediaries like NGOs. It also sets a meaningful precedent for dealing with similar cases of financial misconduct, marking a forward step in India’s fight against institutional fraud.
FAQS
Q1: What was the nature of the scam?
The scam involved the creation of fake Self-Help Groups (SHGs) and fraudulent sanction of loans amounting to ₹3.38 crore by IOB’s Trichy branch during 2014–2015.
Q2: Who were the main accused?
B. Ravichandran, then Senior Manager of IOB, along with three individuals associated with a coordinating NGO, were convicted.
Q3: What laws were they convicted under?
Relevant sections of the Indian Penal Code and the Prevention of Corruption Act, 1988.
Q4: What was the outcome of the case?
All four accused were convicted by the CBI Special Court, Madurai, on June 7, 2025, and sentenced to 7 years of rigorous imprisonment each. In addition to the custodial sentence, the court imposed differential fines: ₹21 lakh on B. Ravichandran, ₹29.63 lakh on Rajaram, and ₹11 lakh each on Kalpana and Lavanya. The judgment marked a strong precedent against institutional fraud involving public sector banks.
Q5: What preventive measures can banks take to avoid such SHG loan scams in the future?
Banks must implement robust KYC checks, conduct regular audits, ensure third-party verifications, and avoid overreliance on NGOs for SHG creation without proper oversight.
Q6: How did the accused manage to bypass internal controls and KYC norms in the SHG loan process?
The accused exploited procedural gaps by forging SHG documents and fabricating member records. As the senior manager of IOB, B. Ravichandran bypassed standard due diligence protocols and directly relied on false verifications submitted by the partner NGO. There was no physical verification or third-party audit of the SHGs before loan disbursal.
Q7: What role did the NGO and its representatives play in facilitating the fraud?
The NGO was supposed to mobilize and train genuine SHGs under financial inclusion schemes. Instead, its representatives colluded with the bank official to create fictitious SHGs on paper. They submitted fabricated attendance registers, minutes of meetings, and identification documents, making it appear as though the groups were functioning entities eligible for loans.
Q8: Why did the CBI Court impose equal punishment on both bank personnel and NGO members?
The Court found that both the bank official and the NGO representatives were active participants in a common conspiracy, making them equally culpable under Section 120B of the IPC. It noted that the fraud was not possible without “mutual and continuous cooperation” between the bank and the NGO. The court emphasized that public servants and civil society intermediaries bear equal responsibility in safeguarding public welfare funds.
Q9: Were there any signs or red flags during the scam that went unnoticed by the bank’s internal audit?
Yes. The court pointed out that internal audits failed to flag repetitive loan sanction patterns, identical group member names, and recycled ID proofs across multiple SHGs. These red flags were either overlooked or deliberately ignored, indicating willful blindness or systemic apathy.
Q10: On what grounds did the court reject the defense arguments made by the accused?
The defense argued that any lapse was due to negligence rather than intent. However, the court relied on documentary and testimonial evidence showing deliberate falsification and active concealment. The court stated that the volume of forged documents and the structured manner of disbursal proved the existence of criminal intent beyond reasonable doubt.
