Petition challenges ‘Swiss’ Bank of Sikkim

The second smallest state in the country, Sikkim, surrounded by Bhutan, Tibet and Nepal is the only state that allows lotteries, casinos and online gaming. Also, the least populous state, with a population just above six lakh according to the 2011 census, is outside the purview of Income tax and its special constitutional status—under Article 371F–has also given it a dubious distinction of a “tax haven” within India.

The State Bank of Sikkim, established in 1968 under the Royal Proclamation of the Chogyal, the erstwhile ruler, is outside the purview of Bank Regulation Act 1949 and the Companies Act, 2013. Since Sikkim joined Union of India in 1975, SBS operates as an autonomous body under the Government of Sikkim. Its jurisdiction is restricted to Sikkim and has a total of 41 branches and is headquartered in the state capital, Gangtok.

“SBS beyond the control of RBI provides a safe haven for terrorist funds and ill-gotten wealth. Without obligation on part of the bank to disclose identity of its depositors is akin to a ‘Swiss Bank’ sort of secrecy,” says a petition field before the Bombay High Court by Ashok Kumar Jain, an anti-corruption and RTI activist.

The High Court accepted his plea and served notice to the SBS and RBI. Jain in his petition alleged that it had come to his notice that a former chairman of DVC and several other PSU chiefs had stashed their money in accounts in the State Bank of Sikkim.

“If SBS is brought under the control of RBI, this black money can be retrieved and used for the revival of sick PSUs,” said Jain.

Reserve Bank of India had raised concerns over the functioning of the State Bank of Sikkim in the past. Claiming that the bank’s balance sheet had not been audited for the past five years, RBI in a letter to the Finance Ministry in 2015 had expressed serious reservations about the regulatory vacuum in which SBS was being allowed to function.

However, in December last year, Union Home Minister Rajnath Singh had slammed RBI for “freezing” 52,000 accounts of the SBS, terming the decision “seemingly unreasonable” and based on “specious ground”. The Home minister’s intervention came in response to Sikkim Chief Minister Pawan Chamling’s letter to him. Chamling later said he was “extremely grateful” to the Union home minister for upholding the sanctity and status of the SBS.

According to a senior government official, anyone from India who works in Sikkim as a contractor, trader, entrepreneur or a hotelier is legally bound to operate through SBS only. Besides, all the legal disputes fall under the jurisdiction of Sikkim High Court.

The Sikkim Krantikari Morcha, a political party in Sikkim, had accused SBS of servicing ineligible bank accounts during demonetisation. In a letter written to Prime Minister Narendra Modi and Union Finance Minister Arun Jaitley, it expressed fear that SBS could be used to launder money in the wake of demonetisation.

“After our letter, the RBI had written to the Sikkim Chief Secretary suggesting that the SBS be brought under the 1949 Act before March 31, 2017 but the government didn’t do anything in this regard,” says general secretary of the Morcha, Navraj Gurung.

“SBS is the treasury of the Sikkim Government. In the past CAG has also pointed out that the balance sheet of bank is not audited. So, the bank remains prone to political influences, poor credit management and corruption,” he said, adding that it is not “difficult” for outsiders (non-state subjects) to open accounts with the SBS.