The Kerala government has told the Kerala High Court that no prior prosecution sanction is required to proceed against SNDP Yogam General Secretary Vellappally Natesan and other accused in the multi-crore microfinance case — a position that directly contradicts the stand taken by the state's own Vigilance Department. The development, reported on 22 September 2026, has brought a long-pending legal dispute over the ₹15 crore alleged irregularity into fresh focus.

Government's Stand Before the Court

The government submitted that prosecution sanction was not necessary because the accused were functioning as representatives of private institutions and therefore did not fall within the category of public servants entitled to such statutory protection. This directly contradicts the earlier position of the Vigilance Department, which had maintained that prosecution sanction was a prerequisite before proceeding against the accused.

The conflicting stances have drawn sharp criticism from the court. On Tuesday, the High Court deferred its order on the interim application concerning the prosecution sanction issue, leaving the legal question unresolved for now.

What the Microfinance Case Is About

The case concerns loans and grants channelled through the Kerala State Backward Classes Development Corporation, with support from NABARD, to help women from backward communities establish small-scale enterprises. Allegations centre on funds being diverted through irregular means and excessive interest being collected, causing financial loss to the government.

Specifically, the allegations involve loans reportedly obtained from the Backward Classes Development Corporation in the names of women through fictitious projects. Former Chief Minister V.S. Achuthanandan, who filed the original complaint in 2016, alleged that crores of rupees were obtained in the names of women and subsequently misappropriated through financial manipulation and conspiracy. He placed the alleged irregularities at around ₹15 crore.

Key Accused and Investigation Timeline

Apart from Vellappally Natesan, SNDP Yogam President M.N. Soman is also named among the accused. A Vigilance team questioned Vellappally at his residence in February 2026 as part of the ongoing investigation. So far, eight charge sheets have been prepared in connection with the case.

The investigation was first initiated in 2016 based on Achuthanandan's complaint, making this one of the longer-running Vigilance cases in Kerala. Notably, the prosecution sanction dispute has now emerged as a critical legal hurdle that could determine whether the case moves to trial.

What Happens Next

The High Court's deferred order means the prosecution sanction question — and whether the government's new position overrides the Vigilance's earlier stand — remains to be adjudicated. Legal observers note that the internal contradiction between two arms of the same government could complicate the state's case before the bench. The court is expected to take up the matter again in due course, with the outcome likely to set a precedent on whether representatives of private community institutions can be treated on par with public servants for prosecution sanction purposes.