NRI Bank -Khalsa Credit Union will remain under government supervision

• Rappointment of Malik was not the only inappropriate board decision cited. The FICom panel also said it was poor judgment for the board to hire Malik's lawyer daughter-in-law Sundeep Kaur Dhaliwal and by extension the law firm of Malik's son Jaspreet to work for the credit union without even checking Dhaliwal's references or resume.

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Vancouver, June 19, 2006
Manider Singh

On June 14, 2006, Financial Institutions Commission panel has decided that Khalsa Credit Union will remain under government supervision because:

• Of a series of poor board decisions, including the re-appointment of Ripudaman Singh Malik after his acquittal in the Air India bombing case, a commission has ruled.
• The board's decision to make Malik a director in May 2005 despite a B.C. Supreme Court ruling in 2003 that he had misled the court in a bid to get legal aid by diminishing the value of his assets to make himself look broke.
• Jaspreet Malik had also represented a former employee who sued the credit union and had been found by Stromberg-Stein to have misled the court in his dad's legal aid application -- a finding that cost Jaspreet his own board seat in 2004.
• The board acted irresponsibly by agreeing to pay $2,000 a month to sponsor radio broadcasts from the Golden Temple for just 900 B.C. subscribers through Khalsa Broadcasting, a company whose sole director at the time was Jaspreet Malik. A signing officer for the broadcasters' account was Satwant Singh Sandhu, chair of the credit union's board.
• The inappropriate hiring of Ms. Sundeep K. Dhaliwal as counsel for KCU;
• The inappropriate process followed by the Board of Directors to fill the vacant Director's position created by the resignation of Jaspreet S. Malik;
• The Board of Director's interference in Mr. Dalbir S. Sohi's (the "CEO's) efforts in hiring a Senior Manager of Operations
• The Board of Directors interference with the CEO's budget and marketing plan with respect to advertising;
• The Board of Directors interference with the CEO's efforts to terminate a manager
• The Board of Directors appointment of Ripudaman S. Malik as a director when the Board knew or reasonably ought to have known, of his unsuitability for that position.

"There is an underlying pattern of thinking and decision-making at the KCU that does not inspire confidence that the directors will consider matters in the depth and breadth that is necessary at a large financial institution," the just-released ruling by a panel of the Financial Institutions Commission says.

"These poor exercises of judgment have raised red flags for us that demonstrate that the KCU board is not yet ready for KCU to be released from supervision."

In the 2003 ruling, which was never appealed, Justice Sunni Stromberg-Stein said Malik's evidence was "unreliable."

"Not only did she not believe Mr. Malik's evidence, but she found that facts had been manipulated and there was evidence of collusion," the FICom panel found in its 50-page decision.

"It is difficult to understand why not one of the directors felt these court proceedings should be reviewed before this new director appointment was made. The entire matter seems to carry, on the part of the directors, an air of wilful blindness."

The credit union has been under either supervision or the more rigorous administration since the late 1990s. The board applied for release on March 17, 2005 -- the day after Malik's acquittal in the terrorism case, leading to a hearing that ended last January. Malik was re-appointed to the board even though the government supervisor expressed concerns to directors about the move.

"There were many signals that Mr. Ripudaman Singh Malik's untruthfulness at the [legal aid] application should have been carefully examined. The directors chose not to do so and this is a prime example presented to the hearing of poor decision-making and inappropriate corporate governance," the commission ruledKhalsa Broadcasting's ownership has since been transferred to another close Malik associate, Balwant Singh Bhandher.

"The credit union cannot be run as though it is a small, intimate club, but must be run in a manner that is appropriate to its size and importance," the commission said.

Malik is not currently a KCU director. He was removed by a separate order of the superintendent of FICom last November, which said he was unsuitable for the position because of the Stromberg-Stein ruling, as well as a number of other issues, including his link to the Babbar Khalsa terrorist group.

Malik won a court ruling last month that he was ousted before he had a fair chance to defend himself. But the judge also said FICom could continue its investigations into his suitability to be a director of the credit union he founded in 1986.

Malik has since confirmed that he signed a Babbar Khalsa membership application just three weeks before the Air India bombing and gave a donation to the group, which was founded by the late Talwinder Singh Parmar. While Malik was acquitted in the Air India case, the trial judge accepted that Parmar had masterminded the terrorist bombings that left 331 dead.

By Ranvir Singh Randhawa

The commission posed the question: "How…can supervision be justified over a financial institution whose financial performance is adequate?" It then went on to answer it: "Of course the answer is that a financial institution whose corporate governance is inadequate in respect of important questions has a real and significant risk of making judgments that are contrary to the best interests of depositors and stakeholders. In this present case, KCU's financial performance has improved during a period of general economic growth and while subject to supervision. It would be folly to assume that, without effective corporate governance, it would continue to do so without supervision and/or during periods when economic times are less favourable."

The decision noted that in a pre-hearing conference last November, that the acting superintendent had opposed the release of KCU from supervision "due to the

corporate governance practices and inappropriate decision-making of the Board

of Director," which included:

And during the hearing, the acting superintendent was allowed to add another reason:

• The directors' undermining of the CEO by encouraging complaints about the CEO from employees.

  Incidentally, Sundeep K. Dhaliwal is the wife of Jaspreet S. Malik, the son of Ripudaman Singh Malik. She uses her maiden name.

  The report also noted: "KCU presently has about 11,000 active accounts and about $120 million in assets. Its head office is in Surrey. It has five branch offices in the Lower Mainland of British Columbia and in Victoria. By any standard KCU has established itself firmly in the Sikh community of British Columbia."

  It also pointed out: "KCU has been under supervision for nearly half of its existence. KCU was under supervision (including the appointment of an administrator) from May 1989 to September 1992 because its internal controls and business practices were considered inadequate to safeguard the interests of depositors and creditors and posed a risk of claims against the deposit insurance fund . In August 1999, pursuant to KCU's written request made on the recommendation of Stabilization Central Credit Union of British Columbia (SCCU), the Commission again ordered that KCU be placed under supervision as a result of serious irregularities in KCU's financial controls and concerns about the effective operation of the KCU Board. In February 2000, the supervision order was amended when the Commission ordered that KCU be placed under administration. KCU appealed the administration order to the former Commercial Appeals Commission (CAC). The CAC'S October 23,2000 decision allowed the appeal respecting the appointment of an administrator, but maintained supervision according to various terms set out in its decision

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