Govt meddled in graft investigation, says SC

By Annie Banerji and Frank Jack Daniel

NEW DELHI (Reuters) - The Supreme Court accused the government on Wednesday of interfering in a police investigation into the allocation of commercial coalfields, in a damning indictment of political control over India's top law enforcement agency.

The finding was a new blow for a government battered by a seemingly unending series of corruption scandals, and overshadowed a rare election victory for the ruling party in the southern state of Karnataka.

The Central Bureau of Investigation (CBI), India's answer to the American FBI, is investigating alleged irregularities in the awarding of mining rights potentially worth billions of dollars to private companies. The opposition has demanded the resignation of Prime Minister Manmohan Singh, who was coal minister for some of the period under investigation.

The uproar over the "Coalgate" scandal forced the government to cut short a parliamentary session on Wednesday devoted to the budget and shelve, for now, key economic reforms and flagship legislation to give cheap food to millions more people.

Singh's fragile coalition has been ruling as a minority government since two allies pulled out. The drama will only intensify speculation over whether it will limp on or call an election, otherwise due by May 2014, before the end of the year.

BUREAU UNDER FIRE

The CBI has been under fire since its director, Ranjit Sinha, told the Supreme Court last week that Law Minister Ashwani Kumar and other senior officials, including one from the prime minister's office, had amended a report that the court had requested on the CBI's Coalgate investigation.

This week, Sinha said no major changes had been made, but on Wednesday the Supreme Court disagreed.

"The heart of the report was changed on the suggestions of government officials," Judge R.M. Lodha said, ordering the CBI not to share any further reports during the investigation and urging the government to strengthen the agency's independence.

"The CBI has become the state's parrot. Only screaming, repeating the master's voice," Lodha said.

The court was hearing a petition by anti-corruption campaigner Prashant Bhushan to have the investigation transferred from the CBI to a Supreme Court-monitored team. Bhushan has said the agency lacks the independence to investigate "Coalgate" properly.

The court was scathing about the lack of progress in the investigation, which began last year, and ordered the CBI to replace the officer in charge of the inquiry, which is focusing on a number of private companies and Coal Ministry officials.

FIGHTING POWER CUTS

Between 2004 and 2009, India, which has the world's fifth largest reserves of coal, allocated 142 mining blocks through a government panel, in a bid to boost electricity production and reduce the chronic power cuts that have held back the economy.

The auditor general last year questioned the decision not to auction the blocks, leading the CBI to investigate possible collusion by officials to give blocks at low prices to companies, some of which never developed them.

The Congress-led coalition, in power since 2004, has been on the back foot over a raft of scandals over the allocation of billions of dollars' worth of military contracts and resources ranging from coal to mobile telephone spectrum.

Ironically, Congress won a resounding election victory in Karnataka state in part because of voter fury at corruption during five years of Bharatiya Janata Party (BJP) rule.

Election commission results showed Congress had won at least 118 of 223 seats in Sunday's vote - a rare bright spot for the party. It is expected to do less well in at least four other state elections scheduled for this year.

The vote in Karnataka, home to the IT city Bangalore, was widely seen as a barometer of anger at the "crony capitalism" that has plagued India's economic boom in the past decade.

(Additional reporting by Satarupa Bhattacharjya, Anurag Kotoky and Nigam Prusty in NEW DELHI and Abhiram Nandakumar and Zeba Siddiqui n BANGALORE; Editing by Ross Colvin and Kevin Liffey)