Supreme Court Restored Bank-Fraud Trial, Holds One-Time Settlement Alone Cannot Warrant Quashing

A bench of Justices Vikram Nath and Sandeep Mehta heard an appeal by the Central Bureau of Investigation challenging the Punjab and Haryana High Court’s order quashing FIR RC No. BD1/2015 and the chargesheet arising from it; the issue concerned whether a one-time settlement between a defaulting company and a bank could justify invoking inherent jurisdiction under Section 482 CrPC to terminate criminal proceedings that included allegations of fabricated documents and offences under the Prevention of Corruption Act.

The Court allowed the CBI’s appeal, set aside the High Court’s judgment dated 18 July 2022, and restored the proceedings arising out of the chargesheet dated 30 November 2016 to the trial court. The bench held that the High Court had erred by quashing the prosecution merely on account of the one-time settlement without addressing material findings in the chargesheet and the public interest dimension of economic offences. The Court emphasised that quashing could not be mechanically applied where investigation established fabrication, misrepresentation and criminal conspiracy and where sanction to prosecute a public servant had been granted. The Court, in its reasoning, observed: “It can be said without a shadow of doubt that the one-time settlement would not fetch the entire amount to which the Bank was otherwise entitled, had the cash credit account been maintained regularly. The settlement was made at around Rs.41 crores whereas, admittedly, the liability was of Rs. 52 crores approximately. One-time settlements are, as a rule, effected under circumstances where the Bank under duress is compelled to accept lesser amount in order to secure the maximum possible recovery against the defaulting account.” The Court noted precedents that economic offences against banks had a “social” impact and quoted that the High Court must have “due regard to the nature and gravity of the crime” when considering quashing.

Background

The dispute arose from a loan account of M/s Sarvodaya Highways Ltd. (respondent No.1) for which the State Bank of Bikaner and Jaipur sanctioned fund-based and non-fund-based limits aggregating Rs.60 crores. The Bank declared the account an NPA on 28 July 2013; an internal inquiry alleged manipulation of revenue records and concluded that a fraud of Rs.52.50 crores had been committed. The Bank’s branch manager lodged a complaint, and the CBI registered the FIR on 3 February 2015. Investigation, according to the chargesheet, found fabricated work orders, false stock and receivable statements and forged liens on properties; the chargesheet charged the company, its directors and the then Branch Manager under Sections 120B, 420, 467, 468, 471 IPC and Section 13(2) read with 13(1)(d) of the PC Act, and sanction to prosecute the Bank Manager was obtained.

While the trial was pending, the company entered a one-time settlement with the Bank on 5 March 2018 and paid approximately Rs.41 crores. The Debt Recovery proceedings were closed and the Bank released mortgaged properties. The company and its directors filed a petition under Section 482 CrPC in the High Court, which quashed the FIR and chargesheet on the basis that the dispute had been settled and “at no point of time, the petitioners tried to sell off or siphon off of the loan amount” and that “it is a simple case where the loan was not repaid in time.”

The Supreme Court found that the High Court failed to advert to crucial aspects established during investigation: (i) specific allegations of fabrication and misrepresentation to procure the credit facility; (ii) evidence supporting charges of criminal conspiracy and offences under the PC Act; (iii) grant of sanction to prosecute the Bank Manager; and (iv) that the settlement amount did not cover the full liability, leaving a shortfall of over Rs.5 crores. The bench distinguished precedents relied upon by the respondents and recorded that the impugned order would have the practical effect of terminating prosecution against the sanctioned public servant. The Court clarified that its order did not express any view on the merits and directed that the trial proceed uninfluenced by its observations.

Case Details: Case No.: 2025 INSC 1359 Case Title: Central Bureau of Investigation v. M/s. Sarvodaya Highways Ltd. and Ors. Appearances: For the Petitioner(s): Mr. Vikramjit Banerjee, Additional Solicitor General (for the CBI) For the Respondent(s): Mr. Siddarth Dave, Senior Counsel (for the respondents)