Supreme Court Quashes CBI Proceedings Against Borrowers After Full Settlement with Bank.


16 April 2025 Criminal Appeals & Suspension of Sentence >> Criminal Law  

In a significant ruling favoring borrowers who have settled their dues with financial institutions, the Supreme Court of India has quashed criminal proceedings initiated by the Central Bureau of Investigation (CBI) against a group of appellants. The apex court set aside an order of the Gujarat High Court, thereby allowing the appellants' plea for the quashing of an FIR and the subsequent chargesheet filed against them.

The case originated from credit facilities sanctioned by the Bank of Maharashtra to the appellants between 1998 and 2005. Due to adverse market conditions starting in June 2005, the appellants' accounts were classified as Non-Performing Assets (NPA), leading the bank to file recovery applications before the Debt Recovery Tribunal (DRT) in Ahmedabad.

While these proceedings were pending, the CBI registered an FIR in December 2008 against the appellants, certain proforma respondents, and a Bank of Maharashtra Branch Manager for offences under the Indian Penal Code (IPC) relating to cheating, forgery, and using forged documents, along with offences under the Prevention of Corruption Act, 1988 (PC Act).

 

 

Subsequently, a One Time Settlement (OTS) proposal was initiated during the DRT proceedings and was accepted by the Bank in December 2008. A revised settlement was finalized in April 2010. Upon receiving the full payment, the DRT proceedings concluded, and the Bank issued a No Dues Certificate to the appellants in April 2011. The Bank also confirmed that the appellants' names were being removed from the CIBIL/RBI Defaulters List.

Despite this settlement, the CBI filed a chargesheet in May 2010 under various sections of the IPC. Notably, the chargesheet did not implicate the Bank Manager due to a lack of evidence, and consequently, charges under the PC Act were also omitted.

The appellants then filed a discharge application before the Additional Chief Judicial Magistrate, CBI Court, Ahmedabad, which was allowed in November 2011. However, the Sessions Judge, Ahmedabad, overturned this order in a revision petition filed by the CBI. This led the appellants to approach the Gujarat High Court seeking quashing of the FIR and chargesheet, which was ultimately dismissed in May 2017. The appellants then appealed to the Supreme Court.

The primary argument before the Supreme Court was that the dispute was essentially civil/commercial in nature, initiated by the Bank before the DRT, and had been fully settled with all dues paid. The appellants contended that continuing the criminal proceedings after the settlement would be oppressive and an abuse of the process of law, especially considering the lack of evidence against the Bank officials and the dropping of PC Act charges.

The CBI, on the other hand, argued that serious criminal charges could not be quashed merely based on a compromise, as the alleged offences had a wider impact on public trust in banking institutions. They relied on precedents where the Supreme Court had refused to quash criminal proceedings despite settlements.

The Supreme Court, however, distinguished the present case, emphasizing that the dispute originated from a commercial transaction between the appellants and the Bank. The court highlighted that no Bank official was found involved in any wrongdoing, as evidenced by their exclusion from the chargesheet and the omission of PC Act charges. Furthermore, the court noted that the Bank, the alleged aggrieved party, had no grievance and supported the closure of the CBI proceedings.

Referring to its previous judgments, including the recent case of K. Bharthi Devi and Another v. State of Telangana and Another, the Supreme Court reiterated the principle that criminal proceedings arising out of predominantly civil or commercial disputes, where the parties have amicably settled and the aggrieved party has no objection, can be quashed to prevent undue hardship and abuse of the legal process.

The court observed that in this case, not only had the principal amount been repaid, but the Bank had also received an additional amount as part of the settlement. Given that the chargesheet had been filed but the trial had not commenced, the Supreme Court found the possibility of conviction to be remote and bleak. Continuing the criminal proceedings would, therefore, cause great oppression and injustice to the appellants. The court also noted the significant fact that the settlement process was finalized before the CBI filed the chargesheet.

The Supreme Court concluded that the present case had an overwhelming and predominant civil character stemming from a pure commercial transaction where the entire dispute had been resolved. Consequently, the apex court allowed the appeal, quashed the Gujarat High Court's order, and also quashed the criminal proceedings against the appellants arising from the CBI FIR.


Prevention of Corruption Act, 1988