As per case facts, the appellant firm secured cash credit facilities from UCO Bank, which later became a Non-Performing Asset. During DRT proceedings, a compromise settlement was reached and approved, ...
No Acts & Articles mentioned in this case
2026 INSC 588
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. OF 2026
(ARISING OUT OF SLP (CRIMINAL) NO. 18035 OF 2024)
VIJAY KUMAR KELA & ANR. APPELLANT(S)
VERSUS
CENTRAL BUREAU OF
INVESTIGATION & ANR. RESPONDENT(S)
J U D G M E N T
UJJAL BHUYAN, J.
Leave granted.
2. A short but interesting question which arises for
consideration in this appeal is whether a criminal
prosecution can be initiated under Sections 420 and 471 of
the Indian Penal Code, 1860 and allowed to continue after
settlement of the loan account by way of an approved
2
compromise and which had the imprimatur of the Debts
Recovery Tribunal?
3. The above question arises in the context of a
challenge by the appellants to the order dated 05.07.2024
passed by the High Court of Chhattisgarh (‘High Court’) in
Cr.M.P. No. 1361 of 2023 (Vijay Kumar Kela & Anr. Vs. CBI
& Anr.).
Prefatory facts
4. For proper adjudication of the question framed, it
would be appropriate to briefly narrate the relevant facts.
4.1. Appellant No. 2 was established as a proprietary
trading concern in the year 1998 dealing in agricultural
inputs like fertilizers and other allied products. Elder brother
of appellant No. 1 late Parmanand Kela had established
appellant No. 2 firm and was managing the affairs of the said
firm. Following the death of late Parmanand Kela, appellant
No. 1 became the sole proprietor of the firm.
4.2. Erstwhile proprietor Parmanand Kela had applied
to the UCO Bank on 28.07.2006 for extending cash credit
facility of fund based limit to the extent of Rs. 50 Lakhs and
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non-fund based limit i.e. letter of credit to the extent of Rs.
1 crore in the name of appellant No. 2. After examining the
proposal and on due consideration, cash credit facility of
fund based limit to the extent of Rs. 50 lakhs and non-fund
based limit i.e. letter of credit to the extent of Rs. 1 crore was
extended by the UCO Bank to appellant No. 2 on 02.09.2006
on proper security, both primary and collateral. Subsequently,
on application by the appellants, the credit facility was
enhanced to Rs. 5 crores for which additional property was
given by way of mortgage. Finally, on 30.01.2009, credit
facility was extended to Rs. 8 crores (Rs. 3 crores for cash
credit and Rs. 5 crores for letter of credit limit) for which the
mortgaged properties were substituted by another property
having higher valuation.
4.3. Parmanand Kela passed away on 28.11.2009. At
that stage, appellant No. 1 stepped into the shoes of his late
brother and started looking after the affairs of appellant No.
2. Appellant No. 1 informed the UCO Bank that the firm was
unable to procure big orders as a result of which it was facing
financial crunch. Because of financial constraints,
repayment of loan amounts became irregular, following
4
which the loan account of the appellant No. 2 was declared
as a Non-Performing Asset (NPA).
4.4. UCO Bank invoked provisions of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (‘SARFAESI Act’, hereinafter)
against the appellants and issued notice dated 05.02.2011
under Section 13(2) of the SARFAESI Act to the appellants.
4.5. At that stage, a compromise proposal was worked
out between the two parties on 14.03.2015 which was
recommended by the UCO Bank, Raipur Main Branch for
sanctioning by the competent authority of the said Bank.
Vide letter dated 30.03.2015, the competent authority
informed the UCO Bank, Raipur Main Branch that the
compromise proposal was approved and in this connection,
a sanction letter was also issued for doing the needful. The
settlement amount was Rs. 4.25 crores against the
outstanding dues of Rs. 6.49 crores as on 14.03.2015, which
included notional interest of Rs. 3.09 crores.
5. It may be mentioned that UCO Bank had filed
Original Application No. 355/2011 before the Debts
Recovery Tribunal at Jabalpur (DRT) for realization of the
5
loan amount from the appellants with interest etc. In the said
proceedings, a joint application was filed by the UCO Bank
and the appellants for recording compromise. Vide the order
dated 10.07.2015, DRT recorded the details of the
compromise reached between the parties and fixed
07.10.2015 for submitting compliance with regard to the
compromise settlement.
5.1. Following the same, appellants paid the settlement
amount to the UCO Bank pursuant to which the latter issued
no dues certificate dated 30.09.2015 certifying that the cash
credit account of appellant No. 2 was settled pursuant to a
compromise and that payment was received in terms of the
approved compromise.
5.2. By order dated 27.10.2015, DRT dismissed OA No.
355/2011 as withdrawn in view of the fact that the entire
compromise amount had been deposited by the appellants
which was acknowledged in the application dated
27.10.2015 filed by the UCO bank before the DRT.
6. After more than 2 years, on 27.02.2018, the Zonal
Head of UCO Bank, Raipur Zonal Office submitted a written
complaint to the Superintendent of Police, Central Bureau of
6
Investigation (CBI), New Delhi stating that appellants, more
particularly appellant No. 1, in collusion with certain
officials of the Bank had defrauded the UCO Bank by
diverting the funds of the Bank made available to the
appellant firm to the account of appellant No. 1. It was
further alleged that by entering into the settlement,
appellants had got released two valuable properties
mortgaged with the UCO Bank and substituted the above
properties with an encroached property. It was submitted
that the borrowers with the dishonest intention of causing
wrongful loss to the Bank and wrongful gain to themselves
fraudulently committed the act of cheating and thus
committed offences of cheating, criminal breach of trust etc.
under the Indian Penal Code, 1860 (IPC). The Superintendent of
Police, CBI was requested to register an FIR, investigate the
matter and thereafter to initiate appropriate criminal proceedings
against the offenders.
7. On the basis of the aforesaid complaint, the first
respondent i.e. CBI registered FIR bearing No. RC2202018E0002
dated 08.03.2018 under Section 120B read with Section 420 IPC
7
and Section 13(2) read with Section 13(1)(d) of the Prevention of
Corruption Act, 1988 (PC Act).
8. Thereafter, CBI filed chargesheet on 27.11.2018
before the Court of Special Judicial Magistrate, CBI Cases,
Raipur (‘Special Judicial Magistrate’ for short). In the
chargesheet, it is stated that investigation revealed that on
the basis of forged audit reports submitted by appellant No.
1, appellant No. 2 was able to get a renewal/enhancement of
cash credit limit of more than two times of the original
amount sanctioned. He had forged audit reports as genuine
with the intention to cheat the UCO Bank. In the process,
UCO Bank suffered wrongful loss of Rs. 223.7 lakhs and
unapplied interest of Rs. 308.8 lakhs and correspondingly
there was wrongful gain of the said amount for appellant No.
1. Thus, he had committed the offences of cheating and
using of forged documents as genuine ones which are
punishable under Sections 420 and 471 IPC. It was further
stated that the investigation did not disclose any proactive
role played by Bank officials in respect of sanction or
renewal/enhancement of the cash credit limit. Therefore,
8
none of the Bank officials were chargesheeted.
Consequently, the charges under the PC Act were dropped.
8.1. Vide order dated 20.02.2023, the learned Special
Judicial Magistrate framed charges under Sections 420 and
471 IPC against appellant No. 1.
9. Appellants filed a petition under Section 482 of the
Code of Criminal Procedure, 1973 (CrPC) before the High
Court for quashing of the chargesheet dated 27.11.2018 as
well as the order passed by the Special Judicial Magistrate
dated 20.02.2023 whereby charges have been framed. The
quashing petition was registered as Criminal MP No. 1361 of
2023. The said petition was contested by the respondents
9.1. By the impugned order dated 05.07.2024, the High
Court dismissed the criminal petition prima facie observing
that appellants with a fraudulent intention got released two
valuable properties which were mortgaged with the Bank by
substituting it with encroached property and had also
enhanced the credit limit by submitting forged audit reports
which was issued by the chartered accountant.
9
10. Assailing the aforesaid impugned order dated
05.07.2024, the instant special leave petition came to be
filed by the appellants. On 13.12.2024, notice was issued.
Submissions
11. Dr. Vineet Kothari, learned senior counsel appearing
for the appellants submits that the impugned order is
unsustainable both in law as well as on facts. As such, the
same is liable to be set aside and quashed.
11.1. He submits that the High Court failed to appreciate
the fundamental issue as to the jurisdiction of CBI to
investigate the complaint of UCO Bank and thereafter to
prosecute the appellants. Referring to Section 6 of the Delhi
Special Police Establishment Act, 1946, he submits that
there is a legal bar to exercise of power by the CBI without
the consent of the concerned State. The State of
Chhattisgarh through notification dated 19.07.2012 had
clarified in express terms that its previous letter dated
03.02.2001 is not to be construed or treated as a letter of
consent. It further clarified that it has not given any general
consent to the CBI to exercise its jurisdiction within the
territory of the State of Chhattisgarh, making case specific
10
consent mandatory in any CBI investigation within the
State. Despite this clear mandate, CBI proceeded with the
investigation and filed chargesheet without obtaining the
requisite consent of the State Government. According to
learned senior counsel, such absence of consent goes to the
root of the CBI’s authority rendering the entire proceedings
void ab initio.
11.2. However, when the Bench queried as to whether
appellants had any submission on merit and if so, to
advance such submission, learned senior counsel did not
elaborate further on this point and proceeded to advance his
arguments on other points.
11.3. Dr. Kothari submits that the High Court failed to
appreciate that the present case centers around a purely
civil dispute, which was settled conclusively in the forum of
DRT. Notwithstanding such a settlement, criminal
proceedings were set in motion by the UCO Bank after
almost two and a half years. Elaborating on the background
of the dispute, he submits that the genesis of the case relates
to cash credit facilities availed by appellant No. 2 from the
UCO Bank during the period 2006-2009. For availing such
11
cash credit facilities which was enhanced subsequently,
adequate securities in the form of property were mortgaged
with the Bank. Such securities were accepted following due
verification by the Bank authorities themselves. To secure the
enhanced credit limit, the two plots of land mortgaged earlier
were substituted by another plot of land having higher
valuation which also went through the due verification
process whereafter it was accepted. When business
difficulties arose due to the unfortunate demise of appellant
No. 1’s elder brother, who was the principal driving force of
the entire business, repayment became irregular which led
to declaration of the loan account as NPA and initiation of
proceedings under the SARFAESI Act. UCO Bank approached
the DRT for realization of its dues. In the course of the DRT
proceedings, a compromise settlement was arrived at
between the parties whereafter appellants paid the settled
amount following which a no dues certificate was issued to
the appellants by the UCO Bank. Accepting the same, DRT
closed all proceedings pending before it which were
instituted at the instance of the UCO Bank. After almost two
and a half years of such closure following settlement, UCO
12
Bank approached the CBI alleging fraud in availing the cash
credit (loan facility) and in the substitution of the mortgaged
properties by another property which was an encroached
property. The Special Judicial Magistrate without
application of mind and in a mechanical manner framed
charges against the appellant No. 1 under Sections 420 and
471 IPC. Interestingly, the concerned Bank officials were
given a clean chit by the CBI. Notwithstanding the same, the
High Court declined to quash the criminal proceedings by
taking the prima facie view that the appellants with a
fraudulent intention got released two valuable properties
which were mortgaged with the bank by substituting it with
an encroached property and also enhanced the credit limit
by submitting forged audit reports which were issued by the
chartered accountant.
11.4. Learned senior counsel submits that such
criminalization of a settled civil dispute strikes at the very
heart of commercial transactions and the sanctity of banking
settlement itself.
11.5. Adverting to the specifications of the case, Dr.
Kothari submits that it was actually the appellant No. 1’s
13
elder brother late Parmanand Kela who had created
appellant No. 2 firm and used to look after the entire
business of appellant No. 2 till his demise on 28.11.2009. It
was only after the death of Parmanand Kela that appellant
No. 1 stepped into the shoes of his deceased brother to help
out his widowed sister-in-law and the family.
11.6. Learned senior counsel submits that the present is
a glaring instance of abuse of the judicial process where
criminal proceedings were initiated nearly three years after a
full and final settlement was reached. He pointed out that the
compromise settlement was executed on 30.03.2015
whereafter dues were fully paid and a no dues certificate was
issued by the UCO Bank on 30.09.2015. The criminal
complaint was made by UCO Bank before the CBI only on
27.02.2018. It is thus evidently clear that the endeavour of
the UCO Bank to initiate criminal proceedings was clearly
an afterthought.
11.7. Referring to the compromise settlement dated
30.03.2015, learned senior counsel submits that the same
was unconditional and was approved by the UCO Bank’s
highest authority. It had concluded with the issuance of a
14
clear no dues certificate issued by the UCO Bank. The
compromise settlement was validated by the DRT which
dismissed the recovery proceedings initiated by the UCO Bank
following such settlement. The High Court unfortunately failed
to consider all the above aspects particularly the belated
nature of the criminal proceedings, that too, after the matter
had reached a voluntary settlement.
11.8. It is submitted that a purely civil dispute which
had resulted in a settlement was belatedly sought to be given
a criminal colour by the UCO Bank. Appellants had carried
out normal business operations for which they had sought
cash credit facilities which was also enhanced subsequently.
Properties were mortgaged to secure such cash credit
facilities. Further, substitution of mortgaged properties was
done through proper banking channel and maintaining total
transparency. Bank officials had personally visited the property
before accepting substitution; further, Bank’s own officials
had conducted the valuation. The substitution was approved
by the competent authority of the UCO Bank. He submits
that property substitution took place when the loan account
was still operational and was not termed as NPA. In such
15
circumstances, learned senior counsel submits that the
High Court fell in grave error in dismissing the quashing
petition of the appellants. Therefore, the impugned order is
liable to be set aside and quashed. Consequently, the
chargesheet dated 27.11.2018 and the order of the Special
Judicial Magistrate dated 20.02.2023 framing charges being
wholly unsustainable in law as well as on facts are also liable
to be set aside and quashed.
12. Per contra, Mr. Rajkumar Bhaskar Thakare,
learned Additional Solicitor General appearing for the first
respondent-CBI submits that the High Court had rightly
rejected the petition filed by the appellants under Section
482 CrPC. He submits that prima facie, a triable offence is
made out against the appellants and, therefore, there is no
reason why the criminal prosecution should be quashed.
12.1. He submits that RC No. 2202018E0002 was
registered by the CBI on 08.03.2018 under Section 120B
read with Section 420 IPC and Section 13(2) read with
Section 13(1)(d) of the PC Act, 1988 on the basis of a written
complaint dated 27.02.2018 submitted by Shri C.K. Sarkar,
16
Zonal Head, UCO Bank Zonal Office, Raipur against the
appellants and unknown public servants of UCO Bank.
12.2. In the complaint, it was alleged that the
borrower Shri Vijay Kumar Kela had substituted the existing
mortgaged properties with encroached property. The borrower
firm i.e. appellant No. 2 with a fraudulent intent got released
two valuable properties mortgaged with the UCO Bank by
substituting it with an encroached property and, thus,
defrauded the Bank to the tune of Rs. 532.54 lakhs.
12.3. Continuing with the complaint, learned Additional
Solicitor General submits that the loan account of appellant
No. 2 was declared as NPA on 31.12.2010 due to malafide
intent, diversion of funds and wilful default by the borrower
firm. The concerned branch of UCO Bank i.e. UCO Bank
Main Branch, Raipur filed a case before the DRT, Jabalpur
for recovery of the Bank’s dues. In the meanwhile, the
borrower approached the bank for a compromise and after
deliberations, compromise proposal for Rs. 425.00 lakhs
was finalized against the outstanding dues of Rs. 648.74
lakhs as on 01.05.2010. Thus, the bank made a sacrifice of
Rs. 223.74 lakhs and notional sacrifice by way of unapplied
17
interest of Rs. 308.80 lakhs, totalling Rs. 532.54 lakhs. Of
course, after execution of compromise proposal, UCO Bank
issued a no dues certificate on 30.09.2015.
12.4. Going into the merits of the allegations, Mr. Thakre
submits that appellant No. 1 as proprietor of appellant
No. 2 had availed the cash credit facility of Rs. 50 Lakhs and
letter of credit (non-fund based limit) of Rs. 100 lakhs from
UCO Bank, Raipur Main Branch on 02.09.2006. The cash
credit limit was secured by hypothecation of stocks and book
debts and collaterally secured by mortgage of an open plot
of land admeasuring 23680 sq. feet situated at Amlidih,
Raipur. The said property was valued at Rs. 82.88 lakhs as
on 16.08.2006 by the bank’s approved valuer M/s. Amit
Associates.
12.5. Sanction of the credit facilities were further
renewed and enhanced from time to time, lastly on
30.01.2009, for an amount of Rs. 800 lakhs (cash credit of
Rs. 300 lakhs + letter of credit of Rs. 500 lakhs).
12.6. During the renewal and enhancement of credit
facilities, UCO Bank substituted the above two mortgaged
properties with a new collateral property in the form of an
18
open plot of land situated at Boriyakhurd, Raipur
admeasuring 1,78,784.65 sq. feet which stood in the name
of appellant No. 1 and was valued at Rs. 625 lakhs by the
Bank’s approved valuer M/s Amit Associates on 15.11.2008.
This property, as per the legal research report dated
19.12.2008, was purchased by appellant No. 1 vide
registered sale deed dated 16.10.2006. The valuer Amit
Singh of M/s Amit Associates mentioned in his valuation
report that the above property was occupied by appellant No.
1 and the credit facilities were guaranteed by the appellant No.
1 himself. The allegation is that the borrower i.e. appellant No.
1 substituted the existing mortgaged properties with a highly
over-valued encroached property in a planned way.
12.7. Mr. Thakare submits that investigation has revealed
that the photocopy of audit report dated 27.10.2006 of M/s
Mohan Traders (appellant No. 2) for the period from 01.04.2005
to 31.03.2006 purportedly prepared by Shri Atul Jain, partner
of M/S MVK Associates, chartered accountant, which was
submitted by appellant No. 2 with the Bank, was fake/false.
12.8. According to Mr. Thakare, investigation has revealed
that the said audit report dated 27.10.2006 for the period from
19
01.04.2005 to 31.03.2006 of appellant No. 2 was also
prepared by Shri Manoj Kumar Soni, chartered accountant,
which was recovered from Shri Manoj Kumar Soni vide
production-cum-receipt memo dated 21.05.2018. In his
statement before the CBI, Shri Manoj Kumar Soni stated
that balance sheet for the firm for each year should be done.
He also admitted that G.C. Jain & Company, chartered
accountant, did tax audit work and income tax work for
appellant No. 2.
12.9. Further submission is that investigation has
revealed that on comparison of both the audit reports, loan
liabilities of ICICI Bank for Rs. 20,361,600.00 was not
reflected in the balance sheet of the audit report purportedly
prepared by Shri Atul Jain, which was submitted by
appellant No. 1 before the UCO Bank for enhancement of
credit limit. By not showing liability in the balance sheet,
appellant No. 2 was able to get renewal-cum-enhancement
of fund-based limit from Rs. 50 lakhs to Rs. 200 lakhs and
for non-fund-based limit from Rs. 100 lakhs to Rs. 300 lakhs
from the UCO Bank.
20
12.10. Likewise, investigation has revealed that the audit
report dated 17.09.2008 for the period from 01.04.2007 to
31.03.2008, prepared by Shri Manoj Kumar Soni, which was
submitted by appellant No. 1 before the UCO Bank was also
fake/false. This was corroborated by Shri Manoj Kumar Soni
when he was examined by the CBI saying that some pages
of the audit report were changed; those pages were not
changed by him.
12.11. On the basis of the audit report, appellant No. 2
was able to get renewal-cum-enhancement of fund-based
limit from Rs. 200 lakhs to Rs. 300 lakhs and of non-fund
based limit from Rs. 300 lakhs to Rs. 500 lakhs.
12.12. Additional Solicitor General submits that appellant
No. 2, thus, cheated the UCO Bank by submitting fake audit
reports.
12.13. Investigation has revealed that the account of
appellant No. 2 was declared as NPA on 31.12.2010 as per
the laid down procedure of the Bank. The account of
appellant No. 2 became NPA due to malafide intention and
wilful default committed by the borrower.
21
12.14. Though UCO Bank issued notice under Section
13(2) of the SARFAESI Act on 05.02.2011, it could not take
physical possession of the mortgaged property as the said
property was found to be occupied by some encroachers.
12.15. Thus, on the basis of forged copies of audit reports
submitted by appellant No. 1, appellant No. 2 was able to get
renewal and enhancement of cash credit limit, firstly from
Rs. 50 lakhs to Rs. 200 lakhs and non-fund based limit from
Rs. 100 lakhs to Rs. 300 lakhs and again from Rs. 200 lakhs
to Rs. 300 lakhs in so far fund based limit is concerned and
for non-fund based limit from Rs. 300 lakhs to Rs. 500 lakhs
from the UCO Bank.
12.16. Learned Additional Solicitor General submits that
investigation was carried out in accordance with law
whereafter a chargesheet was filed before the Special
Judicial Magistrate on 29.11.2018 against appellant No. 1
under Sections 420 and 471 IPC. Learned Magistrate took
cognizance of the offence against the appellant No. 1 on the
same day and thereafter framed charge against appellant
No. 1 on 20.02.2023 under Sections 420 and 471 IPC.
22
12.17. Thus, Mr. Thakare would submit that there is a
clear triable case made out against appellant No. 1. High
Court had rightly observed as such and, therefore, was
justified in dismissing the petition filed by the appellants
under Section 482 CrPC. He finally submits that there is no
merit in the appeal which should therefore be dismissed.
13. Submissions made by learned counsel for the
parties have received the due consideration of the Court.
14. Though we have already narrated the facts, it
would be appropriate to sum up the same which will
facilitate the deliberation on the question which we have
framed for our consideration.
Summation of facts
15. M/s Mohan Traders i.e. appellant No. 2 was
established on 30.09.1998 by late Parmanand Kela, elder
brother of appellant No. 1, who was managing the affairs of
the firm.
15.1. In the year 2006, appellant No. 2 had approached
UCO Bank for availing cash credit facilities. On 02.09.2006,
appellants were sanctioned cash credit limit of Rs. 50 lakhs
23
and letter of credit of Rs. 100 lakhs. The fund based facility
of cash credit limit of Rs. 50 lakhs permitted actual
withdrawal of funds within the sanctioned limit, repayable
with applicable interest. The non-fund based facility i.e.
letter of credit to the extent of Rs. 100 lakhs involved no
direct cash disbursement but enabled the Bank in issuing
guarantees or making payments on behalf of the appellants
to third party.
15.2. The cash credit and letter of credit for the aforesaid
amounts were secured by hypothecation of stocks and book
debts as primary security and by mortgage of an open plot
of land as collateral security. The description of the collateral
security is an open plot of land situated at Amalidih, Raipur
admeasuring 23,680 square feet, Khasra Nos. 40/7 and
40/22, PC No. 114a. The said property was valued at Rs.
82.88 lakhs by UCO Bank’s empanelled valuer M/s Amit
Associates vide the valuation report dated 16.08.2006.
15.3. On application of appellant No. 2, the credit
facilities were enhanced on 22.01.2007. The fund based limit
of cash credit was enhanced from Rs. 50 lakhs to Rs. 200
lakhs and the non-fund based limit i.e. letter of credit was
24
enhanced from Rs. 100 lakhs to Rs. 300 lakhs. This
enhancement of credit facilities was secured by
hypothecation of stocks and book debts, valued at Rs. 3
crores approximately, as primary security. As collateral
security, appellants in addition to the Amalidih plot of land,
offered one more plot of land at Changorabhata, PH No. 105,
Ward No. 67, Khasra Nos. 221/1-2-3-4-6-8-10-11-12-16,
admeasuring 90,000 square feet, valued at Rs. 210 lakhs;
and also the personal guarantee of appellant No. 1. The
above valuations were carried out by UCO Bank’s
empanelled valuer M/s Amit Associates.
15.4. Finally, the credit facilities were further enhanced
on 30.01.2009 whereby the fund based limit i.e. cash credit
was enhanced to Rs. 300 lakhs from Rs. 200 lakhs; and the
non-fund based limit i.e. letter of credit was enhanced to Rs.
500 lakhs from the earlier Rs. 300 lakhs. The final
enhancement also was secured by way of primary security
in the form of hypothecation of stocks and book debts with
floating charge over all current assets. For collateral
security, appellants substituted the earlier plots of land by
one open diverted plot of land situated at Mauza and Village
25
Boriyakhurd, Raipur bearing Khasra Nos. 1/2, 1/3, 1/4, 1/10,
1/15, 1/16, 2/2, 3/2 and PC No. 118, admeasuring 178784.65
square feet. The aforesaid substituted property was valued
twice, firstly by the UCO Bank’s empanelled valuer M/s Amit
Associates and secondly, by Shri S.K. Chetal, approved
valuer and chartered accountant. As per the valuation report
of M/s Amit Associates dated 15.11.2008, the aforesaid
property was valued at Rs. 625.75 lakhs. Report of Shri S.K.
Chetal dated 22.12.2008 valued the aforesaid property at
Rs. 634.68 lakhs. Additionally, two property inspections
were carried out by Bank officials: one on 14.11.2008 by
Shri S.K. Shrivastava who confirmed the accuracy of the
valuation, noting that the property was located in a
residential colony and was easily saleable; the second
inspection was carried out on 10.02.2009 by Shri S.K.
Shrivastava and Shri S.K. Pattanayak reaffirming the
valuation and the openness of the plot.
15.5. While appellant No. 2 firm was performing well
commercially, Parmanand Kela who was looking after the
marketing affairs of the firm and had created the firm,
unfortunately passed away on 28.11.2009. The aforesaid
26
unfortunate circumstance adversely affected the appellant
No. 2 in business terms because of which repayments to the
UCO Bank became irregular. As a result, the loan account
fell into arrears since 25.05.2010 and was ultimately
declared as NPA on 31.12.2010. According to the appellants,
the reason why the loan account became NPA was that since
the death of Parmanand Kela, appellant No. 2 could not get
big supply orders from clients which had a debilitating effect
on its business and repayment capacity.
15.6. UCO Bank initiated SARFAESI proceedings
against the appellants and in this connection had filed OA
No. 355/2011 before the DRT at Jabalpur for recovery of
arears with due interest etc.
15.7. During the pendency of the proceedings before the
DRT, appellants and UCO Bank negotiated a compromise
proposal dated 14.03.2015. As per the compromise proposal,
the loan account was to be settled at Rs. 425.00 lakhs as
against the dues of Rs. 648.74 lakhs which included
notional interest of Rs. 308.80 lakhs. A perusal of the
compromise proposal would show that on the query as to
whether there were major lapses in documentation or
27
irregularity thereof altering adversely security and legal
remedies available to the Bank, the response of the Bank
was that there were no lapses in documentation or
irregularity observed as per legal audit dated 12.02.2009
(clause 9.1.9). As per clause 25, the Bank certified that the
offered compromise amount was as per the Reserve Bank of
India (RBI) policy guidelines delineated in the circular dated
04.08.2010. It was clarified that the offered compromise
amount was not lower than the distress sale value of the
securities available and the net present value of the future
cash flow. However, the realizable value of the mortgaged
properties was substantially reduced due to encroachment
by slum dwellers.
15.8. The compromise proposal was approved by the
Management Committee of the Board (MCB) in its meeting
held on 30.03.2015 which had unlimited powers for
approving settlement in terms of compromise. Following the
above, the competent authority approved the compromise
proposal on 30.03.2015 itself and this was informed by the
competent authority to the UCO Bank, Raipur Main Branch
vide letter of even date.
28
15.9. Thereafter, both the parties i.e. UCO Bank and the
appellants submitted a joint application before the DRT in
the pending OA No. 355 of 2011. It was stated therein that
parties to the lis had already settled the matter out of court
in terms of letter dated 30.03.2015 of the UCO Bank which
was duly accepted by the appellants. The terms of the
settlement were as under:
3. That defendants accept Rs. 425 lakhs (rupees
four crore twenty five lakhs only) as compromise
sum towards full and final settlement of account
vide letter dated 30.03.2015. The amount is to be
paid as per undernoted schedule, failing which the
settlement will stand withdrawn and the applicant
bank will proceed for recovery of the entire dues
with interest as applicable.
4. The details of said mutual compromise reached
between the parties are as under:-
(a) Rs. 50 lakhs out of Rs. 425 lakhs have
already been deposited in account of the applicant
and the balance amount of down payment (Rs. 375
lakhs) will be paid monthly at a minimum amount
of Rs. 25 lakhs.
(b) Balance amount of Rs. 375 lakhs will be
paid within 6 months or earlier in lumpsum.
(c) PDC duly signed to be submitted for
balance amount of Rs. 375 lakhs.
29
(d) In case of any default in payment of the
compromise sum or dishonour of any cheque, the
concession/relief granted in terms of the compromise
/settlement will be treated as withdrawn and the
bank will have the liberty to proceed for recovery of
the entire outstanding dues with interest, cost and
expenses as per original application.
(e) On payment of the entire compromise sum
as per the terms of settlement, all charges/mortgages
held against the loan account will be released and a
no dues certificate will be issued, if so required.
15.9.1. Therefore, prayer was made before the DRT that
the compromise be recorded and a suitable order be passed
in terms of the joint application. Both appellant No. 1 and
Shri Sujoy Dutta, Chief Manager of UCO Bank, Raipur Main
Branch swore and submitted affidavits in support of the joint
application.
15.10. On 10.07.2015, the DRT recorded that the parties
had arrived at a compromise and settled the outstanding
dues for a sum of Rs. 4.25 crores towards full and final
settlement of the loan account in terms of the letter dated
30.03.2015. Defendants i.e. appellants were directed to
deposit the compromise amount within the stipulated period
30
failing which it was mentioned that the matter would be
taken up for final hearing.
15.11. In the meanwhile, appellants deposited the entire
amount in terms of the settlement with the UCO Bank,
Raipur Main Branch, which thereafter issued the no dues
certificate dated 30.09.2015 certifying that the cash credit
account in the name of appellant No. 2 was settled through
compromise and that payment had been received in terms of
the approved compromise.
15.12. OA No. 355/2011 was taken up by the DRT on
27.10.2015. It was noted in the record of proceedings that
an application for withdrawal of the original application was
filed by the applicant UCO Bank wherein it was stated that
the defendants i.e. appellants had deposited the entire
compromise amount of Rs. 4.25 crores on 31.09.2015; thus,
the related loan account of the appellants stood liquidated.
In the circumstances, prayer was made to allow the UCO
Bank to withdraw the original application and for refund of
the court fees. The said application was supported by an
affidavit of Shri Sujoy Dutta, Chief Manager of UCO Bank,
Raipur Main Branch. It was on that basis the DRT passed
31
order dated 27.10.2015 dismissing OA No. 355/2011 on
withdrawal. Relevant portion of the order dated 27.10.2015
reads thus:
In view of the fact that the entire compromise
amount has been deposited by the defendants as
has been stated in the application dated 27-10-15
filed by the applicant bank which is supported by
the officer of the bank, the instant OA stands
dismissed as withdrawn.
15.13. Almost after two and a half years of the DRT
putting its imprimatur on the compromise vide the order
dated 27.10.2015, the Zonal Head of UCO Bank, Raipur Zonal
Office submitted a written complaint dated 27.02.2018 to the
CBI with the request to lodge FIR against the appellants. In
the written complaint, after mentioning about the
compromise settlement entered into between the parties, it
was stated that the UCO Bank had declared the account of
appellant No. 2 as ‘fraud’ and the same was reported to RBI
on 18.04.2016. It was mentioned that the element of fraud
was first suspected on 20.12.2013 but the same was not
discernible beyond doubt. The account was not treated as
fraud before accepting the compromise proposal. UCO Bank
32
took the commercial decision for accepting the compromise
proposal for reducing any further loss to the Bank. There was
specific mention in the complaint about two Bank officials viz.
Shri C. Ramakrishna, the then Assistant General Manager
and Shri A.K. Pattanaik, the then Senior Manager for
accepting substitution of property without proper valuation
and for observing that the substituted property was
marketable. It was alleged that the appellants with the
dishonest intention of causing wrongful loss to the Bank and
corresponding wrongful gain to themselves fraudulently
committed the act of cheating by substituting valuable
properties offered as security with an encroached property
and by siphoning of the Bank’s money; thus, committing the
offence of cheating, criminal breach of trust, etc. under the
IPC.
15.14. Upon registration of the FIR, CBI investigated the
matter and thereafter submitted chargesheet before the
Special Judicial Magistrate on 27.11.2018. As per the
chargesheet, on the basis of forged copies of audit report
appellants got enhancement of cash credit limit more than
two times of the original amount. In the process, the UCO
33
Bank was cheated resulting in wrongful loss of Rs. 223.74
lakhs with notional interest of Rs. 308.80 lakhs. Thus,
appellant No. 1 had committed the offence of cheating and
using of forged documents as genuine ones which are
punishable under Sections 420 and 471 IPC. Insofar Bank
officials are concerned, the chargesheet stated that
investigation did not disclose any proactive role played by Bank
officials in respect of sanction or renewal or enhancement of
the cash credit limit; no criminal misconduct was found to
have been committed by any of the Bank officials in this
regard.
15.15. Vide order dated 20.02.2023, Special Judicial
Magistrate framed charges against appellant No. 1 under
Sections 420 and 471 IPC.
15.16. When the appellants sought for quashing of the
chargesheet as well as the charge framing order, the High
Court vide order dated 05.07.2024 rejected the same by
holding as under:
Perusal of documents available on record, prima-
facie it appears that the petitioner firm with a
fraudulent intention got released two valuable
properties which was (sic) mortgaged with the
34
Bank by substituting it (sic) with encroached
property and also enhanced the credit limit by
submitting the forged audit report which was
issued by the Chartered Accountant, however, the
same should not have been extended to him
because as per the documents available on record,
petitioner-firm is not entitled to get that much loan
amount. The alleged audit report issued by the
Chartered Accountant in respect of credit limit is
fake/forged and invalid.
Analysis and reasoning
16. It can be seen from the above that charges have
been framed only against appellant No. 1 under Sections 420
and 471 IPC. None of the Bank officials have been
chargesheeted and, therefore, there is no prosecution under
the PC Act. Substratum of Section 420 IPC is cheating and
dishonest inducement leading to delivery of property.
Cheating is defined under Section 415 IPC which says that
whoever by deceiving any person, fraudulently or dishonestly
induces the person so deceived to deliver any property to any
person, etc. which causes or is likely to cause damage or harm
to that person in body, mind, reputation or property, is said
to ‘cheat’. Cheating is only one of the ingredients of Section
420, the other being dishonest inducement leading to
35
delivery of property. ‘Dishonesty’ is defined in Section 24 IPC
to mean deliberate intention to cause wrongful gain or
wrongful loss to one person. When with such intention,
deception is practiced and delivery of property is induced
thereby then the offence under Section 420 of the IPC can
be said to have been committed.
16.1. Section 471 IPC on the other hand provides that
whoever fraudulently or dishonestly uses as genuine any
document or electronic record which he knows or has reason
to believe to be a forged document or electronic record, shall
be punished in the same manner as if he had forged such
document or electronic record.
16.2. This Court in Mohammed Ibrahim Vs. State of
Bihar
1 explained that to constitute an offence under Section
471 IPC, the requirement is that the document should be
made or executed dishonestly or fraudulently with the
intention of causing it to be believed that such document
was made or executed by, or by the authority of a person, by
1
(2009) 8 SCC 751
36
whom or by whose authority he knows that it was not made
or executed.
16.3. Again, in Deepak Gaba Vs. State of Uttar Pradesh
2
,
this Court examined the ingredients of Sections 420 and 471
IPC and observed that in order to apply Section 420 IPC viz.
cheating and dishonestly inducing delivery of property, the
ingredients of Section 415 IPC have to be satisfied. To
constitute an offence of cheating under Section 415 IPC, a
person should be induced, either fraudulently or dishonestly,
to deliver any property to any person, or consent that any
person, shall retain any property; the second class of acts set
forth in the section is the intentional inducement of doing or
omitting to do anything which the person deceived would not
do or omit to do, if she were not so deceived. Thus, the sine
qua non of Section 415 IPC is fraudulence, dishonesty or
intentional inducement, and the absence of these elements
would debase the offence of cheating. Referring to Mohammed
Ibrahim, the Bench observed that for the offence under Section
420 IPC, there should not only be cheating but as a
consequence of such cheating, the accused should also have
2
(2023) 3 SCC 423
37
dishonestly induced the person deceived to deliver any
property to a person etc. Insofar as Section 471 IPC is
concerned, the Bench again referred to Mohammed Ibrahim
and observed that Section 471 IPC would be applicable when
a person fraudulently or dishonestly uses as genuine any
document or electronic record which he knows or has
reasons to believe to be a forged document or electronic
record. Unless the document is false and forged in terms of
Section 464 IPC (making a false document) and 470 IPC
(forged document or electronic record), the requirement of
Section 471 IPC would not be met.
16.4. It may be mentioned that while Section 420 IPC is
compoundable under Section 320 CrPC, Section 471 is not
compoundable.
17. The question is, whether, in a case of this nature,
the offences under Sections 420 and 471 IPC can be said to
have been made out against the appellants when the subject
transaction was a banking one which ultimately led to a
compromise settlement approved by the competent authority
of the Bank and which had the imprimatur of the DRT.
However, this issue need not detain us since we are focusing
38
on the larger question of permissibility of continuance of
criminal prosecution which was set in motion after settlement
of the loan account on compromise between the borrower
(appellants) and the Bank and which had the endorsement of
the DRT.
18. In Nikhil Merchant Vs. Central Bureau of
Investigation
3, CBI filed charges against the accused persons
under Section 120B read with Sections 420, 467, 468 and
471 IPC read with Sections 5 (2) and 5 (1) (d) of the
Prevention of Corruption Act, 1947 and Section 13 (2) read
with Section 13 (1) (d) of the PC Act. One of the accused was
the company whereas another one was Managing Director of
the company. The other three accused were officials of
Andhra Bank. Accused company had availed financial
assistance from Andhra Bank but defaulted in repayment.
Andhra Bank filed a suit for recovery and also lodged a
complaint before the CBI which led to registration of FIR and
filing of chargesheet in the Court of the Special Judge. The
gist of the allegations against the accused persons was that
they had conspired with each other in fraudulently diverting
3
(2008) 9 SCC 677
39
the funds of Andhra Bank; besides, offences alleging forgery
were also included in the chargesheet.
18.1. The suit filed by Andhra Bank was disposed of on
a compromise arrived at between the parties pursuant to
which the accused parties (defendants) paid the settled
amount to Andhra Bank. Thereafter, the appellant, who was
accused No. 3 and Managing Director of the company, filed
an application for discharge before the Special Judge which
was, however, rejected. High Court also rejected the prayer
of the appellant for discharge from the criminal case
whereafter the matter travelled to this Court.
18.2. This Court observed that the dispute between the
company and Andhra Bank was set at rest on the basis of
the compromise arrived at by them whereunder the dues of
Andhra Bank were cleared; the Bank did not have any
further claim against the company. What, however, remained
was the grievance of the Bank that certain documents were
allegedly created by the appellant in order to avail credit
facilities beyond the permissible limit. This Court noted that
the dispute involved had overtones of a civil dispute with
certain criminal facets. In the circumstances of the case, this
40
Court posed the question as to whether the power under
Section 482 CrPC should be invoked to quash the criminal
proceedings pursuant to the compromise arrived at? Taking
an overall view of the matter and keeping in mind the
compromise arrived at between the parties, this Court
recorded its satisfaction that technicality should not be
allowed to stand in the way of quashing of the criminal
proceedings since continuance of the same after the
compromise was arrived at between the parties would be a
futile exercise.
19. The correctness of the view taken in Nikhil
Merchant and two other cases was doubted by a subsequent
coordinate Bench whereafter the matter was referred to a
larger Bench. In Gian Singh Vs. State of Punjab
4
, the
appellant was convicted under Sections 420 and 120B IPC.
During pendency of the appeal against his conviction,
appellant filed an application for compounding the offence.
Thereafter, appellant also filed a petition under Section 482
CrPC for quashing of the FIR on the ground of compounding
4
(2012) 10 SCC 303
41
the offence. The petition under Section 482 CrPC was
dismissed by the High Court.
19.1. A three-Judge Bench of this Court considered the
question as to whether the inherent power of the High Court
to quash criminal proceedings against an offender who had
settled his dispute with the victim of the crime but the crime
is not compoundable under Section 320 CrPC should be
invoked or not. After delineating the amplitude of the power
under Section 482 CrPC and after discussing various case
laws, the larger Bench held that the power of the High Court
in quashing a criminal proceeding or FIR or complaint in
exercise of its inherent jurisdiction under Section 482 CrPC
is distinct and different from the power given to a criminal
court for compounding the offence under Section 320 CrPC.
Inherent power is of wide plenitude with no statutory
limitation but it has to be exercised in accord with the
guidelines engrafted in such power viz. (i) to secure the ends
of justice or (ii) to prevent abuse of the process of any court.
In what cases power to quash the criminal proceeding or
complaint or FIR may be exercised where the offender and
the victim have settled their dispute would depend on the
42
facts and circumstances of each case and no category can
be prescribed but before exercise of such power, the High
Court must have due regard to the nature and gravity of the
crime. Heinous and serious offences of mental depravity or
offences like murder, rape, dacoity, etc. cannot be fittingly
quashed even though the victim or victim's family and the
offender have settled the dispute. Similarly, any compromise
between the victim and the offender in relation to offences
under special statutes like the PC Act or offences committed
by public servants while working in that capacity cannot
provide for any basis for quashing criminal proceedings
involving such offences. However, criminal cases having
overwhelmingly and predominantly civil flavour stand on a
different footing for the purposes of quashing, particularly
the offences arising from commercial, financial, mercantile,
civil, partnership or such like transactions or for that matter
matrimonial disputes. In such category of cases, the High
Court may quash the criminal proceedings if in its view
because of the compromise between the offender and the
victim, the possibility of conviction is remote and bleak and,
therefore, continuation of the criminal case would put the
43
accused to great oppression and prejudice and extreme
injustice would be caused by not quashing the criminal case
despite full and complete settlement and compromise with
the victim. On that basis, the Bench held that Nikhil
Merchant and the other two cases were correctly decided.
20. In Narinder Singh Vs. State of Punjab
5, the
appellant faced charges amongst others under Section 307
of the IPC. A compromise was arrived at between the
appellant and the complainant pursuant to which the
appellant had moved the High Court under Section 482
CrPC for quashing of the FIR. High Court refused to do so on
the ground that one of the four injuries suffered by the
complainant was serious in nature as per medical opinion.
This Court held that offences under Section 307 IPC would
fall in the category of heinous and serious offences;
therefore, such offences are to be generally treated as crime
against the society and not against the individual alone.
Such cases should not ordinarily be quashed. The Bench
reiterated what was held in Gian Singh and held that those
criminal cases having overwhelmingly and predominantly
5
(2014) 6 SCC 466
44
civil character, particularly those arising out of commercial
transactions or arising out of matrimonial relationships or
family disputes should be quashed when the parties have
resolved their entire disputes amongst themselves. However,
offences alleged to have been committed under special
statutes like the PC Act should not be quashed merely on
the basis of compromise between the victim and the
offender. Finally, this Court held that while deciding whether
to exercise its power under Section 482 CrPC, timing of
settlement plays a crucial role. Those cases where settlement
is arrived at immediately after the alleged commission of
offence and the matter is still under investigation, the High
Court may be liberal in accepting the settlement to quash
the criminal proceedings.
21. Parbatbhai Aahir alias Parbatbhai Bhimsinhbhai
Karmur Vs. State of Gujarat
6 is a case where the High Court
dismissed an application filed by the accused persons
seeking quashing of FIR which was registered under
Sections 384, 467, 468, 471, 120B and 506 (2) IPC. This
6
(2017) 9 SCC 641
45
Court after examining the precedents summarized and
culled out the broad principles in the following manner:
16.1. Section 482 preserves the inherent powers of
the High Court to prevent an abuse of the process of
any court or to secure the ends of justice. The
provision does not confer new powers. It only
recognises and preserves powers which inhere in the
High Court.
16.2. The invocation of the jurisdiction of the High
Court to quash a first information report or a
criminal proceeding on the ground that a settlement
has been arrived at between the offender and the
victim is not the same as the invocation of
jurisdiction for the purpose of compounding an
offence. While compounding an offence, the power of
the court is governed by the provisions of Section 320
of the Code of Criminal Procedure, 1973. The power
to quash under Section 482 is attracted even if the
offence is non-compoundable.
16.3. In forming an opinion whether a criminal
proceeding or complaint should be quashed in
exercise of its jurisdiction under Section 482, the
High Court must evaluate whether the ends of justice
would justify the exercise of the inherent power.
16.4. While the inherent power of the High Court has
a wide ambit and plenitude it has to be exercised (i)
to secure the ends of justice, or (ii) to prevent an
abuse of the process of any court.
46
16.5. The decision as to whether a complaint or first
information report should be quashed on the ground
that the offender and victim have settled the dispute,
revolves ultimately on the facts and circumstances of
each case and no exhaustive elaboration of principles
can be formulated.
16.6. In the exercise of the power under Section 482
and while dealing with a plea that the dispute has
been settled, the High Court must have due regard
to the nature and gravity of the offence. Heinous and
serious offences involving mental depravity or
offences such as murder, rape and dacoity cannot
appropriately be quashed though the victim or the
family of the victim have settled the dispute. Such
offences are, truly speaking, not private in nature but
have a serious impact upon society. The decision to
continue with the trial in such cases is founded on
the overriding element of public interest in punishing
persons for serious offences.
16.7. As distinguished from serious offences, there
may be criminal cases which have an overwhelming
or predominant element of a civil dispute. They stand
on a distinct footing insofar as the exercise of the
inherent power to quash is concerned.
16.8. Criminal cases involving offences which arise
from commercial, financial, mercantile, partnership
or similar transactions with an essentially civil
flavour may in appropriate situations fall for
quashing where parties have settled the dispute.
47
16.9. In such a case, the High Court may quash the
criminal proceeding if in view of the compromise
between the disputants, the possibility of a conviction
is remote and the continuation of a criminal
proceeding would cause oppression and prejudice;
and
16.10. There is yet an exception to the principle set
out in propositions 16.8. and 16.9. above. Economic
offences involving the financial and economic well-
being of the State have implications which lie beyond
the domain of a mere dispute between private
disputants. The High Court would be justified in
declining to quash where the offender is involved in
an activity akin to a financial or economic fraud or
misdemeanour. The consequences of the act complained
of upon the financial or economic system will weigh in
the balance.
21.1. Thus, this Court, while setting out the broad
principles, held that the power to quash under Section 482
CrPC is separate and distinct from the power to compound
under Section 320 CrPC and can be invoked even if the
offence is non-compoundable.
22. This Court in Anil Bhavarlal Jain Vs. State of
Maharashtra
7 was examining an order passed by the High Court
7
2024 SCC OnLine SC 3823
48
dismissing the petition filed by the appellants under Section 482
CrPC for quashing the FIR and the consequential chargesheet.
In addition to IPC offences, the appellants were charged
under Section 13(2) read with 13(1)(d) of the PC Act. In that
case, some of the accused i.e. the appellants in the connected
appeal were employees of the concerned Bank i.e. State Bank
of India. The appellants had obtained a loan from the State
Bank of India but failed to repay the same for which the loan
account was declared as NPA. For recovery of the outstanding
dues, State Bank of India approached the DRT where the
matter was disposed of on consent terms. Thereafter, the Bank
lodged a complaint before the CBI pursuant to which the FIR
was registered whereafter chargesheets were filed. Appellants
sought for quashing of the FIR and the chargesheet and filed a
writ petition before the High Court under Section 482 CrPC.
However, High Court dismissed the said writ petition observing
that the appellant had a substantive alternative remedy under
the provisions of the CrPC. Posing the question as to whether
the criminal proceedings should be quashed based upon a
settlement arrived at between the parties as per the consent
terms drawn and submitted before the DRT, a two-Judge
49
Bench of this Court observed that in view of the fact that a
special statute i.e. the PC Act had been invoked, quashing of
offences under the said Act would not be justified.
23. In K. Bharthi Devi Vs. State of Telangana
8, the
accused persons were granted various credit facilities by the
Indian Bank which were secured by collateral security. As
the accused persons failed to repay the dues, the loan
account was declared as NPA and to realize the outstanding
dues Indian Bank filed an original application before the
DRT. During pendency of the proceedings before the DRT,
Indian Bank lodged a written complaint before the CBI
alleging that some of the title documents executed by the
accused persons by virtue of which equitable mortgage was
created were not original documents, rather those were fake,
forged and fabricated. CBI registered an FIR whereafter
chargesheet was filed stating that offences punishable under
Sections 120B read with Section 420, 409, 467, 468 and 471
IPC and Sections 13 (1) (d) and 13 (2) of the PC Act were
committed.
8
(2024) 10 SCC 384
50
23.1. At that stage, the accused persons approached the
Indian Bank for settlement. After negotiations, the parties
arrived at a settlement whereafter the settlement amount
was paid by the accused persons following which the Indian
Bank issued no dues certificate to the borrowers (accused
persons). DRT recorded that the dispute was settled in full
satisfaction of the dues of the respondent-Indian Bank.
23.2. Thereafter, the accused persons filed a criminal
petition before the High Court under Section 482 CrPC
seeking quashing of the chargesheet. The High Court,
however, rejected the said petition holding that the
settlement arrived at was only a private settlement and was
not a part of any decree given by any court. The charges
include the use of fraudulent, fake and forged documents
that were used to embezzle public money; if the charges were
proved, those would be grave crimes against the society as a
whole and hence merely due to a private settlement between
the Bank and the accused, it cannot be said that prosecution
of the accused persons would amount to abuse of the
process of the court.
51
23.3. A two-Judge Bench of this Court referred to the
previous decisions of this Court including Nikhil Merchant,
Gian Singh, Narinder Singh, etc. and held that criminal cases
having overwhelmingly and predominantly civil character,
particularly those arising out of commercial transactions or
arising out of matrimonial relationships or family disputes
should be quashed when the parties have resolved their
entire disputes among themselves. The Bench observed that
the dispute involved in the said case had predominantly
overtures of a civil dispute. After the settlement, the Bank
had also closed the loan account. That apart, the Bench
noted that in view of the settlement between the parties in a
proceeding before the DRT, the possibility of conviction is
remote and bleak. In such a case, continuation of the
criminal proceedings would put the accused to great
oppression and prejudice. Holding that it was a fit case
where the High Court ought to have exercised its jurisdiction
under Section 482 CrPC and ought to have quashed the
criminal proceedings, the Bench allowed the appeal, set
aside the order of the High Court and quashed the criminal
proceedings.
52
24. Applying the above principles to the facts of the
present case, we find that in the pending proceedings before
the DRT instituted by the second respondent-Bank, a
negotiated compromise was arrived at between the parties.
The settlement was approved by the competent authority of
the respondent-Bank. Joint application was filed before the
DRT by appellant No. 1 and respondent No. 2-Bank to place
on record the settlement which was noted by the DRT and
adjourned to a subsequent date to ensure compliance.
Following the same, appellants paid the entire settlement
amount whereafter the Bank issued no dues certificate to
the appellants. Thereafter, on a further application by the
respondent-Bank, the original application was dismissed as
withdrawn by the DRT after noting that the claim to the
outstanding dues were settled as per the compromise and
the settlement amount was paid by the appellants
whereafter no dues certificate was issued by the Bank. When
the matter was fully settled which was endorsed by the DRT,
the respondent-Bank after more than two years lodged
complaint before the CBI to initiate criminal prosecution
alleging fraud and forgery by the appellants. In the facts and
53
circumstances, we are of the view that the present case is
squarely covered by the decision of this Court in K. Bharthi
Devi.
25. In the written complaint before the CBI, the
complainant i.e. respondent-Bank mentioned that fraud was
suspected in 2013, but no steps were taken at that point of
time to initiate criminal proceedings against the appellants.
The justification given for this is that the Bank wanted to
maximize the recovery. It was only after the compromise
settlement was given effect to by the appellant by paying the
settlement amount and after withdrawal of the original
application from the DRT on account of the settlement, the
respondent-Bank sought to initiate the criminal prosecution
that too after more than two years from the withdrawal of
proceedings before the DRT upon arriving at an approved
compromise settlement.
26. We are afraid, such conduct of the respondent-
Bank betrays lack of good faith. If the Bank had suspected
fraud in 2013 itself, it should have lodged complaint at that
stage itself. However, such stand of the Bank that fraud was
committed by appellant No. 1 is not supported by the
54
contents of the compromise settlement itself. We have
already noted that in clause 9.1.9 of the compromise
settlement, it was clearly mentioned by the Bank that there
were no lapses in documentation or any irregularity was
observed in the cash credit proposal of the appellants as per
legal audit dated 12.02.2009. Additionally, the Bank
certified in clause 25 that the compromise amount was in
terms of the RBI policy guidelines and that it was not lower
than the distress sale value of the securities available. After
entering into a compromise settlement with the appellants
wherein it was clearly stated that there was no tampering of
any of the documents and after filing joint application before
the DRT to record the compromise settlement, it was not
proper on the part of the respondent-Bank to belatedly
initiate criminal proceedings against the appellants, that
too, after withdrawing the proceedings from the DRT on
execution of the compromise settlement leading to closure of
the loan account. Such a criminal proceeding in our view
would not only be oppressive qua the appellants but would
also amount to an abuse of the process of the court.
55
27. Further, having regard to the fact that the dispute
between the parties arising out of banking transactions
which are commercial transactions having overwhelmingly
or predominantly civil flavour had ended in a compromise
settlement, that too, in the manner which we have delineated
above, in our view, the possibility of conviction of appellant
No. 1 is remote and bleak. Therefore, continuation of the
criminal case would cause grave prejudice and injustice to
the appellants.
28. There is one more reason why we say so. If the
respondent-Bank is permitted to go ahead with the criminal
prosecution initiated after settlement of the loan account
before the DRT, it would adversely impact the sanctity of such
settlement which has become part of the judicial proceeding
and which had the approval of a judicial forum like the DRT.
If such a conduct is overlooked and prosecution is allowed to
continue, many persons including commercial entities would
be hesitant to come forward and seek resolution of their
disputes arising out of banking transactions which are after
all commercial transactions, having predominantly elements
of civil dispute(s). This in turn would have a debilitating effect
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on the overall economy, more so, when the focus is on
settlement of commercial disputes. This is the larger picture we
need to keep in mind.
Conclusion
29. For the aforementioned reasons, we allow this
appeal and set aside the impugned order of the High Court dated
05.07.2024. Consequently, chargesheet dated 27.11.2018 and
the charge framing order of the Special Judicial Magistrate
dated 20.02.2023 are hereby quashed.
30. No cost.
……………………………J
[B.V. NAGARATHNA]
……………………………J.
[UJJAL BHUYAN]
NEW DELHI;
MAY 29, 2026.
Legal Notes
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