'Criminal Justice System Will Be Clogged': Karnataka High Court Raps Bank For Filing FIRs Over NPAs

The Karnataka High Court on Thursday (February 5) stayed investigation against a borrower booked in a cheating FIR, registered against various accused on a complaint by State Bank of India, after the borrower's account was declared a Non-Performing Asset due to failure to pay loan. 

In doing so the court questioned the bank for registering a criminal case instead of availing other remedies available to it and "misuse the criminal justice system". 

The court was hearing a plea seeking quashing of an FIR registered under Sections 316(2)(Criminal breach of trust),316(5),318(2)(cheating),318(3),3(5) (common intention) BNS, against the petitioner who has been booked as accused no. 15 in the FIR. In the interim the plea sought stay of investigation.

During the hearing as the court was told that the allegation against the petitioner was non-payment of loan amount, Justice M Nagaprasanna orally said: 

"Criminal Justice system will be clogged immediately...If this is permitted no real criminal case will go on in courts...It has slipped into NPA so crime registration? Every bank will do this against every borrower. They have all statute to do it, why criminal case?...How can they set criminal law into motion on an account becoming an NPA? Should they not exhaust all the remedies available in law". 

As the State's counsel said that an employee of the bank was involved and the matter involves public money the court orally said, "...whatever is there let them recover. Public money recovery is important. Clogging criminal justice system is equally important". 

The petitioner's counsel said that the petitioner is accused no. 15 in the FIR based on a complaint filed by the bank, wherein criminal proceedings were initiated against him after his account was declared a NPA. The court noted that as a matter of fact against every borrower this was the allegation, wherein accused no. 15, one of the borrowers was before the high court.

The court noted that accused no. 1 is a bank employee and he was stated to have to have been placed under suspension for the reason that spot loans were granted without looking at the documents. 

"In so far as this petitioner is concerned the allegation is that the loan was availed on 12-1-2024 of Rs. 90 lakhs and from 11-11-2024 the borrower has not paid amount therefore the account is classified as NPA. If this is the allegation that an account is classified as NPA, and the criminal law is set into motion there cannot be a better illustration of abuse of process of the law," the court dictated in its order. 

The court further referred to Supreme Court decisions including Vishal Noble Singh v/s State of UP wherein apex court had said that "machinery of criminal justice is being misused by certain persons for their vested interests and for achieving their oblique motives and agenda". 

"In the light of the aforesaid, admitted fact, that against the petitioner it is only account getting slipped into NPA, the bank without taking recourse to any other process of law i.e., under SARFAESI Act or otherwise has thought it fit to set the criminal law into motion. The petitioner has produced ample material to show that the unit is running and what happened was only due to difficulty in paying EMI. The petitioner's counsel said that the account has been declared NPA and the borrower is not permitted to pay the amount into the bank, but the criminal law has been set into motion.  If these be the allegations, the bank has to explain as to how it can misuse criminal justice system for settling scores with borrowers when account turns into NPA when other statutory remedies are available with the bank.  In light of aforesaid circumstance there shall be an interim order of stay of investigation against accused no. 15 till the next date of hearing," the court said. 

The court however made it clear that the interim order will not come in the way of investigation against other accused, particularly of accused 1 the bank employee. 

Case title: MUMHAMMAD RAFAN v/s THE STATE OF KARNATAKA AND ANOTHER

CRL.P 149/2026