One -Time Settlement With Bank No Ground To Quash Loan Fraud Case; Society At Large Is Impacted: Supreme Court

Holding that economic offences undermine public interest far beyond the immediate financial loss to a bank, the Supreme Court has restored criminal proceedings against M/s Sarvodaya Highways Ltd. and its directors in a loan fraud case involving approximately ₹52.5 crore. The Court ruled that a one-time settlement (OTS) with the bank cannot justify quashing a prosecution where forged documents were allegedly used and a clear loss to the public exchequer is evident.A Bench of Justice Vikram Nath and Justice Sandeep Mehta set aside a 2022 judgment of the Punjab and Haryana High Court, which had quashed the CBI case after the company paid ₹41 crore under an OTS with the State Bank of Bikaner and Jaipur (now SBI). Allowing the CBI's appeal, the Court noted that the settlement amount was significantly lower than the actual liability and was accepted by the bank under compelling circumstances typical of recovery processes in NPA cases.The case involved offences under Section 120B (criminal conspiracy) read with Sections 406(criminal breach of trust), 420(cheating), 467, 468,471(forgery, fabrication etc) of the Indian Penal Code, 1860 and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988.Corruption case can't be quashed on settlementReferring to established precedents, the Bench observed that economic offences are not private disputes capable of compromise:"There are plethora of judgments of this Court, some of which we have referred to above, which categorically hold that in cases involving economic offences, it is not merely the Bank that stands defrauded, but the society at large is also impacted."The Court stressed that one-time settlements, by their very nature, do not represent full recovery. In this case, while the bank recovered around ₹41 crore, the outstanding liability was approximately ₹52 crore.The Court added that such settlements cannot wipe out criminal liability for alleged fraud, forgery or corruption."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. In this background, we feel that the High Court committed error apparent in the eyes of law by quashing the proceedings."The Court also noted that precedents such as Gian Singh "expressly prohibits quashing of proceedings of a criminal case on strength of a compromise where loss to public exchequer is evident and the offences under the PC Act, 1988 are applied.”Fabricated Documents, Collusion Found in ProbeThe CBI had registered an FIR in 2015 based on a complaint alleging that the company obtained credit facilities by submitting fabricated work orders, manipulated revenue records, and false stock statements. An internal bank inquiry had declared the account an NPA and estimated a fraud of ₹52.5 crore.After investigation, the agency filed a chargesheet against the company, its directors and the then branch manager for offences under IPC provisions related to cheating, forgery and criminal conspiracy, and under Section 13(1)(d) read with 13(2) of the Prevention of Corruption Act. Prosecution sanction had been granted against the bank manager.The High Court had quashed the FIR and chargesheet under Section 482 CrPC on the ground of settlement, noting that the bank had received payment and closed recovery proceedings.The Supreme Court held this approach to be legally unsustainable.It noted that the High Court failed to consider vital aspects, including the alleged fabrication of documents, the involvement of a bank official, the application of the PC Act, and the deficit of over ₹5 crore even after settlement.Restoring the chargesheet, the Court directed the trial court to proceed on merits and clarified that none of its observations should prejudice the accused.Case: Central Bureau of Investigation v. M/s Sarvodaya Highways Ltd.Citation : 2025 LiveLaw (SC) 1180Click here to read the judgmentAppearances. For Appellant: ASG Vikramjit Banerjee, Senior Advocate Nachiketa Joshi, AOR Mukesh Kumar Maroria, Advocates P.V. Yogeswaran, Merusagar Samantaray, Vishakha, Swati Ghildiyal, Jagdish Chandra Respondent: Senior Advocate Siddarth Dave, AOR Chritarth Palli, Advocates Agam Aggarwal, Harsheen M Palli, AOR Siddharth Sangal

One -Time Settlement With Bank No Ground To Quash Loan Fraud Case; Society At Large Is Impacted: Supreme Court

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One -Time Settlement With Bank No Ground To Quash Loan Fraud Case; Society At Large Is Impacted: Supreme Court

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