The Supreme Court has held that criminal proceedings involving serious economic offences, use of forged documents, and the Prevention of Corruption Act cannot be quashed merely on the basis of a One-Time Settlement (OTS) between the accused and the bank.
A Bench comprising Justice Vikram Nath and Justice Sandeep Mehta set aside the judgment of the Punjab and Haryana High Court which had quashed the Central Bureau of Investigation (CBI) proceedings against M/s. Sarvodaya Highways Ltd. and its Directors based on a settlement with the bank. The Apex Court restored the criminal proceedings, emphasizing that such settlements do not absolve the accused of criminal liability when the allegations involve fabrication of records and loss to the public exchequer.
Background of the Case
The case originated from an FIR registered on February 3, 2015, by the CBI based on a complaint from the Branch Manager of the erstwhile State Bank of Bikaner and Jaipur (now State Bank of India). The bank had sanctioned credit facilities of Rs. 60 crores (Rs. 50 crores fund-based and Rs. 10 crores non-fund based) to M/s. Sarvodaya Highways Ltd.
The company had claimed it was engaged in constructing residential/commercial complexes and highways, projecting work orders worth Rs. 348.24 crores. However, the account became a Non-Performing Asset (NPA) on July 28, 2013. An internal inquiry revealed that the lien of the bank had not been marked in revenue records and a fraud of Rs. 52.50 crores had been committed.
The CBI investigation concluded that the company’s Directors, in connivance with the then Branch Manager, Mr. Nishan Lal, had furnished false information and fabricated work orders. Specifically, the investigation found that “3 out of the 10 work orders were entirely fabricated” and the remaining seven were issued to associate companies. A chargesheet was filed on November 30, 2016, for offences under Section 120B read with Sections 406, 420, 467, 468, and 471 of the IPC and Sections 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988.
During the pendency of the trial, the company entered into a One-Time Settlement with the bank on March 5, 2018, settling the liability for Rs. 41 crores. Based on this, the Punjab and Haryana High Court quashed the FIR and the chargesheet on July 18, 2022, invoking its powers under Section 482 of the CrPC.
Arguments of the Parties
Additional Solicitor General Vikramjit Banerjee, appearing for the CBI, argued that the High Court committed a gross error. He submitted that the investigation established the use of forged documents and misrepresentation. He contended that the settlement was entered into by the bank under compulsion and resulted in a significant loss to the public exchequer, as the settlement amount was substantially less than the actual dues.
The ASG relied on the Supreme Court’s decision in Gian Singh v. State of Punjab, arguing that heinous offences or those under special statutes like the PC Act cannot be quashed based on settlement. He also cited CBI v. Jagjit Singh and State of Maharashtra v. Vikram Anantrai Doshi, emphasizing that economic offences are social wrongs with immense societal impact.
Senior Counsel Siddarth Dave, representing the respondents, argued that since the bank had agreed to the OTS, released pledged assets, and closed proceedings before the Debt Recovery Tribunal, continuing the criminal prosecution would be an “exercise in futility.” He relied on precedents including Jaswant Singh v. State of Punjab and CBI v. B.B. Aggarwal, urging that no useful purpose would be served by the prosecution as the monetary dispute was settled.
Court’s Analysis
The Supreme Court observed that the High Court, while quashing the proceedings, failed to advert to vital facts established during the investigation. The Bench noted:
- There was a specific finding that the defaulter company submitted “fabricated documents” to procure credit facilities.
- Offences under the Prevention of Corruption Act were made out, and sanction for prosecuting the Bank Manager had been granted.
- The OTS amount of Rs. 41 crores did not cover the total liability of approximately Rs. 52 crores plus interest, causing a “direct loss to the public exchequer.”
The Court held that quashing the chargesheet would indirectly exonerate the Bank Manager as well. Distinguishing the cases relied upon by the respondents, the Court noted that those cases either involved private disputes or did not involve the use of forged documents and loss to public funds under the PC Act.
Referring to the nature of the settlement, the Court observed:
“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 Bench further stated that the High Court ignored the principle laid down in Gian Singh, which prohibits quashing of proceedings where there is a loss to the public exchequer and offences under the PC Act are involved.
Decision
The Supreme Court allowed the appeal filed by the CBI and set aside the impugned judgment of the Punjab and Haryana High Court.
Restoring the criminal proceedings, the Court ordered:
“We, therefore, allow the appeal, set aside the impugned judgment and order and restore the proceedings arising out of the chargesheet dated 30th November, 2016 before the trial Court.”
The Trial Court has been directed to proceed with the case uninfluenced by the observations made in this judgment.
Case Details:
- Case Title: Central Bureau of Investigation vs M/s. Sarvodaya Highways Ltd. and Ors.
- Case No.: Criminal Appeal No. of 2025 (Arising out of SLP(Crl.) No(s). 11108 of 2022)
- Quorum: Justice Vikram Nath and Justice Sandeep Mehta
- Citation: 2025 INSC 1359
