Kiran Raj

The Supreme Court of India Division Bench of Justice Vikram Nath and Justice Sandeep Mehta held that economic offences harm public interest beyond the immediate loss to a lending bank, set aside the Punjab and Haryana High Court’s order quashing prosecution, and restored criminal proceedings against a borrower company and its directors over an alleged loan fraud of about ₹52.5 crore. The dispute concerns allegations that the company obtained credit facilities by using forged work orders, manipulated security documents and false stock statements, causing loss to a public sector bank and the public exchequer. The Bench also held that a one-time settlement with the bank cannot justify quashing criminal proceedings where forged documents are alleged and a clear shortfall to the public exchequer is shown.

The case arises from an FIR lodged on 3 February 2015 by the Branch Manager of the erstwhile State Bank of Bikaner and Jaipur, alleging that M/s Sarvodaya Highways Ltd., engaged in construction activities, had obtained credit facilities of ₹50 crore (fund-based) and ₹10 crore (non-fund based) on the strength of projected work orders worth ₹348.24 crore. When the account turned irregular, an internal inquiry found that the bank’s lien was not properly marked in revenue records, the records had been manipulated, the account was declared NPA on 28 July 2013, and a fraud of about ₹52.5 crore was reported, leading to registration of the FIR and CBI investigation.

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During investigation, the CBI collected oral and documentary evidence and concluded that the company’s officers and the then branch manager had allegedly connived to furnish false information, fabricated work orders, and false stock and receivable statements, and to use forged collateral documents to secure and utilize the credit limits. The chargesheet invoked Sections 120B, 406, 420, 467, 468 and 471 IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, after sanction to prosecute the bank manager was obtained.

While the case was pending before the trial court, the borrower company entered into a one-time settlement on 5 March 2018 for ₹41 crore. Relying on this settlement, the company and its directors moved the High Court under Section 482 CrPC seeking quashing of the FIR and chargesheet. The CBI contended before the Supreme Court that the alleged use of forged documents and the deficit between the sanctioned liability and settlement amount showed continuing loss to the public exchequer, whereas the respondents argued that, following settlement, release of securities and closure of debt recovery proceedings, continuation of criminal prosecution would serve no useful purpose.

The Court observed that "Having gone through the reasons assigned by the High Court, it is apparent that while quashing the proceedings on the basis of one-time settlement, the High Court failed to advert to the following vital facts of the case which were duly established during investigation."

Addressing the nature of the allegations and their impact, the Bench noted earlier authority that "Further this court in Vikram Anantrai Doshi (supra) stated that economic offences against banks are social wrongs, and repayment or settlement cannot justify quashing criminal proceedings." It further stated that "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."

Applying these principles to the facts, the Court recorded that "The High Court, while exercising jurisdiction under Section 482 CrPC, did not consider these vital facts and quashed the proceedings merely on the basis of the alleged one-time settlement." On the effect of the compromise, it reasoned that "It can be said without a shadow of doubt that the one-time settlement would not fetch the entire amount to which the Bank was otherwise entitled, had the cash credit account been maintained regularly." It added that "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." Concluding on this basis, the Court held that "Thus, we are of the opinion that the impugned judgment and order do not stand to scrutiny and deserves to be set aside."

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The Court directed: "Thus, we are of the opinion that the impugned judgment and order do not stand to scrutiny and deserves to be set aside. 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."

"We further make it clear that this order should not be construed as making any observations on the merits of the case which may prejudice the defence of the accused persons before the trial Court which shall proceed with the trial of the case uninfluenced by any of the observations made hereinabove. The appeal is allowed in these terms. Pending application(s), if any, shall stand disposed of."

Advocates Representing the Parties

For the Petitioners: ASG Vikramjit Banerjee, Senior Advocate Nachiketa Joshi, AOR Mukesh Kumar Maroria, Advocates P.V. Yogeswaran, Merusagar Samantaray, Vishakha, Swati Ghildiyal, Jagdish Chandra

For the Respondents: Senior Advocate Siddarth Dave, AOR Chritarth Palli, Advocates Agam Aggarwal, Harsheen M Palli, AOR Siddharth Sangal

Case Title: Central Bureau of Investigation v. M/s. Sarvodaya Highways Ltd. and Ors.
Neutral Citation: 2025 INSC 1359
Case Number: Criminal Appeal No(s). of 2025 (Arising out of SLP(Crl.) No(s). 11108 of 2022)
Bench: Justice Vikram Nath, Justice Sandeep Mehta