Criminal Proceedings Against Loan Defaulters Liable to be Quashed Upon Full Settlement of Bank Dues.

The applicants, family members of the deceased primary borrower (original accused No. 1), filed for quashing of FIR C.R. No. I-24 of 2004.

The FIR alleged that the accused obtained loans totaling Rs. 8.20 crores by submitting forged valuation reports on the letterhead of a valuer to inflate the value of mortgaged machinery.

Investigations led to a charge-sheet in 2017 involving offences under the IPC, Banking Regulation Act, and Prevention of Corruption Act.

During the pendency of the application, Applicant No. 5 expired.

The applicants contended that the entire outstanding loan amount was settled under a One-Time Settlement (OTS) scheme in 2016, and "No Due Certificates" were issued by the bank.

1. Whether the criminal proceedings against the applicants should be quashed under Section 482 of the CrPC following a settlement of the underlying civil debt with the bank.

2. Whether the continuation of prosecution serves a useful purpose when the primary grievance of the bank has been resolved through an OTS.

The court primarily applied Section 482 of the Criminal Procedure Code, 1973, concerning the inherent powers of the High Court to prevent abuse of the process of law.

The precedent of Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre (AIR 1988 SC 709), which establishes that proceedings may be quashed if the chances of conviction are bleak and the matter is predominantly a civil wrong.

The guidelines from State of Haryana v. Bhajan Lal (AIR 1992 SC 604), specifically regarding cases where allegations do not constitute a prima facie offence or where the proceeding is an abuse of process.

The Court observed that while the FIR alleged serious acts of forgery and inflation of valuation reports, the underlying dispute was essentially financial.

Since the Bank (Respondent No. 3) accepted a settlement under the "Final Settlement Scheme-2016" and issued "No Due Certificates," the grievance of the bank stood resolved.

The Court reasoned that although the certificate stated it was "without prejudice" to criminal cases, the Settlement Scheme effectively closed the accounts.

Applying the Madhavrao Jiwaji Rao Scindia test, the Court found that the facts now denote a situation predominantly of a civil wrong where ingredients of a criminal offence are wanting in the current context.

Consequently, continuing the prosecution would be an exercise in futility as the chances of conviction were bleak.

The High Court allowed the application and quashed FIR C.R. No. I-24 of 2004 and all consequential proceedings qua the present applicants.

The application stood abated as against Applicant No. 5 due to his demise.