2025 (4) TMI 1015 - SC - Indian Laws

Reference to the powers of the High Court to be exercised under Section 482 CrPC as also under Article 226 of the Constitution to quash an FIR - criminal proceedings initiated by the Central Bureau of Investigation (CBI) - forgery and cheating - HELD THAT - It is already observed that the dispute involved is primarily of civil nature. The aggrieved party if any would have been the Bank which has no grievance against the Appellants. Further no loss has been caused to the Bank as is apparent from the calculations presented by the appellants before this Court. Not only the principal amount has been returned but an amount over and above thereto on the basis of the settlement has been received by the Bank. The case is at the very initial stage with the chargesheet having been filed. Keeping in view the observations made by this court in Narinder Singh 2015 (2) TMI 1042 - SUPREME COURT in the facts of this case it can safely be said that the criminal case which has been sought to be projected and proceeded with against the Appellants has an overwhelming and pre-dominant civil character arising out of pure commercial transaction where the parties have resolved their entire dispute amongst themselves. In the light of the fact that the allegations against the Bank Manager relating to his involvement in the commission of offences which has been alleged against the Appellants having not been substantiated the possibility of conviction of the appellants is remote and bleak. Continuation of these criminal proceedings would put the Appellants to great oppression and prejudice and extreme injustice would be caused to them by not quashing the criminal proceedings. It would not be out of place to mention here that in the present case the proceeding for settlement was not only initiated but the finalization thereof in the form of settlement took place prior to the filing of the chargesheet against the Appellants by the CBI. This Court in the case of Narinder Singh 2015 (2) TMI 1042 - SUPREME COURT also observed that the stage and timing of the settlement play a crucial role in determination as to whether to exercise power under Section 482 of the CrPC 1973 or not. It was observed that cases where settlement has arrived at either immediately or in close vicinity after the alleged commission of offence and the matter is still under investigation the High Court may be liberal in accepting the settlement to quash the criminal proceeding/investigation. Conclusion - i) The High Court should have exercised its inherent jurisdiction to quash the FIR chargesheet and criminal proceedings in the present case. ii) The timing of the settlement strongly supported quashing of the criminal proceedings. iii) The dispute involved is primarily of civil nature. The aggrieved party if any would have been the Bank which has no grievance against the Appellants. The impugned order passed by the High Court is hereby quashed and set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

- Whether the criminal proceedings initiated by the Central Bureau of Investigation (CBI) against the appellants, arising from allegations of forgery and cheating in connection with Letters of Credit sanctioned by a bank, can be quashed on the basis that the dispute is predominantly civil or commercial in nature and has been settled between the parties.

- The scope and exercise of the High Court's inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) and Article 226 of the Constitution to quash FIR, chargesheet, and criminal proceedings in cases involving commercial transactions.

- The applicability of precedents relating to quashing of criminal proceedings where the parties have amicably settled disputes that have a civil or commercial character, including the effect of settlement on offences punishable under Sections 419, 420, 467, 468, 471 IPC and provisions of the Prevention of Corruption Act, 1988.

- Whether the continuation of criminal prosecution after settlement would amount to abuse of process of law and cause oppression and prejudice to the accused.

- The relevance of the timing and stage of settlement in deciding whether to exercise the power to quash proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature of the dispute and applicability of quashing powers in commercial disputes

Relevant legal framework and precedents: The Court referred extensively to its previous decisions, including Central Bureau of Investigation, ACB, Mumbai v. Narendra Lal Jain, Gian Singh v. State of Punjab, Gold Quest International Private Limited v. State of Tamil Nadu, B.S. Joshi v. State of Haryana, Central Bureau of Investigation v. Duncans Agro Industries Ltd., Nikhil Merchant v. Central Bureau of Investigation, and Narinder Singh v. State of Punjab. These cases establish that criminal proceedings arising out of disputes predominantly civil or commercial in nature, especially where the parties have amicably settled the matter, may be quashed to prevent abuse of process and undue harassment.

Court's interpretation and reasoning: The Court observed that the dispute originated from commercial transactions between the appellants and the Bank of Maharashtra involving sanction and repayment of Letters of Credit. The allegations of forgery and cheating lacked substantiation, particularly since no evidence was found implicating the Bank's officials, leading to dropping of charges under the Prevention of Corruption Act. The criminal proceedings were initiated suo motu by the CBI without any grievance from the Bank, which had accepted a One-Time Settlement and issued a No Dues Certificate.

Key evidence and findings: The Bank classified the loans as Non-Performing Assets (NPA) due to financial difficulties faced by the appellants. The appellants repaid the principal and an amount exceeding the sanctioned credit, totaling Rs.19.67 crores against Rs.14.20 crores sanctioned. The Bank supported closure of criminal proceedings, indicating no loss was caused.

Application of law to facts: Given the commercial nature of the dispute, the settlement between the parties, and absence of criminal intent or evidence, the Court found continuation of criminal proceedings would be oppressive and an abuse of process. The Court emphasized that offences with a predominant civil character, where parties have resolved disputes fully, justify quashing of criminal cases.

Treatment of competing arguments: The CBI contended that compromise does not erase criminal offences and that economic offences affect public trust and have wider societal implications. The Court acknowledged this but distinguished the present case on facts, noting lack of evidence against bank officials and the fact that the Bank had no grievance and supported settlement.

Conclusions: The Court concluded the dispute was predominantly civil/commercial, fully settled between parties, and thus criminal proceedings should be quashed to prevent injustice and oppression.

Issue 2: Powers of the High Court under Section 482 CrPC and Article 226 of the Constitution to quash criminal proceedings

Relevant legal framework and precedents: The Court referred to Sushil Suri v. CBI, which laid down that inherent jurisdiction under Section 482 CrPC may be exercised to give effect to orders, prevent abuse of process, and secure ends of justice, but such power must be exercised sparingly and with caution. The Court also relied on the recent decision in K. Bharthi Devi v. State of Telangana, which elaborated principles for quashing criminal proceedings in cases involving commercial transactions and settlements.

Court's interpretation and reasoning: The Court reiterated that the power to quash is discretionary and fact-specific. It noted that in K. Bharthi Devi, the Court quashed criminal proceedings arising from similar commercial disputes where settlements had been reached before or at early stages of prosecution. The Court found the present case even stronger, as the criminal proceedings were initiated by CBI suo motu, not on complaint by the Bank.

Key evidence and findings: The Court considered the timing of settlement, which was finalized before filing of the chargesheet and well before trial. The Bank's issuance of No Dues Certificate and support for quashing were significant factors.

Application of law to facts: Exercising discretion under Section 482 CrPC, the Court found that quashing was justified to prevent oppression and abuse of process, especially given the civil/commercial nature and full settlement.

Treatment of competing arguments: The CBI's submission that economic offences have public interest implications was considered but outweighed by the facts of settlement, absence of evidence against bank officials, and the risk of injustice to appellants.

Conclusions: The Court held that the High Court should have exercised its inherent jurisdiction to quash the FIR, chargesheet, and criminal proceedings in the present case.

Issue 3: Effect of settlement and timing on quashing of criminal proceedings

Relevant legal framework and precedents: The Court referred to Narinder Singh v. State of Punjab and other precedents, which emphasize the importance of timing and stage of settlement in deciding quashing petitions. Settlements reached early during investigation or before framing of charges weigh in favour of quashing.

Court's interpretation and reasoning: The Court observed that the settlement in the present case was concluded prior to filing of the chargesheet, and the criminal proceedings were at an initial stage. This timing favoured exercise of the quashing power.

Key evidence and findings: The One-Time Settlement was finalized on 12.04.2010, chargesheet was filed on 27.05.2010, and No Dues Certificate was issued on 11.04.2011. The appellants were discharged by the trial court on 15.11.2011, which was later set aside but challenged before the High Court and this Court.

Application of law to facts: The Court applied the principle that early settlement and infancy of proceedings justify quashing to avoid unnecessary harassment and oppression.

Treatment of competing arguments: The CBI's argument that offences are serious and cannot be quashed merely due to settlement was considered but found inapplicable given the early stage and civil nature of the dispute.

Conclusions: The Court held that the timing of the settlement strongly supported quashing of the criminal proceedings.

3. SIGNIFICANT HOLDINGS

- "The inherent jurisdiction may be exercised by the High Court, namely; (i) to give effect to an order under the Cr.P.C.; (ii) to prevent an abuse of the process of Court; and (iii) to otherwise secure the ends of justice. It has also been held to be a power which, although possessed by the High Court, has to be exercised sparingly with great caution and care to do real and substantial justice, for which alone, the Court exists."

- "There are certain offences which overwhelmingly and predominantly bear civil flavour having arisen out of civil, mercantile, commercial, financial, partnership or such like transactions... where the wrong is basically to the victim and the offender and the victim have settled all disputes between them amicably, the High Court would be justified in quashing the criminal proceedings, even if the offences have not been made compoundable."

- "The criminal cases having overwhelmingly and predominantly civil character, particularly those arising out of commercial transactions... should be quashed when the parties have resolved their entire disputes among themselves."

- "Continuation of these criminal proceedings would put the Appellants to great oppression and prejudice and extreme injustice would be caused to them by not quashing the criminal proceedings."

- "The stage and timing of the settlement play a crucial role in determination as to whether to exercise power under Section 482 of the CrPC 1973 or not."

- "The dispute involved is primarily of civil nature. The aggrieved party, if any, would have been the Bank which has no grievance against the Appellants. Further, no loss has been caused to the Bank as is apparent from the calculations presented by the appellants."

- "The criminal proceedings against the Appellants and arising out of FIR RC No.13(E)/2008-CBI, BS & FC, Mumbai are quashed."