‘Compromise Can’t Wash Away Corruption’: Supreme Court Sets Aside HC Order Quashing Fraud Case

The Supreme Court has held that quashing criminal proceedings on the basis of a compromise is prohibited where there is a clear loss to the public exchequer and offences under the Prevention of Corruption Act, 1988 are involved.

A bench of Justices Vikram Nath and Sandeep Mehta said that in cases of economic offences, it is not only the bank that suffers a loss but society at large is affected. The court noted that a one-time settlement does not secure the entire amount to which the bank would have been entitled had the cash credit account been maintained properly.

“One-time settlements are, as a rule, effected under circumstances where the bank, under duress, is compelled to accept a lesser amount in order to secure the maximum possible recovery against the defaulting account,” the bench observed.

The court was hearing an appeal filed by the Central Bureau of Investigation against a July 18, 2022 judgment of the Punjab and Haryana High Court. The High Court had allowed a petition under Section 482 CrPC [Section 528 of the BNSS] filed by M/s Sarvodaya Highways Ltd and its directors and had quashed the entire proceedings arising out of an FIR lodged by the CBI.

The FIR, registered on February 3, 2015 at the instance of the Branch Manager of the erstwhile State Bank of Bikaner and Jaipur (now SBI), alleged that the bank sanctioned credit facilities of Rs 50 crore (fund-based) and Rs 10 crore (non-fund-based) to the company on the basis of claims that it was executing large construction projects worth Rs 348.24 crore across India. It was later found that a fraud of Rs 52.50 crore had been committed. According to the prosecution, the company and then branch manager Nishan Lal connived to defraud the bank by submitting fabricated work orders and false information to secure the cash credit limit, which remained unpaid.

The CBI filed a chargesheet before the Special Judge, CBI, Panchkula, against the company, its directors and the bank manager.

While the case was pending, the company entered into a one-time settlement with the bank on March 5, 2018, settling its cash credit liability by paying Rs 41 crore. On this basis, the company and its directors approached the High Court, which subsequently quashed the proceedings.

Additional Solicitor General Vikramjit Banerjee, appearing for the CBI, argued that the investigation had revealed clear evidence of the use of fabricated documents to obtain the credit facility. He submitted that the bank agreed to the one-time settlement under compulsion after the account was declared a non-performing asset, resulting in a substantial loss to the exchequer. Quashing the proceedings also indirectly exonerated the bank manager, he argued.

Senior advocate Siddharth Dave for the respondents said the bank had agreed to the settlement and released all pledged assets. He pointed out that the Debt Recovery Tribunal proceedings had been closed at the bank’s instance, and in this situation continuing the criminal prosecution would serve no purpose.

After examining the record, the bench held that the High Court failed to consider crucial facts, including the alleged use of fabricated documents and the fact that the settlement amount was significantly lower than the actual liability.

“The blanket order quashing the chargesheet in its entirety would have the effect of terminating the prosecution against the bank manager as well, against whom prosecution sanction has been granted,” the court noted.

Referring to several judgments, the bench reiterated that economic offences cause broader harm to society and cannot be treated as mere disputes between private parties. It also stressed that the one-time settlement amount of Rs 41 crore was far below the outstanding liability of approximately Rs 52 crore.

Holding that the High Court had committed an error of law, the Supreme Court allowed the CBI’s appeal, set aside the impugned judgment and restored the criminal proceedings. It clarified that no observations made in the order should be taken as bearing on the merits of the case.

Case Title: Central Bureau of Investigation Vs M/s Sarvodaya Highways Ltd And Ors

Judgment Date: November 11, 2025

Bench: Justices Vikram Nath and Sandeep Mehta