'No Useful Purpose To Continue Criminal Proceedings,' SC Quashes Case Related To Diversion Of Funds After Settlement

The Supreme Court recently allowed a plea against rejection of quashing criminal proceedings against a man and others for the offences of cheating and forgery under the IPC and other offences under the Prevention of Corruption Act for diversion of funds sanctioned by a bank to a company in 2005.

A bench of Justices Vikram Nath and Sandeep Mehta held no useful purpose would be served by continuing the criminal proceedings in the present matter as the dispute has, admittedly, culminated in a comprehensive One Time Settlement under which the Bank has received the entire outstanding amount.

The court also noted the recovery proceedings before the Debt Recovery Tribunal have been dismissed as settled, and no residual claim survives. The Bank has not raised any objection to the closure of the matter and has issued formal acknowledgments of satisfaction.

The allegations against appellant number one, N S Gnaneshwaran were that he was instrumental in orchestrating the fraudulent diversion of funds sanctioned to M/s Vinayaka Corporation. He was alleged to have facilitated the encashment of multiple cheques drawn from the fraudulently obtained credit limit, using a network of relatives, employees, and fictitious identities. It was further alleged that he forged signatures and diverted the funds through various accounts linked to his family members and associates.

Appellant number two, N S Madanlal, the brother of Gnaneshwaran, was alleged to have assisted in the scheme by operating a Bank account in the name of Bharathi Traders along with his wife, through which cheques were deposited and funds withdrawn. He was also accused of physically filling in cheques and ensuring their credit and encashment as part of the larger conspiracy to siphon off funds from the Bank.

The High Court by an order on January 07, 2023 allowed the petition under Section 482 CrPC filed by accused number seven, who is the wife of appellant number one, and quashed the FIR insofar as it pertained to her. The said order was assailed before the Top Court by way of special leave petition, which came to be dismissed on March 26, 2021.

In identical cases initiated by the Central Bureau of Investigation (CBI) against the appellants and other accused based on the same set of transactions, a settlement was arrived at between the principal accused and the bank for an amount of Rs 52,79,000. Taking note of this compromise, the High Court proceeded to quash the proceedings against the accused on the ground of parity, and extended similar relief to the appellants herein by an order of September 26, 2022.

In the instant matter, despite the settlement, the High Court dismissed the petitions for quashing the proceedings on the ground that the stage of trial was advanced and held that the criminal proceedings could not be quashed merely on the basis of the one time settlement, when a prima facie case was made out.

The counsel for the appellants submitted that the dispute in question arose out of a commercial transaction which has since been amicably resolved through a One Time Settlement scheme extended by the bank. He also contended that the recovery proceedings initiated by the bank have been fully settled, no dues remain, and the bank has formally issued certificates recording its satisfaction.

Plea of parity was further taken submitting that the appellants are similarly placed to other co-accused, against whom proceedings have already been quashed, and that the continuation of proceedings in the present matter would amount to unfair treatment. Additionally, the counsel also submitted that the offences under the Prevention of Corruption Act were not attracted in the case of the appellants, who are private individuals and not public servants.

On the contrary, counsel for the respondents contended that the settlement of dues or compromise between the parties does not automatically warrant quashing of criminal proceedings when serious allegations involving fraud and criminal conspiracy are made out. He also submitted that the existence of a prima facie case was sufficient to warrant trial and that private settlements should not interfere with criminal prosecution, especially at an advanced stage.

Having heard the counsel, the bench opined, "Allowing the present criminal proceedings to continue would serve no meaningful purpose, particularly when the dispute between the parties has already been resolved through a full and final settlement. The settlement between the parties having taken place after the alleged commission of the offence, and there being no continuing public interest we see no justification for allowing the matter to proceed further".

Allowing the appeal, the court quashed the proceedings also noting charge sheets have been quashed in identical matter and there was no reason why the appellants should not be extended the same relief.

Case Title: N S Gnaneshwaran Vs The Inspector of Police & Anr.