The Supreme Court recently restored criminal proceedings against a company and its directors in a loan fraud case involving approximately ₹52.5 crore, holding that a one-time settlement (OTS) with a bank cannot justify quashing prosecution when forged documents were used and a clear loss to the public exchequer is evident. The case involved M/s Sarvodaya Highways Ltd. and its directors, along with a bank official of State Bank of Bikaner and Jaipur (now merged with State Bank of India). The charges against them included criminal conspiracy, breach of trust, cheating, forgery and corruption under relevant provisions of the Indian Penal Code (IPC) and the Prevention of Corruption Act, 1988 (PC Act).
The background is that the company had obtained large credit facilities from the bank in 2012. The investigation by the Central Bureau of Investigation (CBI) revealed that the company secured the loan by submitting fabricated work orders, manipulated revenue records and false stock statements. An internal bank inquiry declared the account a non‑performing asset (NPA) and estimated the fraud at around ₹52.5 crore. On that basis a chargesheet was filed against the company, its directors, and the then branch manager in 2015.
During the pendency of the case, the company and bank entered into a one-time settlement in 2018 under which the company paid ₹41 crore to the bank. Relying on this settlement, the company moved before a High Court under its inherent powers (under the Code of Criminal Procedure) to quash the criminal proceedings. In July 2022, the High Court quashed the FIR and the chargesheet on account of the OTS and closure of recovery proceedings. That order effectively terminated the prosecution, including against the bank manager — despite the fact that the bank accepted a reduced amount under duress as part of a recovery process.
On appeal by the CBI, a Bench of the Supreme Court — Justices Vikram Nath and Sandeep Mehta — set aside the High Court’s order and restored the criminal proceedings. The Court held that economic offences involving fraud, forgery and corruption are not mere civil disputes or private matters; they have far‑reaching implications on the public exchequer, financial system and society at large. The Court emphasized that a one-time settlement does not represent full recovery; the amount accepted under OTS was substantially lower than the actual liability, and the bank accepted the reduced amount under compelling circumstances typical of NPA recovery. The remaining deficit of over ₹5 crore (plus interest) signified real loss to public funds — a matter of public interest that cannot be simply pardoned by a compromise.
The Court further noted that criminal liability for offences such as forgery or corruption cannot be erased through a compromise or settlement between the borrower and the bank. Forged documents and collusion with a bank official emerged from the investigation; these facts, along with the deficit after settlement, were crucial factors the High Court failed to properly consider when quashing the case. By setting aside the quashing order, the Supreme Court clarified that none of its observations should prejudice the accused — but left it open for the trial court to proceed on merits.
The decision reinforces that in cases involving economic offences, especially where fraud or corruption is alleged, settlements for recovery cannot be a substitute for criminal accountability. The restoration of the chargesheet ensures that those responsible — including company directors and bank officials — face trial, thereby upholding larger public interest.
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