Madras High Court

S.Irudayanathan vs The Superintendent Of Police on 7 July, 2025

Author:
D.Bharatha Chakravarthy

Bench:
D.Bharatha Chakravarthy

2025:MHC:1582

Crl.O.P.No.9815 of 2024

IN THE HIGH COURT OF JUDICATURE AT MADRAS

ORDERS RESERVED ON : 17.06.2025

ORDERS PRONOUNCED ON : 07.07.2025

CORAM:

THE HONOURABLE MR. JUSTICE D.BHARATHA CHAKRAVARTHY

Crl.O.P.No.9815 of 2024
and Crl.M.P.No.6799 of 2024

S.Irudayanathan ...Petitioner /
Accused No.2

-Vs-
1.The Superintendent of Police
In-Charge Officer, CBI, Anti-Corruption Branch
'A' Wing, 3rd Floor, Shastri Bhavan
No.26, Haddows Road, Chennai – 600 007.

2.P.Palaniswamy ... Respondents /
De-facto complainant

Prayer: Criminal Original petition filed under
Section 482
of Criminal
Procedure Code, to quash the impugned charge sheet bearing C.C.No.2671 of
2022 on the file of the Chief Judicial Magistrate, Coimbatore, as far as this
petitioner is concerned.
For the petitioner : Ms.Kadambri Suresh
for Mr.Pravin Rathinam
For the respondents : Mr.K.Srinivasan
Special Public Prosecutor for R1
Mr.M.S.Viswanathan for R2

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ORDER

A.The Petition:

This Criminal Original Petition is filed to quash the final report in

C.C.No.2671 of 2022 on the file of the Court of Chief Judicial Magistrate,

Coimbatore.

B.Brief Facts:

2. The brief facts leading to the filing of this petition are that M/s

Canara Bank lodged an information in writing before the first respondent,

based on which a First Information Report was registered in

RC0322021A0009 dated 17.05.2021, for the alleged offences under Section

120B read with 420
IPC
and
section 13 (2)
read with 13 (1) (d) of the

Prevention of Corruption Act, 1988
.

2.1. The gist of the information is that M/s Air Carnival Private Limited,

represented by its Directors S. Irud a y a n a t h a n (A1), the petitioner herein, and

his wife, Mrs. Lima Rose (A2), applied for a loan by offering to create an

equitable mortgage of its immovable property measuring 3.75 acres along with

a building on S.F.Nos. 298/1 and 298/3 in Myleripalayam Village,

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Madukkarai Taluk, Coimbatore District. The Directors also acted as personal

guarantors. Based on the application dated 04.06.2016, a term loan of Rs. 4.90

Crores was granted along with a bank guarantee, a sum of Rs. 3.05 Crores on

01.06.2016; an overdraft facility of Rs. 4.70 Crores on 27.10.2016; and a

temporary overdraft of Rs. 1.00 Crore on 31.03.2017, totaling Rs. 13.65

Crores. The loan account was classified as 'Non-Performing Asset' (NPA) on

29.06.2017 and was reported as a fraudulent account on 27.11.2019. The

company and its Directors wilfully and dishonestly defrauded the Bank by

conspiring to divert and siphon the loan amount, causing wrongful loss of Rs.

13.65 Crores to the Bank and wrongful gain to themselves.

2.2. After an investigation, the final report was submitted. The report

states that the 2 Director, M r s . Li m a Ros e, had no criminal intent or
nd

knowledge regarding the mentioned transaction, and therefore her name is

omitted. It also states that there was no criminal intent or knowledge on the

part of the public servants/bank officials concerning the transactions, and the

provisions of the offences under the
Prevention of Corruption Act, 1988
, were

dropped. Furthermore, it explains that initially, while the petitioner,

Irud a y a n a t h a n , operated his business as a proprietorship, he showed higher

contributions when he transitioned to a partnership, whereas the contributions

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of the other partners were minimal. Later, when the partnership was converted

into a company registered under the
Companies Act, 2013
, the property

offered as security remained in his personal name and was not transferred to

the company's name.

2.3. Further, by availing the loans on the specified dates, the company

did not adhere to its original plan, and the primary sureties in the form of

goods that should have been created were not created. On the other hand, the

loan proceeds were siphoned off to other accounts to create four Fixed

Deposits, which were subsequently used as margin money for bank

guarantees. Subsequently, several bank guarantees were obtained in favor of

M/s Anjali Hotels Private Limited, M/s Airports Authority of India,

Coimbatore, Air India Air Transport Services Limited, New Delhi, ATR

Eastern Support Private Limited, Singapore. Additionally, the loan amount

was diverted to other institutions such as M/s Coimbatore Marine College,

Mangalore Marine College, and Technology. However, the accused failed to

repay the principal and interest, leading to the accounts being classified as

NPA. In the meantime, the company went into liquidation and is now

represented by the Official Liquidator. The matter is currently pending before

the National Company Law Tribunal, Chennai. Therefore, finding that the

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offence under
Section 420
of IPC is made out, the final report has been filed.

2.4. It is stated that, in the meantime, by a communication dated

12.01.2022, Canara Bank offered to accept a sum of Rupees 12 Crores as full

and final settlement, on the condition that the amount be paid in installments

within the specified timeline, with the final installment of Rupees 3 Crores to

be paid on or before 31.03.2022. In addition, the legal expenses and

CIRP/liquidation expenses were also to be paid. It is explicitly mentioned in

the offer that the account will be considered closed only after all direct and

indirect liabilities in the name of the firm/borrower/guarantors are settled. It is

further stated that the One Time Settlement will not affect ongoing criminal

proceedings initiated by the CBI/Police authorities. The One-Time Settlement

(OTS) will be without prejudice to the rights of the CBI/Police to investigate

or prosecute and shall not hinder the continuation or resolution of any pending

criminal proceedings, if any.

2.5. The petitioner is said to have completely paid the loan amount of

Rs.12 Crores on 02.03.2022, and there are no dues whatsoever to the Bank,

with the civil liability amicably settled. However, due to the clause originally

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contained in the memorandum of understanding, the Bank is not coming

forward to join in the filing of application for compounding under
Section 320

of Cr.P.C. Therefore, contending that the entire action does not constitute any

criminal offence and that the settlement of dues amicably should be

considered, and the proceedings be quashed.

C.Submissions of the learned counsel:

3. Heard, M s . K a d a m b r i Sure s h , the learned counsel appearing on behalf

of the petitioner. Firstly she would submit that the amount was borrowed after

furnishing due security. There was never an intention to cheat the bank. It was

a failed venture and thus the account slipped into NPA. The petitioner had

made all earnest efforts and has settled the loan amount. Except for the brief

period of default, there was no dishonest intention for the petitioner. The

learned counsel would rely upon various Judgments of the Hon'ble Supreme

Court of India, more specifically
K.Bharthi Devi V. State of Telangana1
and

N.S.Gnaneshwaran Vs. Inspector of Police & Anr.2
and would submit that

the proceedings are liable to be quashed.

1 (2024) INSC 750
2 (2025) SCCOnLine SC 1257

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3.1. Per contr a, Mr. K. Sriniv a s a n , the learned Special Public

Prosecutor, would submit that the legal position in this regard has not been

altered by the Hon'ble Supreme Court of India, and he would rely upon a set of

judgments to argue that, in cases involving bank fraud, the Court should not

invoke jurisdiction under
Section 482
of Cr.P.C. based on a subsequent

settlement. In fact, when the money originally borrowed is sanctioned for

specific purposes such as purchasing tools, kits, and equipment, which serve

as primary security for the loan, diverting funds for a different purpose and

then defaulting completes the offence of cheating.

3.2. The learned counsel appearing on behalf of the 2 nd

respondent/Canara Bank submitted that the entire dues of the Bank have been

settled, and the Bank has no serious objections in considering the petition for

quashing. However, in view of the clause in the memorandum of One Time

Settlement, there was no mandate for the Bank to file a compounding

application before the Trial Court.

D.Consideration and Findings:

4. This case was heard along with the connected Crl.O.P.Nos.30938 and

30939 of 2024 whereby, this Court considered the arguments made by the

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learned counsel on either side at length and already all the Judgments relating

to the quashing of cases on settlement of the dues amicably with the Bank,

especially in bank fraud cases have been considered and the following

conclusions are arrived at in respect of the legal position and the same is

reproduced as under :

“In this regard, both sides presented detailed arguments,
and it is essential to consider the legal position before moving to
the facts of the present case. The following are the relevant
judgments of the Hon’ble Supreme Court of India :

Sl. Date of Cause Title and Proposition
No. Decision Citations

1. 29.04.1987 Y.Suresh Babu Vs. This is a case of offence under section 326
State of A.P. and Ors. of
IPC
, when the compromise the issue, the
[1987 (2)JT SC 361] Hon’ble Supreme Court of India set aside
the conviction and sentence, upon
compromise and permitted the case to be
closed. It was specifically mentioned that the
decision shall not be treated as a precedent.

Thus at best was an exercise of extraordinary
power under
Article 142
of the Constitution
of India

2. 14.03.1988 Mahesh Chand and This is the case of an offence under section
ors. Vs. State of 307 the accused was a practicing lawyer, the
Rajasthan parties settled the issue again after
[1990 Supp (1)SCC conviction, the same was set aside and the
trial was permitted and allowed to record the
681]
compromise and compound the offence. The
decision in Y.Suresh Babu cited (supra) was
also referred. Thus it can be seen that this
can also be treated as exercise of power
under
Article 142
of Constituion of India.

3. 09.07.1996 Central Bureau of The Hon’ble supreme court was considering
Investigation,SPE, SIU the quashing of First Information report for
(X), New Delhi Vs. the offences under section 409,
Duncan Agro 420,467,468,471 of the
IPC
. The allegations
Industries Ltd.,

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Sl. Date of Cause Title and Proposition
No. Decision Citations
Calcutta inter alia where that when there has been
transferor company and transferee company,
[(1996) 5 SCC 591]
it was represented to the bank as if the
earlier charge has been completely satisfied
while no repayment was made, by making
other false representation the credit limit was
sanctioned. A stock worth about Rs. 12
Crores were also fraudulently disposed of
without payment to the bank and also same
hypothecated to the bank after considering
the various ingredient to be proved under
section 420 of Indian Penal Court, the
Hon’ble supreme court of India held that
basically it was a matter of civil dispute
since the bank has already filed suits and the
issue was compromised upon receiving
payments and considering the time lack that
the First Information report lodged in the
year 1987 and no action has been taken as
against the erring official of the bank the
High Court was right in quashing the FIR.

4. 04.05.1999 Surendra Nath The Three Judges bench of the Supreme
Mohanty and Anr. Vs. court of India, held the earlier judgment in
State of Orissa Suresh Babu itself states that it shall not be
[(1999) 5 SCC 238] treated as a precedent. Further held that the
Judgments in
Ram Pujan and Ors. Vs. State
of Uttar Pradesh
(1973) 2 SCC 456 and
Mahesh Chand and ors. Vs. State of
Rajasthan 1990 Supp (1)SCC 681 cited
(Supra) were not in accordance with law and
held that the offences can be compounded if
only they are covered under table I or table II
under
Section 320
of the Code of Criminal
Procedure.

5. 13.03.2003 B.S. Joshi and Others For the first the Hon’ble supreme court
Vs. State of Haryana ofIndia considered the issue in detail. It
and Another considered the parameters
laid down by
the
[(2003) 4 SCC 675] constitution bench in State of Haryana and

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Sl. Date of Cause Title and Proposition
No. Decision Citations
Ors. Vs. Ch. Bhajan lal and Ors. 1992 Supp
(1)SCC 335 and took note of the fact that the
extraordinary powers under section 482 of
the code of Criminal Procedure can be
exercised to secure the ends of Justice.
The
court considered the earlier judgement in

State of Karnataka Vs. L,Muniswamy and
Ors.
1977 2 SCC 699 where the exercise of
power can be made,if the materials are
inadequate. Thereafter more specifically
considering the issue involved is that of
family affair and that not compounding the
offences such as 498A would be counter
productive and act against the interest of
women expressly laid down the law that the
High Court in exercise of its inherent powers
can quash the criminal proceedings or First
Information Report or Complaint and
Section 320 of the code does not limit or
affect the powers under section 482 of the
Code.

6. 20.08.2008 Nikhil Merchant Vs. The Hon’ble Supreme Court of India was
Central Bureau of considering the quashing of a charge sheet
Investigation and Ors. laid for offences under section 120B r/w
[( 2008 ) 9 SCC 677] section 420,467,468,471 and
Sections 5(2)
,

5(1)
d of
Prevention of Corruption Act,1947

and under
section 13 (2)
and
13 (1) (d)
of
Prevention of Corruption Act,1988 and after
considering the judgments in Duncan’s Agro
and B.S. Joshi (cited supra) the Supreme
Court considered that a compromise has
been arrived between bank and the company.
The dues are settled and the bank does not
have any further claim in that background if
certain documents are forged to have been
created by the company in order to avail
credit facilities beyond the limit to which the
company was actually entitled to, the dispute
has overtone of a civil dispute with certain

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Sl. Date of Cause Title and Proposition
No. Decision Citations
criminal facets. The court held that in view
of the compromise and the terms the
criminal proceeding can be quashed.

7. 16.10.2008 Manoj Sharma Vs. The Hon’ble Supreme Court of India was
State and Others considering quashing of a FIR under Section
[(2008) 16 SCC 1] 420, 468, 471 r/w 34 and
Section 120B
of
Indian Penal Code, 1860. After considering
that the De facto complainant compromised
the issue, the Supreme court held that the
dispute is of private nature in such cases
pragmatic view can be taken and
proceedings be quashed.

8. 08.04.2009
Rumi Dhar Vs. State of The
Hon’ble Supreme Court of India was
West Bengal and Ors. again considering the dismissal of the
[2009 (6) SCC 364] discharge application on the ground that
parties have settled the issue. It is a case
where it is alleged that the overdrawal
benefit granted and availed without
furnishing the security and the individuals
and the officials of the bank were prosecuted
Under
Section 120B
,
,
,
and
of Indian Penal Code . The parties were
repaid the entrie amount and further no due
to the bankeventhough the Duncan’s Agro
and Nikhil Merchant cited (Supra)were
brought the notice of the Supreme Court of
India. The Supreme Court of India held that
it would not direct quashing of a case
involving crime against society and thus
directed the proceedings be continued.

9. 24.09.2012
Gian Singh Vs. State of This
is the case in Three Judges bench of
Punjab Supreme Court of India concerned with the
case where the petitioner is convicted under
[(2012) 10 SCC 303]

Section 420
and
120B
of Indian Penal Code
and considered the issue in detail. Firstly, it
held that the line of Judgments holding the

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Sl. Date of Cause Title and Proposition
No. Decision Citations
view that when
section 320
of Code of
Criminal Procedure,1973 holds only certains
offences can be compoundable then if non
compoundable offences are quashed under
section 482 the same would run counter to
section 320 and therefore the inherent
powers should not be exercised in violation
of section 320 is not a correct legal position.
It held that the exercise of power namely
Compounding and quashing under section
482 are different exercises and section 320
will not bar the exercise of power.

It
expressly held that the view taken in

Simrikihia V. Dolley Mukerjee
and chhabi
mukerjhee and Ors. 1990 (2) SCC 437;

Dharam paul and
Ors. V. Ram Shri and Ors
.

(1993) 1 SCC 435;
Arun Shankar Shukla Vs.
State of Uttar Pradesh and Ors.
1999 6 SCC
146 ; Ishwar Singh V. State of Madhya
Pradesh (2008)15 SCC 667 does not lay
down the correct position of law.

Secondly,
it held that the Judgment in
B.S. Joshi and
Others V. State of Haryana and Another

[(2003) 4 SCC 675;Nikhil Merchant v.

Central Bureau of Investigation and Ors.
[( 2008 ) 9 SCC 677];
Manoj Sharma Vs.
State and Others
(2008) 16 SCC 1 , Shiji
alias
PAPPU and Others V. Radhika and
Ors.
(2011)10 SCC 705, Kulwinder Singh
and Ors. Vs. State of Punjab and Anr. (
2007)
4 CTC 769, Abasaheb Yadav Honmane Vs.
State of Maharashtra
2008 2 Mah LJ 856
and Madan Mohan Abbot Vs. State of
Punjab (2008)4 SCC 582 holding that the
powers under section 482 can be exercised
for quashing the even the non-compoundable
offences under certain circumstances and the
correct view.

If then consider the dictum in Nikhil

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Sl. Date of Cause Title and Proposition
No. Decision Citations
Merchant, Manoj Sharma Etc., and the
contra opinion expressed in
Rumi Dhar V.
State of West Bengal and Ors.
2009(6) SCC
364;

Ashok Sadurangani Vs. Union of India
(11) SCC 321 and laid down the law in
paragraph 58 and 61 of the Judgment. Thus
essentially it held that while no category can
be prescribed heinous and serious offences
of mental depravity, murder, rape, dacoity
cannot be quashed. Even the victim or the
victim’s family settled the issues. Similarly
compromise between victim and the
offender under Special law of Prevention of
corruption Act or the offences committed by
the public servant cannot be quashed. The
criminal cases having overwhelmingly and
predominantly civil flavor particularly of
they arise from commercial financial
mercantile civil partnership are like
transactions and the offences arising out of
matrimony relating to dowry are family
disputes which are all basically private an
personal in nature and if the parties have
resolved the dispute considering that because
of the possibility firstly the conviction is
remote and bleak and the continuation of the
case would put the accused in great
oppression and prejudice to the accused
despite full and complete settlement and
compromise with the victim. Thus,
essentially to prevent abuse of process
despite settlement and to secure the ends of
justice if it is appropriate the High Court
within its jurisdiction to quash the criminal
proceedings.

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Sl. Date of Cause Title and Proposition
No. Decision Citations

10. 01.10.2013 Central Bureau of The Hon’ble Supreme Court of India was

Investigation Vs. Jagjit
considering the prayer to quash the final
Singh report for alleged offences under Section 420
[(2013) 10 SCC 686] and 471 of the
Indian Penal Code
with
allegations of obtaining loan with forged
documents and further investigation
revealing involvement of officials under

Section 13(2)
r/w 13(1)(d) of
Prevention of
Corruption Act,1988
. The Hon’ble SC held
that the offences when committed in relation
with banking activities including under
Section 420 and 471 have harmful effect on
the public and threaten the wellbeing of the
society. Thus would be offences involving
moral turpitude committed by the public
servants therefore cannot be quashed.

11. 28.02.2014 CBI, ACB, Mumbai Vs. The Three Judges bench of the Hon’ble
Narendra Lal Jain and Supreme Court of India was concerned with
Ors. the case where 2 charge sheet were filed
[2014 (5) SCC 364] under
Section 120B
,
of Indian Penal
Code and
Section 5(2)
and
5 (1)
d of

Prevention of Corruption Act, 1947
whereby
it is alleged that inflated figures of the credit
worthiness of the companies were
represented and higher amounts of loans
were obtained from the bank. After noting
down the principles laid down in Gian Singh
and considering that the civil liability of the
accused to pay the amount to the bank to
settle amicably and bank having no
subsisting grievance held that the
proceedings would likely to become
oppressive and partake the character of same
prosecution and therefore it would be
appropriate to invoke the jurisdiction under

Section 482
of Code of Criminal Procedure.

12. 19.09.2014 State of Maharashtra Considering the case of obtaining of credit
Vs. Vikram Anantrai facilities where the accused persons

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Sl. Date of Cause Title and Proposition
No. Decision Citations
Doshi, concealed the facts relating to their dues
outstanding and mislead the bank by
[(2014) 15 SCC 29]
furnishing wrong statements, the Hon’ble
Supreme Court of India concluded that such
financial frauds cannot be termed as a
personal wrong. The society is the ultimate
victim as the offences are grave creating a
dent in the economic spine of the nation an
held that such offences cannot be quashed .
The view taken in
Gopakumar B. Nair V.
CBI and Ors.
(2014) 5 SCC 880 was
followed. The judgment in Narinder singh
and Ors. V. state of Punjab and Ors. (2014)
6 SCC 466 where the Hon’ble Supreme
court of India delineated the
procedure/factors to be considered and
followed by the High Court pursuant to Gian
Singh’s case was also reiterated.

13. 28.08.2015 Central Bureau of In a case of offences under Section
Investigation Vs. 420,467,468,471 r/w Section 120B of Indian
Manider singh Penal Code the Supreme Court considering
[(2016) 1 SCC 389] the fact that the forged documents of FBP
Etc., were submitted to availed credit
facilities held that financial forgery being
well planned with an eye on personal profit
regardless of not considering the society
cannot be quashed on compromise. The view
taken in Vikram Anantrai’s case was
reiterated.

14. 15.09.2015 State of Tamil Nadu In this case the Hon’ble Supreme Court of
Vs. Vasanthi Stanley India was concerned with the fact situation
and Ors. of quashing the pending criminal
[(2016) 1 SCC 376] proceedings. Where the allegations of
borrowing by submitting forged documents
and were prosecuted under
Section 120B
,
,
,
,
and
of Indian Penal
Code,1860 and the husband of the accused
having died and the entire issues of the bank

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Sl. Date of Cause Title and Proposition
No. Decision Citations
having settled the court reiterated the law
laid down on Vikram Anantrai Doshi and set
aside the order of the High Court quashing
the proceedings.

15. 16.02.2022 Kothari Polymers ltd. In this case the Hon’ble Supreme Court of

And Ors. Vs. India
was concerned with quashing of a First
SIU(X)/SPE/CBI [2022 Information Report for alleged offence under
SCC online SC 2078]
Section 120B
,
of IPC and 13(2) r/w
13(1)(d) of
Prevention of Corruption
Act,1988
.The allegation is that by making
two sets of title documents in respect of
same property without disclosing to the other
bank, two banks wereapproachedand loans
were obtained by playing fraud. The High
Court dismissed the quash application on the
ground that the offence has a serious impact
on the society. The Supreme Court
considered the fact that no permission was
granted to prosecute the bank officers.

Considering the fact that the only family
members alone were not prosecuted and that
18 years have elapsed, the Supreme court of
India quash the prosecution on terms to
make would the wastage of time of the
prosecution agency by imposing a cost of
Rs.25Lakhs on the appellant. The Hon’ble
Supreme Court of India also held that the
case is having predominantly civil character
the courts may be liberal in accepting the
settlement and quashing the criminal
proceedings.

16. 03.10.2024
Tarina Sen Vs. Union The
Hon’ble Supreme Court of India was
of India and Anr. concerned about the quashing of the pending
[2024 SCC Online SC criminal proceeding before the special Judge
Bhubaneswarfor the offences under Section
2696]
120B, 420, 468,471 of
Indian Penal Code

and
Section 13(2)
r/w 13(1)(d) of
Prevention
of Corruption of Act,1988
. The allegations

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Sl. Date of Cause Title and Proposition
No. Decision Citations
were two car loans were advanced by the
Manager of the bank for a sum of
Rs.8,00,000/- and Rs.11,83,600/- without
any security whatsoever only by getting post-
dated cheques which bounced. Subsequently,
the Court considered that the matter has been
compromised between the borrowers and the
bank. The amount settled under the One
Time Settlement and the Loan account has
been closed. Relying upon a similar
judgment Special Leave Petition Crimianl
No. 4353 of 2018 the Supreme Court held
that the criminal proceedings would not be
justifiable those further held that possibility
of a conviction is remote and bleak and
continuation of the proceeding would be
oppressive.

17. 03.10.2024
K.Bharthi Devi V. State In
this matter the Hon’ble Supreme Court of
of Telangana India was considering a prayer to quash the
[2024 INSC 750] final report for the offences under
section
120B
,
,
,
,
and
of Indian
Penal Code and
Section 13(2)
r/w13(1)(d) of

Prevention of Corruption Act,1988
. The
facts are that various credit facilities were
sanctioned by the bank. Subsequently the
account was classified as Non-Performing
Assets and an application to recover the
amount was filed before the Debt Recovery
Tribunal (DRT), Hyderabad. Pending the
same it was found that the original
documents which was deposited for creation
of Equitable Mortgage were fake,forged and
fabricated and hence the criminal case
pending the DRT proceedings the borrower
settled the amount by One Time Settlement.
The petition to quash was dismissed by the
High Court. The Hon’ble Supreme Court of
India noting the earlier dicta and considering
the law
laid down in
Gian Singh the Hon’ble
Supreme Court consider both the line of

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Sl. Date of Cause Title and Proposition
No. Decision Citations
judgments where the allegations either
constitute predominantly civil nature with
criminal aspects and other cases where
serious criminal offences are committed.
The court found that the possibility of
conviction is remote and bleak and the
continuation of Criminal case would put the
Accused in great oppression and prejudice
by not quashing the criminal case.

The court also consider the earlier ruling in
CBI Vs. Saadhuram Singhla 2007 (5) SCC
350 and came to the conclusion that
possibility of conviction is remote and bleak
and quash the proceedings by setting aside
the judgment of the High Court.

18. 16.04.2025 Suresh C.Singhal and The Hon’ble Supreme Court of India was
others Vs. State of concerned with quashing of the proceedings
Gujarat and Ors. for Sections 420, 467, 468 and 471 read with
[2025 SCC Online SC 120B of the
Indian Penal Code
, 1860 and it
considered that the offences under section
788]
13(2) read with
Section 13(1)(d)
of the
Prevention of Corruption Act,1988,
subsequently findings on the said offences
were dropped. When the case was pending
the appellant settled with bank and the bank
issued No DueCertificate(NOC). The
Supreme Court of India considered the fact
that some of the offences being
compoundable the same footing of the case
Bharathi Devi held that the disputed
involved is primarily civil nature. The
aggrieved party if any would be the bank
which has got no grievance. And the
settlement is made in the early stages the
High Court can exercise power under

Section 482
of Code of Criminal
Procedure,1973 by showing benovolence
and the assessment of the circumstances and
materials as mentioned and accordingly held

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Sl. Date of Cause Title and Proposition
No. Decision Citations
that the High Court should have exercised
the powers and quashed the proceedings.

19. 28.05.2025 N.S.Gnaneshwaran In this case the Hon’ble Supreme Court of
Etc. Vs. Inspector of India was concerned with quashing of
Police and Anr. proceedings for alleged offences under
[2025 SCC Online SC Section 120B r/w 420, 467, 468, 471 of
IPC

and
Section 13 (2)
r/w13 (1) d of Prevention
1257]
of
Corruption Act,1988
. The allegationsin
this case is that the accused after obtaining
funds in respect of concern, through multiple
transactions involving the network of
fictitious identities diverted the funds
pendency of the trial by way of One Time
Settlement the issue was settled between the
bank and petitioner. The application for
quash was rejected on the ground that the
trial has already begin. The Supreme Court
considered that proceedings culminated into
a comprehensive One Time Settlement by
which the bank has received the outstanding
amount and no residual claim surviving and
the bank not raising any objections to the
closure of the matter held that no meaningful
purpose would be served particularly when
the dispute between the parties have been
resolved and quashed the proceedings.

30. Thus, from the detailed analysis of numerous
decisions, it is evident that the law regarding the quashing of
criminal cases involving non-compoundable offences, where
parties allege settlement, has been clearly laid down by the
Hon'ble Supreme Court of India in
Gian Singh Vs. State of
Punjab
(cited supra). It is essential to refer to paragraph Nos. 58
and 61 of that judgment:

“58. Where the High Court quashes a
criminal proceeding having regard to the fact that the
dispute between the offender and the victim has been
settled although the offences are not compoundable,

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it does so as in its opinion, continuation of criminal
proceedings will be an exercise in futility and justice
in the case demands that the dispute between the
parties is put to an end and peace is restored;

securing the ends of justice being the ultimate
guiding factor. No doubt, crimes are acts which have
harmful effect on the public and consist in
wrongdoing that seriously endangers and threatens
the well-being of the society and it is not safe to
leave the crime-doer only because he and the victim
have settled the dispute amicably or that the victim
has been paid compensation, yet certain crimes have
been made compoundable in law, with or without the
permission of the court. In respect of serious offences
like murder, rape, dacoity, etc., or other offences of
mental depravity under
IPC
or offences of moral
turpitude under special statutes, like the
Prevention
of Corruption Act
or the offences committed by
public servants while working in that capacity, the
settlement between the offender and the victim can
have no legal sanction at all. However, certain
offences which overwhelmingly and predominantly
bear civil flavour having arisen out of civil,
mercantile, commercial, financial, partnership or
such like transactions or the offences arising out of
matrimony, particularly relating to dowry, etc. or the
family dispute, where the wrong is basically to the
victim and the offender and the victim have settled
all disputes between them amicably, irrespective of
the fact that such offences have not been made
compoundable, the High Court may within the
framework of its inherent power, quash the criminal
proceeding or criminal complaint or FIR if it is
satisfied that on the face of such settlement, there is
hardly any likelihood of the offender being convicted
and by not quashing the criminal proceedings, justice
shall be casualty and ends of justice shall be defeated.
The above list is illustrative and not exhaustive. Each
case will depend on its own facts and no hard-and-
fast category can be prescribed.

......

......

61. The position that emerges from the above
discussion can be summarised thus : the power of the

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High Court in quashing a criminal proceeding or FIR
or complaint in exercise of its inherent jurisdiction is
distinct and different from the power given to a
criminal court for compounding the offences under
Section 320 of the Code. Inherent power is of wide
plenitude with no statutory limitation but it has to be
exercised in accord with the guideline engrafted in
such power viz. : (i) to secure the ends of justice, or

(ii) to prevent abuse of the process of any court. In
what cases power to quash the criminal proceeding or
complaint or FIR may be exercised where the
offender and the victim have settled their dispute
would depend on the facts and circumstances of each
case and no category can be prescribed. However,
before exercise of such power, the High Court must
have due regard to the nature and gravity of the
crime. Heinous and serious offences of mental
depravity or offences like murder, rape, dacoity, etc.
cannot be fittingly quashed even though the victim or
victim's family and the offender have settled the
dispute. Such offences are not private in nature and
have a serious impact on society. Similarly, any
compromise between the victim and the offender in
relation to the offences under special statutes like the

Prevention of Corruption Act
or the offences
committed by public servants while working in that
capacity, etc.; cannot provide for any basis for
quashing criminal proceedings involving such
offences. But the criminal cases having
overwhelmingly and predominatingly civil flavour
stand on a different footing for the purposes of
quashing, particularly the offences arising from
commercial, financial, mercantile, civil, partnership
or such like transactions or the offences arising out of
matrimony relating to dowry, etc. or the family
disputes where the wrong is basically private or
personal in nature and the parties have resolved their
entire dispute. In this category of cases, the High
Court may quash the criminal proceedings if in its
view, because of the compromise between the
offender and the victim, the possibility of conviction
is remote and bleak and continuation of the criminal
case would put the accused to great oppression and
prejudice and extreme injustice would be caused to
him by not quashing the criminal case despite full

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and complete settlement and compromise with the
victim. In other words, the High Court must consider
whether it would be unfair or contrary to the interest
of justice to continue with the criminal proceeding or
continuation of the criminal proceeding would
tantamount to abuse of process of law despite
settlement and compromise between the victim and
the wrongdoer and whether to secure the ends of
justice, it is appropriate that the criminal case is put
to an end and if the answer to the above question(s) is
in the affirmative, the High Court shall be well
within its jurisdiction to quash the criminal
proceeding.”

31. There is no quarrel over the proposition that the
High Court will be well within its jurisdiction to quash the
proceedings on compromise, if the offence is predominantly
civil in nature, private in nature, completely settled between
the parties with no claim subsisting and the continuance of the
proceedings is a bleak prospect for the prosecution and would
be oppressive on the accused to be continued, even after
settlement. The power is to be exercised with a great amount
of prudence and responsibility, to secure the ends of justice.

32. However, the question regarding the instances of
various frauds committed by parties concerning banking
transactions, obtaining loans, and defaulting on and
subsequently settling them through methods like OTS, with
the bank, has been addressed by the Hon'ble Supreme Court of
India in the cases mentioned above. In some cases, cases were
quashed, while in others, they were not. But a proper and
combined reading of all the judgments cited above related to
this subject shows that the common thread for the conclusion
reached. It is not the classification or categorisation of the
particular offence, such as 468, 471 of
IPC
, or offences under
Section 120 B read with 420 of
IPC
which is paramount.
Instead, it is the nature of the allegations that the Court must
examine. By considering the facts and circumstances of each
case, one has to determine whether the case involves a purely
commercial or private transaction between the bank and the
borrower, or if it has broader implications affecting society or
the financial system as a whole.

33. In these cases, the nature of facts and circumstances

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must be examined. First, the Court must be satisfied that the
case is primarily commercial or civil in nature and that the
criminal aspects are not of utmost depravity and seriousness,
which could have a likely impact on society as a whole or the
country's financial system. The second step involves assessing
whether the case has been fully settled and whether the Bank
has any remaining claims. If the case has reached a complete
and final settlement and the bank has no pending claims, then
the Court moves to the third step to evaluate whether
continuing the prosecution is prudent and likely to succeed in
prosecuting the accused. Additionally, the Court must consider
whether continuing the proceedings would be unfair,
oppressive, or constitute an abuse of the legal process,
considering the nature of the settlement or compromise, the
circumstances of the alleged default, efforts made by the
accused, the time elapsed, and the stage at which quashing is
requested. In the interest of justice, the Court may, in fit cases,
decide to quash the proceedings. In appropriate cases, costs
can also be imposed.”

4.1. Based on the above, examining the facts of the present case, it is

clear that the only offense alleged is under
Section 420
of the Indian Penal

Code. Although the Bank has no serious objection, it has not explicitly agreed

to join the petitioner in filing an application for compounding before the

appropriate forum.

4.2. The main allegation against the petitioner is that, immediately after

receiving the loan, the funds were diverted from the original purposes stated in

the loan application, such as purchasing tools and equipment. The entire loan

amount was initially used to create Fixed Deposits and was later reallocated

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for other purposes, including providing margin money for bank guarantees and

transferring funds to other institutions related to the petitioner, including those

associated with the marine college business. Therefore, the core allegation is

that the petitioner acted dishonestly by misrepresenting the purpose for which

the loan was obtained. Although the funds were meant for his other business

ventures, a different purpose was declared in the loan application.

4.3. When the loan amount was disbursed in April 2016, July 2016,

October 2016, and the final transfer of Rs. 1 Crore was sanctioned in March

2017, it is evident that in the very next quarter, on 29.06.2017, the account

was classified as NPA. The original loan was obtained from the erstwhile

Syndicate Bank, which later merged with Canara Bank. The statement of

L.W.7 – Shri Ar u n Ras a p p a n , regarding the pending disbursement and

utilization of the bank accounts, reads as follows:-

“On being asked how many Bank Loan accounts have opened in
the name of M/s Air Carnival Private Limited, I state that after
sanction of various credit facilities to M/s Air Carnival Private
Limited, I have conveyed the sanction details to company and
after execution of loan documents, loan accounts have opened
in the name of M/s Air Carnival Private Limited viz. Term Loan
account No. T8QOSL5192560014 dated 06.06.2016 for Rs 4.90
crores, SOD having Account No.61401400000579, dated
28.10.2016 for Rs 4.70 crores I further state that the then
Regional Office of e-Syndicate Bank had sanction the BG limit
of Rs 3.05 crores, and our Ganapathy Branch of e-Syndicate
Bank issued the Four (4) Bank Guarantees as per request of

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CMD of M/s Air Carnival Private Limited. I further state that
Shri S. Irudayanathan CMD of M/s Air Carnival Private
Limited availed TOD Rs 1.00 cores in addition to SOD of Rs
4.70 crores, however, the company did not adjusted the TOD
within 30 days as condition stipulated by Bank. I further state
that the said TOD of Rs 1.00 crores also slipped to NPA along
with other Credit facilities.

On being asked how the Term Loan of Rs 4.90 crores was
disbursed to M/s Air Carnival Private Limited, I state that Shri
S. Irudayanathan CMD of M/s Air Carnival Private limited
requested to release the loan amount. I state that our Ganapathy
Branch had released the amount of Rs 4.90 crores to Current
account of M/s Air Carnival Private Limited. I state that Shri S.
Irudyanathan submitted the request letter dated 07.06.2016
signed by him, addressed to The Branch Manager, Syndicate
Bank, Ganapathy Branch, along with details of bills and
invoices. I have identified his signatures on the request letter of
the company. I further state that Shri S.Irudayanthan requested
in the said letter that he had already made payments to various
vendors of Rs 6.80 crores including margin money of the
company. I further state that Shri S.Irudayanathan further
requested in the latter that Rs 22,99,371/- was pending for
making payment to other vendors and requested the Branch to
make payments through RTGS/NEFT, for the purpose of
making payments, Shri S.Irudayanathan enclosed details of
suppliers/ vendors along with the request letter. (D.No.47).

On being asked, how these funds were utilized by the
company, I state that our bank had disbursed Rs 4.90 crores on
06.06.2016, from Term Loan account having Alc No.
T8QOSL5192560014 to the Current Account of M/s Air
Carnival Private limited having account No. 61401010001118. I
state that M/s Air Carnival Private Limited transferred an
amount of Rs 2.00 crores to four Fixed Deposit of Rs 50.00
lakhs each. (50.00*4=200.00 lakhs). I further states that on
10.06.2016, M/s Air Carnival Private Limited transferred Rs
10.00 lakhs to M/s Coimbatore Marine College through RTGS,
on 14.06.2016 transferred Rs 27.00 lakhs to M/s Coimbatore
Marine College through RTGS. I further state that Rs 6.25
lakhs, Rs 9.85 lakhs, Rs 20.47 lakhs, and Rs 40.00 lakhs was
debited on 01.07.2016 and used for the purpose of margin for
issuance of four Bank Guarantee. (D.No.142 & D.No.222).

I was shown the bills/invoices/Proforma Invoices
submitted by M/s Air Carnival Private Limited to the
Ganapathy Branch of e-Syndicate Bank, namely (1) M/s
Innerspace Interio dated 16.03.2016 for R$ 49,50,911/-, (2) M/s

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IPC
OM dated 19.04.2016 for Rs 67,64,050/- (3) M/s Mak
Control Systems for Rs 15,60,000/- (4) M/s Mak Constol
Systems for Rs 44,54,100/- (5) M/s
IPC
OM dated 19.04.2016
for Rs 67,64,050/- (Another Set, not repeated), (6) Copy of pro-
forma invoice dated 18.05.2016 of M/s Evolution for Rs.
91,24,999-99, (7) Copy of Payment Receipt of Rs 7,50,911/-
dated 21.06.2016 on the letter pad of M/s Elovution, (8) Letter
addressed to Regional Office, Coimbatore written by Senior
Branch Manager dated 28.06.2016 along with details of
payments made to suppliers/vendors and a letter from M/s Air
Carnival Private Limited addressed to the Branch Manager,
Syndicate Bank, Ganapathy Branch along with details of
payments made to suppliers/vendors duly signed by Chairman
and Managing Director (9) Copy of Payment Receipt of Rs
42,00,000/- dated 01.03.2016 on the letter pad of M/s
Elovution. I have gone through all the letters invoices / pro-
forma invoices, and state that Shri S.Irudayanathan Chairman
and Managing Director of M/s Air Carnival Private Limited
submitted all documents to the Ganapathy Branch through the
then Branch Manager during disbursement of the loan. I further
state that Shri S.Irudayanathan Chairman and Managing
Director of M/s Air Carnival Private Limited informed during
the relevant period that he made payments to various vendors
/suppliers for supply of goods and services. I further state that
the then Branch Head Shri Tiyagarajan informed that he had
visited the unit of M/s Air Carnival Private Limited and he was
satisfied that goods were purchased/ Service were obtained for
payments made by M/s Air Carnival Private Limited.
.............

.............”

4.4. One Par i p o o r a n a m , Senior Manager, who in his statement as

L.W.15 states as follows with reference to obtaining of lease of Aircrafts:

“On being asked how many Air Crafts were taken on lease by
M/s Air Carnival Private Limited during sanction of credit
facilities, I state that these credit facilities were sanctioned for
one Air Craft only, however, the company promised to take
another Air Craft on lease basis by end of December 2016,
however, it did not happen, the reason of the same was not
known to me. On being asked I state that during sanction of
credit facilities to M/s Air Canival Private limited, it was

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discussed in the committee of RLCAC-I that the project is
viable only if two Air Crafts would be taken on lease and
commercial operations should b done with two Air Crafts.”

4.5. There is also an additional allegation that when the balance sheet of

the original concern, viz., M/s Jet Carnival, showed a net worth of Rs.5.37

Crores, there was a sudden increase of Rs.11.85 Crores in just one month and

seven days, to reflect a higher valuation of Rs.11.85 Crores for the purpose of

portraying increased capital as if infused by the firm. A further reading of the

FIR shows that the company attempted to artificially boost its net worth to

become eligible for a larger loan amount, and later failed to follow the original

business plan by using the loan proceeds for purposes other than those

specified. However, from the testimonies of the various listed witnesses, it

appears that these actions were not done without the knowledge of the relevant

officials. One of the witnesses, viz., Anb u m a n i , was even penalized with a

minor penalty of a one-stage reduction in the pay scale for six months, without

cumulative effect, which did not adversely affect his pension.

4.6. A review of the loan sanction letters shows that the first sanction

letter, issued for a term loan of Rs.4.7 Crores, states the purpose is to cover

working capital needs. The second sanction letter, dated 04.06.2016, mentions

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that the loan was approved for purchasing tools and equipment, setting up a

corporate office, acquiring computers, printers, furniture, and carrying out

interior work on leased premises. Furthermore, 30% of the approved amount

had to be deposited as margin money.

4.7. Firstly, it can be seen that the allegation is the diversion of funds

for a different purpose, which would be a fraud within the meaning of the

circular of the Reserve Bank of India. However, per se, it would not amount to

an offence under
Section 420
of IPC. The transactions become an offence

once there is a default. Therefore, only if the petitioner does not pay the

amount due with respect to the specific installments, can it be said that the

ingredients of the offence under
Section 420
of IPC, i.e., causing loss to the

bank, are established.

4.8. Although the learned counsel for the petitioner submits that the

entire loan amount was secured, once the purpose of the loan is dishonestly

misrepresented and the amount remains unpaid on the stipulated dates, a prima

facie offence under
Section 420
of the IPC is established. Furthermore, the

factors pleaded by the petitioner would need consideration if a determination

is to be made regarding the absence of any intent to cheat the bank. Therefore,

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at this stage, it cannot be said that no offence under
Section 420
of the IPC is

made out.

4.9. On the other hand, as late as March 2017, the last transaction of

Rs.1 Crore of overdraft facility was sanctioned, and immediately thereafter, in

June 2017, the account was classified as NPA and taken into account.

Although the OTS proposal by the bank states that the settlement is not for the

ongoing criminal case, it is important to note that the standard clause is

included in all cases, as the bank cannot withdraw or compound because non-

compoundable offences are typically involved. Even in this case, offences

under Section 120(B) and also the offence under
Section 13(2)
read with

13(1)(d) were initially alleged against the bank officials, but these charges

were later dropped, leaving only the offence under
Section 420
IPC against the

petitioner.

4.10. Therefore, after careful consideration and review of the facts, the

position tilts in favor of the petitioner, indicating that the entire episode is

primarily commercial or civil in nature and does not impact society at large.

The civil dispute between the petitioner and the Bank has been amicably

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resolved, with the bank explicitly stating that no amount is due. Based on the

final report and collected materials, although there is evidence of siphoning

funds, the question of whether the intent to cheat the bank was present from

the outset would be difficult for the prosecution to prove to secure a

conviction, especially if proper security was provided. More importantly, the

diversion of funds initially was not to any external element but to the fixed

deposit accounts with the bank itself. The period during which the loan was

sanctioned, the fact that the petitioner’s venture quickly failed resulting in the

entire loan being classified as a Non-Performing Asset (NPA), and the

settlement reached on 02.03.2022 all suggest there was no deliberate delay or

mala fide intent by the petitioner to prolong the matter. Rather, the petitioner

sincerely attempted to settle the dispute amicably and swiftly with the bank.

Therefore, considering the full efforts toward settlement and compromise,

continuing the prosecution may be deemed oppressive and unjust to the

petitioner. Moreover, as per the dictum of the Hon'ble Supreme Court of India,

the entire basis of the complaint leading to the prosecution is solely due to the

petitioner’s default in amounts and causing the account to become an NPA.

Thus, the costs for prosecution and court fees should be imposed as per the

ruling in
Kothari Polymers Limited and Others Vs. CBI3
.

3 (2022) SCC Online SC 2078

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4.11. The total loan amount in this case is Rs.13.65 Crores, and I am of

the view that a cost of Rs.8 Lakhs should be imposed on the petitioner. Of this

a sum of Rs.4 Lakhs should be paid to the 1st respondent / Central Bureau of

Investigation towards prosecution expenses, and another Rs.4 Lakhs should be

deposited to the credit of the Tamil Nadu Mediation and Conciliation Centre,

High Court of Madras, Chennai – 104. The said fund shall be used for

purchasing furniture, computers, and infrastructural facilities for the District

Centres and Taluk Sub-Centres.

E.The Result:

5. In view thereof, this Criminal Original Petition is allowed on the

following terms:-

(i) Within eight weeks from the date of receipt of the web-copy of this

order, the petitioner shall deposit Rs.4 Lakhs with the 1st respondent –

Organization as costs and an additional Rs.4 Lakhs with the Tamil Nadu

Mediation and Conciliation Centre, High Court of Madras, Chennai-104;

(ii) Upon payment of the above-stated sums and production of the

receipt before the Trial Court, the proceedings in C.C.No.2671 of 2022 on the

file of the Chief Judicial Magistrate, Coimbatore, shall stand quashed;

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(iii) Failing compliance of the above, this Criminal Original Petition

shall stand dismissed.

(iv) The connected miscellaneous petition is closed.

Jer
07.07.2025
Neutral Citation : Yes/No

To

1.The Chief Judicial Magistrate,
Coimbatore.

2.The Superintendent of Police
In-Charge Officer, CBI, Anti-Corruption Branch
'A' Wing, 3rd Floor, Shastri Bhavan
No.26, Haddows Road, Chennai – 600 007.

3.The Public Prosecutor
High Court of Madras.

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D.BHARATHA CHAKRAVARTHY. J,

Jer

Crl.O.P.No.9815 of 2024

and Crl.M.P.No.6799 of 2024

07.07.2025

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