The Supreme Court has quashed criminal proceedings against the appellants in the case of N.S. Gnaneshwaran & Others vs. The Inspector of Police & Another, observing that the dispute had been fully resolved through a one-time settlement with the bank and no public interest would be served by continuing the prosecution.
Background: Alleged Diversion of Bank Funds and CBI Chargesheet
The case stemmed from allegations that the appellants, along with other accused, had caused wrongful loss to the Bank by diverting ₹25.89 lakh from sanctioned loan funds intended for M/s Vinayaka Corporation. Following a complaint by the Bank, the Central Bureau of Investigation (CBI) registered a First Information Report (FIR) and subsequently filed a chargesheet against nine accused.
The charges included serious offences under Sections 120B (criminal conspiracy), 420 (cheating), 468 (forgery), and 471 (using forged documents) of the Indian Penal Code (IPC), as well as Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988. The prosecution alleged a fraudulent conspiracy to siphon off funds, raising concerns of white-collar financial crime.
High Court Refused to Quash Charges Despite Settlement
In the course of legal proceedings, the principal accused initiated a One-Time Settlement (OTS) with the Bank for an amount of ₹52.79 lakh, significantly higher than the alleged diverted sum. As the settlement was accepted and recovery proceedings were dismissed as resolved, the appellants sought relief from the Madras High Court, requesting the quashing of pending criminal proceedings.
However, the High Court rejected the petition, maintaining that even if a financial settlement had been reached, prima facie evidence of fraud and conspiracy warranted prosecution. The court emphasized that financial settlements should not override criminal accountability when a cognizable offence appears to have been committed.
Supreme Court Overrules High Court; Finds No Public Interest in Continuing Case
Aggrieved by the High Court’s decision, the appellants approached the Supreme Court, which heard the matter through a bench comprising Justice Vikram Nath and Justice Sandeep Mehta. The counsel for the appellants argued that the Bank had no outstanding dues, and that the matter was purely commercial, not involving any public servant—thus the Prevention of Corruption Act should not apply.
The State’s counsel, however, maintained that settlements should not interfere with criminal prosecutions, especially when the case involves alleged fraud and conspiracy.
After reviewing the facts, the Supreme Court noted that the Bank had not opposed the closure of proceedings and that identical charges against similarly placed co-accused had already been quashed and attained finality. The bench emphasized that when disputes are commercial in nature and are fully settled post-offence, the continuation of criminal prosecution does not serve public interest.
“The recovery proceedings before the tribunal have been dismissed as settled, and no residual claim survives,” the Court observed, granting parity to the appellants.
The Court concluded that the matter was resolved in substance and spirit, and allowed the appeal, quashing all pending criminal proceedings against the appellants.