The Supreme Court has held that criminal proceedings should not be allowed to continue against a loan defaulter if the bank and the debtor have reached a compromise for settlement of the loan account. The Court stated that allowing such proceedings would have a debilitating effect on the overall economy.
Court's Observations
A bench of Justices B V Nagarathna and Ujjal Bhuyan observed that permitting criminal proceedings after a settlement would be oppressive for the loan defaulter and amount to an abuse of the process of the court. The dispute, being commercial in nature, had been resolved between the parties.
Details of the Case
The Court allowed the plea of a businessman who sought quashing of a criminal case on the ground that he and the bank had already compromised before the Debts Recovery Tribunal (DRT). The businessman paid a settlement amount of Rs 4.25 crore against an outstanding due of Rs 6.49 crore, which included a notional interest of Rs 3.09 crore.
“Having regard to the fact that the dispute between the parties arising out of banking transactions which are commercial transactions having overwhelmingly or predominantly civil flavour had ended in a compromise settlement, that too, in the manner which we have delineated above, in our view, the possibility of his conviction of appellant No. 1 (businessman) is remote and bleak. Therefore, continuation of the criminal case would cause grave prejudice and injustice to the appellants,” the bench said.
Bank's Conduct Criticized
In this case, the bank had lodged a criminal complaint of cheating and fraud against the borrower two years after settling the loan. The case was investigated by the CBI, which filed a chargesheet alleging that the businessman used forged copies of audit reports to get enhancement of cash credit limit more than two times the original amount. Quashing the case, the Court said such conduct of the bank betrays lack of good faith.
“There is one more reason why we say so. If the respondent-Bank is permitted to go ahead with the criminal prosecution initiated after settlement of the loan account before the DRT, it would adversely impact the sanctity of such settlement which has become part of the judicial proceeding and which had the approval of a judicial forum like the DRT. If such a conduct is overlooked and prosecution is allowed to continue, many persons including commercial entities would be hesitant to come forward and seek resolution of their disputes arising out of banking transactions... This in turn would have a debilitating effect on the overall economy, more so, when the focus is on settlement of commercial disputes...” it added.
