Advanced Trial Stage Bars Quashing U/S 528 BNSS Despite OTS in Bank Fraud Case: Madras High Court - 2025-04-30

Madras High Court Declines to Quash Bank Fraud Case Despite Settlement, Citing Advanced Trial Stage

Chennai: The Madras High Court has dismissed petitions seeking to quash long-pending criminal proceedings in a bank fraud case, ruling that despite a full settlement of dues between the accused and the bank's assignee, the advanced stage of the trial prevents the court from exercising its inherent powers under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (equivalent to Section 482 CrPC). Justice M. Nirmal Kumar emphasized that judicial intervention to quash proceedings is generally inappropriate when a trial is nearing conclusion.

Case Background

The case (C.C.No.66 of 2016) originated from a CBI investigation into allegations of cheating, forgery, and criminal conspiracy against the directors and proprietors of M/s. Galazy Amaze Kingdom Ltd. (GALAXY/A5) and M/s. Gain-N-Nature Food Products (GAIN). The accused, primarily members of one family (A1-Palanichamy (deceased), A2-Parameswari (wife), A3-Padmavathy Devi (daughter), A4- Balaji Prakasam (son)), were alleged to have defrauded United Bank of India of approximately Rs. 4.70 Crores between 2004 and 2006 by using forged documents, fictitious firms, and false invoices to avail credit facilities.

Following the registration of an FIR in 2007 and the filing of a charge sheet in 2008, the trial commenced. The primary accused, A1 Palanichamy, passed away in 2015. The trial reached an advanced stage with 33 prosecution witnesses examined, 409 exhibits marked, defence evidence recorded, and questioning under Section 313 CrPC completed. The case was pending for final arguments when the quash petitions were filed.

Arguments Presented

Petitioners' Plea:

The petitioners (A2, A3, A4, and A5 represented by A2 & A3) argued for quashing primarily on the ground that the entire outstanding amount had been settled through a One Time Settlement (OTS) of Rs. 4.65 Crore in 2018 with M/s. ASREC India Private Limited, the entity to which the bank had assigned the debt. They contended: * The total amount paid (including earlier payments) exceeded the principal loan amount, meaning the bank suffered no financial loss. * The dispute was predominantly civil in nature. * A1 (deceased) was the mastermind; the remaining family members (A2, A3, A4) played nominal roles, with A2 being a housewife, A3 a student, and A4 young at the time. * They cited numerous Supreme Court precedents ( Nikhil Merchant , Gian Singh , Narendra Lal Jain , Kothari Polymers , Tarina Sen , K. Bharathi Devi ) holding that High Courts can quash criminal proceedings, even for non-compoundable offences, if a settlement resolves the underlying dispute, particularly in commercial matters, to secure the ends of justice.

CBI's Opposition:

The Special Public Prosecutor for CBI strongly opposed the quashing, submitting that: * The trial was almost complete and poised for judgment, making quashing highly inappropriate at this stage. * The settlement occurred long after the crime and initiation of proceedings. * The charges included serious non-compoundable offences like forgery (Sections 467, 468, 471 IPC), distinguishing it from cases primarily involving compoundable offences like cheating (Section 420 IPC). * There was evidence of specific overt acts by A2, A3, and A4 involving bogus bills and fund diversion. * RBI guidelines generally discourage compromise settlements in fraud cases without continuation of criminal action. * Supreme Court judgments ( Parbatbhai Aahir ) caution against exercising quashing powers at the fag end of a trial.

High Court's Rationale and Decision

Justice M. Nirmal Kumar acknowledged the settlement of dues and the legal principle that High Courts possess the power under Section 528 BNSS (S. 482 CrPC) to quash proceedings post-compromise, even for non-compoundable offences, if it serves the ends of justice, especially in disputes of a civil nature. The court also noted the petitioners' arguments regarding the limited roles of A2 and A3.

However, the court placed significant weight on the timing of the quashing application. Referring to the principles laid down by the Supreme Court in Narinder Singh v. State of Punjab (2014) and reiterated in K. Bharathi Devi (2024), the High Court observed:

> "timing of settlement would also play a crucial role. ... But where the prosecution evidence is almost complete or after the conclusion of the evidence the matter is at the stage of argument, normally the High Court should refrain from exercising its power under Section 482 of the Code." (Referring to Narinder Singh )

The court concluded:

> "There is no quarrel that the above case arises out of commercial transaction and now as per One Time Settlement, the Bank is paid its dues and the quash petition can be entertained, but for the stage of the case. In this case, admittedly, the case is at the advanced stage and short of rendering judgment."

> "In view of the above, this Court finds that entertaining the present Quash Petitions is not proper. It is for the trial Court to consider the plea of the petitioners on its own merits."

The court also noted the pending Enforcement Directorate (PMLA) case against A4 as a factor concerning A4 and the company A5. While acknowledging the forceful contentions regarding A2 and A3 being "namesake Directors and womenfolk," their plea could not be entertained at this stage .

Final Decision:

The Criminal Original Petitions filed by A2, A3, A4, and A5 were dismissed. The High Court directed the Principal Sessions Judge, Chennai, to decide the case on its merits based on the evidence on record, uninfluenced by the High Court's observations during the dismissal of the quash petitions. The petitioners were granted a final opportunity to present their arguments before the trial court.