Criminal Proceedings Quashed Against Non-Borrower Co-Accused Post-OTS Settlement in Bank Fraud Case: Allahabad High Court - 2025-07-08

Criminal Case Against Business Associates Quashed After Borrower Settles with Bank: Allahabad High Court

Allahabad, UP – In a significant ruling, the Allahabad High Court has quashed criminal proceedings for conspiracy and cheating against a company and its directors who were implicated in a bank fraud case, after the principal borrower settled the loan dispute with the bank through a One-Time Settlement (OTS).

Justice Sanjay KumarSingh held that continuing the criminal case against the applicants, who were neither the borrowers nor guarantors, would amount to "great oppression and prejudice" once the underlying financial dispute was resolved. The court observed that with the settlement, the "possibility of conviction is remote and bleak."

The application was filed by M/s Asm Traxim Pvt. Ltd. and its directors, Himanshu Garg and Vipul Agarwal , seeking to quash the charge sheet filed by the Central Bureau of Investigation (CBI) under Sections 120-B (criminal conspiracy) and 420 (cheating) of the Indian Penal Code.

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Background of the Case

The case originated from a complaint by the Union Bank of India in 2020, leading to a CBI investigation. The primary accused, M/s Govinda International, had allegedly secured a cash credit limit of Rs. 15 crores and an ad-hoc limit of Rs. 3.75 crores by submitting forged financial documents. The CBI's investigation revealed a criminal conspiracy involving the borrower, bank officials, and several other entities.

The applicants, M/s Asm Traxim, were accused of facilitating the fraud by engaging in "fake and bogus" purchase and sale transactions with M/s Govinda International. The CBI alleged that these transactions were merely paper entries designed to fraudulently inflate the borrower's turnover to meet the loan conditions and justify drawing power, ultimately causing a wrongful loss of over Rs. 28 crores to the bank.

Subsequently, the principal borrower entered into an OTS with the Union Bank of India and paid the full settlement amount of Rs. 43 crores. Following this, the bank even wrote to the CBI requesting the release of mortgaged properties.

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Key Arguments

Applicants' Counsel: Senior Advocate Mr. G.S. Chaturvedi, representing the applicants, argued that their transactions with the borrower were genuine, with GST having been duly paid. He contended that the dispute was predominantly civil in nature, and with the bank having settled its dues with the primary borrower, the criminal proceedings against his clients, who were merely business associates, served no purpose and were an abuse of the legal process.

CBI's Counsel: Mr. Rahul Srivastava, for the CBI, vehemently opposed the quashing. He argued that the offense was not merely a private dispute but a serious economic crime involving a conspiracy to defraud a public sector bank. He submitted that a settlement between the borrower and the bank does not erase the criminality of the conspiracy. He cited a contrary Supreme Court judgment in Anil Bhavarlal Jain , which held that economic offenses affecting the nation's financial health should not be quashed based on settlements.

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Court's Analysis and Precedents

Justice Singh framed the central issue as: "whether after one time settlement of loan... between borrowers and guarantors with bank, the criminal proceeding against the accused-applicant, who is neither borrower nor guarantor but was having business relation with borrower is liable to be quashed or not."

The Court meticulously analyzed several Supreme Court judgments on the matter, noting conflicting principles. * It primarily relied on the precedents set in K. Bharthi Devi vs. State of Telangana , Tarina Sen vs. Union of India , and a more recent ruling in N.S. Gnaneshwaran vs. The Inspector of Police . These cases established that where a financial dispute of a civil nature is settled between the primary parties (bank and borrower), the High Court can exercise its inherent powers under Section 482 CrPC (now Section 528 BNSS) to quash proceedings, especially when the chances of conviction are bleak.

The Court distinguished the CBI's reliance on Anil Bhavarlal Jain vs. The State of Maharashtra , noting that the Jain case involved offenses under the Prevention of Corruption (PC) Act and the Supreme Court was reluctant to quash due to the larger societal impact of such crimes. In the present case, the applicants were charged only under the IPC for conspiracy and cheating, not the PC Act.

“The case of the applicants is distinguishable from borrower and stands on better footing than that of borrower. Hence after settlement as noted above, continuation of the criminal proceedings would put the applicant to grate oppression and prejudice,” the Court observed.

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Final Verdict

Concluding that the dispute had "overtures of a civil dispute" which now stands resolved, the High Court allowed the application. It ruled that every case must be judged on its own facts and that the precedents supporting quashing were more factually aligned with the current case.

The Court quashed the charge sheet dated 31.01.2024 and the summoning order against M/s Asm Traxim Pvt. Ltd. and its directors, bringing the criminal proceedings against them to an end.