Criminal proceedings arising from commercial or financial transactions, which are predominantly civil in nature, should be quashed under inherent powers when the parties have reached a full and final settlement approved by a judicial forum, as continuing such prosecution constitutes an abuse of the process of the court.

JUDGMENT

UJJAL BHUYAN, J.

Leave granted.

2. A short but interesting question which arises for consideration in this appeal is whether a criminal prosecution can be initiated under Sections 420 and 471 of the Indian Penal Code, 1860 and allowed to continue after settlement of the loan account by way of an approved compromise and which had the imprimatur of the Debts Recovery Tribunal?

3. The above question arises in the context of a challenge by the appellants to the order dated 05.07.2024 passed by the High Court of Chhattisgarh (‘High Court’) in Cr.M.P. No. 1361 of 2023 (Vijay Kumar Kela & Anr. Vs. CBI & Anr.).

Prefatory facts

4. For proper adjudication of the question framed, it would be appropriate to briefly narrate the relevant facts.

4.1. Appellant No. 2 was established as a proprietary trading concern in the year 1998 dealing in agricultural inputs like fertilizers and other allied products. Elder brother of appellant No. 1 late Parmanand Kela had established appellant No. 2 firm and was managing the affairs of the said firm. Following the death of late Parmanand Kela, appellant No. 1 became the sole proprietor of the firm.

4.2. Erstwhile proprietor Parmanand Kela had applied to the UCO Bank on 28.07.2006 for extending cash credit facility of fund based limit to the extent of Rs. 50 Lakhs and non-fund based limit i.e. letter of credit to the extent of Rs. 1 crore in the name of appellant No. 2. After examining the proposal and on due consideration, cash credit facility of fund based limit to the extent of Rs. 50 lakhs and non-fund based limit i.e. letter of credit to the extent of Rs. 1 crore was extended by the UCO Bank to appellant No. 2 on 02.09.2006 on proper security, both primary and collateral. Subsequently, on application by the appellants, the credit facility was enhanced to Rs. 5 crores for which additional property was given by way of mortgage. Finally, on 30.01.2009, credit facility was extended to Rs. 8 crores (Rs. 3 crores for cash credit and Rs. 5 crores for letter of credit limit) for which the mortgaged properties were substituted by another property having higher valuation.

4.3. Parmanand Kela passed away on 28.11.2009. At that stage, appellant No. 1 stepped into the shoes of his late brother and started looking after the affairs of appellant No. 2. Appellant No. 1 informed the UCO Bank that the firm was unable to procure big orders as a result of which it was facing financial crunch. Because of financial constraints, repayment of loan amounts became irregular, following which the loan account of the appellant No. 2 was declared as a Non-Performing Asset (NPA).

4.4. UCO Bank invoked provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’, hereinafter) against the appellants and issued notice dated 05.02.2011 under Section 13(2) of the SARFAESI Act to the appellants.

4.5. At that stage, a compromise proposal was worked out between the two parties on 14.03.2015 which was recommended by the UCO Bank, Raipur Main Branch for sanctioning by the competent authority of the said Bank. Vide letter dated 30.03.2015, the competent authority inform