Supreme Court Overturns High Court Order, Revives Bank Fraud Probe Against Sarvodaya Highways Ltd.

In a significant ruling on economic offences, the Supreme Court of India has set aside a Punjab and Haryana High Court decision that quashed criminal proceedings against M/S. Sarvodaya Highways Ltd. and its directors. The apex court, in a judgment delivered by Justice Mehta, emphasized that a one-time settlement (OTS) with the bank does not absolve parties of criminal liability in cases involving fabricated documents and corruption, particularly when public exchequer losses are evident.

Case Background and Key Parties

The case stems from a 2015 FIR registered by the Central Bureau of Investigation (CBI) against Sarvodaya Highways Ltd., a company engaged in construction projects, and its directors—Gurinder Kumar Garg (Managing Director), Aruna Garg, Aashutosh Garg, and Aayush Garg. Also implicated was Nishan Lal, the then Branch Manager of the State Bank of Bikaner and Jaipur (now merged with State Bank of India).

The allegations arose from a Rs. 60 crore credit facility (Rs. 50 crore fund-based and Rs. 10 crore non-fund-based) sanctioned to the company in 2012. The CBI probe revealed that the company submitted fabricated work orders—three entirely forged and seven issued to associate firms with a common director—to secure the loan. No actual work was executed, leading to the account being classified as a Non-Performing Asset (NPA) in 2013. An internal bank inquiry uncovered a Rs. 52.50 crore fraud, including manipulated revenue records and forged liens on collateral properties.

A chargesheet was filed in 2016 under Sections 120B (criminal conspiracy), 406 (criminal breach of trust), 420 (cheating), 467 (forgery of valuable security), 468 (forgery for cheating), and 471 (using forged documents) of the Indian Penal Code ( IPC ), along with Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act (PC Act), 1988, against the company, its directors, and the bank manager (with prosecution sanction granted for the latter).

In 2018, the company settled the dues via an OTS, paying Rs. 41 crore, leading to the release of pledged assets and closure of Debt Recovery Tribunal (DRT) proceedings. Relying on this, the company and directors petitioned the High Court under Section 482 of the CrPC (now Section 528 BNSS) to quash the FIR and chargesheet. The High Court allowed the plea in July 2022, citing the settlement and lack of criminal intent beyond delayed repayment.

The CBI appealed to the Supreme Court via SLP (Crl.) No. 11108 of 2022, converted to Criminal Appeal Nos. of 2025.

Arguments from the CBI

Represented by Additional Solicitor General Vikramjit Banerjee, the CBI argued that the High Court erred in quashing the proceedings solely on the basis of the OTS. Key points included:

• The investigation conclusively established fabrication of documents and connivance between the company, its directors, and the bank manager to defraud the bank, causing a Rs. 52 crore loss (with the OTS recovering only Rs. 41 crore, leaving a deficit of over Rs. 5 crore plus interest).
• Economic offences under the IPC and PC Act are not private disputes but societal wrongs impacting public funds and banking integrity.
• Quashing would indirectly exonerate the bank manager, undermining prosecution sanction.

The CBI relied on precedents like

* Gian Singh v. State of Punjab

* (2012) 10 SCC 303, which distinguishes quashing under Section 482 CrPC from compounding under Section 320 CrPC and prohibits quashing for serious offences like those under the PC Act, even with settlements. Other citations included CBI v. Jagjit Singh (2013) 10 SCC 686 (bank frauds harm society at large) and State of Maharashtra v. Vikram Anantrai Doshi (2014 SCC OnLine SC 745) (settlements cannot erase social impact of financial frauds). Recent judgment

* Anil Bhavarlal Jain v. State of Maharashtra

* (2024 SCC OnLine SC 3823) was invoked to highlight consequences for public interest in PC Act cases.

Respondents' Defense

Senior Counsel Siddarth Dave, for the company and directors, countered that the OTS fully resolved the monetary dispute, with the bank issuing a no-dues certificate and closing DRT proceedings. They argued:

• No siphoning of funds occurred; it was merely a repayment delay leading to NPA status.
• Continuing prosecution would be futile post-settlement, amounting to harassment.

Reliance was placed on Jaswant Singh v. State of Punjab (2021 SCC OnLine SC 1007), CBI v. B.B. Aggarwal (2019 (5) RCR (Crl.) 573), and CBI v. Narendra Lal Jain (2014 (5) SCC 364), urging quashing in civil-flavored disputes resolved amicably.

Supreme Court's Analysis and Precedents

The Supreme Court critiqued the High Court's reasoning, noting it overlooked critical investigation findings: fabricated work orders, forged liens, and PC Act offences. The bench distinguished quashing from compounding, per Gian Singh , stating that inherent powers under Section 482 must secure justice and prevent abuse, but not for heinous economic crimes with societal impact.

Key excerpts from the judgment underscore the reasoning:

> "Heinous and serious offences... like the Prevention of Corruption Act... cannot provide for any basis for quashing criminal proceedings involving such offences." ( Gian Singh , para 61)

> "The offences when committed in relation with banking activities... have harmful effect on the public and threaten the well-being of the society." ( Jagjit Singh , para 15)

The Court distinguished respondents' precedents: Jaswant Singh involved private IPC offences without PC Act; B.B. Aggarwal and Narendra Lal Jain lacked forgery allegations or public loss deficits, and ignored Gian Singh 's prohibition on quashing PC Act cases. Here, the OTS was compelled by NPA recovery pressures, not erasing criminality.

Final Decision and Implications

Allowing the CBI's appeal, the Supreme Court set aside the High Court's July 2022 order, restoring proceedings before the Special Judge, CBI, Panchkula. The trial court must proceed uninfluenced by the apex court's observations, with no prejudice to the accused's defense.

This ruling reinforces that OTS cannot shield perpetrators of bank frauds involving forgery and corruption, prioritizing public interest over private settlements. It serves as a deterrent against financial manipulations, ensuring accountability for offences under the IPC and PC Act, and may influence similar cases involving NPAs and DRT settlements.