Back
OTS Settlement Does Not Bar Prosecution For Bank Loan Fraud
In a significant ruling, the has affirmed that a (OTS) regarding a loan account does not act as an immunity cover for criminal acts. Justice Sanjay Dhar, presiding over a batch of eight connected petitions, dismissed pleas seeking the arising from a massive bank loan fraud involving (AHPL).
The Genesis of the Dispute The legal battle stems from FIR No. 15/2019, initially registered by the (ACB), Srinagar, regarding alleged irregularities in loans advanced by ’s Ansal Plaza branch in New Delhi. The investigation revealed that AHPL, led by Raj Singh Gehlot, had siphoned off substantial tranches of credit intended for a 'Twin Five Star Hotel' project in Delhi.
Evidence suggested that the petitioners diverted loan disbursements to shell entities, including and various '' concerns, for purposes entirely unrelated to the hotel project. Furthermore, the bank’s management was accused of entering into a dubious OTS for Rs. 128.94 crore—less than half the outstanding principal—despite evidence of blatant fund diversion.
Arguments from the Defense The petitioners argued that no criminality existed, asserting that: * The project was completed, and the investment of Rs. 280 crore by the group demonstrated intent. * The diverted funds were merely reimbursements to a turnkey contractor, , which was free to manage the money. * Forensic audits conducted by private firms did not uncover fraud. * The OTS proposal, even if withdrawn by the bank, invalidated the claim of '' as the intent to repay was established.
Legal Analysis and Judicial Reasoning The Court examined the scope of , relying upon the landmark principles of State of Haryana v. Bhajan Lal (1992) and Rajiv Thapar v. Madan Lal Kapoor (2013). Justice Dhar clarified that the High Court’s to quash proceedings should only be exercised when allegations are patently absurd or legally insufficient.
The Court held that the "reimbursement" defense was legally untenable. According to the terms of the bank sanction, the loan facility was specifically earmarked for project construction, and the borrower was explicitly barred from diverting funds to group companies or other firms.
Key Observations The judgment offers a firm rebuke to the argument that a civil settlement absolves criminal intent:
" of funds coupled with diversion and siphoning of funds by the borrower company, , establishes the allegation relating to fraudulent procurement and utilization of the loan amount."
"Merely because the Bank has agreed to enter into a with the borrower company, the ... cannot be wiped away once it is shown... that there has been ."
" , this of funds has led to stress of the loan account, which has induced the Ltd to advance further loan and to restructure the loan account."
Implications for Future Cases By dismissing these petitions, the Court has reinforced the principle that and fraudulent, in a lending context remain punishable even if the parties attempt to mitigate losses via civil settlements. The case will now proceed for trial, with the Court clarifying that its observations remain limited to the quashing application and that the trial court must determine the guilt or innocence of the accused, including the bank officials, independently.
