Gardenia India Limited v. Central Bureau of Investigation

1. The present petition has been filed under Articles 226 and 227 of the Constitution of India on behalf of the petitioners praying for quashing of FIR in RC No. ‘RC2232023A0003’ dated 21.02.2023 registered under Sections 420/120B IPC and 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988 at P.S. Anti-Corruption (AC-V), New Delhi.

2. Briefly stated, petitioner Nos. 1, 4 and 5 are the companies incorporated under the Companies Act, 1956. Petitioner No. 2 and 3 are the Ex-Director/Guarantors of the petitioner No.1 company. Petitioner No.1 availed certain project specific term loan facilities from the respondent No. 2 bank 2013 onwards for developing real estate projects. However, since the construction could not be completed on time, the accounts of the petitioner No.1 were declared Non-performing Assets (‘NPAs’). Respondent No.2 initiated proceedings under the SARFAESI Act and filed OA No. 596 of 2016 before the Debt Recovery Tribunal (DRT) for recovery of Rs.84,27,80.863/- and also lodged a criminal complaint against the petitioners with respondent No.1 Agency.

3. Learned Senior Counsel for the petitioner submits that the impugned FIR has been registered on 21.02.2023 in contravention of the orders dated 14.10.2022 and 18.10.2022 passed by this court in W.P(C) No. 11599 of 2022 titled M/s Gardenia India Ltd. vs. Reserve Bank of India & Ors. wherein the petitioner had challenged declaration of its account as fraud. Vide aforesaid orders, the petitioner No.1 was granted interim protection whereby the Court had restrained the respondent No.1/ respondent No.2 from taking any action against the petitioners. He has raised questions about the conduct of respondent No.1 by contending that despite being well aware of interim protection being granted to petitioners they proceeded in the registration of the FIR. To buttress this contention, reliance has been placed on their letter dated 29.12.2022 seeking clarifications from respondent No.2 whether to proceed further with its complaint dated 23.08.2022 to which the Bank vide reply dated 11.01.2023 had requested CBI to await the final outcome of the Writ Petition. He submits that despite this clear indication from the respondent No.2 bank, respondent No.1 proceeded with the registration of the FIR. It is further submitted that even thereafter, when this Court vide judgment dated 17.04.2023 in W.P. (C) No. 11599/2022 had already set aside the order classifying the petitioners' bank accounts as ‘fraud.’, respondent No.2 for reasons known best to them decided to keep the criminal proceedings pending.

4. It is next contended that even the Forensic Audit of the loan accounts of petitioner No.1 company was also conducted by a firm hired by the respondent No.2. In the said audit, no incriminating findings or opinion was recorded against the petitioner No. 1. In fact, it is submitted that the audit report explicitly records that no fraud was found in the transactions of petitioner No. 1.

5. It is further submitted that the petitioners and the respondent No.2 have finally arrived at a settlement and no purpose would be served by the continuation of the proceedings arising out of the impugned FIR. To buttress this contention, it is submitted that the petitioners have entered into a One- Time Settlement (OTS) with the Bank which was also approved by the Competent Authority vide communication dated 28.06.2023. It is stated that petitioner No. l has deposited the entire settlement amount of Rs.67.20 crores with respondent No.2 within the stipulated time. Consequently, respondent No.2 has issued a settlement certificate dated 06.12.2023 stating that the entire loan account had been fully settled and that it had no further grievance against the petitioners. Lastly, it is stated that invocation of provisions of PC Act by respondent No.1 is unjustified as there is no allegation of offence under the provisions of Prevention of Corruption Act (PC Act), given that the complaint explicitly states that no adverse involvement of any bank official was identified during the internal investigation or the forensic audit.

6. Per contra, Learned SPP for CBI submits that considering the complaint received by the CBI itself discloses commission of a cognizable offence, the CBI has well within its rights to register the impugned FIR. He further submits that merely because the petitioner has chosen to challenge the civil process to dispute the declaration of its account as 'fraud' cannot be allowed to obstruct the progress of a criminal complaint. The committee thereafter again declared the account as fraud. He further submits that offences with respect to Prevention of Corruption Act,1988, ought not to be treated at par with offences arising out of inter-personal disputes as they are offences against the society and the State. Therefore, it is contended that merely because the respondent no. 2 has settled the dispute by receiving back the outstanding loan amount, the FIR cannot be quashed and an offer of settlement should not become the basis of any interference in the investigation of respondent No.1. In this regard, reliance has been placed upon the decision of the Supreme Court in Gian Singh v. State of Punjab & Anr. reported as (2012) 10 SCC 303, Gopakumar.B.Nayar v. CBI reported as (2014) 5 SCC 800 and State of Maharashtra v. Vikram Anantrai Doshi reported as (2014) 15 SCC 29. Additionally, it is submitted that investigation so far has revealed involvement of bank officials/public servants in unlawful disbursal of funds from the bank, which funds were subsequently misused by the Petitioner Company. During investigation, role of certain bank officials has been investigated and though approval under Section 17-A of the Prevention of Corruption Act, 1988 against two bank officials has been declined by the competent authority, the same is pending against other officials.

7. During the course of arguments, learned counsel for the respondent No. 2, on instructions, submitted that nothing remains due from the petitioners. He also confirms the factum of an OTS having been entered into by the parties, all accounts having been settled and states that a ‘Settlement Certificate’ has also been issued by the bank. He further submits that the recovery certificate was withdrawn and an affidavit to the aforesaid effect was also filed in the proceedings initiated before DRT.

8. In Rejoinder, learned Senior counsel for the petitioner contends that the reliance by respondent No.1 on the decision rendered in Vikram Anantrai Doshi (Supra) is misplaced for in the said case, there was no forensic audit giving clean chit. The declaration of petitioner’s account as fraud by the committee is in teeth of the forensic audit report prepared by Chartered Accountant firm hired by itself.

9. In the present case, admittedly, the borrower/petitioners and the lender/Respondent No.2 bank have arrived at a settlement. The entire liability has been settled and all dues have been cleared by the petitioners. As such, respondent no.2/bank has already issued a settlement certificate dated 06.12.2023. The recovery suits have been formally withdrawn and the affidavits have been filed to confirm that Respondent No.2/bank has no outstanding dues against the petitioners. Respondent No.1 has, however, decided to continue investigation in the impugned FIR despite the settlement between the parties. When this Court had granted interim protection to the petitioners, the respondent No.1 vide letter dated 29.12.2022 specifically asked respondent No.2 bank whether the agency should proceed with the criminal complaint lodged by the respondent No.2. The Bank vide letter dated 11.01.2023 had requested the Respondent No. 1 to await the final outcome of the writ petition. Proceeding to ignore the response of the Bank, respondent No.1 registered the impugned FIR on 21.02.2023. Another thing to be kept in mind is the respondent No.2 bank appointed Mukesh Raj & Co to perform forensic audit of the petitioner No.1 company. The Forensic Audit report records that no fraud has been found in the transactions of petitioner No.1 company. Concededly, respondent No. 2 has also declined to grant sanction against its two officials as per the mandate of Section 17-A, as the investigation so far has not revealed any involvement of bank officials or public servants in the unlawful disbursal of funds from the bank.

10. It is now settled position of law that criminal cases having an overwhelmingly and predominately civil flavour, especially those arising out of commercial transactions ought to be quashed when the parties have resolved their entire dispute by themselves. What is to be seen is whether such quashing would meet the ends of justice or would prevent the abuse of process of law. The Court considering quashing also has to examine whether the possibility of conviction is remote and bleak and whether continuation of criminal proceedings would put accused to great oppression, prejudice and injustice. In a case such as the present one, where the FIR arises out of a dispute concerning loan transactions availed by borrower accused and lender bank, and the bank and accused arrive at an amicable settlement with the bank duly receiving the settlement amount, the character of the dispute is primarily civil in nature. Moreover, the settlement also means that the possibility of conviction in such cases is bleak and continuance of proceedings would amount to great oppression and prejudice.

11. The power of High Court under Section 482 Cr.P.C. to quash proceedings in matters wherein non-compoundable offences are involved is no longer res integra. The Supreme Court in B.S. Joshi v. State of Haryana[1] observed that Section 320 Cr.P.C. does not limit or control the powers vested in High Court under Section 482 Cr.P.C., and the High Court is empowered to quash criminal proceedings/FIR, even if non-compoundable offences are involved.

12. Similar views were taken by the Supreme Court in Nikhil Merchant (Supra), Manoj Sharma v. State & Ors.[2] and Shiji @ Pappu & Ors. v. Radhika & Anr.[3] In Shiji (Supra), it was observed that: - “xxx

17. It is manifest that simply because an offence is not compoundable under Section 320 IPC is by itself no reason for the High Court to refuse exercise of its power under Section 482 Cr.P.C. That power can in our opinion be exercised in cases where there is no chance of recording a conviction against the accused and the entire exercise of a trial is destined to be an exercise in futility. There is a subtle distinction between compounding of an offence by the parties before the trial court or in appeal on one hand and the exercise of power by the High Court to quash the prosecution under Section 482 Cr.P.C. on the other. While a Court trying an accused or hearing an appeal against conviction, may not be competent to permit compounding of an offences based on a settlement arrived at between the parties in cases where the offences are non-compoundable under Section 320, the High Court may quash the prosecution even in cases where the offences with which the accused stand charged are non-compoundable. The inherent powers of the High Court under Section 482 Cr.P.C. are nto for that purpose controlled by Section 320 Cr.P.C.

18. Having said so, we must hasten to add that the plenitude of the power under Section 482 Cr.P.C. by itself, makes it obligatory for the High Court to exercise the same with utmost care and caution. The width and the nature of the power itself demands that its exercise is sparing and only in cases where the High Court is, for reasons to be recorded, of the clear view that continuance of the prosecution would be nothing but an abuse of the process of law. It is neither necessary nor proper for us to enumerate the situations in which the exercise of power under Section 482 may be justified. All that we need to say is that the exercise of power must be for securing the ends of justice and only in cases where refusal to exercise that power may result in the abuse of process of law. The High Court may be justified in declining interference if it is called upon to appreciate evidence for it cannot assume the role of an appellate court while dealing with a petition under Section 482 of the Criminal Procedure Code. Subject to the above, the High Court will have to consider the facts and circumstances of each case to determine whether it is a fit case in which the inherent powers may be invoked. xxx”

13. It was also held in Sanjay Bhandari v. CBI[4] and Gian Singh (supra) that criminal proceedings arising from civil, commercial, or financial disputes may be quashed where the compromise between parties renders the possibility of conviction remote and continuation of the case would cause undue prejudice to the accused.