Institute of Legal and Management Studies

The Supreme Court, in a recent ruling, quashed the criminal proceedings against the appellants in the matter of N.S. Gnaneshwaran & Others vs. The Inspector of Police & Another, holding that the dispute had been fully settled through a One-Time Settlement (OTS) and no useful purpose would be served by continuing the trial.

The case arose from allegations that the appellants caused wrongful loss to the Bank to the tune of ₹25.89 lakh by fraudulently diverting funds sanctioned to M/s Vinayaka Corporation. Based on a complaint from the Bank, the CBI registered an FIR and filed a chargesheet against nine accused, including the appellants, for offences under Sections 120B, 420, 468, and 471 of the Indian Penal Code, and Sections 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988.

Subsequently, a settlement was initiated by the principal accused with the Bank for an amount of ₹52,79,000/-. Based on this settlement, the appellants moved the High Court to quash the criminal proceedings pending before the trial court. However, the High Court of Madras dismissed the petition, holding that criminal proceedings cannot be quashed merely on the basis of a one-time settlement when a prima facie case is made out.

Aggrieved by this, the appellants approached the Supreme Court. The matter was heard by a bench comprising Justice Vikram Nath and Justice Sandeep Mehta. Before the Supreme Court, counsel for the appellants argued that the recovery proceedings initiated by the Bank had been fully settled, with no dues remaining. They urged that the continuation of criminal proceedings would be unfair to the appellants. The counsel also submitted that the Prevention of Corruption Act was not attracted, as the accused were private individuals and not public servants.

On the other hand, counsel for the State contended that the settlement of dues or a compromise between parties does not automatically warrant quashing of criminal proceedings, particularly when serious allegations involving fraud and criminal conspiracy are made. They argued that the existence of a prima facie case is sufficient to warrant a trial and that settlements should not interfere with criminal prosecution, especially at an advanced stage.

However, the Supreme Court, observed that continuing the criminal proceedings would serve no meaningful purpose since the dispute had been fully resolved. “The recovery proceedings before the tribunal have been dismissed as settled, and no residual claim survives,” the Court noted, adding that the Bank had not objected to closing the matter.

Referring to previous identical proceedings where the High Court had quashed chargesheets against similarly placed co-accused, and those orders had attained finality, the Court held that the appellants were entitled to parity.

The Court emphasized that when the dispute is purely commercial and stands settled post-offence, and no larger public interest is involved, criminal proceedings may be quashed. “The settlement between the parties having taken place after the alleged commission of the offence, and there being no continuing public interest, we see no justification for allowing the matter to proceed further,” the bench concluded, allowing the appeals and quashing the pending proceedings.

Case Title: N.S. Gnaneshwaran & Others vs. The Inspector of Police & Another

Citation : 2025 LiveLaw (SC)

Click Here To Read Judgment

Appearances

For petitioner : K Krishna Kumar

For Respondent : Vishnu Kant for R2 Bank; Sabarish Subramanian for R1