Loan Dispute Settled via OTS: Allahabad HC quashes Charge Sheet Against Accused Who Had Business Dealings with Borrower [Read Order]

In a recent ruling, the Allahabad High Court held that criminal proceedings arising from a loan transaction can be quashed if the dispute between the borrower and the bank has been settled under a One Time Settlement (OTS), even if the accused is not the borrower but had business dealings with the borrower.

Apresh Garg filed an application under Section 528 of the Bharatiya Nagarik Suraksha Sanhita seeking to quash the charge sheet and cognizance order in a case registered by the CBI related to alleged cheating and criminal conspiracy under the IPC and the Prevention of Corruption Act.

The case arose from a complaint by Union Bank of India claiming that Govinda International and others availed credit facilities using forged documents and fake transactions, causing wrongful loss to the bank. The CBI alleged that Apresh Garg, a director of Agson Global Pvt Ltd, facilitated fake transactions to inflate the turnover of Govinda International.

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The petitioner’s counsel argued that Apresh Garg was neither a borrower nor a guarantor and was only engaged in genuine business transactions with Govinda International, on which applicable GST and VAT were paid.

The counsel argued that the borrower and the bank had entered into a one-time settlement under which the borrower had paid Rs. 43 crores, and the bank had no further grievance. They argued that the dispute was civil and had been settled, making the continuation of criminal proceedings against the petitioner unnecessary and oppressive.

The CBI’s counsel argued that the transactions between the petitioner and the borrower were fake, and the criminal proceedings should continue despite the settlement, as they involved economic offences affecting the financial system.

The complainant’s counsel confirmed that the borrower had paid the full settlement amount under the OTS and that the bank had requested the release of the mortgaged properties.

The single-judge bench comprising Justice Sanjay Kumar Singh observed that the petitioner was not a borrower or guarantor and that the settlement between the borrower and the bank had resolved the financial dispute, leaving the bank with no grievance.

The court observed that the possibility of conviction was remote and that continuing the criminal proceedings would cause unnecessary hardship to the petitioner. The court relied on the Supreme Court’s decisions in K. Bharthi Devi, Tarina Sen, and N.S. Gnaneshwaran, which held that criminal proceedings in similar circumstances could be quashed after a settlement.

The court found that the dispute was predominantly civil in nature and had been settled under the OTS. The court held that it was appropriate to exercise its inherent powers to secure the ends of justice and quashed the chargesheet and the ongoing criminal proceedings against Apresh Garg. The application under Section 528 of the Bharatiya Nagarik Suraksha Sanhita was allowed.

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