Madhu Bakshi Vs Anti-Corruption Bureau & Anr. (Jammu & Kashmir High Court)
Diversion of sanctioned bank loan funds for Non-Project purposes constituted prima facie cheating; one-time settlement did not bar criminal prosecution
Conclusion: Where investigation revealed prima facie diversion and siphoning of sanctioned loan funds for purposes outside the sanctioned project, resulting in dishonest inducement to the lending bank, criminal proceedings for cheating could not be quashed under Section 482 CrPC merely because the project was completed, a forensic audit did not conclusively establish fraud, or the parties subsequently entered into a One-Time Settlement. Criminal liability survives notwithstanding civil settlement where the material disclosed fraudulent procurement and misuse of bank finance.
Held: In the instant case, the borrower company and its directors sought quashing of criminal proceedings arising out of allegations that they had fraudulently procured and misutilized term loans sanctioned by J&K Bank for the development of a hotel project. The investigating agency alleged that substantial portions of the sanctioned loan were diverted towards repayment of loans from other banks, fixed deposits, miscellaneous expenses, pay orders and other purposes unrelated to the sanctioned project, contrary to the terms of sanction. Although the hotel project was ultimately completed and the borrower entered into a One-Time Settlement (OTS) with the bank, the settlement amount was lower than the principal loan advanced, resulting in a financial loss to the bank. Assessee contended that the dispute was purely civil in nature, that forensic audit reports did not reveal any fraud, and therefore no offence of cheating or criminal misconduct was made out. Assessee argued that the forensic audit did not establish fraud or misappropriation and therefore criminal prosecution was unwarranted; completion of the hotel project and subsequent OTS demonstrated absence of dishonest intention at the inception of the transaction; the dispute, at best, involved contractual or financial defaults giving rise to civil consequences rather than criminal liability; and the charge-sheet did not disclose ingredients of cheating or other criminal offences warranting continuation of prosecution. The prosecution contended that documentary evidence collected during investigation showed systematic diversion and siphoning of loan funds for purposes wholly outside the sanctioned project; repeated requests for release of loan tranches were made on representations that funds would be utilized in accordance with sanction conditions, whereas the amounts were knowingly diverted after disbursement; the fraudulent diversion induced the bank to continue releasing funds, restructuring the loan and eventually accepting an OTS at a loss; and such conduct disclosed prima facie offences of cheating and could not be nullified merely because the borrower later settled the account. High Court dismissed the petitions seeking quashing of the criminal proceedings. It held that, at the stage of exercising jurisdiction under Section 482 CrPC, the Court was only required to determine whether the material collected by the investigating agency prima facie disclosed commission of offences and could not undertake a meticulous appreciation of evidence or evaluate disputed factual defences. The material placed on record prima facie established that sanctioned loan funds were diverted to purposes unrelated to the sanctioned project, contrary to the representations made to the lending bank, thereby disclosing dishonest inducement and constituting the ingredients of cheating. The Court further held that forensic audit reports based on limited information could not override the evidence collected during investigation, and completion of the project or subsequent acceptance of an OTS did not erase criminal liability where diversion and siphoning of funds were prima facie established. Since the bank had accepted an OTS for an amount lower than the principal advanced, coupled with evidence of diversion of funds, the allegations warranted trial and did not justify quashing of the proceedings.
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