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Vijay Kumar Kela & Anr. v. Central Bureau of Investigation & Anr.

Criminal Appeal · 2026 INSC 588Decided 29 May 2026
Crl.A. No.-002974-002974 - 2026 (arising out of SLP (Criminal) No. 18035 of 2024)
Justice B.V. Nagarathna · Justice Ujjal Bhuyan

Background

The appellants' firm had taken credit facilities from UCO Bank, which later became a Non-Performing Asset. The Bank invoked the SARFAESI Act, and the parties reached a compromise settlement (approved by the Bank's competent authority) before the Debts Recovery Tribunal (DRT), which the appellants fully paid, resulting in a "no dues certificate" and withdrawal of the Bank's recovery application. More than two years after this settlement, the Bank's Zonal Head lodged a complaint with the CBI alleging the appellants had defrauded the Bank by diverting funds and substituting mortgaged properties, leading to a chargesheet and framing of criminal charges under Sections 420 and 471 IPC, which the High Court declined to quash.

Decision Breakdown

The Supreme Court held that once a loan account is settled through a compromise approved by a competent judicial forum like the DRT, with the Bank itself certifying no documentation irregularities and compliance with RBI guidelines, a belated criminal prosecution alleging fraud over the same transaction, initiated more than two years after the settlement, reflects a lack of good faith and amounts to an abuse of the process of court. The Court found the dispute was essentially a commercial/civil matter given a criminal colour after the fact, making the chance of conviction remote, and held that allowing such prosecutions to proceed after settlements approved by judicial forums would undermine the sanctity of such settlements and discourage genuine resolution of banking disputes. The appeal was allowed, the High Court's order set aside, and the chargesheet and charge-framing order quashed.

Lesson Learnt

Once a bank formally settles a loan dispute through a judicially-approved compromise and issues a no-dues certificate, it cannot later revive the same transaction as a criminal fraud case merely because it changes its mind, doing so is an abuse of process and courts will quash such belated prosecutions.

Official source (sci.gov.in)View Judgment (PDF)

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