In a significant judgment delivered on May 28, 2025, the Supreme Court of India in N.S. Gnaneshwaran vs. The Inspector of Police in Criminal Appeal Nos. of 2025 (@ SLP (CRL) NOS. 17481-17482 OF 2024) decided on May 28, 2025 demonstrated how courts balance criminal prosecution with practical resolution of disputes when parties reach comprehensive settlements. The case provides crucial insights into when criminal proceedings may be quashed despite prima facie evidence of offenses..
Case Background
The case involved allegations of banking fraud worth Rs. 25.89 lakhs against nine accused persons, including the appellants N.S. Gnaneshwaran and N.S. Madanlal. The accusations centered around fraudulent diversion of funds sanctioned to M/s Vinayaka Corporation, involving forged signatures, fictitious identities, and a network of accounts used to siphon bank funds.
The Settlement Factor
The turning point came when the bank implemented a One Time Settlement (OTS) scheme. The main borrowers availed this scheme and made full repayment of dues. Consequently, the bank recorded its satisfaction in pending recovery proceedings, which were dismissed as settled. The bank also issued No Dues Certificates, formally acknowledging complete resolution of financial disputes.
High Court’s Initial Reluctance
The Madras High Court initially dismissed the appellants’ petitions under Section 482 of the Criminal Procedure Code, reasoning that:
- The trial stage was advanced
- A prima facie case existed
- Criminal proceedings shouldn’t be quashed merely based on OTS
Supreme Court’s Reasoning
The Supreme Court overturned this decision, emphasizing several key principles:
1. Purposelessness of Continued Prosecution
The Court observed that “no useful purpose would be served by continuing the criminal proceedings” when the underlying dispute had been comprehensively resolved through settlement.
2. Complete Resolution of Disputes
The judgment highlighted that the bank had received the entire outstanding amount, recovery proceedings were dismissed as settled, and no residual claims survived.
3. Absence of Continuing Public Interest
Crucially, the Court noted there was “no continuing public interest” that warranted allowing the matter to proceed further, especially after settlement occurred post-alleged offense commission.
4. Parity Principle
The Court applied the principle of parity, noting that identical proceedings by the CBI against the same appellants had been quashed after settlement, and the Supreme Court had previously dismissed special leave petitions challenging such quashing.
Legal Implications:
The above said judgment tends to help our learned Advocate’s to rely upon this judgment in the cases where settlement has been arrived between the parties and when the public interest is not continuing.
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