1. The question

A borrower obtains credit facilities from a public sector bank. The account turns into a non-performing asset. The bank then finds that the collateral documents were forged, or that the limits were sanctioned on fabricated supporting documents with the help of its own officer. The Central Bureau of Investigation (“CBI”) registers a case under Section 120-B read with Sections 420, 467, 468 and 471 of the Indian Penal Code, 1860 (“IPC”)^[1] and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 (“PC Act”).^[2] Meanwhile, the borrower settles with the bank under a one-time settlement (“OTS”). He pays the amount and obtains a no-dues certificate. He then asks the High Court to quash the prosecution because the bank has been paid.

This article asks whether such a settlement can end the prosecution. The short answer has three parts. First, a settlement can never compound an offence under the PC Act. Second, in some cases the High Court may still quash the proceedings against the borrower and those connected with him. Third, the Supreme Court has not settled when this is possible. Some of its decisions quash and others refuse on similar facts, and no larger Bench has reconciled them. The article sets out the law, the two lines of decisions, and the factors that appear to decide the outcome.

2. The statutory position

A criminal case cannot be closed simply because the parties have settled. The trial court can close it by compounding only where the law allows. Section 359(9) of the Bharatiya Nagarik Suraksha Sanhita, 2023 (“BNSS”), which reproduces Section 320(9) of the Code of Criminal Procedure, 1973 (“CrPC”), provides:

Of the offences in a typical bank fraud chargesheet, only cheating is compoundable. This is Section 318(4) of the Bharatiya Nyaya Sanhita, 2023 (“BNS”) (Section 420 IPC).^[4] Even then, it can be compounded only by “the person cheated”, with the permission of the court under Section 359(2).^[5] Forgery, criminal conspiracy, criminal breach of trust by a banker and every offence under the PC Act cannot be compounded. The settlement can therefore help the accused only through the inherent powers of the High Court. These powers are now preserved by Section 528 BNSS:

The offence charged against the bank officer is usually Section 13(1)(d). Most of these cases involve loans sanctioned before 26.07.2018, so the provision is quoted as it stood before that date:

The Prevention of Corruption (Amendment) Act, 2018, which came into force on 26.07.2018, removed clause (d) from Section 13(1). Conduct of this kind is now dealt with mainly under Section 7.^[8]

The abovementioned offence can be committed only by a public servant. Officers of nationalised banks fall within Section 2(c) of the PC Act.^[9] In the case of private banks, Section 46A of the Banking Regulation Act, 1949, deems certain officers to be public servants for the purposes of Chapter IX of the IPC, which dealt with offences relating to public servants.^[10] In CBI v. Ramesh Gelli, the Supreme Court applied it for the purposes of the PC Act to the Chairman-cum-Managing Director and the Executive Director of a private bank.^[11] Its reasoning speaks of employees and office-bearers generally. The borrower is a private person. He is brought into the PC Act charge through the allegation of conspiracy or abetment.

The regulator also keeps recovery and prosecution apart. The Framework for Compromise Settlements and Technical Write-offs issued by the Reserve Bank of India (“RBI”) on 08.06.2023 provides as follows:

3. Why the settlement cannot answer the corruption charge

An OTS is a contract between the bank and the borrower about a debt. The offence under Section 13 is different. It is the misconduct of a public servant in the discharge of his office, and its victim is the public. The bank, as creditor and employer, has no power to condone that misconduct by accepting money from the borrower.

That is the basis of the exclusion stated by the three-Judge Bench in Gian Singh v. State of Punjab:

The extract has two parts. The first excludes offences under the PC Act and offences committed by public servants in that capacity. The second allows quashing where the case has an overwhelmingly civil flavour, as in commercial and financial disputes. A bank fraud can look as if it falls under both. The later decisions have had to decide which part governs it.

Narinder Singh v. State of Punjab restated the exclusion as a guideline for the High Courts.^[14] Decisions that followed applied it to bank frauds.

In CBI v. Jagjit Singh, the Supreme Court observed that “the bank is the victim in such cases but, in fact, the society in general, including customers of the bank is the sufferer”.^[15] In State of Maharashtra v. Vikram Anantrai Doshi, it said that a bank fraud “is not such a case where one can pay the amount and obtain a ‘no dues certificate’ and enjoy the benefit of quashing of the criminal proceeding”.^[16]

In CBI v. Maninder Singh, the accused was alleged to have obtained advances on forged documents, which the bank manager sanctioned, and later settled with the bank.^[17] The High Court quashed the case following Nikhil Merchant.^[18] The Supreme Court set the order aside and directed the trial to proceed.

Gopakumar B. Nair v. CBI is the clearest statement of the position. The accused was a private borrower. He was charged, along with the Branch Manager, with conspiracy to commit offences under Section 13(1)(d) of the PC Act, and with offences under Sections 420 and 471 IPC. He had settled with the bank. A three-Judge Bench of the Supreme Court refused to quash the case.^[19]

The Court gave two reasons. First, payment does not mean that a conspiracy to commit PC Act offences must be quashed. Second, Nikhil Merchant and Narendra Lal Jain did not help the accused. In those cases the substratum of the charges was cheating. Here the settlement was a private one and not part of a decree. The bank had also not acknowledged that the accused was exonerated of criminal liability.^[20]

This is consistent with Gian Singh itself. That judgment found “no incongruity” between its rule and Rumi Dhar v. State of W.B., where an accused prosecuted with bank officers was refused relief despite a settlement before the Debt Recovery Tribunal (“DRT”).^[21]

4. The two lines of authority

Cases in which the proceedings were quashed. The foundation is Nikhil Merchant v. CBI. The chargesheet there included offences under the PC Act against three officials of Andhra Bank. The bank settled with the borrowing company by consent terms and withdrew all allegations. The Court found that the dispute had “overtones of a civil dispute with certain criminal facets”. It quashed the proceedings against the company’s former Managing Director alone, by exercising its power under Article 142 of the Constitution.^[22]

This looks inconsistent with Gian Singh. That judgment excluded PC Act offences from quashing, yet it also held that Nikhil Merchant was correctly decided. The Supreme Court has since explained the difference. Gian Singh approved the principle in Nikhil Merchant, that a non-compoundable offence can be quashed under Section 482 CrPC. It did not approve the decision on its facts.^[23]

In K. Bharthi Devi v. State of Telangana, the title documents behind an equitable mortgage were found to be forged, and the chargesheet included Section 13(2) read with Section 13(1)(d). The borrowers paid Rs 3.80 crore under an OTS, and the DRT recorded the claim as settled. The Court quashed the proceedings. It held that the dispute “predominantly had overtures of a civil dispute” and that “the possibility of conviction is remote and bleak”.^[24] The relief was limited to the two appellants, who were arraigned as the wives of Accused 1 and 2. The Court quoted the exclusion in Gian Singh but did not explain why it did not apply. Tarina Sen v. Union of India gave the same relief to two women partners of a borrowing firm, although the Branch Manager was a named accused under the PC Act.^[25]

In N.S. Gnaneshwaran v. Inspector of Police, the charge again included Section 13(1)(d).^[26] The Court quashed the proceedings against the first appellant, who was alleged to have orchestrated the diversion of funds, and his brother. It did not address the argument that the PC Act was not attracted against private individuals, or Gian Singh. Three facts decided the case. The bank had received “the entire outstanding amount”. The chargesheets in two parallel CBI cases against the same appellants had already been quashed on the same settlement. And there was “no continuing public interest”.^[27]

A more secure route appears in Suresh C. Singal v. State of Gujarat and Vijay Kumar Kela v. CBI.^[28] In both, the FIR had invoked the PC Act against bank officials, but the investigation found no evidence against them. The chargesheet was confined to Penal Code offences by the borrower. In Vijay Kumar Kela, the Court noted that “there is no prosecution under the PC Act”.^[29] The bank had approved a compromise at a discount, certified that there were no lapses in documentation, and complained to the CBI two years later. The Court held that this conduct “betrays lack of good faith”.^[30]

Cases in which quashing was refused. In Anil Bhavarlal Jain v. State of Maharashtra, bank employees were among the accused under the PC Act, and the bank had suffered a loss of about Rs 6.13 crore despite the consent terms. The Court refused to quash. It held that “quashing of offences under the said Act would have a grave and substantial impact not just on the parties involved, but also on the society at large”.^[31] The lead appellants were directors of the borrowing company, so the refusal covered private borrowers prosecuted alongside bank employees.

CBI v. Sarvodaya Highways Ltd. is the most recent decision on this side. Limits of Rs 60 crore had been obtained on fabricated work orders and manipulated lien entries, in connivance with the Branch Manager, against whom sanction had been granted. The company settled for Rs 41 crore against a liability of about Rs 52 crore, and the High Court quashed the entire proceedings. The Supreme Court restored them. It observed that the High Court’s order “would have the effect of terminating the prosecution against the Bank Manager as well, against whom prosecution sanction has been granted”.^[32] It added that the decisions relied on by the respondents had not considered Gian Singh, “which expressly prohibits quashing of proceedings of a criminal case on strength of a compromise where loss to public exchequer is evident and the offences under the PC Act, 1988 are applied.”^[33]

5. What decides the cases

No decision states a single test. Read together, however, the decisions point to four factors. This is an inference from the facts, not a reconciliation made by the Court itself. Sarvodaya Highways, for example, does not refer to N.S. Gnaneshwaran, which went the other way.

Whether a public servant remains in the dock. Where no bank officer was chargesheeted, as in Suresh C. Singal and Vijay Kumar Kela, the Gian Singh exclusion was not treated as an obstacle. In Jagjit Singh, however, quashing was refused although the chargesheet was confined to Sections 420 and 471 IPC.^[34] Where an officer faces trial with sanction, an order in the borrower’s favour must not release him indirectly. This is not the only reason for refusal. In Gopakumar B. Nair, Anil Bhavarlal Jain and Sarvodaya Highways, relief was refused to private accused as well. None of the decisions examined here quashes the PC Act charge against a bank official on the strength of the borrower’s settlement.

How much was recovered, and whether fraud is alleged. Full recovery removes the argument that the public exchequer has suffered. A shortfall counted against the accused in Sarvodaya Highways and Anil Bhavarlal Jain. It did not in Vijay Kumar Kela, where the PC Act limb had already gone. Full repayment is not enough where fraud is alleged. Forgery counted against the accused in Maninder Singh, Doshi and Sarvodaya Highways, although proceedings were still quashed in Nikhil Merchant, K. Bharthi Devi and Vijay Kumar Kela. It weighs most where it was the means of obtaining public money with official connivance.

The applicant’s role, and the timing. Relatives of the main accused have succeeded, as in K. Bharthi Devi and Tarina Sen. Under Narinder Singh, a settlement reached during investigation or early in the trial counts for more than one reached when the evidence is complete.^[35] A major role is not always fatal. The first appellant in N.S. Gnaneshwaran, alleged to have orchestrated the fraud, succeeded where the bank had been paid in full.

The bank’s conduct. The bank’s own behaviour can weigh with the Court. In Vijay Kumar Kela, the bank accepted the settlement, certified that there were no lapses in documentation, and complained to the CBI only two years later. The Court held that this conduct “betrays lack of good faith”, and quashed the case. The position is different where the account has been classified as fraud. The RBI framework of 2023 allows a settlement of such an account, but “without prejudice to the criminal proceeding”.^[36]

6. Conclusion

A settlement with the bank is no ground for quashing the charge against a public servant under Section 13 of the PC Act, on the authorities examined. For the borrower and those connected with him, the position is less rigid. The presence of a PC Act count has not been treated as a complete bar to quashing under Section 528 BNSS. But it has counted heavily against relief where loss to the exchequer is evident.

The case for quashing is strongest where no public servant remains on trial, the bank has been paid in full, the applicant’s role is peripheral and the settlement was unconditional. It is weakest where a sanctioned officer would be released, the funds were obtained on fabricated documents, and the OTS left a loss.

One question remains open. Sarvodaya Highways treated a shortfall under the OTS, together with fabrication, as a loss to the public exchequer that bars quashing. K. Bharthi Devi and Vijay Kumar Kela quashed proceedings despite allegations of forged documents. Vijay Kumar Kela also involved a compromise at a discount. These decisions have not been reconciled, and Vijay Kumar Kela cites both lines without addressing the difference. Until a larger Bench decides the matter, the exclusion stated in Gian Singh, as read in Gopakumar B. Nair, remains the binding statement. A party opposing quashing will rely on that exclusion and on Sarvodaya Highways. A party seeking quashing should try to show that the corruption charge no longer survives or does not concern him.

*Noor Shergill, Advocates | October 2026

**Rishabh Nigam, Advocates | October 2026

^[1] The Indian Penal Code, 1860 (Act 45 of 1860), ss. 120-B, 420, 467, 468, 471.

^[2] The Prevention of Corruption Act, 1988 (Act 49 of 1988), ss. 13(1)(d), 13(2).

^[3] The Bharatiya Nagarik Suraksha Sanhita, 2023 (Act 46 of 2023), s. 359(9). The corresponding provision of The Code of Criminal Procedure, 1973 (Act 2 of 1974) is s. 320(9).

^[4] The Bharatiya Nyaya Sanhita, 2023 (Act 45 of 2023), s. 318(4).

^[5] Supra note 3, s. 359(2).

^[6] Supra note 3, s. 528.

^[7] Supra note 2, s. 13(1)(d), as it stood before s. 13 was substituted by The Prevention of Corruption (Amendment) Act, 2018 (Act 16 of 2018), s. 7, with effect from July 26, 2018.

^[8] Supra note 2, ss. 7, 13, as amended by The Prevention of Corruption (Amendment) Act, 2018 (Act 16 of 2018).

^[9] Supra note 2, s. 2(c).

^[10] The Banking Regulation Act, 1949 (Act 10 of 1949), s. 46A.

^[11] (2016) 3 SCC 788, paras 27, 30, 46 (two-Judge Bench).

^[12] Reserve Bank of India, “Framework for Compromise Settlements and Technical Write-offs”, RBI/2023-24/40, para 13 (June 8, 2023).

^[13] (2012) 10 SCC 303, para 61.

^[14] (2014) 6 SCC 466, para 29.3.

^[15] (2013) 10 SCC 686, para 15.

^[16] (2014) 15 SCC 29, para 26.

^[17] (2016) 1 SCC 389, paras 11-15.

^[18]Nikhil Merchant v. CBI (2008) 9 SCC 677.

^[19] (2014) 5 SCC 800, paras 2-4, 14.

^[20] Id., para 14. See also CBI v. Narendra Lal Jain (2014) 5 SCC 364.

^[21] Supra note 13, paras 40, 42-43, 60 (discussing Rumi Dhar v. State of W.B. (2009) 6 SCC 364 and Ashok Sadarangani v. Union of India (2012) 11 SCC 321).

^[22] Supra note 18, paras 30-31. The Constitution of India, art. 142.

^[23] Supra note 19, para 13.

^[24] (2024) 10 SCC 384, paras 44-45.

^[25] 2024 INSC 752 (decided on Oct. 3, 2024), paras 13-15.

^[26] 2025 SCC OnLine SC 1257 (decided on May 28, 2025), para 2.

^[27] Id., paras 7, 9.

^[28]Suresh C. Singal v. State of Gujarat 2025 INSC 495 (decided on Apr. 16, 2025), para 5; Vijay Kumar Kela v. CBI 2026 INSC 588 (decided on May 29, 2026), para 16.

^[29]Vijay Kumar Kela, supra note 28, para 16.

^[30] Id., para 26.

^[31] 2024 INSC 1039 (decided on Dec. 20, 2024), para 18.

^[32] 2025 SCC OnLine SC 2598 (decided on Nov. 11, 2025), para 24.

^[33] Id., para 30.

^[34] Supra note 15, para 14.

^[35] Supra note 14, para 29.7.

^[36] Supra note 12.