Supreme Court’s Verdict on Criminal Proceedings After DRT Settlement
The Supreme Court of India recently delivered a significant judgment stating that criminal proceedings cannot persist against a loan defaulter once their dues have been settled through a Debt Recovery Tribunal (DRT)-approved compromise. This decision was made in the case of Vijay Kumar Kela & Anr. v. CBI & Anr., where a bench comprising Justices BV Nagarathna and Ujjal Bhuyan quashed the criminal proceedings initiated by the Central Bureau of Investigation (CBI) on behalf of UCO Bank.
Background of the Case
The case involved businessman Vijay Kumar Kela, who faced charges under Sections 420 and 471 of the Indian Penal Code (IPC) for allegedly cheating and using forged documents. The allegations stemmed from credit facilities availed by Mohan Traders, a firm established by Kela’s elder brother, from UCO Bank. Following financial difficulties after Parmanand Kela’s death in 2009, the loan account was classified as a non-performing asset (NPA), prompting UCO Bank to pursue recovery through the DRT.
DRT Settlement and Subsequent Legal Proceedings
During the DRT proceedings, a compromise settlement was negotiated, where the bank agreed to accept ₹4.25 crore in full and final settlement of dues totaling approximately ₹6.49 crore. After this settlement, UCO Bank issued a no-dues certificate, and recovery proceedings were withdrawn. Despite this, over two years later, UCO Bank filed a complaint with the CBI, leading to an FIR and chargesheet against Kela for allegedly securing credit enhancements through forged audit reports.
Supreme Court’s Analysis and Judgment
The Supreme Court, referencing its ruling in K Bharthi Devi v. State of Telangana (2024), emphasized that criminal proceedings from banking disputes that are predominantly civil in nature should be quashed after a full settlement if the likelihood of conviction is minimal. The bench noted that the continuation of such proceedings would be oppressive and an abuse of the court’s process.
Furthermore, the court pointed out that UCO Bank’s claim of suspected fraud in 2013 did not lead to immediate criminal action, as the bank sought to maximize recovery. The criminal prosecution was only pursued after the DRT settlement was executed, which the court deemed lacked good faith and was oppressive.
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Implications of the Ruling
Justice BV Nagarathna and Justice Ujjal Bhuyan warned that allowing criminal prosecution post-DRT settlement could undermine the integrity of such settlements and dissuade parties from resolving disputes through compromise, potentially impacting the economy. The bench’s decision to quash the criminal proceedings against Kela underscores the importance of the finality of DRT-approved settlements in commercial disputes.
The legal team representing Kela included Senior Advocates Vineet Kothari and Prashant Mishra, while Additional Solicitor General Rajkumar Bhaskar Thakare represented the respondents.
