Court’s Decision
The Bombay High Court allowed the writ petitions filed by senior bank and Asset Reconstruction Company officials and quashed the FIRs registered at Bandra Police Station under Sections 406, 409 and 420 read with Section 34 of the IPC. The Court held that the criminal proceedings, so far as the petitioners were concerned, lacked bona fides and appeared to be an attempt to give a criminal colour to long-standing debt recovery proceedings.
The Court observed that although High Courts must be slow in interfering at the nascent stage of investigation, this was a case where the background showed that the complaint was driven by “personal vendetta writ large” and that continuation of the investigation “would be nothing but be an abuse of the process of court.”
The Court, however, clarified that it was not expressing any opinion on the allegations against the erstwhile trustees.
Facts
The matter arose from loan facilities sanctioned in 1995 to a diamond company owned and controlled by the complainant’s family. The borrower and guarantors allegedly defaulted, after which the bank initiated proceedings before the Debts Recovery Tribunal for recovery of dues. The DRT allowed the recovery proceedings in 2004 and issued a recovery certificate. The Court recorded that the outstanding dues exceeded ₹65 crores as on 31 May 2025.
The complainant alleged that former trustees of a charitable medical trust had wrongfully taken control of the trust and misused trust funds. He further alleged that bank and ARC officials colluded with the erstwhile trustees and that the recovery proceedings were fraudulently pursued despite the debt being repaid. Heavy reliance was placed on a photocopy of a cash diary, which allegedly showed payments made to bank and ARC officials.
On 17 April 2025, the Trust, through the complainant, filed an application under Section 175(3) of the BNSS before the JMFC, Bandra, seeking registration of an FIR. The Bandra Police had already reported that three FIRs were pending on identical allegations and that no fresh FIR was warranted. Despite this, the JMFC directed registration of FIRs, leading to FIR Nos. 0818/2025 and 0819/2025.
Issues
The principal issue before the High Court was whether the FIRs and the Magistrate’s order directing registration of FIRs deserved to be quashed when the allegations arose from long-standing recovery proceedings which had already been adjudicated before the DRT and the High Court.
The Court also considered whether the allegations disclosed the essential ingredients of criminal breach of trust and cheating, or whether the complaints were motivated, repetitive and an abuse of criminal process.
Petitioners’ Arguments
The petitioners argued that the FIRs were a gross abuse of the criminal process and were initiated with mala fide intent to harass senior officials and tarnish the reputation of the financial institutions. It was submitted that the dispute was essentially rooted in recovery proceedings which had attained finality before the DRT and the High Court.
They contended that the allegations, even if taken at face value, did not disclose entrustment, dishonest misappropriation or dishonest inducement, which are necessary ingredients for offences under Sections 406, 409 and 420 IPC. They further argued that Section 175(3) BNSS could not be used mechanically to direct registration of FIRs where the same allegations had already been examined and where prior judicial orders had recognised the legality of the recovery proceedings.
Reliance was placed on judgments including State of Haryana v. Bhajan Lal, Zandu Pharmaceutical Works Ltd. v. Mohd. Sharaful Haque, Priyanka Srivastava v. State of U.P., Pepsi Foods Ltd. v. Special Judicial Magistrate, G. Sagar Suri v. State of U.P., and Vineet Kumar v. State of U.P.
Respondents’ Arguments
The State and complainant opposed the petitions and submitted that the Magistrate had acted within jurisdiction under Section 175(3) BNSS. It was argued that the complaint disclosed cognizable offences and that the allegations required investigation.
The complainant submitted that the allegations involved collusion, misuse of trust funds, dishonest conduct, and criminal breach of trust by bank and ARC officials in association with former trustees. It was further argued that mala fides of the complainant cannot be a ground to quash an FIR when the complaint otherwise discloses cognizable offences.
The respondents relied on judgments including CBI v. Ravi Shankar Srivastava, State of Orissa v. Saroj Kumar Sahoo, Pradeep Wodeyar v. State of Karnataka, HDFC Securities Ltd. v. State of Maharashtra, and Girish Kumar Suneja v. CBI.
Analysis of the Law
The Court reiterated that inherent powers under Section 482 CrPC, now corresponding to Section 528 BNSS, may be exercised to give effect to orders under the Code, prevent abuse of process, or secure the ends of justice. It referred to the classic categories laid down in State of Haryana v. Bhajan Lal, including cases where allegations do not constitute an offence, where allegations are inherently improbable, or where proceedings are maliciously instituted with an ulterior motive.
The Court also relied on Imran Pratapgarhi v. State of Gujarat, where the Supreme Court held that there is no absolute rule preventing the High Court from quashing an FIR merely because investigation is at a nascent stage. If no offence is made out on the face of the record, the High Court can interfere to prevent abuse of process.
Court’s Reasoning
The Court accepted that financial institutions cannot claim immunity from criminal liability merely because they are banks or recovery agencies. It also accepted the broader principle that where allegations disclose cognizable offences, investigation ordinarily should proceed. However, the Court found that the background of this case could not be ignored.
The Court noted that the bank had initiated recovery proceedings before the DRT, where several orders had been passed for recovery of dues. It recorded that the financial institutions were justified in pursuing recovery and would have failed in their duty had they not done so. The Court further observed that the unfortunate death of the complainant’s father could not, by itself, become a basis to criminally prosecute bank and ARC officials on the strength of a photocopy of a diary allegedly containing payment entries.
The Court held that the complaint, at least so far as the petitioners were concerned, did not appear bona fide. It observed that allowing such prosecution to continue would not only lack bona fides but also risk deterring legitimate recovery proceedings.
Conclusion
The Bombay High Court quashed the FIRs and the Magistrate’s order directing registration of FIRs against the bank and ARC officials. The Court held that the proceedings, in the facts of the case, were not bona fide and amounted to abuse of process.
However, the Court made it clear that its observations were confined to the petitioners before it and that it was not deciding the allegations against the erstwhile trustees.
Implications
This judgment is significant because it protects lawful financial recovery proceedings from being converted into criminal prosecution merely because the borrower or related parties are aggrieved by coercive recovery steps. At the same time, the Court carefully preserved the principle that bank officials are not immune from criminal law where genuine allegations of collusion or misappropriation exist.
The ruling reinforces that criminal law cannot be used as a pressure tactic to derail recovery proceedings, especially where the dispute has already been litigated before competent forums.
