OTS settlement does not erase criminal liability where serious bank fraud and PMLA investigation disclose prima facie proceeds of crime.

An OTS settlement and repayment of dues do not, by themselves, extinguish criminal liability in a serious bank fraud involving alleged diversion of bank funds; where the banks treated settlement as a commercial recovery arrangement preserving criminal action, quashing was refused. The challenge to the PMLA investigation and summons also failed because the ECIR was only an investigative step, the summons were for recording statements and collecting evidence, and the CBI FIRs disclosed scheduled offences with prima facie proceeds of crime. Interference under Section 482 CrPC was held unwarranted in such an economic offence, and the petitioners were required to cooperate with the investigation.

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Issues: (i) Whether the criminal petitions seeking quashing of the FIRs and ECIR/summons could be allowed on the basis of OTS settlement and repayment of dues. (ii) Whether the challenge to the PMLA investigation and summons could succeed when the allegations disclosed scheduled offences and an ongoing money-laundering enquiry.

Issue (i): Whether the criminal petitions seeking quashing of the FIRs and ECIR/summons could be allowed on the basis of OTS settlement and repayment of dues.

Analysis: The allegations disclosed a serious loan fraud involving large-scale diversion of bank funds and substantial loss to public sector banks. The banks had expressly recorded that acceptance of the OTS was only a commercial settlement of recovery and would not affect criminal action. The acceptance of the compromise terms by the petitioners meant that they could not later contend that the criminal proceedings stood extinguished. The Court also distinguished the precedents relied on for quashing on settlement, holding that those principles do not apply to economic offences of this magnitude.

Conclusion: The petitions could not be allowed on the basis of OTS and repayment, and quashing was refused.

Issue (ii): Whether the challenge to the PMLA investigation and summons could succeed when the allegations disclosed scheduled offences and an ongoing money-laundering enquiry.

Analysis: The ECIR was treated as an investigative step and not as an FIR. The summons issued under the PMLA were for recording statements and collecting evidence during investigation. The Court found that the allegations in the CBI FIRs were scheduled offences, that prima facie proceeds of crime were involved, and that the petitioners were required to cooperate with the investigation. The Court further held that the protections claimed by the petitioners were not available at that stage and that interference under Section 482 of the Code of Criminal Procedure, 1973 was unwarranted in a serious economic offence case.

Conclusion: The challenge to the PMLA investigation and summons failed.

Final Conclusion: The criminal petitions were not fit for quashing because the dispute involved a serious economic offence with prima facie criminality, and the PMLA investigation was permitted to continue.

Ratio Decidendi: Settlement by OTS does not, by itself, wipe out criminal liability in a serious bank fraud or economic offence, and investigative action under the PMLA may continue where scheduled offences and proceeds of crime are prima facie disclosed.

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