Banking fraud and forgery proceedings cannot be quashed solely because dues were settled and a no dues certificate issued.

Criminal proceedings for alleged banking fraud, forgery and diversion of funds could not be quashed merely because the borrower and bank settled the dues and a no dues certificate was issued. The governing principle is that inherent power to quash must be used to prevent abuse of process or secure justice, but not where the allegations disclose serious economic offences with wider societal impact. Because the complaint involved fictitious entities, forged documents and dishonest diversion of bank funds, the matter was not a private loan dispute and compromise did not make conviction remote. The quashing order was therefore set aside and the trial directed to continue.

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Issues: Whether the High Court was justified in quashing criminal proceedings under its inherent and writ jurisdiction solely because the borrower and bank had settled the dues and a no dues certificate had been issued, in a case involving allegations of banking fraud, forgery and diversion of funds.

Analysis: The governing principles permit exercise of inherent power to quash criminal proceedings to prevent abuse of process or to secure the ends of justice, but that power must be used with due regard to the nature and gravity of the offence. Settlements may justify quashing in cases having overwhelmingly civil flavour, especially where the wrong is essentially private and the possibility of conviction is remote. However, serious economic offences, offences involving forgery, fabrication, deception in banking transactions and conduct with wider societal impact do not fall in that category merely because monetary dues have later been paid or a settlement has been reached. The allegations here went beyond a simple loan dispute and included creation of fictitious entities, forged documents and dishonest diversion of bank funds, which affected the financial interest of society at large.

Conclusion: The High Court ought not to have quashed the proceedings. The settlement and no dues certificate did not warrant termination of the prosecution in a case of this nature.

Final Conclusion: The quashing order was set aside and the criminal trial was directed to proceed in accordance with law.

Ratio Decidendi: Criminal proceedings arising from serious banking fraud and forgery having societal impact cannot be quashed merely on the basis of compromise or repayment, even if the dispute appears to have been settled inter se the parties.

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