The Supreme Court of India has ruled that criminal proceedings and FIRs against borrowers can continue, even if the classification of their bank accounts as "fraudulent" has been set aside due to procedural lapses.

Restoring the FIRs quashed by various High Courts, the bench of Justice M.M. Sundresh and Justice Rajesh Bindal emphasized that administrative actions under the Reserve Bank of India’s (RBI) 2016 Master Directions on Fraud cannot be equated with criminal proceedings initiated under law.

“An FIR, by taking cognizance of an offence, merely sets the law into motion. This has nothing to do with a decision on the administrative side... The scope and role of both the actions are totally different,”
— Supreme Court

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Borrowers had challenged both the fraud classification and the FIRs filed by banks, relying on the State Bank of India vs. Rajesh Agarwal (2023) ruling. The Supreme Court had earlier held that borrowers must be heard before being marked as fraudulent. High Courts used this to not only strike down the fraud tag but also quash FIRs.

But the apex court clarified that quashing administrative actions doesn’t automatically nullify criminal cases. It held that even if the fraud classification is void due to violation of natural justice, such as not granting a hearing, the FIR can still stand if there is enough evidence to show a cognizable offence.

“Even in a case where an FIR is registered based on an administrative action, setting aside the latter would not ipso facto nullify the former.”
— Supreme Court

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The Court also criticized the High Courts for quashing FIRs without even being approached for that relief or without hearing the CBI. In some cases, the CBI wasn’t even made a party.

The bench referred to Canara Bank vs. Debasis Das, stating:

“Whenever an order is struck down as invalid being in violation of principles of natural justice, there is no final decision... All that is done is to vacate the order... but the proceedings are not terminated.”

The judgment categorizes cases into five groups, based on whether FIRs were challenged, whether investigations are ongoing or complete, or if interim relief was granted. For each, the Supreme Court laid down a clear path for further proceedings.

Case Details : CENTRAL BUREAU OF INVESTIGATION vs. SURENDRA PATWA & Connected Matters | SLP(Crl) No. 007735 - / 2024