Bank Fraud - Diversion of funds from loan without forgery or manipulation does not render the case predominantly criminal in nature
Kerala High Court Quashes Criminal Proceedings in Bank Fraud Case
Kerala High Court, in a landmark judgment delivered on September 18, 2025, has quashed the criminal proceedings against Jayson Joy, accused in a significant bank fraud case involving M/s. Shalom Micro Finance Ltd. The judgment, delivered by Justice A. Badharudeen, emphasized the civil nature of the dispute following a One Time Settlement (OTS) agreement with the Central Bank of India, thereby dismissing the allegations of financial fraud and corruption.
The case against Jayson Joy and other directors of M/s. Shalom Micro Finance Ltd. involved accusations of embezzlement, fraud, breach of trust, and misappropriation of funds, amounting to a Rs. 1132 lakh loan availed between January 2010 and March 2013. The allegations were initiated by a complaint from the Regional Head of the Central Bank of India, which led to the registration of a case by the Anti-Corruption Branch (ACB), Cochin.
Despite the serious nature of the allegations, the court noted that the prosecution failed to provide evidence of forgery, manipulation, or deceitful contrivance in availing the loan. The judgment highlighted the absence of criminal intent, stating that the diversion of funds alone, without any forged documentation, does not constitute a criminal offense warranting prosecution.
The ruling was influenced by previous judgments from the Supreme Court, particularly the cases of N.S. Gnaneshwaran and K. Bharthi Devi, where similar circumstances led to quashing of proceedings due to the civil nature of the disputes. Justice Badharudeen cited these precedents, emphasizing that the closure of the loan account via OTS and settlement of dues, without any objection from the bank, nullified the criminal aspects of the case.
In contrast, the Central Bureau of Investigation (CBI), represented by the Special Public Prosecutor, argued against the quashing, citing the need for continued investigation due to alleged misappropriation and diversion of funds. They referred to Supreme Court decisions underscoring the societal impact of economic offenses. However, the court found the argument unpersuasive, particularly given the lack of evidence for any manipulative or fraudulent conduct.
This judgment underscores the judiciary's approach towards distinguishing civil disputes from criminal offenses, especially in cases involving financial transactions. By quashing the proceedings, the court has set a precedent in favor of settling disputes of this nature through civil remedies, provided there is no evidence of criminal activities.
The decision is expected to have wide-ranging implications for similar cases, encouraging the resolution of financial disputes through civil settlements rather than criminal prosecution. The judgment also highlights the importance of clear evidence in distinguishing between civil and criminal matters in bank fraud cases.
As the Registry forwards the order to the Special Court, the quashing of proceedings marks a significant relief for Jayson Joy and co-accused, who can now move forward without the burden of criminal charges. The case highlights the Kerala High Court's commitment to upholding justice by recognizing the civil nature of financial disputes resolved through legitimate settlements.
