Shaikh Mahaboob v. Central Bureau of Investigation and Anr
A breach of a loan contract is not cheating unless there was deception from the very inception; where the borrowers dealt with the bank for years, repaid hundreds of crores, defaulted after flood losses, and the bank accepted a resolution plan and issued a no-dues certificate, the ingredients of section 420 are not made out.
By CA Nikhil Gupta · Reviewed against the retained judgment 2026-10-07
The CBI charged the promoters and companies of Star Agro Marine Exports with defrauding the complainant bank of ₹284.84 crore through inflated statements. The company went through insolvency, the bank received its share under the approved plan and issued a no-dues certificate. The Madras High Court held that the dispute was commercial and quashed the prosecution.
What happened
The prosecution case was that M/s Star Agro Marine Exports Pvt. Ltd. (A1), its managing director (A2) and director (A3) and others (A4 to A7) conspired between 2012 and 2018 to cheat the complainant bank by false representations, fabricated and inflated financial, stock and receivables statements and false invoices, and by diverting loan funds, causing wrongful loss of ₹284.84 crore. The CBI registered RC21/2018 for offences under sections 120B read with 420 and 420 of the IPC, filed a final report, and the Magistrate took cognizance in CC No. 2005 of 2025. The petitioners said it was a commercial dispute given a criminal colour: the company dealt with the bank from 1998, repaid hundreds of crores, was classified as a non-performing asset on 31 March 2016 after losing stock in the 2015 floods in Nellore, the bank then began CIRP, the plan of Seelam Infra Developers Private Limited was approved, the bank received its share of ₹45.86 crore, and it issued a no-dues certificate on 16 March 2020. The bank had also proceeded against guarantors and mortgagors before the DRT, Chennai in T.A. No. 76 of 2022 and obtained a recovery certificate (DRC No. 3 of 2025) for ₹628.15 crore as on 27 February 2025. The CBI relied on Rumi Dhar v. State of West Bengal, CBI v. Maninder Singh, (2016) 1 SCC 389, and CBI v. Sarvodaya Highways Ltd. to say that civil and criminal proceedings can run together, and that economic offences harm society and settlement is no ground to quash.
Questions before the court
- Should the criminal case be quashed in view of the commercial nature of the dealings and the settlement through the resolution plan?
Why the court ruled this way
The Court found the CBI's cases inapplicable because it was admittedly a commercial transaction; the accused had availed credit facilities since 1998, repaid hundreds of crores until 2016, and defaulted only from 2016 (paragraph 7). For section 420 the accused must have fraudulently or dishonestly made a false representation and the complainant must have acted on it, and the petitioners made no dishonest or fraudulent representation (paragraphs 7 and 8). The final report invoked no forgery offences under sections 468 and 471 because no evidence of forgery was found (paragraph 9). Every breach of contract does not give rise to cheating; deception must exist at the inception, and an intention to cheat developed later does not amount to cheating (paragraph 9). On these facts, including the dealings since 1998 and the settlement under the plan, the proceedings were liable to be quashed (paragraphs 9 and 10).
Controlling point
The impugned proceedings were an abuse of process as no fraudulent intention at inception was shown.
Order and next steps
The entire proceedings were quashed and the criminal original petitions allowed, with connected miscellaneous petitions closed.
Practical implications
Promoters facing a criminal complaint after a loan default should point to the long dealing, the absence of any false representation at inception and any settlement or no-dues certificate, relying on this decision.
Limits of this ruling
- The Court distinguished the Supreme Court's economic-offence decisions on its facts of a long-running commercial relationship; it does not mean bank frauds involving fabricated documents can never be prosecuted.
Law and judgment source
- Indian Penal Code, 1860, sections 120B, 420, 468 and 471
- Insolvency and Bankruptcy Code, 2016, section 32A
- Code of Criminal Procedure, 1973, section 482
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Source checked: 2026-10-07 · Judgment paragraphs: paragraphs 1–10 · Later case history: not verified. Verify appeals, stays and subsequent orders before reliance.
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