The Jammu & Kashmir and Ladakh High Court has declined to quash criminal proceedings initiated against Raj Singh Gehlot, promoter of the Ambience Group, his family members, associated companies and other co‑accused in connection with an alleged loan fraud involving ₹289.28 crore of Jammu & Kashmir Bank funds. The bench, comprising Justice Sanjay Dhar, was hearing a petition filed under Section 482 of the Code of Criminal Procedure seeking to set aside the FIR and the chargesheet on the ground that the parties had entered into a one‑time settlement with the bank.

The court observed that the existence of a settlement between the borrower and the lending institution does not, by itself, wipe out the criminal liability of the accused for offences alleged under the Indian Penal Code. It emphasized that where the investigation, at a prima facie stage, reveals indications of fraudulent procurement of the loan amount and subsequent diversion of the sanctioned funds, the court is obliged to allow the criminal process to continue.

In its reasoning, the bench referred to the principle that criminal proceedings are not merely a private dispute between the bank and the borrower but constitute an offence against public interest. The court noted that the allegations, if proven, would attract provisions relating to cheating, forgery, fraudulent documents and criminal conspiracy. Consequently, even if the bank had agreed to a settlement and recovered part of the amount, the state retained the authority to prosecute for the alleged criminal acts.

The petitioners had contended that the settlement agreement, which included repayment of a portion of the outstanding loan and withdrawal of civil claims, should lead to the quashing of the criminal case. The High Court rejected this contention, stating that the settlement did not address the ingredients of the alleged offences and that the court could not ignore the prima facie material suggesting misappropriation of bank funds.

The bench further clarified that the power to quash proceedings under Section 482 CrPC is exercised sparingly and only when the allegations are found to be baseless or where the continuation of proceedings would be an abuse of the process of law. In the present matter, the court found that the allegations were not frivolous and that there was sufficient material to warrant a trial.

Accordingly, the High Court dismissed the petition and directed that the criminal case proceed against all the accused. The order reinforces the judicial stance that financial settlements with creditors do not operate as a blanket bar to criminal prosecution where the investigation discloses prima facie evidence of fraudulent conduct in the procurement and utilisation of bank loans.