“In CBI v. Ramesh Chennithala & Ors. (Criminal Appeal Nos. 1188-1190 of 2025), the Supreme Court upholds that FIRs for alleged fraud can proceed, despite quashed loan classifications, ensuring robust investigation while balancing procedural fairness.”
— Literal Law Editorial Team
New Delhi, April 26, 2025 – In a landmark ruling in Central Bureau of Investigation v. Ramesh Chennithala & Ors. (Criminal Appeal Nos. 1188-1190 of 2025), the Supreme Court of India has held that First Information Reports (FIRs) initiated against borrowers for alleged fraud can proceed, even if the classification of their bank accounts as fraudulent is set aside on technical grounds. The decision, delivered by a bench comprising Justices MM Sundresh and Rajesh Bindal, clarifies the distinction between administrative actions and criminal liability, with significant implications for banks, borrowers, and investigative agencies.
Background of the Case
The appeals, registered as Criminal Appeal Nos. 1188-1190 of 2025, were filed by the Central Bureau of Investigation (CBI) challenging various High Court orders that quashed FIRs against borrowers. These FIRs were lodged based on allegations of fraud under the Reserve Bank of India’s (RBI) Master Directions on Fraud – Classification and Reporting, dated July 1, 2016. The High Courts had set aside both the fraudulent account classifications and the associated criminal proceedings, relying primarily on the Supreme Court’s 2023 judgment in State Bank of India & Ors. v. Rajesh Agrawal & Ors. (Civil Appeal No. 7300 of 2022). The Rajesh Agrawal ruling mandated that borrowers must be given an opportunity to be heard before their accounts are classified as fraudulent, in line with principles of natural justice.
Supreme Court’s Reasoning
In Central Bureau of Investigation v. Ramesh Chennithala & Ors., the Supreme Court emphasized that the quashing of an administrative action, such as a fraudulent loan classification, does not automatically invalidate criminal proceedings. The bench observed, “Even in a case where an FIR is registered based on an administrative action, setting aside the latter on a technical or legal premise would not ipso facto nullify the former. It is ultimately a matter for investigation by the appropriate authority.” The Court clarified that criminal liability hinges on evidence uncovered during investigations following an FIR, not solely on the validity of the administrative classification.
The Court further noted that the RBI’s Master Directions are administrative in nature, and non-compliance with procedural requirements—such as failing to provide borrowers a fair hearing—does not negate the underlying facts that may justify criminal action. “When an administrative order is set aside on the ground of non-compliance of a legal necessity or mandate, the facts mentioned thereunder could still be the basis for the registration of an FIR,” the judgment stated.
Criticism of High Court Orders
The bench criticized the High Courts for exceeding their jurisdiction by quashing FIRs that were either not challenged or where the CBI was not given an opportunity to be heard. The Court held that such actions violated principles of natural justice, particularly when the CBI, as the investigating agency, was not impleaded as a party. The ruling in Criminal Appeal Nos. 1188-1190 of 2025 restores the criminal proceedings initiated by banks against defaulting borrowers, directing that investigations must proceed based on evidence gathered.
Implications for Stakeholders
The decision in Central Bureau of Investigation v. Ramesh Chennithala & Ors. has far-reaching consequences for borrowers, banks, and regulatory authorities. For borrowers, it underscores the continued risk of criminal liability, even if administrative classifications are overturned due to procedural lapses. The ruling reinforces that investigations into alleged fraud will proceed independently of administrative actions.
For banks, the judgment strengthens their ability to pursue criminal action against defaulters, provided investigations substantiate allegations of fraud. However, it also serves as a reminder to comply with the procedural mandates outlined in State Bank of India v. Rajesh Agrawal (Civil Appeal No. 7300 of 2022) to avoid challenges to administrative classifications.
Legal Context
The Supreme Court’s 2023 decision in State Bank of India v. Rajesh Agrawal (Civil Appeal No. 7300 of 2022) established that classifying accounts as fraudulent without hearing the borrower violates the principle of audi alteram partem (the right to be heard). Following this ruling, several High Courts quashed both fraud classifications and related FIRs, prompting the CBI’s appeals. In Criminal Appeal Nos. 1188-1190 of 2025, the Supreme Court clarified that while administrative actions must adhere to procedural fairness, criminal proceedings are independent and depend on investigative outcomes. The Court also noted that administrative authorities may initiate fresh actions if prior classifications are set aside due to procedural deficiencies.
Conclusion
The Supreme Court’s ruling in Central Bureau of Investigation v. Ramesh Chennithala & Ors. (Criminal Appeal Nos. 1188-1190 of 2025) marks a pivotal moment in the interplay between administrative and criminal law in banking fraud cases. By upholding the validity of FIRs despite the reversal of fraud classifications, the Court has ensured that allegations of financial misconduct are thoroughly investigated, balancing the rights of borrowers with the need to protect public financial systems. Legal experts anticipate that this judgment will encourage stricter compliance with RBI guidelines by banks and heightened scrutiny of criminal investigations by borrowers.
Literal Law will continue to monitor developments in this case and its impact on banking and criminal law jurisprudence.
[Source: Supreme Court Judgment in Criminal Appeal Nos. 1188-1190 of 2025, April 25, 2025]
