CBI Cannot Keep Searching for an Offender After Filing FIR: Bombay High Court Quashes ₹4760 Crore Loan Diversion Case Against GTL Limited

“The Machinery of Criminal Justice Cannot Be Put in Motion for Making a Roving Inquiry”, In a significant ruling on the limits of criminal investigation in economic offences, the Bombay High Court on 27 February 2026 quashed an FIR registered by the Central Bureau of Investigation against GTL Limited concerning alleged diversion of bank loans amounting to ₹4760 crores.

Division Bench of Chief Justice Shree Chandrashekhar and Justice Gautam A. Ankhad held that continuation of the investigation was legally unsustainable where no specific accused had been identified and no material disclosed fraudulent intention at inception.

The Court ruled that the FIR bearing RC2192023E0003 dated 21 January 2023 “cannot be permitted to continue any further” and accordingly quashed it, directing closure of investigation. The judgment marks an important judicial intervention in balancing the seriousness of economic offences with safeguards against speculative prosecution.

The CBI had conducted a Preliminary Enquiry into allegations that GTL Limited fraudulently obtained credit facilities from a consortium of 24 banks and siphoned off funds through vendor entities. The company had raised capital through non-convertible debentures and availed consortium lending of ₹4760.01 crores.

The allegations suggested that substantial advances were given to vendor companies which allegedly supplied goods disproportionate to the advances received. It was also alleged that certain funds were routed back and that working capital loans were diverted.

After an 18-month Preliminary Enquiry in which 52 documents were collected and several witnesses examined, the CBI registered an FIR under Sections 120-B and 420 of the IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act.

Strikingly, the FIR was registered against “GTL Limited, unknown directors of GTL Limited, unknown bank officials and unknown private persons.”

This feature became central to the Court’s reasoning.

“Registration of FIR Against Unknown Persons Indicates a Fluid State of Affairs”

The Bench found it extraordinary that after a prolonged Preliminary Enquiry, no individual accused had been identified. The Court observed that the CBI had examined multiple witnesses and collected extensive records, yet failed to attribute criminal conduct to any specific director or bank official.

The Court noted that the Investigating Officer candidly stated before the Court that he had “yet not formed his opinion and he is scrutinizing the materials on record.”

Rejecting the justification that investigation could continue to identify offenders, the Court held:

“The continuance of criminal proceedings against the petitioner-company cannot be permitted on the ground that the Investigating Officer may some day find the real culprits and form an opinion to file a charge-sheet.”

In emphatic terms, the Bench added:

“The CBI cannot be permitted to continue with the investigation in this matter in a hope that some day it may identify the offender where no offender has yet been identified.”

The Court characterised the FIR as an impermissible “roving and fishing inquiry.”

No Cheating Without Dishonest Intention at Inception

A central legal issue was whether the allegations satisfied the ingredients of cheating under Section 415 IPC. The Court reiterated that deception and dishonest intention at the very inception of the transaction are essential elements.

Relying on Hridaya Ranjan Prasad Verma v. State of Bihar, the Bench underscored the distinction between breach of contract and criminal cheating. It observed:

“Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction.”

The Court found that the FIR did not allege that GTL Limited had made false representations at the time of availing loans, nor that it forged documents or manipulated the forensic audit.

“There is no allegation in the First Information Report that the petitioner-company had dishonest intention at the beginning and it made projections knowing the same not to be true.”

Commercial distress or failure in a volatile telecom sector, the Court held, cannot by itself constitute cheating.

Forensic Audit and JLF Decisions: “No Conclusive Evidence of Diversion”

The forensic audit conducted pursuant to RBI advice was discussed in Joint Lender Forum meetings. The lenders concluded that there was “no conclusive evidence of diversion of funds” and decided not to classify the account as fraud. The Red Flag Account status was subsequently removed.

The Ministry of Finance was informed, and earlier communications even recorded that there was no need to file a complaint with the CBI as the account had not been identified as fraudulent.

The Court observed that decisions of the consortium were taken after deliberations and under RBI oversight. It held that criminal investigation cannot substitute commercial wisdom.

“A dissent by itself cannot impute criminality to the collective business decision taken by the majority of the lender banks and financial institutions.”

Section 17A PC Act: Protective Umbrella for Public Servants

The FIR invoked the Prevention of Corruption Act against “unknown bank officials.” The Court examined Section 17A, inserted by the 2018 amendment, which mandates prior approval before inquiry or investigation into decisions taken by public servants in discharge of official duties.

The Bench observed:

“The bank officials are public servants who are provided a protective umbrella under section 17A to shield them from frivolous complaints.”

No specific public servant was identified, nor was prior approval obtained. There was also no allegation that statutory guidelines were violated with dishonest intention. The invocation of PC Act provisions was therefore unsustainable.

High Court’s Duty to Prevent Miscarriage of Justice

Invoking its powers under Article 226 of the Constitution and Section 482 CrPC, the Court emphasized that it must intervene where continuation of proceedings would amount to abuse of process.

“The machinery of criminal justice system cannot be put in motion for making a roving inquiry.”

The Bench found that unimpeachable documents, including forensic audit findings and official communications, substantially wiped out the allegations in the FIR.

In allowing the writ petition, the Court concluded:

“As a result of the above discussions, we have formed an opinion that the investigation in RC2192023E0003 registered on 21st January 2023 cannot be permitted to continue any further. This First Information Report requires interference by this Court and is, accordingly, quashed.”

The judgment reinforces a critical principle: economic offences are undoubtedly serious, but criminal prosecution cannot rest on suspicion, hindsight commercial assessment, or an open-ended search for unnamed offenders. Fraud requires clear allegations of deception at inception, and investigative power must operate within statutory and constitutional boundaries.

Date of Decision: 27/02/2026