New Delhi: A one-time settlement (OTS) doesn’t wipe away criminal liability if a loan was taken fraudulently, the Jammu & Kashmir and Ladakh High Court has ruled, allowing a prima facie case against Ambience Group promoter Raj Singh Gehlot. The court was dealing with the matter of alleged diversion of hundreds of crores in loan funds from the Jammu & Kashmir Bank.
Justice Sanjay Dhar Tuesday dismissed a series of petitions seeking to quash chargesheets in the case, stating that there is sufficient material to proceed with a trial against the promoters of M/S Aman Hospitality Pvt Ltd (AHPL), an Ambience Group entity, and other associated entities.
The case originates from a source report—investigated by the Anti-Corruption Bureau (ACB) of Srinagar—alleging that officers of J&K Bank’s Ansal Plaza Branch in New Delhi advanced massive loans to AHPL for a ‘twin five-star hotel’ project in Delhi’s Shahdara.
In the chargesheet, it is alleged that these funds were siphoned off and diverted through the turnkey contractor, M/s Ambience Pvt Ltd, to various entities owned by Gehlot who also misutilised the funds for “purposes alien to the project”, such as paying personal self-assessment taxes of directors, creating fixed deposits and repaying short-term loans and interest to other banks.
The ACB had registered the FIR in 2019 but, following a request by the J&K government in June 2021, the investigation was transferred to the Central Bureau of Investigation.
According to the FIR, the loan account was declared a Non-Performing Asset (NPA) to facilitate a one-time settlement that extended “undue advantage” to the borrower.
The court noted that the total outstanding amount against the company was approximately Rs 289.28 crore. The FIR alleged that bank officials, in connivance with AHPL directors, settled the account for just Rs 128.94 crore—less than half of the principal amount.
Tuesday’s order states that the bank management, by “abuse of their authority for pecuniary considerations”, conferred pecuniary benefits of Rs 160.34 crore upon the promoters through a “dubious deal”, without taking recourse to the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).
The petitioners, including Gehlot and other directors, argued in court that the funds were not diverted but were rather “reimbursements” for over Rs 280 crore already spent on the project.
They further contended that the entities involved acted as “in-house facilitators” or bankers for the Ambience Group. They emphasised that the hotel project had been completed and it was functional, arguing that “no cheater would invest such a huge amount of money” only to induce a bank loan.
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Court’s reasoning
The high court categorically rejected the petitioners’ defence at this preliminary stage. Justice Dhar said the terms of the loan did not authorise “reimbursement” of prior expenses.
“In the conditions of sanction, it is clearly mentioned that the loan should be utilised for construction and development of the hotel… there was no condition attached to the sanction that would authorise the borrower to utilise the loan amount for reimbursement of expenses already incurred on the project,” the court said.
A critical factor in the court’s decision was the nature of the one-time settlement.
The court observed that because the settlement figure was “less than the principal amount advanced”, the J&K Bank suffered a clear pecuniary loss. The order noted that “the bank has been dishonestly induced to release the tranches of loan” under the representation that they would be used for the project, only for those funds to be utilised for purposes “outside the purview of the conditions of the sanction”.
The court said that had it been a case of simple acceptance of one-time settlement and there being no dishonest intention on the part of the borrower company at the time of advancement of loans, it would have been a pure and simple dispute of civil nature.
But the material in the case to show that the borrower company had diverted the funds disbursed to it for purposes for which the loan had not been sanctioned—was prima facie sufficient to conclude that the bank had been dishonestly induced to release the tranches of loan in favour of the borrower company. “Thus, prima facie, the offence of cheating is made out against the petitioners,” the judge said.
Concluding the judgement, the court held that it was “not a fit case for exercise of powers” to quash the impugned proceedings—while letting the trial court independently evaluate the case on merits.
(Edited by Nida Fatima Siddiqui)
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