When Balance Sheets Trump Justice: The Sterling Biotech Deal

The Sterling order signals that where repayment is substantial enough-and where the banks agree to a comprehensive settlement—the criminal process may be viewed as a negotiable nuisance rather than an immutable public duty.

By P SESH KUMAR

New Delhi, November 26, 2025 — The Supreme Court’s dramatic quashing of all CBI, ED, SFIO, Income Tax, Black Money Act and Fugitive Economic Offenders Act proceedings against the Sterling Biotech promoters—upon their willingness to deposit a negotiated ₹5,100 crore—marks a watershed moment in India’s uneasy intersection of criminal law and commercial recovery.

Wrapped in the language of “peculiar facts,” “public interest,” and “finality,” the judgment raises uncomfortable but unavoidable questions about precedent, power, prosecutorial independence, and the moral hazard of allowing repayment (even partial repayment) to eclipse criminal liability.

In a financial ecosystem where wilful defaulters, round-tripping specialists and economic offenders increasingly treat flight risk as a business strategy, this order reads less like a judicial closure and more like a new chapter in India’s fraught relationship between law enforcement and large borrowers.

The Sterling Biotech saga has never been a simple story of default; it was an interlocking web of allegations-money laundering, shell companies, round-tripping, public-sector bank fraud, foreign assets, and criminal conspiracy.

The CBI’s FIRs, the ED’s ECIRs, the SFIO’s findings and the Income Tax Department’s independent charges did not arise from a commercial dispute but from accusations of systemic deception.

When the Supreme Court first took up the petitions in 2020, it sensed room for settlement—because the banks, exhausted by the Insolvency and Bankruptcy Code’s attrition and persuaded by the petitioners’ offers, signalled they would accept money rather than continue litigation.

The Court, perhaps guided by pragmatism, observed that prosecution was an obstacle to repayment. Thus began a five-year judicial balancing act: one eye on repayment schedules, the other on pending criminal trials, always adjusting interim orders, giving extensions, deferring coercive steps.

The result culminated in the November 2025 order: a complete shutdown of the State’s criminal machinery, provided ₹5,100 crore is deposited by a specific date. The order is carefully drafted, almost apologetic, repeatedly insisting that this decision is unique, will not serve as precedent, and flows from “peculiar facts and circumstances.” But the very need for such disclaimers reveals the Court’s awareness that it was crossing a doctrinal Rubicon.

For criminal jurisprudence in economic offences has always insisted on a vital distinction: settlement of civil or commercial dues does not erase the State’s interest in punishing criminal conduct. Fraud, conspiracy, corruption, money laundering—these offences injure the public, not merely the creditor banks. India’s criminal law famously does not allow compounding of such offences without statutory authorization.

The Supreme Court itself has repeatedly held that the High Courts’ powers under Article 226 or Section 482 CrPC to quash proceedings in “civil-commercial disputes” cannot be stretched to economic offences affecting the financial integrity of the nation.

Gian Singh, Narinder Singh, Parbatbhai Aahir—the trilogy of precedents—drew a bright red line that settlements may influence but cannot erase the State’s prosecutorial imperative in heinous or serious economic crimes.

Against this doctrinal backdrop, the Sterling order stands out. It signals that where repayment is substantial enough-and where the banks agree to a comprehensive settlement—the criminal process may be viewed as a negotiable nuisance rather than an immutable public duty.

The irony is profound: India has no statutory regime for compounding such offences, yet here is a judicial outcome achieving exactly that-but under the banner of judicial discretion rather than legislative design.

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The Court stresses that ₹5,100 crore exceeds the balance amount, that public money is secured, that the banks will be made whole. But the real question is not whether the banks recover dues. It is whether alleged criminal conduct-defalcation, laundering, corrupted financial statements, parallel offshore transactions—can be washed away by writing a cheque. The order may not say so explicitly, but the subtext is unmistakable: if you repay enough, the State’s anxiety fades.

This is a message that will not be lost on similarly situated corporate borrowers currently under the scanner of CBI and ED. The Vijay Mallya, Mehul Choksi, Sandesara, Winsome, ABG Shipyard and Rotomac-type cases now acquire a new dimension. If repayment becomes a judicially endorsed pathway to quashing, the incentive structure shifts dramatically.

It empowers wealthy promoters to negotiate with banks first and law enforcement second. It risks turning enforcement agencies into reluctant bystanders whenever money changes hands. And it places an implicit monetary value on criminal allegations that ought to be adjudicated on evidence, not eliminated through settlement architecture.

There is also the broader institutional concern. Agencies like the CBI and ED derive their authority not merely from statutes but from the perception that economic crime is pursued relentlessly and without compromise.

When prosecution collapses because repayment is offered, their deterrent capacity weakens. It suggests that financial crime is no longer a sovereign issue but an adjustable ledger entry. It implicitly subordinates criminal liability to commercial expediency. And it risks turning India’s investigative regime into a bargain-based model where the accused can sidestep criminal consequences by negotiating directly with creditors, who may themselves have compelling incentives to accept large but incomplete recoveries instead of uncertain long-term litigation.

The judicial insistence that this order sets no precedent is noble, but jurisprudence does not operate on disclaimers; it evolves on patterns. Every future economic offender will now wave Sterling Biotech as a persuasive showcase of judicial leniency in exchange for financial settlement. Every future Article 226 or Section 482 petition will argue that public interest is served by repayment, not prosecution.

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Every future accused will say: “The Court has already recognized that continuation of criminal trial is purposeless when money is paid.”

The Supreme Court may have tried to ring-fence the Sterling Biotech order with caveats like “peculiar facts” and “not a precedent,” but there is no escaping the structural truth: a judicially supervised, settlement-driven quashing of all criminal proceedings-outside the IBC framework, outside the Committee of Creditors, outside the discipline of Section 29A, and outside the waterfall mechanism-inevitably undermines the relevance, credibility and deterrence of the Insolvency and Bankruptcy Code.

And that leads to the structural critique. India has spent two decades crafting a legal architecture—CBI’s anti-corruption authority, ED’s PMLA jurisdiction, the Fugitive Offenders Act, the Companies Act’s forensic provisions—to establish that “economic offences are a class apart.” They undermine the economy, erode trust in the banking system, and corrode public institutions. They are not private disputes but systemic injuries.

If those very offences can now be neutralized through private settlements with banks—even where only part of the alleged loss is repaid, and even when multiple agencies allege misappropriation, laundering or corruption-one must ask whether the criminal justice system is being quietly rewritten through judicial pragmatism.

The Court’s intentions are undoubtedly benign. It wants public money returned, judicial time saved, and creditors satisfied. But the unintended consequences linger: the dilution of prosecutorial independence, the weakening of deterrence, the creation of a “pay and walk free” shadow doctrine, and the unsettling message that large financial offenders can negotiate their way out of systemic accountability.

The Sterling order may help close a contentious case. But it opens a wider debate-one that India urgently needs. Whether financial settlement should ever extinguish criminal liability in serious economic offences is a question that must be answered not through case-by-case improvisation but through clear legislative policy. Until then, such judicial interventions, however well intentioned, will remain uneasy landmarks in India’s evolving financial-criminal jurisprudence.

(This is an opinion piece, and views expressed are those of the author only)

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