Introduction:

In Sarfaraz Khan & Ors. v. State of Orissa & Anr., the Orissa High Court was confronted with a situation where criminal law had been set in motion for offences of cheating, use of obscene language in public, and criminal intimidation, but the underlying dispute between the parties had subsequently been resolved through mediation. The matter was decided by a Single Judge Bench presided over by Justice Savitri Ratho, who delivered the judgment on December 18, 2025. The case arose from the registration of an FIR alleging offences under Sections 420, 294, and 506 of the Indian Penal Code against the petitioners and two other accused persons. During the pendency of proceedings, the petitioners approached the High Court seeking anticipatory bail, following which the Court granted interim protection and referred the parties to mediation. The mediation process culminated in a successful settlement, leading to full restitution of the informant’s monetary claim and a joint request by the parties to bring the criminal proceedings to an end. The judgment is significant for its strong endorsement of mediation as an effective tool in appropriate criminal disputes, its recognition of the role of institutional infrastructure in facilitating settlements, and its pragmatic approach towards quashing criminal proceedings once the substratum of the dispute has been amicably resolved.

Arguments of Petitioners:

The petitioners approached the Orissa High Court with a prayer for quashing of the FIR and the consequent criminal proceedings, primarily on the ground that the dispute between them and the informant was purely personal and commercial in nature and had been fully and finally settled through mediation. It was contended that the continuation of criminal proceedings, despite the settlement, would amount to an abuse of the process of law and would serve no fruitful purpose. The petitioners emphasized that the allegations under Sections 420, 294, and 506 IPC stemmed from a financial transaction and the attendant discord between the parties, which no longer survived after the settlement.

The petitioners placed strong reliance on the mediation report dated 18.12.2024, which recorded that the parties had voluntarily arrived at a mutually acceptable resolution. As per the terms of settlement, the petitioners agreed to pay a sum of ₹18,00,000/- to the informant, which represented the entire outstanding amount. It was submitted that this amount had been duly paid within the stipulated time, i.e., on or before 10.01.2025, and there were no surviving claims or grievances between the parties. The petitioners further drew the Court’s attention to the joint affidavit sworn by both sides, unequivocally stating that the dispute had been resolved out of court and that the informant did not wish to pursue the criminal case any further.

It was also argued that the High Court itself had earlier found the dispute fit for mediation when it referred the matter while considering the anticipatory bail applications. The success of the mediation process, according to the petitioners, vindicated the Court’s approach and demonstrated that the criminal proceedings were essentially an offshoot of a private dispute. The petitioners submitted that compelling them to undergo a criminal trial after settlement would result in unnecessary harassment, wastage of judicial time, and would defeat the very purpose of encouraging alternative dispute resolution mechanisms.

The petitioners relied upon the principles laid down by the Supreme Court in M/s. Patil Automation Private Limited v. Rakheja Engineers Private Limited, contending that courts must actively encourage settlement and give due weight to successful mediation outcomes. They urged that since the informant had received his money back and had no objection to quashing of the FIR, the High Court ought to exercise its inherent powers to secure the ends of justice and prevent abuse of process.

Arguments of Opposite Parties:

The State, represented by the Additional Standing Counsel, fairly placed the factual position before the Court, leaving the matter to the judicial discretion of the Bench. While acknowledging that the offences alleged were non-compoundable under the Code of Criminal Procedure, the State did not dispute the fact that the parties had arrived at a settlement through court-referred mediation. The State submitted that in cases where the dispute is overwhelmingly private in nature and does not have a serious impact on society at large, the High Court may consider exercising its inherent jurisdiction, subject to satisfaction about the voluntariness and genuineness of the settlement.

The informant, through his counsel, took an unequivocal stand supporting the petitioners. He apprised the Court that the entire settled amount of ₹18,00,000/- had been received by him and that he harboured no grievance whatsoever against the petitioners. The informant expressly conveyed his disinclination to pursue the criminal prosecution any further and supported the prayer for quashing of the FIR and all consequential proceedings. The counsel for the informant submitted that the dispute arose out of a monetary transaction, which had now been amicably resolved, and that the continuation of criminal proceedings would only prolong bitterness without serving any meaningful purpose.

The informant also endorsed the mediation process and acknowledged that the settlement was arrived at voluntarily, without any coercion or undue influence. By filing a joint affidavit along with the petitioners, the informant made it clear that there was scant need for a criminal trial and that peace had been restored between the parties. This unified stand of the informant and the accused weighed heavily in favour of putting an end to the criminal proceedings.

Court’s Judgment:

Justice Savitri Ratho, after carefully perusing the records, mediation report, settlement agreement, and the joint affidavit filed by the parties, proceeded to quash the FIR and the corresponding criminal proceedings. The Court noted that the allegations in the FIR related to offences under Sections 420, 294, and 506 IPC, which, though non-compoundable, arose from a dispute that was essentially personal and financial in nature. The Court emphasized that it had the inherent power to quash criminal proceedings in appropriate cases where continuation of prosecution would amount to abuse of process of law and where the ends of justice would be better served by putting an end to the proceedings.

The Court expressed its satisfaction with the mediation process and the outcome achieved therein. In a notable observation, Justice Ratho highlighted the importance of institutional support for mediation and the availability of trained mediators in the State. The Court observed that the present case exemplified how effective mediation infrastructure could lead to a win-win situation for all concerned, where the informant recovered his money, the accused were spared the ordeal of criminal prosecution, and valuable judicial time was conserved. The Court candidly acknowledged that the success of the settlement was attributable not only to the willingness of the parties but also to the advice of their counsel and the structured mediation framework available.

Relying on the Supreme Court’s decision in M/s. Patil Automation Private Limited v. Rakheja Engineers Private Limited, the Court reiterated that alternative dispute resolution mechanisms must be meaningfully encouraged and given due recognition by courts. The Court noted that while criminal law serves an important public function, it should not be used as a tool for perpetuating private vendettas once the underlying dispute has been resolved. The Court was particularly persuaded by the fact that the informant himself did not wish to proceed with the prosecution and that the settlement had resulted in complete restitution.

Justice Ratho further observed that insisting on a criminal trial in such circumstances would neither advance the cause of justice nor serve any societal interest. On the contrary, it would burden the criminal justice system with a matter that had already lost its adversarial character. Taking all these factors into account, the Court held that it was a fit case for exercise of inherent jurisdiction and accordingly quashed the FIR along with all pending criminal proceedings arising therefrom.