IMF Chief Christine Lagarde Quizzed over Settlement Scandal with Tycoon Bernard Tapie

A special court in Paris has quizzed International Monetary Fund chief Christine Lagarde over a controversial €400m (£340m) arbitration deal in favour of French tycoon Bernard Tapie.

Lagarde appeared relaxed as she arrived at the central Court of Justice of the Republic, the judicial body that deals with allegations of ministerial misconduct and decides on whether to proceed with a formal investigation.

A source close to Lagarde, one of the most powerful women in the world, according to Forbes magazine - told Le Figaro that she said the accusations against her were unjust but was worried by them.

"She is shaken and angered," the source said. "She knows this is going to further damage France's image abroad."

Her handling of a dispute between Tapie and part state-owned bank Credit Lyonnais in 2008 is under scrutiny by judges.

The case centred on the alleged mishandled sale of Adidas by Credit Lyonnais to businessman Robert Louis-Dreyfus on behalf of Tapie, who was a majority stakeholder of the sportswear brand, in 1993.

Tapie claimed he was defrauded by the bank and started a long legal battle which ended with Lagarde referring the issue to an arbitration panel in 2007.

Lagarde also approved the panel's decision to award the multimillion-euro damages.

Critics said that because public money was involved, Lagarde should not have had the case settled by private arbitration.

French investigators opened an inquiry in 2011 into possible charges of complicity in embezzlement of public funds and forgery. They claimed the settlement in Tapie's favour was helped by his support of Nicolas Sarkozy in the 2007 election. Lagarde was finance minister under the former president.

Lagarde, who had her Paris home searched by police in March, has denied any wrongdoing.

If found guilty, Lagarde could face up to 10 years in prison, said prosecutors.

Tapie maintains that he deserved the settlement. He said the investigation was a political witch-hunt against Sarkozy and the conservative entourage.

"Lagarde's fate doesn't concern me," Tapie, who himself may be targeted in a separate probe, told Europe-1 radio. "When evidence is discovered, then we'll talk."