@Author
There are two hidden points in your post.
One: You have been acquitted of all the charges pertaining to 498a - Cruelty.
Two: Now Police is asking for settlement
Once someone is acquitted of all charges, he/she cannot be tried again hence no FIr can be registered either. However, if the allegations are fresh and subsequent cruelty then certainly she can file a case. But as you clearly mentioned that she is living seperately since 2007 hence there would be no opportunity for you and or family to subject her to cruelty.
Even is she bribe the police and gets an FIR registered you can move high court for quashing of the case.
I'm still unclear why police is asking for settlement?? What kind of settlement is police and your 498a wife interested in? You have won the case and now your next move should be to file divorce. Filing false and frivuous cases against husband has been considered as a form of cruelty by Supreme Court and accordingly it creates a ground for divorce. Appoint a laywer and get rid of the erring spouse. DO NOT PAY ANYTHING IN ALIMONY / MAINTENANCE / SETTLEMEMT. YOU HAVE WON AND NOW ITS THEIR TURN TO PAY.
//peace
/Saurabh..V