Quashing of Criminal Proceedings - Section 420 read with Section 120B of the IPC - At this stage, it is required to be noted that though the FIR was filed in the year 2000 and the chargesheet was submitted/filed as far back as on 28.5.2004, the appellants were served with the summons only in the year 2017, i.e., after a period of approximately 13 years from the date of filing the
chargesheet. Under the circumstances, the High Court has committed a grave error in not quashing and setting aside the impugned criminal proceedings and has erred in not exercising the jurisdiction vested in it under Section 482 Cr.P.C.- there are no specific allegations and averments in the FIR and/or even in the chargesheet that fraudulent and dishonest intention of the accused was from the very beginning of the transaction. It is also required to be noted that contract between M/s SPML Infra Limited and the Government was for supply and commissioning of the Nurang Hydel Power Project including three power generating units. The appellants purchased the turbines for the project from another manufacturer. The company used the said turbines in the power project. The contract was in the year 1993. Thereafter in the year 1996 the project was
commissioned.
In the year 1997, the Department of Power issued a certificate certifying satisfaction over the execution of the project. Even the defect liability period ended/expired in January, 1998.
In the year 2000, there was some defect found with respect to three turbines. Immediately, the turbines were replaced. If the intention of the company/appellants was to cheat the Government of Arunachal Pradesh, they would not have replaced the turbines which were found to be defective. In any case, there are no specific allegations and averments in the complaint that the accused had fraudulent or dishonest intention at the time of entering into the contract.
Therefore, applying the law laid down by this Court in the aforesaid decisions, it cannot be said that even a prima facie case for the offence under Section 420 IPC has been made out.
It is also required to be noted that the main allegations can be said to be against the company. The company has not been made a party.
The allegations are restricted to the Managing Director and the Director of the company respectively. There are no specific allegations against the Managing Director or even the Director. There are no allegations to constitute the vicarious liability.
In the case of Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668, it is observed and held by this Court that the penal code does not contain any provision for attaching vicarious
liability on the part of the Managing Director or the Directors of the company when the accused is the company. It is further observed and held that the vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. It is further observed that statute indisputably must contain provision fixing such vicarious liabilities. It is further observed that even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability. In the present case, there are no such specific allegations against the appellants being Managing Director or the Director of the company respectively. Under the circumstances also, the impugned criminal proceedings are required to be quashed and set aside.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 125 OF 2020
(Arising from SLP(Crl.) No. 590 of 2019)
Sushil Sethi and another ..Appellants
Versus
The State of Arunachal Pradesh and others ..Respondents
J U D G M E N T
M.R. SHAH, J.
Feeling aggrieved and dissatisfied with the impugned
judgment and order dated 07.09.2018 passed by the High Court
of Gauhati at Itanagar in Criminal Petition No. 36(AP) of 2017, by
which the High Court has dismissed the said criminal petition
preferred by the appellants herein to quash and set aside the
1
criminal proceedings being G.R. Case No. 05/200/294, the
original accused nos. 1 & 2 have preferred the present appeal.
2. That appellant no.1 is the Managing Director of M/s. SPML
Infra Limited, previously known as M/s Subhas Project
Marketing Limited, and appellant no.2 is the Director of the said
firm M/s SPML Infra Limited. M/s SPML Infra Limited is a
public limited company incorporated under the Companies Act,
1956. A contract was entered into between M/s SPML Infra
Limited and the Government of Arunachal Pradesh on
18.03.1993 for construction, supply and commissioning of the
Nurang Hydel Power Project including three power generating
units for a consideration of Rs.24.96 crores approximately. As
per clause 2(c) of the contract, the defect liability period for the
works was to be for a period of 18 months. Project was
commissioned in the month of July, 1996. That the defect
liability period for the works of M/s SPML Infra Limited expired
in the month of January, 1998. That thereafter the project
became operational and started generating electricity and
according to the appellants till 20.09.1998 the project had
generated 90 lakhs KW units. According to the appellants even
the said project is also in operation today. There were some
2
disputes with respect to the payment of maintenance by the
respondents. The appellants issued notice to the respondents to
take over the project before 31.03.2000 on account of nonpayment of maintenance, vide notice dated 09.03.2000.
2.1 That thereafter the respondents – original complainant
lodged the complaint against the appellants and others being
Jang PS Case No. 05/2000 for the offence under Section 420 of
the IPC alleging inter alia that the appellants provided inferior
quality materials in contravention with the provisions of the
contract which stipulated specific percentages of nickel and
chromium to be used. It was alleged in the complaint that the
appellants were required to supply the equipments as per the
terms of the contract. As per the complaint, in course of physical
inspection of the plant, the DOP found that three runners
turbines, viz, turbine nos. 1, 2 and 3 were cracked and damaged.
Therefore, the damaged components were sent for testing and the
National Test House, Calcutta submitted its report and it was
found that the chemical composition of the broken runner was
found containing 5.28% Nickel and 7.5% Chromium, which
composition was contrary to the specification as per the
agreement. Therefore, it was alleged that M/s SPML, Calcutta
3
had supplied substandard turbines containing composition of
materials not in accordance with the specification of MOU,
resulted in frequent damage of runner turbine buckets. On the
strength of written complaint, an FIR was lodged/registered. It
appears that during the course of the investigation, the
Investigating Officer found/discovered the
illegalities/irregularities in awarding the contract at a higher
price. Even during the course of investigation, the Investigating
Officer found some officials responsible for the omission and
neglect of duties and it was found that the officials named in the
charge sheet were involved/connived with the firm M/s SPML
Infra Limited with a view to cheat the Government of Arunachal
Pradesh. After conclusion of the investigation, the Investigating
Officer filed the final report/chargesheet 28.05.2004 against the
appellants and others for the offences under Section 120B and
420 of the IPC. 2.2 According to the appellants, they were not
aware about the filing of the FIR and the chargesheet against
them till the year 2017 and on being aware of the FIR and the
chargesheet against them, the appellants preferred a petition
before the High Court for quashing the aforesaid criminal
proceedings under Section 482 Cr.P.C. It was contended on
4
behalf of the appellants that the matter pertains to the contract
and therefore purely a civil and contractual dispute has been
given the colour of criminality and that too with a mala fide
intention as they served a notice upon the respondents to pay the
maintenance amount due and payable. It was also submitted on
behalf of the appellants that they are the Managing
Director/Director of M/s SPML Infra Limited – a company and
that the company has not been arrayed as an accused. It was
submitted that there are no allegations that the appellants were
incharge of the affairs of the company and therefore vicariously
liable. Number of other submissions were also made on merits in
support of their submission that the offence under Section 420
IPC has not been made out at all. It was also submitted that as
soon as the company/appellants were informed with respect to
the defect, despite the defect liability period was over, they
changed the turbines in the year 2000. It was also submitted
that all through out the project has run and even still running.
2.3 That by the impugned judgment and order, the High Court
has refused to quash the criminal proceedings. While rejecting
the quashing petition, the High Court has observed that there are
allegations not only against the appellants, but also against the
5
connected company executives and engineers of the Government
of Arunachal Pradesh and there are allegations of criminal
conspiracy amongst themselves in the supply of substandard
runner turbines and receiving the substandard runner turbines
which were not in conformity with the specified standard and the
others coaccused persons have not come up with a similar
petition under Section 482 Cr.P.C. and therefore at this stage it is
not possible to segregate the case qua the appellants only.
2.4 Feeling aggrieved and dissatisfied with the impugned
judgment and order passed by the High Court in refusing to
quash the criminal proceedings against the appellants in exercise
of powers under Section 482 Cr.P.C., the original accused nos. 1
& 2 – Managing Director/Director of M/s. SPML Infra Limited
have preferred the present appeal.
3. Shri Harin P. Raval, learned Senior Advocate appearing on
behalf of the appellants has vehemently submitted that in the
facts and circumstances of the case the High Court has
committed a grave error in not exercising the power under
Section 482 Cr.P.C and not quashing the criminal proceedings.
3.1 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
6
Court has failed to appreciate and consider the fact that by the
impugned criminal proceedings the complainant has tried to
convert purely a civil dispute into a criminal case.
3.2 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to consider and appreciate that the allegations
as contained in the FIR even if taken on face value and assumed
to be correct in entirety, do not disclose a prima facie
commission of an offence, much less a cognizable offence.
3.3 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that a bare
perusal of the FIR would demonstrate that the allegations seem
to be supply of inferior quality of raw materials as seen under
test report of National Test House, Calcutta which purportedly
does not match with the test certificate given by the company. It
is submitted that there is nothing in the entire body of FIR to
suggest even remotely the element of existence of fraudulent and
dishonest intention from the initiation of the transaction between
the parties.
3.4 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
7
Court has not properly appreciated and considered the fact that
the defect liability period expired much before the filing of the
complaint/FIR.
3.5 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that even
thereafter also the company continued the maintenance work
and the project is running. It is submitted that in fact the project
was commissioned in the year 1996 and the project had
generated 90 lakhs KW units till 20.09.1998 even as per the
certificate issued by the Department of Power.
3.6 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate the fact that the impugned FIR and
the complaint subsequently filed has been filed with a mala fide
intention and after the company demanded to pay the amount for
regular maintenance work.
3.7 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court ought to have appreciated that the FIR was lodged on
26.06.2000 only after the appellants issued notice dated
9.3.2000 by which the complainant was called upon to take over
8
the project before 31.03.2000 on account of nonpayment of the
maintenance charges.
3.8 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate and consider the fact that the
disputes between the parties were pending before the arbitrators.
It is submitted that in fact the company was required to initiate
the arbitration proceedings on account of being denied the
legitimate due payments.
3.9 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that looking to the
averments and the allegations in the complaint/FIR, it cannot be
said that ingredients for committing the offence under Section
420 IPC has been made out. It is submitted that there are no
allegations in the FIR that the appellants acted in dishonest and
fraudulent intention from the very inception of the contract with
the respondent – State.
3.10 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the
allegations as contained in the FIR at best pointed towards the
dispute, namely, relating to breach of the conditions of the
9
contract and therefore at best could have given rise to civil
liability.
3.11 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate that no complaint has been filed
against the company – M/s SPML Infra Limited and only the
appellants being the Managing Director/Director of M/s SPML
Infra Limited are joined as accused. It is submitted that as held
by this Court in catena of decisions in the absence of the main
company being joined as accused the criminal proceedings
against the Directors of the company alone shall not be
maintainable.
3.12 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that even
otherwise there are no averments and allegations in the
complaint that the appellants were in charge of the
administration of the company and therefore they were
vicariously liable for the act of the company.
3.13 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate that apart from the fact that defect
10
liability period had expired in the year 1998 and even thereafter
the certificates were issued by the Chief Engineer certifying
satisfaction over the execution of the project and its
commissioning in July, 1996, the defects subsequently detected
were cured even after the defect period was over and even the
company changed the turbines. It is submitted that therefore if
the intention of the company and/or the appellants was to cheat,
in that case, they would not have changed/replaced the runner
buckets.
3.14 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has not properly appreciated and considered the role of the
appellants and their company in the entire contract. It is
submitted that the entire contract was not to manufacture the
turbines and the runner buckets by the appellants and the
company, but to only procure the same from the manufacturer
and supply the same to the respondents. It is submitted that the
company relied upon the certificate issued by the manufacturer
and simply used the said turbines in the project. It is submitted
that therefore also the appellants cannot be saddled with the
11
criminal liability for any manufacturing defect when the same
was not even in the domain of the appellants and their company.
3.15 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that even
otherwise when the final report has been filed by the
investigating officer, the chargesheet has gone much beyond the
allegations and averments in the FIR.
3.16 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that though there
were no allegations in the complaint/FIR, the police authorities
went into the commercial efficacy of the project through which
M/s SPML Infra Limited was selected. It is submitted that merely
because there was a margin difference between the purported
manufacturing cost of the turbines and the rates quoted by the
company, the appellants cannot be held guilty of a criminal
offence of cheating. It is submitted that as such the company
was the lowest bidder and was awarded the contract after due
deliberations by the tendering committee.
3.17 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
12
Court has failed to exercise the powers under Section 482 Cr.P.C.
and thus has not exercised the jurisdiction vested in it.
3.18 Making the above submissions and relying upon the
decisions of this Court in the cases of State of Haryana v. Bhajan
Lal 1992 Supp. (1) SCC 335; Hira Lal Hari Lal Bhagwati v. CBI,
New Delhi (2003) 5 SCC 257; Indian Oil Corporation v. NEPC India
Limited and others (2006) 6 SCC 736; V.V. Jose and another v.
State of Gujarat and another (2009) 3 SCC 78; Vesa Holdings
Private Limited v. State of Kerala and others (2015) 8 SCC 293;
and Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC 781, it
is prayed to allow the present appeal and quash and set aside the
impugned criminal proceedings so far as the appellants are
concerned.
4. The present appeal is vehemently opposed by the learned
counsel appearing on behalf of the respondents – State of
Arunachal Pradesh.
4.1 It is vehemently submitted by the learned counsel appearing
on behalf of the respondent – State and the counsel on behalf of
the original complainant that having found a prima facie case for
the offence under Section 420 IPC for delivering/supplying sub13
standard materials and charging exorbitant rates for such
materials with a criminal intent to dupe the Government with
huge public money, the High Court has rightly refused to quash
the criminal proceedings.
4.2 It is further submitted by the learned counsel appearing on
behalf of the respondents that the appellants are charged for the
offences under Section 420 read with 120B IPC. It is submitted
that as per the inspection carried out by the Department and
even as revealed during the investigation the appellants supplied
the substandard runner turbines which are used by the accused
though they were not in conformity with the specified standards.
It is submitted that therefore a prima facie case of criminal
conspiracy between the accused to cheat the government has
been made out.
4.3 It is further submitted by the learned counsel appearing on
behalf of the respondents that there being enough
material/evidences against the appellants and therefore this is a
fit case wherein the appellants are liable to be prosecuted for the
commission of an offence under Section 420, 120B IPC.
4.4 It is further submitted by the learned counsel appearing on
behalf of the respondents that the arbitration proceedings
14
initiated by the appellants/company has nothing to do with the
criminal dispute. It is submitted that therefore it cannot be said
that the civil dispute is tried to be converted into a criminal
dispute.
4.5 It is further submitted by the learned counsel appearing on
behalf of the respondents that even otherwise as held by this
Court in catena of decisions just because a proceeding has a civil
nature does not mean that no criminality exists in the same.
4.6 It is further submitted by the learned counsel appearing on
behalf of the respondents that during the course of investigation
it has been found that one Kartik Steel Limited, Chennai tested
the components supplied by M/s SPML Infra Limited and the
report suggests that the materials were substandard. It is
submitted that therefore it is a clear cut case that the appellants
had prior knowledge of the low quality of the materials which
they supplied to the department.
4.7 It is further submitted by the learned counsel appearing on
behalf of the respondents that during the course of investigation,
it is found that the appellants have not only cheated the DOP by
supplying substandard materials but they also charged
exorbitant rates for the three runner buckets turbines in spite of
15
their knowledge that the said runner buckets were not up to the
satisfaction. It is submitted that during the investigation it has
come on record that the turbines were manufactured by M/s
Beacon Neyrpic, Chennai and the rates quoted by the appellants
and the manufacturing company were compared. It is submitted
that it has been found that cost as per the manufacturing
company was Rs.1,61,04,000/, however, M/s SPML Infra
Limited charged Rs.5,18,50,049/. Thus, there was a difference
in the rate to the tune of Rs.3,57,46,049/. It is submitted that
therefore there was a fraudulent and dishonest intention from
the initiation of the transaction between the parties.
4.8 It is further submitted by the learned counsel appearing on
behalf of the respondents that thus the supply of substandard
material at three times higher rates and the prior knowledge of
the substandard quality of the material shows that the
appellants had criminal intent to supply substandard quality
material at a higher price to the DOP/Government of Arunachal
Pradesh. It is submitted that therefore the appellants are rightly
chargesheeted for the offence under Section 420 read with 120B
IPC.
16
4.9 It is further submitted by the learned counsel appearing on
behalf of the respondents that appellant no.1 is the Managing
Director and appellant no.2 is the Director of the company – M/s
SPML Infra Limited and therefore being Managing
Director/Director of the company, naturally they were in charge
of the administration and management of the company and
therefore are vicariously liable. It is submitted that the aforesaid
has been elaborately considered by the High Court in the
impugned judgment and order. It is submitted that even
otherwise as rightly observed by the High Court at this stage it is
not possible to segregate only the appellants case.
4.10 It is further submitted by the learned counsel appearing on
behalf of the respondents that whatever submissions are made
on behalf of the appellants are their defences which are required
to be considered at the time of the trial. It is submitted that after
thorough investigation, the investigating agency has filed the
chargesheet against the appellants and other accused for the
offences under Section 420 read with 120B IPC and more
particularly with respect to criminal conspiracy, the High Court
has rightly refused to quash the criminal proceedings in exercise
of powers under Section 482 Cr.P.C., which powers are required
17
to be exercised sparingly and in exceptional cases, as observed by
this Court in catena of decisions.
4.11 Making the above submissions and relying upon the
decision of this Court in the case of Sau. Kamal Shivaji
Pokarnekar v. The State of Maharashtra and others, reported in
2019 SCC Online SC 182 (Criminal Appeal No.255 of 2019
decided on 12.02.2019), it is prayed to dismiss the present
appeal.
5. We have heard the learned counsel for the respective parties
at length. We have also gone through and considered the
averments and allegations in the FIR as well as the charge sheet
filed by the investigating agency.
5.1 At the outset, it is required to be noted that the chargesheet
has been filed against the appellants for the offences under
Section 420 read with Section 120B of the IPC. By the impugned
judgment and order, the High Court has refused to quash the FIR
and the chargesheet against the appellants in exercise of powers
under Section 482 Cr.P.C.. Therefore, the short question which
is posed for the consideration of this Court is, whether a case has
been made out to quash the FIR and the chargesheet against the
18
appellants for the offences under Section 420 read with Section
120B of the IPC, in exercise of powers under Section 482 Cr.P.C?
6. Considering the averments and the allegations in the FIR
and even the chargesheet the main allegations are that the
company, namely, M/s SPML Infra Limited supplied substandard materials – runner bucket turbines and the supplied
runner bucket turbines were not as per the technical
specifications. It is also required to be noted that there is no
FIR/complaint/chargesheet against the company – M/s SPML
Infra Limited and the appellants are arrayed as an accused as
Managing Director and Director of M/s SPML Infra Limited
respectively. From a bare reading of the FIR and even the
chargesheet, there are no allegations that there was a fraudulent
and dishonest intention to cheat the government from the very
beginning of the transaction. Even there are no specific
allegations and averments in the FIR/chargesheet that the
appellants were incharge of administration and management of
the company and thereby vicariously liable. In light of the
aforesaid, the prayer of the appellants to quash the criminal
proceedings against the appellants for the offence under Section
420 IPC is required to be considered.
19
7. While considering the prayer of the appellants to quash the
impugned criminal proceedings against the appellants for the
offence under Section 420 IPC, few decisions of this Court on
exercise of powers under Section 482 Cr.P.C. are required to be
referred to.
7.1 In the case of Bhajan Lal (supra), in paragraph 102, this
Court has categorised the cases by way of illustration wherein
the powers under Article 226 or the inherent powers under
Section 482 Cr.P.C. could be exercised either to prevent the
abuse of the process of any court or otherwise to secure the ends
of justice. In paragraph 102, it is observed and held as under:
“102. In the backdrop of the interpretation of the various
relevant provisions of the Code under Chapter XIV and of the
principles of law enunciated by this Court in a series of
decisions relating to the exercise of the extraordinary power
under Article 226 or the inherent powers under Section 482 of
the Code which we have extracted and reproduced above, we
give the following categories of cases by way of illustration
wherein such power could be exercised either to prevent abuse
of the process of any court or otherwise to secure the ends of
justice, though it may not be possible to lay down any precise,
clearly defined and sufficiently channelised and inflexible
guidelines or rigid formulae and to give an exhaustive list of
myriad kinds of cases wherein such power should be exercised.
(1) Where the allegations made in the first information
report or the complaint, even if they are taken at
their face value and accepted in their entirety do
not prima facie constitute any offence or make out
a case against the accused.
(2) Where the allegations in the first information report
and other materials, if any, accompanying the FIR
do not disclose a cognizable offence, justifying an
investigation by police officers under Section 156(1)
20
of the Code except under an order of a Magistrate
within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the
FIR or complaint and the evidence collected in
support of the same do not disclose the
commission of any offence and make out a case
against the accused.
(4) Where, the allegations in the FIR do not constitute a
cognizable offence but constitute only a noncognizable offence, no investigation is permitted by
a police officer without an order of a Magistrate as
contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint
are so absurd and inherently improbable on the
basis of which no prudent person can ever reach a
just conclusion that there is sufficient ground for
proceeding against the accused.
(6) Where there is an express legal bar engrafted in any
of the provisions of the Code or the concerned Act
(under which a criminal proceeding is instituted) to
the institution and continuance of the proceedings
and/or where there is a specific provision in the
Code or the concerned Act, providing efficacious
redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended
with mala fide and/or where the proceeding is
maliciously instituted with an ulterior motive for
wreaking vengeance on the accused and with a
view to spite him due to private and personal
grudge.”
The aforesaid decision of this Court has been followed
subsequently by this Court in catena of decisions.
7.2 In the case of Vesa Holdings Private Limited (supra), it is
observed and held by this Court that every breach of contract
would not give rise to an offence of cheating and only in those
cases breach of contract would amount to cheating where there
was any deception played at the very inception. It is further
21
observed and held that for the purpose of constituting an offence
of cheating, the complainant is required to show that the accused
had fraudulent or dishonest intention at the time of making
promise or representation. It is further observed and held that
even in a case where allegations are made in regard to failure on
the part of the accused to keep his promise, in the absence of a
culpable intention at the time of making initial promise being
absent, no offence under Section 420 IPC can be said to have
been made out. It is further observed and held that the real test
is whether the allegations in the complaint disclose the criminal
offence of cheating or not.
7.3 In the case of Hira Lal Hari Lal Bhagwati (supra), in
paragraph 40, this Court has observed and held as under:
“40. It is settled law, by a catena of decisions, that for
establishing the offence of cheating, the complainant is required
to show that the accused had fraudulent or dishonest intention
at the time of making promise or representation. From his
making failure to keep promise subsequently, such a culpable
intention right at the beginning that is at the time when the
promise was made cannot be presumed. It is seen from the
records that the exemption certificate contained necessary
conditions which were required to be complied with after
importation of the machine. Since the GCS could not comply
with it , therefore, it rightly paid the necessary duties
without taking advantage of the exemption certificate. The
conduct of the GCS clearly indicates that there was no
fraudulent or dishonest intention of either the GCS or the
appellants in their capacities as officebearers right at the time
of making application for exemption. As there was absence of
dishonest and fraudulent intention, the question of committing
22
offence under Section 420 of the Penal Code, 1860 does not
arise. We have read the chargesheet as a whole. There is no
allegation in the first information report or the chargesheet
indicating expressly or impliedly any intentional deception or
fraudulent/dishonest intention on the part of the appellants
right from the time of making the promise or misrepresentation.
Nothing has been said on what those misrepresentations were
and how the Ministry of Health was duped and what were the
roles played by the appellants in the alleged offence. The
appellants, in our view, could not be attributed any mens rea of
evasion of customs duty or cheating the Government of India as
the Cancer Society is a nonprofit organisation and, therefore,
the allegations against the appellants levelled by the
prosecution are unsustainable. The Kar Vivad Samadhan
Scheme certificate along with Duncan [(1996) 5 SCC 591 : 1996
SCC (Cri) 1045] and Sushila Rani [(2002) 2 SCC 697 : (2002) 2
Apex Decisions] judgments clearly absolve the appellants herein
from all charges and allegations under any other law once the
duty so demanded has been paid and the alleged offence has
been compounded. It is also settled law that once a civil case
has been compromised and the alleged offence has been
compounded, to continue the criminal proceedings thereafter
would be an abuse of the judicial process.”
It is further observed and held by this Court in the aforesaid
decision that to bring home the charge of conspiracy within the
ambit of Section 120B of the IPC, it is necessary to establish that
there was an agreement between the parties for doing an
unlawful act. It is further observed and held that it is difficult to
establish conspiracy by direct evidence.
7.4 In the case of V.Y Jose (supra), it is observed and held by
this Court that one of the ingredients of cheating is the existence
of fraudulent or dishonest intention of making initial promise or
existence thereof, from the very beginning of formation of
23
contract. It is further observed and held that it is one thing to
say that a case has been made out for trial and as such criminal
proceedings should not be quashed, but it is another thing to say
that a person should undergo a criminal trial despite the fact
that no case has been made out at all.
7.5 In the case of Sharad Kumar Sanghi (supra), this Court had
an occasion to consider the initiation of criminal proceedings
against the Managing Director or any officer of a company where
company had not been arrayed as a party to the complaint. In
the aforesaid decision, it is observed and held by this Court that
in the absence of specific allegation against the Managing
Director of vicarious liability, in the absence of company being
arrayed as a party, no proceedings can be initiated against such
Managing Director or any officer of a company. It is further
observed and held that when a complainant intends to rope in a
Managing Director or any officer of a company, it is essential to
make requisite allegation to constitute the vicarious liability.
7.6 In the case of Joseph Salvaraja A v. State of Gujarat (2011)
7 SCC 59, it is observed and held by this Court that when
dispute between the parties constitute only a civil wrong and not
a criminal wrong, the courts would not permit a person to be
24
harassed although no case for taking cognizance of the offence
has been made out.
7.7 In the case of Inder Mohan Goswami v. State of Uttaranchal,
(2007) 12 SCC 1, it is observed and held by this Court that the
Court must ensure that criminal prosecution is not used as an
instrument of harassment or for seeking private vendetta or with
an ulterior motive to pressurise the accused. It is further
observed and held by this Court that it is neither possible nor
desirable to law down an inflexible rule that would govern the
exercise of inherent jurisdiction. It is further observed and held
that inherent jurisdiction of the High Courts under Section 482
Cr.P.C. though wide has to be exercised sparingly, carefully and
with caution and only when it is justified by the tests specifically
laid down in the statute itself.
8. Applying the law laid down by this Court in the aforesaid
decisions to the facts of the case on hand, we are of the opinion
that this is a fit case to exercise powers under Section 482
Cr.P.C. and to quash the impugned criminal proceedings.
8.1. As observed hereinabove, the chargesheet has been filed
against the appellants for the offences under Section 420 read
with Section 120B of the IPC. However, it is required to be noted
25
that there are no specific allegations and averments in the FIR
and/or even in the chargesheet that fraudulent and dishonest
intention of the accused was from the very beginning of the
transaction. It is also required to be noted that contract between
M/s SPML Infra Limited and the Government was for supply and
commissioning of the Nurang Hydel Power Project including three
power generating units. The appellants purchased the turbines
for the project from another manufacturer. The company used
the said turbines in the power project. The contract was in the
year 1993. Thereafter in the year 1996 the project was
commissioned. In the year 1997, the Department of Power
issued a certificate certifying satisfaction over the execution of
the project. Even the defect liability period ended/expired in
January, 1998. In the year 2000, there was some defect found
with respect to three turbines. Immediately, the turbines were
replaced. The power project started functioning right from the
very beginning – 1996 onwards. If the intention of the
company/appellants was to cheat the Government of Arunachal
Pradesh, they would not have replaced the turbines which were
found to be defective. In any case, there are no specific
allegations and averments in the complaint that the accused had
26
fraudulent or dishonest intention at the time of entering into the
contract. Therefore, applying the law laid down by this Court in
the aforesaid decisions, it cannot be said that even a prima facie
case for the offence under Section 420 IPC has been made out.
8.2. It is also required to be noted that the main allegations can
be said to be against the company. The company has not been
made a party. The allegations are restricted to the Managing
Director and the Director of the company respectively. There are
no specific allegations against the Managing Director or even the
Director. There are no allegations to constitute the vicarious
liability. In the case of Maksud Saiyed v. State of Gujarat (2008)
5 SCC 668, it is observed and held by this Court that the penal
code does not contain any provision for attaching vicarious
liability on the part of the Managing Director or the Directors of
the company when the accused is the company. It is further
observed and held that the vicarious liability of the Managing
Director and Director would arise provided any provision exists in
that behalf in the statute. It is further observed that statute
indisputably must contain provision fixing such vicarious
liabilities. It is further observed that even for the said purpose, it
is obligatory on the part of the complainant to make requisite
27
allegations which would attract the provisions constituting
vicarious liability. In the present case, there are no such specific
allegations against the appellants being Managing Director or the
Director of the company respectively. Under the circumstances
also, the impugned criminal proceedings are required to be
quashed and set aside.
8.3 At this stage, it is required to be noted that though the FIR
was filed in the year 2000 and the chargesheet was
submitted/filed as far back as on 28.5.2004, the appellants were
served with the summons only in the year 2017, i.e., after a
period of approximately 13 years from the date of filing the
chargesheet. Under the circumstances, the High Court has
committed a grave error in not quashing and setting aside the
impugned criminal proceedings and has erred in not exercising
the jurisdiction vested in it under Section 482 Cr.P.C.
9. In view of the above and for the reasons stated above, we
are of the firm opinion that this is a fit case to exercise the
powers under Section 482 Cr.P.C. and to quash the criminal
proceedings against the appellants for the offence under Section
420 read with Section 120B of the IPC. To continue the criminal
proceedings against the appellants would be undue harassment
28
to them. As observed hereinabove, no prima facie case for the
offence under Section 420 of the IPC is made out.
10. The instant appeal is accordingly allowed. The impugned
judgment and order passed by the High Court is set aside. The
impugned FIR and the chargesheet filed against the appellants
for the offence under Section 420 IPC are hereby quashed.
However, it is specifically observed and made clear that the
impugned criminal proceedings are quashed and set aside only
against the appellants and not against any other accused against
whom the charge sheet had been filed and the proceedings shall
continue against the other accused, in accordance with law.
……………………………….J.
[ASHOK BHUSHAN]
NEW DELHI; ……………………………….J.
JANUARY 31, 2020. [M.R. SHAH]
29
chargesheet. Under the circumstances, the High Court has committed a grave error in not quashing and setting aside the impugned criminal proceedings and has erred in not exercising the jurisdiction vested in it under Section 482 Cr.P.C.- there are no specific allegations and averments in the FIR and/or even in the chargesheet that fraudulent and dishonest intention of the accused was from the very beginning of the transaction. It is also required to be noted that contract between M/s SPML Infra Limited and the Government was for supply and commissioning of the Nurang Hydel Power Project including three power generating units. The appellants purchased the turbines for the project from another manufacturer. The company used the said turbines in the power project. The contract was in the year 1993. Thereafter in the year 1996 the project was
commissioned.
In the year 1997, the Department of Power issued a certificate certifying satisfaction over the execution of the project. Even the defect liability period ended/expired in January, 1998.
In the year 2000, there was some defect found with respect to three turbines. Immediately, the turbines were replaced. If the intention of the company/appellants was to cheat the Government of Arunachal Pradesh, they would not have replaced the turbines which were found to be defective. In any case, there are no specific allegations and averments in the complaint that the accused had fraudulent or dishonest intention at the time of entering into the contract.
Therefore, applying the law laid down by this Court in the aforesaid decisions, it cannot be said that even a prima facie case for the offence under Section 420 IPC has been made out.
It is also required to be noted that the main allegations can be said to be against the company. The company has not been made a party.
The allegations are restricted to the Managing Director and the Director of the company respectively. There are no specific allegations against the Managing Director or even the Director. There are no allegations to constitute the vicarious liability.
In the case of Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668, it is observed and held by this Court that the penal code does not contain any provision for attaching vicarious
liability on the part of the Managing Director or the Directors of the company when the accused is the company. It is further observed and held that the vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. It is further observed that statute indisputably must contain provision fixing such vicarious liabilities. It is further observed that even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability. In the present case, there are no such specific allegations against the appellants being Managing Director or the Director of the company respectively. Under the circumstances also, the impugned criminal proceedings are required to be quashed and set aside.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 125 OF 2020
(Arising from SLP(Crl.) No. 590 of 2019)
Sushil Sethi and another ..Appellants
Versus
The State of Arunachal Pradesh and others ..Respondents
J U D G M E N T
M.R. SHAH, J.
Feeling aggrieved and dissatisfied with the impugned
judgment and order dated 07.09.2018 passed by the High Court
of Gauhati at Itanagar in Criminal Petition No. 36(AP) of 2017, by
which the High Court has dismissed the said criminal petition
preferred by the appellants herein to quash and set aside the
1
criminal proceedings being G.R. Case No. 05/200/294, the
original accused nos. 1 & 2 have preferred the present appeal.
2. That appellant no.1 is the Managing Director of M/s. SPML
Infra Limited, previously known as M/s Subhas Project
Marketing Limited, and appellant no.2 is the Director of the said
firm M/s SPML Infra Limited. M/s SPML Infra Limited is a
public limited company incorporated under the Companies Act,
1956. A contract was entered into between M/s SPML Infra
Limited and the Government of Arunachal Pradesh on
18.03.1993 for construction, supply and commissioning of the
Nurang Hydel Power Project including three power generating
units for a consideration of Rs.24.96 crores approximately. As
per clause 2(c) of the contract, the defect liability period for the
works was to be for a period of 18 months. Project was
commissioned in the month of July, 1996. That the defect
liability period for the works of M/s SPML Infra Limited expired
in the month of January, 1998. That thereafter the project
became operational and started generating electricity and
according to the appellants till 20.09.1998 the project had
generated 90 lakhs KW units. According to the appellants even
the said project is also in operation today. There were some
2
disputes with respect to the payment of maintenance by the
respondents. The appellants issued notice to the respondents to
take over the project before 31.03.2000 on account of nonpayment of maintenance, vide notice dated 09.03.2000.
2.1 That thereafter the respondents – original complainant
lodged the complaint against the appellants and others being
Jang PS Case No. 05/2000 for the offence under Section 420 of
the IPC alleging inter alia that the appellants provided inferior
quality materials in contravention with the provisions of the
contract which stipulated specific percentages of nickel and
chromium to be used. It was alleged in the complaint that the
appellants were required to supply the equipments as per the
terms of the contract. As per the complaint, in course of physical
inspection of the plant, the DOP found that three runners
turbines, viz, turbine nos. 1, 2 and 3 were cracked and damaged.
Therefore, the damaged components were sent for testing and the
National Test House, Calcutta submitted its report and it was
found that the chemical composition of the broken runner was
found containing 5.28% Nickel and 7.5% Chromium, which
composition was contrary to the specification as per the
agreement. Therefore, it was alleged that M/s SPML, Calcutta
3
had supplied substandard turbines containing composition of
materials not in accordance with the specification of MOU,
resulted in frequent damage of runner turbine buckets. On the
strength of written complaint, an FIR was lodged/registered. It
appears that during the course of the investigation, the
Investigating Officer found/discovered the
illegalities/irregularities in awarding the contract at a higher
price. Even during the course of investigation, the Investigating
Officer found some officials responsible for the omission and
neglect of duties and it was found that the officials named in the
charge sheet were involved/connived with the firm M/s SPML
Infra Limited with a view to cheat the Government of Arunachal
Pradesh. After conclusion of the investigation, the Investigating
Officer filed the final report/chargesheet 28.05.2004 against the
appellants and others for the offences under Section 120B and
420 of the IPC. 2.2 According to the appellants, they were not
aware about the filing of the FIR and the chargesheet against
them till the year 2017 and on being aware of the FIR and the
chargesheet against them, the appellants preferred a petition
before the High Court for quashing the aforesaid criminal
proceedings under Section 482 Cr.P.C. It was contended on
4
behalf of the appellants that the matter pertains to the contract
and therefore purely a civil and contractual dispute has been
given the colour of criminality and that too with a mala fide
intention as they served a notice upon the respondents to pay the
maintenance amount due and payable. It was also submitted on
behalf of the appellants that they are the Managing
Director/Director of M/s SPML Infra Limited – a company and
that the company has not been arrayed as an accused. It was
submitted that there are no allegations that the appellants were
incharge of the affairs of the company and therefore vicariously
liable. Number of other submissions were also made on merits in
support of their submission that the offence under Section 420
IPC has not been made out at all. It was also submitted that as
soon as the company/appellants were informed with respect to
the defect, despite the defect liability period was over, they
changed the turbines in the year 2000. It was also submitted
that all through out the project has run and even still running.
2.3 That by the impugned judgment and order, the High Court
has refused to quash the criminal proceedings. While rejecting
the quashing petition, the High Court has observed that there are
allegations not only against the appellants, but also against the
5
connected company executives and engineers of the Government
of Arunachal Pradesh and there are allegations of criminal
conspiracy amongst themselves in the supply of substandard
runner turbines and receiving the substandard runner turbines
which were not in conformity with the specified standard and the
others coaccused persons have not come up with a similar
petition under Section 482 Cr.P.C. and therefore at this stage it is
not possible to segregate the case qua the appellants only.
2.4 Feeling aggrieved and dissatisfied with the impugned
judgment and order passed by the High Court in refusing to
quash the criminal proceedings against the appellants in exercise
of powers under Section 482 Cr.P.C., the original accused nos. 1
& 2 – Managing Director/Director of M/s. SPML Infra Limited
have preferred the present appeal.
3. Shri Harin P. Raval, learned Senior Advocate appearing on
behalf of the appellants has vehemently submitted that in the
facts and circumstances of the case the High Court has
committed a grave error in not exercising the power under
Section 482 Cr.P.C and not quashing the criminal proceedings.
3.1 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
6
Court has failed to appreciate and consider the fact that by the
impugned criminal proceedings the complainant has tried to
convert purely a civil dispute into a criminal case.
3.2 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to consider and appreciate that the allegations
as contained in the FIR even if taken on face value and assumed
to be correct in entirety, do not disclose a prima facie
commission of an offence, much less a cognizable offence.
3.3 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that a bare
perusal of the FIR would demonstrate that the allegations seem
to be supply of inferior quality of raw materials as seen under
test report of National Test House, Calcutta which purportedly
does not match with the test certificate given by the company. It
is submitted that there is nothing in the entire body of FIR to
suggest even remotely the element of existence of fraudulent and
dishonest intention from the initiation of the transaction between
the parties.
3.4 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
7
Court has not properly appreciated and considered the fact that
the defect liability period expired much before the filing of the
complaint/FIR.
3.5 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that even
thereafter also the company continued the maintenance work
and the project is running. It is submitted that in fact the project
was commissioned in the year 1996 and the project had
generated 90 lakhs KW units till 20.09.1998 even as per the
certificate issued by the Department of Power.
3.6 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate the fact that the impugned FIR and
the complaint subsequently filed has been filed with a mala fide
intention and after the company demanded to pay the amount for
regular maintenance work.
3.7 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court ought to have appreciated that the FIR was lodged on
26.06.2000 only after the appellants issued notice dated
9.3.2000 by which the complainant was called upon to take over
8
the project before 31.03.2000 on account of nonpayment of the
maintenance charges.
3.8 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate and consider the fact that the
disputes between the parties were pending before the arbitrators.
It is submitted that in fact the company was required to initiate
the arbitration proceedings on account of being denied the
legitimate due payments.
3.9 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that looking to the
averments and the allegations in the complaint/FIR, it cannot be
said that ingredients for committing the offence under Section
420 IPC has been made out. It is submitted that there are no
allegations in the FIR that the appellants acted in dishonest and
fraudulent intention from the very inception of the contract with
the respondent – State.
3.10 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the
allegations as contained in the FIR at best pointed towards the
dispute, namely, relating to breach of the conditions of the
9
contract and therefore at best could have given rise to civil
liability.
3.11 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate that no complaint has been filed
against the company – M/s SPML Infra Limited and only the
appellants being the Managing Director/Director of M/s SPML
Infra Limited are joined as accused. It is submitted that as held
by this Court in catena of decisions in the absence of the main
company being joined as accused the criminal proceedings
against the Directors of the company alone shall not be
maintainable.
3.12 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that even
otherwise there are no averments and allegations in the
complaint that the appellants were in charge of the
administration of the company and therefore they were
vicariously liable for the act of the company.
3.13 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has failed to appreciate that apart from the fact that defect
10
liability period had expired in the year 1998 and even thereafter
the certificates were issued by the Chief Engineer certifying
satisfaction over the execution of the project and its
commissioning in July, 1996, the defects subsequently detected
were cured even after the defect period was over and even the
company changed the turbines. It is submitted that therefore if
the intention of the company and/or the appellants was to cheat,
in that case, they would not have changed/replaced the runner
buckets.
3.14 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
Court has not properly appreciated and considered the role of the
appellants and their company in the entire contract. It is
submitted that the entire contract was not to manufacture the
turbines and the runner buckets by the appellants and the
company, but to only procure the same from the manufacturer
and supply the same to the respondents. It is submitted that the
company relied upon the certificate issued by the manufacturer
and simply used the said turbines in the project. It is submitted
that therefore also the appellants cannot be saddled with the
11
criminal liability for any manufacturing defect when the same
was not even in the domain of the appellants and their company.
3.15 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that even
otherwise when the final report has been filed by the
investigating officer, the chargesheet has gone much beyond the
allegations and averments in the FIR.
3.16 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that though there
were no allegations in the complaint/FIR, the police authorities
went into the commercial efficacy of the project through which
M/s SPML Infra Limited was selected. It is submitted that merely
because there was a margin difference between the purported
manufacturing cost of the turbines and the rates quoted by the
company, the appellants cannot be held guilty of a criminal
offence of cheating. It is submitted that as such the company
was the lowest bidder and was awarded the contract after due
deliberations by the tendering committee.
3.17 It is further submitted by Shri Raval, learned Senior
Advocate appearing on behalf of the appellants that the High
12
Court has failed to exercise the powers under Section 482 Cr.P.C.
and thus has not exercised the jurisdiction vested in it.
3.18 Making the above submissions and relying upon the
decisions of this Court in the cases of State of Haryana v. Bhajan
Lal 1992 Supp. (1) SCC 335; Hira Lal Hari Lal Bhagwati v. CBI,
New Delhi (2003) 5 SCC 257; Indian Oil Corporation v. NEPC India
Limited and others (2006) 6 SCC 736; V.V. Jose and another v.
State of Gujarat and another (2009) 3 SCC 78; Vesa Holdings
Private Limited v. State of Kerala and others (2015) 8 SCC 293;
and Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC 781, it
is prayed to allow the present appeal and quash and set aside the
impugned criminal proceedings so far as the appellants are
concerned.
4. The present appeal is vehemently opposed by the learned
counsel appearing on behalf of the respondents – State of
Arunachal Pradesh.
4.1 It is vehemently submitted by the learned counsel appearing
on behalf of the respondent – State and the counsel on behalf of
the original complainant that having found a prima facie case for
the offence under Section 420 IPC for delivering/supplying sub13
standard materials and charging exorbitant rates for such
materials with a criminal intent to dupe the Government with
huge public money, the High Court has rightly refused to quash
the criminal proceedings.
4.2 It is further submitted by the learned counsel appearing on
behalf of the respondents that the appellants are charged for the
offences under Section 420 read with 120B IPC. It is submitted
that as per the inspection carried out by the Department and
even as revealed during the investigation the appellants supplied
the substandard runner turbines which are used by the accused
though they were not in conformity with the specified standards.
It is submitted that therefore a prima facie case of criminal
conspiracy between the accused to cheat the government has
been made out.
4.3 It is further submitted by the learned counsel appearing on
behalf of the respondents that there being enough
material/evidences against the appellants and therefore this is a
fit case wherein the appellants are liable to be prosecuted for the
commission of an offence under Section 420, 120B IPC.
4.4 It is further submitted by the learned counsel appearing on
behalf of the respondents that the arbitration proceedings
14
initiated by the appellants/company has nothing to do with the
criminal dispute. It is submitted that therefore it cannot be said
that the civil dispute is tried to be converted into a criminal
dispute.
4.5 It is further submitted by the learned counsel appearing on
behalf of the respondents that even otherwise as held by this
Court in catena of decisions just because a proceeding has a civil
nature does not mean that no criminality exists in the same.
4.6 It is further submitted by the learned counsel appearing on
behalf of the respondents that during the course of investigation
it has been found that one Kartik Steel Limited, Chennai tested
the components supplied by M/s SPML Infra Limited and the
report suggests that the materials were substandard. It is
submitted that therefore it is a clear cut case that the appellants
had prior knowledge of the low quality of the materials which
they supplied to the department.
4.7 It is further submitted by the learned counsel appearing on
behalf of the respondents that during the course of investigation,
it is found that the appellants have not only cheated the DOP by
supplying substandard materials but they also charged
exorbitant rates for the three runner buckets turbines in spite of
15
their knowledge that the said runner buckets were not up to the
satisfaction. It is submitted that during the investigation it has
come on record that the turbines were manufactured by M/s
Beacon Neyrpic, Chennai and the rates quoted by the appellants
and the manufacturing company were compared. It is submitted
that it has been found that cost as per the manufacturing
company was Rs.1,61,04,000/, however, M/s SPML Infra
Limited charged Rs.5,18,50,049/. Thus, there was a difference
in the rate to the tune of Rs.3,57,46,049/. It is submitted that
therefore there was a fraudulent and dishonest intention from
the initiation of the transaction between the parties.
4.8 It is further submitted by the learned counsel appearing on
behalf of the respondents that thus the supply of substandard
material at three times higher rates and the prior knowledge of
the substandard quality of the material shows that the
appellants had criminal intent to supply substandard quality
material at a higher price to the DOP/Government of Arunachal
Pradesh. It is submitted that therefore the appellants are rightly
chargesheeted for the offence under Section 420 read with 120B
IPC.
16
4.9 It is further submitted by the learned counsel appearing on
behalf of the respondents that appellant no.1 is the Managing
Director and appellant no.2 is the Director of the company – M/s
SPML Infra Limited and therefore being Managing
Director/Director of the company, naturally they were in charge
of the administration and management of the company and
therefore are vicariously liable. It is submitted that the aforesaid
has been elaborately considered by the High Court in the
impugned judgment and order. It is submitted that even
otherwise as rightly observed by the High Court at this stage it is
not possible to segregate only the appellants case.
4.10 It is further submitted by the learned counsel appearing on
behalf of the respondents that whatever submissions are made
on behalf of the appellants are their defences which are required
to be considered at the time of the trial. It is submitted that after
thorough investigation, the investigating agency has filed the
chargesheet against the appellants and other accused for the
offences under Section 420 read with 120B IPC and more
particularly with respect to criminal conspiracy, the High Court
has rightly refused to quash the criminal proceedings in exercise
of powers under Section 482 Cr.P.C., which powers are required
17
to be exercised sparingly and in exceptional cases, as observed by
this Court in catena of decisions.
4.11 Making the above submissions and relying upon the
decision of this Court in the case of Sau. Kamal Shivaji
Pokarnekar v. The State of Maharashtra and others, reported in
2019 SCC Online SC 182 (Criminal Appeal No.255 of 2019
decided on 12.02.2019), it is prayed to dismiss the present
appeal.
5. We have heard the learned counsel for the respective parties
at length. We have also gone through and considered the
averments and allegations in the FIR as well as the charge sheet
filed by the investigating agency.
5.1 At the outset, it is required to be noted that the chargesheet
has been filed against the appellants for the offences under
Section 420 read with Section 120B of the IPC. By the impugned
judgment and order, the High Court has refused to quash the FIR
and the chargesheet against the appellants in exercise of powers
under Section 482 Cr.P.C.. Therefore, the short question which
is posed for the consideration of this Court is, whether a case has
been made out to quash the FIR and the chargesheet against the
18
appellants for the offences under Section 420 read with Section
120B of the IPC, in exercise of powers under Section 482 Cr.P.C?
6. Considering the averments and the allegations in the FIR
and even the chargesheet the main allegations are that the
company, namely, M/s SPML Infra Limited supplied substandard materials – runner bucket turbines and the supplied
runner bucket turbines were not as per the technical
specifications. It is also required to be noted that there is no
FIR/complaint/chargesheet against the company – M/s SPML
Infra Limited and the appellants are arrayed as an accused as
Managing Director and Director of M/s SPML Infra Limited
respectively. From a bare reading of the FIR and even the
chargesheet, there are no allegations that there was a fraudulent
and dishonest intention to cheat the government from the very
beginning of the transaction. Even there are no specific
allegations and averments in the FIR/chargesheet that the
appellants were incharge of administration and management of
the company and thereby vicariously liable. In light of the
aforesaid, the prayer of the appellants to quash the criminal
proceedings against the appellants for the offence under Section
420 IPC is required to be considered.
19
7. While considering the prayer of the appellants to quash the
impugned criminal proceedings against the appellants for the
offence under Section 420 IPC, few decisions of this Court on
exercise of powers under Section 482 Cr.P.C. are required to be
referred to.
7.1 In the case of Bhajan Lal (supra), in paragraph 102, this
Court has categorised the cases by way of illustration wherein
the powers under Article 226 or the inherent powers under
Section 482 Cr.P.C. could be exercised either to prevent the
abuse of the process of any court or otherwise to secure the ends
of justice. In paragraph 102, it is observed and held as under:
“102. In the backdrop of the interpretation of the various
relevant provisions of the Code under Chapter XIV and of the
principles of law enunciated by this Court in a series of
decisions relating to the exercise of the extraordinary power
under Article 226 or the inherent powers under Section 482 of
the Code which we have extracted and reproduced above, we
give the following categories of cases by way of illustration
wherein such power could be exercised either to prevent abuse
of the process of any court or otherwise to secure the ends of
justice, though it may not be possible to lay down any precise,
clearly defined and sufficiently channelised and inflexible
guidelines or rigid formulae and to give an exhaustive list of
myriad kinds of cases wherein such power should be exercised.
(1) Where the allegations made in the first information
report or the complaint, even if they are taken at
their face value and accepted in their entirety do
not prima facie constitute any offence or make out
a case against the accused.
(2) Where the allegations in the first information report
and other materials, if any, accompanying the FIR
do not disclose a cognizable offence, justifying an
investigation by police officers under Section 156(1)
20
of the Code except under an order of a Magistrate
within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the
FIR or complaint and the evidence collected in
support of the same do not disclose the
commission of any offence and make out a case
against the accused.
(4) Where, the allegations in the FIR do not constitute a
cognizable offence but constitute only a noncognizable offence, no investigation is permitted by
a police officer without an order of a Magistrate as
contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint
are so absurd and inherently improbable on the
basis of which no prudent person can ever reach a
just conclusion that there is sufficient ground for
proceeding against the accused.
(6) Where there is an express legal bar engrafted in any
of the provisions of the Code or the concerned Act
(under which a criminal proceeding is instituted) to
the institution and continuance of the proceedings
and/or where there is a specific provision in the
Code or the concerned Act, providing efficacious
redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended
with mala fide and/or where the proceeding is
maliciously instituted with an ulterior motive for
wreaking vengeance on the accused and with a
view to spite him due to private and personal
grudge.”
The aforesaid decision of this Court has been followed
subsequently by this Court in catena of decisions.
7.2 In the case of Vesa Holdings Private Limited (supra), it is
observed and held by this Court that every breach of contract
would not give rise to an offence of cheating and only in those
cases breach of contract would amount to cheating where there
was any deception played at the very inception. It is further
21
observed and held that for the purpose of constituting an offence
of cheating, the complainant is required to show that the accused
had fraudulent or dishonest intention at the time of making
promise or representation. It is further observed and held that
even in a case where allegations are made in regard to failure on
the part of the accused to keep his promise, in the absence of a
culpable intention at the time of making initial promise being
absent, no offence under Section 420 IPC can be said to have
been made out. It is further observed and held that the real test
is whether the allegations in the complaint disclose the criminal
offence of cheating or not.
7.3 In the case of Hira Lal Hari Lal Bhagwati (supra), in
paragraph 40, this Court has observed and held as under:
“40. It is settled law, by a catena of decisions, that for
establishing the offence of cheating, the complainant is required
to show that the accused had fraudulent or dishonest intention
at the time of making promise or representation. From his
making failure to keep promise subsequently, such a culpable
intention right at the beginning that is at the time when the
promise was made cannot be presumed. It is seen from the
records that the exemption certificate contained necessary
conditions which were required to be complied with after
importation of the machine. Since the GCS could not comply
with it , therefore, it rightly paid the necessary duties
without taking advantage of the exemption certificate. The
conduct of the GCS clearly indicates that there was no
fraudulent or dishonest intention of either the GCS or the
appellants in their capacities as officebearers right at the time
of making application for exemption. As there was absence of
dishonest and fraudulent intention, the question of committing
22
offence under Section 420 of the Penal Code, 1860 does not
arise. We have read the chargesheet as a whole. There is no
allegation in the first information report or the chargesheet
indicating expressly or impliedly any intentional deception or
fraudulent/dishonest intention on the part of the appellants
right from the time of making the promise or misrepresentation.
Nothing has been said on what those misrepresentations were
and how the Ministry of Health was duped and what were the
roles played by the appellants in the alleged offence. The
appellants, in our view, could not be attributed any mens rea of
evasion of customs duty or cheating the Government of India as
the Cancer Society is a nonprofit organisation and, therefore,
the allegations against the appellants levelled by the
prosecution are unsustainable. The Kar Vivad Samadhan
Scheme certificate along with Duncan [(1996) 5 SCC 591 : 1996
SCC (Cri) 1045] and Sushila Rani [(2002) 2 SCC 697 : (2002) 2
Apex Decisions] judgments clearly absolve the appellants herein
from all charges and allegations under any other law once the
duty so demanded has been paid and the alleged offence has
been compounded. It is also settled law that once a civil case
has been compromised and the alleged offence has been
compounded, to continue the criminal proceedings thereafter
would be an abuse of the judicial process.”
It is further observed and held by this Court in the aforesaid
decision that to bring home the charge of conspiracy within the
ambit of Section 120B of the IPC, it is necessary to establish that
there was an agreement between the parties for doing an
unlawful act. It is further observed and held that it is difficult to
establish conspiracy by direct evidence.
7.4 In the case of V.Y Jose (supra), it is observed and held by
this Court that one of the ingredients of cheating is the existence
of fraudulent or dishonest intention of making initial promise or
existence thereof, from the very beginning of formation of
23
contract. It is further observed and held that it is one thing to
say that a case has been made out for trial and as such criminal
proceedings should not be quashed, but it is another thing to say
that a person should undergo a criminal trial despite the fact
that no case has been made out at all.
7.5 In the case of Sharad Kumar Sanghi (supra), this Court had
an occasion to consider the initiation of criminal proceedings
against the Managing Director or any officer of a company where
company had not been arrayed as a party to the complaint. In
the aforesaid decision, it is observed and held by this Court that
in the absence of specific allegation against the Managing
Director of vicarious liability, in the absence of company being
arrayed as a party, no proceedings can be initiated against such
Managing Director or any officer of a company. It is further
observed and held that when a complainant intends to rope in a
Managing Director or any officer of a company, it is essential to
make requisite allegation to constitute the vicarious liability.
7.6 In the case of Joseph Salvaraja A v. State of Gujarat (2011)
7 SCC 59, it is observed and held by this Court that when
dispute between the parties constitute only a civil wrong and not
a criminal wrong, the courts would not permit a person to be
24
harassed although no case for taking cognizance of the offence
has been made out.
7.7 In the case of Inder Mohan Goswami v. State of Uttaranchal,
(2007) 12 SCC 1, it is observed and held by this Court that the
Court must ensure that criminal prosecution is not used as an
instrument of harassment or for seeking private vendetta or with
an ulterior motive to pressurise the accused. It is further
observed and held by this Court that it is neither possible nor
desirable to law down an inflexible rule that would govern the
exercise of inherent jurisdiction. It is further observed and held
that inherent jurisdiction of the High Courts under Section 482
Cr.P.C. though wide has to be exercised sparingly, carefully and
with caution and only when it is justified by the tests specifically
laid down in the statute itself.
8. Applying the law laid down by this Court in the aforesaid
decisions to the facts of the case on hand, we are of the opinion
that this is a fit case to exercise powers under Section 482
Cr.P.C. and to quash the impugned criminal proceedings.
8.1. As observed hereinabove, the chargesheet has been filed
against the appellants for the offences under Section 420 read
with Section 120B of the IPC. However, it is required to be noted
25
that there are no specific allegations and averments in the FIR
and/or even in the chargesheet that fraudulent and dishonest
intention of the accused was from the very beginning of the
transaction. It is also required to be noted that contract between
M/s SPML Infra Limited and the Government was for supply and
commissioning of the Nurang Hydel Power Project including three
power generating units. The appellants purchased the turbines
for the project from another manufacturer. The company used
the said turbines in the power project. The contract was in the
year 1993. Thereafter in the year 1996 the project was
commissioned. In the year 1997, the Department of Power
issued a certificate certifying satisfaction over the execution of
the project. Even the defect liability period ended/expired in
January, 1998. In the year 2000, there was some defect found
with respect to three turbines. Immediately, the turbines were
replaced. The power project started functioning right from the
very beginning – 1996 onwards. If the intention of the
company/appellants was to cheat the Government of Arunachal
Pradesh, they would not have replaced the turbines which were
found to be defective. In any case, there are no specific
allegations and averments in the complaint that the accused had
26
fraudulent or dishonest intention at the time of entering into the
contract. Therefore, applying the law laid down by this Court in
the aforesaid decisions, it cannot be said that even a prima facie
case for the offence under Section 420 IPC has been made out.
8.2. It is also required to be noted that the main allegations can
be said to be against the company. The company has not been
made a party. The allegations are restricted to the Managing
Director and the Director of the company respectively. There are
no specific allegations against the Managing Director or even the
Director. There are no allegations to constitute the vicarious
liability. In the case of Maksud Saiyed v. State of Gujarat (2008)
5 SCC 668, it is observed and held by this Court that the penal
code does not contain any provision for attaching vicarious
liability on the part of the Managing Director or the Directors of
the company when the accused is the company. It is further
observed and held that the vicarious liability of the Managing
Director and Director would arise provided any provision exists in
that behalf in the statute. It is further observed that statute
indisputably must contain provision fixing such vicarious
liabilities. It is further observed that even for the said purpose, it
is obligatory on the part of the complainant to make requisite
27
allegations which would attract the provisions constituting
vicarious liability. In the present case, there are no such specific
allegations against the appellants being Managing Director or the
Director of the company respectively. Under the circumstances
also, the impugned criminal proceedings are required to be
quashed and set aside.
8.3 At this stage, it is required to be noted that though the FIR
was filed in the year 2000 and the chargesheet was
submitted/filed as far back as on 28.5.2004, the appellants were
served with the summons only in the year 2017, i.e., after a
period of approximately 13 years from the date of filing the
chargesheet. Under the circumstances, the High Court has
committed a grave error in not quashing and setting aside the
impugned criminal proceedings and has erred in not exercising
the jurisdiction vested in it under Section 482 Cr.P.C.
9. In view of the above and for the reasons stated above, we
are of the firm opinion that this is a fit case to exercise the
powers under Section 482 Cr.P.C. and to quash the criminal
proceedings against the appellants for the offence under Section
420 read with Section 120B of the IPC. To continue the criminal
proceedings against the appellants would be undue harassment
28
to them. As observed hereinabove, no prima facie case for the
offence under Section 420 of the IPC is made out.
10. The instant appeal is accordingly allowed. The impugned
judgment and order passed by the High Court is set aside. The
impugned FIR and the chargesheet filed against the appellants
for the offence under Section 420 IPC are hereby quashed.
However, it is specifically observed and made clear that the
impugned criminal proceedings are quashed and set aside only
against the appellants and not against any other accused against
whom the charge sheet had been filed and the proceedings shall
continue against the other accused, in accordance with law.
……………………………….J.
[ASHOK BHUSHAN]
NEW DELHI; ……………………………….J.
JANUARY 31, 2020. [M.R. SHAH]
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