SUSHIL SETHI AND ANOTHER versus THE STATE OF ARUNACHAL PRADESH AND OTHERS on 31 January 2020

SUPREME COURT REPORTS

[2020] 1 S.C.R.

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SUSHIL SETHI AND ANOTHER

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THE STATE OF ARUNACHAL PRADESH AND OTHERS

CRIMINAL APPEAL NO. 125 OF 2020

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JANUARY 31, 2020

[ASHOK BHUSHAN AND M.R. SHAH. JJ.]

Code of Criminal Procedure, 1973:

s. 482 – Petition under – By two accused (Director andCManaging Director of a Company) – For quashing the criminalproceedings against them u/s. 420 r/w s. 120B IPC – High Courtdismissed the petition – Appeal to Supreme Court – Held: There areno specific allegations and averments in the complaint that theaccused had fraudulent and dishonest intention – No prima faciecase for the offence u/s. 420 IPC has been made out – MainDallegation in the complaint is against the company which has notbeen made a party – There is also no allegation to constitutevicarious liability against the accused – Moreover, the statute i.e.IPC does not contain any provision fixing such vicarious liability –Summons were issued to the accused 13 years after filing of theEchargesheet – Therefore, the criminal proceedings are liable to bequashed – Penal Code, 1860 – s. 420 r/w s. 120B.

Allowing the appeal, the Court

HELD : 1. The chargesheet has been filed against theappellants for the offences under Section 420 read with SectionF120B IPC. However, it is required to be noted that there are nospecific allegations and averments in the FIR and/or even in thechargesheet that fraudulent and dishonest intention of the accusedwas from the very beginning of the transaction. It is also requiredto be noted that contract between the Company and theGGovernment was for supply and commissioning of the NurangHydel Power Project including three power generating units. Theappellants purchased the turbines for the project from anothermanufacturer. The company used the said turbines in the powerproject. The contract was in the year 1993. Thereafter in the H

year 1996 the project was commissioned. In the year 1997, theDepartment of Power issued a certificate certifying satisfactionover the execution of the project. Even the defect liability periodended/expired in January, 1998. In the year 2000, there wassome defect found with respect to three turbines. Immediately,the turbines were replaced. The power project started functioningright from the very beginning – 1996 onwards. If the intention ofthe company/appellants was to cheat the Government they wouldnot have replaced the turbines which were found to be defective.In any case, there are no specific allegations and averments inthe complaint that the accused had fraudulent or dishonestintention at the time of entering into the contract. Therefore, itcannot be said that even a prima facie case for the offenceunder Section 420 IPC has been made out. [Para 8.1] [599-B-G]

State of Haryana v. Bhajan Lal (1992) Supp. 1 SCC335 : [1990] 3 Suppl. SCR 259 ; Vesa Holdings PrivateLimited v. State of Kerala and others (2015) 8 SCC293 : [2015] 4 SCR 27 ; Hira Lal Hari Lal Bhagwativ. CBI, New Delhi (2003) 5 SCC 257 : [2003] 3SCR 1118 ; V.V. Jose and another v. State of Gujaratand another (2009) 3 SCC 78 : [2008] 17 SCR 588 ;Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC781 : [2015] 2 SCR 145 ; InderMohan Goswami v.State of Uttarnchal (2007) 12 SCC 1 : [2007]10 SCR 847 – relied on.

2. The main allegations can be said to be against thecompany. The company has not been made a party. The allegationsare restricted to the Managing Director and the Director of thecompany respectively. There are no specific allegations againstthe Managing Director or even the Director. There are noallegations to constitute the vicarious liability. The Penal Codedoes not contain any provision for attaching vicarious liability onthe part of the Managing Director or the Directors of the companywhen the accused is the company. The vicarious liability of theManaging Director and Director would arise provided anyprovision exists in that behalf in the statute. The statuteindisputably must contain provision fixing such vicarious AB

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Aliabilities. Even for the said purpose, it is obligatory on the partof the complainant to make requisite allegations which wouldattract the provisions constituting vicarious liability. In thepresent case, there are no such specific allegations against theappellants being Managing Director or the Director of thecompany respectively. Under the circumstances also, theBimpugned criminal proceedings are required to be quashed andset aside. [Para 8.2] [599-G-H; 600-A-D]

Maksud Saiyed v. State of Gujarat (2008) 5 SCC 568 :[2007] 9 SCR 1113 – relied on.

C3. This is a fit case to exercise the powers under Section482 Cr.P.C. and to quash the criminal proceedings against theappellants for the offence under Section 420 read with Section120B of the IPC. To continue the criminal proceedings againstthe appellants would be undue harassment to them. No primafacie case for the offence under Section 420 of the IPC is madeDout. The impugned FIR and the chargesheet filed against theappellants for the offence under Section 420 IPC are herebyquashed. [Paras 9 and 10] [600-E-H]

4. However, it is specifically observed and made clear thatthe impugned criminal proceedings are quashed and set asideEonly against the appellants and not against any other accusedagainst whom the charge sheet had been filed and the proceedingsshall continue against the other accused, in accordance with law.[Para 10] [600-H; 601-A]

Indian Oil Corporation v. NEPC India Limited andFothers (2006) 6 SCC 736 : [2006] 3 Suppl. SCR 704 ;Joseph Salvaraja A v. State of Gujarat (2011) 7 SCC59 : [2011] 8 SCR 815 – referred to.

Case Law Reference

[1990] 3 Suppl. SCR 259 relied onPara 3.18G[2003] 3 SCR 1118 relied onPara 3.18

[2006] 3 Suppl. SCR 704relied onPara 3.18[2008] 17 SCR 588relied onPara 3.18

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CRIMINAL APPELLATE JURISDICTION : Criminal AppealNo. 125 of 2020.

From the Judgment and Order dated 07.09.2018 of the GauhatiHigh Court in Criminal Petition No. 36 (AP) of 2017.

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Harin P. Raval, Sr. Adv., Anando Mukherjee, Advs. for theAppellants.

Sanjay Jain, ASG, Abhimanyu Tewari, Ms. Eliza Bar, Advs. forthe Respondents.

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The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 07.09.2018 passed by the High Court of Gauhati atItanagar in Criminal Petition No. 36(AP) of 2017, by which the HighCourt has dismissed the said criminal petition preferred by the appellantsherein to quash and set aside the criminal proceedings being G.R. CaseNo. 05/200/294, the original accused nos. 1 & 2 have preferred thepresent appeal.

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2. That appellant no.1 is the Managing Director of M/s. SPMLInfra Limited, previously known as M/s Subhas Project Marketing Limited,and appellant no.2 is the Director of the said firm M/s SPML InfraLimited. M/s SPML Infra Limited is a public limited companyincorporated under the Companies Act, 1956. A contract was enteredinto between M/s SPML Infra Limited and the Government of ArunachalPradesh on 18.03.1993 for construction, supply and commissioning ofthe Nurang Hydel Power Project including three power generating unitsfor a consideration of Rs.24.96 crores approximately. As per clause2(c) of the contract, the defect liability period for the works was to befor a period of 18 months. Project was commissioned in the month ofJuly, 1996. That the defect liability period for the works of M/s SPML

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AInfra Limited expired in the month of January, 1998. That thereafter theproject became operational and started generating electricity andaccording to the appellants till 20.09.1998 the project had generated 90lakhs KW units. According to the appellants even the said project isalso in operation today. There were some disputes with respect to thepayment of maintenance by the respondents. The appellants issuedBnotice to the respondents to take over the project before 31.03.2000 onaccount of non-payment of maintenance, vide notice dated 09.03.2000.

2.1 That thereafter the respondents – original complainant lodgedthe complaint against the appellants and others being Jang PS Case No.05/2000 for the offence under Section 420 of the IPC alleging inter aliaCthat the appellants provided inferior quality materials in contraventionwith the provisions of the contract which stipulated specific percentagesof nickel and chromium to be used. It was alleged in the complaint thatthe appellants were required to supply the equipments as per the termsof the contract. As per the complaint, in course of physical inspection ofDthe plant, the DOP found that three runners turbines, viz, turbine nos. 1,2 and 3 were cracked and damaged. Therefore, the damagedcomponents were sent for testing and the National Test House, Calcuttasubmitted its report and it was found that the chemical composition ofthe broken runner was found containing 5.28% Nickel and 7.5%Chromium, which composition was contrary to the specification as perEthe agreement. Therefore, it was alleged that M/s SPML, Calcutta hadsupplied sub-standard turbines containing composition of materials notin accordance with the specification of MOU, resulted in frequent damageof runner turbine buckets. On the strength of written complaint, an FIRwas lodged/registered. It appears that during the course of theFinvestigation, the Investigating Officer found/discovered the illegalities/irregularities in awarding the contract at a higher price. Even during thecourse of investigation, the Investigating Officer found some officialsresponsible for the omission and neglect of duties and it was found thatthe officials named in the charge sheet were involved/connived with the firm M/s SPML Infra Limited with a view to cheat the Government ofGArunachal Pradesh. After conclusion of the investigation, the InvestigatingOfficer filed the final report/chargesheet 28.05.2004 against the appellantsand others for the offences under Section 120-B and 420 of the IPC.

2.2 According to the appellants, they were not aware about thefiling of the FIR and the chargesheet against them till the year 2017 andH

on being aware of the FIR and the chargesheet against them, theappellants preferred a petition before the High Court for quashing theaforesaid criminal proceedings under Section 482 Cr.P.C. It wascontended on behalf of the appellants that the matter pertains to thecontract and therefore purely a civil and contractual dispute has beengiven the colour of criminality and that too with a mala fide intention asthey served a notice upon the respondents to pay the maintenance amountdue and payable. It was also submitted on behalf of the appellants thatthey 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 werein-charge of the affairs of the company and therefore vicariously liable.Number of other submissions were also made on merits in support oftheir submission that the offence under Section 420 IPC has not beenmade out at all. It was also submitted that as soon as the company/appellants were informed with respect to the defect, despite the defectliability period was over, they changed the turbines in the year 2000. Itwas also submitted that all through out the project has run and even stillrunning.

2.3 That by the impugned judgment and order, the High Court hasrefused to quash the criminal proceedings. While rejecting the quashingpetition, the High Court has observed that there are allegations not onlyagainst the appellants, but also against the connected company executivesand engineers of the Government of Arunachal Pradesh and there areallegations of criminal conspiracy amongst themselves in the supply ofsub-standard runner turbines and receiving the sub-standard runnerturbines which were not in conformity with the specified standard andthe others co-accused persons have not come up with a similar petitionunder Section 482 Cr.P.C. and therefore at this stage it is not possible tosegregate the case qua the appellants only.

2.4 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court in refusing to quash the criminalproceedings against the appellants in exercise of powers under Section482 Cr.P.C., the original accused nos. 1 & 2 – Managing Director/Directorof M/s. SPML Infra Limited have preferred the present appeal.

3. Shri Harin P. Raval, learned Senior Advocate appearing onbehalf of the appellants has vehemently submitted that in the facts andcircumstances of the case the High Court has committed a grave error AB

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Ain not exercising the power under Section 482 Cr.P.C and not quashingthe criminal proceedings.

3.1 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court has failed toappreciate and consider the fact that by the impugned criminalBproceedings the complainant has tried to convert purely a civil disputeinto a criminal case.

3.2 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court has failed toconsider and appreciate that the allegations as contained in the FIR evenCif taken on face value and assumed to be correct in entirety, do notdisclose a prima facie commission of an offence, much less a cognizableoffence.

3.3 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that a bare perusal of the FIRDwould demonstrate that the allegations seem to be supply of inferiorquality of raw materials as seen under test report of National Test House,Calcutta which purportedly does not match with the test certificate givenby the company. It is submitted that there is nothing in the entire body ofFIR to suggest even remotely the element of existence of fraudulentand dishonest intention from the initiation of the transaction between theEparties.

3.4 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court has not properlyappreciated and considered the fact that the defect liability period expiredmuch before the filing of the complaint/FIR.

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3.5 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that even thereafter also thecompany continued the maintenance work and the project is running. Itis submitted that in fact the project was commissioned in the year 1996and the project had generated 90 lakhs KW units till 20.09.1998 even asGper the certificate issued by the Department of Power.

3.6 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court has failed toappreciate the fact that the impugned FIR and the complaint subsequentlyfiled has been filed with a mala fide intention and after the companyHdemanded to pay the amount for regular maintenance work.

3.7 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court ought to haveappreciated that the FIR was lodged on 26.06.2000 only after theappellants issued notice dated 9.3.2000 by which the complainant wascalled upon to take over the project before 31.03.2000 on account ofnon-payment of the maintenance charges.

3.8 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court has failed toappreciate and consider the fact that the disputes between the partieswere pending before the arbitrators. It is submitted that in fact thecompany was required to initiate the arbitration proceedings on accountof being denied the legitimate due payments.

3.9 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that looking to the averments andthe allegations in the complaint/FIR, it cannot be said that ingredients forcommitting the offence under Section 420 IPC has been made out. It issubmitted that there are no allegations in the FIR that the appellantsacted in dishonest and fraudulent intention from the very inception of thecontract with the respondent – State.

3.10 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the allegations as contained inthe FIR at best pointed towards the dispute, namely, relating to breachof the conditions of the contract and therefore at best could have givenrise to civil liability.

3.11 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court has failed toappreciate that no complaint has been filed against the company – M/sSPML Infra Limited and only the appellants being the Managing Director/Director of M/s SPML Infra Limited are joined as accused. It is submittedthat as held by this Court in catena of decisions in the absence of themain company being joined as accused the criminal proceedings againstthe Directors of the company alone shall not be maintainable.

3.12 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that even otherwise there are noaverments and allegations in the complaint that the appellants were incharge of the administration of the company and therefore they werevicariously liable for the act of the company.

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A3.13 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that the High Court has failed toappreciate that apart from the fact that defect liability period had expiredin the year 1998 and even thereafter the certificates were issued by theChief Engineer certifying satisfaction over the execution of the projectand its commissioning in July, 1996, the defects subsequently detectedBwere cured even after the defect period was over and even the companychanged the turbines. It is submitted that therefore if the intention of thecompany and/or the appellants was to cheat, in that case, they would nothave changed/replaced the runner buckets.

3.14 It is further submitted by Shri Raval, learned Senior AdvocateCappearing on behalf of the appellants that the High Court has not properlyappreciated and considered the role of the appellants and their companyin the entire contract. It is submitted that the entire contract was not tomanufacture the turbines and the runner buckets by the appellants andthe company, but to only procure the same from the manufacturer andDsupply the same to the respondents. It is submitted that the companyrelied upon the certificate issued by the manufacturer and simply usedthe said turbines in the project. It is submitted that therefore also theappellants cannot be saddled with the criminal liability for anymanufacturing defect when the same was not even in the domain of theappellants and their company.E

3.15 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that even otherwise when the finalreport has been filed by the investigating officer, the chargesheet hasgone much beyond the allegations and averments in the FIR.F3.16 It is further submitted by Shri Raval, learned Senior Advocate F3.16 It is further submitted by Shri Raval, learned Senior Advocateappearing on behalf of the appellants that though there were no allegationsin the complaint/FIR, the police authorities went into the commercialefficacy of the project through which M/s SPML Infra Limited wasselected. It is submitted that merely because there was a margindifference between the purported manufacturing cost of the turbinesGand the rates quoted by the company, the appellants cannot be heldguilty of a criminal offence of cheating. It is submitted that as such thecompany was the lowest bidder and was awarded the contract afterdue deliberations by the tendering committee.

3.17 It is further submitted by Shri Raval, learned Senior AdvocateHappearing on behalf of the appellants that the High Court has failed to exercise the powers under Section 482 Cr.P.C. and thus has not exercisedthe jurisdiction vested in it.

3.18 Making the above submissions and relying upon the decisionsof this Court in the cases of State of Haryana v. Bhajan Lal 1992Supp. (1) SCC 335; Hira Lal Hari Lal Bhagwati v. CBI, New Delhi(2003) 5 SCC 257; Indian Oil Corporation v. NEPC India Limitedand others (2006) 6 SCC 736; V.V. Jose and another v. State ofGujarat and another (2009) 3 SCC 78; Vesa Holdings PrivateLimited v. State of Kerala and others (2015) 8 SCC 293; and SharadKumar Sanghi v. Sangita Rane (2015) 12 SCC 781, it is prayed toallow the present appeal and quash and set aside the impugned criminalproceedings so far as the appellants are concerned.

4. The present appeal is vehemently opposed by the learned counselappearing on behalf of the respondents – State of Arunachal Pradesh.

4.1 It is vehemently submitted by the learned counsel appearingon behalf of the respondent – State and the counsel on behalf of theoriginal complainant that having found a prima facie case for the offenceunder Section 420 IPC for delivering/supplying sub-standard materialsand charging exorbitant rates for such materials with a criminal intent todupe the Government with huge public money, the High Court has rightlyrefused to quash the criminal proceedings.

4.2 It is further submitted by the learned counsel appearing onbehalf of the respondents that the appellants are charged for the offencesunder Section 420 read with 120B IPC. It is submitted that as per theinspection carried out by the Department and even as revealed duringthe investigation the appellants supplied the sub-standard runner turbineswhich are used by the accused though they were not in conformity withthe specified standards. It is submitted that therefore a prima facie caseof criminal conspiracy between the accused to cheat the governmenthas been made out.

4.3 It is further submitted by the learned counsel appearing onbehalf of the respondents that there being enough material/evidencesagainst the appellants and therefore this is a fit case wherein the appellantsare liable to be prosecuted for the commission of an offence under Section420, 120B IPC.

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4.4 It is further submitted by the learned counsel appearing onbehalf of the respondents that the arbitration proceedings initiated by theappellants/company has nothing to do with the criminal dispute. It issubmitted that therefore it cannot be said that the civil dispute is tried tobe converted into a criminal dispute.

4.5 It is further submitted by the learned counsel appearing onbehalf of the respondents that even otherwise as held by this Court incatena of decisions just because a proceeding has a civil nature does notmean that no criminality exists in the same.

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4.6 It is further submitted by the learned counsel appearing onCbehalf of the respondents that during the course of investigation it hasbeen found that one Kartik Steel Limited, Chennai tested the componentssupplied by M/s SPML Infra Limited and the report suggests that thematerials were sub-standard. It is submitted that therefore it is a clearcut case that the appellants had prior knowledge of the low quality of thematerials which they supplied to the department.D

4.7 It is further submitted by the learned counsel appearing onbehalf of the respondents that during the course of investigation, it isfound that the appellants have not only cheated the DOP by supplyingsub-standard materials but they also charged exorbitant rates for thethree runner buckets turbines in spite of their knowledge that theEsaid runner buckets were not up to the satisfaction. It is submitted thatduring the investigation it has come on record that the turbines weremanufactured by M/s Beacon Neyrpic, Chennai and the rates quoted bythe appellants and the manufacturing company were compared. It issubmitted that it has been found that cost as per the manufacturingFcompany was Rs.1,61,04,000/-, however, M/s SPML Infra Limitedcharged Rs.5,18,50,049/-. Thus, there was a difference in the rate to thetune of Rs.3,57,46,049/-. It is submitted that therefore there was afraudulent and dishonest intention from the initiation of the transactionbetween the parties.

4.8 It is further submitted by the learned counsel appearing onbehalf of the respondents that thus the supply of sub-standard materialat three times higher rates and the prior knowledge of the sub-standardquality of the material shows that the appellants had criminal intent tosupply sub-standard quality material at a higher price to the DOP/Government of Arunachal Pradesh. It is submitted that therefore the G

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appellants are rightly chargesheeted for the offence under Section 420read with 120B IPC.

4.9 It is further submitted by the learned counsel appearing onbehalf of the respondents that appellant no.1 is the Managing Directorand appellant no.2 is the Director of the company – M/s SPML InfraLimited and therefore being Managing Director/Director of the company,naturally they were in charge of the administration and management ofthe company and therefore are vicariously liable. It is submitted that theaforesaid has been elaborately considered by the High Court in theimpugned judgment and order. It is submitted that even otherwise asrightly observed by the High Court at this stage it is not possible tosegregate only the appellants case.

4.10 It is further submitted by the learned counsel appearing onbehalf of the respondents that whatever submissions are made on behalfof the appellants are their defences which are required to be consideredat the time of the trial. It is submitted that after thorough investigation,the investigating agency has filed the chargesheet against the appellantsand other accused for the offences under Section 420 read with 120BIPC and more particularly with respect to criminal conspiracy, the HighCourt has rightly refused to quash the criminal proceedings in exerciseof powers under Section 482 Cr.P.C., which powers are required to beexercised sparingly and in exceptional cases, as observed by this Courtin catena of decisions.

4.11 Making the above submissions and relying upon the decisionof this Court in the case of Sau. Kamal Shivaji Pokarnekar v. The Stateof Maharashtra and others, reported in 2019 SCC Online SC 182 (CriminalAppeal No.255 of 2019 decided on 12.02.2019), it is prayed to dismissthe present appeal.

5. We have heard the learned counsel for the respective partiesat length. We have also gone through and considered the averments andallegations in the FIR as well as the charge sheet filed by the investigatingagency.

5.1 At the outset, it is required to be noted that the chargesheethas been filed against the appellants for the offences under Section 420read with Section 120B of the IPC. By the impugned judgment andorder, the High Court has refused to quash the FIR and the chargesheet A

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Aagainst the appellants in exercise of powers under Section 482 Cr.P.C..Therefore, the short question which is posed for the consideration of thisCourt is, whether a case has been made out to quash the FIR and thechargesheet against the appellants for the offences under Section 420read with Section 120B of the IPC, in exercise of powers under Section482 Cr.P.C?B

6. Considering the averments and the allegations in the FIR andeven the chargesheet the main allegations are that the company, namely,M/s SPML Infra Limited supplied sub-standard materials – runner bucketturbines and the supplied runner bucket turbines were not as per thetechnical specifications. It is also required to be noted that there is noCFIR/complaint/chargesheet against the company – M/s SPML InfraLimited and the appellants are arrayed as an accused as ManagingDirector and Director of M/s SPML Infra Limited respectively. From abare reading of the FIR and even the chargesheet, there are no allegationsthat there was a fraudulent and dishonest intention to cheat theDgovernment from the very beginning of the transaction. Even there areno specific allegations and averments in the FIR/chargesheet that theappellants were in-charge of administration and management of thecompany and thereby vicariously liable. In light of the aforesaid, theprayer of the appellants to quash the criminal proceedings against theappellants for the offence under Section 420 IPC is required to beEconsidered.

7. While considering the prayer of the appellants to quash theimpugned criminal proceedings against the appellants for the offenceunder Section 420 IPC, few decisions of this Court on exercise of powersunder Section 482 Cr.P.C. are required to be referred to.

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7.1 In the case of Bhajan Lal (supra), in paragraph 102, this Courthas categorised the cases by way of illustration wherein the powersunder Article 226 or the inherent powers under Section 482 Cr.P.C.could be exercised either to prevent the abuse of the process of anycourt or otherwise to secure the ends of justice. In paragraph 102, it isGobserved and held as under:

“102. In the backdrop of the interpretation of the various relevantprovisions of the Code under Chapter XIV and of the principlesof law enunciated by this Court in a series of decisions relating tothe exercise of the extraordinary power under Article 226 or the H

inherent powers under Section 482 of the Code which we haveextracted and reproduced above, we give the following categoriesof cases by way of illustration wherein such power could beexercised either to prevent abuse of the process of any court orotherwise to secure the ends of justice, though it may not be possibleto lay down any precise, clearly defined and sufficientlychannelised and inflexible guidelines or rigid formulae and to givean exhaustive list of myriad kinds of cases wherein such powershould be exercised.

(1) Where the allegations made in the first informationreport or the complaint, even if they are takenat their face value and accepted in their entiretydo not prima facie constitute any offence ormake out a case against the accused.

(2) Where the allegations in the first information reportand other materials, if any, accompanying theFIR do not disclose a cognizable offence,justifying an investigation by police officersunder Section 156(1) of the Code except underan order of a Magistrate within the purview ofSection 155(2) of the Code.

(3) Where the uncontroverted allegations made in theFIR or complaint and the evidence collectedin support of the same do not disclose thecommission of any offence and make out acase against the accused.

(4) Where, the allegations in the FIR do not constitutea cognizable offence but constitute only a non-cognizable offence, no investigation ispermitted by a police officer without an orderof a Magistrate as contemplated under Section155(2) of the Code.

(5) Where the allegations made in the FIR or complaintare so absurd and inherently improbable on thebasis of which no prudent person can ever A

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reach a just conclusion that there is sufficientground for proceeding against the accused.

(6) Where there is an express legal bar engrafted inany of the provisions of the Code or theconcerned Act (under which a criminalproceeding is instituted) to the institution andcontinuance of the proceedings and/or wherethere is a specific provision in the Code or theconcerned Act, providing efficacious redressfor the grievance of the aggrieved party.

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(7) Where a criminal proceeding is manifestly attendedwith mala fide and/or where the proceeding ismaliciously instituted with an ulterior motivefor wreaking vengeance on the accused andwith a view to spite him due to private andpersonal grudge.”

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The aforesaid decision of this Court has been followedsubsequently by this Court in catena of decisions.

7.2 In the case of Vesa Holdings Private Limited (supra), it isobserved and held by this Court that every breach of contract would notEgive rise to an offence of cheating and only in those cases breach ofcontract would amount to cheating where there was any deception playedat the very inception. It is further observed and held that for the purposeof constituting an offence of cheating, the complainant is required toshow that the accused had fraudulent or dishonest intention at the timeof making promise or representation. It is further observed and heldFthat even in a case where allegations are made in regard to failure onthe part of the accused to keep his promise, in the absence of a culpableintention at the time of making initial promise being absent, no offenceunder Section 420 IPC can be said to have been made out. It is furtherobserved and held that the real test is whether the allegations in theGcomplaint disclose the criminal offence of cheating or not.

7.3 In the case of Hira Lal Hari Lal Bhagwati (supra), in paragraph40, this Court has observed and held as under:

“40. It is settled law, by a catena of decisions, that for establishingthe offence of cheating, the complainant is required to show that H

the accused had fraudulent or dishonest intention at the time ofmaking promise or representation. From his making failure to keeppromise subsequently, such a culpable intention right at thebeginning that is at the time when the promise was made cannotbe presumed. It is seen from the records that the exemptioncertificate contained necessary conditions which were requiredto be complied with after importation of the machine. Since theGCS could not comply with it, therefore, it rightly paid the necessaryduties without taking advantage of the exemption certificate. Theconduct of the GCS clearly indicates that there was no fraudulentor dishonest intention of either the GCS or the appellants in theircapacities as office-bearers right at the time of makingapplication for exemption. As there was absence of dishonestand fraudulent intention, the question of committing offence underSection 420 of the Penal Code, 1860 does not arise. We haveread the charge-sheet as a whole. There is no allegation in thefirst information report or the charge-sheet indicating expresslyor impliedly any intentional deception or fraudulent/dishonestintention on the part of the appellants right from the time of makingthe promise or misrepresentation. Nothing has been said on whatthose misrepresentations were and how the Ministry of Healthwas duped and what were the roles played by the appellants inthe alleged offence. The appellants, in our view, could not beattributed any mens rea of evasion of customs duty or cheatingthe Government of India as the Cancer Society is a non-profitorganisation and, therefore, the allegations against the appellantslevelled by the prosecution are unsustainable. The Kar VivadSamadhan Scheme certificate along with Duncan [(1996) 5 SCC591 : 1996 SCC (Cri) 1045] and Sushila Rani [(2002) 2 SCC 697: (2002) 2 Apex Decisions] judgments clearly absolve the appellantsherein from all charges and allegations under any other law oncethe duty so demanded has been paid and the alleged offence hasbeen compounded. It is also settled law that once a civil case hasbeen compromised and the alleged offence has been compounded,to continue the criminal proceedings thereafter would be an abuseof the judicial process.”

It is further observed and held by this Court in the aforesaiddecision that to bring home the charge of conspiracy within the ambit of ABCD

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ASection 120B of the IPC, it is necessary to establish that there was anagreement between the parties for doing an unlawful act. It is furtherobserved and held that it is difficult to establish conspiracy by directevidence.

7.4 In the case of V.Y Jose (supra), it is observed and held by thisBCourt that one of the ingredients of cheating is the existence of fraudulentor dishonest intention of making initial promise or existence thereof, fromthe very beginning of formation of contract. It is further observed andheld that it is one thing to say that a case has been made out for trial andas such criminal proceedings should not be quashed, but it is anotherthing to say that a person should undergo a criminal trial despite the factCthat no case has been made out at all.

7.5 In the case of Sharad Kumar Sanghi (supra), this Court hadan occasion to consider the initiation of criminal proceedings against theManaging Director or any officer of a company where company hadnot been arrayed as a party to the complaint. In the aforesaid decision,Dit is observed and held by this Court that in the absence of specificallegation against the Managing Director of vicarious liability, in theabsence of company being arrayed as a party, no proceedings can beinitiated against such Managing Director or any officer of a company. Itis further observed and held that when a complainant intends to rope inEa Managing Director or any officer of a company, it is essential to makerequisite allegation to constitute the vicarious liability.

7.6 In the case of Joseph Salvaraja A v. State of Gujarat (2011) 7SCC 59, it is observed and held by this Court that when dispute betweenthe parties constitute only a civil wrong and not a criminal wrong, theFcourts would not permit a person to be harassed although no case fortaking 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 Courtmust ensure that criminal prosecution is not used as an instrument ofGharassment or for seeking private vendetta or with an ulterior motive topressurise the accused. It is further observed and held by this Courtthat it is neither possible nor desirable to law down an inflexible rule thatwould govern the exercise of inherent jurisdiction. It is further observedand held that inherent jurisdiction of the High Courts under Section 482

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Cr.P.C. though wide has to be exercised sparingly, carefully and withcaution and only when it is justified by the tests specifically laid down inthe statute itself.

8. Applying the law laid down by this Court in the aforesaiddecisions to the facts of the case on hand, we are of the opinion that thisis a fit case to exercise powers under Section 482 Cr.P.C. and to quashthe impugned criminal proceedings.

8.1. As observed hereinabove, the chargesheet has been filedagainst the appellants for the offences under Section 420 read withSection 120B of the IPC. However, it is required to be noted that thereare no specific allegations and averments in the FIR and/or even in thechargesheet that fraudulent and dishonest intention of the accused wasfrom the very beginning of the transaction. It is also required to benoted that contract between M/s SPML Infra Limited and theGovernment was for supply and commissioning of the Nurang HydelPower Project including three power generating units. The appellantspurchased the turbines for the project from another manufacturer. Thecompany used the said turbines in the power project. The contract wasin the year 1993. Thereafter in the year 1996 the project wascommissioned. In the year 1997, the Department of Power issued acertificate certifying satisfaction over the execution of the project. Eventhe defect liability period ended/expired in January, 1998. In the year2000, there was some defect found with respect to three turbines.Immediately, the turbines were replaced. The power project startedfunctioning right from the very beginning – 1996 onwards. If the intentionof the company/appellants was to cheat the Government of ArunachalPradesh, they would not have replaced the turbines which were foundto be defective. In any case, there are no specific allegations andaverments in the complaint that the accused had fraudulent or dishonestintention at the time of entering into the contract. Therefore, applyingthe law laid down by this Court in the aforesaid decisions, it cannot besaid that even a prima facie case for the offence under Section 420 IPChas been made out.

8.2. It is also required to be noted that the main allegations can besaid to be against the company. The company has not been made aparty. The allegations are restricted to the Managing Director and the A

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ADirector of the company respectively. There are no specific allegationsagainst the Managing Director or even the Director. There are noallegations to constitute the vicarious liability. In the case of MaksudSaiyed v. State of Gujarat (2008) 5 SCC 668, it is observed and held bythis Court that the penal code does not contain any provision for attachingvicarious liability on the part of the Managing Director or the DirectorsBof the company when the accused is the company. It is further observedand held that the vicarious liability of the Managing Director and Directorwould arise provided any provision exists in that behalf in the statute. Itis further observed that statute indisputably must contain provision fixingsuch vicarious liabilities. It is further observed that even for the saidCpurpose, it is obligatory on the part of the complainant to make requisiteallegations which would attract the provisions constituting vicariousliability. In the present case, there are no such specific allegations againstthe appellants being Managing Director or the Director of the companyrespectively. Under the circumstances also, the impugned criminalproceedings are required to be quashed and set aside.D

8.3 At this stage, it is required to be noted that though the FIRwas filed in the year 2000 and the chargesheet was submitted/filed asfar back as on 28.5.2004, the appellants were served with the summonsonly in the year 2017, i.e., after a period of approximately 13 years fromthe date of filing the chargesheet. Under the circumstances, the HighECourt has committed a grave error in not quashing and setting aside theimpugned criminal proceedings and has erred in not exercising thejurisdiction vested in it under Section 482 Cr.P.C.

9. In view of the above and for the reasons stated above, we areof the firm opinion that this is a fit case to exercise the powers underFSection 482 Cr.P.C. and to quash the criminal proceedings against theappellants for the offence under Section 420 read with Section 120B ofthe IPC. To continue the criminal proceedings against the appellantswould be undue harassment to them. As observed hereinabove, no primafacie case for the offence under Section 420 of the IPC is made out.G

10. The instant appeal is accordingly allowed. The impugnedjudgment and order passed by the High Court is set aside. The impugnedFIR and the chargesheet filed against the appellants for the offenceunder Section 420 IPC are hereby quashed. However, it is specifically observed and made clear that the impugned criminal proceedings arequashed and set aside only against the appellants and not against anyother accused against whom the charge sheet had been filed and theproceedings shall continue against the other accused, in accordance withlaw.

Kalpana K. Tripathy

Appeal allowed.

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