Sushil Sethi vs The State Of Arunachal Pradesh on 31 January, 2020


Supreme Court of India

Sushil Sethi vs The State Of Arunachal Pradesh on 31 January, 2020

Author: Ashok Bhushan

Bench: Ashok Bhushan, M.R. Shah

                                                          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




                                           JUDGMENT

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
Signature Not Verified

Digitally signed by
ARJUN BISHT
Date: 2020.01.31
16:39:59 IST
Reason:

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 non­

payment 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 sub­

13
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.

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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 sub­

standard 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 non­
cognizable 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

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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

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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

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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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