‘Economic offences by their very nature stand on a different footing’: SC highlights fraud in commercial transactions, Read Judgment

"Though the High Court has unfettered powers conferred by the CrPC for exercising its inherent jurisdiction under Section 482, the same is expected to be used very sparingly and only in exceptional circumstances."- SC

The appellant argued that the High Court wrongly quashed the FIR at an early stage, despite serious allegations of fraud and deception. It was pointed out that Respondent No. 3, though claiming to have resigned in 2016, continued to issue purchase orders and was involved in the company’s affairs. The petitioners emphasized that this was not a simple commercial dispute but one involving criminal intent, as also reflected in Dena Bank’s separate FIR and the ED’s investigation into financial misappropriation. The State of Rajasthan supported the appellant, submitting that civil and criminal remedies can coexist and that the High Court’s intervention was premature.

Contentions of the Respondent:

The respondents contended that the FIR was a misuse of criminal law aimed at pressuring them into repaying old dues. They stressed that the transactions continued over several years, with payments being made until 2016–17, showing absence of initial fraudulent intent. Respondent No. 3 argued that he had resigned in 2016 and had no involvement thereafter. The respondents asserted that the appellant was attempting to convert a civil recovery matter into a criminal case and that the High Court rightly quashed the FIR to prevent abuse of the process.

The Supreme Court took a critical view of the quashing of FIR No. 218/2018 under Section 482 of the Criminal Procedure Code (CrPC), finding that the High Court erred both in law and fact by prematurely terminating the criminal proceedings at the threshold stage.

The Court emphasized that the High Court's reasoning, that the dispute between the parties was purely civil in nature arising from long-standing business transactions, failed to appreciate material indicators of alleged fraudulent intent. The Supreme Court observed that:

"The High Court committed a serious error, in quashing the proceedings on a premise, that there were long business transactions between the parties, and initiation of criminal proceedings was an arm-twisting tactic to extract the pending dues from respondent company."

The Court underscored that allegations involving the creation of shell/dummy companies and the circulation of monetary transactions through them were not mere business defaults but could indicate a criminal conspiracy. The High Court’s failure to consider these allegations in proper perspective, according to the Bench, amounted to a miscarriage of justice. It stated:

"The act of the company creating/establishing shell companies and circulating monetary transaction through these companies itself was an indicator of an intention of deceit."

Relying on the settled principle laid down in State of Haryana v. Bhajan Lal (1990), the Court reiterated that the power under Section 482 CrPC must be exercised sparingly, and only in circumstances where continuing the criminal proceedings would amount to an abuse of the court’s process or fail to secure the ends of justice. The Court noted:

"Though the High Court has unfettered powers conferred by the CrPC for exercising its inherent jurisdiction under Section 482, the same is expected to be used very sparingly and only in exceptional circumstances."

Further, the Court highlighted that the High Court had passed a “vague and cryptic order” and failed to acknowledge that the accused directors' alleged coordination to siphon funds and avoid liabilities through fraudulent means necessitated thorough investigation. The Supreme Court firmly held:

"The High Court also failed to note that when certain basic material was brought to the notice of the High Court about the criminal conspiracy hatched by the accused persons, it was necessary for the investigating agency to investigate thoroughly... This aspect could have been tested only by conducting a proper trial."

The Court emphasized that economic offences undermine public trust and harm the financial system, requiring cautious use of Section 482 CrPC, as held in cases like Parbatbhai Aahir v. State of Gujarat (2017) and Kurukshetra University v. State of Haryana (1977).

“Economic offences by their very nature stand on a different footing than other offences and have wider ramifications….. If such offences are viewed lightly, the confidence and trust of the public will be shaken.”

The Court underscored that the presence of civil liability does not preclude criminal culpability, especially where there are prima facie allegations of fraud and conspiracy. The quashing of the FIR, without allowing investigation into such serious claims, was deemed legally untenable.

The Supreme Court held that the High Court was not justified in exercising its jurisdiction under Section 482 of the CrPC, and accordingly, the appeals were allowed. It was clarified that the Court’s observations were only prima facie in nature, and the trial court was directed to proceed independently and strictly in accordance with law, uninfluenced by the present judgment.

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