SUSHIL SETHI AND ANOTHERversusTHE STATE OF ARUNACHAL PRADESH AND OTHERS

582                       [2020]
               SUPREME COURT     1 S.C.R. 582
                              REPORTS                     [2020] 1 S.C.R.


A                     SUSHIL SETHI AND ANOTHER
                                       v.
         THE STATE OF ARUNACHAL PRADESH AND OTHERS
                   CRIMINAL APPEAL NO. 125 OF 2020
B                            JANUARY 31, 2020
               [ASHOK BHUSHAN AND M.R. SHAH. JJ.]
            Code of Criminal Procedure, 1973:
            s. 482 – Petition under – By two accused (Director and
C     Managing Director of a Company) – For quashing the criminal
      proceedings against them u/s. 420 r/w s. 120B IPC – High Court
      dismissed the petition – Appeal to Supreme Court – Held: There are
      no specific allegations and averments in the complaint that the
      accused had fraudulent and dishonest intention – No prima facie
      case for the offence u/s. 420 IPC has been made out – Main
D
      allegation in the complaint is against the company which has not
      been made a party – There is also no allegation to constitute
      vicarious 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 the
E     chargesheet – Therefore, the criminal proceedings are liable to be
      quashed – Penal Code, 1860 – s. 420 r/w s. 120B.
            Allowing the appeal, the Court
            HELD : 1. The chargesheet has been filed against the
      appellants for the offences under Section 420 read with Section
F     120B IPC. However, it is required to be noted 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 the Company and the
G     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

H
                                      582
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                      583


year 1996 the project was commissioned. In the year 1997, the         A
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
                                                                      B
right from the very beginning – 1996 onwards. If the intention of
the company/appellants was to cheat the Government 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, it    C
cannot be said that even a prima facie case for the offence
under Section 420 IPC has been made out. [Para 8.1] [599-B-G]
      State of Haryana v. Bhajan Lal (1992) Supp. 1 SCC
      335 : [1990] 3 Suppl. SCR 259 ; Vesa Holdings Private
      Limited v. State of Kerala and others (2015) 8 SCC              D
      293 : [2015] 4 SCR 27 ; Hira Lal Hari Lal Bhagwati
      v. CBI, New Delhi (2003) 5 SCC 257 : [2003] 3
      SCR 1118 ; V.V. Jose and another v. State of Gujarat
      and another (2009) 3 SCC 78 : [2008] 17 SCR 588 ;
      Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC
      781 : [2015] 2 SCR 145 ; InderMohan Goswami v.                  E
      State of Uttarnchal (2007) 12 SCC 1 : [2007]
      10 SCR 847 – relied on.
      2. 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       F
company respectively. There are no specific allegations against
the Managing Director or even the Director. There are no
allegations to constitute the vicarious liability. 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     G
when the accused is the company. The vicarious liability of the
Managing Director and Director would arise provided any
provision exists in that behalf in the statute. The statute
indisputably must contain provision fixing such vicarious

                                                                      H
584            SUPREME COURT REPORTS                      [2020] 1 S.C.R.


A     liabilities. 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
B
      impugned criminal proceedings are required to be quashed and
      set 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.
C           3. 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 to them. No prima
      facie case for the offence under Section 420 of the IPC is made
D     out. The impugned FIR and the chargesheet filed against the
      appellants for the offence under Section 420 IPC are hereby
      quashed. [Paras 9 and 10] [600-E-H]
             4. However, it is specifically observed and made clear that
      the impugned criminal proceedings are quashed and set aside
E     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.
      [Para 10] [600-H; 601-A]
            Indian Oil Corporation v. NEPC India Limited and
F           others (2006) 6 SCC 736 : [2006] 3 Suppl. SCR 704 ;
            Joseph Salvaraja A v. State of Gujarat (2011) 7 SCC
            59 : [2011] 8 SCR 815 – referred to.
                            Case Law Reference
      [1990] 3 Suppl. SCR 259        relied on              Para 3.18
G
      [2003] 3 SCR 1118              relied on              Para 3.18
      [2006] 3 Suppl. SCR 704        relied on              Para 3.18
      [2008] 17 SCR 588              relied on              Para 3.18

H
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                             585


[2015] 4 SCR 27                   relied on                Para 3.18         A
[2015] 2 SCR 145                  relied on                Para 3.18
[2011] 8 SCR 815                  referred to              Para 7.6
[2007] 10 SCR 847                 referred to              Para 7.7
[2007] 9 SCR 1113                 relied on                Para 8.2          B
      CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
No. 125 of 2020.
      From the Judgment and Order dated 07.09.2018 of the Gauhati
High Court in Criminal Petition No. 36 (AP) of 2017.
                                                                             C
      Harin P. Raval, Sr. Adv., Anando Mukherjee, Advs. for the
Appellants.
      Sanjay Jain, ASG, Abhimanyu Tewari, Ms. Eliza Bar, Advs. for
the Respondents.
      The Judgment of the Court was delivered by                             D

      M. R. SHAH, J.
      1. 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          E
Court has dismissed the said criminal petition preferred by the appellants
herein to quash and set aside the 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          F
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          G
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
                                                                             H
586             SUPREME COURT REPORTS                           [2020] 1 S.C.R.


A     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 disputes with respect to the
      payment of maintenance by the respondents. The appellants issued
B
      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
C     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
D     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
E     the agreement. Therefore, it was alleged that M/s SPML, Calcutta had
      supplied sub-standard 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
F     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
G     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 120-B 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
H
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                              587
                    [M. R. SHAH, J.]

on being aware of the FIR and the chargesheet against them, the               A
appellants preferred a petition before the High Court for quashing the
aforesaid criminal proceedings under Section 482 Cr.P.C. It was
contended on 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
                                                                              B
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
in-charge of the affairs of the company and therefore vicariously liable.     C
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
                                                                              D
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 connected company executives     E
and engineers of the Government of Arunachal Pradesh and there are
allegations of criminal conspiracy amongst themselves in the supply of
sub-standard runner turbines and receiving the sub-standard runner
turbines which were not in conformity with the specified standard and
the others co-accused persons have not come up with a similar petition        F
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        G
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          H
588             SUPREME COURT REPORTS                           [2020] 1 S.C.R.


A     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 Court has failed to
      appreciate and consider the fact that by the impugned criminal
B     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
C     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
D     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
E     parties.
            3.4 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 fact that the defect liability period expired
      much before the filing of the complaint/FIR.
F
            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
G     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
H     demanded to pay the amount for regular maintenance work.
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                               589
                    [M. R. SHAH, J.]

      3.7 It is further submitted by Shri Raval, learned Senior Advocate       A
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 the project before 31.03.2000 on account of
non-payment of the maintenance charges.
                                                                               B
       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.                                   C

       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         D
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        E
of the conditions of the 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          F
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.                  G
       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.
                                                                               H
590             SUPREME COURT REPORTS                           [2020] 1 S.C.R.


A            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 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
B
      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
C     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
D     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 criminal liability for any
      manufacturing defect when the same was not even in the domain of the
      appellants and their company.
E
             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.

F            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
G     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
H     appearing on behalf of the appellants that the High Court has failed to
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                                 591
                    [M. R. SHAH, J.]

exercise the powers under Section 482 Cr.P.C. and thus has not exercised         A
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                   B
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.                              C

      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             D
original complainant that having found a prima facie case for the offence
under Section 420 IPC for delivering/supplying sub-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.
                                                                                 E
       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 sub-standard runner turbines
which are used by the accused though they were not in conformity with            F
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             G
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.

                                                                                 H
592             SUPREME COURT REPORTS                            [2020] 1 S.C.R.


A            4.4 It is further submitted by the learned counsel appearing on
      behalf of the respondents that the arbitration proceedings 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.
B           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
C     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 sub-standard. 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.
D
             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
      sub-standard materials but they also charged exorbitant rates for the
      three runner buckets turbines in spite of their     knowledge that the
E     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
F     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.

G            4.8 It is further submitted by the learned counsel appearing on
      behalf of the respondents that thus the supply of sub-standard material
      at three times higher rates and the prior knowledge of the sub-standard
      quality of the material shows that the appellants had criminal intent to
      supply sub-standard quality material at a higher price to the DOP/
      Government of Arunachal Pradesh. It is submitted that therefore the
H
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                                593
                    [M. R. SHAH, J.]

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

        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       D
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 to be
exercised sparingly and in exceptional cases, as observed by this Court         E
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           F
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.                                                                         G
       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
                                                                                H
594            SUPREME COURT REPORTS                            [2020] 1 S.C.R.


A     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 appellants for the offences under Section 420
      read with Section 120B of the IPC, in exercise of powers under Section
      482 Cr.P.C?
B
             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
C     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
D     government from the very beginning of the transaction. Even there are
      no specific allegations and averments in the FIR/chargesheet that the
      appellants were in-charge 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
E     considered.
            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.
F
             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
G     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
H
SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                             595
                  [M. R. SHAH, J.]

  inherent powers under Section 482 of the Code which we have              A
  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
                                                                           B
  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     C
                    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,               D
                   justifying an investigation by police officers
                   under Section 156(1) 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           E
                  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        F
                   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.                                     G
            (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

                                                                           H
596            SUPREME COURT REPORTS                               [2020] 1 S.C.R.


A                                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
B                              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.
C                      (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.”
D
            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
E     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 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
F     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
G     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
H
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                               597
                    [M. R. SHAH, J.]

      the accused had fraudulent or dishonest intention at the time of         A
      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
                                                                               B
      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 office-bearers right at the time of making                 C
      application for exemption. As there was absence of dishonest
      and fraudulent intention, the question of committing offence under
      Section 420 of the Penal Code, 1860 does not arise. We have
      read the charge-sheet as a whole. There is no allegation in the
      first information report or the charge-sheet indicating expressly
                                                                               D
      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           E
      attributed any mens rea of evasion of customs duty or cheating
      the Government of India as the Cancer Society is a non-profit
      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
                                                                               F
      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,            G
      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
                                                                               H
598             SUPREME COURT REPORTS                            [2020] 1 S.C.R.


A     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
B     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 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
C     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,
D     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
E     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
F     courts would not permit a person to be 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
G     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

H
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                               599
                    [M. R. SHAH, J.]

Cr.P.C. though wide has to be exercised sparingly, carefully and with          A
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        B
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 that there
are no specific allegations and averments in the FIR and/or even in the        C
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          D
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        E
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            F
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.                                                             G
       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

                                                                               H
600             SUPREME COURT REPORTS                            [2020] 1 S.C.R.


A     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
B
      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
C     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.
D
             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
E     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
F     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 to them. As observed hereinabove, no prima
      facie case for the offence under Section 420 of the IPC is made out.
G           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

H
  SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH                             601
                    [M. R. SHAH, J.]

observed and made clear that the impugned criminal proceedings are           A
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.
                                                                             B
Kalpana K. Tripathy                                        Appeal allowed.




                                                                             C




                                                                             D




                                                                             E




                                                                             F




                                                                             G




                                                                             H