SUSHIL SETHI AND ANOTHER versus THE STATE OF ARUNACHAL PRADESH AND OTHERS
[2020] 1 S.C.R. 582, Supreme Court of India, 2020
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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SUSHIL SETHI AND ANOTHER
v.
THE STATE OF ARUNACHAL PRADESH AND OTHERS
CRIMINAL APPEAL  NO. 125 OF 2020
JANUARY 31, 2020
[ASHOK BHUSHAN AND M.R. SHAH. JJ.]
Code of Criminal Procedure, 1973:
s. 482 – Petition under – By two accused (Director and
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
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
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
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
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
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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 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
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
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.
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
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
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
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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
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.
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
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
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
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
[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
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[2015] 4 SCR 27
relied on
Para 3.18
[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
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.
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
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
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
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
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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
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 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
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 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
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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 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
in-charge 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 connected company executives
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
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
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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
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 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.
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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 the project before 31.03.2000 on account of
non-payment 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 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.
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[M. R. SHAH, J.]
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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
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 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 Court has failed to
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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-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 sub-standard 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.
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[M. R. SHAH, J.]
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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.
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 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.
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
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 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
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appellants are rightly chargesheeted for the offence under Section 420
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,
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 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
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[M. R. SHAH, J.]
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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?
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 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
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.
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
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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) 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
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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 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
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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 office-bearers right at the time of making
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
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 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
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
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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 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 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
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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 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 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
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Director of the company respectively.  There are no specific allegations
against the Managing Director or even the Director.  There are no
allegations to constitute the vicarious liability.  In the case of Maksud
Saiyed v. State of Gujarat (2008) 5 SCC 668, it is observed and held by
this Court that the penal code does not contain any provision for attaching
vicarious liability on the part of the Managing Director or the Directors
of the company when the accused is the company.  It is further observed
and held that the vicarious liability of the Managing Director and Director
would arise provided any provision exists in that behalf in the statute.  It
is further observed that statute indisputably must contain provision fixing
such vicarious liabilities.  It is further observed that even for the said
purpose, it is obligatory on the part of the complainant to make requisite
allegations which would attract the provisions constituting vicarious
liability.  In the present case, there are no such specific allegations against
the appellants being Managing Director or the Director of the company
respectively.  Under the circumstances also, the impugned criminal
proceedings are required to be quashed and set aside.
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 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

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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.
Kalpana K. Tripathy
Appeal allowed.
SUSHIL SETHI v. THE STATE OF ARUNACHAL PRADESH
[M. R. SHAH, J.]