14 A.L.T. (CRIMINAL) (Jou.) [2012

INHERENT POWER OF HIGH COURTS TOQUASH CRIMINAL PROCEEDINGS IN

COMP ANY CASES: A STUDY IN THE LIGHTOF SUPREME COURT'S DECISION IN

SUSHIL SURI'S CASE'By

Prof. (Dr) Mukund Sarda"

In the recent days, a quite a few cases haveoccurred where the companies have indulgedseveral times in practices taking the characterof serious criminal offences like cheating,forgery and falsification of accounts resultingin loss to the tune of crores of rupees. Evenat the very initial stages, when investigationbyCI3I or police is taken up resulting in filinga charge sheet, the officials of the companywho are alleged to have commi tted the offencewith the connivance of chartered accountantsand others, move the High Court to quash theproceedings under Sec. 482 of the CriminalProcedure Code.

2. Sec 482 of the Criminal Ptocedure Code,19741 envisages three circumstances underwhich the inherent jurisdiction may beexercised by the High Courts namely:-

(i) To give effect to an order under theCLP.C.;

(ii) To prevent an abuse of the process ofCourt; and

(iii) To otherwise secure the ends ofjustice.

The Supreme Court has laid down thefollowing norms? dealing with the exerciseof inherent powers:-

(i) Though the powers of High Courtare very wide, they have to beexercised sparingly, carefully and

Sushil Suri v. CBJ AIR 2011 SC P. 1713-1722;(2011) 107 SCL June P.391-40S

• Principal & Dean, Bharati Vidya Peet NewLaw College, Pune

1. Criminal Procedure Code, 1974 hereinafterreferred to as Cr. P.c. throughout this study.

2_ Supra, Para 1I

cautiously ex debito justitiae to doreal and substantial justice for whichthe Court exists;

(ii) .. .it is neither feasible nor desirableto lay down any inflexible rule whichwould govern the exercise ofinherent jurisdiction of the Court;broad principles were laid downwhile exercising jurisdiction underSec 482 Cr.P.C;

(iii) ... the exercise of inherent powerswould depend on the facts andcircumstances of each case, but thecommon thread which runs throughall the decisions on the subject isthat the Court would be justified ininvoking its inherent jurisdiction,where the allegations made in thecomplaint or charge-sheet, as thecase may be, taken at their face valueand accepted in their entirety do notconstitute the offence alleged;

(iv) As already laid down in R.P Kapur'sCase," the following categories ofcases, the High Court will be justifiedin exercising the powers underSec 482 CrPC to quash criminalcases:-

(a) Where it manifestly appears thatthere is a legal bar against theinstitution or continuation ofproceedings, such as want ofsanction etc.,

(b) Where the allegation in the FirstInformation Report on thecomplaint taken at their facevalue and accepted in theirentirety do not constitute theoffence alleged; and

(c) Where the allegation constitutesan offence, but there is noevidence adduced or the

3. K.P.Kapur v. State of Punjab: AIR 1960 SCP.866.

I 1] JOURNAL

evidence adduced clearly ormanifestly fails to prove thecharge;

(v) The object and purpose of Sec. 482CrPC has been enunciated by theSu preme Court in Dinish Du tt Joshi'sCase" as follows:-

"The principle embodied in thesection is based upon the maximquando lex aliquid alicuiconcedet, concedera videtur et idsine qua res ipsae esse non potest.This maxim means that whenthe law gIves to anyone, it givesall those things without whichthe thing itself would beunavailable;

(vi) See. 482 CrPC does not confer anynew power but only declares thatthe High Courts possess inherentpowers for the purpose specified inthe section;

(vii) As lacunae are sometime found inprocedural law, Sec. 482 CrPC hasbeen embodied to such lacunaewherever they are discovered;

(viii) The use of extra-ordinary powersconferred upon the High Courtunder See. 482 CrPC are howeverrequired to be reserved, as far aspossible, for extra-ordinary cases;

(ix) ... that the inherent powers shouldnot be exercised to stifle a legitimateprosecution;

(x) The High Court should normallyrefrain from giving a prima-faciedecision in a case where all the factsare incomplete and hazy, more so,when the evidence has not beencollected and produced before aCourt, and issues involved, whetherfactual or legal, are of such magni tude

4. Dinish Dult Joshi v. State of Rajasthan: (2001) 8see P570

15

that they cannot be seen in their trueperspective without sufficientmaterial;"

(xi) Where the conspiracy alleged iswith regard to commission of aserious crime of the naturecontemplated in Sec. 120B read withproviso to sub-section (2) of Sec. 120Aof IPC, then is that event mere proofof an agreement between theaccused for commission of suchcrime alone is enough to bring abouta conviction under Sec. 120B and theproof of any overact by the accusedor by anyone of them would not benecessary."

(xii) The Jurisdiction of the SupremeCourt under Art 142 of theConstitution of India, depends onthe facts and circumstances of eachcase. The High Court in exercise ofits powers under See 482 CrPC andthe Supreme Court under Art 142 ofthe Constitution of India would notdirect quashing of a case involving acrime against the societyparticularly when both the learnedspecial Judges as also the High Courthave found that a prima facie case hasbeen made out against theappellants herein for framing acharge;"

(xiii) ..... merely because the dues of thebank have been paid up, theappellant cannot be exonerated

5. Points IXand Xhave been laid down in a seriesof cases. They are CBI v. A. Ravi Shanker(2000) 6 see P.351 at Para 9; R.P.Kapur v. Stateof Punjab: AIR 1960 se P.866; State of Haryanav. Bhajan Lal: (1992) Suppl 1 see P.305;B.S.Joshi v. State of Haryana: (2003) 4 seeP.675 Para 8; Nikil Merchant v. CBI: (2008) 9see p.677.

6. This observation was already made in SupremeCourt's decision in Suresh Chandra Balori v.State of Bihar: (1995) Suppl 1 see P.80

7. Smt. Rumi Dhar v. State of West Bengal: (2009)6 see P.364.

16 A.L.T. (CRIMINAL) (Jou.) [2012

from the criminal liability and thecharge-sheet cannot be quashed:"and

(xiv) .... the compromise arrived atbetween the company and the bankand also Cl(l1) of the consent termsfiled in the suit, the Court wassatisfied that the case is not a fit casewhere technicality should not beallowed to stand in the way inquashing criminal proceedings,since the continuation of theproceedings after the compromisearrived at between the parties wouldbe a futile exercise?

3. In Sushi 1Suri's Case, it was found thatthe com pany through its directors in concernwith Chartered Accountants conceived acriminal conspiracy and executed it, forforging and fabricating a number ofdocuments ... in order to support its claim toavail hire-purchase loan from Punjab &Sindh Bank. Pay orders and Demand Draftswere encashed (in favour of suppliers) byopening six fictitious accounts and asystematic fraud was committed on the Bank.Depreciation on the new machinery, whichwere never purchased, were claimed on thebasis of forged invoices.

4. The facts of the case reveal a very sadstate of affairs in the functioning of Banks.How a huge loan of 300 lakhs was advancedwithout proper scrutiny and inspection bybank officials creates a serious doubt in themind of the public. Lack of supervision byBanks and releasing money without propercheck has led to the commission of series ofoffences. Money due to bank was paid,though not, as a result of a compromise,acceptance of the repayment may be viewedas an implied compromise. The repaymentshould have been routed through the Court

8. Sushil Suri's Case, Supra Para 239. Sushil Suri's case,Supra Para 19. The decisions

in Nikhil Merchant's case and B.s. Joshi's casewere relied upon.

and should be conditioned as not to free theindividuals from criminal liability. The

. increase in cases of this type under study isalarming. There is a need to create a separateinvestigating machinery attached to theCompany Law Board to exercise statutorypower of control to ensure proper utilizationof loan amounts. This statutory machineryshould examine the case thoroughly to findout whether there is a 'prima facie' case toproceed by way of criminal prosecution. Theexisting law may be amended to providethat the sanction of the Company Law Boardis necessary to maintain a prosecutionagain:;t the company and its officials.

The Company Law Board must issue acertificate that the case is a fit one for filing acase in a criminal court. It is worthwhile toamend the existing law to incorporate aprovision to levy a fine (10) times the valueof the money defrauded as an effectivedeterrent and as an alternate to criminalproceedings. Besides the Directors and otherofficials involved, must be disqualified from

. being a director or an official of a companyeither for a limited period or permanently.

5. The Registrar of Companies, besidesissuing a certificate of incorporation shouldhave an appropriate wing to ensure properfunctioning of companies and to see that noviolation of statute or norms relating theretois violated

The banks before sanctioning loans tocompanies must invariably inform theRegistrar of Companies and the CompanyLaw Board, so that timely action can betaken to prevent fraud or other offences incompanies relating to the use of moneyborrowed and for the timely repaymentthereof. Companies indulging in repeatedcrimes should be de-incorporated and aprovision to this effect must be made in theCompanies Act.