Justice Bela M Trivedi, Justice Prasanna B Varale, Supreme Court
Supreme Court Sets Aside Order Quashing FIR U/s. 420 IPC; Says Company Establishing Shell Companies & Circulating Monetary Transaction Through Them Suggests Intent To Deceive
|The Supreme Court allowed the Appeal against the High Court’s decision to quash an FIR seeking investigation into alleged dishonest and fraudulent acts of the accused Company and its concerned Directors.
The Supreme Court set aside an Order quashing the FIR under Sections 420, 406 and 120B of the IPC, stating that a company establishing shell companies and circulating monetary transactions through them is an indicator of an intention of deceit.
The Court allowed an Appeal challenging the decision of the Rajasthan High Court, which quashed an FIR registered under Sections 420, 406 and 120B of the IPC by the Appellant seeking investigation into alleged dishonest and fraudulent acts of the accused Company and its concerned Directors/Decision makers.
A Bench of Justice Bela M Trivedi and Justice Prasanna B Varale held, “Another factum which lost the sight of the High Court is that the directors of the company have connived with each other so as to form the shell/dummy companies. This is also an indicator of intention of deceit. It may not be out of place to state that the High Court has passed a vague and cryptic order. The High Court also failed to note that when certain basic material was brought to the notice of the High Court about the criminal conspiracy hatched by the accused persons, it was necessary for the investigating agency to investigate thoroughly, in the process of unearthing the truth before the Court.”
AOR Krishnamohan K appeared for the Appellant, while AAG Sansriti Pathak represented the Respondents.
Brief Facts
The Appellant alleged that the Company, through its representatives, approached the Appellant’s company in 2012 for the supply of PVC, and based on assurances of substantial turnover, the Appellant supplied goods on credit.
The Appellant contended that the payments were not cleared timely, leading to financial loss. The Appellant further alleged that cheques issued by the Respondent company were dishonoured, and due payments were not cleared despite repeated reminders and false promises.
Consequently, the Appellant filed an FIR. However, the High Court, while quashing the FIR, had observed that the dispute appeared to be civil in nature, related to the non-payment of dues, and that there was no fraudulent intention at the time of the business transaction.
Court’s Reasoning
The Supreme Court held that the High Court committed a “serious error” in quashing the proceedings. The Court noted that the High Court failed to appreciate the fact that the Company had established shell companies and circulated monetary transactions through them, which indicated an intention of deceit.
“We are also deeply concerned by the averments made by Respondent No. 3 on whose instance the FIR filed by the Appellant was quashed by the High Court. It was submitted before the High Court that Respondent No. 3 had resigned from his post on 06.05.2016. The pursual of the material placed before this Court show that this statement was only partially true though the Respondent no. 3 had resigned as a director of the company on 06.05.2016. He was still attached to the company in the capacity of technical director,” the Court noted.
However, the Bench also pointed out that “It is true that there is a growing tendency of parties to rope in their counterparts to harass and extract monetary transaction, it is the duty of the Court to consider the facts of each case, in its proper perspective and then to arrive at the conclusion as to whether the case warrants investigation or the proceedings are required to be quashed.”
Consequently, the Court ordered, “Be that as it may, for the reasons stated above, we are of the view that the High Court was not justified in exercising its jurisdiction under Section 482 of CrPC. The appeals are accordingly allowed. It is clarified that the above-mentioned observations are only prima facie in nature and the trial court shall proceed without being influenced by this judgement/order and strictly in accordance with law.”
Accordingly, the Supreme Court allowed the Appeal.
Cause Title: Dinesh Sharma v. Emgee Cables And Communication Ltd. & Anr. (Neutral Citation: 2025 INSC 571)
Appearance:
Appellant: AOR Krishnamohan K.; Advocate Dania Nayyar
Respondents: AAG Sansriti Pathak; AOR Milind Kumar and Shekhar Prit Jha; Advocates Aman Prasad, Himani Mishra, Tamanna Swamy and Anurag Bansal