The Supreme Court, comprising Justice Bela M. Trivedi and Justice Prasanna B. Varale, has allowed the appeal filed by Dinesh Sharma challenging the Rajasthan High Court’s decision quashing an FIR against EMGEE Cables and Communication Ltd. and its directors. The Court emphasised that the High Court’s powers under Section 482 of the Code of Criminal Procedure (CrPC) must be exercised sparingly and reiterated that economic offences stand on a different footing due to their serious impact on the country’s economy.
Background:
The appellant, Dinesh Sharma, was the authorised representative of M/s BLS Polymers Ltd., a company engaged in manufacturing and supplying plastic compounds. EMGEE Cables and Communication Ltd. (Respondent No.1) was engaged in manufacturing copper alloys, wires, and conductors. From 2012 to 2017, the parties were involved in business transactions wherein the appellant supplied goods to the respondent company on a credit basis.
It was alleged that despite supplying goods worth ₹2,20,82,000 between April 2017 and July 2018, payments remained pending. Several cheques issued by Respondent No.1 were dishonoured. Facing financial difficulties, the appellant filed FIR No. 218/2018 under Sections 420, 406, and 120B of the Indian Penal Code (IPC) at Police Station Chomu, Jaipur (West).
Later, proceedings were initiated by Dena Bank against the respondent company for offences including siphoning and embezzlement of funds. The appellant also pursued remedies under the Negotiable Instruments Act and the Insolvency and Bankruptcy Code.
Arguments:
The appellant contended that the High Court erred in quashing the FIR at an early stage, despite prima facie material showing fraud and dishonest conduct by the company’s directors, including circulation of funds through shell companies. It was submitted that economic offences impact public confidence and thus should not be lightly quashed.
The learned Additional Advocate General for the State of Rajasthan supported the appellant, arguing that the criminal and civil remedies are distinct and coexist.
Respondent No.3 submitted that the transactions were purely business in nature and civil disputes should not be given a criminal colour. It was contended that Respondent No.3 had resigned from the company in 2016 and had no involvement thereafter.
Supreme Court’s Analysis:
The Court referred to the landmark judgment in State of Haryana v. Bhajan Lal (1992 SCC (Cri) 426) and reiterated that inherent powers under Section 482 CrPC must be exercised sparingly and only in exceptional cases.
The Court observed:
“Though the High Court has unfettered powers conferred by the CrPC for exercising its inherent jurisdiction under Section 482, the same is expected to be used very sparingly and only in exceptional circumstances. There cannot be any straight jacket formula as to when the High Court would be justified to exercise jurisdiction under Section 482 of CrPC and each case is required to be dealt with on its own merits.”
Criticising the High Court’s approach, the Court noted that the existence of business transactions over the years could not, by itself, negate fraudulent intention, especially when allegations involved circulation of funds through shell companies and proceedings under the Prevention of Money Laundering Act (PMLA) were pending.
The Supreme Court highlighted:
“The act of the company creating/establishing shell companies and circulating monetary transaction through these companies itself was an indicator of an intention of deceit.”
It further observed that economic offences, by their very nature, are distinct from mere private disputes:
“Economic offences by their very nature stand on a different footing than other offences and have wider ramifications. They constitute a class apart. Economic offences affect the economy of the country as a whole and pose a serious threat to the financial health of the country.”
Referring to Parbatbhai Ahir v. State of Gujarat (2017 (9) SCC 641), the Court underscored that courts should be cautious before quashing proceedings involving economic offences.
Additionally, the Court noted that Respondent No.3’s claim of resignation was misleading, as material showed that he continued to act as Technical Director and signed purchase orders even after his alleged resignation.
Decision:
The Supreme Court allowed the appeals, set aside the High Court’s judgment, and restored FIR No. 218/2018 and its ancillary proceedings. It clarified that its observations were prima facie in nature, and the trial court should proceed independently and in accordance with law.
The Court remarked that the High Court should have refrained from quashing the FIR at the nascent stage of investigation and emphasised the necessity of thorough investigation in cases involving economic frauds.
Pending applications, if any, were disposed of accordingly.
