The Supreme Court of India recently declined to quash an FIR against a firm’s director over alleged involvement in the economic offences, paving a way for the apex court to issue a landmark directive to High Courts in cases of Financial frauds.
The SC bench comprising Justices Bela M. Trivedi and Prasanna B. Varale held that the High Court erred in quashing the case even when it was informed that the directors of the company established certain dummy/shell companies and the monetary transactions were routed to these shell/dummy companies.
Earlier in the case, the High Court had quashed the criminal proceedings against the respondent’s director accused of committing economic offences. According to the High Court, there had been long-standing business dealings between the appellant and respondent company with the dispute seemed purely civil (non-payment of dues).
Reversing the High Court’s ruling, the Supreme Court bench emphasised that the High Court should have refrained from quashing the FIR at the early stage of the investigation. The Judgement, authored by Justice Varale, relied on the case of Kurukshetra University and Anr. v. State of Haryana and Anr., (1977) 4 SCC 451.
Criticising the High Court, the SC bench noted, “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. This aspect could have been tested only by conducting a proper trial.”
The powers granted to the High Courts under Section 482 CrPC are wide and discretionary; they, however, shall not be used arbitrarily to stifle legitimate investigations, the apex court observed.
Noting that there has been a growing tendency of parties to rope in their counterparts to harass and extract monetary transactions, the apex court reminded High Courts that they should consider the facts of each case, in its proper perspective before deciding whether or not to quash criminal proceedings involving economic offences.
Supreme Court issues clear directive for High Courts in cases involving economic offences
Issuing a directive to the High Courts, the Supreme Court bench held, “…It can be concluded that 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. If such offences are viewed lightly, the confidence and trust of the public will be shaken.”
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The bench further added, “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.”
