1. Fraudulent misappropriation of funds intended for statutory tax payments — Criminal proceedings under Sections 406, 408, 409, 418, 420, 120B read with 34, IPC. (Para 2 , 3 , 4 , 5 )
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2025 Supreme(SC) 619
SUPREME COURT OF INDIA
SANJAY KAROL, AHSANUDDIN AMANULLAH, JJ.
Hyeoksoo Son Authorized Representative For Daechang Seat Automotive Pvt. Ltd. – Appellant
Versus
Moon June Seok & Anr. – Respondents
Criminal Appeal No. 1856 of 2025 (Arising out of SLP(Crl.) No. 6917 of 2024)
Decided On : 08-04-2025
Advocates appeared:
For the Petitioner(s): Mr. Sidharth Luthra, Sr. Adv. Mr. Achal Shekhar, Adv. Ms. Aayushi Pandey, Adv. Ms. Parul Shukla, AOR Ms. Shubhangi Pandey, Adv. Mr. Saday Mondol, Adv.
For the Respondent(s): Mr. Rajiv Shakdher, Sr. Adv. Mr. Poornachandrian R., Adv. Ms. Sivani K.m.s., Adv. Mr. Lakshmikamth G., Adv. Mr. Sunil Kumar S., Adv. Mr. Pai Amit, AOR Mr. V. N. Raghupathy, AOR Mr. Raghavendra M. Kulkarni, Adv. Ms. Mythili S, Adv. Mr. M. Bangaraswamy, Adv. Mr. Venkata Raghu Mannepalli, Adv. Mr. Shiv Kumar, Adv. Ms. Vaishnavi, Adv.
For the Petitioner(s): Mr. Sidharth Luthra, Sr. Adv. Mr. Achal Shekhar, Adv. Ms. Aayushi Pandey, Adv. Ms. Parul Shukla, AOR Ms. Shubhangi Pandey, Adv. Mr. Saday Mondol, Adv.
For the Respondent(s): Mr. Rajiv Shakdher, Sr. Adv. Mr. Poornachandrian R., Adv. Ms. Sivani K.m.s., Adv. Mr. Lakshmikamth G., Adv. Mr. Sunil Kumar S., Adv. Mr. Pai Amit, AOR Mr. V. N. Raghupathy, AOR Mr. Raghavendra M. Kulkarni, Adv. Ms. Mythili S, Adv. Mr. M. Bangaraswamy, Adv. Mr. Venkata Raghu Mannepalli, Adv. Mr. Shiv Kumar, Adv. Ms. Vaishnavi, Adv.
Important Points
The High Court's quashing of criminal proceedings was premature as prima facie evidence existed, necessitating a trial to determine the veracity of allegations.
Subject
Criminal Law - Fraud and Misappropriation
Act Referred
Headnote
(A) Indian Penal Code, 1860 - Sections 406, 408, 409, 418, 420, 120B read with 34 - Quashing of criminal proceedings - High Court quashed chargesheet citing lack of prima facie evidence against the accused - The complainant alleged fraud involving significant sums of money and misappropriation of funds by financial advisors - The appeal challenges the High Court's decision to quash the proceedings, arguing that the inherent powers should not be exercised to examine the reliability of allegations - The court emphasized the need for a prima facie case to be established and the importance of protecting investments while ensuring due process. (Paras 2, 10, 14)
(B) Criminal Procedure Code, 1973 - Section 482 - Inherent powers of the High Court - The court reiterated that the High Court should not conduct a mini-trial or assess the veracity of allegations at this stage. (Paras 8.1, 10)
Facts of the case:
The complainant, a company, alleged that its financial advisors misappropriated substantial funds under the guise of tax payments, leading to a significant financial loss. The High Court quashed the proceedings against one accused, citing insufficient evidence.
Findings of Court:
The court found that prima facie evidence existed to suggest a connection between the accused and the alleged fraud, warranting the revival of proceedings.
Issues: The main issue was whether the High Court was justified in quashing the proceedings based on the lack of prima facie evidence against the accused.
Ratio Decidendi: The court ruled that the High Court's quashing of proceedings was premature, emphasizing the necessity of a prima facie case and the importance of due process in criminal proceedings.
Result: Appeal allowed, and proceedings revived.
(B) Criminal Procedure Code, 1973 - Section 482 - Inherent powers of the High Court - The court reiterated that the High Court should not conduct a mini-trial or assess the veracity of allegations at this stage. (Paras 8.1, 10)
Facts of the case:
The complainant, a company, alleged that its financial advisors misappropriated substantial funds under the guise of tax payments, leading to a significant financial loss. The High Court quashed the proceedings against one accused, citing insufficient evidence.
Findings of Court:
The court found that prima facie evidence existed to suggest a connection between the accused and the alleged fraud, warranting the revival of proceedings.
Issues: The main issue was whether the High Court was justified in quashing the proceedings based on the lack of prima facie evidence against the accused.
Ratio Decidendi: The court ruled that the High Court's quashing of proceedings was premature, emphasizing the necessity of a prima facie case and the importance of due process in criminal proceedings.
Result: Appeal allowed, and proceedings revived.
Legal Category Hierarchy
- crime and sentencing
- practice and procedure
Table of Contents
2. Whether proceedings should be quashed under Section 482 Cr.P.C. based on lack of prima facie evidence and the nature of the accused's administrative role. (Para 6 )
3. Corroboration between statements of co-accused and the respondent regarding cash receipts, combined with suspicious professional conduct, establishes a prima facie case. (Para 11 , 12 )
4. Criminal proceedings should not be quashed under Section 482 Cr.P.C. where prima facie evidence and corroborative statements establish a connection to the alleged offence. (Para 10 , 13 )
5. Appeal allowed — High Court order set aside — Criminal proceedings restored. (Para 14 )
6. Under what circumstances can a High Court exercise its inherent powers under Section 482 Cr.P.C. to quash criminal proceedings?
Quashing is justified in seven specific circumstances, including where allegations do not prima facie constitute an offence, are absurd or inherently improbable, or where proceedings are maliciously instituted with an ulterior motive for vengeance. (Para 10 )
7. Can the statement of a co-accused be used to establish a prima facie case for framing charges?
Yes, particularly when the statement of the co-accused is corroborated by the statement of the accused themselves, which establishes a prima facie connection to the alleged crime. (Para 11 )
8. Does the quantum of a bribe influence the decision to quash criminal proceedings at the prima facie stage?
No, the amount of bribe received, whether high or low, cannot be a ground for quashing proceedings if a prima facie case is established. (Para 13 )
JUDGMENT :
SANJAY KAROL, J.
Leave granted.
2. This appeal is at the instance of the complainant-Company aggrieved by the final judgment and order dated 19th February, 2024 in Criminal Petition No.5599 of 2023 passed by the High Court of Karnataka at Bengaluru, whereby under its inherent powers, the Court quashed the criminal proceedings as well as the chargesheet in C.C.No.8373 of 2023 which, in turn, was registered as a result of Crime No.287 of 2022 at Sanjay Nagar Police Station for offences punishable under Sections 406, 408, 409, 418, 420, 120B read with 34 of the Indian Penal Code, 1860, pending on the file of III Additional Chief Metropolitan Magistrate, Bengaluru.
Factual Background & Proceedings leading up to this Appeal
3. The instant case pertains to the alleged fraud having been committed by the respondent while in the employment of Daechang Seat Automotive Ltd.1[Hereinafter “the Company”] The present appellant is the authorized representative of the said Company. The main business of this company is to manufacture seat related equipment for cars of the ‘KIA’ make. The services of Mr. Nikhil K.S. of M/s. N.K. Associates were engaged as Chartered Accountants and Financial Advisors. Over time, a close relationship developed. The substance of the dispute is that the Company was informed that it had wrongly claimed input tax credit amounting to Rs.9,73,96,225.80p., by N.K. Associates. It was further said that the said amount owed to the Goods and Services Tax Department and failure to pay the same entails serious consequences. N.K. Associates then informed the Company that it is the standard practice in India for tax amounts payable to be transferred to the financial advisors who would then pay it onward to the concerned department. In furtherance of the same, the Company, after some internal transfer of money from one account to another, made a transfer from its Indian Overseas Bank Account, which was used for payments, statutory or otherwise, totaling to Rs.10,18,54,894.80p. The complaint, which is appended as Annexure P-3 to the paperbook, provides the following breakup of payments :
| S.No. | Date | NEFT UTR | Beneficiary | Beneficiary a/c | Amount |
| 1 | 01-04-2022 | NEFT-UTIB. IOBAN22091590159 | TERMINUS | 917020081077149 | 5760505 |
| 2 | 01-04-2022 | NEFT-KARBIOBAN22091590236 | N.K. ASSOCIATES | 120200010009370 | 1900988 |
| 3 | 01-04-2022 | NEFT-UTIBIOBAN22091490315 | TERMINUS | 917020081077149 | 2150988 |
| 4 | 03-04-2022 | NEFT-UTIBIOBAN22093412543 | TERMINUS | 917020081077149 | 4481412 |
| 5 | 03-04-2022 | NEFT-KARBIOBAN22093412570 | N.K. ASSOCIATES | 120200010009370 | 1000000 |
| 6 | 03-04-2022 | NEFT-KARBIOBAN22093412628 | N.K. ASSOCIATES | 120200010009370 | 4185800 |
Extracted hereinbelow is the portion of the said complaint, which describes the discovery of the alleged deceit perpetrated by N.K. Associates :
“13. In the month of October, 2022, the management of the shareholders of the Company in Korea was enquiring into the state of finances of the Company including statutory payments. It was noticed that huge payments such as the aforesaid had been made, and the reason for such payments was sought from the Indian employees. After enquiry and discovery, the Company and its shareholder discovered the following shocking facts :
(a) The GST portal itself has all the information related to GST payments by the Company;
(b) Rs.7,26,25,840/- was due for GST as suggested by the report Issued by NK & Associates dated 5th March 2022;
(c) On 03.04.2022, GST payment of Rs.7,26,25,840/- was made by adjusting the input tax credit already available with the Company;
(d) There was no mismatch of input tax credit showing on the GST portal;
(e) There was excess credit available with the
