SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1302_____ OF 2008

@ S.L.P. (CRL) NO.6355 of 2005

Nikhil Merchant ...Appellant

Vs.

Central Bureau of Investigation & Anr ...Respondent(s)

J U D G M E N T

Altamas Kabir, J.

1.Leave granted.

2.Central Bureau of Investigation (hereinafter

referred to as “CBI”) filed a charge sheet

against five accused persons under Section 120B

read with Sections 420, 467, 468, 471A Indian

Penal Code read with Sections 5(2) and 5(1)(d)

of the Prevention of Corruption Act, 1947 and

Section 13(2) read with Section 13(1)(d) of the

Prevention of Corruption Act, 1988. In the

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said charge sheet, the appellant herein was

made accused No.3 and the Company, in respect

of which he was the former Managing Director,

M/s. Neemuch Emballage Ltd., Mumbai, was made

the accused No.4. The other three accused are

officials of the Andhra Bank.

3.The accused No.4-Company was granted financial

assistance by the Andhra Bank, Opera House

Branch under various facilities. On account of

default in repayment of the loans, the Bank

filed a suit for recovery of the amount payable

and in addition, on 19

th

December, 1995, a

complaint was made by the General Manager and

the Chief Vigilance Officer of the Bank on the

basis whereof investigations were undertaken by

the CBI, which filed the above-mentioned charge

sheet in the Court of the Special Judge on 30

th

December, 1998. The allegations under the

charge sheet indicate that the accused persons

conspired with each other in fraudulently

diverting the funds of the Andhra Bank.

Offences alleging forgery were also included in

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the charge sheet. The above-mentioned suit

between the Company and the Bank, to which the

appellant herein was also a party, was disposed

of on a compromise arrived at between the

parties which was reduced into writing, and was

filed in the suit. On the basis of the consent

terms, the suit was compromised upon the

defendants agreeing to pay the amounts due as

per the schedule mentioned in the consent

terms. What is of importance in this case is

clause 11 of the consent terms, which reads as

follows:-

“Clause 11. Agreed that save as

aforesaid neither party has any

claim against the other and

parties do hereby withdraw all

the allegations and counter

allegations made against each

other.”

4.Consequent upon the compromise of the suit and

having regard to the contents of Clause 11 of

the consent terms, the appellant herein filed

an application for discharge from the criminal

complaint, in respect of which charge sheet had

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been filed by the CBI. The said application

was rejected by the Special Judge (CBI),

Greater Bombay, by his order dated 11

th

December, 2002, which came to be challenged by

the appellant before the Bombay High Court in

Cr.R.A. No.49/2005, along with several other

writ petitions filed by the other accused.

5.Before the High Court, it was urged that since

the subject matter of the dispute had been

settled between the appellant and the Bank, it

would be unreasonable to continue with the

criminal proceedings which had been commenced

on a complaint filed on behalf of the Bank

having particular regard to clause 11 of the

consent terms by which the parties had

withdrawn all claims against each other. It

was submitted that the learned Special Judge

had erred in rejecting the appellant’s prayer

for discharge from the criminal case. In

support of the aforesaid contentions made on

behalf of the appellant before the High Court,

reference was made to the decision of this

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Court in the case of Central Bureau of

Investigation vs. Duncans Agro Industries Ltd.,

[1996 (5) SCC 591] wherein on the basis of

facts similar to the facts of this case, this

Court had held that even if an offence of

cheating is prima facie made out, such offence

is a compoundable offence and compromise

decrees passed in the suits instituted by the

Bank, for all intents and purposes, amount to

compounding of the offence of cheating. This

Court accordingly, upheld the order of the High

Court quashing the criminal complaint after the

civil action had been compromised between the

parties.

6. Apart from the said decision, reliance was

also placed on another decision of this Court

in the case of B.S. Joshi and Ors. Vs. State of

Haryana & Anr., [2003(4) SCC 675] wherein while

dealing with the proceedings under Sections

498-A and 406 Indian Penal Code involving

matrimonial disputes and offences, this Court

held that even though the provisions of Section

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320 of the Code of Criminal Procedure would not

apply to such offences, which are not

compoundable it did not limit or affect the

powers under Section 482 and the powers

conferred on the High Courts and the Supreme

Court under Articles 226 and 136 of the

Constitution of India. Referring to the

decision of this Court in State of Haryana vs

Bhajan Lal, [1992 Suppl. (1) SCC 335] this

Court observed that the categories indicated in

the said case which warranted exercise of power

under Section 482 CrPC were only illustrative

and not exhaustive. This Court ultimately held

that the High Court in exercise of its inherent

powers can quash criminal proceedings or a FIR

or complaint and Section 320 CrPC does not

limit or affect the power of the High Court

under Section 482 of the Code.

7.After considering the said decision in the

light of the submissions made on behalf of the

respective parties, the High Court took the

view that in the Duncans Agro case (supra) this

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Court was considering the situation involving

Section 420 IPC which was compoundable under

Section 320(2) CrPC, while in the instant case,

the charge sheet was also under Sections 467,

468, 471-A IPC along with the provisions of the

Prevention of Corruption Act, which were non-

compoundable. The High Court, therefore, held

that neither of the said two cases would have

application to the facts of this case and

rejected the appellant’s prayer for discharge

from the criminal cases.

8.This appeal has been filed against the said

order of the High Court rejecting the

appellant’s prayer for discharge from the

criminal complaint.

9.Appearing for the appellant, Mr. R. Nariman,

learned senior advocate, submitted that the

appellant was not the direct beneficiary of the

loans which had been granted by the complainant

Bank, but had stood guarantee for the same in

his capacity as the Managing Director of the

Company to whom such loans had been advanced.

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Mr. Nariman submitted that while the loans were

said to have been advanced to the Company-

Accused No.4 between 1986 and 1989, the suit

for recovery of the unpaid dues was filed by

the Andhra Bank in 1992 and two years

thereafter the complaint was lodged by the Bank

on 19

th

September, 1994 and the charge sheet

was filed by the CBI four years later on 30

th

December, 1998. Thereafter, the suit filed by

the Bank for the recovery of its dues was

compromised by a consent decree on 12

th

October, 2000, and in view of clause 11 of the

consent terms, apart from the said suit, all

other actions, including the criminal

proceedings, also stood compounded. In support

of his aforesaid submissions, Mr. Nariman also

relied on the decision rendered by this Court

in the Duncans Agro case (supra) and B.S.

Joshi’s case (supra) and submitted that the

High Court had erred in coming to a finding

that the said two decisions had no application

to the case in hand.

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10.Mr. Nariman submitted that paragraph 2 of

the Judgment in the Duncans Agro case

(supra) would clearly indicate that the

offences disclosed in the first of the two

FIRs attracted the provisions of Section

120B read with Sections 409, 420, 467, 468

and 471 IPC. It was not that the High Court

was considering the case only under Section

420 IPC which was compoundable. Mr. Nariman

submitted that it is such misreading of the

judgment which has led the High court to

commit an error in its decision under

challenge. Mr. Nariman urged that the

decision in B.S. Joshi’s case (supra)

squarely covers the facts of this case also

since in exercise of inherent powers, this

Court could transcend the limitation imposed

under Section 320 CrPC and pass orders

quashing criminal proceedings or FIR or

complaint even where non- compoundable

offences were involved.

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11.Mr. Nariman submitted that since the

disputes out of which the criminal

proceeding has arisen have been compromised

between the appellant and the Bank,

continuing with the compliant would only

amount to misuse of the process of Court.

12.In addition to his above submissions Mr.

Nariman submitted that after the chargesheet

was filed by the CBI on 30.12.1998, no

further steps have been taken in the matter

and that even charges have not been framed.

He submitted that the proceedings were

stayed by this Court on the SLP filed by the

appellant only on 3.1.2006. He also

submitted that even the Bank had not taken

any action against its employees against

whom chargesheet had been filed. He urged

that from the manner in which the entire

matter has been pursued no other object has

been sought to be achieved except to harass

the appellant for the last 14 years when the

initial complaint was lodged by the Bank.

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13.It was lastly submitted by Mr. Nariman that,

in any event, the contents of the

chargesheet and the allegations made

therein, at best make out a case for

cheating and not forgery and consequently

both the Duncans Agro Industries case

(supra) and B.S.Joshi’s case (supra) would

apply to the facts of the case and the

proceedings were liable to be quashed.

14.The learned Additional Solicitor General,

Mr. A.Sharan, on the other hand, submitted

that neither of the aforesaid two cases have

any application to the facts of the instant

case and the appellant had erroneously

relied on the same. The learned Additional

Solicitor General submitted that the CBI had

filed chargesheet against the appellant

under Section 120-B read with Sections

420,467, 468, 471 IPC and also under

Sections 5(2) read with Section 5(1)(d) of

the Prevention of Corruption Act, 1947 and

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Sections 13(2) read with Section 13(1)(d) of

the Prevention of Corruption Act, 1988.

15.The learned Additional Solicitor General

submitted that apart from Section 420 IPC

the appellant had been charged with other

offences in the chargesheet as indicated

hereinabove, most of which being offences

under the IPC as also the Prevention of

Corruption Act, were non-compoundable. It

was urged that in the Duncans Agro

Industries case (supra)the Court had

proceeded on the basis that the charge

against the accused was one only under

Section 420 IPC and a decision was rendered

accordingly, despite the fact that the

chargesheet also included offences under

Sections 468 and 471 IPC which were non-

compoundable. It was urged that the

decision in B.S. Joshi’s case (supra) does

not also help the case of the appellant

since what was being considered therein was

whether the High Court had jurisdiction to

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exercise authority in a writ petition where

the Court was not shackled by the

restrictive provisions of Section 320 of the

Code of Criminal Procedure. The learned

Additional Solicitor General while not

disputing the position that in the Duncans

Agro case (supra) the Court had referred to

the chargesheet against the appellant which

included charges under Sections 468 and 471

IPC, also submitted that the ultimate

decision was rendered only in the context of

Section 420 IPC and not the other non-

compoundable sections. He also submitted

that the allegations contained in the

chargesheet in the present case not only

made out an offence of cheating, but also of

forgery on account of the various documents

which had been prepared under the signature

of the appellant showing inflated stocks to

induce the Bank to provide additional credit

facility and funds which it would not have

otherwise been legally entitled to.

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16.Rebutting the submissions made on behalf of

the appellant, the learned Additional

Solicitor General referred to the provisions

of Sections 463 and 464 IPC which relate to

the definition of “forgery” and “the making

of a false document”. He pointed out that

under the definition of forgery in Section

463 any person making any false document or

false electronic record or part of a

document or electronic record with intent to

cause damage or injury to the public or to

any person or to support any claim or title

or to cause any person to part with any

property or to enter into any expressed or

implied contract or with intent to commit

fraud or that fraud may be committed,

commits forgery. Referring to Section 464 he

submitted that a person is said to make a

false document or false electronic record

who dishonestly or fraudulently, inter alia,

makes, signs, seals or executes a document

or part of a document with the intention of

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causing it to be believed that such document

was made, signed, sealed, executed,

transmitted or affixed by or by authority of

a person by whom or by whose authority he

knows that it was not made, signed, sealed,

executed or affixed. The learned Additional

Solicitor General submitted that in the

instant case the preparation of such a false

document with the intention of cheating

comes squarely within the definition of

forgery under Section 463 IPC.

17.It was urged that all the ingredients of

offences committed under Sections 468 and

471 as also Section 420 IPC are made out in

the chargesheet, and hence, even if the

matter was compromised between the parties,

the criminal proceedings could not be

compounded on that basis since the offences

involved also include non-compoundable

offences.

18.It was urged that even if no steps have been

taken by the CBI since the chargesheet was

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filed in 1998, the same would not be a

ground for quashing the criminal proceedings

once the chargesheet had been filed. He

submitted that in view of the decision of

this Court in Supreme Court Bar Association

vs Union of India (1998) 4 SCC 409, this

Court would possibly not be justified in

giving directions in the instant case even

under Article 142 of the Constitution, since

the Constitution Bench had held that in

exercise of its plenary powers under Article

142 this Court could not ignore any

substantive statutory provision dealing with

the subject. It is a residuary power,

supplementary and complementary to the

powers specifically conferred on the Supreme

Court by statutes, exercisable to do

complete justice between the parties where

it is just and equitable to do so. It was

further observed that the power under

Article 142 of the Constitution was vested

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in the Supreme Court to prevent any

obstruction to the stream of justice.

19.The learned Additional Solicitor General

submitted that the power under Article 142

is to be exercised sparingly and only in

rare and exceptional cases and in the

absence of any exceptional circumstances the

appeal was liable to be dismissed.

20.Having carefully considered the facts of the

case and the submissions of learned counsel

in regard thereto, we are of the view that,

although, technically there is force in the

submissions made by the learned Additional

Solicitor General, the facts of the case

warrant interference in these proceedings.

21.The basic intention of the accused in this

case appears to have been to misrepresent

the financial status of the company, M/s

Neemuch Emballage Limited, Mumbai, in order

to avail of credit facilities to an extent

to which the company was not entitled. In

other words, the main intention of the

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company and its officers was to cheat the

Bank and induce it to part with additional

amounts of credit to which the company was

not otherwise entitled.

22.Despite the ingredients and the factual

content of an offence of cheating punishable

under Section 420 IPC, the same has been

made compoundable under Sub-section (2) of

Section 320 Cr.P.C. with the leave of the

Court. Of course, forgery has not been

included as one of the compoundable

offences, but it is in such cases that the

principle enunciated in B.S. Joshi’s case

(supra) becomes relevant.

23. In the instant case, the disputes between

the Company and the Bank have been set at

rest on the basis of the compromise arrived

at by them whereunder the dues of the Bank

have been cleared and the Bank does not

appear to have any further claim against the

Company. What, however, remains is the fact

that certain documents were alleged to have

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been created by the appellant herein in

order to avail of credit facilities beyond

the limit to which the Company was entitled.

The dispute involved herein has overtones of

a civil dispute with certain criminal

facets. The question which is required to

be answered in this case is whether the

power which independently lies with this

Court to quash the criminal proceedings

pursuant to the compromise arrived at,

should at all be exercised?

24.On an overall view of the facts as indicated

hereinabove and keeping in mind the decision

of this Court in B.S. Joshi’s case (supra)

and the compromise arrived at between the

Company and the Bank as also clause 11 of

the consent terms filed in the suit filed by

the Bank, we are satisfied that this is a

fit case where technicality should not be

allowed to stand in the way in the quashing

of the criminal proceedings, since, in our

view, the continuance of the same after the

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compromise arrived at between the parties

would be a futile exercise.

25.We, therefore, set aside the order passed by

the High Court dismissing the petitioner’s

revision application No.49 of 2003 in

Special Case No.80 of 1998 and quash the

proceedings against the appellant. The

appeal is accordingly allowed.

...................J

(ALTAMAS KABIR)

...................J

(MARKANDEY KATJU)

New Delhi

Dated: 20.8.2008

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