Nikhil Merchant Vs.
C.B.I. & ANR.  INSC 1393 (20 August 2008)
SUPREME COURT OF
INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 1302_____ OF 2008 @
S.L.P. (CRL) NO.6355 of 2005 Nikhil Merchant ...Appellant Central Bureau of
Investigation & Anr ...Respondent(s)
Altamas Kabir, J.
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 2 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
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 19th 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 30th 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.
forgery were also included in 3 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."
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 4 been filed
by the CBI. The said application was rejected by the Special Judge (CBI),
Greater Bombay, by his order dated 11th 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.
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 5 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.
from the said decision, reliance was also placed on another decision of this
Court 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 6 320 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.
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 7 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.
appeal has been filed against the said order of the High Court rejecting the
appellant's prayer for discharge from the criminal complaint.
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.
8 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 19th September, 1994 and the charge sheet was filed by
the CBI four years later on 30th December, 1998. Thereafter, the suit filed by
the Bank for the recovery of its dues was compromised by a consent decree on
12th 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
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.
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.
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.
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.
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 12 Sections 13(2) read with Section
13(1)(d) of the Prevention of Corruption Act, 1988.
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 13 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.
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 15 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.
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
was urged that even if no steps have been taken by the CBI since the chargesheet
was 16 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 17 in the Supreme Court to prevent
any obstruction to the stream of justice.
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.
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.
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 18
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.
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.
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 where under 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 19 been created by the appellant herein in order
to avail of credit facilities beyond the limit to which the Company was
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?
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 20 compromise arrived at between the parties would be a futile exercise.
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