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  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.

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  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.

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 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 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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