Quashing of Criminal Proceedings – Section 420 read with Section 120B of the IPC – At this stage, it is required to be noted that though the FIR was filed in the year 2000 and the chargesheet was submitted/filed as far back as on 28.5.2004, the appellants were served with the summons only in the year 2017, i.e., after a period of approximately 13 years from the date of filing the chargesheet. Under the circumstances, the High Court has committed a grave error in not quashing and setting aside the impugned criminal proceedings and has erred in not exercising the jurisdiction vested in it under Section 482 Cr.P.C.- there are no specific allegations and averments in the FIR and/or even in the chargesheet that fraudulent and dishonest intention of the accused was from the very beginning of the transaction. It is also required to be noted that contract between M/s SPML Infra Limited and the Government was for supply and commissioning of the Nurang Hydel Power Project including three power generating units. The appellants purchased the turbines for the project from another manufacturer. The company used the said turbines in the power project. The contract was in the year 1993. Thereafter in the year 1996 the project was commissioned. In the year 1997, the Department of Power issued a certificate certifying satisfaction over the execution of the project. Even the defect liability period ended/expired in January, 1998. In the year 2000, there was some defect found with respect to three turbines. Immediately, the turbines were replaced. If the intention of the company/appellants was to cheat the Government of Arunachal Pradesh, they would not have replaced the turbines which were found to be defective. In any case, there are no specific allegations and averments in the complaint that the accused had fraudulent or dishonest intention at the time of entering into the contract. Therefore, applying the law laid down by this Court in the aforesaid decisions, it cannot be said that even a prima facie case for the offence under Section 420 IPC has been made out. It is also required to be noted that the main allegations can be said to be against the company. The company has not been made a party. The allegations are restricted to the Managing Director and the Director of the company respectively. There are no specific allegations against the Managing Director or even the Director. There are no allegations to constitute the vicarious liability. In the case of Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668, it is observed and held by this Court that the penal code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the company when the accused is the company. It is further observed and held that the vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. It is further observed that statute indisputably must contain provision fixing such vicarious liabilities. It is further observed that even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability. In the present case, there are no such specific allegations against the appellants being Managing Director or the Director of the company respectively. Under the circumstances also, the impugned criminal proceedings are required to be quashed and set aside.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 125 OF 2020
(Arising from SLP(Crl.) No. 590 of 2019)
Sushil Sethi and another ..Appellants
Versus
The State of Arunachal Pradesh and others ..Respondents
J U D G M E N T
M.R. SHAH, J.
Feeling aggrieved and dissatisfied with the impugned
judgment and order dated 07.09.2018 passed by the High Court
of Gauhati at Itanagar in Criminal Petition No. 36(AP) of 2017, by
which the High Court has dismissed the said criminal petition
preferred by the appellants herein to quash and set aside the
1
criminal proceedings being G.R. Case No. 05/200/294, the
original accused nos. 1 & 2 have preferred the present appeal.

  1. That appellant no.1 is the Managing Director of M/s. SPML
    Infra Limited, previously known as M/s Subhas Project
    Marketing Limited, and appellant no.2 is the Director of the said
    firm M/s SPML Infra Limited. M/s SPML Infra Limited is a
    public limited company incorporated under the Companies Act,
  2. A contract was entered into between M/s SPML Infra
    Limited and the Government of Arunachal Pradesh on
    18.03.1993 for construction, supply and commissioning of the
    Nurang Hydel Power Project including three power generating
    units for a consideration of Rs.24.96 crores approximately. As
    per clause 2(c) of the contract, the defect liability period for the
    works was to be for a period of 18 months. Project was
    commissioned in the month of July, 1996. That the defect
    liability period for the works of M/s SPML Infra Limited expired
    in the month of January, 1998. That thereafter the project
    became operational and started generating electricity and
    according to the appellants till 20.09.1998 the project had
    generated 90 lakhs KW units. According to the appellants even
    the said project is also in operation today. There were some
    2
    disputes with respect to the payment of maintenance by the
    respondents. The appellants issued notice to the respondents to
    take over the project before 31.03.2000 on account of nonpayment of maintenance, vide notice dated 09.03.2000.
    2.1 That thereafter the respondents – original complainant
    lodged the complaint against the appellants and others being
    Jang PS Case No. 05/2000 for the offence under Section 420 of
    the IPC alleging inter alia that the appellants provided inferior
    quality materials in contravention with the provisions of the
    contract which stipulated specific percentages of nickel and
    chromium to be used. It was alleged in the complaint that the
    appellants were required to supply the equipments as per the
    terms of the contract. As per the complaint, in course of physical
    inspection of the plant, the DOP found that three runners
    turbines, viz, turbine nos. 1, 2 and 3 were cracked and damaged.
    Therefore, the damaged components were sent for testing and the
    National Test House, Calcutta submitted its report and it was
    found that the chemical composition of the broken runner was
    found containing 5.28% Nickel and 7.5% Chromium, which
    composition was contrary to the specification as per the
    agreement. Therefore, it was alleged that M/s SPML, Calcutta
    3
    had supplied sub­standard turbines containing composition of
    materials not in accordance with the specification of MOU,
    resulted in frequent damage of runner turbine buckets. On the
    strength of written complaint, an FIR was lodged/registered. It
    appears that during the course of the investigation, the
    Investigating Officer found/discovered the
    illegalities/irregularities in awarding the contract at a higher
    price. Even during the course of investigation, the Investigating
    Officer found some officials responsible for the omission and
    neglect of duties and it was found that the officials named in the
    charge sheet were involved/connived with the firm M/s SPML
    Infra Limited with a view to cheat the Government of Arunachal
    Pradesh. After conclusion of the investigation, the Investigating
    Officer filed the final report/chargesheet 28.05.2004 against the
    appellants and others for the offences under Section 120­B and
    420 of the IPC. 2.2 According to the appellants, they were not
    aware about the filing of the FIR and the chargesheet against
    them till the year 2017 and on being aware of the FIR and the
    chargesheet against them, the appellants preferred a petition
    before the High Court for quashing the aforesaid criminal
    proceedings under Section 482 Cr.P.C. It was contended on
    4
    behalf of the appellants that the matter pertains to the contract
    and therefore purely a civil and contractual dispute has been
    given the colour of criminality and that too with a mala fide
    intention as they served a notice upon the respondents to pay the
    maintenance amount due and payable. It was also submitted on
    behalf of the appellants that they are the Managing
    Director/Director of M/s SPML Infra Limited – a company and
    that the company has not been arrayed as an accused. It was
    submitted that there are no allegations that the appellants were
    in­charge of the affairs of the company and therefore vicariously
    liable. Number of other submissions were also made on merits in
    support of their submission that the offence under Section 420
    IPC has not been made out at all. It was also submitted that as
    soon as the company/appellants were informed with respect to
    the defect, despite the defect liability period was over, they
    changed the turbines in the year 2000. It was also submitted
    that all through out the project has run and even still running.
    2.3 That by the impugned judgment and order, the High Court
    has refused to quash the criminal proceedings. While rejecting
    the quashing petition, the High Court has observed that there are
    allegations not only against the appellants, but also against the
    5
    connected company executives and engineers of the Government
    of Arunachal Pradesh and there are allegations of criminal
    conspiracy amongst themselves in the supply of sub­standard
    runner turbines and receiving the sub­standard runner turbines
    which were not in conformity with the specified standard and the
    others co­accused persons have not come up with a similar
    petition under Section 482 Cr.P.C. and therefore at this stage it is
    not possible to segregate the case qua the appellants only.
    2.4 Feeling aggrieved and dissatisfied with the impugned
    judgment and order passed by the High Court in refusing to
    quash the criminal proceedings against the appellants in exercise
    of powers under Section 482 Cr.P.C., the original accused nos. 1
    & 2 – Managing Director/Director of M/s. SPML Infra Limited
    have preferred the present appeal.
  3. Shri Harin P. Raval, learned Senior Advocate appearing on
    behalf of the appellants has vehemently submitted that in the
    facts and circumstances of the case the High Court has
    committed a grave error in not exercising the power under
    Section 482 Cr.P.C and not quashing the criminal proceedings.
    3.1 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    6
    Court has failed to appreciate and consider the fact that by the
    impugned criminal proceedings the complainant has tried to
    convert purely a civil dispute into a criminal case.
    3.2 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    Court has failed to consider and appreciate that the allegations
    as contained in the FIR even if taken on face value and assumed
    to be correct in entirety, do not disclose a prima facie
    commission of an offence, much less a cognizable offence.
    3.3 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that a bare
    perusal of the FIR would demonstrate that the allegations seem
    to be supply of inferior quality of raw materials as seen under
    test report of National Test House, Calcutta which purportedly
    does not match with the test certificate given by the company. It
    is submitted that there is nothing in the entire body of FIR to
    suggest even remotely the element of existence of fraudulent and
    dishonest intention from the initiation of the transaction between
    the parties.
    3.4 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    7
    Court has not properly appreciated and considered the fact that
    the defect liability period expired much before the filing of the
    complaint/FIR.
    3.5 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that even
    thereafter also the company continued the maintenance work
    and the project is running. It is submitted that in fact the project
    was commissioned in the year 1996 and the project had
    generated 90 lakhs KW units till 20.09.1998 even as per the
    certificate issued by the Department of Power.
    3.6 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    Court has failed to appreciate the fact that the impugned FIR and
    the complaint subsequently filed has been filed with a mala fide
    intention and after the company demanded to pay the amount for
    regular maintenance work.
    3.7 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    Court ought to have appreciated that the FIR was lodged on
    26.06.2000 only after the appellants issued notice dated
    9.3.2000 by which the complainant was called upon to take over
    8
    the project before 31.03.2000 on account of non­payment of the
    maintenance charges.
    3.8 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    Court has failed to appreciate and consider the fact that the
    disputes between the parties were pending before the arbitrators.
    It is submitted that in fact the company was required to initiate
    the arbitration proceedings on account of being denied the
    legitimate due payments.
    3.9 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that looking to the
    averments and the allegations in the complaint/FIR, it cannot be
    said that ingredients for committing the offence under Section
    420 IPC has been made out. It is submitted that there are no
    allegations in the FIR that the appellants acted in dishonest and
    fraudulent intention from the very inception of the contract with
    the respondent – State.
    3.10 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the
    allegations as contained in the FIR at best pointed towards the
    dispute, namely, relating to breach of the conditions of the
    9
    contract and therefore at best could have given rise to civil
    liability.
    3.11 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    Court has failed to appreciate that no complaint has been filed
    against the company – M/s SPML Infra Limited and only the
    appellants being the Managing Director/Director of M/s SPML
    Infra Limited are joined as accused. It is submitted that as held
    by this Court in catena of decisions in the absence of the main
    company being joined as accused the criminal proceedings
    against the Directors of the company alone shall not be
    maintainable.
    3.12 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that even
    otherwise there are no averments and allegations in the
    complaint that the appellants were in charge of the
    administration of the company and therefore they were
    vicariously liable for the act of the company.
    3.13 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    Court has failed to appreciate that apart from the fact that defect
    10
    liability period had expired in the year 1998 and even thereafter
    the certificates were issued by the Chief Engineer certifying
    satisfaction over the execution of the project and its
    commissioning in July, 1996, the defects subsequently detected
    were cured even after the defect period was over and even the
    company changed the turbines. It is submitted that therefore if
    the intention of the company and/or the appellants was to cheat,
    in that case, they would not have changed/replaced the runner
    buckets.
    3.14 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    Court has not properly appreciated and considered the role of the
    appellants and their company in the entire contract. It is
    submitted that the entire contract was not to manufacture the
    turbines and the runner buckets by the appellants and the
    company, but to only procure the same from the manufacturer
    and supply the same to the respondents. It is submitted that the
    company relied upon the certificate issued by the manufacturer
    and simply used the said turbines in the project. It is submitted
    that therefore also the appellants cannot be saddled with the
    11
    criminal liability for any manufacturing defect when the same
    was not even in the domain of the appellants and their company.
    3.15 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that even
    otherwise when the final report has been filed by the
    investigating officer, the chargesheet has gone much beyond the
    allegations and averments in the FIR.
    3.16 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that though there
    were no allegations in the complaint/FIR, the police authorities
    went into the commercial efficacy of the project through which
    M/s SPML Infra Limited was selected. It is submitted that merely
    because there was a margin difference between the purported
    manufacturing cost of the turbines and the rates quoted by the
    company, the appellants cannot be held guilty of a criminal
    offence of cheating. It is submitted that as such the company
    was the lowest bidder and was awarded the contract after due
    deliberations by the tendering committee.
    3.17 It is further submitted by Shri Raval, learned Senior
    Advocate appearing on behalf of the appellants that the High
    12
    Court has failed to exercise the powers under Section 482 Cr.P.C.
    and thus has not exercised the jurisdiction vested in it.
    3.18 Making the above submissions and relying upon the
    decisions of this Court in the cases of State of Haryana v. Bhajan
    Lal 1992 Supp. (1) SCC 335; Hira Lal Hari Lal Bhagwati v. CBI,
    New Delhi (2003) 5 SCC 257; Indian Oil Corporation v. NEPC India
    Limited and others (2006) 6 SCC 736; V.V. Jose and another v.
    State of Gujarat and another (2009) 3 SCC 78; Vesa Holdings
    Private Limited v. State of Kerala and others (2015) 8 SCC 293;
    and Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC 781, it
    is prayed to allow the present appeal and quash and set aside the
    impugned criminal proceedings so far as the appellants are
    concerned.
  4. The present appeal is vehemently opposed by the learned
    counsel appearing on behalf of the respondents – State of
    Arunachal Pradesh.
    4.1 It is vehemently submitted by the learned counsel appearing
    on behalf of the respondent – State and the counsel on behalf of
    the original complainant that having found a prima facie case for
    the offence under Section 420 IPC for delivering/supplying sub13
    standard materials and charging exorbitant rates for such
    materials with a criminal intent to dupe the Government with
    huge public money, the High Court has rightly refused to quash
    the criminal proceedings.
    4.2 It is further submitted by the learned counsel appearing on
    behalf of the respondents that the appellants are charged for the
    offences under Section 420 read with 120B IPC. It is submitted
    that as per the inspection carried out by the Department and
    even as revealed during the investigation the appellants supplied
    the sub­standard runner turbines which are used by the accused
    though they were not in conformity with the specified standards.
    It is submitted that therefore a prima facie case of criminal
    conspiracy between the accused to cheat the government has
    been made out.
    4.3 It is further submitted by the learned counsel appearing on
    behalf of the respondents that there being enough
    material/evidences against the appellants and therefore this is a
    fit case wherein the appellants are liable to be prosecuted for the
    commission of an offence under Section 420, 120B IPC.
    4.4 It is further submitted by the learned counsel appearing on
    behalf of the respondents that the arbitration proceedings
    14
    initiated by the appellants/company has nothing to do with the
    criminal dispute. It is submitted that therefore it cannot be said
    that the civil dispute is tried to be converted into a criminal
    dispute.
    4.5 It is further submitted by the learned counsel appearing on
    behalf of the respondents that even otherwise as held by this
    Court in catena of decisions just because a proceeding has a civil
    nature does not mean that no criminality exists in the same.
    4.6 It is further submitted by the learned counsel appearing on
    behalf of the respondents that during the course of investigation
    it has been found that one Kartik Steel Limited, Chennai tested
    the components supplied by M/s SPML Infra Limited and the
    report suggests that the materials were sub­standard. It is
    submitted that therefore it is a clear cut case that the appellants
    had prior knowledge of the low quality of the materials which
    they supplied to the department.
    4.7 It is further submitted by the learned counsel appearing on
    behalf of the respondents that during the course of investigation,
    it is found that the appellants have not only cheated the DOP by
    supplying sub­standard materials but they also charged
    exorbitant rates for the three runner buckets turbines in spite of
    15
    their knowledge that the said runner buckets were not up to the
    satisfaction. It is submitted that during the investigation it has
    come on record that the turbines were manufactured by M/s
    Beacon Neyrpic, Chennai and the rates quoted by the appellants
    and the manufacturing company were compared. It is submitted
    that it has been found that cost as per the manufacturing
    company was Rs.1,61,04,000/­, however, M/s SPML Infra
    Limited charged Rs.5,18,50,049/­. Thus, there was a difference
    in the rate to the tune of Rs.3,57,46,049/­. It is submitted that
    therefore there was a fraudulent and dishonest intention from
    the initiation of the transaction between the parties.
    4.8 It is further submitted by the learned counsel appearing on
    behalf of the respondents that thus the supply of sub­standard
    material at three times higher rates and the prior knowledge of
    the sub­standard quality of the material shows that the
    appellants had criminal intent to supply sub­standard quality
    material at a higher price to the DOP/Government of Arunachal
    Pradesh. It is submitted that therefore the appellants are rightly
    chargesheeted for the offence under Section 420 read with 120B
    IPC.
    16
    4.9 It is further submitted by the learned counsel appearing on
    behalf of the respondents that appellant no.1 is the Managing
    Director and appellant no.2 is the Director of the company – M/s
    SPML Infra Limited and therefore being Managing
    Director/Director of the company, naturally they were in charge
    of the administration and management of the company and
    therefore are vicariously liable. It is submitted that the aforesaid
    has been elaborately considered by the High Court in the
    impugned judgment and order. It is submitted that even
    otherwise as rightly observed by the High Court at this stage it is
    not possible to segregate only the appellants case.
    4.10 It is further submitted by the learned counsel appearing on
    behalf of the respondents that whatever submissions are made
    on behalf of the appellants are their defences which are required
    to be considered at the time of the trial. It is submitted that after
    thorough investigation, the investigating agency has filed the
    chargesheet against the appellants and other accused for the
    offences under Section 420 read with 120B IPC and more
    particularly with respect to criminal conspiracy, the High Court
    has rightly refused to quash the criminal proceedings in exercise
    of powers under Section 482 Cr.P.C., which powers are required
    17
    to be exercised sparingly and in exceptional cases, as observed by
    this Court in catena of decisions.
    4.11 Making the above submissions and relying upon the
    decision of this Court in the case of Sau. Kamal Shivaji
    Pokarnekar v. The State of Maharashtra and others, reported in
    2019 SCC Online SC 182 (Criminal Appeal No.255 of 2019
    decided on 12.02.2019), it is prayed to dismiss the present
    appeal.
  5. We have heard the learned counsel for the respective parties
    at length. We have also gone through and considered the
    averments and allegations in the FIR as well as the charge sheet
    filed by the investigating agency.
    5.1 At the outset, it is required to be noted that the chargesheet
    has been filed against the appellants for the offences under
    Section 420 read with Section 120B of the IPC. By the impugned
    judgment and order, the High Court has refused to quash the FIR
    and the chargesheet against the appellants in exercise of powers
    under Section 482 Cr.P.C.. Therefore, the short question which
    is posed for the consideration of this Court is, whether a case has
    been made out to quash the FIR and the chargesheet against the
    18
    appellants for the offences under Section 420 read with Section
    120B of the IPC, in exercise of powers under Section 482 Cr.P.C?
  6. Considering the averments and the allegations in the FIR
    and even the chargesheet the main allegations are that the
    company, namely, M/s SPML Infra Limited supplied substandard materials – runner bucket turbines and the supplied
    runner bucket turbines were not as per the technical
    specifications. It is also required to be noted that there is no
    FIR/complaint/chargesheet against the company – M/s SPML
    Infra Limited and the appellants are arrayed as an accused as
    Managing Director and Director of M/s SPML Infra Limited
    respectively. From a bare reading of the FIR and even the
    chargesheet, there are no allegations that there was a fraudulent
    and dishonest intention to cheat the government from the very
    beginning of the transaction. Even there are no specific
    allegations and averments in the FIR/chargesheet that the
    appellants were in­charge of administration and management of
    the company and thereby vicariously liable. In light of the
    aforesaid, the prayer of the appellants to quash the criminal
    proceedings against the appellants for the offence under Section
    420 IPC is required to be considered.
    19
  7. While considering the prayer of the appellants to quash the
    impugned criminal proceedings against the appellants for the
    offence under Section 420 IPC, few decisions of this Court on
    exercise of powers under Section 482 Cr.P.C. are required to be
    referred to.
    7.1 In the case of Bhajan Lal (supra), in paragraph 102, this
    Court has categorised the cases by way of illustration wherein
    the powers under Article 226 or the inherent powers under
    Section 482 Cr.P.C. could be exercised either to prevent the
    abuse of the process of any court or otherwise to secure the ends
    of justice. In paragraph 102, it is observed and held as under:
    “102. In the backdrop of the interpretation of the various
    relevant provisions of the Code under Chapter XIV and of the
    principles of law enunciated by this Court in a series of
    decisions relating to the exercise of the extraordinary power
    under Article 226 or the inherent powers under Section 482 of
    the Code which we have extracted and reproduced above, we
    give the following categories of cases by way of illustration
    wherein such power could be exercised either to prevent abuse
    of the process of any court or otherwise to secure the ends of
    justice, though it may not be possible to lay down any precise,
    clearly defined and sufficiently channelised and inflexible
    guidelines or rigid formulae and to give an exhaustive list of
    myriad kinds of cases wherein such power should be exercised.
    (1) Where the allegations made in the first information
    report or the complaint, even if they are taken at
    their face value and accepted in their entirety do
    not prima facie constitute any offence or make out
    a case against the accused.
    (2) Where the allegations in the first information report
    and other materials, if any, accompanying the FIR
    do not disclose a cognizable offence, justifying an
    investigation by police officers under Section 156(1)
    20
    of the Code except under an order of a Magistrate
    within the purview of Section 155(2) of the Code.
    (3) Where the uncontroverted allegations made in the
    FIR or complaint and the evidence collected in
    support of the same do not disclose the
    commission of any offence and make out a case
    against the accused.
    (4) Where, the allegations in the FIR do not constitute a
    cognizable offence but constitute only a noncognizable offence, no investigation is permitted by
    a police officer without an order of a Magistrate as
    contemplated under Section 155(2) of the Code.
    (5) Where the allegations made in the FIR or complaint
    are so absurd and inherently improbable on the
    basis of which no prudent person can ever reach a
    just conclusion that there is sufficient ground for
    proceeding against the accused.
    (6) Where there is an express legal bar engrafted in any
    of the provisions of the Code or the concerned Act
    (under which a criminal proceeding is instituted) to
    the institution and continuance of the proceedings
    and/or where there is a specific provision in the
    Code or the concerned Act, providing efficacious
    redress for the grievance of the aggrieved party.
    (7) Where a criminal proceeding is manifestly attended
    with mala fide and/or where the proceeding is
    maliciously instituted with an ulterior motive for
    wreaking vengeance on the accused and with a
    view to spite him due to private and personal
    grudge.”
    The aforesaid decision of this Court has been followed
    subsequently by this Court in catena of decisions.
    7.2 In the case of Vesa Holdings Private Limited (supra), it is
    observed and held by this Court that every breach of contract
    would not give rise to an offence of cheating and only in those
    cases breach of contract would amount to cheating where there
    was any deception played at the very inception. It is further
    21
    observed and held that for the purpose of constituting an offence
    of cheating, the complainant is required to show that the accused
    had fraudulent or dishonest intention at the time of making
    promise or representation. It is further observed and held that
    even in a case where allegations are made in regard to failure on
    the part of the accused to keep his promise, in the absence of a
    culpable intention at the time of making initial promise being
    absent, no offence under Section 420 IPC can be said to have
    been made out. It is further observed and held that the real test
    is whether the allegations in the complaint disclose the criminal
    offence of cheating or not.
    7.3 In the case of Hira Lal Hari Lal Bhagwati (supra), in
    paragraph 40, this Court has observed and held as under:
    “40. It is settled law, by a catena of decisions, that for
    establishing the offence of cheating, the complainant is required
    to show that the accused had fraudulent or dishonest intention
    at the time of making promise or representation. From his
    making failure to keep promise subsequently, such a culpable
    intention right at the beginning that is at the time when the
    promise was made cannot be presumed. It is seen from the
    records that the exemption certificate contained necessary
    conditions which were required to be complied with after
    importation of the machine. Since the GCS could not comply
    with it , therefore, it rightly paid the necessary duties
    without taking advantage of the exemption certificate. The
    conduct of the GCS clearly indicates that there was no
    fraudulent or dishonest intention of either the GCS or the
    appellants in their capacities as office­bearers right at the time
    of making application for exemption. As there was absence of
    dishonest and fraudulent intention, the question of committing
    22
    offence under Section 420 of the Penal Code, 1860 does not
    arise. We have read the charge­sheet as a whole. There is no
    allegation in the first information report or the charge­sheet
    indicating expressly or impliedly any intentional deception or
    fraudulent/dishonest intention on the part of the appellants
    right from the time of making the promise or misrepresentation.
    Nothing has been said on what those misrepresentations were
    and how the Ministry of Health was duped and what were the
    roles played by the appellants in the alleged offence. The
    appellants, in our view, could not be attributed any mens rea of
    evasion of customs duty or cheating the Government of India as
    the Cancer Society is a non­profit organisation and, therefore,
    the allegations against the appellants levelled by the
    prosecution are unsustainable. The Kar Vivad Samadhan
    Scheme certificate along with Duncan [(1996) 5 SCC 591 : 1996
    SCC (Cri) 1045] and Sushila Rani [(2002) 2 SCC 697 : (2002) 2
    Apex Decisions] judgments clearly absolve the appellants herein
    from all charges and allegations under any other law once the
    duty so demanded has been paid and the alleged offence has
    been compounded. It is also settled law that once a civil case
    has been compromised and the alleged offence has been
    compounded, to continue the criminal proceedings thereafter
    would be an abuse of the judicial process.”
    It is further observed and held by this Court in the aforesaid
    decision that to bring home the charge of conspiracy within the
    ambit of Section 120B of the IPC, it is necessary to establish that
    there was an agreement between the parties for doing an
    unlawful act. It is further observed and held that it is difficult to
    establish conspiracy by direct evidence.
    7.4 In the case of V.Y Jose (supra), it is observed and held by
    this Court that one of the ingredients of cheating is the existence
    of fraudulent or dishonest intention of making initial promise or
    existence thereof, from the very beginning of formation of
    23
    contract. It is further observed and held that it is one thing to
    say that a case has been made out for trial and as such criminal
    proceedings should not be quashed, but it is another thing to say
    that a person should undergo a criminal trial despite the fact
    that no case has been made out at all.
    7.5 In the case of Sharad Kumar Sanghi (supra), this Court had
    an occasion to consider the initiation of criminal proceedings
    against the Managing Director or any officer of a company where
    company had not been arrayed as a party to the complaint. In
    the aforesaid decision, it is observed and held by this Court that
    in the absence of specific allegation against the Managing
    Director of vicarious liability, in the absence of company being
    arrayed as a party, no proceedings can be initiated against such
    Managing Director or any officer of a company. It is further
    observed and held that when a complainant intends to rope in a
    Managing Director or any officer of a company, it is essential to
    make requisite allegation to constitute the vicarious liability.
    7.6 In the case of Joseph Salvaraja A v. State of Gujarat (2011)
    7 SCC 59, it is observed and held by this Court that when
    dispute between the parties constitute only a civil wrong and not
    a criminal wrong, the courts would not permit a person to be
    24
    harassed although no case for taking cognizance of the offence
    has been made out.
    7.7 In the case of Inder Mohan Goswami v. State of Uttaranchal,
    (2007) 12 SCC 1, it is observed and held by this Court that the
    Court must ensure that criminal prosecution is not used as an
    instrument of harassment or for seeking private vendetta or with
    an ulterior motive to pressurise the accused. It is further
    observed and held by this Court that it is neither possible nor
    desirable to law down an inflexible rule that would govern the
    exercise of inherent jurisdiction. It is further observed and held
    that inherent jurisdiction of the High Courts under Section 482
    Cr.P.C. though wide has to be exercised sparingly, carefully and
    with caution and only when it is justified by the tests specifically
    laid down in the statute itself.
  8. Applying the law laid down by this Court in the aforesaid
    decisions to the facts of the case on hand, we are of the opinion
    that this is a fit case to exercise powers under Section 482
    Cr.P.C. and to quash the impugned criminal proceedings.
    8.1. As observed hereinabove, the chargesheet has been filed
    against the appellants for the offences under Section 420 read
    with Section 120B of the IPC. However, it is required to be noted
    25
    that there are no specific allegations and averments in the FIR
    and/or even in the chargesheet that fraudulent and dishonest
    intention of the accused was from the very beginning of the
    transaction. It is also required to be noted that contract between
    M/s SPML Infra Limited and the Government was for supply and
    commissioning of the Nurang Hydel Power Project including three
    power generating units. The appellants purchased the turbines
    for the project from another manufacturer. The company used
    the said turbines in the power project. The contract was in the
    year 1993. Thereafter in the year 1996 the project was
    commissioned. In the year 1997, the Department of Power
    issued a certificate certifying satisfaction over the execution of
    the project. Even the defect liability period ended/expired in
    January, 1998. In the year 2000, there was some defect found
    with respect to three turbines. Immediately, the turbines were
    replaced. The power project started functioning right from the
    very beginning – 1996 onwards. If the intention of the
    company/appellants was to cheat the Government of Arunachal
    Pradesh, they would not have replaced the turbines which were
    found to be defective. In any case, there are no specific
    allegations and averments in the complaint that the accused had
    26
    fraudulent or dishonest intention at the time of entering into the
    contract. Therefore, applying the law laid down by this Court in
    the aforesaid decisions, it cannot be said that even a prima facie
    case for the offence under Section 420 IPC has been made out.
    8.2. It is also required to be noted that the main allegations can
    be said to be against the company. The company has not been
    made a party. The allegations are restricted to the Managing
    Director and the Director of the company respectively. There are
    no specific allegations against the Managing Director or even the
    Director. There are no allegations to constitute the vicarious
    liability. In the case of Maksud Saiyed v. State of Gujarat (2008)
    5 SCC 668, it is observed and held by this Court that the penal
    code does not contain any provision for attaching vicarious
    liability on the part of the Managing Director or the Directors of
    the company when the accused is the company. It is further
    observed and held that the vicarious liability of the Managing
    Director and Director would arise provided any provision exists in
    that behalf in the statute. It is further observed that statute
    indisputably must contain provision fixing such vicarious
    liabilities. It is further observed that even for the said purpose, it
    is obligatory on the part of the complainant to make requisite
    27
    allegations which would attract the provisions constituting
    vicarious liability. In the present case, there are no such specific
    allegations against the appellants being Managing Director or the
    Director of the company respectively. Under the circumstances
    also, the impugned criminal proceedings are required to be
    quashed and set aside.
    8.3 At this stage, it is required to be noted that though the FIR
    was filed in the year 2000 and the chargesheet was
    submitted/filed as far back as on 28.5.2004, the appellants were
    served with the summons only in the year 2017, i.e., after a
    period of approximately 13 years from the date of filing the
    chargesheet. Under the circumstances, the High Court has
    committed a grave error in not quashing and setting aside the
    impugned criminal proceedings and has erred in not exercising
    the jurisdiction vested in it under Section 482 Cr.P.C.
  9. In view of the above and for the reasons stated above, we
    are of the firm opinion that this is a fit case to exercise the
    powers under Section 482 Cr.P.C. and to quash the criminal
    proceedings against the appellants for the offence under Section
    420 read with Section 120B of the IPC. To continue the criminal
    proceedings against the appellants would be undue harassment
    28
    to them. As observed hereinabove, no prima facie case for the
    offence under Section 420 of the IPC is made out.
  10. The instant appeal is accordingly allowed. The impugned
    judgment and order passed by the High Court is set aside. The
    impugned FIR and the chargesheet filed against the appellants
    for the offence under Section 420 IPC are hereby quashed.
    However, it is specifically observed and made clear that the
    impugned criminal proceedings are quashed and set aside only
    against the appellants and not against any other accused against
    whom the charge sheet had been filed and the proceedings shall
    continue against the other accused, in accordance with law.
    ……………………………….J.
    [ASHOK BHUSHAN]
    NEW DELHI; ……………………………….J.
    JANUARY 31, 2020. [M.R. SHAH]
    29