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Sushil Sethi and Another v. The State of Arunachal Pradesh and Others

Criminal Appeal · 2020 INSC 118Decided 31 Jan 2020
Criminal Appeal No. 125 of 2020
Justice Ashok Bhushan · Justice M.R. Shah

Background

The appellants were the Managing Director and a Director of a company (M/s SPML Infra Limited, formerly Subhas Project Marketing Limited) that had contracted with the Government of Arunachal Pradesh in 1993 to build the Nurang Hydel Power Project. Years after the project was commissioned and its defect-liability period had expired, a dispute arose over unpaid maintenance charges, and the Government filed a criminal complaint alleging the company had supplied sub-standard turbine components in violation of contract specifications. A chargesheet for cheating and conspiracy was filed in 2004, but the appellants only learned of it in 2017, after which the High Court refused to quash the proceedings against them.

Decision Breakdown

The Supreme Court held that for an offence of cheating under Section 420 IPC, there must be specific allegations of fraudulent or dishonest intention existing from the very start of the transaction: a mere breach of contract, discovered years later, is not enough. The Court noted the company had replaced the defective turbines once the problem was found, which was inconsistent with any intention to cheat from the outset, and that the company itself (as opposed to its individual directors) had never even been made an accused, with no specific allegations showing the appellants were personally in charge of the company's affairs to justify vicarious liability. Applying its settled precedents on when courts can quash criminal proceedings to prevent abuse of process, the Court found no prima facie case was made out and that continuing the 20-year-old prosecution would amount to undue harassment. The appeal was allowed, the High Court's order was set aside, and the FIR and chargesheet were quashed as against these two appellants (while proceedings continued against other co-accused).

Lesson Learnt

A commercial or contractual dispute, such as an allegation of supplying sub-standard goods, does not automatically become a criminal case of cheating; criminal liability requires proof of dishonest intent right from the start of the deal, and company directors cannot be prosecuted merely by virtue of their position without specific allegations connecting them personally to the offence.

Official source (sci.gov.in)View Judgment (PDF)

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