Supreme Court Revives Criminal Proceedings Over Alleged GST Fraud, Restores Chargesheet Against Accused CFO

A two-judge Bench of Justices Sanjay Karol and Ahsanuddin Amanullah heard an appeal by Daechang Seat Automotive Pvt. Ltd. against the Karnataka High Court’s quashing of criminal proceedings and the chargesheet in respect of an alleged misappropriation of GST payments. The appeal challenged the High Court’s exercise of its inherent powers under Section 482 Cr.P.C. to quash the FIR and chargesheet registered for offences under Sections 406, 408, 409, 418, 420 and 120B read with 34 IPC.

The Court allowed the appeal, set aside the High Court order dated 19 February 2024 and restored the proceedings in C.C. No. 8373 of 2023 to the III Additional Chief Metropolitan Magistrate, Bengaluru. The Bench held that prima facie material existed against Respondent No.1 (the company’s former CFO) and that the High Court had impermissibly conducted a mini‑trial while exercising Section 482 powers. The Court relied on settled principles governing the exercise of inherent jurisdiction, noting that such power should be sparingly used but is available where the allegations, even if accepted at face value, do not prima facie constitute an offence. The Court, in its reasoning, observed: “102… (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 … (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 … (4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence … (5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable … (6) Where there is an express legal bar … (7) Where a criminal proceeding is manifestly attended with mala fide …” The Bench further observed that the accused’s own statement furnished corroboration of the co-accused’s account and, given the large sums involved, trial was the appropriate forum to determine guilt, stressing the balance between protecting investors and the maxim “innocent till proven guilty.”

Background The dispute arose from a complaint by the Company alleging that its financial advisors and certain employees caused it to pay Rs.10,18,54,894.80 by way of purported GST remittances which were not credited to the tax authorities. The Company alleged that sums were routed through entities and individuals, including a firm called N.K. Associates and an entity named Terminus, and that funds were misappropriated. An FIR was registered on 11 December 2022 (Crime No.287 of 2022) and a chargesheet was filed on 18 March 2023. Respondent No.1, the ex-CFO, faced charges including breach of trust and criminal conspiracy. The High Court, exercising Section 482 Cr.P.C., quashed proceedings against the CFO on the ground that there was no prima facie material linking him to the misappropriation, that he was only a forwarding agent, and that reliance on co‑accused statements was impermissible.

Before the Supreme Court, the Company submitted that the High Court erred by conducting a mini-trial and by disregarding corroborative material, including the accuseds’ own statements and recovery of cash. The CFO’s counsel relied on settled law that a voluntary statement of a co-accused could not be the sole basis for conviction and emphasised lack of direct recovery and delay in lodging the FIR. The Supreme Court examined both the confessions and the contemporaneous statements and held that the CFO’s own admission of receipt of cash, together with corroborative material, created prima facie evidence sufficient to proceed to trial. The Court restored the proceedings and directed the parties to appear before the trial court on 16 April 2025. The judgment followed and applied the principles in Bhajan Lal and subsequent authorities on the limited scope of interference under Section 482 Cr.P.C.

Case Details: Case No.: 2025 INSC 474 (Arising out of SLP(Crl.) No. 6917 of 2024) Case Title: Hyeoksoo Son, Authorised Representative for Daechang Seat Automotive Pvt. Ltd. v. Moon June Seok & Anr. Appearances: For the Petitioner(s): Mr. Siddharth Luthra, Senior Advocate For the Respondent(s): Mr. Rajiv Shakdher, Senior Advocate (for Respondent No.1); Mr. V.N. Raghupathy, Advocate (for the State)