Economic Offences Demand Scrutiny: Apex Court Revives Cheating Case Against Rajasthan Firm.


23 April 2025 Criminal Appeals & Suspension of Sentence >> Criminal Law   |   FIR >> Criminal Law  

The Supreme Court of India has strongly criticized the Rajasthan High Court's decision to quash a First Information Report (FIR) alleging fraud and cheating against a company, M/s EMGEE Cables and Communications Limited, and its directors. The apex court, in a recent judgment, overturned the High Court's order, emphasizing that economic offenses warrant thorough investigation and should not be dismissed lightly, especially when there are indications of deceitful intent.

The case originated from a complaint filed by M/s BLS Polymers Ltd., a supplier of plastic compounds, through its authorized representative Dinesh Sharma. BLS Polymers alleged that EMGEE Cables, engaged in manufacturing copper alloys and wires, and its directors, including Respondent No. 2, had defrauded them of Rs. 1.21 crore. The complaint detailed how EMGEE Cables, through its representatives, painted a favorable financial picture, leading BLS Polymers to supply goods on credit between 2012 and 2017.


 

 

However, payments became irregular, and despite repeated reminders, the dues were not cleared. Eventually, a director of EMGEE Cables issued three cheques, the first of which was dishonored. The situation escalated when the complainant found EMGEE Cables' office closed and received further false promises regarding payment. This prompted the filing of FIR No. 218/2018 under Sections 420 (cheating), 406 (criminal breach of trust), and 120B (criminal conspiracy) of the Indian Penal Code (IPC).

Interestingly, while the complainant pursued this action, Dena Bank also filed a separate FIR against EMGEE Cables and its directors, alleging significant financial irregularities, including siphoning off funds and fraudulent transfer of assets.

The Rajasthan High Court, while exercising its inherent powers under Section 482 of the Code of Criminal Procedure (CrPC), quashed the FIR filed by BLS Polymers. The High Court reasoned that the dispute was primarily civil in nature, arising from long-standing business transactions, and the criminal proceedings were merely an attempt to pressure EMGEE Cables for payment. The High Court also noted ongoing bankruptcy proceedings and Enforcement Directorate (ED) actions related to alleged shell company transactions by the accused, suggesting the initial business dealings should not be questioned.

However, the Supreme Court bench, hearing the appeal by BLS Polymers, took a strong exception to this reasoning. Hon'ble Justice observed that the High Court had committed a "serious error" in quashing the FIR based on the premise of prior business dealings and the notion of "arm-twisting."

The apex court highlighted that the very allegation of the respondent company establishing "dummy/shell companies" and circulating monetary transactions through them was a significant indicator of a potential "intention of deceit." The court stated that the High Court failed to appreciate this crucial aspect and wrongly gave undue weightage to the existence of earlier transactions.

Referring to the landmark case of State of Haryana v. Bhajan Lal, the Supreme Court reiterated that the inherent powers of the High Court under Section 482 CrPC should be used "very sparingly and only in exceptional circumstances" to prevent abuse of the process or secure justice. The court found that the present case did not fall under such exceptional circumstances warranting the quashing of the FIR, especially at the initial investigation stage.

Furthermore, the Supreme Court expressed concern over a misleading statement made by Respondent No. 3 before the High Court regarding his resignation. While he had resigned as a director, material presented before the apex court revealed he continued to act as the technical director, even signing purchase orders after his purported full resignation. This discrepancy further underscored the need for a thorough investigation.

The Supreme Court also cited the case of Parbatbhai Ahir v. State of Gujrat, emphasizing that economic offenses are distinct from mere private disputes and have wider ramifications for the financial health of the country. The court asserted that such offenses should not be viewed lightly, and the High Court should be hesitant to quash proceedings where financial fraud or misdemeanors are alleged.

In its final order, the Supreme Court allowed the appeals, setting aside the Rajasthan High Court's judgment. The apex court clarified that its observations were prima facie and directed the trial court to proceed with the case strictly in accordance with the law, uninfluenced by the Supreme Court's preliminary findings. This judgment underscores the Supreme Court's firm stance against the premature quashing of FIRs in economic offense cases, emphasizing the need for thorough investigation to unearth the truth and protect the financial system.


Section 482., Code of Criminal Procedure - 1973  

Code of Criminal Procedure, 1973  

Section 120B., Indian Penal Code - 1860  

Section 406., Indian Penal Code - 1860  

Section 420., Indian Penal Code - 1860  

Indian Penal Code, 1860