Supreme Court Revives Criminal Proceedings in Alleged Multi-Million Rupee Fraud Case Against Company CFO.


08 April 2025 Criminal Appeals & Suspension of Sentence >> Criminal Law  

The Supreme Court of India has overturned a decision by the High Court of Karnataka, thereby reinstating criminal proceedings against Mr. Moon June Seok, the former Chief Financial Officer (CFO) of Daechang Seat Automotive Ltd. The apex court's order, delivered on [Insert Date of Judgment if available, otherwise use "a recent date"], sets aside the High Court's judgment dated February 19, 2024, which had quashed the criminal charges and the chargesheet filed against Mr. Seok in connection with an alleged multi-million rupee fraud.

The case originated from a complaint filed by Daechang Seat Automotive Ltd., a company manufacturing seat-related equipment for KIA cars. The company alleged that its then financial advisors, M/s. N.K. Associates, informed them of a purported erroneous claim of input tax credit amounting to a substantial sum of Rs. 9,73,96,225.80. Following this, N.K. Associates allegedly advised the company to transfer tax amounts to them for onward payment to the Goods and Services Tax (GST) Department, a practice they claimed was standard in India.


 

 

Relying on this representation, the complainant-Company transferred a total of Rs. 10,18,54,894.80 from its Indian Overseas Bank account to N.K. Associates and another entity, Terminus. However, subsequent internal inquiries initiated in October 2022 by the company's shareholders in Korea revealed startling discrepancies. The investigation uncovered that the GST portal contained all payment information, the actual GST due was significantly lower (Rs. 7,26,25,840), this amount had already been paid by adjusting available input tax credit, and the amounts transferred to N.K. Associates and Terminus were never remitted to the GST Department.

Further investigation revealed a close connection between N.K. Associates and Terminus, including a shared registered address and overlapping personnel. The company alleged that Mr. Nikhil K.S. of N.K. Associates and Mr. Ritesh Mergu (initially with N.K. Associates and later an employee of Daechang Seat Automotive), along with the directors of Terminus, Ms. Anushka Singh and Mr. Vinay Babu Venugopal, had conspired to defraud the company.

Based on these findings, an FIR was registered on December 11, 2022, at Sanjay Nagar Police Station, Bengaluru, leading to a chargesheet being filed against several individuals, including Mr. Moon June Seok (Accused No. 5). Mr. Seok, relying on several grounds including the lack of direct evidence and the argument that he was merely a forwarding agent for financial approvals, approached the High Court seeking to quash the proceedings against him. The High Court subsequently allowed his petition.

However, the Supreme Court, after hearing the arguments from both sides, found the High Court's decision unwarranted at this stage. The apex court emphasized that the inherent powers under Section 482 of the Code of Criminal Procedure should be exercised sparingly and not to conduct a "mini trial" to assess the reliability of the chargesheet allegations. The court cited several precedents, including State of Haryana v. Bhajan Lal, Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra, and others, which outline the limited circumstances under which criminal proceedings can be quashed.

Crucially, the Supreme Court noted inconsistencies in the High Court's reasoning, particularly regarding the reliance on the statement of a co-accused. The apex court pointed out that Mr. Seok's own statement recorded during the investigation corroborated certain aspects of the allegations against him, specifically the receipt of a substantial sum of money (Rs. 1.8 crore) from the principal accused, Mr. Nikhil Kumar Singh. The court extracted portions of both their statements highlighting this overlap.

Furthermore, the Supreme Court found it noteworthy that Mr. Seok, as the CFO, had allegedly facilitated the appointment of another accused, Mr. Ritesh Mergu, and that the informal nature of their financial dealings raised questions. The court stated that while Mr. Seok would have the opportunity to prove his innocence during the trial, it was not appropriate to conclude at this preliminary stage that there was no evidence against him, especially considering the significant amount of money involved.

The Supreme Court underscored the responsibility of the rule of law to protect the investments of foreign investors and ensure that individuals accused of financial impropriety are duly prosecuted while also upholding the principle of "innocent until proven guilty."

Consequently, the Supreme Court allowed the appeal, set aside the High Court's judgment, and revived the criminal proceedings against Mr. Moon June Seok before the III Additional Chief Metropolitan Magistrate, Bengaluru. The parties have been directed to appear before the said court on April 16, 2025.

This order underscores the Supreme Court's reluctance to interfere with ongoing criminal investigations and trials at a nascent stage, particularly in cases involving significant financial implications and allegations of fraud and conspiracy. The matter will now proceed before the trial court where the evidence will be examined in detail to determine the guilt or innocence of the accused.