VINOD KUMAR vs STATE OF HP AND ANOTHER
- Court
- High Court of Himachal Pradesh
2026:HHC:36684
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
High Court of H.P.
Cr.MMO No.102 of 2025
Judgment reserved on: 18.08.2026
Date of Decision: 26.08.2026
_______________________________________________________
Vinod Kumar …….Petitioner
Versus
State of H.P. & another …..Respondents
_______________________________________________________
Coram:
Hon’ble Mr. Justice Sandeep Sharma, Judge.
1 Yes.
Whether approved for reporting?
For the petitioner: Mr. B.S.Chauhan, Senior Advocate with Ms.
Aditi Rana, Advocate.
For the Respondents : Mr. Rajan Kahol & Mr. Vishal Panwar,
Additional Advocates General with Mr. Ravi
Chauhan Deputy Advocate General, for the
respondent-State.
Mr. Karan Singh Kanwar, Senior Advocate
with Ms. Upasana, Advocate, for respondent
No.2.
_______________________________________________________
Sandeep Sharma, Judge (oral):
Through instant petition filed under Section 528 of the
Bharatiya Nagrik Suraksha Sanhita, 2023, prayer has been made on
behalf of the petitioner for quashing of FIR No. 0059/2022, dated
02.06.2022, under Sections 420, 406, and 120-B of IPC
(corresponding to Sections 318(4), 316(2) read with Section 61(2) of
the Bharatiya Nyaya Sanhita, 2023 (BNS), registered at Police
Station, Kala Amb, District Sirmaur, Himachal Pradesh as well as
1
Whether the reporters of the local papers may be allowed to see the judgment?
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consequent proceedings, if any, pending in the competent Court of
High Court of H.P.
law.
2. For having bird’s-eye view, relevant facts as emerge from
the pleadings adduced on record by the respective parties , are that
respondent No. 2 (hereinafter referred to as the 'complainant'),
who is one of the Director of the company, namely M/s Amba Shakti
Ispat Limited, a company engaged in the manufacturing of MS Billets,
TMT Bars, Angles and Channels at Plot No. 6 & 6-A, Industrial Area,
Phase-II, Trilokpur Road, Kala Amb, District Sirmaur, Himachal
Pradesh, approached the Superintendent of Police, District Sirmaur at
Nahan, seeking investigation into the alleged fabrication and use of
forged documents, bogus transactions, cheating and criminal
conspiracy, invoking Sections 420, 466, 467, 468, 471, read with
Section 120-B of the IPC. After conducting preliminary inquiry, FIR
sought to be quashed came to be registered at Police Station detailed
hereinabove, initially under Sections 420, 406, and 120-B of IPC
(corresponding to sections 318(4), 316(2) read with Section 61(2) of
the Bharatiya Nyaya Sanhita).
3. Complainant averred in the complaint that for
manufacturing the products, as detailed above, company requires MS
scrap (Melting Steel Scrap) as raw material and such scrap is
procured through agents engaged for the said purpose. Petitioner
(herein 'accused No. 1') Vinod Kumar, Proprietor of M/s GT Iron
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Store, New Delhi, was engaged as an agent for supplying the MS
High Court of H.P.
scrap to the complainant’s company. Aforesaid person entered into
agreements with the complainant’s company dated 01.04.2019
(retrospectively effective from 01.07.2017) and 01.01.2021 for
supplying MS Scrap either himself or through other firms/agencies to
be arranged and managed by him. Since complainant’s Company
required large quantities of scrap, petitioner/accused offered to
arrange supplies through various firms and agencies for a
commission of ₹50/- per metric ton. Under the agreement dated
01.01.2021, petitioner/accused disclosed that he would arrange
supplies through: M/s Mahesh Trading Company, M/s Rajshree
Trading Company, M/s Aggarwal Trading Company, M/s G.T. Iron
Store, M/s D.P. Trading Company, M/s Parwati Traders and M/s Jai
Mata Traders.
4. After his having entered into aforesaid agreement,
petitioner-accused introduced M/s Mahesh Trading Company through
its proprietor accused No. 2, Mohit Kumar Taneja and M/s Rajshree
Trading Company through its proprietor accused No. 3, Raja , as
suppliers of MS scrap to the company. Petitioner-accused assured
the company that the transactions and the supplying firm were
genuine and he would indemnify the company against any loss arising
from any default or irregularity. To establish the genuineness of the
transactions, petitioner-accused allegedly furnished KYC documents
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of the firms, their proprietors’ identity, residence proof including PAN
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and Aadhaar nos., address proofs including GST registration
certificates, cancelled cheques/bank statements, purchase invoices,
e-way bills, bilties, and other documents. The transactions were also
reflected in the complainant’s company’s GSTR-2A and GSTR-2B for
claiming Input Tax Credit (ITC) on supplied material invoices. On the
basis of aforesaid information and documents furnished by the
petitioner-accused, company made payments towards the cost of
material and IGST, amounting to Rs. ₹11, 03, 42,000/- to Accused
No. 2 and ₹10, 44, 00,000/- to Accused No. 3. The petitioner-accused
received a commission of approximately ₹6, 05,501/- in connection
with these transactions.
5. On 20.07.2021, a search/raid was conducted at the
premises of the complainant’s company by officers of the GST
Department. During the inspection, complainant came to know that
the transactions and tax invoices issued by M/s Mahesh Trading
Company and M/s Rajshree Trading Company were considered
bogus and illegal by the GST authorities. Complainant alleged in the
complaint that petitioner-accused, despite being responsible under
the agreement for indemnifying/compensating the company against
the liabilities, did not compensate it and instead retained the
commission recovered by him. Complainant also alleged that
petitioner supplied material to the company through firm which were
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never in existence and got illegal invoices generated from the said
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firm. Complainant also alleged that petitioner-accused subsequently
issued a demand notice for ₹1,22,08,204/-, comprising a principal
sum of ₹ 1,04,67,903 /- plus interest up to 15.02.2022 and instituted
proceedings before the National Company Law Tribunal (NCLT), New
Delhi. In the afore background, complainant asserted in the complaint
that accused Nos. 1 to 3, acting individually and/ or in conspiracy with
each other, had allegedly induced the complainant’s company to part
with substantial amounts on the basis of purportedly false and
fabricated documents and transactions, thereby causing financial loss
to the company and corresponding wrongful gain to the accused
persons. The complainant further alleged in the complaint that as a
consequence of the alleged irregular transactions, company was
required to deposit approximately Rs. 1.00 crore towards Input Tax
Credit (ITC) and was further subjected to a demand of ITC amounting
to Rs. 2.66 crores by the GST authorities. In the aforesaid
background, police, after having conducted the preliminary inquiry,
registered the FIR sought to be quashed. Petitioner has approached
this Court in the instant proceedings for quashing of the FIR on the
ground that the dispute inter se the parties is purely civil in nature and
that the invocation of criminal law, if permitted, would amount to an
abuse of the process of law.
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6. Pursuant to the notice issued in the instant proceedings,
High Court of H.P.
respondent No. 1 has filed the reply, enclosing therewith relevant
documents relating to the investigation. The facts as have been
noticed hereinabove have not been disputed rather stand admitted.
Prayer has been made on behalf of aforesaid respondent to dismiss
the petition on the ground that the petitioner/accused, in connivance
with other co-accused, created or facilitated transactions through
bogus and untraceable firms. GST invoices, e-way bills, and other
documents were fabricated and used to claim wrongful ITC, which
has been further confirmed through raids and inquiries conducted by
the Directorate General of GST Intelligence (DGGI) and hence case
clearly discloses fraudulent and criminal intent, not a mere contractual
dispute.
7. I have heard learned counsel representing the parties
and gone through the record carefully.
8. Before ascertaining the genuineness and correctness of
the submissions and counter-submissions having been made by the
learned counsel for the parties vis-à-vis prayer made in the instant
petition, this Court deems it necessary to discuss/elaborate upon the
scope and competence of this Court to quash the criminal
proceedings, while exercising power under Section 482 of Cr.PC (now
528 of BNSS).
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9. A three-Judge Bench of the Hon’ble Apex Court in case
High Court of H.P.
titled State of Karnataka v. L. Muniswamy and others , 1977 (2)
SCC 699, held that High Court while exercising power under Section
482 Cr.PC is entitled to quash the proceedings, if it comes to the
conclusion that allowing the proceeding to continue would be an
abuse of the process of the Court or that the ends of justice require
that the proceeding ought to be quashed.
10. Subsequently, in case titled State of Haryana and
others v. Bhajan Lal and others , 1992 Supp (1) SCC 335, the
Hon’ble Apex Court, while elaborately discussing the scope and
competence of High Court to quash criminal proceedings under
Section 482 Cr.PC laid down certain principles governing the
jurisdiction of High Court to exercise its power. After passing of
aforesaid judgment, issue with regard to exercise of power under
Section 482 Cr.PC, again came to be considered by the Hon’ble Apex
Court in case bearing Criminal Appeal No.577 of 2017 (arising out of
SLP (CrL.) No. 287 of 2017) titled Vineet Kumar and Ors. v. State of
U.P. and Anr. , wherein it has been held that saving of the High
Court’s inherent powers, both in civil and criminal matters, is designed
to achieve a salutary public purpose i.e. court proceedings ought not
be permitted to degenerate into a weapon of harassment or
persecution.
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11. The Hon’ble Apex Court in Prashant Bharti v. State
High Court of H.P.
(NCT of Delhi) , (2013) 9 SCC 293, relying upon its earlier judgment
titled as Rajiv Thapar and Ors v. Madan Lal Kapoor , (2013) 3 SCC
330, reiterated that High Court has inherent powers under Section
482 Cr.PC., to quash the proceedings against an accused, at the
stage of issuing process, or at the stage of committal, or even at the
stage of framing of charge, but such power must always be used with
caution, care and circumspection. In the aforesaid judgment, the
Hon’ble Apex Court concluded that while exercising its inherent
jurisdiction under Section 482 of the Cr.PC, Court exercising such
power must be fully satisfied that the material produced by the
accused is such, that would lead to the conclusion, that his/their
defence is based on sound, reasonable, and indubitable facts and the
material adduced on record itself overrule the veracity of the
allegations contained in the accusations levelled by the
prosecution/complainant. Besides above, the Hon’ble Apex Court
further held that material relied upon by the accused should be such,
as would persuade a reasonable person to dismiss and condemn the
actual basis of the accusations as false. In such a situation, the
judicial conscience of the High Court would persuade it to exercise its
power under Section 482 of the Cr.P.C. to quash such criminal
proceedings, for that would prevent abuse of process of the court, and
secure the ends of justice.
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12. It is quite apparent from the bare perusal of aforesaid
High Court of H.P.
judgments passed by the Hon’ble Apex Court from time to time that
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/her due to private and personal grudge, High Court while
exercising power under Section 482 Cr.PC can proceed to quash the
proceedings.
13. The Hon’ble Apex Court in case tilted Anand Kumar
Mohatta and Anr . v. State (Government of NCT of Delhi )
Department of Home and Anr, AIR 2019 SC 210, has held that abuse
of process caused by FIR stands aggravated if the FIR has taken the
form of a charge sheet after investigation and as such, the abuse of
law or miscarriage of justice can be rectified by the court while
exercising power under Section 482 Cr.PC. The relevant paras of the
judgment are as under:
16. Even otherwise it must be remembered that the provision
invoked by the accused before the High Court is Section 482
Cr. P.C and that this Court is hearing an appeal from an order
under Section 482 of Cr.P.C. Section 482 of Cr.P.C reads as
follows:-
“482. Saving of inherent power of the High Court.-
Nothing in this Code shall be deemed to limit or affect
the inherent powers of the High Court to make such
orders as may be necessary to give effect to any order
under this Code, or to prevent abuse of the process of
any Court or otherwise to secure the ends of justice.”
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17. There is nothing in the words of this Section which restricts
High Court of H.P.
the exercise of the power of the Court to prevent the abuse of
process of court or miscarriage of justice only to the stage of
the FIR. It is settled principle of law that the High court can
exercise jurisdiction under Section 482 of Cr.P.C even when
the discharge application is pending with the trial court ( G.
Sagar Suri and Anr. V. State of U.P. and Others, (2000) 2 SCC
636 (para 7), Umesh Kumar v. State of Andhra Pradesh and
Anr. (2013) 10 SCC 591 (para 20). Indeed, it would be a
travesty to hold that proceedings initiated against a person can
be interfered with at the stage of FIR but not if it has advanced,
and the allegations have materialized into a charge sheet. On
the contrary it could be said that the abuse of process caused
by FIR stands aggravated if the FIR has taken the form of a
charge sheet after investigation. The power is undoubtedly
conferred to prevent abuse of process of power of any court.”
14. The law relating to quashing of criminal cases was
explained by the Hon’ble Supreme Court in B.N. John v. State of
U.P., 2025 SCC OnLine SC 7 as under:-
“7. As far as the quashing of criminal cases is concerned, it is now more or
less well settled as regards the principles to be applied by the court. In this
regard, one may refer to the decision of this Court in State of Haryana v. Ch.
Bhajan Lal, 1992 Supp (1) SCC 335, wherein this Court has summarised
some of the principles under which FIR/complaints/criminal cases could be
quashed in the following words:
“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.
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(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) 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 non-cognizable 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 a private and personal grudge.” (emphasis added)
8. Of the aforesaid criteria, clause no. (1), (4) and (6) would be of
relevance to us in this case.
In clause (1) it has been mentioned that 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, then
the FIR or the complaint can be quashed.
As per clause (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 dated by
the Magistrate as contemplated under Section 155 (2) of the CrPC,
and in such a situation, the FIR can be quashed.
Similarly, as provided under clause (6), if there is an express legal bar
engrafted in any of the provisions of the CrPC or the concerned Act
under which the criminal proceedings are instituted, such proceedings
can be quashed.”
This position was reiterated in Ajay Malik v. State of Uttarakhand,
10.
2025 SCC OnLine SC 185, wherein it was observed:
High Court of H.P.
“8. It is well established that a High Court, in exercising its
extraordinary powers under Section 482 of the CrPC, may issue
orders to prevent the abuse of court processes or to secure the
ends of justice. These inherent powers are neither controlled
nor limited by any other statutory provision. However, given the
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broad and profound nature of this authority, the High Court
must exercise it sparingly. The conditions for invoking such
powers are embedded within Section 482 of the CrPC itself,
allowing the High Court to act only in cases of clear abuse of
process or where intervention is essential to uphold the ends of
justice.
9. It is in this backdrop that this Court, over the course of
several decades, has laid down the principles and guidelines
that High Courts must follow before quashing criminal
proceedings at the threshold, thereby pre-empting the
Prosecution from building its case before the Trial Court. The
grounds for quashing, inter alia, contemplate the following
situations : (i) the criminal complaint has been filed with mala
fides; (ii) the FIR represents an abuse of the legal process; (iii)
no prima facie offence is made out; (iv) the dispute is civil in
nature; (v.) the complaint contains vague and omnibus
allegations; and (vi) the parties are willing to settle and
compound the dispute amicably (State of Haryana v. Bhajan
Lal, 1992 Supp (1) SCC 335).”
High Court of H.P.
15. Aforesaid law, clearly stipulates that court can exercise
power under Section 482 of the Code of Criminal Procedure (now
Section 528 of BNSS), to quash criminal proceedings, in cases,
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.
16. Now being guided by the aforesaid proposition of law laid
down by the Hon’ble Apex Court, this Court would make an endeavor
to examine and consider the prayer made in the instant petition vis-à-
vis factual matrix of the case.
17. In nutshell, case of the petitioner, as has been projected
in the petition and further canvassed by Mr. B.S.Chauhan, learned
Senior Advocate, duly assisted by Ms. Aditi Rana, Advocate, is that
dispute, if any, inter se petitioner and respondent No. 2 is to be
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governed by the terms and conditions of the agreements, which
High Court of H.P.
cannot be stretched to the extent to harass either of the parties by
lodging an FIR. Mr. Chauhan, further argued that FIR, sought to be
quashed, is primarily a civil dispute and has no criminal element
against the petitioner and the entire criminal proceeding is nothing but
an abuse of the process of law and as such, this is a fit case where
this Court, while exercising powers under Section 528 of BNSS, can
proceed to quash the FIR. He submitted that question of cheating the
respondent No. 2 does not arise because agreements itself are
complete documents which can be implemented by filing petition
before the competent Court of law. He further submitted that no
evidence with criminal element against the petitioner has been
collected/ recorded owing to the fact that the present dispute is to be
governed by the agreements which speaks in volume qua the fact that
the dispute is essentially of civil nature. He submitted that as per
agreement dated 01.07.2017, Clause 7 specifically deals with
statutory liability of the parties and agreement dated 01.04.2019,
Clause 8 provides for indemnification of principal party. Mr. Chauhan
submitted that since in terms of aforesaid agreements, petitioner-
accused is under an obligation to indemnify the company qua the
loss, if any, suffered on account of non-deposit of GST, petitioner-
accused is liable to indemnify the company, but certainly he cannot be
pressurized by invoking criminal proceedings, rather for that purpose
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appropriate remedy is to file civil suit before a competent Court of law.
High Court of H.P.
Mr. Chauhan submitted that the allegations in the FIR, even if taken at
their face value, do not disclose the essential ingredients of the
offence of cheating against the petitioner. The mere existence of a
contractual dispute cannot constitute the offence of cheating. He
further submitted that extraordinary delay in completion of
investigation and presentation of the challan cannot be attributed to
the petitioner, rather petitioner has consistently cooperated with the
investigation and has appeared before the Investigating Officer
whenever required by the concerned Investigating Officer. He
submitted that normally challan is to be filed within 90 days, however,
in the present case, despite co-operation, no challan has been filed till
date. The continued pendency of criminal proceedings without any
conclusion of the investigation is causing serious prejudice and
harassment to the petitioner and as such, prayer made on his behalf
for quashment of FIR deserves to be allowed.
18. While specifically referring Clause 7 and 8 of agreements
dated 01.07.0217 and 01.04.2019, which specifically deals with the
statutory liability of the parties for indemnifications of principal party,
Mr. Chauhan, submitted that respondent No.2 cannot now circumvent
the agreed contractual mechanism by setting the criminal law in
motion against the petitioner merely to exert pressure upon him. In
support of his aforesaid submissions, he placed reliance upon the
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recent judgment passed by Hon’ble Apex Court in case titled
High Court of H.P.
Vandana Jain & others vs. The State of Uttar Pradesh & others ,
Criminal Appeal No.1127 of 2026.
19. To the contrary, Mr. Rajan Kahol, learned Additional
Advocate General representing the respondent-State and Mr. Karan
Singh Kanwar, learned Senior Advocate, duly assisted by Ms.
Upasana, Advocate representing respondent No. 2, vehemently
argued that petitioner has attempted to dilute serious allegations
leveled against him, which pertains to a conspiracy to cheat the
complainant’s company by supplying MS Scrap through fictitious and
non-existent firms, thereby causing wrongful loss to the complainant’s
company and wrongful gain to the petitioner and other co-accused
persons. Above named counsel further argued that during the course
of the investigation, it has emerged that petitioner, in connivance with
other accused persons, had created and fabricated financial
transactions through bogus and untraceable Firms. GST invoices, e-
way bills, and related documents were fabricated and utilized for
claiming wrongful Input Tax Credit (ITC) and these circumstances
came to light during raids, inquiries and verifications conducted by the
Directorate General of GST Intelligence (DGGI). Thus, the allegations
disclose fraudulent and criminal intent and cannot be characterized as
a mere contractual or civil dispute. They further submitted that
existence of indemnity clauses in the agreements does not bar or
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preclude criminal prosecution where the allegations disclose the
High Court of H.P.
commission of cognizable offences. They submitted that the
allegations regarding forged documents, fake KYC documents,
fraudulent GST registrations and misrepresentations constitute
criminal acts. Hence, a civil agreement cannot be utilized as a shield
to evade criminal liability arising from acts of fraud, cheating, forgery,
or conspiracy. They submitted that investigation has revealed a well-
orchestrated conspiracy to defraud the company through forged
documentation and misrepresentation and as such, contention raised
by learned Senior Counsel for the petitioner that there is no criminal
element in the allegations deserves outright rejection. They further
submitted that the reliance placed by the petitioner upon Clauses 7
and 8 of the agreements is wholly misconceived, rather, said clauses
themselves contemplate and fasten liability upon the petitioner in the
event of bogus transactions, non-existent entities, or other
irregularities. Hence, the conduct of the petitioner requires
investigation and cannot be examined merely as a contractual dispute
at the stage of consideration of the petition for quashing.
20. It is admitted case of the parties that petitioner herein
Vinod Kumar, proprietor of M/s GT Iron Store, was engaged as an
agent by the company for supplying MS scrap. It is not in dispute that
petitioner entered into agreements with the company dated
01.04.2019 and 01.01.2021 for supplying MS scrap, either himself or
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through other firms/agencies to be arranged and managed by him. It
High Court of H.P.
is also not in dispute that petitioner, in his capacity as an agent, was
entitled to a commission of ₹50 per metric ton. In terms of the
agreement dated 01.01.2021, petitioner agreed to arrange supplies
through six companies, including two companies, namely M/s Mahesh
Trading Company and M/s Rajshree Trading Company. To establish
the genuineness of the transactions inter se company and the
suppliers through which scrap was to be supplied, petitioner furnished
KYC documents of the firms, their proprietors’ identity, residence
proofs including PAN and Aadhaar No., address proofs including GST
registration certificates, cancelled cheques, bank statements,
purchase invoices, e-way bills, billities and other related documents.
Pursuant to the aforesaid agreements, suppliers made certain
supplies and such transactions were duly reflected in the company's
GSTR-2A and GSTR-2B for claiming the ITC on supplied material
invoices.
21. It is also admitted case that pursuant to the supplies,
company made payments towards the cost of material and IGST,
amounting to ₹11,03,42,000/- to M/s Mahesh Trading Company
through its proprietor Mohit Kumar Taneja, and ₹10,44,00,000/- to M/s
Rajshree Trading Company through its proprietor Raja and the
petitioner also received commission of approximately ₹6,05,501/- in
connection with these transactions. The entire dispute arose inter se
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parties on 20.07.2021, when a search/raid was conducted at the
High Court of H.P.
premises of the company by the officers of the GST Department.
During the raid, it transpired that the transactions and tax invoices
issued by M/s Mahesh Trading Company and M/s Rajshree Trading
Company were considered bogus and illegal by the GST authorities,
as a result thereof, company was required to deposit approximately
₹1, 00, 00,000/- towards ITC and was further subjected to demand of
ITC amounting to ₹2.66 Crore by the GST authorities.
22. Under the agreements, while undertaking to arrange
supplies through various suppliers, as detailed hereinabove, including
M/s Mahesh Trading Company and M/s Rajshree Trading Company,
petitioner also undertook to make good any liability arising on account
of supplies being non-existent, non-payment of GST, bogus
purchases, or any other irregularity attributable to the supplying firm.
He allegedly assumed responsibility to pay full liability and indemnify
the principal equal to the amount of the GST liability. Complainant
alleged that the petitioner, despite being responsible under the
agreement for indemnifying/compensating the company against that
liability did not compensate it, rather, issued a demand notice of
₹1,22,08,204/- and instituted proceedings before the National
Company Law Tribunal (NCLT).
23. In nutshell, the case of the petitioner is that since the
dispute between the parties is purely of a civil nature, FIR, sought to
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be quashed, is a sheer abuse of the process of law and as such,
High Court of H.P.
cannot be permitted to sustain. Heavy reliance has been placed upon
Clauses 7 and 8 of the agreements dated 01.07.2017 and
01.04.2019, which provide for the indemnification of the principal
party.
24. At this stage, it would be profitable to reproduce Clause 7
& 8 of the agreements dated 01.07.2017 and 01.04.2019, which reads
as under:-
Agreement dated 01.07.2017
“7. Statutory Liability :- That the principle is eligible to claim
GST ITC on material purchased from above mentioned
firms/supplies, in case any liability arises due to any reason” firm
not found on address”, “GST not paid by supplier “purchase of
supplier is bogus” or “ any other reason not mentioned here” than
Agent will be liable to pay full liability, indemnify to principle with
an amount equal to GST liability (GST amount including interest
and penalty) paid by principal.
8. Performance and Remedies :- Agent’s failure to comply with
any of the terms and conditions of this agreement shall be
grounds for the exercise by principal of any one or more of the
following remedies:-
a . Cancellation of this Agreement:-
B. Cancellation of all or any part of nay undelivered
purchase order without notice;
C. Termination of all current and future business
relationship;
D. Recovery from Agent and supplier of the firm of any
damages sustained by principal as a result of agents
breach or default, which amount may be withheld or offset
against funds owned by Principal to Age; and
These remedies are not exclusive and are in addition to all
other remedies available to “Principal at law or in equity ”.
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Agreement dated 01.04.2019
High Court of H.P.
“7. Performance and Remedies :- Agent’s failure to
comply with any of the terms and conditions of this
agreement shall be grounds for the exercise by principal
of any one or more of the following remedies:-
a . Cancellation of this Agreement:-
B. Cancellation of all or any part of nay undelivered
purchase order without notice;
C. Termination of all current and future business
relationship;
D. Recovery from Agent and supplier of the firm of any
damages sustained by principal as a result of agents
breach or default, which amount may be withheld or offset
against funds owned by Principal to Age; and
These remedies are not exclusive and are in addition to all
other remedies available to “Principal at law or in equity”.
8. Indemnifications :- Agent agrees to indemnify and save
harmless Principal, its subsidiaries and affiliates, and each of
their respective directors, officers and employees from any all
liabilities, causes of action, lawsuits, penalties, claims or
demands(including the costs, expenses and reasonable
attorneys’ fees on account thereof), arising or alleged to have
arisen in whole or in part from the negligent or willful acts or
omissions of Agent and suppliers or form the breach by Agent or
any of its obligations hereunder, or form the failure of
Agent/suppliers to comply with any federal, state or local statute
regulation, order or requirement, or with any international law or
legal requirement , or otherwise arising out of or in connection
with the services/ material provided by Agent hereunder,
including, without limitation, any loss arising out of dishonest or
fraudulent acts or any claim, demand, proceedings or action
brought against Principal, its subsidiaries, affiliates and each of
its or other respective directors, officers and employees or by
reason of any alleged or actual negligence, bad faith or willful
misconduct on the part of Agent, including, but not limited to any
such claim or proceedings arising out of or in connection with the
Material (M.S.Scrap), or (2) any demand/penalty/ interest/ taxes
claim by any department under any law due to failure/fraud or
omission by agent and suppliers through which material was
supplied.”
25. As per aforesaid clauses in the agreements, the
Principal i.e., company is eligible to claim GST ITC on material
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purchased from the above-mentioned firms/suppliers and in case any
High Court of H.P.
liability arises due to any reason, like firm not found on address”,
“GST not paid by supplier “purchase of supplier is bogus” or “any
other reason not mentioned here” than Agent will be liable to pay full
liability, indemnify to principle with an amount equal to GST liability.
As per Clause 8 of the agreement, Agent's failure to comply with any
of the terms and conditions of the agreement shall be grounds for the
exercise by the Principal of the following remedies:
a) Cancellation of agreement;
b) Cancellation of all or any part of undelivered purchase orders
without notice;
c) Termination of all current and future business relationships;
d) Recovery from the Agent and supplier/firm of any damages
sustained by the Principal as a result of the Agent's breach or
default, which amount may be withheld or offset against funds
owed by the Principal to the Agent and these remedies are not
exclusive and are in addition to all other remedies available to
the Principal at law or in equity.
26. Careful perusal of afore condition contained in the
agreement clearly suggests that company, besides taking recourse to
the aforesaid remedies, can also take recourse to other remedies
available to it under the law. As per indemnification clause, the agent
i.e., petitioner herein agreed to indemnify and save harmless
Principal, its subsidiaries and affiliates and each of the respective
directors, officers and employees from any and all liabilities, cause of
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action, lawsuits, penalties, claims or demands arising or alleged to
High Court of H.P.
have arisen in whole or in part from the negligent or willful acts or
omissions of agent and suppliers appointed by him.
27. True it is that as per aforesaid clause contained in the
agreements, petitioner, being agent, can be made liable to make
good any liability arising on account of the supplier being non-
existent, non-payment of GST, bogus purchases, or any other
irregularity attributable to the supplying firm, but this Court is not
persuaded to agree with learned Senior Counsel representing the
petitioner that, in terms of Clauses 7 and 9 contained in the
agreements dated 01.07.2017 and 01.04.2019, complainant is
estopped from instituting criminal proceedings against the petitioner
for his attempt to cheat the complainant’s company by supplying
through fictitious and non-existent firms, thereby causing wrongful
loss to the complainant’s company and wrongful gain to himself and
other accused.
28. As per the reply filed by the respondent-State, it has
clearly emerged in the investigation that the petitioner, in connivance
with other accused, falsely created bogus and untraceable firms and
then facilitated financial transactions through such firms. GST
invoices, e-way bills, and other documents were fabricated and
utilized for claiming wrongful Input Tax Credit (ITC), which act of the
petitioner came to the notice of the company pursuant to raids,
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inquiries, and verifications conducted by the Directorate General of
High Court of H.P.
GST. Aforesaid allegations clearly disclose fraudulent and criminal
intent and certainly cannot be characterized as a mere contractual or
civil dispute.
29. Moreover, this Court is persuaded to agree with learned
Additional Advocate General and Mr. Karan Singh Kanwar, learned
Senior counsel representing respondent No. 2 that indemnity clauses
in the agreements do not bar or preclude criminal prosecution where
the allegations disclose the commission of a cognizable offence.
Allegations regarding forged documents, fake KYC documents,
fraudulent GST registration, and misrepresentation constitute criminal
acts. Though, clauses, which is being relied upon themselves
contemplate and fasten liability upon the petitioner in the event of
bogus transactions, non-existing entities, or other irregularities, but
allegations of financial fraud, manipulation of documents, bogus
transaction, and the use of fictitious entities, which require a full and
fair investigation cannot be decided in these proceedings.
30. Reply filed by the respondent-State clearly reveals that
FIR discloses serious economic offences involving fraudulent
misrepresentation, forgery, inducement and financial deception
amounting to more than ₹21 Crores, which squarely falls within the
ambit of cognizable offences under the Indian Penal Code. The
investigating agency, after completing the investigation, has prepared
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charge sheet for offences punishable under Sections 420, 467, 468,
High Court of H.P.
469, 471, and 120B of IPC.
31. Leaving everything aside, certain conditions of the
agreement refer to indemnity does not preclude criminal prosecution
in the presence of criminality, rather forged documents, fake KYC,
and GST registrations along with misrepresentation amount to
offences under the IPC and mere civil agreements cannot be used as
a shield to evade criminal liability. Otherwise also, by now it is well-
settled that civil and criminal liabilities can co-exist where cheating,
misrepresentation and fraud are evident. The FIR, sought to be
quashed, clearly discloses the ingredients of cheating, criminal breach
of trust, and conspiracy under the IPC.
32. Careful perusal of Section 415 IPC reveals that it has
two parts: The first part makes it necessary that deception by the
accused of the person deceived, must be fraudulent or dishonest.
Such deception must induce the person to either:(a) deliver property
to any person, or b) consent that any person shall retain any property.
The Second part requires that the accused must by deception
intentionally induce the person deceived either to do or omit to do
anything which he would not do or omit if he was not so deceived.
Besides, such act or omission must cause or must be likely to cause
damage or harm to that person in body, mind, reputation, or property.
The deception is a necessary ingredient for the offence of cheating
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under both parts of aforesaid section. To invoke aforesaid provision of
High Court of H.P.
law, complainant must allege/ prove that inducement had been
caused by deception exercised by the accused. The explanation to
the section clarifies that non-disclosure of relevant information would
also be treated as a misrepresentation of facts leading to deception.
33. To constitute an offence of cheating the intention to
deceive should be in existence when the inducement was made. It is
necessary to show that a person had fraudulent or dishonest intention
at the time of making the promise. Merely failure to keep a promise
subsequently cannot be the sole basis to presume that dishonest
intention existed from the very beginning.
34. True it is that every breach of contract may not give rise
to an offence of cheating, rather only in those cases breach of
contract would amount to cheating where there was any deception
played at the very inception. If the intention to cheat developed later,
the same cannot amount to cheating. To establish an offence of
cheating, complainant is under an obligation to show that the accused
had fraudulent or dishonest intention at the time of making promise or
representation. Even in a case where allegations are made about
failure on the part of the accused to keep his promise, in the absence
of a dishonest intention at the time of making the initial promise, no
offence under Section 420 of IPC is made out. However, in the
instant case dishonest intention of the petitioner is apparent from the
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time of his entering into the agreement with the company to supply
High Court of H.P.
scrap through firms/companies, which were subsequently found to be
bogus.
35. Though, the question whether non-fulfillment of promise/
commitment by the accused is a reflection of his or her dishonest
intention at the time of making the promise is ordinarily a matter of
trial, but yet High Court, in exercise of its inherent powers under the
Code or under Article 226 of the Constitution, as the case may be,
upon consideration of the attending circumstances, take a decision
whether the dishonest intention existed or not at the time of making
the promise and if it comes to the conclusion that the alleged conduct
of the parties does not reflect a dishonest intention of the accused
from the very beginning, it may quash the criminal
complaint/proceedings and relegate the aggrieved party to civil
remedies.
36. In the case at hand, the petitioner, being agent of the
company, entered into an agreement for supplying MS Scrap either
by himself or through other firms/agencies to be arranged and
managed by him. Under the agreement dated 01.01.2021, he
disclosed the names of certain companies through which he proposed
to supply the scrap. However, subsequently, two companies, namely,
M/s Mahesh Trading Company and M/s Rajshree Trading Company
were found to be bogus and non-existent. The very act of the
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petitioner introducing two companies, namely M/s Mahesh Trading
High Court of H.P.
Company and M/s Rajshree Trading Company, which was allegedly
non-existence, for supply of scrap, clearly discloses dishonest
intention of the petitioner from the very inception. Since factum with
regard to non-existence of aforesaid companies/suppliers was in the
knowledge of the petitioner being agent of the company, coupled with
the fact that he with a view to establish the genuineness of the
transactions, furnished KYC documents of the firms, their proprietors’
identity, residence proofs including PAN and Aadhaar No., address
proofs including GST registration certificates, cancelled cheques,
bank statements, etc, this Court is not persuaded to agree with
learned Senior counsel representing the petitioner that
complainant/respondent has initiated criminal proceedings merely to
enforce a contractual claim, rather criminal proceedings appear to
have been initiated against petitioner for his having allegedly
committed cheating and forging of documents. Since it has emerged
in the investigation that petitioner, in connivance with other co-
accused had created and facilitated financial transactions through
bogus and untraceable firms and thereafter, GST invoices, e-way
bills, and other documents were fabricated and utilized for claiming
wrongful Input Tax Credit (ITC), as a result thereof, huge loss was
caused to the company as well as to the public exchequer, this Court
is persuaded to conclude that allegations contained in the FIR prima
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facie disclose fraudulent and criminal intent and certainly cannot be
High Court of H.P.
characterized as a mere contractual or civil dispute. The existence of
indemnity clause in the agreements nowhere bars or precludes
criminal prosecution, especially when allegations disclose the
commission of cognizable offences. The allegation regarding forged
documents, fake KYC documents, fraudulent GST registration and
misrepresentation constitute a criminal act.
37. Otherwise also, this Court is of the view that prima-facie
petitioner has caused substantial loss to the complainant’s company
by facilitating supply of MS scrap through bogus/ non-existing firms
and has caused the complainant’s company to part with substantial
amounts. Similarly, material placed on record indicates that petitioner
was not merely acting independently but in connivance with accused
No.2 and 3 and as such, necessary ingredients of Section 120-B IPC
are met at this stage. However, whether requisite ingredients of
Section 406 of IPC are established or whether the petitioner has
acted in connivance with other accused is a matter of trial and cannot
be adjudicated at this stage.
38. In case titled Vandana Jain and Others (supra ), which
has been pressed into service by learned counsel representing the
petitioner, cannot be made applicable to the present facts and
circumstances of the case. There cannot be any quarrel to the
proposition of law laid down in the aforesaid case that where the
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dispute inter se parties is predominantly civil in nature, invocation of
High Court of H.P.
criminal law amounts to an abuse of the process of law. In the
aforesaid case, High Court dismissed the writ petition in limine, vide
impugned order, without considering whether the facts spelt out in the
FIR disclose a purely civil cause of action, as also whether the
allegations made, make out an offence qua preparation of a false
document. The Hon’ble Apex Court, having perused the relevant
documents, especially the agreement arrived inter se parties, arrived
at a conclusion that insofar as the allegation regarding non-fulfillment
of contractual obligation is concerned, recourse to appropriate civil
remedy was required and there is nothing to suggest that dishonest
intention existed from the beginning. Since in the aforesaid case, Hon’
ble Apex Court arrived at the conclusion that no offence of cheating is
made out and there was no false representation in the joint venture
agreement, proceeded to quash the criminal proceedings. However,
in the instant case, there is a specific allegation against the petitioner
that he, in connivance with the other accused, not only created and
facilitated financial transactions through bogus and untraceable firms,
but also fabricated GST invoices, e-way bills, and other documents,
as a result thereof, wrongful loss was caused to the company as well
as the Government exchequer and wrongful gain accrued to the
petitioner. Rather, in the case before the Hon' ble Apex Court, the
security amount, which was otherwise bone of contention and was
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neither being released/refunded was adjustable against the share of
High Court of H.P.
the first party derived from the sale proceeds and as per the
conditions of the agreement, the appropriate course was to take
recourse to civil remedies.
39. However, in the instant case, though as per the
indemnification clause the petitioner is liable to indemnify the
company for its losses, but certainly in the garb of the agreement, he
cannot escape criminal prosecution for his having allegedly committed
acts of cheating and forgery, which can only be decided in the
criminal proceedings on the basis of evidence, if any, adduced on
record by the prosecution.
40. Having perused the material adduced on record,
especially the reply filed by the respondents, this Court is of the view
that prima facie case under Sections 420, 406, and 120-B of IPC
(corresponding to Sections 318(4), 316(2) read with Section 61(2) of
the Bharatiya Nyaya Sanhita, 2023 (BNS), is made out against
petitioner and as such, this Court is not persuaded to exercise power
under Section 482 Cr.P.C( now Section 528 of BNSS) to quash the
FIR, which in the given facts and circumstances, is required to be
taken to its logical end by a competent Court of law on the basis of
pleadings as well as evidence led on record by the respective parties.
41. Consequently, in view of detailed discussion made herein
above and law taken into consideration, this Court finds no merit in
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the present petition and accordingly same is dismissed, alongwith
High Court of H.P.
pending applications, if any.
42.
Any observations made hereinabove shall not be
construed as an expression of opinion on the merits of the case and
shall remain confined solely to the adjudication and disposal of the
present petition.
(Sandeep Sharma),
Judge
August 26, 2026
(shankar)
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