Existence of civil remedy for shareholder disputes does not bar criminal prosecution for fraudulent inducement.

The petitioners, directors of Prabhuji Etech Creations Pvt. Ltd., challenged FIR No. 375/2023 and the subsequent chargesheet filed under Sections 420, 409, and 120B of the IPC.

The Respondent No. 2 (complainant) alleged he was induced to invest ₹30,00,000 (partly via RTGS and partly cash) into the company on promises of profits, which were later misappropriated.

The petitioners contended the dispute was purely civil/commercial, as the complainant was a shareholder allotted 2500 equity shares, participated in company meetings, and the company’s failure was due to COVID-19 related losses.

They further noted that management disputes were already pending before the NCLT, Kolkata.

Petitioner No. 1 had also returned ₹10,00,000 to the complainant in an attempt to compromise.

1. Whether the criminal proceedings should be quashed under Section 528 of the BNSS (formerly Section 482 CrPC) on the ground that the dispute is purely civil and commercial in nature.

2. Whether the allegations in the FIR, taken at face value, disclose the commission of cognizable offences under Sections 420, 409, and 120B of the IPC.

The Court applied Section 528 of the Bhartiya Nagarik Suraksha Sanhita, 2023 (equivalent to Section 482 CrPC) regarding inherent powers to prevent abuse of process.

It relied on the landmark precedent of *State of Haryana v. Bhajan Lal*, which established the categories for quashing criminal proceedings.

It further considered *Sushil Sethi v. State of Arunachal Pradesh* and *Prof. R.K. Vijayasarathy v. Sudha Seetharam*, which held that criminal proceedings should be quashed if a dispute is essentially civil.

The court also reaffirmed the principle that the existence of civil remedies does not bar criminal prosecution if the allegations disclose a prima facie criminal offence.

The Court observed that while the petitioners claimed the matter was a shareholder dispute, the FIR contained specific allegations of dishonest misrepresentation of financial prospects that induced the complainant to part with money.

The Court reasoned that whether there was "dishonest intention" at the inception of the transaction is a matter of evidence that cannot be adjudicated at the preliminary stage under inherent powers.

The Court rejected the argument that the issuance of shares or the pendency of NCLT proceedings automatically exonerated the petitioners, as the material collected during the investigation prima facie attracted the ingredients of cheating and criminal breach of trust.

It held that issues regarding the delay in filing the FIR and the impact of the pandemic are disputed questions of fact requiring a full trial.

The Court held that the FIR disclosed a prima facie case and did not fall within the exceptional categories of *Bhajan Lal*.

The Court clarified that observations made were only for deciding the petition and the petitioners remain at liberty to raise all defences before the trial court.