FIR Not Invalidated By Quashing Fraud Classification Of Bank Account If It Prima Facie Discloses Cognizable Offences: Delhi HC

In a plea for quashing an FIR against a company accused of allegedly committing fraudulent transactions, the Delhi High Court observed that quashing of a fraud classification of a bank account does not in itself vitiate the First Information Report (FIR) lodged on the basis of such classification if the FIR prima facie discloses the commission of cognizable offence.Justice Sanjeev Narula stated, “The procedural irregularities in the fraud classification process do not ipso facto vitiate the criminal investigation unless it is shown that the FIR is malicious or lacks a legal foundation altogether. There may be an overlap in the two issues, however, both are yet separate and distinct for the purpose of the investigation in the impugned FIR/RC. The Supreme Court in the case of Indian Oil Corp. observed that the mere fact that a complaint relates to a commercial transaction, for which a civil remedy has been availed, is not by itself a ground to quash the criminal proceedings. The Court has to apply its mind to see whether the allegations make out a prima facie criminal offence or not. In the present case, as has been observed above, the bare perusal of the impugned FIR/RC, on a prima facie basis discloses the ingredients of cognizable offences under Section 120-B and 420 of the IPC. Therefore, the impugned FIR/RC which originates from the account being declared as 'fraud', can still sustain notwithstanding the account classification being set aside”.The Court was considering a petition moved by a company for quashing an FIR under Section 120-B (criminal conspiracy) read with Section 420 (cheating) IPC and Sections 13(2) and 13(1)(d) of the Prevention of Corruption (PC) Act registered by the CBI against the petitioners.The brief facts of the case are that petitioner no.1, a company, had availed credit facilities from Bank of Baroda (respondent no. 2) and Canara Bank (respondent no. 3). Subsequently, the respondent-banks raised concerns about alleged fraudulent transactions and declared the petitioner-company's account as fraud and reported it to the RBI. The petitioner no.1's account was then declared as 'fraud' as per the Master Circular on Frauds issued by the RBI. Aggrieved by this action, the petitioner-company approached the High Court to quash of the fraud classification. Through an order, the Court set-aside the declaration of petitioner-company's account as fraud.However, the respondent-banks also filed complaints before the CBI, culminating in the registration of FIR. The petitioners thus sought for quashing of the said FIR. The petitioners contended that since the impugned FIR was registered on the basis of the declaration of petitioner-company's account as 'fraud' by the RBI, and the said fraud declaration has since been set aside, the FIR is liable to be quashed.At the outset, the High Court observed that the power to quash criminal proceedings under Section 528 of BNSS (erstwhile Section 482 of Cr.P.C.) ought to be exercised sparingly and with abundant caution.It referred to Rathish Babu Unnikrishnan vs State (2022 LiveLaw (SC) 413), where the Supreme Court remarked that the power of quashing a criminal proceeding should be exercised very sparingly and cautioned that courts on quashing criminal proceedings at preliminary stages.In the present case, the High Court was of the view that the quashing of fraud classification does not preclude the respondent-banks from pursuing their right to request an investigation into alleged fraudulent activities. The Court observed that the continuation of the criminal proceedings cannot be dependent solely on the fraud classification process. It stated “The criminal investigation must be assessed independently, based on the allegations in the FIR, and not conflated with the procedural deficiencies surrounding the fraud classification.” The Court noted that the test to be applied while considering a plea for quashing an FIR is whether the allegations prima facie disclose the commission of a cognizable offence.Here, it noted that prima facie the FIR discloses serious charges of conspiracy, fraud and corruption under the IPC and POCA. It noted that the allegations of financial irregularities and the misuse of banking facilities prima facie require a thorough investigation.It stated that though the fraud declaration has been quashed, as the FIR discloses serious offences, the investigation is warranted. It observed, “Even though the Petitioners contend that the fraud declaration has been quashed and that the allegations are baseless, the fact remains that the FIR contains allegations that disclose cognizable offences, and the investigation cannot be foreclosed prematurely at this stage.”The Court thus held that the impugned FIR which emanated from the fraud classification could sustain despite the quashing of the said fraud classification.In view of the above, the Court dismissed the petition. Case title: Rangoli International Pvt Ltd & Ors. vs. Central...

FIR Not Invalidated By Quashing Fraud Classification Of Bank Account If It Prima Facie Discloses Cognizable Offences: Delhi HC

Sanjana Dadmi

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