'CAG Report Can't Be Accepted As Decisive' : Supreme Court Quashes Corruption Charges Against Karnataka EMTA Coal Mines Ltd

The Supreme Court on August 23 quashed two orders passed by the Special Judge, CBI framing charges in a corruption case against the appellants including Karnataka EMTA Coal Mines Ltd.

In this case, the appellants filed criminal appeals under Article 136 of the Indian Constitution in light of directions passed by the Supreme Court in Manohar Lal Sharma v. Principal Secretary and Anr (2014).

In Manohar Lal, a petition was filed under Article 32 challenging the allocation of coal blocks to private companies for the period between 1993 and 2011 on grounds that it violated the principles of trusteeship of natural resources by giving away precious resources as largesse without complying with mandatory provisions of the Mines and Minerals (Development and Regulation) Act, 1957 and the Coal Mines (Nationalisation) Act, 1973. 

Therefrom, the Court declared that the entire allocation of coal blocks from the year 1993 onwards through the Government dispensation route suffered from arbitrariness and that no fair and transparent procedure had been adopted. It held that the Apex Court alone should have the jurisdiction to entertain cases relating to coal block allocation across the country.

During this time, a Joint Venture Agreement (JVA) was executed between Karnataka Power Corporation Limited (KPCL) and Eastern Mineral and Trading Agency (EMTA) for the development of captive coal mines and supply of coal to the Thermal Power Plant, Bellary Thermal Power Station in 2002. The JVA gave rise to Karnataka EMTA Coal Mines Ltd (KECML).

The CBI had launched an investigation into the broad irregularities in the coal allocation and during this, KPCL became a subject matter of investigation. 

In 2015, CBI registered a case primarily based on a 2013 Audit Report of the Comptroller and Auditor General of India (CAG) under Sections 409 read with 120 of the Indian Penal Code and under Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 2002 alleging criminal conspiracy entered by the appellant with the object to facilitate the illegal sale of coal rejects generated during washing of coal and to have gained undue pecuniary advantage therefrom.

A bench of Justices Hima Kohli and Ahsanuddin Amanullah found that the CBI launched prosecution relying solely on the 2013 CAG which suffered from various infirmities. 

One of the infirmities was that the CAG report was not tabled before the Parliament as required under law.

The duties and powers of the CAG are specified under Article 149 of the Indian Constitution, which says: “149. Duties and powers of the Comptroller and Auditor-General The Comptroller and Auditor-General shall perform such duties and exercise such powers in relation to the “accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor-General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively.”

CAG report is not without scrutiny

The Court referred to Arun Kumar Aggarwal v. UOI (2013), which further specifies the duty of the CAG as: “The reports of the CAG are required to be submitted to the President, who shall cause them to be laid before each House of Parliament, as provided under Article 151(1). In relation to the States, reports are submitted to the Governor, who shall cause them to be laid before the legislature of the State, as per Article 151(2) of the Constitution. When reports are received in Parliament, they are scrutinised by the Public Accounts Committee (PAC).”

In this regard, it noted: “It is not in dispute that the Audit Report of the CAG has not been tabled before the Parliament for soliciting any comments from the PAC or the respective Ministries. Therefore, the views taken by the CAG to the effect that tremendous loss had been caused to the public exchequer on account of the coal rejects being disposed of by the KPCL and KECML remains a viewpoint but cannot be accepted as decisive.”

The court explaining the process of tabling the CAG report before the Parliament said: “As noticed above, the CAG Report is subject to scrutiny by the Parliament and the Government can always offer its views on the said report. Merely because the CAG is an independent constitutional functionary does not mean that after receiving a report from it and the PAC scrutinizing the same and submitting its report, the Parliament will automatically accept the said report. The Parliament may agree or disagree with the Report. It may accept it as it is or in part.”

Additionally, the CAG report was scrutinised during proceedings before the Karnataka High Court in this case in a related aspect. The court had found that the report could not be the basis to prosecute appellants. 

Two sanctioning authorities denied sanction prosecute appellant, CBI ignored it

The court also found that the Board of KPCL (Sanctioning Authority 1) had found the CAG report to be without any factual basis and therefore, refused to give sanction to the CBI to prosecute the Director of KPCL (one of the appellants).

Similarly, the Office of the Prime Minister (Sanctioning Authority 2) had denied to prosecute the Managing Director, KPCL (one of the appellants). In both cases, the court found that the CBI had filed no appeals.

In this regard, the court said: “The respondent-CBI having accepted the decision taken by the Sanctioning Authority in respect of Mr. R. Nagaraja and the decision of the Competent Authority in the Central Government in respect of Mr. Yogendra Tripathi, both senior most serving officers of KPCL and were also on the Board of KECML, cannot be permitted to argue that these were merely administrative decisions and even if permission to prosecute the aforesaid officers has been denied, the Department can still proceed against the appellants based on the very same set of material/documents/evidence etc. that have been minutely scrutinized by different authorities at the highest level and they have independently arrived at an identical conclusion of refusing to grant sanction to prosecute senior functionaries of KPCL.”

Could powers under Article 136 be exercised in this case

The Court stated that ordinarily in this case, a party aggrieved by the filing of a chargesheet or framing of charges ought to first approach the High Court in a petition under Section 482 of the Code of Criminal Procedure, 1973.

The court referred to Rajiv Thapar and Others v. Madan Lal Kapoor (2013) which explained the jurisdiction under Section 482 as: “To invoke its inherent jurisdiction under Section 482 CrPC the High Court has to 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; the material produced is such as would rule out and displace the assertions contained in the charges levelled against the accused; and the material produced is such as would clearly reject and overrule the veracity of the allegations contained in the accusations levelled by the prosecution/complainant. It should be sufficient to rule out, reject and discard the accusations levelled by the prosecution/complainant, without the necessity of recording any evidence.”

It further noted that Section 482 Cr.P.C could be exercised suo moto to prevent abuse of the process of a Court, and/or to secure the ends of justice.

However, the court pointed out that in light of the directions passed in M.L. Sharma, it alone should exercise jurisdiction and therefore held: “one rung of an appeal before the High Court for quashing the chargesheet or interfering in the order on charge by invoking the inherent jurisdiction under Section 482 Cr.P.C. stands foreclosed. The appellants were left with only one chance of directly invoking Article 136 of the Constitution of India and filing a petition for special leave before this court to challenge the impugned orders passed by the learned Special Judge, CBI framing charges against them and dismissing their application for seeking discharge.”

The court went on to make a distinction between Section 438 CrPC and Article 136. It noted that the latter is a 'plenary power'.

The court referred to Arunachalam v. P.S.R. Sadhanantham and Another (1979), in which it was said: “It is now the well-established practice of this Court to permit the invocation of the power under Article 136 only in very exceptional circumstances, as when a question of law of general public importance arises or a decision shocks the conscience of the Court. But, within the restrictions imposed by itself, this Court has the undoubted power to interfere even with findings of fact, making. no distinction between judgments of acquittal and conviction, if the High Court, in arriving at those findings, has acted “perversely or otherwise improperly”.

In an appeal to this case, the court further added: “Article 136 is a special jurisdiction. It is residuary power; it is extraordinary in its amplitude, its limit, when it chases injustice, is the sky itself. This Court functionally fulfils itself by reaching out to injustice wherever it is and this power is largely derived in the common run of cases from Article 136.”

Therefore, in the present case, it noted: “The reach of the extraordinary powers vested in this Court under Article 136 of the Constitution of India is boundless. Such unbridled powers have been vested in Court, not just to prevent the abuse of the process of any court or to secure the ends of justice as contemplated in Section 482, Cr.P.C, but to ensure dispensation of justice, correct errors of law, safeguard fundamental rights, exercise judicial review, resolve conflicting decisions, inject consistency in the legal system by settling precedents and for myriad other to undo injustice, wherever noticed and promote the cause of justice at every level. The fetters on this power are self-imposed and carefully tampered with sound judicial discretion.”

After noting the said findings, the court found that the Special Court, CBI did not apply mind at the stage of discharge under Section 227 CrPC. The court referred to UOI v. Prafulla Kumar Samal & Anr (1979), wherein it was nothing that "That in exercising his jurisdiction under Section 227 of the Code the Judge which under the present Code is a senior and experienced court cannot act merely as a Post Office or a mouthpiece of the prosecution, but has to consider the broad probabilities of the case, the total effect of the evidence and the documents produced before the Court, any basic infirmities appearing in the case and so on. This however does not mean that the Judge should make a roving enquiry into the pros and cons of the matter and weighing the evidence as if he was conducting a trial."

Therefore, the court concluded: "In the light of the aforesaid discussion, we are of the opinion that the respondent–CBI embarked on a roving and fishing inquiry on the strength of the Audit Report of the CAG and then started working backwards to sniff out criminal intent against the appellants. The underpinnings of what was a civil dispute premised on a contract between the parties, breach whereof could at best lead to determination of the contract or even the underlying lease deed, has been painted with the brush of criminality without any justification. This criminal intent has been threaded into the dispute by the respondent-CBI by misinterpreting the clauses of the agreements governing the parties and by heavily banking on the observations made in the Audit Report of the CAG that has not attained finality till date. In view of the glaring infirmities mentioned hereinabove, the impugned orders deserve interference in exercise of the powers vested in this court under Article 136 of the Constitution of India".

Case Details: M/S. Karnataka EMTA Coal Mines Limited And Another v. Central Bureau of Investigation, Criminal Appeal No. 1659-1660 of 2024

Appearances

Appellants- Senior Advocate Ranjit Kumar, Advocate Abhimanyu Bhandari

Respondent- Senior Advocate Cheema

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