Proceedings Against Accomplices For Fraud Can't Be Sustained Once Proceedings Against Principal Borrower Is Closed: MP High Court

Madhya Pradesh High Court has recently clarified that when the proceedings initiated against the principal borrower/ offender on account of the commission of fraud get terminated, other accomplices involved in the offence cannot be prosecuted thereafter.

The Division Bench of Justices Sushrut Arvind Dharmadhikari and Gajendra Singh was adjudicating a batch of miscellaneous cases arising from the FIR registered by CBI against Ruchi Global Limited and others for committing fraud upon the lender bank by diverting funds.

“The proceedings against the M/s Ruchi Global Limited has been closed by the Trial Court on the basis of order dated 21.11.2023….and order dated 25.07.2023….passed by this Court. When the proceedings have been terminated against M/s Ruchi Global Ltd to whom credit facility was sanctioned, then the proceedings against rest of the petitioners to whom it is stated that they conspired with Ruchi Global Ltd. cannot be continued”, the bench sitting at Indore held.

Ruchi Global Limited had credit facilities from four Banks under a Consortium arrangement led by the Bank of Baroda. On 14.06.2021, an FIR was registered against the principal borrower-Ruchi Global Limited and its Directors, a few public servants for offences under Section 13 (2) read with 13(1) (d) of Prevention of Corruption Act a/w Section 120-B and 420 of IPC. According to the respondents, a forensic audit report submitted in 2019 revealed irregularities in the transactions and balance sheet of the company.

In the course of the investigation, it was found by the CBI that M/s Sumeru Resources Pvt. Ltd, M/s Vibuthi Enterprises Pvt. Ltd, M/s Piyali Trading Co. Pvt. Ltd., M/s Agroweb Online Pvt. Ltd., M/s Shashwat Realty Developers Pvt. Ltd and M/s Shuham Mercantile Pvt Ltd were co-conspirators who assisted Ruchi Global in misappropriating the Non-Fund Based Bank Credit facility to the tune of Rs.66,09,58,300/-.

Based on the above findings, the final report under Section 173(2) was submitted to the Court of Special Judicial Magistrate, CBI, Indore. On 02.02.2023, the trial court quashed the pending proceedings against Ruchi Global and continued the proceedings against the rest of the accused companies and their directors. The said companies challenged this aspect of continuation of proceedings despite the quashing of FIR against the primary borrower in the miscellaneous petitions before the High Court.

The counsels for the petitioners contended that when the FIR against Ruchi Global itself got quashed, there was no question of other companies being the accomplices in the alleged fraudulent transaction by the former. It was also submitted that the provisions in the Prevention of Corruption Act can be invoked only against public servants and not the accused companies.

In turn, the respondents' counsels took the stance that the forensic audit itself had not been quashed by the trial court and the proceedings were terminated solely for the reason of audi alteram partum. The lenders can proceed against Ruchi Global again afresh in accordance with the law, it was submitted.

The court, after examining the arguments put forward by both parties, iterated that the petitioners' contention that an opportunity should have been afforded to them before FIR was registered based on the complaint made to the CBI is misconceived.

While allowing the miscellaneous petitions, the court noted the following:

“…The proceedings against the petitioners based on the FIR No.RC2222021A0003/2021 registered at Police Station AC-IV (Vyapam) Bhopal is also hereby quashed”.

For Appellant: Senior Advocate V.K. Jain along with Advocate Atul Kumar Gupta

For Respondent: Advocate Abhinav Dhanodkar and Himanshu Joshi

Case Title: M/R Ruchi Global Limited (Presently Agrotrade Enterprises Limited) Through Mr. S.N. Sadawarti & Ors. v. Central Bureau Of Investigation Through Its Investigation Officer P.S.AC-IV & Anr. and Connected Matters

Case No: Misc. Criminal Case No. 34326 of 2021 & Others

Citation: 2024 LiveLaw (MP) 108

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