Rule Of Law Has Responsibility To Protect Investment Of Foreign Investor: Supreme Court

While reviving criminal proceedings against a person accused of defrauding subsidiary of a foreign company, the Supreme Court recently remarked that rule of law has a responsibility to protect investments of foreign investors.

"The rule of law has a responsibility to protect the investments of foreign investors, while at the same time ensuring that any person accused of mishandling such funds is really and fully protected by the power of the phrase 'innocent till proven guilty'...", said a bench of Justices Sanjay Karol and Ahsanuddin Amanullah.

The Court was dealing with the case of one Moon June Seok (respondent), who allegedly committed fraud while in the employment of Daechang Seat Automotive Ltd. (the Company), ie a subsidiary of a South Korean company.

Upon engaging services of a financial advisor (M/s. NK Associates), the Company was informed that it had wrongly claimed input tax credit amounting to Rs.9,73,96,225.80p. NK Associates posed to the Company that it was standard practice in India that the Company pay tax amount to the financial advisor, and the financial advisor in turn make payment to the concerned department.

In this backdrop, the Company transferred funds for 'GST payment' to NK Associates, but later found that the money had not been credited to the concerned authority. An FIR was registered in 2022 for offenses punishable under Sections 406/408/409/418/420/120B/34 of IPC and cognizance taken in 2023. The allegation against the respondent was that he colluded with NK Associates to defraud the Company.

The respondent approached the Karnataka High Court for quashing of the criminal proceedings. He urged inter-alia that some of the charges drawn up were not met even superficially, that he was not named in the FIR, and that he was named as an accused only on the basis of statement of a co-accused.

Quashing the criminal proceedings qua the respondent, the High Court observed that there was no prima facie material for framing charge against him.

"The Managing Director is the final authority to approve the bills for releasing the amount. The Managing Director was not an accused who has actually released the fund to accused No.1. There is no role to play by this petitioner, except forwarding the bills to the Managing Director. Therefore, without any material evidence collected against the petitioner that the contention of the learned counsel for respondent that the petitioner has conspired with accused Nos.1 to 4 and misappropriated nearly Rs.10 crores, cannot be acceptable", the High Court said. 

Challenging the High Court order, the Company approached the Supreme Court.

Insofar as the claim of the respondent that sole reliance on statement of co-accused was not justified, the bench of Justices Karol and Amanullah noted that even the respondent's own statement provided some corroboration for the statement of co-accused.

"When his own statement acknowledges the possibility that he had received money from accused No.1, which the latter has also alluded to, there prima facie appears to be a connection".

It further noted, "It was on accused No.1's recommendation that respondent No.1 'appointed' one Ritesh Merugu, who is accused No.2, as Accounts Manager. Furthermore, we are surprised by the fact that the CFO of a company and an alleged chartered accountant, both readily agreed to not put ink to paper to formalise this relationship between them, and sans the same found it completely alright to share all financial details and books of accounts." 

The Court deemed it fit to leave it for the trial to determine whether there was sufficient evidence against the respondent. "At this stage, we are unable to convince ourselves that coming to such a conclusion would be just, reasonable, and proper, more so, keeping in view the large amounts of money involved", it said.

As a result, the Court allowed the Company's appeal and revived the case before the trial court against the respondent.

Appearance: Senior Advocates Siddharth Luthra and Rajiv Shakdher; Advocate VN Raghupathy

Case Title: HYEOKSOO SON AUTHORIZED REPRESENTATIVE FOR DAECHANG SEAT AUTOMOTIVE PVT. LTD. VERSUS MOON JUNE SEOK & ANR., SLP(Crl.) No.6917 of 2024

Citation : 2025 LiveLaw (SC) 420

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