While
reinstating criminal proceedings against an individual accused of defrauding a
subsidiary of a foreign company, the Supreme Court recently stated that the
rule of law carries the responsibility to safeguard foreign investors'
investments.
"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 case
before the Supreme Court involved Moon June Seok (the respondent), who was
accused of committing fraud during his tenure at Daechang Seat Automotive Ltd.,
a subsidiary of a South Korean company.
The
company, upon hiring financial advisor M/s. NK Associates, was informed that it
had erroneously claimed input tax credit amounting to ₹9,73,96,225.80. NK Associates
represented that, as per standard practice in India, the company should remit
the tax amount to the advisor, who would then deposit it with the appropriate
tax authority. Relying on this, the company transferred the funds to NK
Associates for GST payment, only to later discover that the amount was never
deposited with the concerned authority.
An FIR
was filed in 2022 under Sections 406, 408, 409, 418, 420, 120B, and 34 of the
Indian Penal Code, and cognizance was taken in 2023. The respondent was accused
of conspiring with NK Associates to defraud the company.
Subsequently,
the respondent approached the Karnataka High Court seeking to quash the
criminal proceedings. He argued, among other things, that some charges lacked
even superficial merit, he was not named in the FIR, and his implication was
based solely on a co-accused's statement. The High Court quashed the
proceedings against him, holding that there was no prima facie evidence to
frame charges.
"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’s decision, the Company approached the Supreme Court. Regarding
the respondent’s contention that the case relied solely on the statement of a
co-accused, the bench comprising Justices Sanjay Karol and Sandeep Mehta
observed that the respondent’s own statement offered some corroboration to the
co-accused’s version.
"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.
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