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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