Holding

The Supreme Court quashed the criminal proceedings against the appellant, holding that the compromise of the civil suit and withdrawal of claims justified dismissal of the prosecution despite the inclusion of non‑compoundable offences.

Summary

The appellant, a former managing director of a company that had defaulted on a loan from Andhra Bank, was charged by the CBI with cheating, forgery and corruption offences. The bank’s civil suit for recovery was later compromised, with clause 11 stating that both parties withdrew all claims against each other. The appellant sought discharge from the criminal case, but the Special Judge and the High Court rejected his application. On appeal, the Supreme Court examined whether the compromise of the civil dispute could justify quashing the criminal proceedings, even though the charge‑sheet included non‑compoundable offences such as forgery and corruption. Relying on earlier decisions (Duncans Agro Industries and B.S. Joshi) and the Court’s inherent powers under Article 142 and Section 482 of the CrPC, the Court held that continuing the prosecution would be futile and ordered the criminal proceedings against the appellant to be quashed. The appeal was allowed.

Issues considered

Can criminal proceedings be quashed on the basis of a compromise in the related civil suit, even when the charge‑sheet includes non‑compoundable offences?
Does the Supreme Court have the authority under Article 142 of the Constitution and Section 482 of the CrPC to set aside criminal proceedings in such circumstances?
Are offences under Section 420 IPC compoundable under Section 320(2) CrPC, and does that affect the quashability of other non‑compoundable charges?

Legislation cited

Code of Criminal Procedure, 1973s. 320(2), s. 482
Constitution of Indias. 136, s. 142
Indian Penal Code, 1860s. 420, s. 467, s. 468, s. 471
Prevention of Corruption Act, 1947s. 5(1)(d), s. 5(2)
Prevention of Corruption Act, 1988s. 13(1)(d), s. 13(2)

Subjects

criminal procedurequashing of criminal proceedingscivil suit compromisecompoundable offencenon‑compoundable offenceSection 482 CrPCArticle 142 ConstitutionIPC cheatingforgeryPrevention of Corruption Act

Judgment

,_
I
~·

[2008) 12 S.C.R. 236

k
A NIKHIL MERCHANT
v.
CENTRAL BUREAU OF INVESTIGATION & ANR
(Criminal Appeal NO 1302 of 2008)
AUGUST 20, 2008
B
[ALTAMAS KABIR AND MARKANDEY KAT JU, JJ]
-~-

Constitution of India, 1950:
~
Articles 136 and 142 - Quashing of criminal proceed-
c ings on basis of settlement of dispute in civil suit "".'" Suit filed
by Bank against a company and its Managing Director for
recovery of dues - Besides, a criminal complaint also made
- Charge-sheet filed for offences punishable under ss.
420,467,468 and 471 !PC and provisions of Prevention of
D Corruption Act - Suit compromised with stipulation that par-
ties withdrew all their allegations and counter allegations - •I
...,_
Application by former Managing Director of the Company for
discharge from criminal case - HELD: This is a fit case where
technicalities should not be allowed to prevail since continu-
E ance of the criminal proceedings after the compromise de-
cree would be a futile exercise - Criminal proceedings against t
;

appellant are quashed - Penal Code, 1860 - ss. 420, 467,
468 and 4 71 - Prevention of Corruption Act, 194 7 - ss. 5( 1)(d)
and 5(2) - Prevention of Corruption Act, 1988 - ss. 13(1)(d)
F and 13(2) - Code of Criminal Procedure, 1973 - ss.320(2)
and 482. i--
A Company of which the appellant was the Manag-
ing Director was granted financial assistance by the
Andhra Bank. Since the company defaulted in repayment
G of the loan, the Bank filed a suit for recovery against the
company and the appellant. Besides, the Bank also made ~ ~

a criminal complaint pursuant whereto a charge-sheet
was filed by the CBI against the company, the appellant
and three officers of Andhra Bank for commission of of-
H 236
NIKHIL MERCHANT v. CENTRAL BUREAU OF 237
INVESTIGATION & ANR
,.. -->-
fences punishable uls 120-B, read with ss. 420,467,468 A
and 471 IPC, ss. 5(2),5(1 )(d) of Prevention of Corruption
Act, 1947 and s.13(2) rlw s.13(1)(d) of Prevention of Cor-
ruption Act, 1988. The charge-sheet indicated that all the
accused conspired in fraudulently diverting the funds of
the Bank. The suit was, however, compromised, and B
clause 11 of the consent terms stipulated that parties with-
~- drew all allegations and counter allegations against each
...... other. Consequently, the appellant filed an application for
discharge from the criminal case. The appellant having
remained unsuccessful before the trial court as also the c
High Court, filed the instant appeal.
The CBI contested the appeal on the grounds, inter
alia, that apart from s.420 IPC, the appellant had been
charged with other offences under the Penal Code as also
the Prevention of Corruption Acts which were non-com- D
~
poundable; that power under Article 142 of the Constitu-
~ tion would be exercised sparingly and in rare and excep-
tional cases, and in the absence of any special circum-
stance, the appeal was liable to be dismissed.
Allowing the appeal, the Court E

HELD: 1.1 On an overall view of the facts of the in-
stant case, and keeping in mind the decision of this Court
in B. S. Josh i's case and the compromise arrived at be-
tween the Company and the Bank as also clause 11 of F
-j the consent terms filed in the suit filed by the Bank, this is
a fit case where technicality should not be allowed to
stand in the way of quashing of the criminal proceedings,
since the continuance of. the same after the compromise
arrived at between the parties would be a futile exercise.
G
[para 24] [247,B-C]
~
"'' Central Bureau of Investigation vs. Duncans Agro Indus-
tries Ltd., 1996 (5) SCC 591; *B. S. Joshi and Ors. Vs. State of
Haryana & Anr, 2003(4) SCC 675 - relied on.
H
238 SUPREME COURT REPORTS [2008] 12 S.C.R.

A 1.2 The main intention of the company and its offic-
ers was to cheat the Bank and induce it to part with addi-
tional amounts of credit to ,which the company was not
otherwise entitled. Despite the ingredients and the fac-
tual content of an offence of cheating punishable under
B Section 420 IPC, the same has been made compound-
able under Sub-section (2) of Section 320 Cr.P:C. with the
leave of the Court. The ~isputes between the Company.
and the Bank have been set at rest on the basis of the
compromise arrived at by them whereunder the dues of
c the Bank have been cleared and the Bank does not ap-
pear to have any further claim against the Company. What,
however, remains is the fact that certain documents were
alleged to have been created by the appellant in order to
avail of credit facilities beyond the limit to which the Com-
o pany was entitl~d. The dispute involved, thus, has over-·
tones of a civil dispute with certain criminal facets. Of
course, forgery has not been included as one of the com-
poundable offences, but it is in· such cases that the prin-
ciple enunciated in B. S. Joshi's case becomes relevant. .
E [para 21-23] [246,D-F]
1.3 The order passed by the High Court is set aside
and the proceedings against the appellant are quashed.
[para 25] [247,D]
Case Law Reference
F
1996 (5) sec 591 relied on para 5 ·
2003(4) sec 675 relied on para 5
CRIMINALAPPELLATE JURISDICTION: Criminal Appeal
G No. 1302 of 2008
From the final Judgment and Order dated 28.10.2005 of
the High Court of Mumbai in Criminal Revision Application No.
49 of 2005
R.F. Nariman and Ranjit Kumar, M.P. Bharucha, Manu Nair,
H
NIKHIL MERCHANT v. CENTRAL BUREAU OF 239
INVESTIGATION & ANR [AlTAMAS KABIR, J.]
'j.
Mark D'Souza and Vivek Vashi (for Mis. Suresh A. Shroff & A
Co.) for the Appellant.
A. Sharan, ASG., B.B. Singh, Ranjana Narayan, B.K.
Prasad, P. Parmeswaran and Ravindra Keshavrao Adsure for
the Respondent.
B
The Judgment of the Court was delivered by
.:--J
ALTAMAS KABIR, J. 1. Leave granted.
\

2. Central Bureau of Investigation (hereinafter referred to
as "CBI") filed a charge sheet against five accused persons c
under Section 120B read with Sections 420, 467, 468, 471A
Indian Penal Code read with Sections 5(2) and 5(1 )(d) of the
Prevention of Corruption Act, 1947 and Section 13(2) read with
Section 13(1 )(d) of the Prevention of Corruption Act, 1988. In
the said charge sheet, the appellant herein was made accused
D
No.3 and the Company, in respect of which he was the former
Managing Director, M/s. Neemuch Emballage Ltd., Mumbai,
)r
was made the accused No.4. The other three accused are offi-
cials of the Andhra Bank.
3. The accused No.4-Company was granted financial as- E
sistance by the Andhra Bank, Opera House Branch under vari-
ous facilities. On account of default in repayment of the loans,
the Bank filed a suit for recovery of the amount payable and in
addition, on 19th December, 1995, a complaint was made by
the General Manager and the Chief Vigilance Officer of the Bank . F
on the basis whereof investigations were undertaken by the CBI,
which filed the above-mentioned charge sheet in the Court of
the Special Judge on 30th December, 1998. The allegations
under the charge sheet indicate that the accused persons con-
spired with each other in fraudulently diverting the funds of the
G
Andhra Bank. Offences alleging forgery were also included in
..... ~ the charge sheet. The above-mentioned suit between the Com-
pany and the Bank, to which the appellant herein was also a
party, was disposed of on a compromise arrived at between
the parties which was reduced into writing, and was filed in- the
H
r
240 SUPREME COURT REPORTS [2008] 12 S.C.R.

k
A suit. On the basis of the consent terms·, the suit was compro-
mised upon the defendants agreeing to pay the amounts due
as per the schedule mentioned in the consent terms. What is of
importance in this case is clause 11 of the consent terms, which
reads as follows:-
B "Clause 11. Agreed that save as aforesaid neither party
has any claim against the other and parties do hereby ~-
withdraw all the allegations and counter allegations made
against each other."

c - 4. Consequent upon the compromise of the suit and hav-
ing regard to the contents of Clause 11 of the consent terms,
the appellant herein filed an application for discharge from the
criminal complaint, in respect of which charge sheet had been
filed by the CBI. The said application was rejected by the Spe-
cial Judge (CBI), Greater Bombay, by his order dated 11 1h De-
D
cember, 2002, which came to be challenged by the appellant
before the Bombay H1gh Court in Cr.RA. No.49/2005, along
-f.
with several other writ petitions filed by the other accused.
5. Before the High Court, it was urged that since the sub-
E ject matter of the dispute had, been settled between the appel-
lant and the Bank, it would be unreasonable to continue with the
criminal proceedings which had been commenced on a com-
plaint filed on behalf of the Bank having particular regard to
clause 11 of the consent terms by which the parties had with-
drawn all claims against each other. It was submitted that the
F
learned Special Judge had erred in rejecting the appel_lant's ....
I

prayer for discharge from the criminal case. In support of the
aforesaid contentions made on behalf of the appellant before
the High Court, reference was made to the decision of this Court
in the case of Central Bureau of Investigation vs. Duncans Agro
G
Industries Ltd., [1996 (5) SCC 591] wherein on the basis of
'
facts similar to the facts of this case, this Court had held that ~-- -./

even if an offence of cheating is prima facie made out, such
offence is a compoundable offence and compromise decrees
passed in-the suits instituted by the Bank, for all intents and
H
NIKHIL MERCHANT v. CENTRAL BUREAU OF 241
INVESTIGATION & ANR [ALTAMAS KABIR, J.]

~ purposes, amount to compounding of the offence of cheating. A
This Court accordingly, upheld the order of the High Court quash-
ing the criminal complaint after the civil action had been com-
promised between the parties.
6. Apart from the said decision, reliance was also placed
on another decision of this Court in the case of S.S. Joshi and B
Ors. Vs. State of Haryana & Anr., [2003(4) SCC 675) wherein
~ while dealing with the proceedings under Sections 498-A and
406 Indian Penal Code involving matrimonial disputes and of-
fences, this Court held that even though the provisions of Sec-
tion 320 of the Code of Criminal Procedure would not apply to c
such offences, which are not compoundable it did not limit or
affect the powers under Section 482 and the powers conferred
on the High Courts and the Supreme Court under Articles 226
and 136 of the Constitution of India. Referring to the decision of
this Court in State of Haryana vs Bhajan Lal, [1992 Suppl. (1) D
SCC 335] this Court observed that the categories indicated in
the said case which warranted exercise of power under Sec-
lor
tion 482 CrPC were only illustrative and not exhaustive. This
Court ultimately held that the High Court in exercise of its in her-
ent powers can quash criminal proceedings or a FIR or com- E
plaint and Section 320 CrPC does not limit or affect the power
of the High Court under Section 482 of the Code.

7. After considering the said decisi0n in the light of the
submissions made on behalf of the respective parties, the High
Court took the view that in the Duncans Agro case (supra) this F
Court was considering the situation involving Section 420 IPC
which was compoundable under Section 320(2) CrPC, while in
the instant case, the charge sheet was also under Sections 467,
468, 471-A IPC along with the provisions of the Prevention of
Corruption Act, which were non-compoundable. The High Court, G
therefore, held that neither of the said two cases would have
.... ~ application to the facts of this case and rejected the appellant's
prayer for discharge from the criminal cases.

8. This appeal has been filed against the said order of the
H
242 SUPREME COURT REPORTS [2008] 12 S.C.R.

A High Court rejecting the appellant's prayer for discharge from
the criminal complaint.
9. Appearing for the appellant, Mr. R. Nariman, learned·
senior advocate, submitted that the appellant was not the di-
rect beneficiary of the loans which had been granted by the corn-
s plainant Bank, but had stood guarantee for the same in his ca-
pacity as the Managing Director of the Company to whom such
loans had been advanced. Mr. Nariman submitted that while
the loans were said to have been advanced to the Company-
Accused No.4 between 1986 and 1989, the suit for recovery of
c the unpaid dues was filed by the Andhra Bank in 1992 and two
years thereafter the complaint was lodged by the Bank on 19th
September, 1994 and the charge sheet was filed by the CBI
four years later on 30th December, 1998. Thereafter, the suit
filed by the Bank for the recovery of its dues was compromised
by a consent decree on 12th October, 2000, and in view of
D clause 11 of the consent terms, apart from the said suit, all other
actions, including tne criminal proceedings, also stood com-
pounded. fn support of his aforesaid submissions, Mr. Nariman
also relied on the decision rendered by this Court in the Duncans
Agro case (supra) and B.S. Joshi's case (supra) and submit-
E ted that the High Court had erred in coming to a finding that the
said two decisions had no application to the case in hand.
10. Mr. Nariman submitted that paragraph 2 of the Judg-
r;nent in the Duncans Agro case (supra) would clearly indicate
that the offences disclosed in the first of the two Fl Rs attracted
F the provisions of Section 120B read with Sections 409, 420,
467, 468 and 471 IPC. It was not that the High Court was con-
sidering the case only under Section 420 IPC which was com-
. poundable. Mr. Nariman submitted that it is such misreading of
the judgment which has led the High court to commit an error in
G its decrsion under challenge. Mr. Nariman urged that the deci-
sion in S.S. Joshi's case (supra) squarely covers the facts of
this case also since in exercise of inherent powers, this Court
could transcend the limitation imposed under Section 320 CrPC
and pass orders quashing criminal proceedings or FIR or com-
H plaint even where non- compoundable offences were involved.
NIKHIL MERCHANT v. CENTRAL BUREAU OF 243
INVESTIGATION &ANR [ALTAMAS KABIR, J.]

') 11. Mr. Nadman submitted that since the disputes out of A
which the criminal proceeding has arisen have been compro-
mised between the appellant and the Bank, continuing with the
compliant would only amount to misuse of the process of Court.
12. In addition to his above submissions Mr. Nariman sub-
mitted that after the chargesheet was filed by the CBI on B
30.12.1998, no further steps have been taken in the matter and
...., that even charges have not been framed. He submitted that the
proceedings were stayed by this Court on the SLP filed by the
i appellant only on 3.1.2006. He also submitted that even the
Bank had not taken any action against its employees against c
whom chargesheet had been filed. He urged that from the man-
ner in which the entire matter has been pursued no other object
has been sought to be achieved except to harass the appellant
for the last 14 years when the initial complaint was lodged by
the Bank. D
13. It was lastly submitted by Mr. Nariman that, in any event,
~
the contents of the chargesheet and the allegations made
therein, at best make out a case for cheating and not forgery
and consequently both the Duncans Agro Industries case (su-
pra) and B.S.Joshi's case (supra) would apply to the facts of E
the case and the proceedings were liable to be quashed.
14. The learned Additional Solicitor General,,Mr. A.Sharan,
on the other hand, submitted that neither of the aforesaid two
cases have any application to the facts of the instant case and F
the appellant had erroneously relied on the same. The learned
f Additional Solicitor General submitted that the CBI had filed
chargesheet against the appellant under Section 120-B read
with Sections 420,467, 468, 471 IPC and also under Sections .
5(2) read with Section 5(1 )(d) of the Prevention of Corruption
G
Act, 1947 and Sections 13(2)read with Section 13(1)(d) of the
Prevention of Corruption Act, 1988.
'- -I
15. The learned Additional Solicitor General submitted that
apart from Section 420 IPC the appellant had been charged
with other offences in the chargesheet as indicated hereinabove, H

. '-'·.t'
244 SUPREME COURT REPORTS [2008] 12 S.C.R.

-i-,~
A most of which being offences under the IPC as also the Pre-
vention of Corruption Act, were non-compoundable. It was urged
that in the Duncans Agro Industries case (supra)the Court had
proceeded on the basis that the charge against the accused
was one only under Section 420 IPC and a decision was ren-
B dered accordingly, despite the fact that the chargesheet also
included offences under Sections 468 and 471 IPC which were
non-compoundable. It was urged that the decision in B.S. Joshi's -~
case (supra) does not also help the case of the appellant since
what was being considered therein was whether the High Court
c had jurisdiction to exercise authority in a writ petition where the
Court was not shackled by the restrictive provisions of Section
320 of the Code of Criminal Procedure. The learned Additional
Solicitor General while not disputing the position that in the
Duncans Agro case (supra) the Court had referred to the
chargesheet against the appellant which included charges un-
D
der Sections 468 and 471 IPC, also submitted that the ultimate
decision was rendered only in the context of Section 420 IPC
and not the other non-compoundable sections. He also submit- j.
ted that the allegations contained in the chargesheet in the
present case not only made out an offence of cheating, but also
E of forgery on account of the various documents which had been
prepared under the signature of the appellant showing inflated
stocks to induce the Bank to provide additional credit facility
and funds which it would not have otherwise been legally en-
titled to.
F
16. Rebutting the submissions made on behalf of the ap-
~,
pellant, the learned Additional Solicitor General referred to the
provisions of Sections 463 and 464 IPC which relate to the
definition of "forgery" and "the making of a false document". He
pointed out that under the definition of forgery in Section 463
G
any person making any false document or false electronic record
or part of a document or electronic record with intent to cause
f- •
damage or injury to the public or to any person or to support any
claim or title or to cause any person to part with any property or
to enter into any expressed or implied contract or with intent to
H
ij" NIKHIL MERCHANT v. CENTRAL BUREAU OF 245
INVESTIGATION & ANR [ALTAMAS KABIR, J.]

commit fraud or that fraud may be committed, commits forgery. A
Referring to Section 464 he submitted that a person is said to
make a false document or false electronic record who dishon-
estly or fraudulently, inter alia, makes, signs, seals or executes
a document or part of a document with the intention of causing
it to be beli~ved that such document was made, signed, sealed, B
executed, transmitted or affixed by or by authority of a person
.... by whom or by whose authority he knows that it was not made,
signed, sealed, executed or affixed. The learned Additional
Solicitor General submitted that in the instant case the prepa-
ration of such a false doc~ment with the intention of cheating c
comes squarely within the definition of forgery under Section
463 IPC.
17. It was urged that all the ingredients of offences com-
mitted under Sections 468 and 471 as also Section 420 IPC
are made out in the chargesheet, and hence, even if the matter D
was compromised between the parties, the criminal proceed-
....
y ings could not be compounded on that basis since the offences
involved also include non-compoundable offences.
18. It was urged that even if no steps have been taken by
the CBI since the chargesheet was filed in 1998, the same would E
not be a ground for quashing the criminal proceedings once
the chargesheet had been filed. He submitted that in view of
the decision of this Court in Supreme Court Bar Association vs
Union of India (1998) 4 SCC 409, this Court would possibly not
be justified in giving directions in the instant case even under F
11· Article 142 of the Constitution, since the Constitution Bench had
held that in exercise of its plenary powers under Article 142 this
Court could not ignore any substantive statutory provision deal-
ing with the subject. It is a residuary power, supplementary and
complementary to the powers specifically conferred on the Su- G
preme Court by statutes, exercisable to do complete justice
"' --...\
between the parties where it is just and equitable to do so; It
was further observed that the power under Article 142 of the
Constitution was vested in the Supreme Court to prevent any
obstruction to the stream of justice. H ; .,
,'.f ""
246 SUPREME COURT REPORTS [2008] 12 S.C.R.

-*:-'
A 19. The learned Additional Solicitor General submitted that
. the. power under Article 142 is to be exercised sparingly and
only in rare and exceptional cases and in the absence of any
exceptional circumstances the appeal was liable to be dis-
missed.
B · · 20. Having carefully considered the facts of the case and
the submissions of learned counsel iii regard thereto, we are· of .....
·the View that, although, technicatly there is force in the submis-
sions made by the learned Additional Solicitor General, the facts
o.f the case warrant interference in these proceedings.
c
21. The.basic intention of the accused in this case ap-
pears to have been to misrepresent the financial· status of the
company, Mis Neemuch Emballage Limited, Mumbai, in order
to avail of credit facilities to an extent to which the company
was not entitled. In other words, the main Intention of the com-
D
pany and its officers was to cheat the Bank and induce it to part
with additional amounts of credit to which the company was not
-.,I.
otherwise entitled.
22. Despite the ingredients and the factual content of an
E offence of cheating punishable under Section 420 IPC, the same
has been made compoundable under Sub.:.section (2) of Sec-
tion 320 Cr.P.C. with the leave of the Court. Of course, forgery
has not been included as one of the compoundable offences,
but it is in such cases that the principle enunciated in S.S. Joshi's
F case (supra) becomes relevant.
23. In the instant case, the disputes between the Com- to·
pany and .the Bank have been set at rest on the basis of the
compromise arrived at by them whereunder the dues of the Bank
have been cleared and the Bank does not appear to have any
G further claim against the Company. What, however, remains is
the fact that certain documents were alleged to have been ere- .,
I-
ated by the appellant herein in order to avail of credit facilities
beyond the limit to which the Company was entitled. The dis-
pute involved herein has overtones of a civil dispute with cer-
H tain criminal facets. The question which is required to be an-

..
-'.
-t' NIKHIL MERCHANT v. CENTRAL BUREAU OF 247
INVESTIGATION &ANR [ALTAMAS KABIR, J.]
~j-

swered in this case is whether the power which independently A
lies with this Court to quash the criminal proceedings pursuant
to the compromise arrived at, should at all be exercised?
24. On an overall view of the facts as indicated herein-
above and keeping in mind the decision of this Court in S.S.
Joshi's case (supra) and the compromise arrived at between B
• t- the Company and the Bank as also clause 11 of the consent
terms filed in the suit filed by the Bank, we are satisfied that this
is a fit case where technicality should not be allowed to stand in
the way in the quashing of the criminal proceedings, since, in
our view, the continuance of the same after the compromise c
arrived at between the parties would be a futile exercise.
25. We, therefore, set aside the order passed by the High

..
Court dismissing the petitioner's revision application No.49 of
2003 in Special Case No.80 of 1998 and quash. the proceed-
D
ings against the appellant. The appeal is accordingly allowed .
lr R.P. Appeal allowed.