Holding

A criminal investigation can be ordered only when a crime is reported to have been committed or reasonable suspicion thereof arises; the High Court's directive to register a FIR and investigate was therefore unlawful.

Summary

Arun Kumar Agarwal and others filed a writ petition in the Karnataka High Court seeking the cancellation of a 1,000 MW thermal power project at Mangalore and the registration of a FIR for alleged corruption. The High Court, without detailed analysis, directed the CBI to investigate based on thirteen points of alleged suspicion, despite no specific individuals being named. The Supreme Court examined the extensive clearances, approvals, and scrutiny the project had undergone by multiple governments and statutory bodies, and held that such policy-driven foreign collaboration cannot, by itself, constitute reasonable suspicion of a crime. It reiterated that a criminal investigation may be ordered only when a crime is reported or reasonable suspicion thereof arises, not on mere conjecture. Consequently, the Court set aside the High Court's order, allowed the appeals, and dismissed the petition, while leaving open the possibility of a proper investigation if material supporting a crime emerges.

Issues considered

The High Court may direct registration of a FIR and criminal investigation under Article 226 without specific allegations of a crime.
What constitutes "reasonable suspicion" sufficient to justify a criminal investigation.
Whether foreign collaboration in a power project, approved by multiple agencies, is a suspicious circumstance.
Whether the Supreme Court can intervene under Article 136 to set aside a High Court's order directing investigation.

Legislation cited

Companies Act
Constitution of Indias. Article 226
Delhi Special Police Establishment Act
Electricity (Supply) Act, 1948s. 28, s. 29, s. 30, s. 31
Indian Penal Code, 1860s. 120-B, s. 406, s. 408, s. 409, s. 419, s. 420, s. Chapter XVIII
Prevention of Corruption Act

Subjects

criminal investigationFIRCBIArticle 226reasonable suspicionforeign investmentpower projecthigh court orderSupreme Courtpublic interest litigation

Judgment

A STA TE OF KARNA TAKA
v.
ARUN KUMAR AGARWAL AND ORS.

DECEMBER 13, 1999

B [S. SAGHIR AHMAD ANDS. RAJENDRA BABU, JJ.]

Constitution of India, 1950-Article 226-High Court ordering criminal
Investigation-Held, investigation can be initiated only when a crime is
C reported to have been committed or reasonable suspicion thereto arises-
Not on mere conjectures and surmises-Investigation.

In order to establish a power station near Manglore, foreign investors
were invited when the project was dropped by NTPC due to dissolution of USSR
with whose coUa~ration NTPC had earlier taken up the Project The foreign
D investment for the project was inducted through Manglore Power Project and
'C', a foreign company was selected as sponsor of the Project Various aspects
of the matter were considered and examined by the Government of India.
Several clearances were given by different agencies of the Government of
India from stage to stage, viz. foreign investment, examination of financial,
technical, and executing capability of 'C' as <per Government rules and
E guidelines. It also stood the test of scrutiny of State Government under three
consecutive Governments headed by three different Chief Ministers.

Another foreign company 'C L' was permitted to acquire equity holding
in the project by Government ofliidia. AU the matters were governed by specific
approval of the Government of India. General breakdown of the project costs
F and Balance Sheet were also subject matter of consideration. Detailed Project
Report was advertised; 838 representations raising objections were sent which
were ultimately examined by Central Electricity Authority and also the
comments of'C' were examined before.giving approval. None of the approvals
were challenged before any court The necessity for establishing the Thermal
G Power Project was already considered by the High Court in Jana Jagruti
Samithiv. Union ofIndia, (1991) 2 Kar. L.J. 524. The circumstances leading
to invitation of foreign investors for the Power Plant was also considered by
High Court in Indian Council for Enviro- Legal Action & Anr v. Union of
India & Ors., ILR (1997J Kar. 2956.

H 278
STATEv. A.K. AGARWAL 279

Respondents filed a Writ Petition before High Court praying for setting A
aside the Power Project and seeking investigation into the matter through
proper agency. The allegations in the Writ Petition were not against any
individual or group of individuals. The facts and circumstances of the case
relied on ~ere opposed by the State. High Court without analysing the
contentions put forth by either parties, formulated 13 points which appeared B
to it to be of suspicious nature and directed for registration of a case and for
investigation against persons not known and who were likely to be identified
after enquiry. Hence this appeal.

Allowing the appeal, this Court

HELD: 1.1. None of the circumstances noticed by the High Court can C
be characterised as giving rise to any suspicion much less a basis for
investigation by a criminal investigating agency. The reference of the High
Court to the liberalisation policy, reforms approved by amendment of
Electricity Supply Act to enable induction of private sector to participate in
power generation, to provide for level playing field for domestic and foreign D
companies in terms of the Government of India is a matter of policy and,
therefore, the idea of foreign collaboration by itself cannot be a suspicious
circumstance. (291-H; 292-A, 291-B-C)

1.2. It is difficult to visualise that when an agreement had been entered
into with a foreign company, it has been done under suspicious circumstances, E
particularly when it had stood the test of scrutiny under three different
Governments headed by at least three different Chief Ministers and when the
examination of the project and its approval was considered by three different
statutory and other agencies of the Government of India. [292-A-B)

2. Acts of persons will not be subject of criminal investigation unless a F
crime is reported to have been committed or reasonable suspicion thereto
arises. On mere conjecture or surmises as flight of fancy that some crime
might have been cQmmitted somewhere, by somebody but the crime is not
known, the persons involved in it or the place of crime unknown, cannot be
termed to be reasonable basis at all for starting a criminal investigation. G
[292-C-D)

Vineet Narain v. Union of India, (1996) 2 SCC 199, distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7231 of 1999.
H
280 SUPREME COURT REPORTS (1999] SUPP. 5 S.C.R.

A WITH

C.A. No. 7232/99 (@ SLP (C) No. 6016/98), C.A. No:7233/99 (@ Sl::P (C)
No. 6012/98) and SLP (C) No. 12834/98. •

From the Judgment and Order dated 27.2.98 of the Karnataka High Court
B in W.P. No. 10696 of 1997.

Altaf Ahmad Addi. Solicitor General , F.S. Nariman, Dushyant Dave,
Shanti Bhushan, Arun Jaitely, K.G. Raghavan, Shishir Sharma, Ms. Virola
Pinto, Amaresh K. Singh, Subhash Sharma, S.C. Sharma, Rajiv Tyagi, Sanjiv
Kapoor, Ms. Priya Kumar, Prashant Bhushan, Vijaya Shankar, K.K. Tyagi, K.R.
C Nagaraja, S.K. Kulkarni, Ms. Sangeeta Kumar, Ms. Kamini Jaiswal, Sanjeev
Puri and K.L. Janjani for the appearing parties.

The Judgment of the Court was delivered by

RAJENDRA BABU, J. Leave granted in SLP(C) Nos. 5883/98, 6016/98
and No. 6012/98.
D
Writ petition was filed in the High Court of Kamataka by Arun Kumar
Agarwal and S.K. Kantha seeking for investigation by appropriate agencies
into the various allegations made by them and to initiate criminal proceedings
against the guilty persons as per law. It was also prayed to 'set aside the
E power project entered by Kamataka Electricity Board (KEB) with Mangalore
Power Corporation (MPC) and reallot the power project through an open
bidding process. The High Court by an order made on February 27, 1998
granted some of the reliefs sought for in the writ petition. Against this order,
the petitioners in the writ petition as well as the respondents have come in
two sets of appeals. The High Court formulated 13 points (though noted as
F 14 in the order under appeal) which appeared to it to be of suspicious nature
leading to issue of the following direction :

"I. The respondent State (R-1) is directed to get a FIR registered
with the CBI under the provisions of Delh.i Special Police
Establishment Act for various cognizable offences without naming
G any person or group of persons as accused.
2. Upon registration of the FIR, the Director General of the CBI
shall direct the investigation to be conducted by an officer
under the supervision and control of an official not below the
rank of Deputy Director General of the CBI. The investigation
H shall ~ct be influenced by any of the observation made by us ,.
STATE v. A.K. AGARWAL [RAJENDRA BABU, J.] 281
for determining the desirability of the registration of FIR and A
investigation into the allegations.
3. Such investigation shall be commenced without any delay and
completed within one year from the date of the registration of
the FIR. ln case the investigation is not completed within the
time aforesaid, the CBI shall be under an obligation to seek B
extension of time from the Court by satisfying the Court regarding
the existence of valid reasons.
4. Monthly progress report of the investigation shall be submitted
by the Investigating Officer to the Registry of this Court in a
sealed cover. C
5. All the parties herein, the Central Government and the State
Government shall furnish all necessary information to the
Investigating Agency. It is hoped that the foreign companies
and persons shall also render all possible assistance in the
completion of the investigation. In case of any difficulty, the D
Investigating Officer shall be at liberty to pray for and seek such
instructions or directions or assistance from the Court as may
be needed. The allegations made in the petition and the facts
noted by us in this judgment shall be made the basis of recording
the FIR.
E
6. That the petitioners may be associated with the investigation as
and when required.
7. The petitioners are held entitled to payment of costs of Rs.
20,000 to be paid by R-3 and R-5."
The High Court in paragraph 45 of its judgment observed that as to F
whether the facts alleged, the documents produced and the circumstances
brought to the notice of the court are prima facie sufficient to warrant a
further probe, enquiry or investigation. Having said that, it sets out a few
facts which are stated to be either admitted or proved facts, but the appellants
challenged the correctness of the same. At paragraph 48 the High Court G
stated that some of the circumstances relied upon by the writ petitioners in
support of their submissions have vehemently been opposed and those
circumstances are referred to for the purposes of ascertaining as to whether
any case is made out for the purposes of further probe, enquiry or not. The
High Court also notices that the allegations and counter-allegations made in
the pleadings and that the writ petitioners have not referred to any individual H
282 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A or group of individuals who could be alleged to be the beneficiaries of an
amount of 191 Million Hong Kong dollars !Jut it may be desirable to ascertain
as to whether actually any part of that amount was spent in India or not. It
is also to ascertain even if the aforesaid amount was allegedly incurred with
respect to the projects being carried on by the appellant outside Hong Kong
B but not in India as to whether actually such amount was incurred in any other
country or the entry which was subsequently written off is a camaflouge to
hide the alleged kick backs and bribes paid for the alleged favours shown to
Mis Cognetrix in connection with the setting up of thermal power plant of
I 000 MW capacity at Man galore.

C The writ petitioners had referred to various other circumstance~. in
support of their cases which were vehemently denied by the respondents
therein, but the High Court did not venture to refer to such circumstances and
scrutinise them on the basis of the allegations and counter-allegations made
by the parties. The High Court noticed that the circumstances noted could
not be termed as frivolous, baseless, concocted or characterised as malajide
D made only for the purpose of defaming the appellant and in a very characteristic
way proceeded to observe as follows:

"The petitioners have referred to various other circumstances in support
of their contention which have been refuted and vehemently denied
by the respondents. We do not make a venture to refer to all such
E circumstances and scrutinise them on the basis of the allegations and
counter allegations made by the parties. We, however, feel that the
circumstances noted therein above cannot be termed to be frivolous,
baseless, concocted or referred to ma/a jidely only for the purpose
of defaming the respondent foreign company. The fact that tons of
F papers and tanks of ink have been utilised in the pleadings of the case
which was argued by distinguished Advocates of national eminence
for days before us and in the light of rival contentions regarding the
circumstances enumerated herein above, also persuades us to have a
primafacie view that all, many or any of the Respondents along with
others may on probe and investigation be ultimately found trible for
G many, any or few of the offences referred to and highlighted by the
petitioners. No benefit of doubt can be given to the respondents at
this stage. Investigation cannot be shut or facilitated to be closed on
technical pleas couched in sweet, attractive and glittering capsules of
artful advocacy. Both the sides of the coin are required to be tested
H by the experts ir1 the field. Judicial ceasarian is necessary for diagnosing
STATE v. A.K. AGARWAL [RAJENDRA BABU, J.] 283

the disease noticed in the beginning, for protecting, safeguarding and A
nourishing the developing democracy and the Rule of Law in this
great country known as 'Bharat'. We are satisfied that a prima facie

-
case has been made out requiring further probe and investigation for
allaying the apprehensions conceived by the Petitioners and other
citizens."
B
The High Court in paPngraph 50 of its judgment observed as follows :

"We only feel that a case may be required to be registered and
investigated against persons presently not known but are likely to be
identified after probe and enquiry by a competent investigating agency.
The respondents have further submitted that as the respondents C
cannot even prim a facie be held to be guilty of any of the cognizable
offence, ,no report can be directed to be registered. We do not agree
with such submissions made on behalf of the respondents as we find
that apparently and prima facie the facts noted herein above may lead
to the circumstances relate to the commission of cognizable offence. D
Upon investigation the real culprits may be found to have committed
offences not only under the Prevention of Corruption Act but .also
under various provisions of Penal Code such as offences u/s. 120-B,
406, 408, 409, 419, 420, offences under Chapter XVIII of the I.P.C.,
offences under the Companies Act, under the FERA and various other
statutes. Reference to various offences is only illustrative and neither E
conclusive nor indicative."

The learned counsel on either side have referred to various decisions
as to when a complaint can be made or court can order investigation but in
our view it is not necessary to refer to any of them as we ~ropose to examine F
whether any legal or factual basis existed for the High Court to make order
under appeal. We will examine !:he case in a chronological manner with reference
to facts and draw our inferences based on the material on record, the question
for consideration being whether the probe ordered is justified or not.

The Central Electricity Authority conducted a power survey in India
which indicated that the southern region including the State of Kamataka
o·
would face acute power shortage both in terms of peaking capacity as well
as~nergy requirement. The Survey further indicated that an addition of38,000
MW of electric power would become necessary by the VIII th Five Year Pl'lll.
The National Thermal Power Corporation [for short 'NTPC'] in collaboration
with the erstwhile USSR evinced interest in setting up a 2420 MW coal fired H
284 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A super thermal power plant at the site at which the KPCL had intended to set
up a project. This proposed project was, therefore, entrusted to the NTPC.
NTPC also obtained clearance from the Department of Ecology and
Environment and Forests, Government of Kamataka. The Government of India

B
issued a policy statement in two resolutions both dated October 22, 1991. The
first resolution was numbered as 7/8/88 (Thermal). The second resolution. No.
7/70/90(1.P.Cell), inter alia, stated as follows :
-
"5. Objectives of the High Powered Board

The objectiv~s of the Board include promotion of investment by
private units in the electricity sector in India both by indigenous, non-
c resident Indian and foreign entrepreneurs within the ambit of the
policy in this regard, keeping in view the optimal utilisation of the
country's natural and financial resources. To promote investment by
entrepreneurs in the private sector, the Board will, inter alia, serve as
a single point forum for faster clearances of the proposals received
D from them within a definite time frame and resolve outstanding issues
pertaining thereto.

6. Function of the High Powered Board

(i) While the agencies concerned with issuing statutory and other
E clearances, will continue to process the proposals to set up electricity
projects from all organisations, as also, those from the private sector
as per law and the guidelines, as applicable, and, as amended, from
time to time, the Board would monitor the processing of the clearances
including those statutory in nature, in respect of the proposals received
from private entrepreneurs.
F
(ii) With a view to expediting the clearances, the Board may issue
such directives as may be necessary regarding the processing and
issuing of clearances. The Board will also lay down the time frame by
which the clearances by agencies concerned may be issued.

G (iii) The Board will resolve all outstanding issues in respect of
clearances including cases of import of equipment in cases where
foreign supplier(s)/agency (ies) is/are extending concessional credit
assistance.

(iv) The Board will consider all investment proposals from non-resident
HG Indian and foreign investors.
STATE v. A.K. AGARWAL [RAJENDRA BABU, J.] 285
(v) The Board will undertake periodic review of measures taken to A
encourage private sector participation in the electricity sector and
decide on the steps to be taken for promotion of the scheme.

(vi) The Board will consider and decide on matters regarding the
scheme for encouraging private enterprise participation in the electricity
sector which may be referred to the Board by the Department of B
Power, including any specific proposal from a private entrepreneur
coming under the scheme : ·

7. Constitution of the Board :

The Board shall comprise the following : c
From the Government of India :

(I) Cabinet Secretary Chairman

(2) Secretary (Deptt. of Power) Member D
(3) Secretary (Fin~nce) Member

(4) Additional Secretary (Banking) Member

(5) Secretary (Planning Commission) Member
E
(6) Secretary (Environment & Forest) Member

(7) Secretary (Industrial Development) Member

(8) Secretary (Technical Development) Member

(9) Chairman, CEA F
From the State Governments :

{l 0) Chief Secretary to the concerned State Governments will be co-
opted as required."

The proposal to set up the project by NTPC with the aid from USSR G
did not materialise for various reasons including the distintegration of USSR.
The Government of India invited Cogentrix Inc. established in the USA to
attend a seminar on the power sector in the month of June, 1992 when the
representatives of the Cogentrix met the officials of the Kamataka Government.
On July 2, 1992, Cogentrix forwarded a draft Memorandum of Understanding H
286 SUPREME COURT REPORTS [1999) SUPP. 5 S.C.R.

A to Government of India. For the purpose of the Cabinet meeting held on July
15, 1992, a note was prepared wherein it was recorded that a number of major
hydro and thermal power projects had been identified that could be
implemented by foreign companies either. wholly owned by them or under
joint sector participation for which purpose discussions had been held with
B certain interested foreign companies whose names were enlisted there. It also
adverted to the visit of Chief Minister to USA, UK and Italy and it was
proposed to hold further discussions with the different companies in USA
and Italy to set up thermal and hydro projects. The Government of India
having signed a draft Memorandum of Understanding by the Cogentrix in
w°hich two power plants of 2 x 250 MW each were proposed to be set up and
C the Government by an order made on July 24, 1992 authorised the Government
to sign the Memorandum of Understanding stipulating to give guarantee to
generating companies within policy guidelines of policy on Power of
Government of India and directed to enter into Power Sale Agreements in
accordance with policy and also to publish the order in the Gazette. A high
level delegation headed by the then Chief Minister visited USA, UK and Italy.
D That team held discussion with 14 companies inviting their proposals and
offers to construct, own and operate power plants in Karnataka. The appellants
were willing to sign the MOUs for two projects of 2 x 250' MW each at
Mangalore and Bangalore subject to feasibility studies. The Government of
Karnataka entered into MOUs including two MOUs with Mis Cogentrix Energy
E Inc. for setting up a 2 x 250 MW coal based thermal power station at
Mangalore and Bangalore. A detailed report of the tour made by the Chief
Minister was placed in the Cabinet meeting held on August l 0, 1992 when
it was also made known that two MOUs has been signed with Mis Cogentrix
for thermal power projects at Mangalore and Bangalore, the details of which
have been set out in the Cabinet Note. On November 19, 1992,. a new
F Government assumed office in the State ofKarnataka headed by Shri Veerappa
Moily as Chief Minister. Under the directions of the new Government, all
MOUs signed by the previous Government were to be re-examined and
brought before the Cabinet for its consideration again. That decision was
taken ~n December 21, 1992. The Chief Secretary of Government of Kamataka
G conducted meetings to review all MOUs which was attended by the Senior
Officers of the Government such as Additional Chief Secretary, Finance
Commissioner, Secretary to the Energy Minister, Energy Secretary and Chairman,
Kamataka Electricity Board. Such review was held from January 23, 1993 to
March 3, 1999. Mis Cogentrix thereafter requested the Government to extend .
the MOU dated July 30, 1992 upto February 1, 1993 and stating that due to
H sitting difficulties at Bangalore it was agreed that the Bangalore project be
STATE v. A.K. AGARWAL [RAJENDRA BABU, J.] 287
.deferred and that a I OOOMW project be developed at Mangalore. A delegation A,
headed by the Chief Secretary of the Government of Karnataka held meeting
with the officers of the Government of India, such as, the Principal Secretary
to the Prime Minister, Union Power Secretary and Union Foreign Secretary on
25th and 26th February, 1993 as a follow up thereto. It was noticed in the
meeting held on February 27, 1993 that-
B
(a) Foreign investment is not easily forthcoming.
(b) India does not enjoy a good credit rating of foreign investment
in the international market.
(c) Any decision to cancel a MOU on the ground a fair opportunity
has not been given to investors will send a signal of instability C
to foreign investors in business in India. I
(d) That such a step will affect the national interest and will also
affect future foreign investment in Kamataka.

The officers recommended to the Cabinet to consider allotting I 000 MW D
thermal power plant to Mis Cogentrix Keeping in mind the views of the
Ministry of Power and senior Government officers of the Government of India
about their experience in power generation. On March 3, 1993, a Cabinet
meeting was held and it was decided to permit the appellant to set up
l OOOMW thermal power plant at Mangalore to be implemented in three phases
of 334 MWs (each phase consisting of 2 units of 167 MW). This was widely E
published by publication in the Karnataka Gazette. Thereafter various steps
were taken and in the meanwhile the Government of India, Secretariat for
industrial Approvals, Ministry of Industry, conveyed its approval to the
proposal to set up the power plant in Mangalore to Mis Cogentrix and by
an amendment made, China Light and Power was permitted by the Government F
of India to acquire equity holdings in the project. On January 3, 1994, the
Mangalore Power Company incorporated under Companies Act, 1956.
Thereafter steps were taken to enter into power purchase agreement from
March 23, 1994 onwards. They also consulted Tata Energy Research Institute
of India (TERI), GOPA of Germany and SAIC of USA. The power projects
agreement was signed on September 30, 1994 which incorporates the G
recommended configuration of 4x250 MW units. The power purchase agreement
was signed between KEB and Mis Cogentrix Inc. on September 30, 1994. On
July 19, 1995, the press release was made announcing entry of China Light
and Power to Mangalore Power Plant. The power purchase agreement was
placed before the State legislature on August 9, 1995. Detailed project report H
288 SUPREME COURT REPORTS [1999) SUPP. 5 S.C.R.

A was sent to the Central Electricity Authority in compliance to Sections 29, 30
and 31 of the Electricity (Supply) Act, 1948 for obtaining techno-economic
clearance. A scheme was published in terms of Section 28 read with Section
29(2) of the Electricity (Supply) Act. The power purchase agreement stood
revised on January 18, 1996. Techno-economic clearance was issued by the
B Central Electricity Authority on July 10, 1996.

In this case, we are constrained to observe that the High Court has lost
sight of certain broad features of the case. The necessity for establishing a
thermal power station which is, in detail, considered by the High Court of
Karnataka in Jana Jagruthi Samithi v. Union ofIndia, (1991) 2 Kar. L.J. 524.
C The circumstance in which the Government of Karnataka took decision to
invite foreign investors, the manner in which it was done, was also subject
of consideration in Indian Council for Enviro-Legal Action & Anr. v. Union
of India and Ors., ILR (1997) Kar 2956, and the High Court rejected objections
thereto which was not interfered with in SLP by this Court and thus that order
has become final. The circumstance in whic'h the National Thermal Power
D Corporation which wanted to establish a power station with the collaboration
of USSR was dropped on the dissolution of the Soviet Union is not in doubt.
The proposal to give the appellants the contract to establish a power station
near Mangalore was taken up for consideration when Mr. Bangarappa was the
Chief Minister and all decisions were taken not only by him but by the
E Cabinet concerned after being examined at various levels by the officers of
the government. Thereafter on November 19, 1992 a new government was
installed in the State of Kamataka with Mr. Veerappa Moily as the chief
Minister and the matter was reviewed by a committee headed by Mr. J.C.
Lynn, Chief Secretary to the Government of Kamataka. In that review meeting
the Additional Chief Secretary, Finance Commissioner, Secretary to the Ministry
F of Energy, Energy Secretary and Chairman, Karnataka Electricity Board had
attended and those deliberations were held on January 18, 1993, January 27,
1993, February 2, 1993 and February 2, 1993. Various suggestions made by
Mis. Cogentrix were presented to the Foreign Investment Promotion Board
formed under the auspices of the Government oflndia. Various aspects of the
G matter were examined by the Government of India and it expressed the view
that in the event of cancellation of Memorandum of Understanding there are
likely repercussions that may arise to which we have referred to earlier.
Several clearances were given by different agencies of the Government of
India from stage to stage. And, in the meanwhile, the government was again
changed in the State of Karnataka firstly with Mr. H.D. Deve Gowda as the
H Chief Minister, later headed by Mr. J.H. Patel and once again the project
STATE v. A.K. AGARWAL [RAJENDRA BABU, J.] 289

passed through the scrutiny of the new Governments. A
The genesis of the theory put forth on behalf of the writ petitioners is
the balance sheet showing incurring of expenditure in India. In the balance

...., sheet of China Light and Power Company and in Annual Report it is indicated
as follows:
B
"Investment in a power project in India : reached an agreement in July
with Cogentrix Energy of US to jointly invest in a 1000 MW coal fired
power station project to be built at Mangalore in the State of
Karnataka."

The Price Waterhouse report states that 71.8 million H.K. Dollars out ofa total C
of 191 million H.K. Dollars shown as provision in the accounts for September
30, 1995 and September 30, 1996 is in respect of the Mangalore Project and
they relate to (i) cost of acquisition paid to Cogentrix; (ii) reimbursement of
cost incurred by Cogentrix; (iii) payment to third parties for services; and (iv)
staff remuneration charged to the project. As to the allegation that money
might have been paid in a foreign country, no foundation for the claim is laid D
in the petition. The China Light and Power Company claims that neither the
company nor any group company maintained a bank account in British Virgin
island at any time and accounting have always been maintained in Hong
Kong. 1359 British Virgin Island Companies, including the China Light and
Power (International) Ltd. having place of business in Hong Kong are registered E
with the Registrar of Companies in 1997. The allegation of bribery made
against Mr. Deve Gowda is based on a letter written by Mr. George Fernandes
and the basis of this letter is again not clear. Thus the foundation laid for the
whole case arises out of suspicion alone on the strength of dubious and
amorphous material. On such material, no case can be registered, much less,
an investigation can be done. We would not have hazarded to consider that F
material placed before us but in order to allay the fears expressed by the
parties concerned, necessarily we had to undertake that exercise.

One of the questions raised by the writ petitioner in the High Court is
regarding financial and technical capability of the sponsor of the project. The G
Government of India while granting permission has considered this aspect at
different stages as is clear from letters dated May 11, 1993, September I, 1993,
April 15, 1994, March 23, 1995, June 3, 1996 and January 3, 1997. The last of
which indicated the permission of the Government of India to China Light to
acquire equity holding in the project and stipulating Cogentrix as an equity
holder. The original approval was to set up, own and operate pulverized coal H
290 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

· :.A fired power station of capacity of approximately I 000 MW to be implemented
in three power blocks of approximately 330 MWs each at Mangalore which
was modified by letter dated January 3, 1997. None of the approvals granted
by the Government of India and the amendments made to the approvals from
time to time was in challenge before us. Thus the entry, the financial capability
B of Cogentrix and CLP; withdrawal of General Electricity and replacement of
CLP; the induction of foreign investment for the project through Mangalore
Power Company; right to use imported coal; the capital cost of the project
· and the clearance for the implementation for I 000 MW project at Mangalore
are all matters governed by specific approvals given by the Gov~rnment of
India. In these proceedings, therefore, such clearance cannot be attacked
C collaterally which have been the subject matters of examination and approval
at the highest level by the Ministry oflndustry (Foreign Investment Promotion
Board) and the Ministry of Power of the Government of India.

The financial structure of the project and project costs including tariff
and the price of electricity have been subject to modifications and are
D conditional upon the approval by the Central Government, Ministry.of Power
as well as by the Central Electricity Authority. The final draft of the power
project after review by the Ministry of Finance, Government of India w.as
forwarded to the Govemqient ofKarnataka on September 29, 1997 for delivery
and execution by the Karnataka Electricity Board. Other matters relating to
E power project including heat rate, capital cost, revenue expenses, fuel
procurement and financial capability of the sponsor were considered at the
time of examining the proposals of the scheme under Section 29 of the
Electricity Supply Act and Detailed Project Report which had been submitted
to the Central Electricity Authority for approval and for techno-economic
clearance and deta!led project report gives breakdown of the various project
F costs including sponsors development expenses. Detailed project reports
prepared by the Cogentrix is in conformity with the guidelines of the Central
Electricity Authority. General Breakdown of the project costs and balance
sheet were subject matters of consideration. The official guidelines require the
development expenses to. be shown separately and such expenses, therefore,
G could, by no stretch of imagination, be considered as bribes or greased
money.

The detailed project report was advertised and 838 representations had
been received and the same were forwarded to the State Government for
onward transmission to the Central Electricity Authority. The Central Electricity
H Authority has examined these objections and comments offered by the CLP
STATE v. A.K. AGARWAL [RAJENDRA BABU, J.] 291

or the Cogentrix before giving its approval. Thus the techno-economic A
clearances given to the project cannot be examined by courts to arrive at
whether they are technically feasible or not or whether in granting the same
strange things have happened giving rise to suspicion that something has
been done by way of undue favour.

The reference of the High Court to the liberalisation policy, reforms B
approved by amendment of Electricity Supply Act to enable induction of
private sector to participate in power generation, to provide for level playing
field for domestic and foreign companies in terms of the Government of India
is a matter of policy and, therefore, the idea of foreign collaboration by itself
cannot be a suspicious circumstance. The Memorandum of Uu.derstanding C
arose as a result of Power Seminar held on June 16, 1992 enabling the
introduction of different parties. Kamataka Cabinet met on July 15, 1995 and
proposed signing of various Memorandum of Understandings with various
companies and the Chief Minister visited different places. The Memorandum
of Understanding with Cogentrix provides for period of exclusivity, transference
of existing permits and information, ability to induct partners and confidentiality. D
The next Memorandum of Understanding provided for promoters to undertake
feasibility study, develop power sales structure and tariff design, all at
considerable cost. The selection of Cogentrix was after examining the financial.
and executing capability as per the Central Electricity Authority guidelines.
The techno-economic clearance was granted by the (::entral Electricity E
Authority after eight months ofreview. Foreign Investment Promotion Board
granted permission for foreign investment of May I I, 1993 which also assessed
the technical and financial capability of the promoters. The financial statements
of the Cogentrix indicates that it is a US $944 million dollar company and not
a fly by night company as alleged. The shifting of site from Bangalore to
Mangalore has been considered earlier in the decision of the High Court of F
Kamataka, adverted to earlier. There was a change in the set up 1000 MW
at Mangalore instead of 2 x 250 MW at Bangalore and 2 x 250 at Mangalore.
Utilisation of transmission lines by the Cogentrix cannot be suspicious
circumstance because it proposed 400 KV transmission line interconnecting
Mangalore, Bangalore and Mysore has not been conceived exclusively for G
the Cogentrix but is for other projects totalling 2500 MW planneq for the
region. The increase in the electricity rates is subject to the Electricity Supply
Act and clearance being given by different Departments of the Union and
State Ministries. Therefore, that again cannot be a circumstance which could
give rise to any suspicion. We have adverted in detail to the balance sheet
showing incurring of expenses in India. Thus none of the thirteen H
292 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A circumstances noticed by the High Court can be characterised as giving rise
to any suspicion, much less a basis for investigation by a criminal investigating
agency.

It is difficult to visualise that when an agreement had been entered into
with a foreign company it has been done under suspicious circumstances,
B particularly when it had stood the test of scrutiny under three different
Governments headed by at least three different Chief Ministers and when the
examination of the project and its approval was considered by different
statutory and other agencies of the Government of India. Could it still be said
that there had been kickbacks to any one of them or all of them in the matter
C of entering.into a Memorandum of Understanding or in continuation of the
same? The law, in fact, is otherwise. The acts of persons will not be subject
of criminal investigation unless a crime is reported to have been committed
or reasonable suspicion thereto arises. On mere conjecture or surmise as a
flight of fancy that some crime might have been committed, somewhere, by
somebody but the crime is not known, the persons involved in it or the place
D of crime unknown, cannot be termed to be reasonable basis at all for starting
a criminal investigation. However, condemnable be the nature or extent of
corruption in the country, not all acts could be said to fall in that ,category.
The attempt made by the High Court in this case appears to us to be in the
nature of blind shot fired in the dark without even knowing whether there is
E a prey at all. That may create sound and fury but not result in hunting down
the prey, The High Court has looked at different circumstances in the case
with a jaundiced eye, particularly when we look at the comments made by it
in relation to the amount of paper used and standing of the learned counsel
appearing in the case. Naturally when stakes are high one would not like to
take a risk in allowing a matter to go by default. The persons concerned will
F take all precautions by putting forth every point in their favour and to be
represented by the best of counsel they can engage. Even that circumstance
is taken to be against the parties concerned. We think, the High Court has
gone too far. We would not have made this comment at all had the High Court
given due weight to the rival submissions made by the parties. The High
G Court has not at all analysed the contentions put forth by either party. Hardly
any reasons are for the coming in the order. What is stated by the writ
petitioners and the respondents are summarised. When the High Court steers
itself clear of expressing any opinion one way or the other even as to whether
a prima facie case exists or not and whether there is reasonable suspicion
of any crime having been committed, it is difficult to accept the view taken
H by the High Court.
STATE v. A.K. AGARWAL [RAJENDRA BABU, J.] 293

Reference has been made to certain cases including Vineet Narain v. A
Union ofIndia, [ 1996] 2 SCC 199, wherein this Court had monitored the police
investigations by passing series of orders. But that was a case where the
investigating agency, although had gathered evidence pursuant to a probe
started long back, was not proceeding with investigation since the matter
involved persons in very high positions in Government and in public life. The B
lethargy of CBI was inexplicable and hence this Court monitored the
investigation. The principle of this decision is not at all applicable to the facts
of the present case. Nor are we impressed with the argument that this Court
should not in exercise of powers conferred under Article 136 of the Constitution
interfere with the order under appeal inasmuch as an order as to wrongful
investigation will certainly put a person to jeopardy when there is no justification C
to do so. ·'

In the result, we think that the order made by the High Court has got
to be set aside, but this order will not preclude the parties concerned on
finding appropriate material to place the same before any authorised agency
to register the CijSe and investigate the matter and, in the event there is any D
inaction on their part, may seek relief in an appropriate court.

Subject to what is stated by us, we set aside the order made by the High
Court and allow these appeals.

In the view we have of the matter, we do not think that the appeal filed E
by the other side can be allowed. Special leave Petition (C) No. 12834of1998
preferred by Shri Arun Kumar Agarwal shall stand dismissed. In the
circumstances of the case, we direct the parties to bear their own costs.

K.K.T. Appeals allowed and Petition dismissed.
F