Citing Large Amount Of Money involved, SC Restores Fraud Proceedings Against Company's Former CFO

Supreme Court of India heard an appeal filed by the complainant-Company against the judgment of the High Court of Karnataka which had quashed criminal proceedings and the chargesheet against one of its own former Chief Finance Officers who was accused of offences of fraud and cheating. The Apex Court analyzed whether the High Court was justified in quashing the proceedings against the respondent, who was accused No. 5, under its inherent powers.

The matter stemmed from allegations of fraud and misappropriation of funds by employees of Daechang Seat Automotive Ltd.. The Company alleged that its financial advisors, N.K. Associates, who cheated the compnay into making a huge amount of GST payment, which was then misappropriated. The respondent, Moon June Seok, who was a former Chief Financial Officer (CFO) of the Company, was involved, and a chargesheet was filed against him and others. However, the High Court overturned the proceedings against this respondent, as there was no prima facie material to connect him to the misappropriation directly, and also opined that being a salaried officer and that the amount of the alleged bribe was meager.

As a result, the appeal was allowed by Supreme Court and the High Court judgment was set aside, thereby reinstating criminal proceedings against the respondent. The Apex Court also noted that the consideration by the High Court about absence of direct evidence and quantum of the alleged bribe at the quashing stage was not apt.

Significantly, the Supreme Court observed that the respondent's own testimony supported the testimony of a co-accused that they had received a large amount of money. The Court also observed the suspicious character of the professional relationship between the respondent and another accused, emphasizing their decision to function without documents despite the fact that they were dealing with substantial amounts of money.

Accordingly, the Supreme Court once reiterated that at the charges-framing stage, the allegations cannot be tested on their truth in entirety, and a mini-trial is not allowed. The Apex Court further held that it was not rational to quash the proceedings at this juncture, especially considering the huge amount of money involved, and emphasized the responsibility of the rule of law to protect investments and provide for fair trial.

Coram: Justice Sudhanshu Dhulia and Justice K. Vinod Chandran
Date of Judgment: 08-04-2025