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Synopsis

The Supreme Court has on April 25, 2024 said an FIR, by taking cognizance of an offence, merely sets the law into motion which has nothing to do with a decision on the administrative side, made by a different authority. 

It also emphasised that the principles of natural justice are not applicable at the stage of reporting a criminal offence as providing an opportunity of being heard prior to the commencement of a criminal action, i.e. registration of an FIR, would frustrate the very purpose of initiating a criminal proceeding, which is to meet the ends of justice.

"Merely because the facts are same or similar, one cannot say that in the absence of a valid administrative action, no offence which is otherwise cognizable, can be registered. At that stage, one only has to see the existence of a cognizable offence, based on the FIR registered. Therefore, even assuming that there is no action forthcoming on the administrative side, an FIR can be held to be maintainable. The scope and role of both the actions are totally different and distinct, more so when undertaken by different statutory/public authorities," a bench of Justices M M Sundresh and Rajesh Bindal said.

When an administrative order is set aside on the ground of non-compliance of a legal necessity or mandate, the facts mentioned thereunder could still be the basis for the registration of an FIR, the bench clarified. 

Acting on appeals by the CBI, the court found the High Courts have clearly failed to take note of the legal position by quashing the FIRs and the subsequent criminal proceedings on an erroneous interpretation of SBI Vs Rajesh Agarwal, (2023).

Brief Background

On July 01, 2016, Reserve Bank of India issued Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs.

The directions provided a framework for banks, to enable early detection and reporting of frauds, and consequently taking actions in a timely manner. 

Accordingly, the banks initiated administrative actions that affected the respondents, by declaring the companies bank accounts as fraudulent - an action which had significant civil consequences delineated in the Master Directions. 

The banks also initiated criminal proceedings against the respondents, with respect to fraudulent activity that was detected, as the Master Directions required them to refer certain categories of cases to the State Police or the Central Bureau of Investigation as a general rule. 

Aggrieved by the same, the respondents approached different jurisdictional High Courts, challenging the validity of the Master Directions and the actions taken consequently. 

The High Courts, by the impugned orders, quashed not only the administrative actions initiated in pursuance of the Master Directions, but also the FIRs registered and the subsequent criminal proceedings initiated against the respondents.  

Case Title: CBI v. Surendra Patwa & Ors.