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Synopsis

The Supreme Court recently observed that upholding the rule of law is crucial to safeguarding foreign investments. It made this observation while allowing criminal proceedings to continue against a Korean national, stating that questions of evidence and potential acquittal should be decided at trial.

The court reinstated criminal proceedings in a case involving alleged fraud through the misrepresentation of input tax credit and the misappropriation of Rs. 10 crore. The accused include the Korean national along with Indian chartered accountants and financial advisors.

"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. 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’," a bench of Justices Sanjay Karol and Ahsanuddin Amanullah said.

Senior advocate Sidharth Luthra appeared for Hyeoksoo Son, authorised representative of the aggrieved company Daechang Seat Automotive Ltd, a seat manufacturer for ‘KIA’ cars.        

The FIR was registered on December 11, 2022 with Sanjay Nagar police station, Bengaluru. The complainant was the successor of the respondent-accused no. 5, Moon June Seok, herein as the Chief Financial Officer. Upon taking over the position and inspecting the records of the company, he found that money had been debited from the accounts for ‘GST payment’, but it had not been credited to the concerned authority. Charge Sheet was filed on March 18, 2023 before the III Additional Chief Metropolitan Magistrate, Bengaluru City. 

On a plea by the respondent-accused, the Karnataka High Court had quashed the proceedings against him.

Assailing the order, Luthra said the inherent power of the high court ought to be exercised sparingly and an endeavour can not be made to examine the reliability or genuineness of the allegations made in the chargesheet. He said the court can not conduct a ‘mini trial’ or engage in an inquiry, testing the veracity of the allegations. The allegations have to be taken at face value and it is to be examined whether a prima facie case is to be made out or not. The truth or falsity in the allegation can only be determined upon trial, he argued.

The amount of bribe received by the respondent, be it high or low, cannot be a ground for quashing. As the Chief Financial Officer, the respondent was in control of the finances of the company and the other co-accused persons were brought into the fold of the operations, at his behest, therefore, he was not at liberty to state that he was only a forwarding agent. In fact, he was a vital link in the chain, the counsel said.

Luthra also contended that the respondent was not able to justify the recovery of Rs 9,69,000 from his residence. Moreover, accused no.1 and the respondent, both, in their statements had acknowledged the receipt of Rs 1,80,00,000 in identical instalments, on the same dates and locations – clearly establishing the latter’s role as co-conspirators, he submitted.

Senior advocate Rajiv Shakdher, appearing for the respondent, submitted that the high court’s observation that there was no direct evidence against him was correct. The appellant was under the wrong assumption that, as ‘CFO’, he had control over the company’s funds, when, in fact, his role was administrative due to language barriers. Voluntary statement of co-accused cannot form the sole basis of conviction and further there was an unexplained delay of 8 months in lodging the FIR, he said.

The bench said the contours of exercise of the powers under Section 482 CrPC have been expressed in various judgments, including in the well-known case of State of Haryana Vs Bhajan Lal (1992). The principles laid in Bhajan Lal were followed, expanded and clarified in Neeharika Infrastructure (P) Ltd Vs State of Maharashtra (2021). 

With regard to submission that reliance solely on the statement of the co-accused was not justified, the bench said, "We find this submission to be incorrect for presently, respondent’s own statement also presents some corroboration for the statement of accused no.1, Nikhil Kumar Singh".

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. This, however, is not the only connection between these two persons. It was on accused No.1’s recommendation that respondent no.1 ‘appointed’ one Ritesh Merugu, who is accused no 2, as Accounts Manager, the bench held.

"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 bench said.

The court thus allowed the appeal and set aside the Karnataka High Court's judgment of February 19, 2024. It revived and restored the proceedings and directed the parties to appear before the Bengaluru court on April 16, 2025.

Case Title: Hyeoksoo Son Authorised Representative For Daechang Seat Automotive Pvt Ltd Vs Moon June Seok & Anr