Kiran Raj

The Supreme Court Division Bench of Justice M.M. Sundresh and Justice Rajesh Bindal quashed a First Information Report filed against the appellants, directing that the FIR registered under various sections of the Indian Penal Code be set aside and the escrowed shares returned to the appellants. The Court held that the initiation of criminal proceedings in this case amounted to an abuse of process, particularly in light of prior civil litigation that had already settled the dispute. Stating the absence of any criminal proceedings by statutory authorities such as the Reserve Bank of India or the Enforcement Directorate, the Bench stated that the High Court erred in rejecting the appellants’ plea for quashing.

The matter stemmed from a complex transaction involving an Escrow and Settlement Transaction Agreement dated 12.05.2007, entered into between Corsair, Katra, and Standard Chartered Bank, Mauritius. As per the agreement, M/s Vector Program Pvt. Ltd. (Vector), a contesting respondent, agreed to sell 13,455 shares of Tamil Nadu Mercantile Bank unconditionally and irrevocably to entities identified by Corsair Investments LLC. One such entity, Starship Equity Holding Ltd. (Starship), an appellant, was nominated as an independent investor.

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Vector addressed a letter to Corsair confirming the share transfer agreement. On 13.05.2007, Tamil Nadu Mercantile Bank approved the share transfer in Vector's favour. On the same day, the shares were further transferred to the appellants and deposited with Standard Chartered Bank's Mumbai branch. Following this transaction, Vector received Rs.32,53,68,810/- on 15.05.2007. According to the Court, the shares’ valuation increased significantly thereafter.

In 2011, Vector initiated a civil suit seeking to terminate the Escrow Agreement and regain possession of the shares. The interim application in Suit No. 988/2011 was dismissed by the Bombay High Court. The High Court held that Vector lacked the right to terminate the Escrow Agreement or demand a return of shares, as the transfer had already been affected and there was no regulatory bar.

Vector then filed an intra-court appeal. The Division Bench of the Bombay High Court dismissed the appeal with a speaking order and imposed costs. Vector pursued a Special Leave Petition before the Supreme Court, which also did not succeed.

On 16.12.2016, shortly after the Division Bench dismissed the appeal, Vector filed a criminal complaint that was registered as FIR No. 418/2016 at Indiranagar Police Station, Bengaluru. The FIR cited offences under Sections 406, 409, 420, 108-A, 109, and 120-B of the IPC, 1860, involving allegations of document fabrication and statutory violations.

The FIR was transferred the following day to the Criminal Investigation Department Cyber Crimes Police Station. An Investigating Officer was promptly appointed, and an order under Section 93 of the CrPC, 1973, for search and seizure was obtained from the jurisdictional Magistrate. The escrowed share certificates in Vector’s name were seized during this process.

The appellants approached the Karnataka High Court seeking to quash the FIR. However, the High Court rejected their petition. The appellants subsequently filed the present appeal before the Supreme Court.

Senior counsel for the appellants contended that the criminal complaint was a belated and malicious move filed nearly nine years after the Escrow Agreement and monetary transaction. They submitted that the complaint was lodged immediately after the civil litigation failed. The Escrow Agreement and associated documents were placed on record to reinforce their argument that the matter was entirely civil in nature and had already been adjudicated.

The High Court of Karnataka acknowledged that Vector had received the transaction amount but did not find sufficient grounds to quash the FIR. Importantly, there was no initiation of criminal proceedings by the Reserve Bank of India or the Enforcement Directorate, both of which could have had jurisdiction in case of statutory violations.

Senior counsel representing Vector submitted that proceedings had been initiated against other individuals and that the FIR registration was valid given the cognizable nature of the alleged offence. They urged the Court not to interfere in an ongoing investigation.

The Supreme Court made several key judicial observations regarding the sequence and nature of the transactions and the subsequent litigation. "The facts, as narrated, speak for themselves."

Upon examining the FIR, the Court noted: "We find that it is completely bereft of the material particulars. Most of the transactions have either been suppressed or have not duly been brought on record."

Referring to the civil litigation history, the Court stated: "This includes the pendency of the civil litigation and the orders passed both by the High Court and this Court."

The Court stressed the finality of earlier judicial decisions: "The decision of the Division Bench of the Bombay High Court has been confirmed by this Court. All the contentions raised have been considered threadbare."

In relation to the complaint timing, the Court stated: "The very criminal complaint, as stated earlier, has been given immediately after the dismissal of the appeal by the Division Bench of the High Court."

It was acknowledged that: "It is not in dispute that respondent-Vector signed the documents, transferred the shares and received the money. All these transactions were complete way back on 15.05.2007."

The Court found that the criminal complaint appeared to be an afterthought:

"Thereafter, by way of an afterthought, respondent-Vector made an abortive attempt by way of filing a civil suit seeking termination of the Escrow Agreement, and return of the escrowed shares."

The Court concluded: "There is no contra-material to hold that any other criminal proceedings have been initiated against the appellants. It is the respondent-Vector who was the beneficiary of the transaction and received money at the relevant point of time."

Criticizing the High Court decision, the Bench observed: "We have no hesitation in holding that the High Court has committed an error in not considering the relevant materials in their correct perspective, especially, the well merited decisions of the Bombay High Court."

On the scope of Section 482 CrPC, the Court noted: "The power under Section 482 of the Code of Criminal Procedure, 1973 as it stood at the relevant point of time, though is expected to be exercised sparingly, shall be invoked when the pendency of the criminal proceedings would result in a gross abuse of the process of law."

Referring to a related matter, the Court stated: "We have also been informed that subsequently, the very same High Court has quashed the impugned FIR as against the co-accused namely, accused Nos.6 and 7 in Criminal Petition No.565/2017 by order dated 28.03.2024."

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The Court issued the following final directions:

"Considering the above facts and discussion, the impugned order stand set aside. Consequently, the FIR being FIR No.418/2016 registered against the appellants stands quashed. The escrowed shares will have to be returned to the appellants."

The Bench also clarified the scope of its order: "We make it clear that our order will not have any bearing on any other pending proceedings."

Accordingly, the Court concluded: "The appeals stand allowed in the aforesaid terms. Pending application(s), if any, shall stand disposed of."

Advocates Representing the Parties:

For the Petitioners: Dr. Abhishek Manu Singhvi, Senior Advocate; Mr. M S Krishnan, Senior Advocate; Mr. K. Shiva, Mr. Anirudh Krishnan, Mr. Kunal Shah, Mr. Mohit Rohatgi, Ms. Ankita Singhania, Mr. Karthik Adlalka, Mr. Kaustub Narendran, Mr. Umang Nair, Mr. Balaji Srinivasan, Advocates Dr. Harish Narasappa, Senior Advocate; Mr. Divyam Agarwal, Mr. Hormuz Mehta, Mr. Aniket Aggarwal, Mr. Mayank Ratnaparkhe, Mr. Ahsan Allana, Mr. Pranav Nayar, Advocates

For the Respondents: Mr. V. N. Raghupathy, Advocate-on-Record; Mr. Raghavendra M. Kulkarni, Ms. Mythili S, Mr. M. Bangaraswamy, Mr. Venkata Raghu Mannepalli, Mr. Md. Apzal Ansari, Mr. Prakash Jadhav, Mr. Shiv Kumar, Ms. Vaishnavi, Mr. Dhanesh Ieshdhan, Advocates Mr. Sajan Poovayya, Senior Advocate; Mr. Palash Maheshwari, Ms. Sanjanthi Sajan Poovayya, Ms. Raksha Agarwal, Mr. Yogesh Somani, Mr. Saransh Bhardwaj, Mr. Akash Chatterjee, Advocates

Case Title: Standard Chartered Bank v. The State of Karnataka & Ors.

Case Number: Criminal Appeal No. 845/2018 with Criminal Appeal No. 846/2018

Bench: Justice M.M. Sundresh, Justice Rajesh Bindal

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