Inherent Powers of High Court in Quashing Criminal Proceedings against Companies

Rohit Nandakumar, Student of Law, NUALS, Kochi

A criminal proceeding, according to the law Lexicon, refers to a proceeding instituted and conducted for the purpose either of preventing the commission of a crime or for fixing the guilt of a crime already committed and punishing the offender. In L. Choraria v. State of Maharashtra ((L. Choraria v. State of Maharashtra , A.I.R. 1969 SC 938)), the term has been pointed out as meaning a criminal enquiry or trial before a court. Where the proceedings are irregular, void, or defective, the courts will quash them, i.e. make them null and void.

It is usually the case that companies indulge or participate in activities within the nature of criminal offences like forgery, cheating, falsification of accounts fraud etc. and criminal proceedings being initiated against them. In these cases, such companies often attempt to quash the proceedings initiated against them to escape from the criminal liabilities that may be imposed against them, as far as possible during the initial stages itself. The inherent powers vested with the High Court under Section 482 of the Code of Criminal Procedure are often relied upon by the companies to quash such criminal proceedings that have been initiated against them.

Section 482 of the code of criminal procedure reads as follows: “Saving of inherent powers of High Court – Nothing in this Code shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or otherwise to secure the ends of justice.” Inherent power is therefore vested upon High Courts to:

  1. To give effect to provision of the Cr.P.C;
  2. To prevent abuse of court proceedings; and
  3. To secure ends of justice.


The inherent power of the court to quash a criminal proceeding in company cases pending before subordinate courts is to be exercised sparingly in the rarest of rare cases ((Sasthi Sood v.Asst. Registrar of companies, West Bengal & Anr, (2001) 1 CALLT 184 (HC).)). In R.P. Kapur v. State of Punjab ((R.P. Kapur v. State of Punjab,A.I.R. 1960 S.C. 866 (869).)), Justice Gajendragadkar pointed out that, “It is well established that the inherent jurisdiction of the High Court can be exercised to quash proceedings in a proper case either to prevent the abuse of the process of any Court or otherwise to secure the ends of justice”. It is not to be exercised to disturb a legitimate prosecution. In cases wherever the proceedings initiated and continued against a suspect person amounts to abuse of court proceedings or wherever quashing the proceedings would secure the interests of justice, such proceedings ought to be quashed by the court.

To decide as to whether a case falls within the category of ‘rarest of rare cases’ for the application of the inherent power, due regard is to be given to;

  1. the facts and circumstances of the case at hand,
  2. the affected parties, and
  3. the possible implications of the decision.

Courts have often expressed the view that High courts are not to embark on an enquiry as to whether the evidence or allegations are reliable or not when it considers a petition relating to quashing of criminal proceedings in company cases. Whether, the FIR or the petition of complaint does not disclose the offence or is otherwise frivolous vexatious or oppressive; it is open to the High Court to interfere under section 482 Cr.P.C and to quash a criminal proceeding ((Sasthi Sood v.Asst. Registrar of companies, West Bengal & Anr, (2001) 1 CALLT 184 (HC).)).

Moreover, when the material on record is per se sufficient for the Court to form an opinion that the accused have committed the offences alleged against them and frame the said charges, there is no reason why a charge sheet against the Appellant should be quashed at such a preliminary stage when he has only been summoned to stand trial ((Sajjan Kumar v. Central Bureau of Investigation,(2010) 9 SCC 368)). This means that the High Courts would not exercise its inherent powers under S.482 Cr.P.C, so as to quash criminal proceedings, if there exist, a case prima facie. In such a situation, the court should direct the applicant to stand trial and to prove in innocence. Criminal cases are offence against public at large, and where a criminal case exist prima facie, it should be, in the interest of justice be bought to stand for trial and to be decided on merits.

The application of the inherent powers of the High Court to quash a will depend always on the facts and circumstances of each case. But the court would always have to ensure that such application has not been brought forth with an intention to interfere with the existing prosecution and to adversely affect the case. The saving of the High Court’s inherent powers is designed to achieve a salutary public purpose which is that a court proceeding ought not to be permitted to degenerate into a weapon of harassment or persecution. In a criminal case, the veiled object behind a lame prosecution, the very nature of the material on which the structure of the prosecution rests and the like would justify the High Court in quashing the proceeding in the interest of justice ((State of Karnataka v. L. Muneswamy, (1977) 2 SCC 699)).

The scope and power of High Courts under S.482 Cr.P.C to quash criminal proceedings in company cases was dealt with in detail in the case of Sushil Suri v. C.B.I ((Sushil Suri v. C.B.I ,(2011) 5 SCC 708)).The Apex Court pointed out in Sushil Suri’s case that, High Courts should normally refrain from giving a prima facie decision in a case where all the facts are incomplete and hazy, more so, when the evidence has not been collected and produced before the Court and the issues involved, whether factual or legal, are of such magnitude that they cannot be seen in their true perspective without sufficient material. The court also pointed out that in cases of a mixed civil and criminal nature exists, and the civil dispute being settled does not mean that criminal proceedings should be quashed. As pointed out by the court, an argument that whenever a dispute between the parties, having overtones of a civil dispute with criminal facets is settled between them, continuance of criminal proceedings would be an exercise in futility and, therefore, should be quashed holds no good. The fact that the offence may be one compoundable under the Criminal Procedure Code is not relevant to the courts when in considers matters in consideration of its exercise of the inherent powers under Section 482 Cr.P.C. The mere fact that the offence is compoundable under provisions of the Criminal Procedure Code does not limit the inherent powers of the High Court to quash criminal proceedings. This case laid down a rule as against the one lay down in the case of Nikhil Merchant v. Central Bureau of Investigation ((Nikhil Merchant v. Central Bureau of Investigation , (2008) 9 SCC 677)), where it was said that the continuance of the criminal proceedings after the compromise arrived at between the parties would be a futile exercise of the inherent powers. The court held in Sushil Suri’s case ((Supra n.7))that the rule laid down in Nikhil Merchant v. Central Bureau of Investigation ((Supra n.8))is not an absolute proposition, every case coming before the a court depends on the facts of that particular case, there may be similarities with other cases, but even a single difference in detail may alter the entire aspect – themodus operandi of the appellants were relied upon in Sushil Suri’s ((Supra n.7))case to distinguish from Nikhil Merchants Case ((Supra n.8)).

Section 463 INDIAN COMPANIES ACT, 2013 & Section 482 of the Code of Criminal Procedure 1973

Section 463 Of Indian Companies Act, 2013 provides for the power of the court to grant relief in certain cases. But, the courts power to grant relief under Section 463 of the Companies Act is limited to proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company. In such proceedings, if it appears to the court that the officer had acted honestly and reasonably and that owing to the circumstances he ought to be excused, the court can relieve the officer wholly or partly from his liability. The High Court also has the power to grant the relief in cases where such proceedings are reasonably apprehended by the officer. In such cases the High Court has the same power to relieve him as it is the Court before which a proceeding against that officer.

But the powers under this section of the Indian Companies Act will not be applicable in cases of prosecutions involving any criminal liability. This means that the provisions of Section 463 of the Companies Act, 2013 will not help in any way to wholly or partially relieve the officer of a criminal liability in a prosecution.  In such cases the power to quash the proceedings can be found only under Section 482 Cr.P.C. Moreover, the power under Section 633 Companies Act will not enable the quashing of the proceedings as such; it would only relieve the officer wholly or partly from his liability. Any proceeding that exists against the company as such may continue.


Most of the criminal cases against companies deal with either the misrepresentation of documents of the company for the purpose of getting loans or of misusing it or with relation to the directors misappropriating the funds of the company.  The only check existing upon such mismanagement of loans by the companies is the police investigation or investigations from other investigating agencies that occur when the loan providing person/institution complain about default in payment. As it can be seen from the facts of several decided cases, on the institution of a criminal charge in such circumstances against the companies, the accused try to quash the criminal proceeding, initiated against them, by invoking the inherent power of the High Court to quash such proceedings. At this juncture, the company even goes to extend of repayment of the money taken by them to the complainant, so that they settle the civil dispute that is associated with their case. This often enables the accused also to escape liability as it is often followed that whenever a dispute between the parties, having overtones of a civil dispute with criminal facets is settled between them, continuance of criminal proceedings would be an exercise in futility. But in these circumstances the criminal offences done by the companies often goes without being properly noticed, an offence against the public at large is often ignored.

Although it was laid down by the Apex Court in Sushil Suri’s ((Supra n.7))case that High Court, and also Apex Court, should not order quashing of cases involving crimes against society, it is not often put into practice. The courts have to ensure that criminal offences like fraud and misrepresentation committed by directors of any company be dealt with in a stringent manner. Moreover, proper measures must be taken to impose severe penal provisions, under law, to desist the directors of companies from involving in such activities and to ensure that such activities are nipped at bud. Measures must be taken to ensure that the directors/officials of companies who are involved [convicted] in such criminal activities be barred from taking up the director/official of a company for either a period of time or permanently. A proper scrutinisation procedure must be adopted by the banks and financial institutions before granting loans. Such procedures may be established by the banks in sync with the Ministry of Corporate Affairs. The MCA21 facility may be further leveraged to establish a uniform and efficient system of perusal of companies by banks and financial institutions.

Various other allegations which warrant prosecution under the penal laws of the country have surfaced in the recent past. In 2012 criminal proceedings were initiated against a number of I.T companies like Microsoft India, yahoo India, etc. for hosting objectionable contents in the world wide web the proceedings against yahoo India, and Microsoft India was later quashed by the Delhi High Court ((INTERNET, HC Quashes Criminal Proceedings Against Microsoft India, Business World, March 18, 2012, See also, P.T.I. New Delhi, Delhi High Court quashes criminal proceedings against Yahoo India, India Today, March 2, 2012,  A constant check has to be kept on the criminal activities of companies and criminal proceedings taken against companies. Severe provisions have to be brought forth by the government to prevent companies from indulging in criminal activities. A criminal offence is an offence against the public at large, and measures should be taken up by appropriate authorities from saving the general public from harm’s way. Considering the enormous powers vested with the High Courts by virtue of S.482 Cr.P.C, the courts are to exercise these powers with utmost care and caution and even when there is a slightest probability of the trial resulting in a conviction, the case must be allowed to stand, for serving the interest of justice. As pointed out in the case of Gian Singh v. State of Punjab, ((Gian Singh v. State of Punjab,2012 (9) SCALE 257))court shall exercise its inherent power to quash proceedings in order to meet ends of justice.