Background:

The present case, originated from a bounced check dispute where V.P. Tyagi was convicted, with the court finding his prior payments unrelated to the checks. However, the trial court, after examining the evidence, concluded that the drafts were not linked to the cheques and convicted Tyagi. Following this, Tyagi lodged a criminal complaint against S.C. Garg under Section 420 of the IPC (now under Section 318(4) BNS), alleging cheating and misuse of the cheques. The FIR was challenged by Garg, who argued that the dispute had already been adjudicated by a competent court and that reopening the matter amounted to an abuse of process. The Allahabad High Court refused to quash the FIR, prompting an appeal to the Supreme Court. The case thus raised important questions about the applicability of res judicata in criminal proceedings and the liability of company directors in cases where the company itself is not named as an accused.

Issues

I. Whether the findings of the NI Court regarding the demand drafts (that they were for different liabilities) would be binding in the subsequent cheating case under Section 420 IPC (now under Section 318(4) BNS)?

II. Whether an officer of a company (like the Managing Director) can be prosecuted for offenses committed by the company without the company itself being arrayed as an accused?

Observations:

The following observations were made by the court:

• • The Court held that principles of res judicata can apply to criminal cases when issues of fact have been conclusively adjudicated by a competent court.
• • Since the trial court in the cheque bounce case had already decided that the demand drafts were not linked to the dishonoured cheques, filing a fresh cheating case on the same basis was impermissible.
• • The Court viewed the FIR as a retaliatory move, filed to harass the accused after losing in the earlier proceedings, amounting to misuse of judicial process.
• • A company director cannot be prosecuted for offences allegedly committed on behalf of the company unless the company itself is also made an accused, except in exceptional cases.
• • Based on the above findings, the Supreme Court quashed the cheating FIR, protecting the accused from double jeopardy and unnecessary harassment.

Decision:

The Supreme Court allowed the appeal and quashed the FIR filed against S.C. Garg under Section 420 IPC (now under Section 318(4) BNS). It held that:

• • The cheating allegation was based on the same facts already decided in the cheque bounce case under the Negotiable Instruments Act.
• • Initiating a fresh criminal case on settled issues amounted to abuse of process.
• • Since the company (Ruchira Papers Ltd.) was not named as an accused, prosecuting its Managing Director alone was not legally sustainable.

Why this case matters:

• • The case affirms that once a fact has been judicially determined in a criminal trial, it cannot be reopened in a new proceeding, protecting individuals from repeated litigation on the same issue.
• • It sets a precedent against filing retaliatory or "counter-blast" FIRs after losing a legal battle, especially in commercial disputes.
• • The judgment reinforces that company directors cannot be prosecuted for company-related acts unless the company itself is made an accused, safeguarding individuals from wrongful liability.
• • The case serves as a reference point for invoking Section 482 CrPC (now under Section 528 BNSS) to quash frivolous or repetitive criminal proceedings based on previously decided facts.

Laws related thereto:

Under BNS:

• Section 318(4): Pertains to the offence of cheating and dishonestly inducing delivery of property. Punishable with imprisonment up to 7 years and/or fine.

Under BSA:

• Section 528: Empowers High Courts to quash criminal proceedings to prevent abuse of the court’s process or to secure ends of justice. Used by Garg to seek quashing of the FIR filed against him.

Under Negotiable Instruments Act:

• Section 138: Deals with dishonour of cheques for insufficiency of funds. Provides for criminal liability when a cheque is returned unpaid and legal formalities are fulfilled.

Judicial Precedents:

• Pritam Singh v. State of Punjab, 1956:

Findings in one criminal proceeding can operate as res judicata in another if the issue was finally decided by a competent court.

Relevance: Supported the principle that settled facts in earlier criminal proceedings cannot be reopened.

• Sharad Kumar Sanghi v. Sangita Rane, 2015:

A company’s director cannot be prosecuted in a criminal case if the company is not made an accused, unless special reasons exist.

Relevance: Applied to quash proceedings against S.C. Garg, as Ruchira Papers Ltd. was not named in the FIR.

• Dayle De’Souza v. Government of India, 2021

Vicarious liability of a company official arises only if the company is also arraigned as an accused under statutory provisions.

Relevance: Reinforced that prosecution of a Managing Director without implicating the company is legally untenable.