Amicable Settlement In Commercial GST Dispute Allows Quashing of FIR: Calcutta High Court

The Calcutta High Court recently quashed an FIR and released the frozen corporate bank accounts of Indian Compressors Ltd., clarifying that where a dispute is essentially commercial and private in nature, and the parties have voluntarily arrived at an amicable settlement, criminal proceedings may be quashed under Section 482 Cr.P.C., even for non-compoundable offences.

A Bench of Justice Uday Kumar noted:

"Where the dispute is essentially commercial and private in character, and the parties have voluntarily reached an amicable settlement, the High Court, to secure the ends of justice and prevent an abuse of judicial process, shall exercise its inherent power under Section 482 Cr.P.C. to quash the proceedings, notwithstanding the non-compoundable nature of the offences," the Bench stated.

The FIR had been lodged against Indian Compressors Ltd. after it had inadvertently adjusted Rs. 3.29 lakh from a GST security deposit held in trust, in connection with the valuation of spare parts exported to Bangladesh. The complainant, Shivam Anaesthesia Ltd., alleged misappropriation of these funds. During the pendency of the proceedings, the petitioner and the complainant reached an amicable settlement.

The High Court noted that despite the bona fide nature of the error, the police had registered an FIR under Sections 406 and 420 of the IPC and froze the company's bank accounts, which had a total credit limit of Rs. 27 Crores.

It emphasised that a civil breach of contract must be distinguished from an offence of cheating, noting that for Section 420 IPC to apply, dishonest intention must exist at the inception of the contract.

The Court stated:

"A 'Civil Breach of Contract' must be distinguished from the 'Offence of Cheating.' For Section 420 IPC to apply, dishonest intention must exist at the inception of the contract. In the present case, the transaction proceeded in good faith until a clerical error was discovered. Unlike criminal fraud where there is a pre-meditated trap, this case involves a bona fide accounting disagreement. The freezing of a Rs. 27 Crore bank account for a Rs. 3.3 Lakh dispute is a classic case of investigative overreach,"

In this context, the Court concluded that the dispute was essentially commercial, and continuing the criminal proceedings would amount to an abuse of process. The Bench further noted that the compromise between the parties was genuine and free from coercion, and that forcing a criminal trial after the complainant had withdrawn the complaint would be a futile exercise and an unnecessary burden on the public exchequer.

Exercising powers under Section 482 Cr.P.C., the Court quashed the FIR, charge sheet, and all connected proceedings and vacated the debit freeze on bank accounts.

Accordingly, it discharged the petitioners from their bail bonds, and set aside all interim orders.

For Petitioner: Senior Advocate, Sandipan Ganguly and Advocates, Karan Dudhwewala and Mrigank Kejriwal

For State: Advocates, Rituparna De Ghosh and M. Roy

For Opposite Party No.2: Advocate, Ananda Gopal Mukherjee