Telangana High Court Refuses To Quash FIR Against SREI, Says Forgery Allegations Require Investigation

The Telangana High Court on 24 July held that it cannot decide the genuineness of disputed documents or examine allegations of forgery while exercising inherent powers to quash criminal proceedings, as such issues require investigation and adjudication of facts.

Justice J Sreenivas Rao refused to quash the First Information Report (FIR) registered against SREI Equipment Finance Limited and its officials over allegations of forgery, fabrication of loan documents, falsification of accounts and cheating, holding that the complaint disclosed prima facie cognizable offences. He held:

“Whether the Deeds of Personal Guarantee executed by K. Ravinder Reddy and K. Priyamvada Reddy and the Deed of Hypothecation are forged and fabricated documents or not, is a disputed fact and the same cannot be decided by this Court while exercising the powers conferred under the provisions of Section 528 of the BNS, as the scope of the present criminal petition is very limited.”

The dispute arose between SREI Equipment Finance Limited and Janapriya Engineers Syndicate Private Limited (JESPL) over equipment loans extended from 2008 onwards. JESPL claimed that the parties entered into a One Time Settlement (OTS) in 2015, under which its liability stood settled.

JESPL alleged that SREI later induced it to execute a fresh loan agreement in 2017 by representing that the agreement was only for internal accounting purposes and that the 2015 OTS settlement would continue to govern their relationship. It further alleged that SREI maintained parallel accounts, fabricated financial records, forged the Deeds of Personal Guarantee and the Deed of Hypothecation, and relied on those documents to initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and insolvency proceedings before the National Company Law Tribunal (NCLT), while claiming over Rs. 76.79 crore.

Based on JESPL's complaint, police registered an FIR against SREI and its officials for offences including cheating, forgery, falsification of accounts and criminal conspiracy under the Bharatiya Nyaya Sanhita. SREI approached the High Court seeking quashing of the FIR, arguing that the dispute was purely commercial and that the criminal proceedings were a counterblast to the insolvency proceedings.

Rejecting the plea, the Court noted that JESPL had specifically alleged that the Deeds of Personal Guarantee and the Deed of Hypothecation were forged and that the documents produced before the NCLT differed from those furnished to it. It held that determining whether the documents were forged or fabricated involved disputed questions of fact that could not be decided while considering a plea to quash the FIR.

Rejecting SREI's contention that the complaint was merely a counterblast to the NCLT proceedings, the Bench observed:

“Whether petitioner Nos.2 to 4 are having any role in the commission of offence or not and whether any material exists to connect them with the alleged crime are to be revealed during the course of investigation, especially the investigation is at threshold and pendency of the proceedings before the NCLT is not a bar to prosecute the proceedings under penal provisions.”

Further, the Court also rejected the petitioners' reliance on the doctrine of indoor management, observing that the complaint contained specific allegations that the bank and its officials had colluded in facilitating or overlooking fraudulent transactions. It held that such allegations required investigation and could not justify quashing the FIR at the threshold.

Reiterating the principles governing the exercise of inherent powers, the Bench held that it cannot test the veracity of allegations or adjudicate disputed questions of fact while considering a petition seeking quashing of criminal proceedings. It further observed:

“An FIR is not expected to be an exhaustive account of every minute detail of the alleged offence; it is sufficient if it sets out the basic facts disclosing the commission of a cognizable offence.”

Accordingly, the High Court dismissed the petitions.

For Petitioner: N Naveen Kumar

For Respondent: Public Prosecutor