Rangoli International Pvt Ltd & Ors. vs Central Bureau Of Investigation & Ors. on 21 January, 2025

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Delhi High Court

Rangoli International Pvt Ltd & Ors. vs Central Bureau Of Investigation & Ors. on 21 January, 2025

Author: Sanjeev Narula

Bench: Sanjeev Narula

                          $~53
                          *    IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                               Date of Decision: 21st January, 2025.
                          +      CRL.M.C. 350/2025, CRL.M.A. 1742/2025 & CRL.M.A. 1743/2025
                                 RANGOLI INTERNATIONAL PVT LTD & ORS.                  .....Petitioners
                                                   Through:    Mr. Manohar Malik, Ms. Astha
                                                               Gumber, Advocates

                                                   versus

                                 CENTRAL BUREAU OF INVESTIGATION & ORS.
                                                                           .....Respondents
                                             Through: Mr. Santosh Kumar Rout, SC of BOB
                                                       with Ms. Dharna Veragi, Advocate
                                                       for R-2/BoB
                                                       Mr. Brijesh Kumar Tamber, Mr.
                                                       Vinay Singh Bist and Mr. Yashu
                                                       Rustagi, Advocates for Respondent
                                                       No.3/Canara Bank

                                 CORAM:
                                 HON'BLE MR. JUSTICE SANJEEV NARULA
                                                   JUDGMENT

SANJEEV NARULA, J. (Oral):

1. The present petition under Section 528 of the Bharatiya Nagarik
Suraksha Sanhita, 20231 (erstwhile Section 482 of the Code of Criminal
Procedure, 19732) read with Article 226 of the Constitution of India, seeks
quashing of FIR/RC bearing No. RCBD1/2016/E/0004 dated 24th May,
20163, as well as all proceedings emanating therefrom. The aforesaid

1
“BNSS”

2

CrPC

3

“Impugned FIR/RC”

Signature Not Verified
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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57

FIR/RC has been filed under Section 120-B read with Section 420 of the
Indian Penal Code, 18604 as well as Sections 13(2) and 13(1)(d) of the
Prevention of Corruption Act, 1988, registered at Central Bureau of
Investigation5, BS & FC,

2. Counsel for the Petitioners submits that the impugned FIR/RC is
predicated upon declaration of Petitioner No. 1’s account as ‘fraud’ as per
the ‘Master Circular on Frauds’ issued by the RBI. The said fraud
declaration has now been set aside by this Court vide order dated 12th May,
2023 in W.P. (C) 590/2016, and therefore, the very genesis of the complaint
alleging fraud as well as the subsequent impugned FIR/RC is untenable in
law and as such, the same deserves to be quashed.

3. The counsel further submits that the aforenoted order of this Court is
in consonance with the well settled principles law enunciated by the
Supreme Court of India in State Bank of India v. Rajesh Agarwal & Ors.6
In
the said judgment it has been held that the classification of an account as
‘fraud’ by banks, as per the ‘Master Circular on Frauds’ issued by the RBI,
must adhere to the Principles of Natural Justice. Specifically, the borrower
must be granted a reasonable opportunity to be heard before such
classification is finalized. A failure to comply with this procedural safeguard
renders the classification legally untenable and vitiates the entire process. In
the present case, the Respondent Banks violated these principles, which has
led to the quashing of the initial fraud declaration. This, in turn, vitiates the
basis of the impugned FIR/RC.

4. It is further argued that the impugned FIR/RC was lodged on the basis

4
IPC

5

“CBI”

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57

of false and frivolous complaints made by Respondent No. 3 – Canara Bank
and Respondent No. 2 – Bank of Baroda to Respondent No. 1 – CBI. These
complaints, dated 1st February, 2016 and 29th June, 2016, respectively, were
clubbed together and they served as the foundation for the registration of the
impugned FIR/RC. The complaints themselves were motivated, frivolous,
and premised on misinterpretations of certain financial transactions
involving the Petitioner company.

5. The counsel elaborates on the chronology of events surrounding the
Petitioner company’s credit and financing arrangements with a consortium
of banks, including Respondents No. 2 and 3. He submits that the Petitioner
company had availed of credit facilities, following which consortium
meetings were held to discuss concerns raised by the banks regarding
specific transactions flagged by the CBI in connection with two entities,
namely Sahara Exim Pvt. Ltd. and Texcomash International Pvt. Ltd. In
2014, CBI conducted raids on the factory premises and offices of the
Petitioner company, alleging fraudulent transactions involving two
remittances totalling INR 27 Lakhs sent to the Petitioner company by the
aforementioned entities. However, neither the Petitioner company nor its
directors had any knowledge of these transactions. During the subsequent
consortium meetings, the Petitioners addressed all concerns raised by the
banks, and in October 2015 at the Joint Lenders Forum, it was unanimously
resolved that there was no evidence of fraud in the Petitioner’s account.
Despite this resolution, Respondents No. 2 and 3 unilaterally declared the
account of the Petitioner company as ‘fraud’ and reported the same to the
RBI. Additionally, they filed complaints before the CBI, culminating in the

6
(2023) 6 SCC 1

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57
registration of the impugned FIR/RC.

6. The Petitioners aggrieved by the conduct and actions of the
Respondent banks were constrained to file a writ petition before this Court
challenging the declaration of their account as ‘fraud.’ This Court, vide order
dated 12th May, 2023, allowed the writ petition, holding that the declaration
was in violation of the principles laid down in Rajesh Agarwal and was,
therefore, unsustainable in law.

7. The Petitioners further submit that, on 27th June, 2024, Respondent
No. 3 issued a fresh Show Cause Notice to the Petitioner company, seeking
an explanation as to why their account should not be declared as ‘fraud.’
Despite submitting a detailed response, Respondent No. 3 arbitrarily issued
a fresh order dated 15th October, 2024 (communicated on 4th November,
2024), declaring the Petitioner’s account as ‘fraud’. The grounds for this
fresh fraud declaration differ significantly from the allegations raised in the
complaints filed before the CBI in 2016. This inconsistency, coupled with
the fact that the original fraud declaration has already been quashed by this
Court, renders the continuation of the impugned FIR/RC legally untenable.
The Petitioners have also challenged this fresh fraud declaration before this
Hon’ble Court in W.P. (C) 16281/2024, which is presently pending
adjudication.

8. In light of the above, counsel for the Petitioners argues that the very
foundation of the impugned FIR/RC has been invalidated by this Court’s
order dated 12th May, 2023, in W.P.(C) 590/2016. Furthermore, the
subsequent actions of Respondent No. 3, including the issuance of a fresh
fraud declaration on different grounds, demonstrate that the initial
complaints filed before the CBI were baseless. Thus, the continuation of the

Signature Not Verified
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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57
investigation in the impugned FIR/RC serves no purpose and would amount
to an abuse of the process of law.

Analysis

9. The Court has carefully considered the submissions advanced by
counsel for the Petitioner. At the outset, it is pertinent to note that the
inherent jurisdiction of this Court under Section 528 of BNSS (erstwhile
Section 482 of Cr.P.C.) ought to be exercised sparingly, and with abundant
caution. In this regard, the Supreme Court, in Indian Oil Corporation v.
NEPC India Limited and Others,7
has discussed the scope of jurisdiction
under Section 482 of the CrPC to quash criminal proceedings, and made the
following observations:

“12. The principles relating to exercise of jurisdiction under Section 482
of the Code of Criminal Procedure to quash complaints and criminal
proceedings have been stated and reiterated by this Court in several
decisions. To mention a few– Madhavrao Jiwajirao Scindia v.
Sambhajirao Chandrojirao Angre
[(1988) 1 SCC 692 : 1988 SCC (Cri)
234] , State of Haryana v. Bhajan Lal
[1992 Supp (1) SCC 335 : 1992
SCC (Cri) 426] , Rupan Deol Bajaj v. Kanwar Pal Singh Gill [(1995) 6
SCC 194 : 1995 SCC (Cri) 1059] , Central Bureau of Investigation v.
Duncans Agro Industries Ltd.
[(1996) 5 SCC 591 : 1996 SCC (Cri) 1045]
, State of Bihar v. Rajendra Agrawalla
[(1996) 8 SCC 164 : 1996 SCC
(Cri) 628] , Rajesh Bajaj v. State NCT of Delhi [(1999) 3 SCC 259 : 1999
SCC (Cri) 401] , Medchl Chemicals & Pharma (P) Ltd. v. Biological E.
Ltd.
[(2000) 3 SCC 269 : 2000 SCC (Cri) 615] , Hridaya Ranjan Prasad
Verma v. State of Bihar [(2000) 4 SCC 168 : 2000 SCC (Cri) 786] , M.
Krishnan v. Vijay Singh [(2001) 8 SCC 645 : 2002 SCC (Cri) 19] and
Zandu Pharmaceutical Works Ltd. v. Mohd. Sharaful Haque
[(2005) 1
SCC 122 : 2005 SCC (Cri) 283] . The principles, relevant to our purpose
are:

(i) A complaint can be quashed where the allegations made in the
complaint, even if they are taken at their face value and accepted in their
entirety, do not prima facie constitute any offence or make out the case
alleged against the accused.

For this purpose, the complaint has to be examined as a whole, but

7
(2006) 6 SCC 736.

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57

without examining the merits of the allegations. Neither a detailed inquiry
nor a meticulous analysis of the material nor an assessment of the
reliability or genuineness of the allegations in the complaint, is warranted
while examining prayer for quashing of a complaint.

(ii) A complaint may also be quashed where it is a clear abuse of the
process of the court, as when the criminal proceeding is found to have
been initiated with mala fides/malice for wreaking vengeance or to cause
harm, or where the allegations are absurd and inherently improbable.

(iii) The power to quash shall not, however, be used to stifle or scuttle a
legitimate prosecution. The power should be used sparingly and with
abundant caution.

(iv) The complaint is not required to verbatim reproduce the legal
ingredients of the offence alleged. If the necessary factual foundation is
laid in the complaint, merely on the ground that a few ingredients have not
been stated in detail, the proceedings should not be quashed. Quashing of
the complaint is warranted only where the complaint is so bereft of even
the basic facts which are absolutely necessary for making out the offence.

(v) A given set of facts may make out: (a) purely a civil wrong; or (b)
purely a criminal offence; or (c) a civil wrong as also a criminal offence.
A commercial transaction or a contractual dispute, apart from
furnishing a cause of action for seeking remedy in civil law, may also
involve a criminal offence. As the nature and scope of a civil proceeding
are different from a criminal proceeding, the mere fact that the
complaint relates to a commercial transaction or breach of contract, for
which a civil remedy is available or has been availed, is not by itself a
ground to quash the criminal proceedings. The test is whether the
allegations in the complaint disclose a criminal offence or not”

[Emphasis added]

10. Furthermore, the Supreme Court, in Rathish Babu Unnikrishnan v.
State (NCT of Delhi
),8 after referencing several judgments, has delineated
the criteria for the exercise of inherent jurisdiction to quash criminal
proceedings at a preliminary stage:

“14. The parameters for invoking the inherent jurisdiction of the Court to
quash the criminal proceedings under S.482 CrPC, have been spelled out
by Justice S. Ratnavel Pandian for the two judges’ bench in State of

8
2022 SCC OnLine SC 513.

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57

Haryana v. Bhajan Lal [1992 Supp (1) SCC 335 : AIR 1992 SC 604], and
the suggested precautionary principles serve as good law even today, for
invocation of power under Section 482 of the Cr.P.C.

‘103. We also give a note of caution to the effect
that the power of quashing a criminal proceeding should
be exercised very sparingly and with circumspection and
that too in the rarest of rare cases; that the court will not
be justified in embarking upon an enquiry as to the
reliability or genuineness or otherwise of the allegations
made in the FIR or the complaint and that the
extraordinary or inherent powers do not confer an
arbitrary jurisdiction on the court to act according to its
whim or caprice.’

15. In the impugned judgment, the learned Judge had rightly relied upon
the opinion of Justice J.S. Khehar for a Division Bench in Rajiv Thapar
(supra), which succinctly express the following relevant parameters to be
considered by the quashing Court, at the stage of issuing process,
committal, or framing of charges,
’28. The High Court, in exercise of its jurisdiction under
Section 482 CrPC, must make a just and rightful choice. This
is not a stage of evaluating the truthfulness or otherwise of
the allegations levelled by the prosecution/complainant
against the accused. Likewise, it is not a stage for
determining how weighty the defences raised on behalf of the
accused are. Even if the accused is successful in showing
some suspicion or doubt, in the allegations levelled by the
prosecution/complainant, it would be impermissible to
discharge the accused before trial. This is so because it
would result in giving finality to the accusations levelled by
the prosecution/complainant, without allowing the
prosecution or the complainant to adduce evidence to
substantiate the same.’

16. The proposition of law as set out above makes it abundantly clear that
the Court should be slow to grant the relief of quashing a complaint at a
pre-trial stage, when the factual controversy is in the realm of possibility
particularly because of the legal presumption, as in this matter. What is
also of note is that the factual defence without having to adduce any
evidence need to be of an unimpeachable quality, so as to altogether
disprove the allegations made in the complaint.

17. The consequences of scuttling the criminal process at a pretrial stage
can be grave and irreparable. Quashing proceedings at preliminary
stages will result in finality without the parties having had an
opportunity to adduce evidence and the consequence then is that the

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57
proper forum i.e., the trial Court is ousted from weighing the material
evidence. If this is allowed, the accused may be given an un-merited
advantage in the criminal process.”

[Emphasis added]

11. Having regard to the aforenoted principles, in the considered opinion
of the Court, the quashing of the classification of the account of Petitioner
No. 1 as ‘fraud’ by this Court, vide its order dated 12th May, 2023, does not
preclude the Respondent banks from pursuing their right to request an
investigation into alleged fraudulent activities through the appropriate
investigating authorities. This distinction is significant and finds support in
the observations made in the afore-noted order, which, while invalidating
the fraud classification for want of adherence to natural justice, expressly
preserved the right of the Respondent banks to proceed in accordance with
law. It does not curtail the investigative prerogatives of the Respondent
banks or the ongoing criminal proceedings initiated pursuant to the
impugned FIR/RC. The relevant portion of the order reads as follows:

“6. As a result, following the judgment of the Supreme Court, these
petitions are disposed of by setting aside the actions taken against the
petitioners under the Master Directions. It will be open to the
concerned banks to proceed in accordance with law, in light of the
judgment of the Supreme Court in Rajesh Aggarwal (supra). It is
made clear that any First Information Report which has been
lodged, and proceedings pursuant thereto, remain unaffected by this
order. Needless to say, parties will be bound by any clarification of
the judgment rendered by the Supreme Court.”

[Emphasis added]

12. Furthermore, it is noted that following the order dated 12th May, 2023,
Respondent No. 3 issued a fresh fraud declaration by communication dated
04th November, 2024. This declaration has been assailed by the Petitioners
in W.P.(C) 16281/2024, which is presently sub judice. Significantly, this
Court, vide its interim order dated 25th November, 2024, while issuing notice

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57
to the Respondents, stayed the operation of the impugned fraud declaration
dated 15th October, 2024, communicated on 4th November, 2024. However,
the continuation of the criminal proceedings under the impugned FIR/RC,
cannot hinge solely on the fraud classification process, particularly when it
is distinct from the issues under consideration in the writ petitions. The
criminal investigation must be assessed independently, based on the
allegations in the FIR, and not conflated with the procedural deficiencies
surrounding the fraud classification.

13. On a prima facie analysis of the allegations contained in the FIR/RC,
it is evident that the Respondent banks have raised specific and serious
allegations that warrant investigation. The detailed complaint by Respondent
No. 3 points to various irregularities in the financial transactions of the
Petitioner company as follows:

“The investigation has revealed irregularities in the bills discounting
facility extended to the party. The details are as below:

There were 34 bills outstanding against the party for a total value of Rs
21.75 crores. The following are the details of the purchasers/drawees in the
34 bills which had fallen overdue:

xxx xxx xxx
Out of the above party has submitted the transport documents submitted by
Multimodal transport operator for 6 bills, the details of which are as
under:

xxx xxx xxx
In all the above transport documents, the goods are not consigned to the
order of Canara Bank and the transport document numbers are not finding
a place in the EDI system report [GR Form]. As per Multimodal
Transportation of Goods Act
1993 the business of multimodal
transportation shall be undertaken only by those concerns who are
registered under the Act. Perusal of the above transport documents does
not reveal as to whether the above operators are registered under the Act.

In the ROC site, it is observed that Shri. XX and Smt XX are the directors
in Flame Logistics Zones P Ltd. Further the address of Flame Logistics
Zones P Ltd is xxxxxxxxxxxxxx and the e-mail ID is xxxxxxxx. It is observed
from the proposal of RIPL that M/s Flywheel Logistics Pvt. Ltd. is a group
concern of RIPL. It is also observed from the ROC site that Shri XX and

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57
Smt XX are the directors in Flywheel Logistics P Ltd. In the official web
site of the above transport companies there is no provision of tracking the
consignment.

For the remaining outstanding 28 Bills, the Airway bills issued by various
operators were enclosed along with the bills. Out of the above 28 airway
bills, Airway Bills were issued by M/s. Hercules Aviations P Ltd for 21
bills. While tracking the bills in the official web-site of Hercules Aviations
P Ltd, the message shown was,” No shipment details exist for the airway
bills”. The other Airway bills could not be tracked in the official web-site
of the issuer. Hence the investigating officer had opined that the transport
documents submitted along with the bills may not be genuine.
……While perusing the outstanding bills, it is observed that the bills were
not drawn under LCs of prime/ non prime banks and the invoices do not
indicate any purchase order reference number and the relative purchase
orders were not attached to the bills. It is further observed from the
investigation report that the party has not submitted original purchase
orders while availing the PC limits. Hence, these bills might not have
arisen out of any genuine trade transaction and our Bank officials had
failed to notice the above irregularities.

Internal investigation also observed that the facts and figures furnished by
the company in respect of two Creditors viz. Radhika Trading Co. and
Jagdish Trading Company are not true as both the parties are not found in
the given address and both are non-existent. The invoices of these
companies are not having the details of the party such as address, phone
numbers even the invoices are not having serial numbers. From the list of
creditors as on 31/05/2014 submitted by the party, it is observed that the
amount due to M/s. Radhika Trading Co. is Rs.3,50,41,342.22 and to M/s.
Jagdish Trading Company is Rs.2,80,23,743.20. The Company has
furnished the false/fabricated figures to artificially boost the purchase,
sales and receivables.

The perusal of the bill transactions for realization details has revealed that
the payment for all retired bills was received from third party whereas
those bills were returned unpaid by the Negotiating Bank. The party had
stated that in some of the cases, the goods were sold to alternate buyers as
the original buyers were renegotiating the price after dispatch of
consignments. Party also stated that in some cases the party informed that
the payment for the bills were made by sister concerns of the respective
importers. However, in spite of receipt of payments, Bills were returned
subsequently. This indicates that there may not be genuine trade related
transactions under the bills portfolio.

The Company records/register showing the details of dispatch made to the
Central Office for onward export to foreign buyers has revealed that from
July 2014 to September 2014, as many as 13 export bills amounting to
USD 1,07,773.00 of M/s. BMA International FZE and M/s. SDV
International were negotiated through HSBC Bank, which is not a member

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57
of Consortium. In this connection, the party had not taken any permission
from the consortium to route these bills through a non consortium
member. Thus the party also resorted to divert the sales proceeds through
a banker which is not a member in consortium.

Departmental investigation revealed certain procedural lapses/deficiencies
on the part of
following public servants in sanctioning/handling the account:

xxx xxx xxx
Bank has initiated staff action as per procedure of the Bank.
Thus from the above it is evident that the party has committed fraud upon
the Bank.

xxx xxx xxx
As public funds are involved, we request CBI to register a criminal case
against M/s. Rangoli international P Ltd and its directors. CBI is also
requested to examine the role of unknown public servants, if any, in the
matter. Other consortium member Banks except Bank of Baroda have
not yet declared their Account(s) as Fraud.”

[Emphasis added9]

14. The impugned FIR/RC discloses serious charges of conspiracy, fraud,
and corruption under the IPC and the Prevention of Corruption Act. The
allegations revolve around financial irregularities and the misuse of banking
facilities, which prima facie require a thorough investigation. Even though
the Petitioners contend that the fraud declaration has been quashed and that
the allegations are baseless, the fact remains that the FIR contains
allegations that disclose cognizable offences, and the investigation cannot be
foreclosed prematurely at this stage. Respondent No. 3 has specifically
alleged that the Petitioner company engaged in falsification and fabrication
of figures to artificially inflate its purchases, sales, and receivables. An
examination of the bill transactions revealed that while payments for retired
bills were ostensibly made by third parties, these bills were later returned
unpaid by the negotiating bank. Respondent No. 3 further contends that, in

9
Certain portions of the extracts have been obscured so as to protect the personal information of the
parties.

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57

certain instances, goods were sold to alternate buyers after the original
buyers sought to renegotiate prices post-dispatch of consignments.
Additionally, it has been alleged that payments for some bills were made by
sister concerns of the respective importers. This pattern of transactions,
according to Respondent No. 3, raises serious doubts about the genuineness
of trade-related dealings under the bills portfolio, as the repeated return of
bills despite apparent payments suggests the possibility of non-bona fide
transactions.

15. It is settled law that at the stage of considering a plea for quashing an
FIR, the Court is not expected to delve into the merits of the allegations or
evaluate the evidence. The test to be applied is whether the allegations,
taken at face value, disclose the commission of a cognizable offence. In this
case, the allegations not only disclose cognizable offences but also highlight
a pattern of conduct that requires a thorough investigation. The procedural
irregularities in the fraud classification process do not ipso facto vitiate the
criminal investigation unless it is shown that the FIR is malicious or lacks a
legal foundation altogether. There may be an overlap in the two issues,
however, both are yet separate and distinct for the purpose of the
investigation in the impugned FIR/RC. The Supreme Court in the case of
Indian Oil Corp.10 observed that the mere fact that a complaint relates to a
commercial transaction, for which a civil remedy has been availed, is not by
itself a ground to quash the criminal proceedings. The Court has to apply its
mind to see whether the allegations make out a prima facie criminal offence
or not. In the present case, as has been observed above, the bare perusal of
the impugned FIR/RC, on a prima facie basis discloses the ingredients of

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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57
cognizable offences under Section 120-B and 420 of the IPC.

16. Therefore, the impugned FIR/RC which originates from the account
being declared as ‘fraud’, can still sustain notwithstanding the account
classification being set aside. Moreover, it must be noted that the Court in
W.P.(C) 590 of 2016, had set aside the order for classification purely on
technical grounds and there was no adjudication regarding the merits of the
case. Furthermore, the interim order dated 25th November, 2024, staying the
operation of the subsequent fraud declaration issued by Respondent No. 3,
does not affect the legitimacy of the FIR/RC. The criminal investigation
emanating from the impugned FIR/RC pertains to allegations of fraudulent
conduct, misrepresentation, and conspiracy, which require scrutiny
independent of the parallel civil proceedings concerning fraud classification.

17. Thus, having regard to the settle position of law in relation to the
exercise of jurisdiction under Section 528 of Bharatiya Nagarik Suraksha
Sanhita, 2023, in the opinion of this Court, the aforenoted allegations against
the Petitioner company do not seem to be so remote or improbable so as to
merit the exercise of the discretionary jurisdiction of this Court.
Accordingly, the present petition is dismissed along with pending
applications.

SANJEEV NARULA, J
JANUARY 21, 2025/ab

10
Supra

Signature Not Verified
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By:NITIN KAIN
Signing Date:25.01.2025
15:21:57

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