2024 (9) TMI 57 - SC - Indian Laws

Rejection of application moved for seeking discharge in the matter and proceeding to frame charges for having entered into a criminal conspiracy with an object to facilitate illegal sale of coal rejects by GCWL that were generated during washing of coal and to have gained undue pecuniary advantage therefrom - challenge to allocation of coal blocks to Private Companies for the period between 1993 and 2011 - violation of principles of trusteeship of natural resources by giving away precious resources as largesse without complying with the mandatory provisions of the MMDR Act and 1973 Coal Act. Did CBI primarily rely on the Audit Report of the CAG? - HELD THAT - The respondent CBI made the Audit Report of the CAG submitted in 2013 a launching pad for initiating the prosecution of the appellants in respect of the allegations levelled in the present case and subsequently sought to substantiate them by delving into the records maintained by KPCL KECML and GCWL. In other words there was no move within the Department to investigate KPCL or KECML before 2015. The PE s registered in the year 2012 did not inculpate the appellants in any manner. The entire focus of the said PE s was on the larger issue of irregularities in the allocation of coal blocks through the Government dispensation route. In this background the respondent CBI cannot be heard to state that CBI was independently investigating the matter at hand well before 2015 or the Audit Report of the CAG of 2013 was not the trigger point for commencing the investigation. Could the Audit Report of the CAG fasten any liability on KECML? - HELD THAT - This Court having already dismissed the appeal filed by KPCL against the judgment of the Karnataka High Court having held in clear terms that the CAG Report could not form the basis for launching proceedings against the appellants and further having upheld the findings returned by the Karnataka High Court that the CAG Report appears to have been the starting point for the entire disputes between the parties who till then were smoothly discharging their obligations under various agreements there is no reason to take a different view only on the ground that the respondent CBI was not a party in the aforesaid proceedings. The chronology of the events speak for themselves and need no further elaboration. Import of the Judgment of the Karnataka High Court in EMTA COAL LIMITED AND ORS. VERSUS KARNATAKA POWER CORPORATION LIMITED 2016 (3) TMI 1423 - KARNATAKA HIGH COURT - HELD THAT - If there was any breach of contract or default on the part of KECML KPCL was well empowered to determine the lease. However KPCL did not do so. Instead on being confronted with the Audit Objections taken by CAG it raised a demand on KECML for the value of the coal rejects. This demand was quashed and set aside by the Karnataka High Court and this Court - this Court cannot turn a blind eye to the view taken in the judgement dated 24th March 2016 passed by the Division Bench of the High Court of Karnataka in a dispute directly arising between KPCL and KECML pertaining to the very same cause of action based on the obligations cast on both the parties under various agreements executed for the development of captive coal blocks and for supply of coal which was finally upheld by this Court in KARNATAKA POWER CORPORATION LIMITED VERSUS EMTA COAL LIMITED AND ORS. 2022 (5) TMI 1648 - SUPREME COURT (LB) . The said judgments have cleared KECML of any blame. On the same set of facts and logic no criminality can be attributed to the appellants. Sanctity of an Audit Report in Law - HELD THAT - In the instant case admittedly the aforesaid procedure has not been followed. As noticed above the CAG Report is subject to scrutiny by the Parliament and the Government can always offer its views on the said report. Merely because the CAG is an independent constitutional functionary does not mean that after receiving a report from it and on the PAC scrutinizing the same and submitting its report the Parliament will automatically accept the said report. The Parliament may agree or disagree with the Report. It may accept it as it is or in part. It is not in dispute that the Audit Report of the CAG has not been tabled before the Parliament for soliciting any comments from the PAC or the respective Ministries - the views taken by the CAG to the effect that tremendous loss had been caused to the public exchequer on account of the coal rejects being disposed of by the KPCL and KECML remains a view point but cannot be accepted as decisive. The respondent CBI has largely relied on the findings and the conclusions drawn in the Audit Report of the CAG to launch the prosecution against the appellants on an assumption that the said Report has the seal of approval of the Parliament and has attained finality which is not the case. Denial of Sanctions by the Sanctioning Authorities and the effect on the Appellants - HELD THAT - After Sanctioning Authority had scrutinized all the relevant documents and the depositions as many as of 67 witnesses submitted by the respondent-CBI it observed that there was no evidence to show that any rejects generated by washing of coal had been sold or that KPCL had suffered an unlawful loss during the process. As a result the Board of KPCL refused to grant sanction to the respondent-CBI to prosecute Mr. R. Nagaraja for offences alleged to have been committed by him. It is noteworthy that no appeal has been filed by the respondent CBI against denial of sanction. The respondent-CBI having accepted the decision taken by the Sanctioning Authority in respect of Mr. R. Nagaraja and the decision of the Competent Authority in the Central Government in respect of Mr. Yogendra Tripathi both senior most serving officers of KPCL and were also on the Board of KECML cannot be permitted to argue that these were merely administrative decisions and even if permission to prosecute the aforesaid officers has been denied the Department can still proceed against the appellants based on the very same set of material/documents/evidence etc. that have been minutely scrutinized by different authorities at the highest level and they have independently arrived at an identical conclusion of refusing to grant sanction to prosecute senior functionaries of KPCL. Simply because the said senior functionaries of KPCL were public servants does not detract from the fact that the respondent-CBI has described them as co-accused in a criminal conspiracy and attributed similar motives to them as the appellants herein. If they have been let off the hook and the respondent-CBI has not challenged the said decisions there is no reason to proceed against the appellants herein on the basis of the very same set of facts and material gathered during the course of investigation. Effect of the absence of any strategy in the Mining plan to dispose off the coal rejects - HELD THAT - The Central Government had not come out with any specific plan to dispose off the coal rejects is validated by the reply furnished by the Minister of State MoC in the Lok Sabha in response to an unstarred question seeking an answer from the Government of India as to whether it had framed any National Policy for exploitation of the coal rejects. The reply given was that the Government had not framed any National Policy for exploitation of coal rejects and the same was still under consideration. That being the position it was left to KPCL and KECML to devise a satisfactory and safe method to dispose off the coal rejects. This was done in terms of Article 5(2)(b) of the JVA that required KECML to dispose off the rejects in a manner that would ensure that there was no threat to the environment. We do not find any irregularity in the route adopted to dispose off the coal rejects. Was KECML required to account for the coal rejects? - HELD THAT - The agreement governing the parties required KECML to dispose off the rejects safely. KECML was not required to account for the coal rejects to KPCL. KPCL itself understood the clauses in the JVA and the FSA to mean the same and it was satisfied with the manner in which KECML was discharging its obligations under the agreements till Audit Objections were raised by the CAG in October 2013. That s when KPCL did a complete flip flop and for the first time raised a demand on KECML seeking reimbursement towards the value of the coal rejects a decision that was successfully assailed by the appellants in the High Court and the challenge laid by KPCL to the said judgement was repelled by this Court. Can KECML be blamed for not setting up the coal washery at the pithead? - HELD THAT - The decision of KECML to enter into a MoU with GCWL for washing of coal was actuated by compelling circumstance faced by it and KPCL had taken a calibrated decision in its commercial wisdom to duly concur with the said decision knowing very well that non-supply of a specified grade of washed coal by KECML would have serious consequences of stoppage of generation of power at BTPS and a cascading effect of resulting in a power crisis in the State of Karnataka - It is not proposed to Labour much on the contention of the respondent-CBI that allocation of the coal block was in favour of KPCL and not in favour of KECML as stands adequately explained on a perusal of the Notification dated 16th July 2024 which shows that the Central Government did recognize the fact that it was KECML who was required to supply coal from the coal mines allocated to KPCL and end use of the said coal was specified for generation of Thermal Power Station at Bellary Karnataka. Having regard to the aforesaid notification nothing much turns on the submission made by the respondent-CBI that the coal block allocation was only in favour of KPCL and it ought to have a right over the rejects to the exclusion of KECML and others. Did the coal rejects have any useful calorific value making it a saleable commodity? - HELD THAT - The Detailed Washability Report of the Government Laboratory namely CIMFR Nagpur has been ignored by the respondent-CBI. It was the said Report that formed the basis of the information furnished by KECML with respect to production stock despatch of coal to the washery etc. as was demanded by the office of the Coal Controller a department that falls under the MoC. The said Report stated in so many words that the rejects did not contain any useful c.v. Reliance placed by the respondent-CBI on the revised Mining Plan submitted by the appellants to the MoC in 2010 that mentions a new technology for utilization of rejects for its carbon value namely FBC is of no consequence as the said technology had not even been introduced when MoC approved the original Mining Plan submitted by KECML in the year 2004. Even otherwise it is not in dispute that for applying the said technology a plant was required to be established after obtaining necessary approvals from several agencies. The plant could not be established by KECML for the reason that the revised Mining Plan submitted by it was approved by the MoC only on 24th August 2011. Consequent steps that were required to be taken by KECML for obtaining necessary approvals from the MoEF CC and other govt. agencies came to a grinding halt when an order was passed by this Court in the year 2014 deallocating all captive coal blocks including those allocated to KPCL. Therefore any reference by the respondent-CBI to the revised Mining Plan is of no consequence. Persuasive Value of the case KARNATAKA POWER CORPORATION LIMITED VERSUS ARYAN ENERGY PRIVATE LIMITED AND ORS. 2021 (7) TMI 1459 - KARNATAKA HIGH COURT - HELD THAT - On going through the agreements executed between KPCL and Aryan Energy the High Court had shot down the plea of KPCL that it was entitled to the coal rejects. Though KPCL assailed the said decision before this Court it settled its dispute with Aryan Energy and the appeals preferred by it were disposed of as compromised. The contention of the respondent-CBI that the order of the High Court of Karnataka is not relevant for the present case since there was no criminal case registered therein cannot be a distinguishing feature when the terms and conditions of the contract between KPCL and Aryan Energy on the aspect of disposal of the coal rejects is pari materia. It is opined that the judgment in the case of Aryan Energy does have persuasive value. Inherent Jurisdiction of the High Court under Section 482 Cr.P.C - HELD THAT - Section 482 Cr.P.C recognizes the inherent powers of the High Court to quash initiation of prosecution against the accused to pass such orders as may be considered necessary to give effect to any order under the Cr.P.C or to prevent abuse of the process of any court or otherwise to secure the ends of justice. It is a statutory power vested in the High Court to quash such criminal proceedings that would dislodge the charges levelled against the accused and based on the material produced lead to a firm opinion that the assertions contained in the charges levelled by the prosecution deserve to be overruled. While exercising the powers vested in the High Court under Section 482 Cr.P.C whether at the stage of issuing process or at the stage of committal or even at the stage of framing of charges which are all stages that are prior to commencement of the actual trial the test to be applied is that the Court must be fully satisfied that the material produced by the accused would lead to a conclusion that their defence is based on sound reasonable and indubitable facts. The material relied on by the accused should also be such that would persuade a reasonable person to dismiss the accusations levelled against them as false. Extraordinary powers of the Supreme Court under Article 136 of the Constitution of India - HELD THAT - Article 136 can be invoked by a party in a petition for special leave to appeal from any judgement decree determination sentence or order in any cause or matter passed or made by a Court or Tribunal within the territory of India. The reach of the extraordinary powers vested in this Court under Article 136 of the Constitution of India is boundless. Such unbridled powers have been vested in Court not just to prevent the abuse of the process of any court or to secure the ends of justice as contemplated in Section 482 Cr.P.C but to ensure dispensation of justice correct errors of law safeguard fundamental rights exercise judicial review resolve conflicting decisions inject consistency in the legal system by settling precedents and for myriad other to undo injustice wherever noticed and promote the cause of justice at every level. The fetters on this power are self imposed and carefully tampered with sound judicial discretion. Given the broad amplitude of the extraordinary powers of this Court under Article 136 of the Constitution of India the respondent-CBI cannot be heard to urge that since a Chargesheet has already been filed against the appellants and charges framed the appellants should be left to take all the pleas available to them before the learned Special Judge CBI during the course of the trial and that no interference is called for by this Court at this stage. Such an approach does not commend itself to this Court in the facts and circumstances of this case. Application of mind at the stage of Section 227 CrPC - HELD THAT - There is no quarrel with the broad proposition canvassed by learned counsel for the respondent- CBI that at the stage of Section 227 Cr.P.C. the Special Judge CBI had to sift the evidence to find out whether there was sufficient ground for proceedings against the appellants. That exercise would include taking a prima facie view on the nature of the evidence recorded by the CBI and the documents placed before the court so as to frame any charge. At the same time one must be mindful of the language used in Section 227 of the Cr.P.C - As observed in Prafulla Kumar Samal 1978 (11) TMI 151 - SUPREME COURT the expression not sufficient ground for proceeding against the accused clearly shows that the Judge is not a mere post office to frame the charge at the behest of the prosecution. The Judge must exercise the judicial mind to the facts of the case in order to determine whether a case for trial has been made out by the prosecution - the CBI at the time of considering the records/documents submitted by the respondent-CBI and the material produced by the appellants. Conclusion - Though multiple arguments have been advanced by learned counsel for the appellants to assail the impugned orders passed by the learned Special Judge CBI including a plea that no offence is made out under Section 13(1)(d) of the P.C. Act for various reasons this Court has consciously elected to confine itself only to those aspects that in our opinion would be sufficient to arrive at a prima facie view that the allegations levelled against the appellants have pre-dominant contours of a dispute of a civil nature does not have the makings of a criminal offence and on an overall conspectus of the case would persuade any reasonable person to dismiss the accusations levelled. Therefore this court declines to go into the nitty gritties of the documents/evidence or the contrasting data produced by the parties to test their probative value. The respondent CBI embarked on a roving and fishing inquiry on the strength of the Audit Report of the CAG and then started working backwards to sniff out criminal intent against the appellants. The underpinnings of what was a civil dispute premised on a contract between the parties breach whereof could at best lead to determination of the contract or even the underlying lease deed has been painted with the brush of criminality without any justification - the impugned orders deserve interference in exercise of the powers vested in this court under Article 136 of the Constitution of India. The order on charge dated 24th December 2021 and the order framing charges dated 3rd March 2022 passed by the learned Special Judge CBI qua the appellants before this Court are unsustainable and accordingly quashed and set aside - Appeal allowed.

Summary

Issues Involved:
1. Did CBI primarily rely on the Audit Report of the CAG?
2. Could the Audit Report of the CAG fasten any liability on KECML?
3. Import of the Judgment dated 24th March, 2016 of the Karnataka High Court.
4. Sanctity of an Audit Report in Law.
5. Denial of Sanctions by the Sanctioning Authorities and the effect on the Appellants.
6. Effect of the absence of any strategy in the Mining plan to dispose off the coal rejects.
7. Was KECML required to account for the coal rejects?
8. Can KECML be blamed for not setting up the coal washery at the pithead?
9. Did the coal rejects have any useful calorific value making it a saleable commodity?
10. Persuasive Value of the Aryan Energy Case.
11. Inherent Jurisdiction of the High Court under Section 482, Cr.P.C.
12. Extraordinary powers of the Supreme Court under Article 136 of the Constitution of India.
13. Application of mind at the stage of Section 227, CrPC.

Detailed Analysis:

1. Did CBI primarily rely on the Audit Report of the CAG?
The CBI's assertion that it initiated an independent investigation before the CAG report is misleading. The records indicate that the CBI's Preliminary Inquiries (PE-5) registered in 2012 were unrelated to the JVA between KPCL and KECML. The CBI primarily relied on the CAG Report of 2013 to launch its prosecution against the appellants.

2. Could the Audit Report of the CAG fasten any liability on KECML?
The Karnataka High Court in its judgment dated 24th March, 2016, and subsequently upheld by the Supreme Court, held that the CAG Report could not be the sole basis for any liability or prosecution. The High Court noted that KPCL's demand for reimbursement based on the CAG Report was arbitrary and unsustainable in law.

3. Import of the Judgment dated 24th March, 2016 of the Karnataka High Court
The High Court's judgment, which quashed KPCL's demands against KECML based on the CAG Report, was upheld by the Supreme Court. The judgment emphasized that the CAG Report was the starting point of the dispute and could not form the basis for prosecution.

4. Sanctity of an Audit Report in Law
The CAG Report's recommendations have not been tabled before the Parliament or accepted, thus lacking finality. The CAG Report, while persuasive, does not have the decisiveness to form the basis of prosecution. The audit objections were also found meritless by the Sanctioning Authorities.

5. Denial of Sanctions by the Sanctioning Authorities and the effect on the Appellants
The Board of KPCL and the Competent Authority in the Central Government, after thorough examination, refused to grant sanction to prosecute senior KPCL officers. The CBI did not challenge these decisions. The refusal to grant sanction to prosecute senior functionaries of KPCL, who were similarly placed as the appellants, undermines the justification to press charges against the appellants.

6. Effect of the absence of any strategy in the Mining plan to dispose off the coal rejects
The Central Government had not formulated any specific plan for the disposal of coal rejects. The JVA required KECML to dispose of the rejects in an environmentally friendly manner. The absence of a detailed plan in the Mining Plan did not exonerate the appellants but did not imply criminal intent.

7. Was KECML required to account for the coal rejects?
The agreements between KPCL and KECML did not contemplate that KPCL would be entitled to the coal rejects. KECML was required to supply washed coal with specific parameters and dispose of the rejects properly. The demand for reimbursement based on the value of the coal rejects was quashed by the Karnataka High Court.

8. Can KECML be blamed for not setting up the coal washery at the pithead?
The delay in setting up the coal washery was due to litigation and other factors beyond KECML's control. The decision to enter into an MoU with GCWL for washing coal was a commercial decision taken in the best interest of KPCL and the State of Karnataka.

9. Did the coal rejects have any useful calorific value making it a saleable commodity?
The Washability Report from CIMFR stated that the coal rejects did not contain any useful calorific value. The revised Mining Plan mentioning the FBC technology was approved in 2011, but the technology was not in use at the time of the original Mining Plan approval in 2004.

10. Persuasive Value of the Aryan Energy Case
The Karnataka High Court's decision in the Aryan Energy case, which had similar clauses regarding the disposal of coal rejects, held that KPCL did not have any claim over the coal rejects. This decision, although not directly related, has persuasive value in the present case.

11. Inherent Jurisdiction of the High Court under Section 482, Cr.P.C
The High Court has the inherent power under Section 482, Cr.P.C to quash criminal proceedings to prevent abuse of process and secure the ends of justice. The principles laid down in various judgments emphasize that the High Court can consider material produced by the accused to determine if the charges are groundless.

12. Extraordinary powers of the Supreme Court under Article 136 of the Constitution of India
Article 136 confers plenary powers on the Supreme Court to interfere in suitable cases to prevent grave miscarriage of justice. The Supreme Court can exercise this power to correct errors of law and ensure justice is served.

13. Application of mind at the stage of Section 227, CrPC
The learned Special Judge, CBI, at the stage of Section 227, CrPC, must sift the evidence to determine if there is sufficient ground for proceeding against the accused. The Judge must exercise judicial mind and not act as a mere post office for the prosecution. The principles governing the scope of Section 227, CrPC, require the Judge to consider the broad probabilities of the case and the total effect of the evidence.

Conclusion:
The Supreme Court quashed the order on charge dated 24th December, 2021, and the order framing charges dated 3rd March, 2022, passed by the learned Special Judge, CBI, against the appellants. The Court found that the allegations against the appellants were predominantly civil in nature and did not have the makings of a criminal offense. The CBI's reliance on the CAG Report, which lacked finality, and the refusal of sanction to prosecute senior KPCL officers, further weakened the case against the appellants. The Court emphasized the need for judicial discretion and the exercise of inherent powers to prevent abuse of process and secure the ends of justice.