Supreme Court Revives Fraud Case Against CFO: Hyeoksoo Son vs. Moon June Seok (2025)

Introduction

Date of the Judgment: April 8, 2025
Citation: 2025 INSC 474
Judges: Sanjay Karol, J., Ahsanuddin Amanullah, J.

Can a High Court quash criminal proceedings against an accused based on a preliminary assessment of evidence? The Supreme Court recently addressed this question in a case involving allegations of fraud against a Chief Financial Officer (CFO). The court considered whether the High Court was justified in halting proceedings against the CFO, who was accused of misappropriating company funds. The judgment was delivered by a bench comprising Justice Sanjay Karol and Justice Ahsanuddin Amanullah.

Case Background

The case originated from allegations of fraud committed by Moon June Seok, the respondent, during his employment with Daechang Seat Automotive Ltd. The appellant, Hyeoksoo Son, is the authorized representative of Daechang Seat Automotive Ltd, a company primarily manufacturing seat-related equipment for KIA cars. The company engaged M/s. N.K. Associates, led by Mr. Nikhil K.S., as Chartered Accountants and Financial Advisors.

In October 2022, the management of Daechang Seat Automotive Ltd. in Korea began inquiring into the company’s financial status, including statutory payments. It was discovered that substantial payments had been made, purportedly for Goods and Services Tax (GST), prompting further investigation.

The company was informed by N.K. Associates that it had wrongly claimed input tax credit amounting to ₹9,73,96,225.80. N.K. Associates advised that it was standard practice to transfer tax amounts to financial advisors for payment to the concerned department. Consequently, the company transferred a total of ₹10,18,54,894.80 from its Indian Overseas Bank account to N.K. Associates and Terminus.

Further investigation revealed that the GST portal contained all relevant GST payment information, indicating that ₹7,26,25,840 was due for GST as per N.K. Associates’ report dated March 5, 2022. On April 3, 2022, a GST payment of ₹7,26,25,840 was made by adjusting the input tax credit already available with the company. It was also found that there was no mismatch of input tax credit on the GST portal and that the company had excess credit available.

The company discovered that the amounts paid to N.K. Associates and Terminus were never remitted to the GST Department. The registered address of Terminus was the same as the office address of N.K. Associates. The directors of Terminus were Ms. Anushka Singh and Mr. Vinay Babu Venugopal, with Anushka Singh also being the designated partner of NKS Corporate Services LLP. Mr. Ritesh Mergu, who had a prior relationship with Terminus, signed Form No.AOC-4 of Terminus for the year 2018-2019 and the capital increase document of the company as their auditor.

The company alleged that these individuals, including Mr. Nikhil KS and Mr. Ritesh Mergu, abused their positions as trusted persons and caused the company to make payments totaling ₹10,18,54,894.80 through false statements. These amounts were allegedly misappropriated and converted for their own use. The company claimed a loss of ₹9,62,80,189.00 due to these offenses.

Timeline:

Course of Proceedings

The FIR was registered on December 11, 2022, leading to a detailed statement of the accused being recorded on December 30, 2022. The chargesheet, dated March 18, 2023, was filed before the III Additional Chief Metropolitan Magistrate, Bengaluru City. Cognizance was taken by the concerned Court on April 6, 2023.

Moon June Seok, accused No. 5, approached the High Court under Section 482 of the Code of Criminal Procedure, 1973, seeking to quash the criminal proceedings. He argued that the charges against him were not substantiated, he was not named in the FIR, and he was implicated solely based on a co-accused’s statement, citing Surinder Kumar Khanna v. Intelligence Officer, Directorate of Revenue Intelligence [(2018) 8 SCC 271].

The High Court, in its judgment, noted that there was no prima facie material to frame charges against Moon June Seok. The court accepted his explanation that he received money from a Korean national as a loan and facilitated currency exchanges for individuals traveling to Korea. The High Court also noted that Moon June Seok was merely forwarding files to the Managing Director for approval, and the main bills were prepared and advised by accused Nos. 1 to 4.

Legal Framework

The case involves several sections of the Indian Penal Code, 1860, including:

• Section 406 IPC: Pertains to criminal breach of trust.
• Section 408 IPC: Addresses criminal breach of trust by a clerk or servant.
• Section 409 IPC: Concerns criminal breach of trust by a public servant, banker, merchant, or agent.
• Section 418 IPC: Relates to cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect.
• Section 420 IPC: Deals with cheating and dishonestly inducing delivery of property.
• Section 120B IPC: Addresses criminal conspiracy.
• Section 34 IPC: Deals with acts done by several persons in furtherance of common intention.

Additionally, Section 482 of the Code of Criminal Procedure, 1973, which empowers the High Court to exercise its inherent powers to prevent abuse of the process of any court or otherwise to secure the ends of justice, is central to the proceedings.

Arguments

Appellant’s Submissions:

• The inherent power of the High Court should be exercised sparingly and not to examine the reliability of allegations in the chargesheet.
• The Court cannot conduct a ‘mini trial’ or test the veracity of allegations, which should be determined upon trial. References were made to Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra [(2021) 19 SCC 401], Priti Saraf & Ors. v. State of NCT of Delhi & Ors. [(2021) 16 SCC 142], and Kaptan Singh v. State of U.P. [(2021) 9 SCC 35].
• The amount of bribe received by the respondent, whether high or low, cannot be a ground for quashing, citing Niranjan Hemchandra Sashittal v. State of Maharashtra [(2013) 4 SCC 642].
• As the CFO, the respondent controlled the company’s finances and brought other co-accused persons into the operations.
• The respondent could not justify the recovery of ₹9,69,000 from his residence. Both accused No. 1 and the respondent acknowledged the receipt of ₹1,80,00,000 in identical installments, establishing their roles as co-conspirators.

Respondent’s Submissions:

• The High Court’s observation that there was no direct evidence against respondent No. 1 is correct.
• The appellant wrongly assumed that as ‘CFO,’ he had control over the Company’s funds, when his role was administrative due to language barriers.
• Section 409 IPC is not applicable to the respondent since he is not a public servant, banker, agent, or merchant, but only an employee with no dominion or entrustment of property.
• Voluntary statement of co-accused cannot form the sole basis of conviction, citing CBI v. V.C. Shukla [(1998) 3 SCC 410], Dipakbhai Jagdishchandra Patel v. State of Gujarat & Anr. [(2019) 16 SCC 547], and Karan Talwar v. State of Tamil Nadu [2024 SCC OnLine SC 3803].
• There is an unexplained delay of 8 months in lodging the FIR, and the incorporation of Section 409 IPC without prior intimation casts doubt on the veracity of the allegations.

Submissions Table

Issues Framed by the Supreme Court

1. Whether the High Court was justified in quashing the proceedings against respondent No.1 under Section 482 Cr.P.C.

Treatment of the Issue by the Court

Authorities

The court considered the following authorities:

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision to revive the criminal proceedings against the respondent, Moon June Seok, was influenced by several factors. The Court emphasized the importance of protecting the investments of foreign investors and ensuring that individuals accused of mishandling funds are thoroughly investigated. The Court also noted that the respondent’s own statement corroborated the statement of the co-accused, indicating a connection between them. Additionally, the Court highlighted the fact that the respondent, as the CFO, played a crucial role in the company’s financial operations.

Logical Reasoning

The court’s logical reasoning can be summarized as follows:

Key Takeaways

• The High Court’s power to quash criminal proceedings under Section 482 Cr.P.C. should be exercised sparingly.
• Corroborating evidence, even if indirect, can be sufficient to revive criminal proceedings.
• Courts must consider the need to protect foreign investments and ensure a fair trial for the accused.

Directions

The Supreme Court directed the parties to appear before the III Additional Chief Metropolitan Magistrate, Bengaluru, on April 16, 2025.

Development of Law

The ratio decidendi of the case is that the High Court should exercise its inherent powers under Section 482 Cr.P.C. sparingly and that corroborating evidence, even if indirect, can be sufficient to revive criminal proceedings. The judgment reinforces the importance of protecting foreign investments and ensuring a fair trial for the accused.

Conclusion

The Supreme Court allowed the appeal, setting aside the High Court’s judgment and reviving the criminal proceedings against Moon June Seok. The Court emphasized the need for a thorough investigation and trial, considering the seriousness of the allegations and the need to protect foreign investments.