CBI went on fishing and roving inquiry: Supreme Court quashes charges against Karnataka coal company

The Supreme Court on Friday took exception to the Central Bureau of Investigation (CBI) seeing criminal intent in contractual agreements based on an audit that had not attained finality. (Karnataka EMTA Coal Mines Limited and anr v. Central Bureau of Investigation).A Bench of Justices Hima Kohli and Ahsanuddin Amanullah set aside corruption charges against Karnataka EMTA Coal Mines, stating that the CBI had misinterpreted the clauses of the company's agreements to thread in criminality."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...by heavily banking on the observations made in the Audit Report of the CAG that has not attained finality till date," it observed..The company had directly moved the Supreme Court challenging a special court order framing charges against it in a case under the Prevention of Corruption Act. The lower court had refused to discharge the company and its Chairperson in the matter.The case stems from allegations of irregularities in coal block handling.There was an agreement between Karnataka Power Corporation Limited (KPCL) and the appellant company to develop captive coal mines to supply coal to the Bellary Thermal Power Station.A fuel supply agreement was signed between the two for coal supply, including quality and quantity specifications, price adjustments and penalties for delays. The appellant company and its Managing Director were later charged with corruption with regard to the said agreement.They alleged that the CBI acted on a Comptroller and Auditor General (CAG) audit inquiry report. The same had stated that the appellants had failed to transfer ₹52.37 crore to the government entity, who in turn argued that the amount referred to the value of coal rejected for having low calorific value..The Supreme Court noted that the CBI made the audit report 'a launching pad' for initiating prosecution and subsequently sought to substantiate the allegations made.It found that the central agency could not have acted against an earlier order prohibiting it from initiating prosecution based on the report, merely because they were not a party in those proceedings..A CAG report is subject to scrutiny by Parliament, and the government can always offer its views on the said report, the Court explained. Since the report in this case was not tabled, its findings could not be termed decisive."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. " The Bench also found no irregularity in the route adopted by the appellant company to dispose of the coal rejects. It noted that the Union government had not come up with any specific plan to dispose of the coal rejects..The appeal was thus allowed and the order framing charges against the appellants was set aside..Senior Advocates Ranjit Kumar and Abhimanyu Bhandari appeared for Karnataka EMTA Coal Mines and its former Managing Director.Senior Advocate RS Cheema appeared for the CBI..[Read judgment]