Court’s Decision
The Kerala High Court, through Justice A. Badharudeen, dismissed a criminal miscellaneous petition filed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) seeking to quash the final report and proceedings in a case involving alleged misappropriation of foreign liquor stock worth ₹27,92,523 from a Kerala State Beverages Corporation (KSBC) outlet.
The Court ruled that mere repayment of the misappropriated amount does not absolve criminal liability, especially when the shortage was of a “gigantic quantity” indicating intentional and deliberate misappropriation.
“When a large portion of the stock was misappropriated, it should not happen without intentional acts of the accused who were custodians of the stock. Mere repayment at a belated stage cannot erase the offence.”
Accordingly, the Court dismissed the plea and directed the Special Court to proceed with the trial.
Facts
The petitioners, who were staff members of the KSBC outlet at Muvattupuzha, were accused of misappropriating foreign liquor stock valued at ₹27,92,523 between 1 April 2018 and 30 July 2018. They were charged under Sections 13(1)(c) read with 13(2) of the Prevention of Corruption Act, 1988, Section 13(1)(a) of the Prevention of Corruption (Amendment) Act, 2018, and Sections 403, 409, 420, and 34 of the Indian Penal Code.
The Vigilance and Anti-Corruption Bureau (VACB) alleged that the accused, being public servants, abused their official position and caused wrongful loss to the government exchequer while unlawfully enriching themselves.
The accused remitted the alleged loss amount pursuant to a KSBC Circular dated 20 December 2017, which allowed recovery of stock shortages from employees in specified proportions. They contended that the remittance was voluntary and in compliance with corporate policy and that the prosecution was unwarranted.
Issues
- Whether the repayment of the misappropriated amount as per KSBC’s circular could erase the criminal liability of the accused.
- Whether the quashing of proceedings was justified on the ground that the shortage was regularized by repayment.
- Whether the Court should exercise its inherent powers under Section 528 BNSS (analogous to Section 482 CrPC) to quash the FIR and final report.
Petitioner’s Arguments
The petitioners argued that the shortage in liquor stock was due to clerical or procedural lapses arising from voluminous transactions, delayed audits, and practical difficulties in daily stock maintenance. They maintained that once the shortage was discovered during internal verification, they promptly remitted the amount in accordance with Circular No. KSBC/1A/042/2017-18 dated 20.12.2017, thereby regularizing the discrepancy.
Their counsel emphasized that the KSBC’s own policy recognized such shortages as operational errors and provided for proportional recovery from staff without treating them as criminal acts. They relied on the fact that the High Court’s Division Bench in W.A. No. 642/2025 had later upheld the quashing of the same circular by a Single Judge but argued that this did not affect past remittances.
It was further submitted that no element of mens rea (criminal intent) existed and that the remittance of the shortfall prior to the investigation negated any presumption of corruption. Hence, they sought quashing of the FIR and the final report under Section 528 BNSS.
Respondent’s Arguments
The learned Standing Counsel for KSBC and the Special Public Prosecutor for the VACB opposed the petition, arguing that misappropriation was complete before repayment and that the subsequent deposit of money did not extinguish criminal liability.
They contended that the shortage was discovered only during a later audit, revealing deliberate misappropriation of a massive stock rather than a clerical error. The prosecution stressed that repayment was made after detection and complaint, which cannot retrospectively sanitize the illegal act.
The respondents further cited a similar decision in Crl.M.C. No. 5022/2025, where the High Court had refused to quash proceedings despite repayment. They emphasized that the Prevention of Corruption Act and the IPC offences involved moral turpitude, which cannot be compromised through settlement or administrative circulars.
Analysis of the Law
The Court examined the scope of Section 528 of BNSS, corresponding to Section 482 CrPC, noting that inherent powers are to be used sparingly and only when the complaint does not disclose any offence.
Justice Badharudeen reiterated the principle that mere restitution of property or payment of misappropriated money does not efface the offence once the act of criminal breach of trust or misappropriation is complete. The mens rea is inferred from the act of unlawful conversion or dishonest use, and repayment later cannot undo the earlier offence.
The Court also observed that the KSBC circular of 2017 merely prescribed recovery mechanisms and did not grant immunity from criminal prosecution. Since the Division Bench in W.A. No. 642/2025 had upheld the quashing of this circular, reliance on it for exoneration was untenable.
Precedent Analysis
- State of Gujarat v. Mohanlal Jitamalji Porwal (1987) 2 SCC 364 – The Supreme Court held that crimes involving misappropriation of public funds cannot be treated as private wrongs that can be compromised. The Court applied this principle to hold that repayment does not negate public interest in prosecution.
- Narinder Singh v. State of Punjab (2014) 6 SCC 466 – Though permitting compounding of offences, the Supreme Court restricted it for serious economic crimes involving breach of trust by public servants. The High Court distinguished this judgment, reiterating that offences under the Prevention of Corruption Act cannot be quashed based on settlement.
- Crl.M.C. No. 5022 of 2025 (Ker HC) – A coordinate Bench had dismissed a similar plea involving KSBC employees, holding that misappropriation offences were complete before repayment and must proceed to trial. The present Court followed the same reasoning.
Court’s Reasoning
Justice Badharudeen held that the magnitude of the shortage—₹27.92 lakh worth of liquor—precluded any inference of accidental error or administrative lapse. The Court observed:
“When shortage of foreign liquor is to the tune of ₹27,92,523, a very gigantic quantity, intentional misappropriation is foreseeable with active participation of the accused persons.”
The Judge reasoned that the accused, being custodians of the stock, were bound to maintain accurate records, and such large-scale loss could not have occurred without their connivance or negligence of a criminal degree. The belated repayment without interest suggested that the accused enjoyed illicit gain before the discovery of misappropriation.
Thus, the Court concluded that repayment after detection cannot transform a deliberate offence into an innocent act. The question of guilt or innocence could only be determined after a full trial, not through a quashing petition.
Conclusion
The Court dismissed the criminal miscellaneous case, holding that:
- The misappropriation was a completed act before repayment.
- The circular relied upon by the petitioners was no longer valid and did not preclude prosecution.
- The quantum of shortage and surrounding circumstances warranted a full trial.
The Court directed the Special Judge, Muvattupuzha, to proceed expeditiously with framing of charges and trial, vacating any interim stay earlier granted.
“Quashment of a serious case of this nature, merely on the ground that the value of misappropriated liquor was repaid, would not sustain.”
Implications
This judgment reinforces that repayment or restitution cannot absolve public servants of corruption or breach of trust. It draws a clear distinction between civil liability and criminal culpability, emphasizing accountability for misuse of public property.
The ruling will have wide implications for employees of public corporations like KSBC, ensuring that administrative recovery mechanisms do not shield criminal acts. It underscores the judiciary’s stand that corruption in public enterprises, even at operational levels, demands full prosecution to maintain institutional integrity.
FAQs
1. Can repayment of misappropriated money lead to quashing of criminal proceedings?
No. Once misappropriation is complete, repayment does not erase the criminal liability. It may be considered during sentencing but cannot bar prosecution.
2. What did the Court say about the KSBC circular allowing recovery from employees?
The Court noted that the circular was struck down by a Division Bench and cannot serve as a defence against criminal charges.
3. Why did the Kerala High Court refuse to quash the case?
Because the misappropriation involved a large amount, was intentional, and repayment occurred only after detection, showing conscious misconduct rather than a clerical lapse.