In a significant observation, the Supreme Court of India has stated that the rule of law carries the responsibility to protect foreign investors' interests, while also ensuring that individuals accused in such matters are provided full legal protection under the presumption of innocence.
"The rule of law has a responsibility to protect the investments of foreign investors, while at the same time ensuring that any person accused of mishandling such funds is really and fully protected by the power of the phrase 'innocent till proven guilty',"
remarked a bench comprising Justice Sanjay Karol and Justice Ahsanuddin Amanullah.
The Court was adjudicating a case involving Moon June Seok, an individual accused of fraudulent activities while employed at Daechang Seat Automotive Ltd., the Indian subsidiary of a South Korean company.
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Background of the Case
The dispute began when Daechang Seat Automotive Ltd. sought financial advisory services from M/s NK Associates. The firm advised the company that it had incorrectly claimed Input Tax Credit (ITC) amounting to ₹9,73,96,225.80.
According to NK Associates, the usual practice in India was for companies to transfer GST-related tax amounts to their financial advisors, who would then deposit the funds with the appropriate tax authorities.
Following this advice, the company transferred a large sum meant for GST payments to NK Associates. However, it was later discovered that the amount had not been deposited with the tax department.
An FIR was lodged in 2022, and the cognizance of the matter was taken in 2023. The case was filed under multiple sections of the Indian Penal Code (IPC) including Sections 406, 408, 409, 418, 420, 120B, and 34. It was alleged that Moon June Seok had colluded with NK Associates to defraud the company.
Subsequently, the accused approached the Karnataka High Court seeking to quash the criminal proceedings. He contended that:
- Some of the charges were not even superficially satisfied,
- He was not named in the FIR,
- He was implicated solely based on a co-accused’s statement.
The Karnataka High Court accepted these arguments and quashed the charges against the accused. It observed:
"The Managing Director is the final authority to approve the bills for releasing the amount. The Managing Director was not an accused who has actually released the fund to accused No.1. There is no role to play by this petitioner, except forwarding the bills to the Managing Director. Therefore, without any material evidence collected against the petitioner, the contention of the learned counsel for respondent that the petitioner has conspired with accused Nos.1 to 4 and misappropriated nearly ₹10 crores, cannot be acceptable."
Challenging the High Court’s order, the company appealed to the Supreme Court, which examined the evidence closely.
The Apex Court pointed out that the respondent's own statement supported the claim of the co-accused, thereby providing prima facie corroboration.
"When his own statement acknowledges the possibility that he had received money from accused No.1, which the latter has also alluded to, there prima facie appears to be a connection,"
the bench noted.
The Court further highlighted additional details raising suspicion:
"It was on accused No.1's recommendation that respondent No.1 'appointed' one Ritesh Merugu, who is accused No.2, as Accounts Manager. Furthermore, we are surprised by the fact that the CFO of a company and an alleged chartered accountant, both readily agreed to not put ink to paper to formalise this relationship between them, and sans the same found it completely alright to share all financial details and books of accounts."
The Supreme Court found it inappropriate to halt the trial at this stage, given the scale of the alleged fraud and available evidence. The bench concluded:
"At this stage, we are unable to convince ourselves that coming to such a conclusion would be just, reasonable, and proper, more so, keeping in view the large amounts of money involved."
Accordingly, the Court allowed the company’s appeal and revived the case against the respondent before the trial court.
The matter was argued by Senior Advocates Siddharth Luthra and Rajiv Shakdher, along with Advocate VN Raghupathy, on behalf of the appellant company.
Case Title: HYEOKSOO SON AUTHORIZED REPRESENTATIVE FOR DAECHANG SEAT AUTOMOTIVE PVT. LTD. VERSUS MOON JUNE SEOK & ANR., SLP(Crl.) No.6917 of 2024
