Allegations Involving Diversion of ₹79 Crores of Foreign Investment Not a Mere Civil Dispute: Madras High Court Refuses to Quash Prosecution

“Compromise Behind Victim’s Back Has No Legal Sanctity; Offences Like Forgery and Criminal Breach of Trust Must Be Tried” – Madras High Court delivered a significant judgment in Cheran Properties Limited & Others v. The State & Others, refusing to quash criminal proceedings against directors and entities accused of misappropriating ₹79 crores of foreign investment in a joint venture. The petitions were dismissed by Justice P. Velmurugan, who categorically held that the charges involved serious and non-compoundable offences of economic fraud, criminal breach of trust, and forgery, which could not be quashed based on a disputed compromise that excluded the actual victims.

The case, which arose from C.C. No. 20 of 2020 pending before the Special Court for Trial of MPs/MLAs, involves senior directors and associated entities of Cheran Group allegedly involved in diverting foreign funds meant for commercial real estate development in Coimbatore through a joint venture. Despite claims of settlement, the Court emphasized that only a full-fledged trial can establish the truth, and held that the petitioners’ participation in the conspiracy was clearly disclosed from the investigation records.

“Charge Sheet Discloses Specific and Detailed Allegations of Diversion, Falsification and Forgery”: Court Finds Prima Facie Offences Made Out

Dismissing the criminal original petitions filed under Section 482 CrPC, the Court noted:

“The charge sheet reveals that Cheran Properties Ltd. (A-7) and Vasantha Mills Ltd. (A-8), though intended as joint venture vehicles, were used as conduits to siphon investor funds into related entities controlled by A-1 and his associates.”

The prosecution alleged that ₹79 crores invested by ORE Holdings (Mauritius) and Mr. R. Athappan (Singapore) was misused through unauthorized bank transfers, forged board resolutions, and gratuitous payments to shell companies and trusts. The Court found that:

“Cheran Foundation Trust (A-12), C.G. Holdings (A-13), and Cheran Constructions Ltd. (A-14) were direct beneficiaries of misappropriated funds, receiving transfers without any legal or contractual basis.”

One of the petitioners, A-3, claimed to be a mere office assistant, but the Court noted that:

“Records show that A-3 was shown as Managing Director of one of the involved companies, thereby disproving the claim of having no role in the transactions.”

“Private Compromise Cannot Override Victim's Rights in Economic Offences”: Court Rejects Settlement Plea Excluding Foreign Investors

A central defence raised by the petitioners was that the matter was resolved through a Joint Memo of Compromise. However, the Court sternly rejected this:

“The actual victims—the foreign investors—were not parties to the compromise. The investors have consistently maintained that no money has been repaid and that the settlement was entered behind their back.”

Referring to landmark precedents including Gian Singh v. State of Punjab (2012) 10 SCC 303, Daxaben v. State of Gujarat (2022) 7 SCC 366, and Jagjeet Singh v. Ashish Mishra (2022) 9 SCC 321, the Court reiterated:

“Serious economic offences involving investor funds cannot be quashed on the basis of private settlements. Compromise must be genuine, comprehensive, and involve the consent of the actual victims.”

“Not a Civil Dispute in Commercial Disguise; Misappropriation Is Established Even in Company Law Board Findings”

Rejecting the petitioners’ claim that the matter was purely civil arising out of a Joint Venture Agreement, the Court observed:

“The Company Law Board, by a detailed order dated 13.08.2008, had categorically held that the investors’ money was misappropriated. The Division Bench of this Court confirmed the findings, warning that control must not be restored to the accused, lest the funds be diverted again.”

The Company Law Board had directed repayment of ₹75 crores and ₹4 crores respectively to ORE Holdings and Mr. Athappan with 8% interest, and declared the investors as beneficial owners of the project land. However, no repayment was ever made, and further litigation was launched by the accused to stall execution.

“Quashment Orders in Co-accused Cases Do Not Automatically Apply; Each Accused Must Stand Trial on Their Own Role”

The petitioners argued for parity with earlier orders quashing charges against A-1, A-2, A-4, and A-5 in the same matter. But the Court drew a firm distinction:

“Each case must be judged on its own facts. The mere fact that a co-accused has obtained relief does not create a binding precedent for others, especially when the present petitioners have distinct and active roles in the alleged transactions.”

In fact, the Court held that earlier orders of quashment were granted based on disputed compromises, which excluded the real victims, and that extending the same benefit would perpetuate injustice.

“Section 482 CrPC Not Meant for Mini-Trials; Detailed Facts Must Be Evaluated at Trial Stage”

The Court reminded that its role under Section 482 CrPC is not to conduct a fact-finding inquiry:

“This Court cannot go into detailed examination of evidence or disputed questions of fact at the pre-trial stage. The charge sheet clearly discloses prima facie offences and specific roles of the petitioners, which must be adjudicated during trial.”

The allegations involved unauthorized withdrawal of funds, use of forged resolutions, sale of properties at undervalued rates, and gratuitous fund transfers to associated trusts and companies, all of which were supported by bank records, statutory filings, and statements gathered during the investigation.

Trial Is Necessary; Dismissal of Petitions Ensures Justice in Complex Economic Crime

Summarizing the findings, the Court concluded: “In view of the foregoing discussion, this Court finds no merit in these petitions. The criminal original petitions are accordingly dismissed. The trial court is directed to proceed with the trial in accordance with law and dispose of the case expeditiously.”

This judgment affirms the principle that serious economic offences involving public or investor trust must be tried, even if civil proceedings have run parallel. The Court's refusal to quash proceedings despite a prior compromise plea sends a clear message on the non-negotiability of criminal accountability, especially in cases involving foreign investment fraud.

Date of Decision: 12 September 2025