Exoneration In Adjudication Proceedings No Bar To Criminal Prosecution If CBI Collects Independent Evidence Of Forgery & Conspiracy: Bombay High Court

"Scope of adjudication in both these proceedings is vastly different. The authority which conducted the excise evasion proceeding and the authority conducting the prosecution are completely different," Bombay High Court, in a significant ruling, held that the exoneration of an accused in departmental adjudication proceedings does not automatically entitle them to a discharge in a criminal case if the investigating agency has collected independent evidence of conspiracy and forgery.

A single-judge bench of Justice Shivkumar Dige observed that the scope of tax evasion proceedings and a criminal trial for fraud are distinct, and criminal prosecution can proceed if the material collected by the agency was not placed before the adjudicating authority.

The court dismissed a revision application filed by the promoters and directors of Royal Distilleries and Khemani Distilleries, who sought to challenge a Special Court's order rejecting their discharge. The bench emphasized that while the departmental proceedings focused on the validity of tax notices, the criminal case involved deeper allegations of criminal conspiracy and the creation of bogus documents to defraud the state exchequer.

The applicants, Suresh and Ashok Khemani, along with their distillery companies, were accused by the CBI of conspiring with excise officials between 2005 and 2010 to evade excise duty and VAT worth approximately Rs. 340 crore. It was alleged that they created false records and used bogus documents to facilitate this evasion. They approached the High Court after the Special Judge at Daman rejected their discharge application, arguing that they had already been exonerated by the Excise Commissioner and VAT authorities on the same allegations.

The primary question before the court was whether the exoneration of the applicants in adjudication proceedings by the Excise and VAT departments on merits rendered the criminal prosecution an abuse of process. The court was also called upon to determine if the material collected by the CBI regarding forgery and conspiracy constituted a distinct "prima facie" case separate from the tax adjudication.

Adjudication Proceedings vs. Criminal Trial

The court noted the applicants' reliance on the Supreme Court’s decision in Radheshyam Kejriwal vs. State of West Bengal (2011), which held that if an accused is exonerated in departmental proceedings on merits, criminal prosecution on the same facts cannot be sustained. However, the bench distinguished the present case by highlighting that the scope of the two proceedings is fundamentally different. It observed that the adjudication by the tax authorities was limited to the validity of the notices issued for tax evasion.

In contrast, the criminal case initiated by the CBI is based on allegations of a wider criminal conspiracy involving public servants. The court noted that "the principles of the Evidence Act are strictly applied to the prosecution's case, whereas the same may not be applied strictly in the adjudication proceedings." This distinction is crucial because the standard of proof and the nature of evidence considered in a criminal trial are more rigorous than those in departmental enquiries.

CBI Collected Material Not Placed Before Adjudicating Authorities

"The scope of adjudication in both these proceedings is vastly different."

The bench found merit in the Special Public Prosecutor's argument that the material collected by the CBI was not part of the record before the Excise Commissioner or the VAT department. The court observed that the CBI had collected "bogus bills, forged transport bills and recorded confessional statements of witnesses to support the charge of forgery of documents for the purpose of cheating and evasion of excise."

Since this specific evidence of forgery and conspiracy was never considered by the adjudicating authorities, their decision to drop the tax notices for "want of cogent evidence" did not cover the criminal aspects investigated by the CBI. The court held that the adjudicating authority had not declared the allegations "baseless or incorrect" but had merely dropped the notices due to a lack of evidence produced at that stage by the department.

Prima Facie Case For Conspiracy And Forgery

"The CBI has collected sufficient evidence against the public servants, who allegedly helped the applicants in commission of crime."

The court analyzed the charges filed under Section 120-B (Criminal Conspiracy) read with Sections 420 (Cheating), 468 (Forgery for purpose of cheating), and 471 (Using a forged document as genuine) of the IPC. Additionally, charges were framed under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act against the involved public servants. The bench stated that the charge-sheet disclosed a prima facie case that required a full trial.

It further observed that the CBI was not a party to the adjudication proceedings before the Excise or VAT authorities. Consequently, the findings of those authorities could not bind the criminal court, especially when the investigating agency had unearthed independent evidence of a criminal nature that went beyond mere tax evasion.

No Interference Required In Special Court's Order

Concluding the judgment, the court held that the learned Special Judge had passed a "well-reasoned order" and that no interference was required under the revisional jurisdiction. The bench noted that at the threshold of framing charges, it cannot be said that the allegations are groundless if the record discloses a prima facie case.

The court reiterated that the facts of the precedents cited by the applicants were different from the present case. Since the CBI had collected specific evidence regarding the role of public servants and the creation of forged transport bills, the prosecution could not be terminated midway based on the previous exoneration in tax proceedings.

The High Court rejected the criminal revision application, allowing the trial against the applicants to proceed. The ruling reinforces the principle that criminal liability for forgery and conspiracy remains independent of administrative or tax adjudications, particularly when new and distinct evidence is brought to light by a specialized investigating agency.

Date of Decision: 16 June 2026