Supreme Court Quashes Chargesheet Filed After Third Round of Investigation Conducted Without Magistrate’s Approval

A bench of Justices Sanjay Karol and Kotiswar Singh held that further investigation under Section 173(8) CrPC requires prior Magistrate permission, quashing a chargesheet filed after two earlier closure reports.

The Supreme Court on 26 May 2026 quashed an FIR and chargesheet arising from a textile joint venture dispute between an India-based exporter and a US-based complainant, holding that the investigating agency had conducted a third round of further investigation without obtaining the concerned Magistrate’s permission — a requirement that the Court said is now firmly settled law. The bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh also found, independently, that the underlying dispute was civil in nature and that the criminal proceedings amounted to an abuse of process. The Court allowed the appeal, setting aside the Karnataka High Court’s refusal to quash the proceedings.

The Dispute and Its Long Path to the Supreme Court

The four appellants — Paliniswamy Veeraraja, K. Paliniswamy, Ammani and R. Kavitha — are accused in CC No. 55623 of 2014, arising out of Crime No. 209 of 2006. They run M/s Kay Pee Exporters, a textile export firm. The private complainant, Respondent No. 2, operated similar businesses in the United States and Canada.

According to the complainant, the parties entered into an arrangement under which he would invest money into the appellants’ business and assist its expansion into the US and Canadian markets, in return for one-third of the profits. He also promoted a company called M/s Associated Textile Inc., incorporated under the laws of Illinois. The appellants, however, maintained that there was no joint venture; the complainant had sought an exclusive supply arrangement, which they refused.

The dispute first reached a court in the United States. In proceedings before the Northern District of Illinois — Associated Textile Inc. v. Paliniswamy Veeraraja, No. 01C6249 — the District Court entered an ex parte final judgment on 2 February 2004 against the appellants, awarding total damages of $2,268,222.46. The judgment covered counts of breach of joint venture agreement, fraudulent inducement, and unjust enrichment, and imposed a constructive trust over one-third of the profits from Kaypee Exporters’ US and Canada textile sales from 1 January 1996 onwards.

Shortly after the US judgment, the complainant filed a complaint under Section 200 of the Code of Criminal Procedure, 1973 before the City Civil and Sessions Court, Bangalore. The Indra Nagar Police Station took up investigation on 9 August 2006. On 17 November 2006, a closure report was filed recording that the dispute was entirely civil in nature.

The complainant then filed an application under Section 173(8) CrPC on 1 September 2007 seeking further investigation. That application was dismissed on 8 October 2007. A criminal miscellaneous petition to restore the complaint and direct further investigation was, however, allowed by the Sessions Court on 31 May 2010. A second closure report followed on 22 November 2011. On 25 February 2012, the Police Inspector, Indra Nagar, again sought to continue investigation under Section 173(8) CrPC. A chargesheet was eventually filed on 25 September 2013 under sections 406, 468, 471 and 420 read with 34 of the Indian Penal Code, 1860.

The appellants say they were unaware of these proceedings until May 2022. On learning of them, they filed Criminal Petition No. 4624 of 2022 before the High Court of Karnataka seeking quashing. The High Court dismissed the petition, rejecting arguments that the Bangalore courts lacked jurisdiction and that the offence had occurred outside India. It found a prima facie case made out. The appellants then approached the Supreme Court by way of Special Leave Petition.

The Core Question: Was Magistrate Permission Required for the Third Investigation?

Before the Supreme Court, senior counsel Ms. V. Mohana, appearing for the appellants, pressed several grounds. Chief among them: the third round of further investigation was conducted without the permission of the competent authority. Two closure reports had already been filed. The chargesheet that emerged from the third investigation was therefore vitiated. She also argued that none of the ingredients of cheating or forgery were made out, the dispute was civil, and that in any event appellants Nos. 3 and 4 had no role attributed to them at all.

For the State, Mr. Prateek Chadha, Additional Advocate General, and for the complainant, Mr. Gaurav Agrawal, senior advocate, countered that the remittance of amounts by the complainant was admitted, that 28 of 119 documents were found forged by handwriting experts, and that Section 173(8) CrPC does not bar further investigation upon discovery of additional material without express Magistrate permission.

The Court framed two questions: first, whether the investigating authorities could initiate further investigation after two closure reports without express Magistrate permission; and second, whether the dispute was civil in nature, making criminal recourse unjustified.

The Law on Section 173(8) CrPC: Permission Is Required

The Court acknowledged that the text of Section 173(8) CrPC does not explicitly require the investigating agency to seek Magistrate permission before conducting further investigation — a position confirmed in Rama Chaudhary v. State of Bihar, (2009) 6 SCC 346. The proviso to the section does require court permission once trial has begun, but that threshold had not been reached here.

However, the Court held that the law as it has developed goes further. In Vinay Tyagi v. Irshad Ali, (2013) 5 SCC 762, the Supreme Court had read into Section 173(8) a requirement of prior leave of court, invoking the doctrine of contemporanea expositio — that a practice understood and implemented over a long period, and supported by law, must be accepted as part of the interpretative process. That position was approved in Vinubhai Haribhai Malaviya v. State of Gujarat, (2019) 17 SCC 1, and reiterated in Peethambaran v. State of Kerala, (2024) 16 SCC 65.

The Court also drew on its recent directions in Robert Lalchungnunga Chongthu v. State of Bihar, 2025 SCC OnLine SC 2511, where the same bench had directed that leave of court to file a supplementary chargesheet is part of Section 173(8) CrPC, that courts are not rendered functus officio after granting such permission, and that judicial stewardship of further investigation is a function the court must perform. That judgment had also directed that investigations cannot continue endlessly, and that an accused is entitled to certainty about the charges against him after a reasonable period.

Applying these principles, the Court found that although an application had been filed before the Magistrate for further investigation a third time, no order specifically granting permission was on record, and the respondents did not even submit that permission had been granted. The Court held that the respondent’s submission that permission was not required “has to be negated.”

On this ground alone, the Court said, the FIR and chargesheet could be quashed. It chose to go further only because the proceedings had been ongoing for a considerable period and quashing on the procedural ground alone would leave open the possibility of yet another round of litigation.

The Dispute Is Civil, Not Criminal

Turning to the merits, the Court examined the nature of the dispute. Both sides were business owners. One party said the relationship ran without incident from 1995 to 2000 and that the dispute arose only when the complainant sought to make the supply arrangement exclusive. The other said the very initial terms — sharing of profits in return for capital investment in US and Canada textile trading — were never honoured.

The Court found that either way, the dispute plainly concerned whether a joint venture existed between the parties and, if so, the distribution of profits from it. It held that “clearly is in the nature of civil dispute.”

On the forgery allegations, the Court raised a pointed question: if 28 documents were forged and a handwriting expert’s report existed, why was that allegation raised only before the Bangalore court and not before the Illinois District Court, which was the very forum where the allegedly forged documents had been filed? The handwriting expert’s report was dated 1 September 2009 — after the Illinois judgment of 2 February 2004. The Court observed that if such evidence had been in the complainant’s possession at the time of the US proceedings, it could have been placed before that court and could have led to further punitive damages. The Court was careful to note that it was not examining the sanctity of the handwriting expert’s report itself; it was only the timing and sequence of events that rendered the reliance placed on it suspect.

The Court also noted that the civil suit for recovery of money filed against the appellants had been dismissed by the XXXIIIrd Additional City Civil and Sessions Judge, Bangalore, on 5 November 2014.

Outcome

The Court held that in the cumulative view of circumstances, criminal action against the appellants would be contrary to the authority of law and an abuse of process. The third round of further investigation, which produced the chargesheet, lacked the concerned Magistrate’s approval. Separately, the dispute was civil in nature. Invoking ground (3) in paragraph 102 of State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335, the Court quashed and set aside the FIR and all subsequent proceedings that were the subject matter of the appeal. The appeal was allowed. Pending applications, if any, were disposed of.