Madhya Pradesh High Court: In a petition filed by a man seeking quashing of an FIR registered against him in a Rs. 136 Crore Poppy Seeds Import Case, the Single Judge Bench of Milind Ramesh Phadke, J., quashed the FIR against the accused herein, holding that the impugned FIR does not disclose the commission of any cognizable offence under Sections 120-B, 417 or 420 of the Penal Code, 1860 (“IPC”) and the continuation of the proceedings would amount to abuse of the process of law.
Background
As per prosecution case, the complainant, Assistant Enforcement Officer, Enforcement Directorate(“ED”), Special Task Force (“STF”) Branch, filed an application for registration of a criminal case against the accused persons, claiming that during an investigation conducted by the STF under the Foreign Exchange Management Act, 1999 (“FEMA”), it was revealed that the accused herein, a resident of Bengaluru, operating through M/s Unique Traders (“the Firm”), was importing seeds from China and Turkey at undervalued prices.
He was allegedly obtaining import licenses from the Central Bureau of Narcotics (“CBN”), Gwalior, for the import of poppy seeds, in violation of the licensing provisions prescribed by the Revenue Department, by establishing multiple proprietorship firms in the names of his employees. The proprietor of the Firm was the father of the accused herein, and the accused was responsible for managing and controlling all commercial and financial operations.
It was further alleged that the accused herein established 9 proprietorship firms in the names of his employees, all of which were being operated from the same address, and the ownership of which vested with him. The imported poppy seeds were either purchased by the Firm or, on certain occasions, were sold directly to domestic buyers. Thus, the accused herein, in violation of the guidelines issued by the Department of Revenue, created benami entities in the names of his employees in order to obtain the maximum possible share of the country quota for import of poppy seeds.
Allegedly, a study of the imports of poppy seeds made during 2018, 2019, and 2022 revealed that during this period, the Firm could import only 1,267.9 metric tonnes of poppy seeds valued at Rs. 23.26 Crores, however, through his benami entities, the accused herein imported an additional quantity of 6,541.4 metric tonnes of poppy seeds valued at Rs. 136.22 Crores during the same period.
It was further contended that during the preliminary investigation, examination of the prior financial status, business history, and modus operandi of the proprietors revealed that all the accused persons were filing NIL ITRs or were not filing ITRs before registration of the proprietorship firms, and their personal status was employees of the accused herein rather than independent proprietors. After registration of the firms, their bank accounts suddenly reflected transactions involving crores of rupees, and corresponding income was shown in their ITRs, clearly indicating that these firms were benami entities of the accused herein and that he was the sole beneficiary of all such firms.
The prosecution contended that CBN was required to conduct due diligence with respect to applicants seeking import licenses, but it failed to do so and, in collusion with the accused herein, granted licenses to all nine benami entities. It was also averred that an officer of the Tamilnad Mercantile Bank was continuously providing information to the accused herein whenever details of the bank accounts of the benami entities were sought from its Bengaluru branch.
Thus, an FIR was registered against the accused persons and the proprietors of the benami firms under Sections 120B, 417, 420 of the IPC.
Analysis
The Court noted that the FIR showed that its gravamen was the alleged circumvention of executive guidelines governing the allocation of country-wise quotas for the import of poppy seeds by operating multiple proprietorship concerns. The Court stated that if the allegations were accepted entirely, they would squarely fall within the domain of the Prohibition of Benami Property Transactions Act, 1988(“Benami Act”). Significantly, Section 61 of the Benami Act expressly declares the offences thereunder to be non-cognizable.
Thus, the Court held that in the absence of an order of the Magistrate under Section 155(2) of the Criminal Procedure Code, 1973, (“CrPC”), registration of an FIR and commencement of investigation on such allegations was ex facie without jurisdiction. In this regard, the Court referred to Umashankar Yadav v. State of U.P., 2025 SCC OnLine SC 1066.
The Court further stated that the allegations, even if taken at their face value and accepted in their entirety, did not prima facie disclose the essential ingredients of the offences punishable under Sections 417 and 420 of the IPC. Cheating postulates deception and dishonest intention at the very inception of the transaction, but the FIR did not allege any false representation, forged document, or misstatement made by the accused herein to the CBN.
The Court further noted that, admittedly, each of the entities referred to in the FIR possessed a valid Importer-Exporter Code issued by the Directorate General of Foreign Trade, that sales contracts were registered with the CBN, and import authorisations were granted by the CBN and continue to subsist. In this regard, the Court referred to Vijay Kumar Ghai v. State of West Bengal, (2022) 7 SCC 124, and Prof. R.K. Vijayasarthy v. Sudha Seetharam (2019) 16 SCC 739.
“Mere alleged circumvention of executive guidelines, absent demonstrable deception or inducement, cannot ipso facto give rise to a criminal offence under Sections 417 or 420 of the IPC.”
The Court also agreed with the contention that the FIR suffered from foundational illegality as it was admittedly founded only on statements recorded under Section 37 of the FEMA. The record did not disclose any seizure, recovery, or independent evidence collected by the police before registration of the FIR. Thus, the Court held that the absence of any preliminary enquiry or independent application of mind by the police lends credence to the contention that the FIR was a mere reproduction of the ED’s complaint, thereby vitiating the statutory discretion required to be exercised under Section 154 of the CrPC.
The Court relied upon K.T.M.S. Mohd. v. Union of India, (1992) 3 SCC 178, the Supreme Court held that statements recorded under special statutes, which do not provide safeguards akin to Section 164 of the CrPC, cannot be mechanically used for launching or sustaining prosecution under other penal laws without independent material.
Regarding reference to Manideep Mago v. Union of India, 2025 SCC OnLine Del 3390, the Court stated that the aforesaid judgment was distinguishable on facts and was presently under consideration before the Supreme Court. Additionally, in any event, it could not be read as laying down a blanket proposition that statements under Section 37 of the FEMA, by themselves, can constitute the sole basis for registration of an FIR under the IPC.
The Court also found merit in the contention that the police failed to undertake any independent application of mind before registration of the FIR. The record is conspicuously silent on any preliminary verification, discreet inquiry, or collection of material by the police despite the communication received from the ED.
“The statutory obligation cast upon the police under Section 154 of the CrPC to independently assess whether the information received discloses the commission of a cognizable offence cannot be diluted by mechanically acting upon a departmental complaint.”
The Court reiterated that the discretion to register an FIR must be exercised independently and cannot be outsourced to another investigating agency, however eminent. In the absence of such independent satisfaction, the very foundation of the impugned FIR stands vitiated.
Regarding the contention that a wrongful loss has been caused to the public exchequer, the Court stated that the same did not withstand scrutiny, even at this preliminary stage. There was neither any allegation nor any material on record suggesting under-valuation or over-valuation, any shortfall in the payment of statutory levies, or any loss whatsoever occasioned to the Government or to any public or private entity. Significantly, neither the FIR nor the counter-affidavit filed by the ED alleged any deficient payment of tax or duty, nor did they disclose the existence of any wrongful loss to the Government. Thus, the Court held that the mere circumstance that the proprietors of the firms were employees or associates of the accused herein, or the firms operated from the same commercial complex, could not, by itself, give rise to a presumption of benami ownership or criminal conspiracy.
The Court found the foundational premise of the prosecution that the entities were benami merely because they operated from the same address or commercial complex was legally untenable and factually unsustainable. The impugned FIR proceeded on the assumption that commercial proximity or operational interdependence ipso facto establishes benami ownership. Such an assumption was contrary to settled principles of law governing both criminal liability and benami transactions.
The Court remarked that, “The mere fact that these entities operate from separate shops located within the same commercial complex does not, by any stretch of legal reasoning, establish that they are benami concerns of the accused herein.”
The Court further noted that the accused herein specifically demonstrated by reference to the same data that several other importers, unconnected with him, shared identical registered addresses. This factual assertion was not disputed or controverted by the respondent authorities.
The Court added that if a common address were to be treated as conclusive proof of benami ownership, the same logic would have to be uniformly applied to all such entities, which the prosecution conspicuously does not do.
“To permit prosecution to proceed on the fragile footing of shared addresses and commercial proximity would amount to endorsing a standard of liability alien to criminal jurisprudence. Such an approach would not only be legally impermissible but would also have a chilling effect on legitimate business arrangements operating within shared commercial spaces.”
Thus, the Court held that the allegation of benami ownership, insofar as it was predicated merely on common address or commercial reliance, was wholly misconceived and did not disclose any cognizable offence. Even assuming the allegations of regulatory or policy violations to be correct, such allegations could not be artificially elevated or dressed up as offences of cheating or criminal conspiracy merely to confer jurisdiction upon the police.
In this regard, the Court referred to Basir-Ul-Huq v. State of W.B., (1953) 1 SCC 637, wherein the Supreme Court held that a jurisdictional defect cannot be cured by mischaracterising or misdescribing the true nature of the allegations. Where the foundational facts necessary to attract the penal provisions are absent, the continuation of criminal proceedings would amount to an abuse of the process of law.
Reiterating that a mini trial was impermissible at the stage of quashing but uncontroverted allegations which do not disclose the basic ingredients of the offences should not be allowed to continue, the Court held that allowing the investigation to proceed in the present case would result in converting a dispute essentially rooted in alleged regulatory non-compliance into a criminal prosecution, contrary to settled principles of criminal jurisprudence.
Thus, the Court quashed the FIR against the accused herein, holding that the impugned FIR does not disclose the commission of any cognizable offence under Sections 120-B, 417, or 420 of the IPC, and the continuation of the proceedings would amount to abuse of the process of law.
[Asif Hanif Thara v. State of Madhya Pradesh, Misc. Criminal Case No. 43784 of 2025, decided on 28-01-2026]
Advocates who appeared in this case:
For the petitioner: Siddharth Agarwal – Senior Advocate alongwith Shri Ankur Maheshwari -Advocate and Ms. Smiriti Sinha – Advocate, Shri Karan Dhalla
For the respondent: Shri Sunil Kumar Jain – Additional Solicitor General through VC and Shri Praveen Kumar Newaskar- Deputy Solicitor General for respondent No.2. Shri Samar Ghuraiya – Public Prosecutor
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