False Due Diligence Reports by Empanelled Agencies Can Sustain Conspiracy Charges at the Charge-Framing Stage

1. Introduction

In VIKAS GARG & ANR. v. THE STATE THROUGH CENTRAL BUREAU OF INVESTIGATION (Delhi High Court, decided on 17-02-2026), the petitioners—an empanelled due diligence agency (petitioner no.2) and its authorised signatory (petitioner no.1)—invoked Section 482 read with Section 397 Cr.P.C. to set aside an order framing charges.

The prosecution case arose from a Corporation Bank loan of Rs. 600 lakhs sanctioned in April 2013 to a purported borrower firm, M/s. Shree Balaji Overseas, allegedly floated through forged and fabricated documents, including fabricated collateral title documents. The CBI alleged a conspiracy involving the borrower (projected as “Sumit Mittal”), bank officials, and private persons, including the petitioners.

The central issue before the High Court was narrow but significant: whether, at the stage of framing of charges, the material created “grave suspicion” against a due diligence agency which submitted a favourable report, where the report contained apparent contradictions and claimed site verification by an employee who later denied having conducted it.

2. Summary of the Judgment

The Delhi High Court dismissed the petition and declined to interfere with the Trial Court’s order dated 07.09.2022 framing charges under: Section 120B read with Sections 420/468/471 IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act.

The Court held that at the charge-framing stage it does not conduct a meticulous evaluation of evidence or assess the probability of conviction. Given the petitioners’ contractual/circular-based responsibility to independently conduct physical and financial due diligence, and the prima facie contradictions in the report (including the claimed site visit being denied by the named employee and contradictory statements about ITR verification), the record generated grave suspicion—sufficient to proceed to trial.

3. Analysis

3.1 Precedents Cited

A. Precedents relied upon and applied by the Court

  • Amit Kapoor v. Ramesh Chander ((2012) 9 SCC 460)
    Influence on outcome: This decision is the backbone of the High Court’s approach. The Court extracted and applied the principles that (i) framing charge under Section 228 Cr.P.C. is a tentative assessment, (ii) the threshold may be “weaker than a prima facie case,” (iii) the test is “strong suspicion/grave suspicion,” and (iv) quashing under Section 482/397 is to be exercised sparingly. The High Court used these guardrails to reject the petitioners’ invitation to evaluate defences (scope of work, alleged “two reports,” lack of benefit) as if at trial.
  • State of Bihar v. Ramesh Singh (as quoted within Amit Kapoor v. Ramesh Chander)
    Influence on outcome: The Court adopted the proposition that, at Sections 227/228 stage, truth/veracity/effect of evidence is not to be meticulously judged, and that if there is a strong suspicion leading to a presumption that the accused committed an offence, the matter should proceed under Section 228 rather than end in discharge under Section 227.

B. Other authorities cited by the petitioners (recorded in the judgment) and their contextual relevance

  • Union of India v. Prafulla Kumar Samal & Anr. (AIR 197 9 SC 366)
    Typically cited for delineating the discharge/framing-of-charge threshold and the court’s limited sifting power. The High Court’s reasoning is broadly consistent with the “limited scrutiny” approach, but it found the material sufficient to create grave suspicion against the petitioners.
  • CBI v. K. Narayana Rao ((2012) 9 SCC 512)
    Often invoked in cases concerning professional negligence versus criminality (especially where advocates/professionals are roped in). The present court implicitly treated the allegation not as mere negligence but as prima facie deliberate misrepresentation (false claim of physical verification; internal contradictions), thereby distinguishing a “mere professional lapse” narrative.
  • Ganesh v. The Superintendent of Police (Crl. M.P. No. 14145 of 2017 (Madras High Court))
    A petitioners’ authority presumably on limits of criminal prosecution for professional acts. The High Court here found that the report itself generated grave suspicion and therefore required trial testing.
  • Sunil Bharti Mittal v. CBI (AIR 2015 SC 923; (2015) 4 SCC 609)
    Known for cautioning against mechanical attribution of criminal liability (especially to company officers) absent specific role/active involvement. The High Court, however, treated petitioner no.1’s signature on the due diligence report and the report’s contents as specific role-based material, sufficient at the Section 228 stage.
  • Union of India v. R.N. Rajam Iyer & Ors. (AIR 1964 Mad 398), In re Kingston Cotton Mill Co. (No. 2) ((1896) 2 Ch 279), In re London and General Bank (No. 2) ((1895) 2 Ch 673)
    These older authorities are frequently cited for standards of care and bona fides in professional/managerial duties (especially in audit-like contexts). The High Court’s approach effectively treats the due diligence engagement (and the Bank circular) as imposing an affirmative duty of independent verification—making the alleged misstatements more than a mere “error of judgment.”
  • Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd. (AIR 2012 SC 2795)
    Typically concerned with vicarious liability and arraignment of company/principal offender (notably in NI Act context). While not analysed in the judgment, it is relevant to corporate attribution arguments; the High Court nonetheless found enough direct linkage (authorship/signature and contents of the report) to proceed.

3.2 Legal Reasoning

  1. Correct legal lens: Sections 227/228 Cr.P.C.
    The Court reaffirmed that discharge follows only when there is “not sufficient ground for proceeding” (Section 227), whereas charge is framed when there is “ground for presuming” commission of an offence (Section 228). At this stage, the Court may “sift” but not weigh evidence as at trial.
  2. Quashing is exceptional under Sections 482/397 Cr.P.C.
    By adopting the principles extracted from Amit Kapoor v. Ramesh Chander, the Court stressed restraint: once charge is framed, prosecution should ordinarily proceed unless the case is patently absurd, legally barred, or amounts to abuse of process.
  3. “Positive duty” of independent verification by due diligence agencies
    A pivotal factual-legal step was the Court’s reading of the empanelment terms and the Bank’s H.O. Circular No.730/2008 dated 19.08.2008. The Court treated the engagement as requiring independent assessment of identity, integrity, market standing, and financial position, including verification of genuineness of securities/properties offered. This foreclosed the petitioners’ core defence that they merely relied on borrower/Bank-supplied documents.
  4. Grave suspicion from contradictions and witness denial
    The Court found “glaring irregularities and contradictions” sufficient for grave suspicion, notably:
    • The report claimed physical verification by an identified person, who (in his Section 161 Cr.P.C. statement) denied conducting inspection or preparing such report.
    • The report recorded non-availability of Income Tax login credentials yet, under “Records of Originals Verified,” affirmatively recorded verification of Income Tax Returns.
    • The report was favourable despite alleged non-existence of borrower firm/proprietor and allegedly bogus clients—issues the due diligence was meant to detect.
    These were treated as trial-worthy indicators of collusion/connivance or at least participation in a scheme, satisfying the Section 228 threshold.
  5. Conspiracy need not be proved by direct evidence at this stage
    Accepting the prosecution’s submission, the Court reiterated that conspiracy is clandestine and typically inferred from circumstances. The act of submitting a materially questionable favourable report could constitute an act in furtherance of the conspiracy—enough to proceed to trial.

3.3 Impact

  • Heightened exposure for third-party due diligence professionals: The decision signals that empanelled due diligence agencies cannot readily characterise their role as clerical “compilation” of borrower-provided material where the engagement documents impose independent verification obligations. A favourable report containing internal contradictions or false verification claims can justify conspiracy/cheating/forgery-related charges proceeding to trial.
  • Bank-fraud prosecutions may broaden to the “verification chain”: Investigations and prosecutions may focus not only on borrowers and bank officials but also on outside professionals who were meant to act as gatekeepers.
  • Reinforcement of restraint in Section 482/397 challenges post-charge: The judgment strengthens the practical message that High Courts will not adjudicate defences (scope of work, absence of pecuniary gain, competing versions of reports) when the prosecution material creates grave suspicion, reserving such questions for trial.

4. Complex Concepts Simplified

Section 227 Cr.P.C. (Discharge)
The court ends the case against an accused before trial if the record shows no sufficient ground to proceed. It is not a mini-trial; it is a screening stage.
Section 228 Cr.P.C. (Framing of charge)
If there is a ground for presuming the accused committed an offence, the court frames charges and the matter goes to trial. “Presuming” here is tentative—based on suspicion strong enough to justify a trial.
“Grave suspicion” / “strong suspicion”
A threshold lower than proof. The court asks: assuming the prosecution material is true for now, is there enough to justify trying the accused? If yes, charges stand and the case proceeds.
Section 482 Cr.P.C. (Inherent powers)
The High Court’s exceptional power to prevent abuse of process or secure justice—used sparingly, especially once a trial court has framed charges.
Section 120B IPC (Criminal conspiracy)
Agreement to commit an illegal act (or a legal act by illegal means). Direct proof is rare; it is commonly inferred from coordinated conduct and circumstances.
Sections 420/468/471 IPC
420: cheating and dishonestly inducing delivery of property; 468: forgery for the purpose of cheating; 471: using as genuine a forged document.
Section 13(1)(d) read with 13(2) Prevention of Corruption Act
Concerns criminal misconduct by public servants (e.g., obtaining undue advantage). In bank-fraud cases, private persons may be prosecuted alongside public servants where the case theory alleges joint participation in the corrupt scheme.
Section 161 Cr.P.C. statement
A witness statement recorded by the police/CBI during investigation. It is not substantive evidence by itself, but it can inform whether a trial should proceed and can be used in the manner permitted by law during trial.

5. Conclusion

The decision establishes a clear operational rule for charge-stage scrutiny in bank-fraud matters involving outsourced verification: where empanelment terms impose independent physical/financial verification duties, and the due diligence report contains prima facie false claims or material contradictions, the High Court will ordinarily not quash charges under Sections 482/397 Cr.P.C., as such material creates “grave suspicion” fit for trial.

By anchoring its approach in Amit Kapoor v. Ramesh Chander (and the embedded principles of State of Bihar v. Ramesh Singh), the Court reaffirms that post-charge interference is exceptional, and that contested questions—such as whether the petitioners acted negligently or knowingly—must be tested through evidence at trial rather than resolved in a quashing petition.