Mere restitution cannot erase criminal liability for misappropriation: Kerala High Court clarifies quash threshold under BNSS Section 528

Mere restitution cannot erase criminal liability for misappropriation: Kerala High Court clarifies quash threshold under BNSS Section 528

Case: P.N. Suresh Kumar v. State of Kerala (Crl.M.C. No. 3477 of 2025) — 2025:KER:71213
Court: High Court of Kerala (Single Judge: A. Badharudeen, J.)
Date: 24 September 2025
Impugned proceedings: Annexure C Final Report in Crime No. 01/2021 CRE (VACB, Central Range, Ernakulam) and C.C. No. 2/2024 (Enquiry Commissioner & Special Judge, Muvattupuzha)

Introduction

This commentary analyzes the Kerala High Court’s order refusing to quash criminal proceedings against four BEVCO outlet employees accused of misappropriating foreign liquor stock worth Rs. 27,92,523 between 1 April 2018 and 30 July 2018. The petition—filed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), the successor provision to the inherent jurisdiction long exercised under Section 482 CrPC—sought to quash the Vigilance and Anti-Corruption Bureau (VACB) prosecution on the ground that the staff had remitted the “shortage” amounts as per a BEVCO recovery circular dated 20 December 2017.

The core issues were: (i) can repayment/remittance of alleged misappropriated value pursuant to a departmental circular efface criminal liability for offences under the Prevention of Corruption Act (PC Act) and the Indian Penal Code (IPC)?; (ii) does the magnitude of stock shortage permit a prima facie inference of intention that negates a claim of inadvertent accounting discrepancies at the quash stage?; and (iii) how do the pre- and post-2018 amendments to the PC Act apply to an offence period straddling 26 July 2018?

The petitioners—Accused Nos. 1, 2, 5, and 6 in C.C. No. 2/2024—were BEVCO outlet staff, alleged to be “public servants,” and were charged with offences under both the PC Act (pre- and post-amendment) and IPC Sections 403, 409, 420 read with Section 34. The defence relied on the fact of remittance and the erstwhile BEVCO circular fixing inter se recovery proportions among staff; the State and BEVCO countered that the misappropriation stood completed before repayment and that the circular had since been set aside by a Division Bench (WA No. 642/2025).

Summary of the Judgment

The High Court dismissed the quash petition, holding that:

  • Mere repayment of the value of misappropriated goods—especially when made belatedly and without interest—does not extinguish criminal liability or justify quashing. The offences, if any, stood completed before repayment.
  • The scale of shortage (Rs. 27.92 lakh) is “gigantic” and, at the threshold stage, supports a prima facie inference of intentional misappropriation rather than inadvertent accounting errors.
  • Reliance on BEVCO’s 20.12.2017 circular (Annexure D) fails to assist the petitioners. Apart from the fact that the circular was later set aside by a Division Bench (WA No. 642/2025), recovery arrangements cannot create immunity from prosecution.
  • Given the offence period spans 1 April 2018 to 30 July 2018, both the pre-amendment PC Act (Section 13(1)(c) read with Section 13(2)) and the post-amendment PC Act (Section 13(1)(a)), effective 26 July 2018, are engaged for accused who continued in service beyond 26 July 2018. For the 6th accused, who was relieved on 20 May 2018, only the pre-amendment provisions apply.

The Court concluded that the matter requires charges to be framed and tried; quashment at the threshold would be unwarranted.

Detailed Analysis

Facts and Procedural Posture

  • Allegation: BEVCO outlet FL-01-7051, Muvattupuzha, allegedly suffered a shortage of foreign liquor stock worth Rs. 27,92,523 during 01.04.2018–30.07.2018.
  • FIR/Complaint trajectory: Complaint by BEVCO Manager (Vengola Warehouse) to SHO, Muvattupuzha; FIR 469/2019 (Police) and later VACB Crime No. 01/2021 (Central Range, Ernakulam). Final report (Annexure C) culminated in C.C. No. 2/2024 before the Special Judge (Vigilance).
  • Charges: PC Act 1988 Section 13(1)(c) read with 13(2); PC (Amendment) Act 2018 Section 13(1)(a) (for those in service beyond 26.07.2018); IPC Sections 403, 409, 420, and 34.
  • Quash petition: Crl.M.C. under Section 528 BNSS to quash the final report and proceedings. Petitioners relied on remittances made per BEVCO Circular dated 20.12.2017.

Key Holdings and Ratio

“Mere repayment of the amount of the misappropriated foreign liquor by the accused persons, on finding the huge misappropriation at a belated stage itself, would not efface their criminal prosecution.”
“When the shortage of foreign liquor is to the tune of Rs.27,92,523/-, a very gigantic quantity, intentional misappropriation … is foreseeable … [and] should not happen without any intentional acts of the accused who were the custodian of the stock.”

The Court’s operative principles are threefold:

  • Restitution does not decriminalize: Subsequent repayment, even if traceable to an organizational circular, does not nullify criminal offences already committed. It may be relevant, if at all, to mitigation at sentencing or departmental liability, not to quashment.
  • Magnitude supports mens rea at threshold: The size of the loss can justify a prima facie inference of intent, defeating a claim that shortages arose from “voluminous work” or audit delays, at least at the pre-trial stage.
  • Temporal application of PC Act: When conduct straddles 26.07.2018, pre-amendment Section 13(1)(c) applies up to that date and post-amendment Section 13(1)(a) applies thereafter; those who ceased service earlier are governed only by the pre-amendment law. This respects the constitutional proscription on ex post facto criminalisation.

Precedents and Prior Cases Referenced

  • WA No. 642/2025 (Division Bench, 22.08.2025): The Division Bench affirmed setting aside BEVCO Circular No. KSBC/1A/042/2017-18 dated 20.12.2017, on which the petitioners relied for remittance/recovery proportions. The High Court notes this development, undercutting any argument that the circular could cure criminality or confer a form of immunity.
  • Crl.M.C. No. 5022/2025: The State cited a contemporaneous order where similar facts led to refusal of quashment. The Court aligns with that approach, emphasizing that the ingredients of the offences were allegedly complete pre-remittance.

Though not expressly cited in the order, the ruling coheres with well-settled Supreme Court jurisprudence on quashing and economic offences:

  • State of Haryana v. Bhajan Lal (1992 Supp (1) SCC 335): Enumerated the limited categories for quashing at the threshold; if allegations, taken at face value, make out offences, the matter should ordinarily go to trial.
  • Neeharika Infrastructure v. State of Maharashtra (2021) 6 SCC 395: Reaffirmed restraint in stalling investigations/prosecutions at the threshold absent exceptional circumstances.
  • Gian Singh v. State of Punjab (2012) 10 SCC 303; Narinder Singh (2014) 6 SCC 466; Laxmi Narayan (2019) 5 SCC 688: Clarified that while certain private disputes may be quashed on settlement, serious/economic offences affecting the public interest—particularly under the PC Act—stand on a different footing and are generally not quashable on compromise.
  • Rumi Dhar v. State of West Bengal (2009) 6 SCC 364; CBI v. Maninder Singh (2016) 1 SCC 389: Settlement or repayment to the victim entity (e.g., bank) does not bar criminal prosecution for economic offences; criminal wrong is to the public at large.

Legal Reasoning

The Court’s reasoning proceeds in a sequence:

  • Nature of allegations: The final report alleges that BEVCO staff, as public servants and custodians of stock, collectively misappropriated a large volume of foreign liquor. Entrustment and control are central to both Section 13 (PC Act) and IPC Section 409.
  • Effect of repayment: The Court notes that remittances were made later and without interest, implying that the accused enjoyed the benefit of the misappropriated stock/value during the interregnum. This undercuts the claim that repayment is exculpatory. At most, it shows a civil/departmental adjustment and cannot erase the criminal wrong.
  • Audit delay argument rejected: The defence’s plea that audit/verification delays commonly yield discrepancies is found unpersuasive against the “gigantic” shortage. While minor errors could conceivably occur in voluminous operations, large-scale discrepancies support a prima facie inference of intentionality at the quash stage.
  • Temporal split of PC Act provisions: For conduct before 26.07.2018, the pre-amendment Section 13(1)(c) governs (criminal misconduct by misappropriation), punishable under Section 13(2). For conduct thereafter, Section 13(1)(a) (as amended) applies, which continues to cover dishonest or fraudulent misappropriation by a public servant. The sixth accused, having left earlier, remains under the pre-amendment regime alone.
  • Section 528 BNSS threshold: At the quash stage, the Court does not conduct a mini-trial or weigh evidence. Accepting the prosecution case at face value, the ingredients for PC Act and IPC offences are prima facie disclosed; hence, the case should proceed to charge and trial.

Impact and Significance

  • Deterrence in public sector supply chains: For PSUs and Government-controlled retail/warehouse operations (e.g., beverages, public distribution systems, medical supplies), the decision underscores that internal recovery protocols or post facto reimbursements cannot shield criminal liability where misappropriation is alleged.
  • Clarity post-PC Act 2018 amendment: The Court’s application of both pre- and post-amendment provisions across a straddling period offers a clear template for investigators and prosecutors on charging frameworks when conduct spans 26.07.2018.
  • Continuity under BNSS: The order reaffirms that the High Court’s inherent power to quash under BNSS Section 528 tracks the familiar parameters under Section 482 CrPC. The standard for quashing remains stringent, especially for economic/anti-corruption offences.
  • Invalidated departmental circulars offer no immunity: With the Division Bench having upheld the setting aside of BEVCO’s 2017 circular, employees cannot rely on such instruments to claim that a civil adjustment supplants or nullifies criminal culpability.
  • Practical prosecution strategy: The emphasis on the magnitude of shortage suggests that, for quashing resistance, quantification and audit trails evidencing scale and duration of loss will be pivotal. Conversely, defence at trial may focus on proof of entrustment chains, custody, and specific acts of conversion/cheating.

Complex Concepts Simplified

  • Quashing under BNSS Section 528: This is the High Court’s inherent power to terminate criminal proceedings at the very threshold to prevent abuse of process or to secure the ends of justice. It is used sparingly—primarily where, even if all allegations are accepted as true, no offence is disclosed, or where there is a legal bar to prosecution.
  • “Criminal misconduct” under the PC Act:
    • Pre-2018 (Section 13(1)(c)): Criminal misconduct includes dishonest or fraudulent misappropriation of property entrusted to, or under the control of, a public servant.
    • Post-2018 (Section 13(1)(a)): After the 2018 amendment narrowed the offence, dishonest or fraudulent misappropriation by a public servant remains specifically covered. Punishment is provided under Section 13(2).
  • IPC offences charged:
    • Section 409 (criminal breach of trust by public servant): Requires entrustment and dishonest misappropriation or conversion.
    • Section 403 (dishonest misappropriation of property): Focuses on dishonest appropriation without consent.
    • Section 420 (cheating): Requires deception inducing delivery of property or valuable security.
    • Section 34 (common intention): Fixes joint liability where acts are done in furtherance of a common intention.
  • Restitution vs. criminal liability: Paying back money or value lost (restitution) might resolve civil/departmental disputes but does not, by itself, absolve criminal culpability. In serious public wrongs (corruption/economic offences), prosecution serves a public interest beyond private compensation.
  • Effect of audit delays: While minor discrepancies can arise from operational complexities and delayed audits, very large shortages are unlikely to be written off as inadvertent at the threshold; they typically warrant a full trial to test intent and participation.

Conclusion

The Kerala High Court’s decision in P.N. Suresh Kumar v. State of Kerala soundly reiterates a vital anti-corruption norm: subsequent repayment of misappropriated value—whether prompted by internal circulars or otherwise—does not efface criminal liability or justify quashing under the High Court’s inherent jurisdiction. Where allegations disclose a “gigantic” shortage, the Court will not attribute it to routine accounting lapses at the pre-trial stage. Instead, the case must proceed to charge and trial.

The ruling also provides operational clarity on charging under the PC Act across the 2018 amendment’s temporal divide and underscores the continuity of quashing principles under the BNSS regime. For public sector entities and their employees, the message is unmistakable: departmental recoveries and circulars cannot operate as a shield against prosecution when the public exchequer is alleged to have suffered loss through misappropriation. The broader legal takeaway is a reaffirmation of prosecutorial robustness in economic and corruption offences, with the High Court exercising its inherent powers cautiously and sparingly.

Case Details

Year: 2025
Court: Kerala High Court

Judge(s)

JUSTICE A. BADHARUDEEN

Advocates

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