MP High Court: Departmental Irregularity Criminal Liability Quashed for Contractors

• The Madhya Pradesh High Court quashed criminal proceedings against Geeta Infotech Sales and its proprietor, Pankaj Soni.
• The court ruled that departmental procurement irregularities do not automatically constitute criminal liability for contractors.
• For Section 420 IPC, "fraudulent or dishonest intention at the very beginning of the transaction" is essential, not just procedural flaws.
• The case originated from 2015 allegations of Rs 96.23 lakh in irregular purchases by a government official, leading to EOW charges under IPC and Prevention of Corruption Act.
• The High Court overturned a Special Judge's repeated rejections of a closure report, emphasizing lack of proven allegations despite procedural issues.

The court emphasized that for an offense under Section 420 IPC, the essential requirement is a "fraudulent or dishonest intention at the very beginning of the transaction."

The Madhya Pradesh High Court has recently overturned criminal proceedings initiated against a Bhopal-based supplier firm and its proprietor, concluding that mere departmental irregularities within a government procurement process do not automatically establish criminal liability for contractors. This significant ruling by a Division Bench comprising Justice Subodh Abhyankar and Justice Alok Awasthi allowed a criminal revision filed by Ms Geeta Infotech Sales and Service, along with its proprietor Pankaj Soni, effectively setting aside a lower court's refusal to accept a closure report in their favor.

The case originates from a 2015 communication issued by the state's General Administration Department, which highlighted alleged irregularities. These allegations centered on S.M. Kumbhare, who at the time served as Principal of the Industrial Training Institute, Ujjain, and also as In-charge Deputy Director for the Regional Skill Development Department. Kumbhare was accused of procuring torches, equipment, and other materials totaling Rs 96.23 lakh through limited tenders, rather than the mandated open tenders. Furthermore, these purchases were allegedly made from firms believed to be under common ownership, in direct contravention of the MP Store Purchase Rules and Financial Code.

Following these allegations, the Economic Offences Wing (EOW) registered a case against Kumbhare and several supplier firms, including Geeta Infotech Sales, Hanumant Trading Company, and Karan Enterprises. The charges brought against them included Sections 420 (cheating) and 120-B (criminal conspiracy) of the Indian Penal Code (IPC), alongside Sections 13(1)(d) and 13(2) of the Prevention of Corruption Act.

Despite the EOW's initial investigation culminating in a closure report filed in favor of the petitioners, this report faced repeated rejections from the Special Judge in Ujjain. The closure report was declined on three separate occasions, with the most recent rejection occurring via an order dated February 12, 2026, in MJC No. 11/2022. Earlier, the petitioners had challenged a previous rejection before the High Court, which had remanded the matter for fresh consideration, referencing the Supreme Court's precedent in *Abhinandan Jha and Others v. Dinesh Mishra*. This precedent affirms that a magistrate is not obligated to accept a police's final report and retains the authority to direct further investigation.

During the current proceedings, Advocate Prasanna Namdeo, representing the petitioners, argued that the supply contract was officially issued by the department, the goods were duly delivered, and under Rule 121 of the MP Financial Code, the responsibility for examining, certifying, and recording the received goods lay with the government servant. Therefore, any lapse in verification could not be attributed to the suppliers. Conversely, Advocates Lokendra Joshi and Vaishali Baurasi, appearing for the respondents, supported the Special Judge's impugned order, asserting its legal soundness.

The High Court, however, diverged from the Special Judge's stance. It observed that the repeated non-acceptance of the closure reports, despite three submissions, did not inherently signify that the allegations against the petitioners were proven or that sufficient material existed for their prosecution. Critically, the court emphasized that for an offense under Section 420 IPC, the essential requirement is a "fraudulent or dishonest intention at the very beginning of the transaction." It clarified that a mere irregularity in a procurement process, without additional evidence of such intent, cannot by itself constitute cheating. Regarding the conspiracy charge under Section 120-B, the court noted that an allegation "cannot be sustained merely because a person..."

This ruling by the Madhya Pradesh High Court establishes a crucial distinction between administrative lapses in government procurement and the threshold for criminal liability, particularly for contractors. It underscores that while departmental irregularities, such as deviations from prescribed tender procedures like using limited tenders instead of open ones, may point to administrative failings by government officials, they do not automatically translate into criminal culpability for the suppliers involved. The court's insistence on proving "fraudulent or dishonest intention at the very beginning of the transaction" for charges like Section 420 IPC sets a higher bar for prosecuting supplier firms in cases of alleged government procurement irregularity in India.

The judgment clarifies that simply supplying goods under a sanctioned contract, even if the underlying procurement process had procedural flaws or violated rules like the MP Store Purchase Rules and Financial Code, does not inherently make the contractor a party to a criminal offense under the Indian Penal Code or the Prevention of Corruption Act. This precedent is particularly relevant for cases involving supplier fraud and contractor liability, as it mandates a clear demonstration of criminal intent rather than just procedural non-compliance. It reinforces that the responsibility for verifying goods, as per Rule 121 of the MP Financial Code, often rests with the government's receiving personnel, further insulating suppliers from automatic criminal charges arising from departmental oversight.

This ruling establishes a critical distinction between administrative lapses in government procurement and criminal liability for contractors. Lawyers advising or defending suppliers in public procurement matters can cite this precedent to argue that mere departmental irregularities, without explicit proof of fraudulent or dishonest intent, are insufficient to establish criminal charges under the IPC or Prevention of Corruption Act, thereby raising the bar for prosecution in such cases.

Source: Original reporting via legal news outlet.