Source: Supreme Court  

Why in News? 

Recently, the bench of Justices Sanjay Karol and Ahsanuddin Amanullah. has held that the seriousness of the allegations involving fraud on a foreign company's subsidiary warranted a thorough investigation, and the rule of law mandates both the protection of foreign investments and the fair trial rights of the accused. 

• The Supreme Court held this in the matter of Hyeoksoo Son Authorized Representative for Daechang Seat Automotive Pvt. Ltd. v. Moon June Seok & Anr (2025). 

What was the Background of Hyeoksoo Son Authorized Representative For Daechang Seat Automotive Pvt. Ltd. v. Moon June Seok & Anr? 

• Daechang Seat Automotive Ltd., a subsidiary of a South Korean company manufacturing seat equipment for KIA cars, engaged the services of M/s. N.K. Associates as Chartered Accountants and Financial Advisors. 
• M/s. N.K. Associates informed the Company that it had wrongly claimed input tax credit amounting to Rs.9,73,96,225.80 payable to the Goods and Services Tax Department. 
• N.K. Associates advised that it was standard practice in India for tax amounts to be transferred to financial advisors who would then pay it to the concerned department. 
• The Company transferred funds totaling Rs.10,18,54,894.80 to N.K. Associates and Terminus for purported GST payments. 
• In October 2022, the Korean management discovered that the GST portal showed no mismatch of input tax credit, and the Company had excess credit available. 
• The Company learned that the amounts transferred were never paid to the GST Department by N.K. Associates or Terminus. 
• Further investigation revealed that Terminus and N.K. Associates shared the same registered address, with interconnected directors and partners. 
• An FIR was registered on 11th December 2022 for offences punishable under Sections 406, 408, 409, 418, 420, 120B read with 34 of the Indian Penal Code, 1860. 
• Moon June Seok, the Chief Financial Officer of the Company and accused No.5, allegedly received Rs.1,80,00,000/- from accused No.1 Nikhil K.S. and was accused of being part of the conspiracy. 
• Respondent Moon June Seok was also allegedly responsible for appointing Ritesh Merugu (accused No.2) as Accounts Manager on the recommendation of accused No.1. 

What were the Court’s Observations? 

• The Supreme Court observed that the contours of exercising powers under Section 482 CrPC are well-established in various judgments, particularly in State of Haryana v. Bhajan Lal where seven circumstances for justified exercise were detailed. 
• Regarding the submission that reliance solely on co-accused statements is not justified, the Court found this incorrect as respondent No.1's own statement corroborated the statement of accused No.1. 
• The Court noted with surprise that the CFO of a company and an alleged chartered accountant both readily agreed to share financial details and books of accounts without formalizing their relationship in writing. 
• The Court determined that at this stage, it would not be just, reasonable, or proper to conclude there was no evidence against the respondent, especially considering the large amounts of money involved. 
• The Supreme Court observation that "the rule of law has a responsibility to protect the investments of foreign investors, while at the same time ensuring that any person accused of mishandling such funds is really and fully protected by the power of the phrase 'innocent till proven guilty'." 
• The Court deemed it appropriate to leave the determination of whether there was sufficient evidence against the respondent to the trial court rather than quashing proceedings at this stage. 
• The Court allowed the appeal, set aside the High Court judgment, and restored the proceedings to the file of the III Additional Chief Metropolitan Magistrate, Bengaluru. 

What is the Concept of Rule of Law? 

• The rule of law is a fundamental legal principle derived from the French phrase 'le principe de legalite' (principle of legality), establishing that no one, including government officials, is above the law. 
• At its core, rule of law ensures that a nation is governed by law rather than arbitrary decisions, placing every person under the jurisdiction of ordinary courts irrespective of position or rank. 
• Professor A.V. Dicey, the main exponent of this concept, propounded three essential principles in his 1885 work 'Law and the Constitution': supremacy of law, equality before law, and predominance of legal spirit. 
• The supremacy of law principle rejects arbitrary governmental powers, ensuring punishment occurs only for breaches of established law, not administrative discretion. 
• Equality before law, the second pillar, emphasizes legal impartiality, providing that the same set of laws apply to all people regardless of status, with adjudication through the same courts. 
• The third principle, predominance of legal spirit, focuses on courts as independent enforcers of the rule of law, free from external influence and impartiality. 
• In India, the Constitution serves as the supreme law of the land, binding the Judiciary, Legislature, and Executive to act according to its principles. 
• Key constitutional provisions embodying the rule of law include Article 13 (enabling review of laws contrary to the Constitution) and Article 14 (guaranteeing equality before law). 
• The Supreme Court has reinforced the rule of law through landmark judgments, notably in Kesavananda Bharati v. State of Kerala (1973), where it was established as a basic feature of the Constitution. 
• The modern concept of rule of law extends beyond Dicey's original formulation to encompass human dignity, independent judiciary, effective governance, due process guarantees, and the encouragement of legitimate political criticism.