The Chhattisgarh High Court has reaffirmed that criminal prosecution cannot be initiated merely on account of accounting discrepancies in government paddy stock under custom milling agreements, absent clear evidence of fraudulent intent at the time of misappropriation. This judgment clarifies the boundary between civil contractual breaches and criminal misconduct under the Essential Commodities Act and the Bharatiya Nyaya Sanhita.
Background & Facts
The Dispute
The petitioner, Anshul Jotwani, operates M/s Kavita Rice Industries, a registered custom miller under the Chhattisgarh Rice Custom Milling Order, 2016. He entered into agreements with Chhattisgarh State Markfed to process government-supplied paddy, with a prescribed Out Turn Ratio (OTR) and bank guarantees securing the State’s interest. On 29.12.2025, a physical verification revealed a shortage of 2,372.64 quintals of paddy, valued at over Rs. 56 lakh. Based on this, an FIR was registered under Section 3/7 of the Essential Commodities Act, 1955 and Sections 316(5), 318(4), and 61(2) of the Bharatiya Nyaya Sanhita, 2023.
Procedural History
- 29.12.2025: Physical verification conducted by Food Department officials; alleged shortage recorded.
- 31.12.2025: Collector issued show-cause notice to petitioner for stock discrepancy.
- 05.01.2026: Petitioner submitted detailed reply explaining accounting anomalies and unaccounted stock.
- 07.01.2026: Collector directed registration of FIR.
- 09.01.2026: FIR No. 17/2026 registered at Police Station Hathbandh.
- 15.01.2026: Petitioner’s rice mill sealed by State Markfed without notice.
- 04.02.2026: Petitioner filed criminal petition under Section 528 of the Bharatiya Nagrik Suraksha Sanhita, 2023 seeking quashing of FIR.
Relief Sought
The petitioner sought quashing of the FIR on grounds that the alleged shortage arose from technical accounting errors, unrecorded stock in hoppers, and returned consignments - not criminal misappropriation. He argued that the State’s interest was secured by bank guarantees and that criminal proceedings were premature, given the pending administrative inquiry.
The Legal Issue
The central question was whether a quantified shortage of government paddy under a custom milling agreement, without proof of dishonest intent at the time of possession, constitutes a cognizable offence under Section 3/7 of the Essential Commodities Act and Sections 316(5), 318(4), and 61(2) of the Bharatiya Nyaya Sanhita.
Arguments Presented
For the Petitioner
Counsel argued that the FIR was based on a civil accounting dispute, not criminal fraud. The petitioner had submitted a detailed reply to the show-cause notice, explaining that 1,298 quintals of rice were returned due to packaging errors and remained in the mill, and that 720 quintals of rice in hoppers (equivalent to 1,073 quintals of paddy) were not accounted for. He further contended that the State’s financial interest was fully secured by bank guarantees, and that criminal prosecution was an abuse of process under Arnesh Kumar v. State of Bihar. The allegations, he submitted, lacked mens rea and were inconsistent with the contractual framework governing custom milling.
For the Respondent/State
The State contended that the FIR was supported by contemporaneous records: panchnama, physical verification report, seizure memo, and statements recorded during inspection. It argued that the petitioner had admitted to the shortage on the spot and that the scale of discrepancy - over 2,300 quintals - could not be explained by mere clerical error. The State relied on State of U.P. v. Hari Ram to assert that prima facie evidence of misappropriation by a public duty-bearer warrants investigation, and that courts must not interfere at the FIR stage.
The Court's Analysis
The Court examined whether the allegations in the FIR disclosed the essential ingredients of the offences invoked. It noted that Section 3 of the Essential Commodities Act requires proof of an act that causes or is likely to cause a shortage, and Section 7 imposes punishment for contravention with intent to defraud. Similarly, Section 316(5) of the BNS requires proof of dishonest misappropriation of property entrusted to one’s care.
"The FIR clearly attributes a quantified shortage of government paddy to the petitioner during a duly authorized inspection... and alleges fraudulent misappropriation resulting in financial loss to the State."
The Court emphasized that while the allegations were specific and supported by official documents, the petitioner’s defence - regarding unaccounted stock, returned consignments, and technical glitches in the online system - raised disputed questions of fact. The Court held that at the stage of FIR quashing, it cannot evaluate the credibility of the defence or weigh evidence. The existence of bank guarantees, the pendency of administrative proceedings, and the absence of prior notice before sealing the mill were noted but deemed irrelevant to the threshold question of whether a prima facie offence was disclosed.
The Court reiterated the settled principle that inherent jurisdiction under Section 528 BNSS cannot be invoked to pre-empt investigation where the complaint discloses a plausible offence. The burden of proving absence of fraudulent intent lies at trial, not at the FIR stage.
The Verdict
The petition was dismissed. The Court held that the FIR, supported by official records, disclosed a prima facie case under Section 3/7 of the Essential Commodities Act and relevant provisions of the Bharatiya Nyaya Sanhita. The existence of contractual obligations and bank guarantees does not preclude criminal prosecution where fraudulent intent is alleged, and the matter must proceed to investigation.
What This Means For Similar Cases
Criminal Liability Can Arise from Custom Milling Violations
- Practitioners must advise clients in the food supply chain that even contractual breaches under state procurement orders may attract criminal liability if fraud is alleged.
- Bank guarantees alone do not immunize against FIR registration if the State alleges dishonest intent.
- Administrative inquiries do not bar parallel criminal proceedings unless expressly barred by statute.
Prima Facie Evidence Is Sufficient for FIR Registration
- Courts will not quash FIRs merely because the accused offers a plausible civil explanation.
- Documentation such as panchnamas, verification reports, and official statements are sufficient to meet the prima facie threshold.
- Defence arguments involving accounting discrepancies must be raised during trial, not in quashing petitions.
Procedural Fairness Remains Critical
- Sealing of premises without notice, while not directly addressed in this judgment, may still be challenged separately under Article 21.
- Petitioners should consider filing writs against arbitrary administrative actions (e.g., sealing) independently of FIR quashing petitions.
- Lawyers must distinguish between civil remedies (e.g., arbitration under agreements) and criminal exposure when advising custom millers.
