Kerala High Court Directs State To Reconsider CBI's Request For Sanction To Prosecute Former PSU Officials In Corruption Case

Dr. Justice Kauser Edappagath, in his order directed the Industries Department to reconsider the CBI's request for sanction within three months, while keeping further trial proceedings in abeyance until then.

The case stems from alleged large-scale irregularities in KSCDC's procurement of raw cashew nuts between 2006 and 2015. The CBI accused former MD K.A. Ratheesh and former Chairman E Kasim and R. Chandrasekharan, for entering into criminal conspiracy with Jaimon Joseph, Proprietor of M/s JMJ Traders and in furtherance of the criminal conspiracy dishonestly awarding contracts to M/s JMJ Traders, in violation of rules, causing losses of several crores to the corporation.

The CBI registered an FIR for the offences punishable under Section 120 B (criminal conspiracy), 420(cheating) IPC and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988.

Before filing the final report, accused no. 2 E A Kasim died, CBI sought sanction from the Industries Department to prosecute the accused No.1 and 3. The sanctioning authority in its 15.10.2020 order (EXHIBIT P3) declined the sanction for the prosecution of the accused No. 1 and 3 (Ratheesh and Chandrashekharan).

Hence the CBI filed the final report before the Special Judge, CBI Court, Thiruvananthapuram.

Before the high court Accused No.1 and 3 had sought to quash the proceedings, arguing that prosecution without sanction was illegal. The counsel for the accused, submitted that since the prosecution sanction applied by CBI under Section 19 of the PC Act was rejected by the Government on a conscious consideration of the entire facts and circumstances of the case, prosecution for the offence under Section 120B r/w 420 of IPC without a prosecution sanction under Section 197 of Cr. P.C is unsustainable.

The High Court, held that the 2018 amendment to Section 19 of the PC Act, which extended the requirement of prior sanction to retired officials, applies prospectively but the prior sanction commences at the stage of cognizance. The Court noted that the material time for determining the prospective operation of the amended provision of Section 19(1) is the date of taking cognizance of the offence.

"Thus it is the date of taking cognizance of the offence and not the date of the commission of the offence which decides the applicability of the amended provisions of Section 19(1)", the court explained. 

“The legislative intention to amend Section 19(1) can only be to provide protection to even retired government employees who ceased to be public servants as on the date of taking cognizance. No doubt, penal statutes are to be construed strictly,” the Court observed.

The Court further held that the State Government's order declining sanction reflected non-application of mind, as it ignored crucial findings of the CBI, including diversion of government grants and misuse of procurement policies.

The Court noted that the sanctioning authority must undertake complete and conscious scrutiny of all the relevant records and materials made available to it independently before granting or denying sanction.

“Proper application of mind to the existence of prima facie evidence regarding the commission of the offence is a precondition for the grant or the refusal to grant sanction.” it added.

Relying on Supreme Court's decision in N K Sharma v Abhimanyu (2005) and Punjab State Warehousing Corporation v Bhishan Chander and Another (2016) the high court held that the sanction under Section 197 of CrPC is not required to prosecute officers of government-owned companies like KSCDC, as they are not deemed to be employed in connection with the affairs of the Union or State Government.

"Thus, I have no hesitation in holding that prosecution against an officer of a Government company or public sector undertaking would not require any sanction under Section 197 of Cr.P.C," the court added. Section 197 CrPC states that no court shall cognizance of an offence alleged against a public servant in discharge of public duty, who cannot be removed without government sanction. 

While dismissing the accused's petitions seeking to quash the case, the Court allowed the complainant's writ petition in part, setting aside the refusal of sanction and directing fresh consideration on CBI's request for grant of sanction. 

"Since Ext.P3 order is found to be vitiated by non-application of mind, it is set aside. The 2nd respondent (Secretary, Industries Department) in WP(C) No.25863/2020 is directed to examine CBI's request for sanction afresh and take a decision on it in the light of the observations made in this judgment within a period of three months from the date of receipt of a copy of this judgment. The 2nd respondent shall communicate the decision to the CBI. Till such a decision is taken, further proceedings in CC No.45/2021 on the file of CJM Court, Thiruvananthapuram shall be kept in abeyance," the court directed. 

Case Title: Kadakampally Manoj v State of Kerala and Ors and connected cases

Citation: 2025 LiveLaw (Ker) 520

Case No: WP(C) 25863/ 2020 and connected cases

Counsel for Petitioner: D Anil Kumar, C Unnikrishnan (Kollam), S Sreekumar (Sr.), P Martin Jose, P Prijith, Thomas P Kuruvila, Manjunath Menon, Ajay Ben Jose, Harikrishnan S, R Githesh, Sreelal Warriar (SC- CBI), A Rajesh (Spl - PP, Vigilance)

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