Indemnity Clauses Cannot Shield Criminal Prosecution for Bogus ITC Through Fictitious Firms: Himachal Pradesh HC Refuses to Quash FIR Against Scrap-Supply Agent

The Himachal Pradesh High Court has refused to quash an FIR registered against a scrap-supply agent accused of facilitating bogus Input Tax Credit of over Rs. 21 crores through fictitious and non-existent firms, holding that contractual indemnity clauses in supply agreements cannot immunise a party against criminal prosecution where the underlying conduct involves forgery, fabrication and fraud. The ruling by Justice Sandeep Sharma in Vinod Kumar v. State of H.P. (Cr. MMO No. 102/2025, decided 26.08.2026) is a significant addition to the jurisprudence on the intersection of contractual arrangements and criminal liability in the GST context.

The petitioner, proprietor of M/s GT Iron Store, was engaged as an agent by M/s Amba Shakti Ispat Limited for procuring MS scrap. Under supply agreements, the petitioner introduced M/s Mahesh Trading Company and M/s Rajshree Trading Company as suppliers, furnished their KYC documents, GST certificates and identity proofs, and the company made payments of Rs. 11.03 crores and Rs. 10.44 crores respectively. A DGGI raid on 20.07.2021 revealed both firms to be bogus, resulting in an ITC demand of Rs. 2.66 crores and deposit of Rs. 1 crore by the company. The petitioner, instead of honouring the indemnity clause, issued a demand notice and initiated NCLT proceedings.

The petitioner's principal argument was that Clauses 7 and 8 of the agreements — which provided for indemnification, cancellation, and recovery of damages — established the dispute as purely civil in nature. Reliance was placed on the Supreme Court's recent ruling in Vandana Jain (2026) where criminal proceedings arising from a contractual dispute were quashed. The court distinguished Vandana Jain on a critical factual ground: in that case, the Supreme Court found no false representation in the joint venture agreement, whereas here, the very act of introducing non-existent firms and furnishing fabricated KYC documents disclosed dishonest intention from inception. The court held that the ingredients of Section 415 IPC — deception at the time of inducement — were prima facie satisfied. Notably, the charge sheet was ready for offences under Sections 420, 467, 468, 469, 471 and 120-B IPC, confirming systematic fraud rather than a mere contractual default.

2026-juristway.com-1183-HC(Himachal Pradesh)-GST  |  High Court of Himachal Pradesh  |  Cr. MMO No. 102 of 2025  |  26.08.2026