Can only an auditor file a fraud FIR? SC says no

He got a bank audit report through RTI and filed a fraud FIR. The High Court quashed it, saying only the auditor can do that. On a July morning in 2023, a three-judge bench of the Supreme Court reversed that decision, ruling that a special law's duty to report fraud does not become a monopoly over reporting it.

When the RTI reply became a crime report

The story begins at a co-operative bank in Pimpri-Chinchwad, Maharashtra. Depositors and shareholders had been complaining about financial mismanagement for months. The Economic Offences Wing had already registered multiple FIRs (first information reports — written complaints that start a police investigation) and was digging into the bank's affairs.

One shareholder and former director wanted to see the official record. He filed an RTI application and, when the reply arrived, pulled out a thick envelope. Inside was a copy of a Joint Registrar's inspection report — its pages stamped and numbered, each page carrying the weight of official scrutiny. What he found was startling: loans given to borrowers who were not eligible, funds diverted from their stated purpose, and outright misappropriation of money.

Armed with that report, he walked into the Pimpri police station on 19 July 2019 and filed his own FIR — number 806 of 2019 — naming the bank's CEO and former Chairperson. The charges were serious: cheating (Section 420 IPC — a provision that criminalises fraudulent inducement to deliver property), criminal breach of trust (Section 406 IPC — a provision that punishes the dishonest misappropriation of entrusted property), criminal breach of trust by a banker (Section 409 IPC — a provision that covers such breaches by public servants or bankers carrying on their profession), and forgery (Sections 465, 467, 468, 471 IPC — provisions that criminalise making false documents, forging valuable securities, committing forgery for the purpose of cheating, and using forged documents as genuine), all read with the common intention of the accused (Section 34 IPC — a provision that makes each participant liable for acts done in furtherance of a shared plan).

Why the High Court shut it down

The accused persons did not wait for the investigation to unfold. They went straight to the Bombay High Court and asked it to quash the FIR — to kill it before it could go anywhere. Their argument was clever and technical.

They pointed to Section 81(5B) of the Maharashtra Co-operative Societies Act, 1960. That provision says that when an audit of a co-operative society reveals financial irregularities, the auditor or the Registrar shall file an FIR. The accused argued that this was a special procedure — a complete code — that replaced the general criminal law. Only the auditor or the Registrar, they said, could set the criminal law in motion based on audit findings. A shareholder could not.

The Bombay High Court agreed. In November 2021, a Division Bench quashed the FIR, holding that Section 81(5B) prescribed a special procedure that excluded everyone else. The shareholder, the court said, had no locus standi — no legal standing — to file a criminal complaint based on an audit report.

The question the Supreme Court had to answer

The shareholder appealed. The Supreme Court now faced a single, sharp question: Does a provision that imposes a duty on a specific person to file an FIR also create a bar against everyone else?

The answer, the Court said, depends on the language of the provision. Section 81(5B) uses the word "shall" — the auditor or Registrar shall file an FIR. That is a positive obligation, a command. But the provision does not contain any negative words — no "no other person shall", no "only the auditor may", no "any FIR filed by any other person shall be void".

The Court contrasted this with other statutes that do contain such bars. The Maharashtra Control of Organised Crime Act, 1999, for instance, requires prior approval from a senior police officer before an FIR can be registered (Section 23 — a provision that restricts the initiation of criminal proceedings under that Act). The Transplantation of Human Organs Act, 1994 restricts who can file a complaint (Section 22 — a provision that limits the eligibility of complainants for offences under that Act). The Terrorist and Disruptive Activities (Prevention) Act, 1987 had a similar restriction on taking cognizance of offences (Section 20-A — a provision that barred courts from taking cognizance of offences without prior sanction). Section 81(5B) had none of these.

Why the police power survived

The Court then turned to a deeper principle. The Code of Criminal Procedure, 1973, gives the police an independent power and duty to investigate any cognizable offence (a serious crime where the police can arrest without a warrant) once information about it reaches them. Section 154 of the CrPC says that any information about a cognizable offence shall be recorded. That duty does not disappear just because a special law also imposes a duty on someone else.

For the special law to override the general criminal procedure, the Court said, it must do so either expressly — by saying "the CrPC does not apply" — or by necessary implication — meaning the two provisions are so contradictory that they cannot coexist. Section 81(5B) did neither. It simply added a duty on the auditor and Registrar. It did not subtract the duty of the police or the right of any citizen to report a crime.

The Court drew on a line of precedents — A R Antulay v. Ramdas Sriniwas Nayak (1984), a case where the Supreme Court held that a private complaint could proceed even when the Prevention of Corruption Act required prior sanction, because the sanction requirement did not oust the general criminal law; Lalita Kumari v. Government of U.P. (2014), where the Court mandated that police must register an FIR upon receiving information of a cognizable offence, reinforcing the mandatory nature of Section 154 CrPC; Jamiruddin Ansari v. CBI (2009), where the Court ruled that special statutes do not automatically supplant the CrPC unless they explicitly say so; and Jeewan Kumar Raut v. CBI (2009), where the Court reiterated that the police's investigative powers under the CrPC remain intact unless a special statute clearly ousts them — to affirm that the police's independent investigative power under the CrPC remains intact unless a special statute explicitly ousts it.

The concept of locus standi in criminal law

The Court also rejected the argument that the shareholder had no standing. In criminal jurisprudence, the Court said, the concept of locus standi — the idea that only certain people can bring a case — does not exist unless the statute specifically creates it. Any person can set the criminal law in motion. The victim, the witness, the passer-by, the RTI applicant — all of them can walk into a police station and file an FIR.

If the legislature wanted to create an exception to that general rule, it had to say so clearly. It did not. The High Court had read a bar into Section 81(5B) that the words of the provision did not contain.

What the Court actually decided

The Supreme Court allowed the appeal on 25 July 2023. The bench — Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra — set aside the Bombay High Court's order and restored FIR No. 806 of 2019.

"Section 81(5B) casts a positive obligation but contains no express or implied bar against other persons setting criminal law in motion," the Court held. The ratio decidendi (the Court's central reasoning) was precise: since the provision does not use any negative expression to prohibit other persons from registering an FIR, it cannot be construed as debarring them. The provisions of Section 81(5B) do not, either expressly or by necessary implication, exclude the investigative role of the police under the CrPC.

The Court also cited State of Haryana v. Bhajan Lal (1992), where the Court laid down categories of cases where FIRs could be quashed — none of which included the ground that the wrong person filed the complaint; Mirza Iqbal Hussain v. State of Uttar Pradesh (1982), where the Court held that the power to quash an FIR is an extraordinary one to be used sparingly; Rangku Dutta v. State of Assam (2011), where the Court reinforced that quashing is only warranted when no offence is disclosed on the face of the FIR; and Ratanlal v. Prahlad Jat (2017), where the Court held that an FIR cannot be quashed merely because it was filed by someone without a direct interest in the matter — to reinforce that the power to quash an FIR is exercised sparingly and only when no cognizable offence is disclosed — not merely because the wrong person filed it.

What this means for practitioners

For lawyers advising clients who discover fraud in co-operative societies, the message is clear: a special duty to report does not create a monopoly over reporting. If the auditor fails to act, a shareholder, depositor, or any other person can file an FIR based on the same audit report. The police retain their independent power to investigate.

For lawyers defending clients against such FIRs, the argument has narrowed. You can no longer say that the FIR is void because the wrong person filed it. You must instead attack the substance of the allegations — the audit report itself, the reliability of the findings, the question of whether a cognizable offence is actually disclosed.

THE PLAY: When a special law says "X shall file an FIR", it does not mean "only X may file an FIR" — unless the law uses negative words to create that bar.

The bank's audit report, obtained through a simple RTI application, had survived every challenge thrown at it. The police file, once sealed by the High Court, was now open again.