Punjab-Haryana High Court
Mr. Yashiro Nakaya And Another vs U.T. Chandigarh And Another on 1 March, 2011
Author: M.M.S. Bedi
Bench: M.M.S. Bedi
Crl. Misc. No.M-10083 of 2008 [1]
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
Date of Decision: March 1, 2011
1. Crl. Misc. No. M-10083 of 2008
Mr. Yashiro Nakaya and another
.....Petitioners
Vs.
U.T. Chandigarh and another
.....Respondents
2. Crl. Misc. No. M-21831 of 2008
Hiroshi Asano and others
.....Petitioners
Vs.
U.T. Chandigarh and another
.....Respondents
CORAM: HON'BLE MR. JUSTICE M.M.S. BEDI.
-.-
Present:- Mr. Bipan Ghai, Sr. Advocate with
Mr. Sandeep Gehlawat, Advocate
for the petitioners in Crl. Misc. No. M-10083 of 2008
Mr.J.V. Yadav, Advocate
for the petitioners in Crl. Misc. No.M-21831 of 2008.
Mr. Pritpal Singh, Advocate for U.T.
Mr.Nidesh Gupta, Sr. Advocate with
Ms. Amrinder Kaur, Advocate, for respondent No.2.
-.-
Crl. Misc. No.M-10083 of 2008 [2]
M.M.S. BEDI, J. (ORAL)
This order will dispose of two connected petitions filed by Mr. Yashiro Nakaya, President , Taikisha Ltd. and another (Cr.Misc. M 10083 of 2008) and Hiroshi Asano Director, Taikisha Engineering India Limited and others (Cr.Misc. M 21831 of 2008).
The petitioners in Cr.Misc. M 10083 of 2008 are accused 1 and 2 in a private complaint filed by respondent No.2 M/S Steel Strips Wheels Limited. The petitioners in Cr.Misc. M 21831 of 2008 are accused 7,8 and 9 in the above said complaint. The petitioners 1, 2 and 3 are Directors of Taikisha Engineering India Limited (Cr.Misc. M 21831 of 2008). There are three other Directors of Taikisha Engineering India Ltd. They are accused 4, 5 and 6 in the private complaint and have not opted to file any petition challenging the complaint and the summoning order.
The petitioners through the above said petitions u/s 482 Cr.P.C. have sought to challenge the private criminal complaint filed by respondent No.2-Steel Strips Wheels Limited u/s 406/420/120-B IPC and the summoning order dated 27.2.2008 (annexure P-2) passed by the learned Chief Judicial Magistrate, Chandigarh summoning the petitioners to face trial. In order to appreciate the contentions of the petitioners, it would be relevant to refer to the contents of the complaint, which has been filed by complainant- respondent No.2.
ALLEGATIONS IN THE COMPLAINT Crl. Misc. No.M-10083 of 2008 [3] The brief allegations in the complaint are that the complainant- company is a public Limited Company incorporated under the Company's Act, 956. The complainant- company is engaged in the manufacture of steel wheel rims for automobile sector and is presently engaged in the manufacturing of single piece wheel rims of different ranges for scooters, passenger vehicles, utility vehicles, tractors and light commercial vehicles. The manufacturing unit of the complainant- company is situated in village Somalheri, Tehsil Derabassi, District Mohali, Punjab. The present installed capacity to produce wheel rims of the company is to the extent of 7.5 million wheel rims per annum. The complainant- company manufactures steel wheel rims for many vehicles varying from two wheelers to the rims of tractors. The main customers of the complainant- company are (i) Maruti Udyog Limited, (ii) Honda Siel Cars India Limited, (iii) Tata Motors Limited,(iv) Mahindra & Mahindra Limited, (v) General Motors India Limited, (vi) PSA Peugeot Citroen, France, (vii) Punjab Tractors Limited,
(viii) International Tractors Limited, (ix) Tafe Motors & Tractors Limited and (x) Swaraj Mazda Limited. The structural process of preparing the complete wheel rims are sheet preparation, rim manufacturing, disc manufacturing, assembling of rim and disc, welding of rim and disc, painting and packing. With an objective for improvement in quality of the products, the respondent-complainant company had entered into Technical Assistance Agreement with Ringtech Co. Ltd. Japan in the year 1997. The said company transferred technical know how relating to design, manufacturing process, material selection, quality control process etc. A Crl. Misc. No.M-10083 of 2008 [4] huge amount has been invested by the complainant- company in the areas of operations i.e.(i) rim making (outer part of the wheel), (ii) disc making (inner part of the wheel) and (iii) assembling & Welding of rim & disc, quality testing equipments and tool room facility. The complainant- company decided to instal a new paint plant as the paint quality is the life of the wheel rims. The complainant- company invited quotations from paint plant suppliers. The complainant- company received quotations from Wurster Germany, Haden India, Tata Automation Ltd and Taikisha Engineering India Limited, which is an associated company of Taikisha Limited, Japan.
Numerous meetings were held with all the bidders and the paint and chemical suppliers at the head office. A team of senior officials of Taikisha Engineering India Limited visited the head office of the complainant to get the order for designing, manufacturing, supply, installation, erection, trial run and commissioning of the paint plant. The complainant- company made it clear that it has already started the process of increasing the manufacturing capacity to the extent of 7.50 million wheel rims per annum and likewise it would like that the paint capacity to the wheel rims should go to that extent and to meet that requirement the paint plant will have to run 24 hours everyday and any description in its running shall not be tolerated as it would upset the manufacturing process , resulting in interruption in supply to the customers and as the complainant- company was quality conscious and was admirer of Japanese Technology, the complainant company enquired as to what was the relation between Crl. Misc. No.M-10083 of 2008 [5] Taikisha Engineering India Limited ( for short 'Taikisha India') and Taikisha Limited Japan ( for short 'Taikisha Japan') and whether the services of "Taikisha Japan" shall be made available to the complainant- company in designing, manufacturing, supply, installation, erection, trial run and successful commissioning of the new paint plant and that if they assure that the above said services from "Taikisha Japan" then the deal could be processed further. During the meeting the officials of "Taikisha India" assured the complainant- company that "Taikisha India" is the representative of "Taikisha Japan" and "Taikisha Japan" is the principal of "Taikisha India" and "Taikisha India" is working under the control of "Taikisha Japan" and that "Taikisha Japan" is the major share holder holding approximately 55% of the total paid up capital of the company and "Taikisha Japan" had also appointed its two nominee Directors on the Board of "Taikisha India" and "Taikisha India" is fully supported by "Taikisha Japan". They also promised that if the order is given to "Taikisha India"
then all the detailed engineering drawings shall be dully vetted and approved by their principal "Taikisha Japan", adding further that "Taikisha Japan" will involve in other areas also like approving of the layout and detailed design engineering drawings, supervision during the course of installation, erection and commissioning and plant trial run period. They also mentioned that agreement with "Taikisha India" may be treated as an agreement with "Taikisha Japan". During the discussion the senior officials of "Taikisha India" told that they were quality conscious and not one or two but all the Directors of "Taikisha India" remain actually involved in the job Crl. Misc. No.M-10083 of 2008 [6] assigned to them and any one of their Directors can be called upon to meet the requirement or to check the defect in the working. In nutshell they stated that all the Directors were experienced and involved in a day to day functioning of the company and would be responsible for each act of the concern. Accused No.5 Hemant Makwana further told that he had got training from "Taikisha Japan" in the year 1996-97. The complainant- respondent No.2 believing the assurances and undertakings of the officials of "Taikisha India", associate of "Taikisha Japan" decided to place the order on "Taikisha India" for designing, manufacturing, supply, installation, erection, trial run and commissioning of the new paint plant. It is mentioned in the complaint that during the technical discussion and commercial agreement, senior authorities of "Taikisha India", a representative/ associate of "Taikisha Japan" frequently visited the complainant company's manufacturing unit and the head office. (emphasis supplied by underlining, to highlight major allegations) Earlier during discussions Mr. N.A.Makwana, Mr. Hemant Makwana and Mr. T.S.Chadha had been joining but during the final commercial settlement Mr. Hemant Makwana had visited the complainant company. The Officials of "Taikisha India", a representative/ associate of "Taikisha Japan" were fully aware about the requirements of the company. They had inspected the site where the paint plant was to be installed. "Taikisha India" assured the company that the space was adequate for the installation of the paint plant, capable to meet the requirement of the company. They further assured that 900/1000 meter long track is viable in one go without any break and such conveyor will Crl. Misc. No.M-10083 of 2008 [7] meet all the requirements of taking the wheels through various stages involved in the process and it will cover much less space than its total length of the track due to the intellect/ designing kit to be provided by "Taikisha Japan". Keeping in view all the assurance, a purchase order agreement dated 30.4.2004 was executed between the "Taikisha India", which was signed by Mr. A.V. Unnikrishnan, Executive Director (Commercial) of the complainant company and Mr. H.N.Makwana, General manager, "Taikisha India" associated with "Taikisha Japan". The original purchased order dated 30.4.2004 was amended by executing another agreement dated 28.9.2004 vide which the contract value was revised to Rs.14,09,00,000/- against the original value of Rs.15,19,00,000/- The original agreement dated 30.4.2004 was again amended on 10.6.2005 and purchase order value was again revised to Rs.14,09,94,383. "Taikisha India" started their work during the middle of the year 2004 in a newly constructed building for manufacturing, supply, installation, erection, trial run and commissioning of the paint plant. As per the agreement, the required chemical treatment tanks, ovens, paint kitchen, paint booth and conveyor of a length of 900 meters was installed. The paint shop lay out plant was prepared. The complainant -company was to pay a total price cost as per the agreement whereas "Taikisha India", associated by "Taikisha Japan" had to arrange all machinery and tools at their level to set up the plaint by employing their own labour and staff and the plant was to be set up in the supervision of "Taikisha Japan", as agreed upon. The cost for the same was included in the total contract price. During the set up of the plant, Crl. Misc. No.M-10083 of 2008 [8] "Taikisha India" was seen working there but no person of "Taikisha Japan"
was seen for supervision during the period of installation. Whenever the representative of the complainant-company talked to Mr. T.S.Chadha or Mr. N.A. Makwana or Mr. Hemant Makwana, representatives of "Taikisha India" about the involvement of "Taikisha Japan", persons to be present to supervise the designing and fitting etc. of the plant, they always stated wait they will come but they never came. The plaint was ready for trial in February 2005 and it started working in May 2005.Conveyor is pivotal part of the paint plant, which moves ups and downs on the track with wheel rims thereon, having primary hangers fixed to it. Wheels hanged with conveyor passed through 12 pre-treatment tanks and the conveyor remains above allowing its portion to be touched with treatment liquids and having passed through treatment liquids. The paint plant did not work to the satisfaction of the complainant company from the very beginning for various reasons. There were frequent break downs in the conveyor causing damage to the oil dp tray and twisting/ breaking of primary hangers. Serious problems of conveyor looseness/ tightness of chain and damage/ opening of trolleys were also frequently taking place. There were many other problems faced by the complainant company due to the defective designing of the paint plant. The complainant company vide e-mail dated 9.4.2005 pointed out to "Taikisha India" that major break down has been occurring in the conveyor from 6.4.2005 onwards, apart from production loss it has caused damage of oil dip tray and primary hangers started twisting/ breaking. The complainant company asked that this problem be shared with "Taikisha Japan" with all Crl. Misc. No.M-10083 of 2008 [9] facts and photos and their suggestion be forwarded to the complainant at the earliest. Since there was no proper response from "Taikisha India", the complainant- company sent various mails to "Taikisha India" informing about the facts in whole paint plant. "Taikisha India" offered long term and short term solution to the problems but no fruitful results took place on account of poor and imperfect experience of the "Taikisha India" and lack of support from "Taikisha Japan". The complainant- company suffered huge loss, which cannot be counted in currency on account of non compliance of the request to set the machinery in order for smooth running. The complainant- company lost customers as they stopped booking wheel rims for new models of vehicles coming into the market. In this way not only the business of the company come down but it was also let down in the market.
"Taikisha India" ultimately came out with a proposal to hold a meeting to discuss the poor performance of conveyor, frequent break down primary hangers, PT/ED Rollers, dog chain, oven greasing frequency and difficulties, production loss, rejection loss suffered by the complainant company and other problems of booth balancing etc. and promised to work out short term/ long term plans to trouble shoot the lingering problems. The cut off date was fixed as 31.1.2006. "Taikisha India" suggested to divide conveyor into two parts so that system can be made more reliable. The complainant- company claims that it will lead to stoppage of production rendering the labour idle and the complainant- company cannot afford this. The supplier company is going to lose nothing by splitting the conveyor into two conveyors of shorter sizes but the complainant company is going to be Crl. Misc. No.M-10083 of 2008 [10] uprooted. The proposal of negative nature by "Taikisha India" has put the complainant-company in a fix as to how survive. The functioning of the total paint plant is not as per the requirements and instead of giving any name to the company, it is spoiling its name by defective production and the company could not afford to go on with it to suffer more in the market as it had already suffered financially and in reputation and this all has happened because of the poor and imperfect experience of "Taikisha India" and absence of experts from "Taikisha Japan" at site. "Taikisha Japan" had while sitting in Japan approved the drawing, designing meant for the installation of the paint plant by affixing its stamp whereas the agreement with "Taikisha Japan" had "Taikisha India" was that "Taikisha Japan"
would vet and approve all the detailed engineering drawings and will provide the lay out, detailed design, engineering drawings and supervision during the course of installation, erection,, trial run and commissioning but "Taikisha Japan" has altogether failed to come forward to fulfill their commitment. Had "Taikisha Japan" come forward to provide proper designing of the set up of the paint plant machinery, supervision and help, the result would have been different. Had "Taikisha Japan" name not been presented in the agreement, the complainant- company would not have entered into this agreement with "Taikisha India". "Taikisha Japan" and "Taikisha India" along with other accused in conspiracy with each other had no intention from the beginning to involve the supervision of "Taikisha Japan", which in fact was the requirement of the plant. As per Article 10 and 11 of the Purchase order Agreement, the cost of such involvement of Crl. Misc. No.M-10083 of 2008 [11] "Taikisha Japan" was included in the contract price.
The grievance of the complainant is that "Taikisha India" was selected by the complainant- company for the set up of a green field project of paint plant only because of the design, engineering and other technical support available to them from "Taikisha Japan" and as it was so assured for involvement of "Taikisha Japan" from designing stage to the successful commissioning and trial run of the paint plant. In view of Articles 10 and 11 of the agreement neither "Taikisha Japan" nor "Taikisha India" can escape from their responsibility in the job in hand. The complainant- company has alleged that fraud has been established from the above circumstances and the record speaks that "Taikisha Japan" is the major share holder having share to the extent of 55% in "Taikisha India". Moreover royalty payment @ 3% of the total turnover of the "Taikisha India" is payable every year to "Taikisha Japan" and in the year 2006 a sum of Rs.4,73,34,6381/- has been paid to "Taikisha Japan" by "Taikisha India" on this account as enshrined in Directors' report of "Taikisha India" for the year ended 31.3.2006. "Taikisha Japan" had denied its concern altogether with "Taikisha India". They cannot escape their liability by saying that they are not privy to the contract between the complainant- company and Taikisha India. Despite notices and e-mails sent to "Taikisha Japan" inviting them to come forward to correct the damages caused to the complainant company, it remained silent, which indicates that they have conspired in the act of cheating with Taikisha India. It is alleged in the complaint that "Taikisha India" and "Taikisha Japan" are one and not the two units, may be visibly they look like two, otherwise there Crl. Misc. No.M-10083 of 2008 [12] was no fun for "Taikisha Japan" to come out to claim that the complainant company has issued notices to their Directors, which in fact otherwise is not a reality. All the Directors of "Taikisha India" are involved in day to day business of "Taikisha India" and they are in-charge and responsible for the conduct of the business and no activities can be done in the company without their knowledge. The complainant-company has impleaded "Taikisha Japan" and its President as accused claiming that offence committed in this case is within their knowledge knowing it fully well from the very beginning that "Taikisha Japan" is not going to render the services to the complainant- company inspite of the fact that they have charged the cost from the complainant- company for such services through Taikisha India. "Taikisha Japan" is being represented by its President, who is evidently representing this company and is actively involved in its day to day working and the President is in-charge and responsible for the conduct of its business and now is trying to threaten and blackmail the complainant- company with an objective to restrain it from taking any action against them.
With the above said allegations, the complainant- company had filed a complaint against the petitioners being Directors of "Taikisha India"
and "Taikisha Japan".
PRELIMINARY EVIDENCE AND SUMMONING In order to substantiate the allegations in the complaint, the complainant examined CW1 Pardeep Sharma and CW 2 Sanjeev Gupta, Senior Accounts Officer and the trial court in view of the provisions of Crl. Misc. No.M-10083 of 2008 [13] section 202 Cr.P.C. itself held an inquiry to find out whether any prima facie case was made out against the accused and passed the following order:-
" I have perused the case law cited by learned defence counsel in which it has been laid down that when the stage of issuing process comes after taking cognizance, the issuance of process can be postponed under Section 202 Cr.P.C., if the Magistrate consider it necessary to hold an inquiry or direct an investigation to see if there are sufficient grounds for proceedings or not. It has been further held that nature of this inquiry or investigation continues to be the same as was prior to coming into force of the amendment in Section 202 Cr.P.C. It is also held that the inquiry envisaged under this Section is extremely limited and to find out whether a prima facie for issue of process is made out or not and on perusal of the material on the file, the involvement of all the accused is prima- facie made out for the purpose of inquiry under Section 202 Cr.P.C. 28. CW-1 Pardeep Sharma has stated the material facts of the complaint on oath also. While CW-2 Sanjeev Gupta has proved the payment of Rs.162388241.47/- to the accused and he has led in evidence documents Mark-P and Mark-O in this regard. As per Article 11 of the Agreement Mark-A, the detailed involvement of "Taikisha Japan" is apparent which provides for approving of layout, detailed designing, Crl. Misc. No.M-10083 of 2008 [14] engineering, drawings, supervision during installation, erection and commissioning, supervision during trial run for which all the accused were paid including "Taikisha Japan" for the costs of its involvement which was included in the contract price. Article 14 further provided that best performance shall be achieved as per international standards and in line with the standards of "Taikisha Japan" and the evidence led on the file prima-facie establishes that Taikisha Engineering India Ltd. And Taikisha Limited Japan are not two units and "Taikisha India" is a subsidiary of "Taikisha Japan" and Taikisha Ltd. Japan holds 55 share holding in Taikisha Engineering India Ltd. "Taikisha Japan" failed to render its services to the complainant despite the fact that it had charged the cost from the complainant for such services through Taikisha Engineering India Ltd., thereby cheating the complainant from the very inception of the agreement as well as breach of trust by misappropriating the amount advanced. The conveyor was agreed to be installed was a web USA which was better in quality and effective but accused delayed the matter and installed Vinar make conveyor which has failed to reach the expectations and to get the desired results. Both companies also failed to comply with the assurances given to the complainant as a result of which complainant is at loss and plant develop numerous defects but accused failed to rectify the defects and Crl. Misc. No.M-10083 of 2008 [15] all these facts and the evidence led on the file prima- facie make out an offence punishable Under Section 406,420,120-B IPC against the accused. As such, there are sufficient grounds to proceed against the accused for the above said offences. Let the accused be summoned for 26.4.2008 on filing of P.F. List of witnesses , copy of complainant etc."
The petitioners have sought the quashing of FIR and the summoning order solely on the ground that the dispute is of civil nature and that launching of prosecution is an abuse of process of court; no criminal offence of cheating is made out against the petitioners and there is prima facie no evidence, especially that the petitioners are concerned with day to day working of the company and are responsible for the conduct of the business of the company.
Crl. Misc. No. 10083 of 2010
In this petition, petitioner No.2 is Taikisha Limited of Japan, whereas petitioner No.1 is Mr.Yashiro Nakaya, its President and resident of Japan. For the purpose of brevity, the petitioners in this petition can be said to be the President of Taikisha Limited Japan and Taikisha Limited, Japan as petitioners No.1 and 2.
CONTENTIONS The main contention of Mr.Bipan Ghai, Senior Advocate is that if the allegations in the criminal compliant filed by respondent No.2 are Crl. Misc. No.M-10083 of 2008 [16] carefully perused, no offence is made out against Taikisha Limited, Japan, as even bare reading of allegations will not constitute any offence against the said Company of Japan. Referring to the allegations in the different paragraphs of the compliant, it was submitted that
i) the complainant company had received quotations from "Taikisha India" and not from "Taikisha Japan";
ii) the order was placed with the complainant by Taikisha Engineering India on April 30, 2004 and not by "Taikisha Japan";
iii) The agreement was entered into between the complainant Company and "Taikisha India" it was signed by Directors of "Taikisha India" Company only;
iv) The revised contract was also signed by the Director of "Taikisha India" Company on September 28, 2004;
v) As per the allegations in the complaint, all meetings of
the complainant company were held with the
representatives of "Taikisha India" Company whereas none of the Directors of Japanese company ever came in contact with the complainant. No document was ever executed between "Taikisha Japan" and the complainant;
vi) The "Taikisha Japan" company was never privy to the contract between the complainant and "Taikisha India".
vii) "Taikisha Japan" is an independent corporate identity whereas the identity of "Taikisha India" is separate. Crl. Misc. No.M-10083 of 2008 [17] Being independent corporate identity, "Taikisha Japan"
cannot be held liable for the acts of another company i.e. "Taikisha India" merely because "Taikisha Japan" has got 55% shares in "Taikisha India" company. Only those persons who are incharge for the conduct of business of "Taikisha India" company are liable in case any cheating or fraud has been committed intentionally by the other Company;
viii) Assurance, if any, as per the complaint were given by "Taikisha India" company and the team of the officers of Indian company who had allegedly visited the head office of the complainant;
ix) As per the allegations in the compliant, two Directors of the Japanese company are on the Board of Directors of Indian Company and petitioner No.1 is not one of them;
x) A perusal of para 10 of the complaint (annexure P-1), the complainant levels allegations against the team of senior officials of the "Taikisha Engineering India" who had allegedly persuaded the complainant that all detailed engineering drawing shall be vetted and approved by their principal "Taikisha Limited Japan" and that "Taikisha Limited Japan" will approve the layout, detailed designs, engineering designs, supervision during the course of installation, erection and commissioning Crl. Misc. No.M-10083 of 2008 [18] and plant trial run period. The said team had allegedly mentioned agreement with "Taikisha India" Limited may be treated as agreement with "Taikisha Japan" Limited.
Such an allegation, even if admitted, cannot hold "Taikisha Japan" or any of its Directors as liable for any fraud or misrepresentation;
xi) Even the contents of para 12 of the complaint indicate that all assurances were given by the Directors of the Indian Company named as Mr.N.A. Makwana, Mr. Hemant Makwana and Mr.T.S. Chadha. It is alleged that a representative associated with "Taikisha Limited Japan" had frequently visited the complainant Company manufacturing unit but petitioner No.1 is not the same person;
xii) As per the allegations in para 36 of the complaint, it was for the first time i.e. on July 11, 2007 that notice was served upon "Taikisha Japan" with a copy to "Taikisha Engineering Limited" and its Directors. On August 14, 2007, admittedly, "Taikisha Limited Japan" had denied their concern and responsibility stating therein that they were not contracting party to the agreement entered into by the complainant with "Taikisha India".
Crl. Misc. No.M-10083 of 2008 [19]
xiii) The entire payments were admittedly made to "Taikisha India" after the proper functioning of the unit had started.
Petitioner No.1 has not been attributed any specific part in the complaint. Merely because he is President of Japanese Company who is not a party to the contract with complainant, cannot be said to be responsible for the conduct of business of the "Taikisha India" or liable to the complainant Company for any breach of contract by "Taikisha India".
Mr. Ghai relied upon M/s Freewheels (India) Ltd. Vs. Dr.Veda Mitra and another, AIR 1969 Delhi 258 in which for the purpose of winding up of the petitioner Company, it was observed that where the main company was holding 52% of the share capital of the subsidiary company, it cannot be said that latter cannot be said to be part of former company, working of subsidiary company cannot be held up on ground that the main company was under liquidation. In the said case, an interim injunction had been sought against a subsidiary company (Freewheels India) of Globe Motors Limited, from giving effect to resolution passed by subsidiary company for raising further capital. A petition for winding up against Globe Motors Limited (holding Company) had already been admitted. He argued that the offence under Sections 420 or 406 IPC was not made out against the petitioners as the necessary ingredients of offence of cheating are not made out as there has neither been any deception by the petitioners nor the complainant had been fraudulently or dishonestly induced by the petitioners, nor any fraudulent or dishonest intention can be Crl. Misc. No.M-10083 of 2008 [20] attributed to the petitioners. Reliance was also placed on V.Y. Jose and another Vs. State of Gujarat and another, 2009 (1) RCR (Crl.) 869, Inder Mohan Goswami and another Vs. State of Uttranchal and others, AIR 2008 SC 251 and State of Maharashtra Vs. Syed Mohd., 2010 (1) RCR (Crl.) 177. In the said cases, the FIR was quashed as ingredients of cheating were held to be not made out as per the allegations in the FIR. Crl. Misc. No. M-21831 of 2010 Mr.J.V. Yadav, learned counsel for the petitioners in his petition were respondents Nos., 7, 8 and 9 and are Directors of "Taikisha Engineering India Limited" (i.e. "Taikisha India"). It was argued that the petitioners have been wrongly summoned by the trial court without judicious application of mind on the allegations. Liability, if any, is of civil nature.
CONTENTIONS Counsel for the petitioners- Mr.J.V. Yadav, raised following contentions:-
i) that the petitioners were not the Directors of M/s Taikisha Engineering India Limited". Petitioners No.1 and 2 became Directors of "Taikisha India"
on June 10, 2004 and petitioner No.3 became its Director on August 1, 2005.
ii) The allegations in the complaint and the preliminary objection led by complainant- Crl. Misc. No.M-10083 of 2008 [21] respondent No.2 does not disclose any civil or criminal liability against the petitioners.
iii) The purchase order agreement containing terms and conditions were entered into between "Taikisha India" with complainant on April 30, 2004 which was signed by Mr.A.B. Unnikrishanan, Executive Director and Mr.H.K.Makwana, General Manager. The allegations in the complaint are that the officials of "Taikisha India" had given assurance and undertakings on the basis of which the complainant- respondent No.2 company had placed purchase order.
iv) The contract work was started in the year 2004,
when machinery was installed.
v) Information and assurance if any, was given by
Mr.T.S. Chadha, Mr.N.A. Makwana and
Mr.Hemant Makwana regarding involvement of
"Taikisha Limited Japan" regarding supervision, designing and fitting. The plant was ready in February 2005 and started working in May 2005.
As such the petitioners cannot be said to be involved with any fraud or misrepresentation.
Crl. Misc. No.M-10083 of 2008 [22]
vi) In case the installation of the plaint is not up to the satisfaction of the respondent- complainant company and there had been any malfunctioning of the conveyor belt which caused damage to the machinery on account of defective designing, an assurance was given by "Taikisha India" to workout short term and long terms plans to troubleshoot the lingering problems. The petitioners cannot be said to have any intention to cheat the complainant.
vii) The allegations against the petitioners are vague for which all the directors of "Taikisha India Limited" cannot be said to be connected with day to-day affairs of the company.
Mr. Yadav placed reliance on S.K. Alagh Vs. State of Uttar Pradesh and others, (2008) 5 SCC 662 in support of his contention that if there is a breach of trust, the necessary ingredients should be disclosed and that vicarious liability cannot be fastened on Managing Director or other Directors of the company which have caused commission of offence, committed by the company. He argued that the fraudulent and dishonest intention must be shown to be existing from the very beginning of the transaction and mere failure to keep the promises at subsequent stage, offence of cheating cannot be said to be made out. He placed reliance on Crl. Misc. No.M-10083 of 2008 [23] Anil Mahajan Vs. Bhor Industries Limited and another, (2006) 1 SCC
746. CONTENTIONS OF COUNSEL FOR THE COMPLAINANT
-RESPONDENT NO.2.
Mr. Nidesh Gupta, Senior Advocate, appearing on behalf of respondent No.2 complainant has vehemently argued that "Taikisha India"
and "Taikisha Japan" and their Directors are liable for the cheating committed by said companies upon the complainant. He stressed upon the principle of lifting of corporate veil and submitted that the principles laid down in Delhi Development Authority Vs. Skipper Construction Company (P) Ltd. and another, (1996) 4 SCC 622 should be adopted to find out that the "Taikisha India" and "Taikisha Japan" are not different persons for the purpose of their criminal liability. In order to determine the wrong done by the accused companies, the Court had jurisdiction to pierce the veil and see through the veil that the corporate personality of "Taikisha Japan" has been misused by "Taikisha India". He referred to Dindas Shankar Thange Vs. State of Maharashtra, 1999 (001) CLJ-0299-BOM, Securities and Exchange Board of India Vs. Libra Plantation Ltd., 1999 (001) CLJ-0294-BOM and State of U.P. and others Vs. Renusagar Power Co. and others, (1988) 4 SCC 59 that in case corporate veil is lifted, it is found that "Taikisha Japan" is the principal of "Taikisha India" and "Taikisha India" is working under the complete control of "Taikisha Japan".
He submitted that this fact is clearly evident from the fact that "Taikisha India" is having six Directors on the board and out of said six Directors, Crl. Misc. No.M-10083 of 2008 [24] three Directors are the nominee Directors of "Taikisha Japan". Reference was made to form DIN 3 filed by "Taikisha India" with Registrar of Companies. He submitted that the said document gives identification number of the Directors alongwith their details including the name of the Company or institution whose nominee the Director is. He argued that respondent No.6 is the Managing Director of "Taikisha India". He is the nominee Director of the "Taikisha Japan" alongwith other nominee Directors of "Taikisha Japan". It was submitted that nominee Director is responsible to watch the interest of the Company by whom it is appointed. A nominee Director provides complete information to his member about the day to-day business and affairs of the Company. Any information within the knowledge of nominee Director is impliedly to be within the knowledge of the Company, he is to be appointed. An attempt was made to refer to Article 80 of the Articles of Association of "Taikisha Engineering India Limited" which reads as follows:
"Article 80: The number of Directors of the company shall not be more than 12 excluding the nominee of Central and/ or State Financial institutions, if any. Initially 2 directors shall be appointed by TKS including the Executive Director. One director (resident Director) will be appointed by MES. The subsequent increase in the number of Directors would be made in proportion to the Crl. Misc. No.M-10083 of 2008 [25] initial representation of the members on the Board of Directors."
It was urged that as per Article 2 of the Articles of Association of "Taikisha Engineering Limited", TKS means "Taikisha Limited" a company duly incorporated under the laws of Japan having its registered office at Shinjuku Sumitomo Building, 2-6-1, Nishi Shinjuku, Shinjuku-Ku, Tokyo, 163-02, Japan. Reference was made to Articles 103 and 104 of the Articles of Association, in support of the contention that joint reading of all these articles would indicate that "Taikisha Limited Japan" is having complete control over all the activities of "Taikisha Engineering India Limited" by appointing majority of its nominee Directors on the Board of "Taikisha Engineering India Limited". It was submitted that "Taikisha Japan" was directly controlling all the affairs of "Taikisha Engineering India Limited" on the basis of the annual report of "Taikisha Engineering India Limited" for the year ending March 31, 2007, attached as annexure R-
2. It was submitted that "Taikisha Engineering India Limited" and "Taikisha Japan" are one and not the two units. It was urged on behalf of respondent- complainant Company that Articles 10 and 11 in the agreement dated April 30, 2004 it was provided that all detailed Engineering Designs, duly vetted and approved by their principal Taikisha Limited Japan and the supplier shall involve their principals, namely, "Taikisha Limited Japan" in the areas with regard to approving of lay out and detailed designs, Engineering Drawings and in all other technical aspects with regard to the setting up of the paint plant at their unit Steel Strips Wheels Limited. Crl. Misc. No.M-10083 of 2008 [26] CONSIDERATIONS:
I have heard counsel for the petitioners as well as counsel for the respondents at length and minutely considered their contentions. Before taking up the contents of the complaint and the material available on the record which has been considered by the summoning Court to call the petitioners for facing prosecution, it would be appropriate to refer to the broad principles laid down by the Apex Court in State of Haryana and others Vs. Bhajan Lal and others, AIR 1992 SC 604, wherein it has been laid down that High Court may in exercise of power under Article 226 of the Constitution of India or under Article 482 Cr.P.C. interfere in the proceedings relating to cognizable offences to prevent abuse of the process of any Court or otherwise to secure the ends of justice. However, power should be exercised sparingly and that too in the rarest of area cases. However, guidelines were given by the Apex Court in the said judgment which read as follows:-
"1) Where the allegations made in the First Information Report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
2) Where the allegations in the First Information Report and other materials, if any, accompanying the F.I.R. do not disclose a cognizable offence, justifying an investigation by police officers under S.156(1) of the Crl. Misc. No.M-10083 of 2008 [27] Code except under an order of a Magistrate within the purview of S.155(2) of the Code.
3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
4) Where, the allegations in the F.I.R. do not constitute a cognizable offence but constitute only a non-
cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under S.155(2) of the Code.
5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
Crl. Misc. No.M-10083 of 2008 [28]
7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."
On the basis of the parameters laid down by the Apex Court in Bhajan Lal's case (supra) I have perused the contents of the complaint which has been reproduced in the earlier part of the judgment to determine whether the allegations in the compliant if taken at their face value and accepted in their entirety prima facie constitute an offence or make out a case against the petitioners. Besides this the liability of a Company or Corporation to be prosecuted for an offence of cheating and conspiracy has also been considered by me in the light of a judgment of Apex Court in Iridium India Telecom Ltd. Vs. Motorola Incorporated and others, 2001 (1) RAJ 26. In the said judgment the Apex Court has held that if prima facie offence of cheating is made out against a Company, that Company can be prosecuted for commission of criminal offence. The Company/ Corporation cannot escape liability for a criminal offence merely because the punishment prescribed is that of imprisonment and fine. In the same judgment the Apex Court has reiterated that the High Court does not have unlimited arbitrary jurisdiction under Section 482 Cr.P.C.; the power has to be exercised sparingly, carefully and with caution only where such exercise is justified by the tests laid down in the section itself; there are three circumstances under which the inherent jurisdiction may be exercised, Crl. Misc. No.M-10083 of 2008 [29] namely, (i) to give effect to an order under the Code, (ii) to prevent abuse of the process of the Court, and (iii) to otherwise secure the ends of justice. In Iridium India Telecom's case (supra), the High Court had quashed the criminal complaint filed by the complainant- appellant. The Apex Court had set aside the said order of quashing observing as follows:-
"28. The High Court committed a manifest error in disposing of the petition filed by the appellants under Section 482 of the Code without even adverting to the basic facts which were placed before it for its consideration.
29. It is true that the Court in exercise of its jurisdiction under Section 482 of the Code of Criminal Procedure cannot go into the truth or otherwise of the allegations and appreciate the evidence if any available on record. Normally, the High Court would not intervene in the criminal proceedings at the preliminary stage/when the investigation/enquiry is pending.
30. Interference by the High Court in exercise of its jurisdiction under Section 482 of the Code of Criminal Procedure can only be where a clear case for such interference is made out. Frequent and uncalled for interference even at the preliminary stage by the High Court may result in Crl. Misc. No.M-10083 of 2008 [30] causing obstruction in progress of the inquiry in a criminal case which may not be in the public interest. But at the same time the High Court cannot refuse to exercise its jurisdiction if the interest of justice so required where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no fair minded and informed observer can ever reach a just and proper conclusion as to the existence of sufficient grounds for proceeding. In such cases refusal to exercise the jurisdiction may equally result in injustice more particularly in cases where the complainant sets the criminal law in motion with a view to exert pressure and harass the persons arrayed as accused in the complaint."
Taking into consideration the word of caution repeatedly transmitted by the Apex Court regarding jurisdiction under Section 482 Cr.P.C. for the purpose of quashing of complaint, I have carefully examined the allegations against petitioner No.1-Yoshiro Nakaya in the complaint. Said petitioner is described as President of "Taikisha Limited, Japan". He had neither connected with the complainant nor entered into any agreement with complainant. He did not even sign any document. He is not even alleged to have attended any meeting of the complainant Company.
"Taikisha Limited Japan" is an independent corporate identity from Crl. Misc. No.M-10083 of 2008 [31] "Taikisha India" for the purpose of their business. There is no prima facie material produced on the record that the assets and liabilities of "Taikisha India" and "Taikisha Japan" are common. One company is not subsidiary company of another; the identity of both the companies have got separate corporate identity; assurance, if any, as per the allegations in the complaint was given by team of officers of "Taikisha India" by visiting the Head Office of the complainant; merely because two Directors of Japanese Company are on the Board of Directors of Indian Company, petitioner No.1 being not one of them; summoning of Yashiro Nakaya is nothing but an abuse of the process of the Court. No specific part has been attributed to Yashiro Nakaya. The criminal proceedings against petitioner No.1- Yashiro Nakaya of "Taikisha Japan" are liable to be quashed.
So far as petitioner No.2 in Crl. Misc. No. M-10083 of 2008 is concerned, I have considered the arguments of Mr.Nidhesh Gupta regarding lifting of corporate veil to find out its culpability alongwith "Taikisha India". Strong reliance has been placed on the judgment of Delhi Development Authority's case (supra). In the said case, a Company defrauded others in deliberate disobedience of Supreme Court order. The Supreme Court in the exercise of its powers under Article 142 (1) of the Constitution of India, in an endeavour to do complete justice, adopted the principle of lifting the corporate veil for the purpose of passing appropriate orders in contempt proceedings to grant relief to the persons aggrieved. It was held that direction can be issued against real contemnor behind the veil, in addition to order of punishment for the contempt to restore the illegally Crl. Misc. No.M-10083 of 2008 [32] derived benefits to the persons defrauded so that the contemnor may not be able to retain the fruits of the contempt. The Supreme Court said that forfeiture and attachment of the property acquired by illegal and corrupt means by the real men behind the corporate veil as also the properties of their family members could be ordered. The principle in Salomon Vs. Salomon & Co. Ltd., (1985-99) All ER Rep 33 were considered, taking into consideration several exceptions to the said rule which the Courts have come to recognize with the passage of time.
I have carefully gone through the judgment of the Apex Court and I am of the opinion that the context in which the principle of lifting of corporate veil was adopted by the Supreme Court in exercise of powers under Section 142 of the Constitution of India, do not exist in the present case warranting exercise of same powers under Section 482 Cr.P.C. The power to lift the corporate veil is available to the Courts in certain peculiar circumstances especially when the corporate personality is being blatantly used as a cloak for fraud or improper conduct or where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law. In such circumstances the Court would disregard the corporate veil (refer Gower: Modern Company Law--4th Edn. (1979) at p.137) Pennington (Company law--5th Edn. 1985 at p.53). After taking into consideration the circumstances of this case, this Court is of the opinion that it will not be appropriate for this Court to take up the exercise of piercing the veil of corporate entity of "Taikisha India" or "Taikisha Japan" as it will tentamount to analysis of the criminal liability at Crl. Misc. No.M-10083 of 2008 [33] threshold. In case the proceedings against "Taikisha Ltd. Japan" are dropped at this stage, it would tentamount to usurping the jurisdiction as the High Court, in my opinion, is not competent to enter into the niceties of the trial and indulge in appreciation of evidence to determine the liability of a company. The Apex Court in Iridium India Telecom's case (supra) has held that a Company cannot escape liability for criminal offence merely because the punishment prescribed is that of imprisonment and fine. Large number of commercial documents have been produced before this Court. The observations of the Apex Court in Iridium India Telecom's case (supra) laying down that High Court should refrain from indulging in detailed analysis of very complicated documents and reaching any definite conclusion while undertaking the quashing proceedings at initial stage, are required to be followed in this case. No opinion can be expressed at this stage regarding the relations between "Taikisha India" and "Taikisha Japan"
for the purpose of determining whether any offence of cheating has been committed by "Taikisha India" in connivance with "Taikisha Japan". The petition qua petitioner No.2-"Taikisha Limited Japan" in Crl. Misc. No. M- 10083 of 2008 is liable to be dismissed.
CRL. MISC. No. M-21831 OF 2008 So far as Crl,. Misc. No. M-21831 of 2008 is concerned, it has been filed by the Directors of "Taikisha Engineering India Limited". The said petitioners are stated to be Directors of the Company being responsible for the day to-day business of "Taikisha Engineering India Limited". It is alleged in the complaint that no activities of the Company can be conducted Crl. Misc. No.M-10083 of 2008 [34] without their knowledge. It would not be appropriate to determine the role of each of the petitioners regarding the extent of their involvement in the running of business of "Taikisha Engineering India Limited". Bare reading of the complaint indicates that specific allegations have been levelled against all of them. Since they are residents of Japan and an attempt to determine their role in running of the business of "Taikisha India" will again tentamount to indulging in the detailed analysis of complicated commercial documents to find out their roles in running of the company "Taikisha India" and it is debatable whether at the time of commercial transactions with the complainant they were actual directors, it is felt that interests of justice would be adequately met in case the personal appearance of petitioners Hirosni Asano, Etsuo Kawahara and Masaaki Saito before the trial Court is exempted during the pendency of the trial. It is directed that they can be represented through their counsel in the proceedings before the trial Court till the stage of framing of charges. In case, on appreciation of evidence, the trial Court arrives at a conclusion that charges cannot be framed against them on the basis of the material produced at pre-charge evidence stage, it will be open to the trial Court to drop the proceedings against the said petitioners.
CONCLUSION:
In view of the above discussion, Crl. Misc. No. M-10083 of 2008 is allowed qua petitioner No.1-Yashiro Nakaya and proceedings against him only are quashed, whereas Crl. Misc. No. M-10083 of 2008 against petitioner No.2-"Taikisha Limited Japan" company is dismissed. Crl. Misc. No.M-10083 of 2008 [35]
So far as Crl. Misc. No. M-21831 of 2008 is concerned, the same is dismissed. However, personal appearance of the petitioners will remain exempted and the petitioners will be entitled to be represented through their counsel till the stage the Court forms an opinion of framing charges against them on the basis of appreciation of pre-charge evidence. Nothing mentioned in the order will prejudice the rights of any of the parties during the proceedings before the trial Court.
March 1, 2011 (M.M.S.BEDI) sanjay JUDGE