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