Case: SUSHIL SETHI Vs. THE STATE OF ARUNACHAL PRADESH

2. That appellant no.1 is the Managing Director of M/s. SPML Infra Limited, previously known as M/s Subhas Project Marketing Limited, and appellant no.2 is the Director of the said firm M/s SPML Infra Limited. M/s SPML Infra Limited is a public limited company incorporated under the Companies Act, 1956. A contract was entered into between M/s SPML Infra Limited and the Government of Arunachal Pradesh on 18.03.1993 for construction, supply and commissioning of the Nurang Hydel Power Project including three power generating units for a consideration of Rs.24.96 crores approximately. As per clause 2(c) of the contract, the defect liability period for the works was to be for a period of 18 months. Project was commissioned in the month of July, 1996. That the defect liability period for the works of M/s SPML Infra Limited expired in the month of January, 1998. That thereafter the project became operational and started generating electricity and according to the appellants till 20.09.1998 the project had generated 90 lakhs KW units. According to the appellants even the said project is also in operation today. There were some disputes with respect to the payment of maintenance by the respondents. The appellants issued notice to the respondents to take over the project before 31.03.2000 on account of non¬ payment of maintenance, vide notice dated 09.03.20002.1 That thereafter the respondents – original complainant lodged the complaint against the appellants and others being Jang PS Case No. 05/2000 for the offence under Section 420 of the IPC alleging inter alia that the appellants provided inferior quality materials in contravention with the provisions of the contract which stipulated specific percentages of nickel and chromium to be used. It was alleged in the complaint that the appellants were required to supply the equipments as per the terms of the contract. As per the complaint, in course of physical inspection of the plant, the DOP found that three runners turbines, viz, turbine nos. 1, 2 and 3 were cracked and damaged. Therefore, the damaged components were sent for testing and the National Test House, Calcutta submitted its report and it was found that the chemical composition of the broken runner was found containing 5.28% Nickel and 7.5% Chromium, which composition was contrary to the specification as per the agreement. Therefore, it was alleged that M/s SPML, Calcutta had supplied sub-standard turbines containing composition of materials not in accordance with the specification of MOU, resulted in frequent damage of runner turbine buckets. On the strength of written complaint, an FIR was lodged/registered. It appears that during the course of the investigation, the Investigating Officer found/discovered the illegalities/irregularities in awarding the contract at a higher price. Even during the course of investigation, the Investigating Officer found some officials responsible for the omission and neglect of duties and it was found that the officials named in the charge sheet were involved/connived with the firm M/s SPML Infra Limited with a view to cheat the Government of Arunachal Pradesh. After conclusion of the investigation, the Investigating Officer filed the final report/chargesheet 28.05.2004 against the appellants and others for the offences under Section 120¬B and 420 of the IPC2.2 According to the appellants, they were not aware about the filing of the FIR and the chargesheet against them till the year 2017 and on being aware of the FIR and the chargesheet against them, the appellants preferred a petition before the High Court for quashing the aforesaid criminal proceedings under Section 482 Cr.P.C. It was contended on behalf of the appellants that the matter pertains to the contract and therefore purely a civil and contractual dispute has been given the colour of criminality and that too with a mala fide intention as they served a notice upon the respondents to pay the maintenance amount due and payable. It was also submitted on behalf of the appellants that they are the Managing Director/Director of M/s SPML Infra Limited – a company and that the company has not been arrayed as an accused. It was submitted that there are no allegations that the appellants were in-charge of the affairs of the company and therefore vicariously liable. Number of other submissions were also made on merits in support of their submission that the offence under Section 420 IPC has not been made out at all. It was also submitted that as soon as the company/appellants were informed with respect to the defect, despite the defect liability period was over, they changed the turbines in the year 2000. It was also submitted that all through out the project has run and even still running2.3 That by the impugned judgment and order, the High Court has refused to quash the criminal proceedings. While rejecting the quashing petition, the High Court has observed that there are allegations not only against the appellants, but also against the connected company executives and engineers of the Government of Arunachal Pradesh and there are allegations of criminal conspiracy amongst themselves in the supply of sub¬standard runner turbines and receiving the sub-standard runner turbines which were not in conformity with the specified standard and the others co-accused persons have not come up with a similar petition under Section 482 Cr.P.C. and therefore at this stage it is not possible to segregate the case qua the appellants only.

Court's reasoning:
5.1 At the outset, it is required to be noted that the chargesheet has been filed against the appellants for the offences under Section 420 read with Section 120B of the IPC. By the impugned judgment and order, the High Court has refused to quash the FIR and the chargesheet against the appellants in exercise of powers under Section 482 Cr.P.C6. Considering the averments and the allegations in the FIR and even the chargesheet the main allegations are that the company, namely, M/s SPML Infra Limited supplied sub¬ standard materials – runner bucket turbines and the supplied runner bucket turbines were not as per the technical specifications. It is also required to be noted that there is no FIR/complaint/chargesheet against the company – M/s SPML Infra Limited and the appellants are arrayed as an accused as Managing Director and Director of M/s SPML Infra Limited respectively. From a bare reading of the FIR and even the chargesheet, there are no allegations that there was a fraudulent and dishonest intention to cheat the government from the very beginning of the transaction. Even there are no specific allegations and averments in the FIR/chargesheet that the appellants were in-charge of administration and management of the company and thereby vicariously liable. In light of the aforesaid, the prayer of the appellants to quash the criminal proceedings against the appellants for the offence under Section 420 IPC is required to be considered8. Applying the law laid down by this Court in the aforesaid decisions to the facts of the case on hand, we are of the opinion that this is a fit case to exercise powers under Section 482 Cr.P.C. and to quash the impugned criminal proceedings8.1. As observed hereinabove, the chargesheet has been filed against the appellants for the offences under Section 420 read with Section 120B of the IPC. However, it is required to be noted that there are no specific allegations and averments in the FIR and/or even in the chargesheet that fraudulent and dishonest intention of the accused was from the very beginning of the transaction. It is also required to be noted that contract between M/s SPML Infra Limited and the Government was for supply and commissioning of the Nurang Hydel Power Project including three power generating units. The appellants purchased the turbines for the project from another manufacturer. The company used the said turbines in the power project. The contract was in the year 1993. Thereafter in the year 1996 the project was commissioned. In the year 1997, the Department of Power issued a certificate certifying satisfaction over the execution of the project. Even the defect liability period ended/expired in January, 1998. In the year 2000, there was some defect found with respect to three turbines. Immediately, the turbines were replaced. The power project started functioning right from the very beginning – 1996 onwards. If the intention of the company/appellants was to cheat the Government of Arunachal Pradesh, they would not have replaced the turbines which were found to be defective. In any case, there are no specific allegations and averments in the complaint that the accused had fraudulent or dishonest intention at the time of entering into the contract. Therefore, applying the law laid down by this Court in the aforesaid decisions, it cannot be said that even a prima facie case for the offence under Section 420 IPC has been made out8.2. It is also required to be noted that the main allegations can be said to be against the company. The company has not been made a party. The allegations are restricted to the Managing Director and the Director of the company respectively. There are no specific allegations against the Managing Director or even the Director. There are no allegations to constitute the vicarious liability. In the case of Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668 , it is observed and held by this Court that the penal code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the company when the accused is the company. It is further observed and held that the vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. It is further observed that statute indisputably must contain provision fixing such vicarious liabilities. It is further observed that even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability. In the present case, there are no such specific allegations against the appellants being Managing Director or the Director of the company respectively. Under the circumstances also, the impugned criminal proceedings are required to be quashed and set aside8.3 At this stage, it is required to be noted that though the FIR was filed in the year 2000 and the chargesheet was submitted/filed as far back as on 28.5.2004, the appellants were served with the summons only in the year 2017, i.e., after a period of approximately 13 years from the date of filing the chargesheet. Under the circumstances, the High Court has committed a grave error in not quashing and setting aside the impugned criminal proceedings and has erred in not exercising the jurisdiction vested in it under Section 482 Cr.P.C9. In view of the above and for the reasons stated above, we are of the firm opinion that this is a fit case to exercise the powers under Section 482 Cr.P.C. and to quash the criminal proceedings against the appellants for the offence under Section 420 read with Section 120B of the IPC. To continue the criminal proceedings against the appellants would be undue harassment to them. As observed hereinabove, no prima facie case for the offence under Section 420 of the IPC is made out8. Applying the law laid down by this Court in the aforesaid decisions to the facts of the case on hand, we are of the opinion that this is a fit case to exercise powers under Section 482 Cr.P.C. and to quash the impugned criminal proceedings8.1. As observed hereinabove, the chargesheet has been filed against the appellants for the offences under Section 420 read with Section 120B of the IPC. However, it is required to be noted that there are no specific allegations and averments in the FIR and/or even in the chargesheet that fraudulent and dishonest intention of the accused was from the very beginning of the transaction. It is also required to be noted that contract between M/s SPML Infra Limited and the Government was for supply and commissioning of the Nurang Hydel Power Project including three power generating units. The appellants purchased the turbines for the project from another manufacturer. The company used the said turbines in the power project. The contract was in the year 1993. Thereafter in the year 1996 the project was commissioned. In the year 1997, the Department of Power issued a certificate certifying satisfaction over the execution of the project. Even the defect liability period ended/expired in January, 1998. In the year 2000, there was some defect found with respect to three turbines. Immediately, the turbines were replaced. The power project started functioning right from the very beginning – 1996 onwards. If the intention of the company/appellants was to cheat the Government of Arunachal Pradesh, they would not have replaced the turbines which were found to be defective. In any case, there are no specific allegations and averments in the complaint that the accused had fraudulent or dishonest intention at the time of entering into the contract. Therefore, applying the law laid down by this Court in the aforesaid decisions, it cannot be said that even a prima facie case for the offence under Section 420 IPC has been made out8.2. It is also required to be noted that the main allegations can be said to be against the company. The company has not been made a party. The allegations are restricted to the Managing Director and the Director of the company respectively. There are no specific allegations against the Managing Director or even the Director. There are no allegations to constitute the vicarious liability. In the case of Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668 , it is observed and held by this Court that the penal code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the company when the accused is the company. It is further observed and held that the vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. It is further observed that statute indisputably must contain provision fixing such vicarious liabilities. It is further observed that even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability. In the present case, there are no such specific allegations against the appellants being Managing Director or the Director of the company respectively. Under the circumstances also, the impugned criminal proceedings are required to be quashed and set aside8.3 At this stage, it is required to be noted that though the FIR was filed in the year 2000 and the chargesheet was submitted/filed as far back as on 28.5.2004, the appellants were served with the summons only in the year 2017, i.e., after a period of approximately 13 years from the date of filing the chargesheet. Under the circumstances, the High Court has committed a grave error in not quashing and setting aside the impugned criminal proceedings and has erred in not exercising the jurisdiction vested in it under Section 482 Cr.P.