Case

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RedStag LLP (Hereafter referred as “RedStag”), is a Limited Liability Partnership, incorporated as per the tenets of The Limited Liability Partnership Act, 2008, and conforming to its tenets as being amended from time to time. The firm is based in Sukh Pradesh, Indica; and is in the business of trading of imported high precision machinery items, commonly used for the purposes of survey and/or testing in the mining industry; and an authorized trading agent of Royal Chivas Precision Equipment Limited; among others. The partnership is represented by 3 partners, Tukaram, Dhaniram and Sukharam.

Royal Chivas Precision Equipment Limited (Hereafter referred as “Royal Chivas”), is a German company, currently having a dominant market share in the niche of research, development, manufacturing, and marketing of high precision total stations and theodolites, the equipment used for the purposes of the survey of the mining industry. The company is a group company of a family owned holding company by the name of Royal Chivas Holdings BV and currently headed by Mohana Nand as the CEO and Chairman. The holding company has its subsidiaries in 95 countries around the world, and their products are known for accuracy and durability.

BluePiper Mining Pty. Limited (Hereafter referred as “BluePiper”) is a South African mining company, having a number of mines in their ownership of Non Coking Thermal Bituminous and Anthracite Coal, in South Africa, Mozambique, Australia, Chile and is a minority stakeholder and technology partner in a company which is a lease-holder of a state-leased Coal Mine in the State of Barkhand in Indica. The company is currently headed by Asharam.

RedStag, in its regular pursuit of the acquisition of new customers, globally, approached BluePiper for business. BluePiper was looking at offers for equipment of survey for exploration of minable areas to expand their current capacity and have asked RedStag to put in their offer.

RedStag’s quote was split into two parts: the First Part was the supply of the goods; whereby the goods were shipped from Royal Chivas’s factory in Germany and BluePiper was to open an irrevocable international Letter of Credit of the cost of the goods. On the successful discounting of the Letter of Credit, Royal Chivas was supposed to transfer USD 60,000 (United States Dollars Sixty Thousand) as a trade commission, by mode of a Telegraphic Transfer. The Second Part of the quote was for the service of the equipment, which RedStag was supposed to send trained personnel and bill themselves to BluePiper.

RedStag’s quote being most competitive with respect to the Price vis-à-vis the service and/or goods offered; though not the lowest; emerged to be awarded a contract.

RedStag managed to get the contract to be governed by the Laws of Indica; in the final rounds of negotiations with BluePiper and accordingly a tripartite agreement was drawn up between BluePiper, Royal Chivas and RedStag for the supply of the goods; where the clause of trade commission was disclosed; and BluePiper agreed to the same. It was also agreed by all that RedStag would be notified of all documents that Royal Chivas and BluePiper shall exchange with regards to payment, shipping and transfer of goods. The agreement was drawn up and was signed by the Manager Sales of Royal Chivas, Mr. Asharam for BluePiper and Mr. Sukharam on behalf of RedStag; where RedStag took up the guarantee of payment on behalf of BluePiper and supply of materials on behalf of Royal Chivas for the supply part.

RedStag was intimated that a Letter of Credit was opened with SeherBank with BluePiper being the applicant and Royal Chivas being the beneficiary. The Letter of Credit was payable by the applicant bank to the beneficiary bank at the expiry of 90 (Ninety) days, but the beneficiary can discount the Letter of Credit at sight with the interest of such discounting borne by the applicant. Further, the scanned copy of documents of dispatch of materials along with the scanned copy of the negotiable documents, as was deposited with the beneficiary bank by Royal Chivas against the abovementioned Letter of Credit, was sent by E-mail by an executive of the accounts department to RedStag. Further, the courier docket number of the Inter-bank document transfer was shared and on tracking the same; it was observed that the applicant bank has received the documents. On tracking the Bill of Lading as issued by Royal Chivas, it was also observed that the shipment has been released to BluePiper by the shipping company.

RedStag however, didn’t receive the amount of USD 60,000 (United States Dollars Sixty Thousand) as commission. On being served a legal notice, Royal Chivas replied by a notice of counsel that the discounting charges of the Documentary credit amounted to around  USD 76,975 (United States Dollars Seventy Six Thousand Nine Hundred Seventy-Five) and the same has been apportioned from the payables of Royal Chivas to RedStag; and a counter-demand of USD 16,975 (United States Dollars Sixteen Thousand Nine Hundred Seventy-Five) was placed on RedStag. However, no details of charges of discounting were given to RedStag. RedStag in their effort of reconciliation asked for a joint meeting with the three parties to the agreement; which was denied subsequently. Immediately after such request; BluePiper raised a complaint ticket of malfunctioning of device and asked for the device to be serviced; though the device was under replacement warranty of Royal Chivas on complaint of any defect before 12 (twelve) months, from the date of purchase; and the service commitment of RedStag arose subsequent to the 12 (twelve) months. On pointing out of the clause, BluePiper withdrew the ticket, yet served a notice of compensation a few days later on account of non-performance, and a termination of the Annual Maintenance Contract (AMC). At all times in between, RedStag was not paid the due amount of USD 60,000 (United States Dollars Sixty Thousand) on account of the commission; any amounts under AMC, since not due, was not claimed.

RedStag filed a criminal complaint under, Sections 403, 405, 415, 418, 420 and 423 read with Sections 120B and 34 of the Indican Penal Code before the Chief Judicial Magistrate, Tis Hazari Court, Sukh Pradesh, where, Mohana Nand was impleaded as Accused Number 1, Heisenberg, Manager Sales of Royal Chivas as Accused Number 2, and Asharam  as Accused Number 3 and prayed that the Hon’ble Court may be pleased to summon the accused persons and on proof they be punished. Mr. Sukharam examined himself under Section 200 of the Code of Criminal Procedure before the Hon’ble Chief Judicial Magistrate and in his testimony, he, inter alia, asserted that accused number 1 was to be individually and jointly liable/responsible for the activities of accused number 2 and 3, as though the agreement was signed between accused number 2 & 3 and the complainant; accused number 2 cannot enter into an agreement without the explicit authority of accused number 1 and that Accused number 1 was at the onset participating in the negotiation process with the other two parties and the complainant. It was asserted that there has been an immoral collusion between Royal Chivas and BluePiper, with the intention to commit fraud and intentionally defraud the complainant of his legal dues.

Based on the aforesaid criminal complaint, the statement of Mr. Sukharam under Section 200 of the Code of Criminal Procedure, as also, the supporting documents, the Chief Judicial Magistrate, Tis Hazari Court passed an order summoning the accused under Sections 403, 405, 420 and 423 read with Sections 120B and 34 of the Indican Penal Code and allotted them sixty calendar days to present themselves in the Hon’ble court.

The order so passed by the Chief Judicial Magistrate is appealed by the Accused (s) in this instant appeal before the High Court of Judicature at Sukh Pradesh; contending that none of the appellants is an Indican citizen. It was also submitted, that none of the appellants have resided in Indica, either before, or after the execution of the agreement nor during its implementation. It was submitted, that neither the criminal complaint nor the pre-summoning evidence recorded under Section 200 of the Code of Criminal Procedure, attributes any act of omission/commission, within the territorial jurisdiction of Indica, to any of the accused herein. As such, the provisions of the Indican Penal Code cannot be relied upon to determine the culpability of the appellants.

Further, Accused Number 1 in the complaint averred, that the contract breach occurred on the part of the group of companies that Accused Number 1 of the complaint holds, and that at the time of the contract he, as an individual was the minority shareholder of the Accused Company, and that he doesn’t look into the daily affairs of the Group Company on a regular basis; and thus he shall not be impleaded for any breach of the Group Company; since each of the companies are separate entities in themselves, and the Accused Number 1 is only a Board Member of the Company.

It is also asserted, that one accused herein, have no concern with the other accused, as in the criminal complaint filed by RedStag or as averred by Mr. Sukharam.

The question(s) thus framed for consideration at this court are as under:

  1. Whether the theory of alter-ego can be applicable to a CEO and Chairman of the holding company of any criminal breach of its subsidiary and/or a group company, if the said individual, personally holds a minority stake in the group company.
  2. Whether the IPC and/or CrPC has the jurisdiction and/or authority and/or provisions to summon a Foreign National when he enters into an International Contract with one party of the contract is an Indican National and/or and Indican Company/Firm, and therefore whether summon issued by the Chief Judicial Magistrate maintainable.

Note:

  • The laws of Indica are in pari materiawith the laws of India, with the limited exceptions created in this Proposition.
  • The counsel representing both sides are required to address the arguments that are specifically mentioned in the Proposition. The counsels are, however, free to make any other arguments that they deem fit.
  • Names, characters, businesses, places, events, locales, and incidents are either the products of the author’s imagination or used in a fictitious manner. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.