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Sanction is necessary as the alleged offence is said to be done while exercising their official duties - No offence is also made out against the accused - proceedings are labile to be quashed= The above decisions reiterate the well-settled principles that while exercising inherent jurisdiction under Section 482 Cr.P.C., it is not for the High Court to appreciate the evidence and its truthfulness or sufficiency inasmuch as it is the function of the trial court. High Court’s inherent powers, be it, civil or criminal matters, is designed to achieve a salutary public purpose and that a court proceeding ought not to be permitted to degenerate into a weapon of harassment or persecution. If the averments in the complaint do not constitute an offence, the court would be justified in quashing the proceedings in the interest of justice. 24. Second appellant-Dr. S.V. Joshi was the Associate Director. Third appellant Dr. G. Sunderarajan was the Director of ARCI and both of them were acting in their official capacity. Appellants No. 2 and 3 neither acted in their personal capacity nor stood to receive any personal monetary benefits from the transfer of said technology. Appellants No.2 and 3 were representatives of ARCI which is a grant-in-aid research and development institute under the Ministry of Science and Technology, Government of India and hence previous sanction as mandated under Section 197 Cr.P.C. must have been obtained before proceeding against them as their act was only in discharge of their official duties. In this regard, our attention was drawn to a communication from Ministry of Science and Technology indicating that for initiating criminal proceeding against appellants No. 2 and 3, permission is required and the said communication reads as under: “ ….. They have both been appointed by the Government of India and are governed by all rules and regulations of the Government of India…. It is further stated that we have examined all the actions taken by Dr. G. Sundararajan and S.V. Joshi in relation to the activities pertaining to the Technology Transfer Agreement dated 18/06/1999 between ARCI and M/s Nimra Cerglass, Hyderabad and are of firm view that these actions were taken by the above officers while discharging their official duty in good faith and in the best interest of ARCI. Therefore, for initiating criminal proceeding against Dr. G. Sundararajan and Dr. S.V.Joshi, Government of India permission is required.” The alleged acts of the appellants No. 2 and 3 were committed while acting in discharge of their official duties, sanction from the competent authority was necessary before initiating the criminal prosecution against them. Since we have held that from the averments in the complaint, the essential ingredients of dishonest intention is not made out, we are not inclined to further elaborate upon this point. 25. As per the terms of the technology transfer agreement, ARCI has to conduct performance guarantee tests and in those tests when ARCI was unsuccessful in achieving the targeted specifications, ARCI cannot be said to have acted with dishonest intention to cheat the respondent. Appellants- ARCI is a structure of Scientists, Team Leader and Associate Director and it is the team leader who actually executes the project, the job of Associate Director and Director is to monitor/review progress of the project. Appellants No.2 and 3 who were the Associate Director and Director of ARCI respectively were only monitoring the progress of the project cannot be said to have committed the offence of cheating. In the facts of the present case, in our view, the allegations in the complaint do not constitute the offence alleged and continuation of the criminal proceeding is not just and proper and in the interest of the justice, the same is liable to be quashed. 26. In the result, the impugned order is set aside and this appeal is allowed. The criminal proceedings against appellants No.1 to 3 in CC No. 840 of 2008 on the file of II Metropolitan Magistrate at Cyberabad, is quashed.

                                                   

            REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                       CRIMINAL APPELLATE JURISDICTION

                      CRIMINAL APPEAL NO. 2128  OF 2011

INTERNATIONAL ADVANCED RESEARCH
CENTRE FOR POWDER METALLURGY
AND NEW MATERIALS (ARCI) & ORS.                      ...Appellants

                                   Versus

NIMRA CERGLASS TECHNICS (P) LTD.
& ANR.                                                                               ...Respondents
                               J U D G M E N T

R. BANUMATHI, J.


This appeal has been  preferred  assailing  the  judgment  dated  17.03.2009
passed by the High Court of Andhra Pradesh in Criminal Petition  No.7901  of
2008 dismissing the petition filed  by  the  appellants  under  Section  482
Cr.P.C., thereby declining  to  quash  the  criminal  proceedings  initiated
against the appellants in   CC No. 840/2008 under  Sections
419 and 420 IPC.
2.          Brief facts which led to the filing of this case are as  under:-
The respondent-complainant is a  private  limited  company  engaged  in  the
manufacturing and  marketing  of  scientific  devices  and  equipments.  The
respondent  filed   complaint   against   appellant-International   Advanced
Research Centre for Powder Metallurgy and New Materials (for  short  ‘ARCI’)
and its officers  i.e.  appellant  No.2-S.V.Joshi,  Associate  Director  and
appellant No.3-G.Sunderarajan, Director alleging that  the  appellants  have
represented that ARCI possessed of technology for  manufacture  of  extruded
ceramic honeycombs which is used in manufacturing  of  catalytic  converters
which  are  used  in  automobiles  for  controlling   emission.    On   that
representation, the respondent entered into an  agreement  dated  18.06.1999
with ARCI for transfer  of  technology  for  the  manufacturing  process  of
extruded  ceramic  honeycombs  inclusive  of  transfer  of   extrusion   die
fabrication technology which  is  an  integral  part  of  the  manufacturing
process for a consideration of rupees ten lakhs in instalments exclusive  of
royalty amount on the sales which would have been generated on the basis  of
products manufactured and  marketed  by  the  respondent  on  the  basis  of
technology. The respondent had alleged that in pursuance of  the  agreement,
the respondent was permitted to establish its  industrial  unit  within  the
campus of ARCI at Balapur, Hyderabad  for  the  purpose  of  installing  and
commissioning production of preferred technology and  for  which  respondent
spent around rupees one crore thirty lakhs  for  purchasing  and  installing
the comprehensive machinery. The respondent alleged that after having  taken
number of trial runs for  testing  the  efficacy  of  the  extruded  ceramic
honeycombs in the function organized  by  ARCI  in  May  2003,  attended  by
higher officials, the technology was  handed  over  to  the  respondent  and
accordingly the respondent was induced into remitting the  third  instalment
of rupees two lakhs in addition to  the  amount  already  paid.   Respondent
states that he was informed that the initial trial  runs  conducted  by  the
Scientists of ARCI succeeded and the appellants  thus,  handed  over  a  few
samples of the final product which were subsequently displayed  at  a  joint
programme launched at Hyderabad.  As a result, respondent  spent  an  amount
of rupees fifteen lakhs for  procuring  raw  materials  in  anticipation  of
commencing commercial production in the  belief  that  the  final  perfected
technology is in its hands. The respondent further alleged that after  three
years, the respondent was informed vide letter bearing  No.ARCI/AD/2006-2007
dated  23.10.2006  addressed  to  Technology  Information,  Forecasting  and
Assessment Council (TIFAC)  that  the  targeted  specification  of  the  end
product could not be  achieved.   The  respondent  alleged  that  scientists
working in ARCI had not perfected the honeycomb  technology  sufficient  for
commencing commercial production and by their false representations  induced
the respondent to spend huge amount and thus appellants  have  committed  an
offence of cheating.
3.    The respondent lodged a criminal complaint on  06.11.2007  before  the
court of the II Metropolitan Magistrate  Cyberabad  seeking  prosecution  of
the appellants for the offences punishable under  Sections  405,  415,  418,
420 IPC read with Sections  34  and  120B  IPC.   After  investigation,  the
investigating officer submitted final report dated 28.01.2008  stating  that
the dispute is purely of civil nature and  that  no  offence  was  made  out
against the appellants and the same may be accepted and the case be  treated
as closed. On protest petition filed by the respondent, the Magistrate  took
cognizance of the case for offences under Sections  419  and  420  IPC  read
with  Section  34  IPC  vide  order  dated  11.11.2008.   Aggrieved  by  the
summoning order issued by the II  Metropolitan  Magistrate,  Cyberabad,  the
appellants filed petition under Section 482 Cr.P.C. before  the  High  Court
to quash the proceedings in CC No. 840 of 2008 and the same  was  dismissed,
which is under challenge in this appeal.
4.           Contention  at  the  hands  of  the  appellants  is  that  when
Technology Transfer Agreement dated 18.06.1999 was entered into,  NIMRA  was
fully aware of ARCI’s honeycomb technology and second and  third  appellants
were involved in the process of developing the technology  wholly  in  their
capacity as Associate Director  and  Director  of  ARCI  and  there  was  no
dishonest intention on  their  part  to  cheat  the  respondent.  Taking  us
through various clauses in  the  technology  transfer  agreement,  Mr.  Raju
Ramachandran, learned Senior Counsel  submitted  that  the  said  technology
transfer  agreement  provides  for  a  contingency  that  if  the   targeted
specifications are not achieved, then ARCI is liable to pay damages  to  the
tune of twenty percent of the lump-sum technology transfer fee charged.   It
was contended that the case is purely of a civil nature and for the  alleged
breach of contract, arbitral proceedings  have  already  commenced  and  the
criminal prosecution is clear abuse of process of law.
5.          Reiterating the above submissions,  Mr.  Manoj  Sharma,  learned
counsel for the appellant No.2 contended  that  in  the  year  1999,  second
appellant was not in the ARCI campus and the second appellant was  appointed
as the Associate Director and entrusted the responsibility  of  heading  the
technology transfer activities of ARCI only in April 2005 and  no  dishonest
intention could be ascribed  to  the  second  appellant  in  his  individual
capacity.
6.           Mr.  Mushtaq  Ahmad,  learned  counsel  for   respondent   No.1
submitted that the appellants made false representation  to  the  respondent
that ARCI was possessed of  proved  ceramic  honeycomb  technology  and  the
appellants conspired and induced the respondent to enter into agreement  and
based on the assurance of the appellants, respondent  spent  huge  money  in
purchasing and installing comprehensive machinery  in  its  industrial  unit
set up in ARCI campus and only  in  the  year  2006,  by  the  letter  dated
23.10.2006, second appellant intimated  that  ceramic  honeycomb  technology
has  failed  and  the  facts  and  circumstances  clearly  show   that   the
representation was a fraudulent right from inception.
7.          We have carefully considered the rival contentions  and  perused
the impugned order and the material on record.
8.          ARCI, a grants-in-aid research and development  institute  under
the Ministry of Science and Technology, Government  of  India,  carries  out
research work for the development of a number of scientific products  to  be
used in various fields.  As a  part  of  its  scientific  development,  ARCI
developed a process for extruded  ceramic  honeycombs.   The  said  extruded
ceramic  honeycombs  were  found  suitable  for  manufacture  of   catalytic
converters which are used in vehicles for controlling the pollution  in  the
emission of vehicles and extruded gases.  ARCI is  said  to  have  held  the
intellectual property rights for the know-how i.e. the process for  extruded
ceramic honeycombs and extrusion die fabrication technology.
9.          ARCI entered into a technology transfer agreement on  18.06.1999
with respondent  to  transfer  the  know-how  related  to  the  process  for
extruded ceramic honeycombs as per the specifications indicated  thereon  in
the annexure to the agreement. The agreement details the modalities  of  the
terms and conditions for  the  grant  of  licence  by  ARCI  and  NIMRA  for
utilizing the said know-how and the rights and obligations  of  the  parties
and the financial arrangements between them.  As  per  Article  2.5  of  the
agreement,  NIMRA  has  seen  ceramic  honeycombs  as   per   specifications
indicated thereon and felt that they could  be  a  substitute  for  imported
honeycombs for manufacture of catalytic  converter  automotive  application.
Further Article 2.6 of the agreement  provides  that  NIMRA  had  made  some
preliminary evaluation of ARCI honeycomb samples and found that the  ceramic
honeycombs may be suitable  for  manufacture  of  catalytic  converters  for
automobile application.
10.         Contention at the hands of respondent is that ARCI  had  already
developed and possessed know-how for extruded  ceramic  honeycombs.  Article
2.2  of  technology  transfer  agreement  suggests   that   ARCI   has   the
intellectual property rights for  the  know-how  of  the  ceramic  honeycomb
technology and the extrusion die fabrication technology.  It  was  contended
that the intellectual property rights could not  have  been  given  to  ARCI
unless the Centre developed the process  hundred  percent  successfully  and
without such cent percent success appellants should not  have  entered  into
an agreement  for  transfer  of  the  technology.    Further  contention  of
respondent   is  that  believing  the  representation  of  the   appellants,
respondent established an industrial unit within the Balapur Campus  of  the
Centre and in this regard spent an amount of rupees  one  crore  and  thirty
lakhs  for  purchasing  and  installing  comprehensive  machinery.   It   is
submitted that in the month  of  May  2003  officials  of  ARCI  convened  a
convention  for  trial  run  and  they  assured  the  respondent  that   the
technology was a proved one and was  fully  developed  and  believing  their
assurances,  respondent  spent  rupees  fifteen  lakhs  for  procuring   raw
materials  and  three  years  thereafter,  second  appellant  informed   the
respondent that the targeted specification of the end project could  not  be
achieved and the  second  appellant  marked  a  copy  of  the  letter  dated
23.10.2006 addressed to TIFAC that the  ceramic  honeycombs  technology  has
failed and act of the appellants made out a case  of  cheating  and  rightly
Magistrate has taken cognizance of the matter.
11.         Learned counsel for the respondent  further  submitted  that  in
the letter addressed to TIFAC dated 23.10.2006, appellant No. 2 stated  that
targeted specification of the end product could  not  be  achieved  implying
that  the  so-called  perfect  honeycomb  technology  which  the  appellants
asserted to be having was in fact, an imperfect  technology.    Drawing  our
attention to the official website of ARCI, it was submitted  that  the  ARCI
submitted an application for patent  registration  only  on  03.07.2001  and
patent was granted on 13.01.2006 and  while  so,  Article  2.2  of  transfer
technology agreement mentioning that  ARCI  has  the  intellectual  property
rights for the know-how and the  extrusion  die  fabrication  technology  is
false and the appellants made a false representation to the respondent  that
ARCI  was  having  intellectual  property  rights   for   extruded   ceramic
honeycombs and the Magistrate has rightly taken  cognizance  of  the  matter
for the offence punishable under Sections 419 and 420 IPC.
12.         The legal position is well-settled that when  a  prosecution  at
the initial stage is asked to be quashed, the test  to  be  applied  by  the
court is, as to whether uncontroverted allegations as made in the  complaint
establish the offence.   The High Court being superior court  of  the  State
should refrain from analyzing the materials which are yet to be adduced  and
seen in their true perspective.   The  inherent  jurisdiction  of  the  High
Court under Section  482  Cr.P.C.  should  not  be  exercised  to  stifle  a
legitimate prosecution. Power under  Section  482  Cr.P.C.  is  to  be  used
sparingly only in rare cases.  In a catena of cases, this  Court  reiterated
that the powers of quashing criminal proceedings should  be  exercised  very
sparingly and quashing a complaint  in  criminal  proceedings  would  depend
upon facts and circumstances of each case.   Vide State of  Haryana  &  Ors.
vs. Bhajan Lal & Ors., 1992 Supp.(1) SCC 335; State of T.N. vs.  Thirukkural
Perumal, (1995) 2 SCC 449; and Central  Bureau  of  Investigation  vs.  Ravi
Shankar Srivastava, IAS & Anr. (2006) 7 SCC 188.
13.         In the light of the well-settled principles, it is  to  be  seen
whether the  allegations  in  the  complaint  filed  against  ARCI  and  its
officers for the alleged failure to develop extruded  ceramic  honeycomb  as
per specifications disclose offences punishable under Sections 419  and  420
IPC.   It is to be seen that whether the averments  in  the  complaint  make
out a case to constitute an offence of cheating.  The essential  ingredients
to attract Section 420 IPC are: (i) cheating; (ii) dishonest  inducement  to
deliver property or to make, alter  or  destroy  any  valuable  security  or
anything which is sealed or signed or is capable of being converted  into  a
valuable security and (iii) mens rea of the accused at the  time  of  making
the inducement.  The  making  of  a  false  representation  is  one  of  the
essential ingredients to constitute the offence of  cheating  under  Section
420 IPC.  In order to bring a case for the offence of cheating,  it  is  not
merely sufficient to prove that a false representation had been  made,  but,
it is further necessary to prove that the representation was  false  to  the
knowledge of the accused and was made in order to deceive the complainant.
14.         Distinction between mere breach of  contract  and  the  cheating
would depend upon the intention of  the  accused  at  the  time  of  alleged
inducement.  If it is established that the  intention  of  the  accused  was
dishonest at the very time when  he  made  a  promise  and  entered  into  a
transaction with the complainant to part with his property  or  money,  then
the liability is criminal and the  accused  is  guilty  of  the  offence  of
cheating.   On  the  other  hand,  if  all  that  is  established   that   a
representation made by the accused has subsequently not been kept,  criminal
liability cannot be foisted on the accused and  the  only  right  which  the
complainant acquires is the remedy for breach of contract in a civil  court.
 Mere breach of contract  cannot  give  rise  to  criminal  prosecution  for
cheating unless fraudulent or dishonest intention is shown at the  beginning
of the transaction.  In S.W. Palanitkar & Ors. vs. State  of  Bihar  &  Anr.
(2002) 1 SCC 241, this Court held as under:
“21 ……In order to constitute  an  offence  of  cheating,  the  intention  to
deceive should be in existence at the time when the inducement was made.  It
is necessary to show that a person had fraudulent or dishonest intention  at
the time of making  the  promise,  to  say  that  he  committed  an  act  of
cheating. A mere failure to keep up promise subsequently cannot be  presumed
as an act leading to cheating.”

The above view in Palanitkar’s case was referred to and followed  in  Rashmi
Jain vs. State of Uttar Pradesh & Anr. (2014) 13 SCC 553.
15.         Various  clauses  in  the  agreement  indicate  that  technology
transfer agreement 1999 was only  experimental  in  nature  and  ARCI  shall
endeavour to achieve the performance  as  per  the  specifications.  In  the
agreement, there was no commitment on the part of ARCI to  provide  extruded
ceramic honeycombs as per expected specifications.  Article 12  which  deals
with performance guarantee suggests that  ARCI  is  to  conduct  performance
test  and  shall  endeavour  to  achieve  product  quality/specification  as
mentioned in annexure I of the agreement.  We may usefully refer to  Article
12.2 to 12.6 of the agreement which read as under:
“12.2  When all guarantee figures as set forth in Article 12.1 are  achieved
during  the  performance  guarantee  test,  then  ARCI  shall  be   released
thereafter from any liability for the performance  guarantee  of  the  know-
how.

12.3  In the event of failure  to  achieve  the  performance  as  agreed  in
Article 12.1 in the  first  performance  test,  ARCI  shall  make  necessary
rectification and another performance test will be conducted.

12.4  In the event of failure  to  achieve  the  guarantee  figures  in  the
second performance test, ARCI may at its option either  (I)  make  necessary
rectification so that another performance test can be conducted or  pay  the
liquidated damages equal to  20% of the  lump-sum  technology  transfer  fee
charged.

12.5  When the liquidated damages are paid by ARCI as specified  in  Article
12.4, the performance guarantee shall be deemed to have  been  fulfilled  as
ARCI shall be relieved from any liability or the performance guarantee.

12.6   If for reasons not attributable to ARCI,  the  performance  guarantee
figures are not attained during the performance  test,  both  parties  shall
discuss and agree upon measures to be taken.”


16.         By reading of the  above  clauses  in  the  technology  transfer
agreement, it is seen that the development of technology ceramic  honeycombs
by ARCI was  experimental.  Terms  and  conditions  of  technology  transfer
agreement  clearly  suggest  that  the  Centre  is  to  conduct  performance
guarantee to achieve the product quality/specification of  extruded  ceramic
honeycombs as mentioned in annexure-1 of the technology  transfer  agreement
and make necessary rectification, if required.  The agreement provides  that
in  the  event  of  failure  to  achieve  the  guarantee  figures   as   per
specification even after second  performance  test,  option  given  to  ARCI
either to conduct another performance test or  pay  the  liquidated  damages
equal to twenty percent on the lump-sum  technology  transfer  fee  charged.
As per the terms and conditions of the agreement, ARCI  had  the  option  to
conduct performance test to achieve the quality/specifications and  when  it
could not achieve these specifications, it cannot be said  that  ARCI  acted
with dishonest intention to cheat the respondent  attracting  the  essential
ingredients of Section 420 IPC.
17.         Two important aspects are relevant to  be  noted  to  hold  that
criminal  liability  cannot  be  foisted  on   the   appellants.    Firstly,
satisfaction of NIMRA as to  suitability  of  ceramic  honeycombs.   As  per
Article 2.5 of the technology transfer agreement,  NIMRA  felt  that  ARCI’s
honeycombs could be a substitute for imported honeycombs for manufacture  of
catalytic converters automotive application.  Further, as seen from  Article
2.6, NIMRA made some preliminary evaluation of  the  honeycomb  samples  and
found that the  ceramic  honeycombs  may  be  suitable  for  manufacture  of
catalytic converters for automobile  application.  Secondly,  as  seen  from
Article 2.8  of  technology  transfer  agreement  1999,  NIMRA  had  earlier
entered into an agreement with ARCI on 28.05.1997 to optimize the wash  coat
and catalyst coating by NIMRA on  ARCI’s  substrate  to  achieve  conversion
efficiency on two samples for two vehicles Maruti 800cc  and  Ceilo  1500cc.
As per the said agreement, ARCI paid rupees  six  lakhs  fifty  thousand  to
respondent for optimization process to  achieve  conversion  efficiency  and
the said agreement was further extended vide amendment dated 06.05.1999.  It
is seen that NIMRA first  approached  ARCI  for  co-operation  and  received
money from ARCI for developing part of  the  technology  and  finally  NIMRA
opted for developing part of the technology by itself  rather  than  jointly
transfer to a third party as provided for in 1997  agreement.  No  dishonest
intention could be attributed to the appellants  as  is  apparent  from  the
fact that NIMRA  earlier  had  collaboration  with  ARCI  and  ARCI  put  in
sufficient efforts by conducting repeated performance guarantee tests.
18.           Respondent   mainly   relied   upon   the    letter    bearing
No.ARCI/AD/2006-2007 dated 23.10.2006 to contend that  what  appellant  No.2
conveyed was that the so-called  perfect  honeycomb  technology  which  they
asserted to be having, was in fact, an imperfect technology and thus act  of
the appellants amounted to  cheating.  By  perusal  of  the  letter  bearing
No.ARCI/AD/2005-2006 dated 05.04.2006,  it  is  seen  that  the  Centre  was
trying their best efforts to improve the wall thickness uniformity and  they
are expecting to accomplish all experimentation necessary for  the  purpose.
In the letter bearing No.ARCI/AD/2006-2007  dated  23.10.2006  addressed  to
Technology Information, Forecasting & Assessment Council  (TIFAC),  copy  of
which was marked to NIMRA states that targeted specifications could  not  be
achieved despite ARCI’s best efforts. The  said  letter  further  states  as
under:-
“ …ARCI has already conveyed to NIMRA that ARCI may not be able to meet  the
specifications as presently targeted. ARCI had further  indicated  to  NIMRA
very clearly that it would write to TIFAC requesting  short-closure  of  the
project for the above reasons. However, Mr. Khaja has  dissuaded  ARCI  from
taking such a step, indicating that he does  not  want  the  project  to  be
termed as a failure and carry the image  of  not  fully  repaying  the  loan
amount received from TIFAC. Mr. Khaja has also indicated to ARCI that  Nimra
Cerglass would, therefore, like to make one final  effort  to  commercialize
the product despite the existing departure from the specifications. For  the
purpose, Mr. Khaja has proposed to modify the canning process,  involving  a
flexible mat suitable for canning  honeycomb  substrates  with  warpage,  to
explore the possibility  of  utilizing  the  currently  developed  honeycomb
structures….”

Thus, it is clear that before the said letter was sent  to  TIFAC,  all  the
details were discussed and well within the  knowledge  of  NIMRA  and  NIMRA
proposed for modification of the canning process and evidently there was  no
dishonest intention on the part of the appellants and no criminal  liability
could be attributed to the appellants.
19.         It is also pertinent to  note  that  Article  21  of  technology
transfer  agreement  dated  18.06.1999  contains  arbitration   clause.   On
30.12.2007, the respondent invoked arbitration as provided in  Article  21.1
of the technology transfer agreement and Dr. T. Ramasamy  (sole  arbitrator)
was appointed. On  06.02.2008,  respondent  filed  an  Arbitration  Petition
No.42/2008 under sub-section (2) of Section 14  of  the  Arbitration     and
Conciliation  Act before  the  High  Court  of  Andhra  Pradesh  praying  to
substitute Dr. T. Ramasamy alleging that he is known to appellant No.3.   In
view of objection raised by the respondent, Dr. T. Ramasamy recused  himself
from hearing the matter.  Subsequently, ARCI filed an  Arbitration  Petition
No.78/2008 before the High Court of Delhi for appointment of an  independent
arbitrator  to  resolve  the  existing  disputes  between   ARCI   and   the
respondent. The said arbitration petition was dismissed as withdrawn  by  an
order dated 08.07.2008.  It was submitted at the  Bar  that  an  independent
arbitrator was in fact appointed to resolve disputes between  ARCI  and  the
respondent and arbitrator has passed the award which again  is  the  subject
matter of challenge before the High Court.
20.         By analysis of terms and conditions  of  the  agreement  between
the parties, the dispute between the parties appears to be purely  of  civil
nature.  It is settled legal proposition that criminal liability should  not
be imposed in disputes of civil nature. In Anil Mahajan vs. Bhor  Industries
Ltd. & Anr. (2005) 10 SCC 228, this Court held as under:-
“6. ……..A distinction has  to  be  kept  in  mind  between  mere  breach  of
contract and the offence of cheating. It depends upon the intention  of  the
accused at the time of inducement. The subsequent conduct is  not  the  sole
test. Mere breach of contract cannot give rise to criminal  prosecution  for
cheating unless fraudulent, dishonest intention is shown  at  the  beginning
of the transaction.
7.   …..
8.  The substance  of  the  complaint  is  to  be  seen.  Mere  use  of  the
expression “cheating” in the complaint is of no consequence. Except  mention
of the words “deceive”  and  “cheat”  in  the  complaint  filed  before  the
Magistrate and “cheating” in the complaint filed before  the  police,  there
is no averment about the deceit, cheating or  fraudulent  intention  of  the
accused at the time of entering into MOU wherefrom it can be  inferred  that
the accused had the intention to deceive the complainant to  pay….  We  need
not go into the question of the difference of the amounts mentioned  in  the
complaint which is much more than what is mentioned in the notice  and  also
the defence of the accused and the stand taken in reply  to  notice  because
the complainant’s own case is that over rupees three  crores  was  paid  and
for  balance,  the  accused  was  giving  reasons  as   above-noticed.   The
additional reason for not going into these aspects is that a civil  suit  is
pending inter se the parties for the amounts in question.”

21.         In M/s Indian Oil  Corporation  vs.  NEPC  India  Ltd.  &  Ors.,
(2006) 6 SCC 736,  this  court  observed  that  civil  liability  cannot  be
converted into criminal liability and held as under:-
“13. While on this issue, it is  necessary  to  take  notice  of  a  growing
tendency in business circles to convert purely civil disputes into  criminal
cases. This is obviously on account of a  prevalent  impression  that  civil
law remedies are time consuming and do not adequately protect the  interests
of lenders/creditors. Such a tendency is seen  in  several  family  disputes
also, leading to irretrievable breakdown  of  marriages/families.  There  is
also an impression that  if  a  person  could  somehow  be  entangled  in  a
criminal prosecution, there is a  likelihood  of  imminent  settlement.  Any
effort to settle civil  disputes  and  claims,  which  do  not  involve  any
criminal offence, by applying pressure through criminal  prosecution  should
be deprecated and discouraged. In G. Sagar Suri v. State of  U.P.  (2000)  2
SCC 636 this Court observed: (SCC p. 643, para 8)
“It is to be seen if a matter, which is essentially of a civil  nature,  has
been given a cloak of criminal  offence.  Criminal  proceedings  are  not  a
short cut of other remedies available  in  law.  Before  issuing  process  a
criminal court has to exercise a great deal of caution. For the  accused  it
is a serious matter. This Court has laid certain principles on the basis  of
which the High Court is to exercise its jurisdiction under  Section  482  of
the Code. Jurisdiction under this section has to  be  exercised  to  prevent
abuse of the process of any  court  or  otherwise  to  secure  the  ends  of
justice.”

14. While no one with a legitimate cause or grievance  should  be  prevented
from  seeking  remedies  available  in  criminal  law,  a  complainant   who
initiates or persists  with  a  prosecution,  being  fully  aware  that  the
criminal proceedings are unwarranted and his remedy lies only in civil  law,
should himself  be  made  accountable,  at  the  end  of  such  misconceived
criminal proceedings, in accordance with law. One positive step that can  be
taken by the courts, to curb  unnecessary  prosecutions  and  harassment  of
innocent parties, is to exercise their power under  Section  250  CrPC  more
frequently, where they discern malice or frivolousness or  ulterior  motives
on the part of the complainant. Be that as it may.”


22.         Learned counsel for the respondent submitted  that  any  defence
to be taken by the appellants is to be raised  only  during  the  course  of
trial and is not to be raised in the initial stage of the  prosecution.   In
support of his contention, the learned counsel placed reliance upon  Trisuns
Chemical Industry vs. Rajesh Agarwal & Ors. (1999) 8 SCC 686;  Rajesh  Bajaj
vs. State NCT of Delhi and Ors. (1999) 3  SCC  259;  P.  Swaroopa  Rani  vs.
M.Hari Narayana Alias Hari Babu (2008) 5 SCC 765 and Iridium  India  Telecom
Ltd. vs. Motorola Incorporated & Ors. (2011) 1 SCC 74.  Learned counsel  for
the  respondent  further  submitted  that  when  the  Magistrate  has  taken
cognizance of an offence and the power of the High  Court  to  interfere  is
only to a limited extent, the High Court cannot substitute its view for  the
summoning order passed by the Magistrate. In  support  of  this  contention,
learned counsel placed reliance upon the decisions of this  Court  in  Fiona
Shrikhande vs. State of Maharashtra & Anr. (2013) 14 SCC 44;  Bhushan  Kumar
& Anr. vs. State (NCT) of Delhi & Anr. (2012) 5 SCC  424  and  Smt.  Nagawwa
vs. Veeranna Shivalingappa Konjalgi & Ors. (1976) 3 SCC 736.
23.         The above decisions reiterate the well-settled  principles  that
while exercising inherent jurisdiction under Section 482 Cr.P.C., it is  not
for the High Court to  appreciate  the  evidence  and  its  truthfulness  or
sufficiency inasmuch as it  is  the  function  of  the  trial  court.   High
Court’s inherent powers, be it, civil or criminal matters,  is  designed  to
achieve a salutary public purpose and that a court proceeding ought  not  to
be permitted to degenerate into a weapon of harassment  or  persecution.  If
the averments in the complaint do  not  constitute  an  offence,  the  court
would be justified in quashing the proceedings in the interest of justice.
24.         Second appellant-Dr. S.V.  Joshi  was  the  Associate  Director.
Third appellant Dr. G. Sunderarajan was the Director of  ARCI  and  both  of
them were acting in their official capacity. Appellants No. 2 and 3  neither
acted in their personal capacity nor stood to receive any personal  monetary
benefits from the transfer of said technology. Appellants No.2  and  3  were
representatives of ARCI which is a  grant-in-aid  research  and  development
institute under the Ministry of Science and Technology, Government of  India
and hence previous sanction as mandated under Section 197 Cr.P.C. must  have
been obtained before proceeding against  them  as  their  act  was  only  in
discharge of their official duties.   In  this  regard,  our  attention  was
drawn to a communication from Ministry of Science and Technology  indicating
that for initiating criminal proceeding against  appellants  No.  2  and  3,
permission is required and the said communication reads as under:
“ ….. They have both been appointed by  the  Government  of  India  and  are
governed by all rules and regulations of the Government of India….

It is further stated that we have examined all the actions taken by  Dr.  G.
Sundararajan and S.V. Joshi in relation to the activities pertaining to  the
Technology Transfer Agreement dated 18/06/1999 between ARCI  and  M/s  Nimra
Cerglass, Hyderabad and are of firm view that these actions  were  taken  by
the above officers while discharging their official duty in good  faith  and
in the best interest of ARCI.

Therefore, for initiating criminal proceeding against  Dr.  G.  Sundararajan
and Dr. S.V.Joshi, Government of India permission is required.”


The alleged acts of the appellants No. 2 and 3 were committed  while  acting
in  discharge  of  their  official  duties,  sanction  from  the   competent
authority was necessary before initiating the criminal  prosecution  against
them.  Since we have held that from the  averments  in  the  complaint,  the
essential ingredients of dishonest intention is not made  out,  we  are  not
inclined to further elaborate upon this point.
25.         As per the terms of the technology transfer agreement, ARCI  has
to conduct performance guarantee tests and in  those  tests  when  ARCI  was
unsuccessful in achieving the targeted specifications, ARCI cannot  be  said
to have acted with dishonest intention to cheat the respondent.  Appellants-
ARCI is a structure of Scientists, Team Leader and  Associate  Director  and
it is the team  leader  who  actually  executes  the  project,  the  job  of
Associate Director  and  Director  is  to  monitor/review  progress  of  the
project.  Appellants  No.2  and  3  who  were  the  Associate  Director  and
Director of ARCI respectively were  only  monitoring  the  progress  of  the
project cannot be said to have committed the offence  of  cheating.  In  the
facts of the present case, in our view, the allegations in the complaint  do
not  constitute  the  offence  alleged  and  continuation  of  the  criminal
proceeding is not just and proper and in the interest of  the  justice,  the
same is liable to be quashed.
26.         In the result, the impugned order is set aside and  this  appeal
is allowed.  The criminal proceedings against appellants No.1  to  3  in  CC
No. 840 of 2008 on the file of II Metropolitan Magistrate at  Cyberabad,  is
quashed.

                                                                 ………………………J.
                                                    (J.S. KHEHAR)

                                                                 ………………………J.
                                                   (R. BANUMATHI)
New Delhi;
September 22, 2015



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