Wednesday, 3 February 2016

Distinction between offence of cheating and criminal breach of trust

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.
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.
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
Citation;2015ALLMR(Cri)4101,2015(4)Crimes86(SC), 
 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
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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
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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
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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
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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
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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
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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
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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
8Page 9
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
9Page 10
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
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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
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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
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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.
1Page 16
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….”
1Page 17
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
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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.”
1Page 20
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.
2Page 21
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
2Page 22
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
2Page 23
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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