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2016 (3) TMI 32 - SUPREME COURT

2016 (3) TMI 32 - SUPREME COURT - 2015 (8) JT 536, 2015 (10) SCALE 136 - Criminal proceedings initiated against the appellants under Sections 419 and 420 IPC - cheating - whether alleged acts of the appellants No. 2 and 3 were committed while acting in discharge of their official duties? - Held that:- 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 c .....

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ing. 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.

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. - CRL.A. 2 .....

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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 .....

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e 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 .....

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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 .....

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spondent 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 a .....

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ds 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 Coun .....

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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 re .....

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mstances 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 proces .....

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he 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 .....

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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 respond .....

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dent 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 .....

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, 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 prose .....

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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. (20 .....

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nest 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 represe .....

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s 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 intentio .....

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bsequently 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 p .....

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formance 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- .....

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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 fi .....

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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 som .....

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d 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 in .....

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mounted 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 .....

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t 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 i .....

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ion 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. Subseque .....

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ore 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 depen .....

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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 .....

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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 prosecu .....

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ilable 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 seeki .....

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y, 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 .....

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earned 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 truth .....

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e 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 .....

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ons 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 .....

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