INTERNATIONAL ADVANCED RESEARCH CENTRE FOR POWDER METALLURGY AND NEW MATERIALS (ARCI) &ORS.versusNIMRA CERGLASS TECHNICS (P) LTD.&ANR.

                    (2015] 11S.C.R.299


INTERNATIONALADVANCED RESEARCH CENTRE FOR                         A
 POWDER METALLURGY AND NEW MATERIALS (ARCI)
                  &ORS.

                              v.
                                                                  B
      NIMRA CERGLASS TECHNICS (P) LTD.&ANR.

             (Criminal Appeal No.2128 of2011)

                   SEPTEMBER 22, 2015
                                                                  c
 [JAGDIS.H SINGH KHEHAR AND R. BANUMATHI, JJ.]

      Code of Criminal Procedure, 1973- s.482- Scope of-
Technology transfer agreement - Between a Government
research institute and a private Company - The institute          D
failed to achieve targeted specifications - Complaint by the
 Company-Against the institute and its officials uls. 420 /PC
- Magistrate took cognizance of the offence -Application ul
s.482 for quashing the criminal proceedings, dismissed by
High Court- On appeal, held: In order to bring out a case for     E
 the offence of cheating, ·it is not merely sufficient to prove
that a false representation had been made, but it should also
be proved that the representation was made in order to
decieve the complainant - In view of the facts of the case
including the terms and conditions of the agreement, offence      F
of cheating has not been made out, but it is a case of breach
of contract - 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-The dispute between the parties is purely of civil    G
nature - Criminal liability cannot be imposed if/ disputes of
civil nature - The inherent jurisdiction u/s. 482 should be
exercised only in rare cases and in exercise of such
jurisdiction the High Court should not appreciate the
                                                                  H
                             299
300       SUPREME COURT REPORTS                 [2015] 11 S.C.R.

A  evidence and its truthfulness or sufficiency - However, the
    High Court's inherent powers, either in civil or in criminal
    matter, ought not be permitted to degenerate into weapon of
   harassment or persecution - If the averments in the
   complaint do not constitute an offence, the court would be
 B justified in quashing the proceedings in the interest ofjustice
   - Therefore, the criminal proceedings are liable to be
    quashed in the present case- Penal Code, 1860- s.420 rlw
   s. 34 - Contract - Breach of contract - Distinction from
    offence of Cheating.
c
           Allowing the .appeal, the Court

       HELD: 1. Though it is well-settled that while
  exercising inherent jurisdiction u/s. 482 Cr.P.C., it is not
o for the High Court to appreciate the evidence and its
  truthfulness or sufficiency inasmuch as it is the function
  of the trial court and that the inherent jurisdiction of the
  High Court under Section 482 Cr.P.C. should not be
  exercised to stifle a legitimate prosecution. Power under
                                        .
E Section 482 Cr.P.C. is to be used sparingly only in rare
  cases. However, the 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
F 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. [Paras 23, 12] [311-G-H; 320-G-H; 321-A-BJ
G         State of Haryana & Ors. vs. Bhajan Lal & Ors. 1990
          (3) Suppl. SCR 259: 1992 Supp. (1) sec 335;
          State of T.N. vs. Thirukkural Perumal 1995 (1)
          SCR 712: (1995) 2 SCC 449; Central Bureau of
          Investigation vs. Ravi Shankar Srivastava, /AS &
H
INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER          301
           METALLURGYv. NIMRACERGLASS


     Anr. 2006 (4) Suppl. SCR 450:. (2006) 7sec188         A
     -relied on.
     Trisuns Chemical Industry vs. Rajesh Agarwal &
     ors.  1999 (2) Suppl. SCR 686: (1999) 8 sec
     686; Rajesh Bajaj vs. State NCT of Delhi and Ors.     8
     1999 (1) scR 1012: (1999) 3 sec 259; P
     Swaroopa Rani vs. M.Hari Narayana Alias Hari
     Babu 2008 (3) SCR 900: (2008) 5 ~cc 765;
     Iridium India Telecom Ltd. vs. Motorola
     Incorporated & Ors. 2010 (14) SCR 591: (2011) 1       C
     SCC 74; Fiona Shrikhande vs. State of
     Maharashtra & Anr. 2013 (9) SCR 240: (2013)
     14 SCC 44; Bhushan Kumar & Anr. vs. State
     (NCT) of Delhi & Anr. 2012 (2) SCR 696: (2012)
     5 SCC 424; Smt. Nagawwa vs. Veeranna                  D
     Shivalingappa Konjalgi & Ors.1976 (0) Suppl.
     SCR 123: (1976) 3 SCC 736- referred to.

      2.1 The essential ingredients to attract Section 420
IPC are: (i) cheating; (ii) dishonest inducement to deliver E
property or to make, alter or destroy any valuable
security or anything which is sealed or signed or is
capable of l:)eing 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 F
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 G
false to the l<nowledge of the accused and was made in
order to deceive the complainant. [Para 13)(312-D-F]

    2.2 Distinction between mere breach of contract and
the cheating would depend upon the intention of the        H
302        SUPREME COURT REPORTS               [2015] 11 S.C.R.


A 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
B 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
C 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. [Para 14] [312-G-H; 313-A-B]
0
           S. W Palanitkar & Ors. vs. State of Bihar & Anr.
           2001 (4) Suppl. scR 397: (2002) 1 sec 241;
           Rashmi Jain vs. State of Uttar Pradesh & Anr.
           (2014) 13 sec 553 - relied on.
E
      2.3 In the present case, various clauses in the
  technology transfer agreement indicate that technology
  transfer agreement 1999 was only experimental in nature
  and ARCI shall endeavour to achieve the performance
F 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.
  [Para 15] [313 F]

G         2.4 It is evident that the respondent Company first
      approached ARCI for co-operation and received money
      from ARCI for developing part of the technology and
      finally it opted for developing part of the technology by
      itself rather than jointly transfer to a third party as
H
 INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER          303
            METALLURGYv. NIMRACERGLASS


provided for in 1997 agreement. No dishonest intention A
could be attributed to the appellants as is apparent from
the fact that the Company earlier had collaboration with
ARCI and ARCI put in sufficient efforts by conducting
repeated performance guarantee tests. [Para 17)
[315-G-H; 316-A]                                          B

     2.5 By perusal of the letter bearing No.ARCl/AD/
2005-2006 dated 05.04.2006, (on which the respondent
relied on to allege cheating)it is seen that the Centre was
trying their besf efforts to improve the wall thickness C
uniformity and they are expecting to accomplish all
experimentation necessary for the purpose. In the letter
bearing No.ARCl/AD/2006-2007 dated 23.10.2006
addressed to Technology Information, Forecasting &
Assessment Council (TIFAC), copy of which was marked D
to the Company states that targeted specifications could
not be achieved despite ARCl's best efforts. Thus, it is
clear that before the said letter was sent to TIFAC, all the
details were discussed and well within the knowledge
of the Company and the Company proposed for E
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. [Para 18) [316-C-E; 317-B]
                                                           F
     2.6 Appellants-ARC! 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 G
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. [Para
25] [322-D-E]
                                                            H
304        SUPREME COURT REPORTS               [2015] 11 S.C.R.

A      2.7 Both the appellants 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.
  They were representatives of ARCI which is a grant-in-
s 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
C official duties. [Para 24] [321-C-D]

      2.8 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
D legal proposition that criminal liability should not be
  imposed in disputes of civil nature. [Para 20] [317-H;
  318-A]

           Anil Mahajan vs. Bhor Industries Ltd. & Anr.
 E         (2005) 10 SCC 228; Mis Indian Oil Corporation
           vs. NEPC India Ltd. & Ors. 2006 (3) Suppl.
           SCR 704: (2006) 6 sec 736 - relied on.

        2.9 Moreover, Article 21 of technology transfer
 F agreement dated 18.06.1999 contains arbitration clause.
   The arbitrator has passed the award which again is the
   subject matter of challenge before the High Court. [Para
   19] [317-C-G]
G         2.10 Therefore, 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.
      [Para 25] [322-F]
 H
 INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER            305
            METALLURGYv. NIMRACERGLASS


                   Case Law Reference                        A

1990 (3) Suppl. SCR 259        relied on       Para 12
1995 (1) SCR 712               relied on       Para 12
2006 (4) Suppl. SCR 450        relied on .     Para 12
                                                             B
2001 (4) Suppl. SCR 397        relied on       Para 14
(2014) 13 sec 553              relied on       Para 14
(2005) 1o sec 228              relied on       Para 20
2006 (3) Suppl. SCR 704        relied on       Para 21       c
1999 (2) Suppl. SCR 686        referred to     Para 22
1999 (1) SCR 1012              referred to     Para 22
2008 (3) SCR 900               referred to     Para 22
                                                             D
2010 (14) SCR 591              referred to     Para 22
2013 (9) SCR 240               referred to     Para 22
2012 (2) SCR 696               referred to     Para 22
1976 (0) Suppl. SCR 123        referred to    Para 22        E

    CRIMINALAPPELLATE JURISDICTION: CriminalAppeal
No. 2128 OF 2011

    From the Judgment and Order dated 17.03.2009 of the
                                                             F
High Court of Judicature of Andhra Pradesh at Hyderabad in
Criminal Petition No. 7901 of 2008

     Raju Ramchandran, Siddhartha Dave, Jemtiben AO,
Mythili Vijay Kum~rThallam, Vikram Aditya Narayan, Senthil
Jagadeesan, Rajvinder Singh Ahluwalia, Manoj Sharma, G
Shahid Ali Rao, Nand Ram, Shree Pal Singh, MushtaqAhmad,
S.. Udaya Kumar Sagar, Krishna Kumar Singh, 0. Mahesh
Babu for the appearing parties.

                                                             H
306         SUPREME COURT REPORTS                  [2015] 11 S.C.R.


A         The Judgment of the Court was delivered by

          R. BANUMATHI, J. 1.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
 B    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.

c          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
 D    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 ARC I possessed of
      technology for manufacture of extruded ceramic honeycombs
 E    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
 F    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 anq marketed by the
G     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
 H    and commissioning production of prefoired technology and
 INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER                     307
     METALLURGY v. NIMRA CERGLASS [R. BANUMATHI, J.]


for which respondent spent around rupees one crore thirty lakhs       A
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          B
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              C
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
                                                                      0
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.ARCl/AD/2006-2007 dated 23.10.2006
addressed to Technology Information, Forecasting and                  E
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             F
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 11 Metropolitan Magistrate G
Cyberabad seeking prosecution of the appellants for the
offences punishable under Sections 405, 415, 418, 420 IPC
read with Sections 34 and 1208 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 H
308         SUPREME COURT REPORTS                  [2015] 11 S.C.R.


A     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
B     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.
c
       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 ARCl's honeycomb
  technology and second and third appellants were involved in
D 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
E 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
F 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,
G learned counsel for the appellant No.2 contended that in the
  year 1&99, second appellant was not in theARCI campus and
  the second appellant was appointed as the Associate Director
  and entrusted the responsibiiity of heading the technology
H transfer activities of ARCI only in April 2005 and no dishonest
 INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER               309
     METALLURGYv. NIMRA CERGLASS [R. BANUMATHI, J.]


intention could be ascribed to the second appellant in his A
individual capacity.

      6. Mr. Mushtaq Ahmad, learned counsel for respondent
No.1 submitted that the appellants made false representation
to the respondent that AR Cl was possessed of proved ceramic B
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 C
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.
                                                                 D
    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, E
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 F
manufacture of catalytic converters which are used in vehicles
for controlling the pollution in the emission of vehicles and
e>qruded 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. G

     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          H
310         SUPREME COURT REPORTS                 [2015] 11 S.C.R.


A     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
B     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
C     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 thatARCI
D had already developed and possessed know-how for extruded
  ceramic honeycombs. Article 2.2 of technology transfer
  agreement suggests thatARCI has the intellectual property
  rights for the know-how of the ceramic honeycomb technology
  and the extrusion die fabrication technology. It was contended
E 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
F 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
  rupel)s one crore and thirty lakhs for purchasing and installing
G 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
H raw materials and three years thereafter, second appellant
 INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER                  311
     METALLURGYv. NIMRACERGLASS [R. BANUMATHI, J.]

          '*
informed the respondent that the targeted specification of the A
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 chea~ing and rightly
Magistrate has taken cognizance of the matter.                 B

      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 C
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 D
and while so, Article 2.2 of transfer technology agreement
mentioning thatARCI 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 thatARCI was having intellectual property rights E
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            F
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       G
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.PC. is to be used sparingly only in rare cases. In a catena     H
312          SUPREME COURT REPORTS                      [2015) 11 S.C.R.


A  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
 B 335; State of T.N. vs. Thirukkural Peruma/, (1995) 2 SCC
   449; and Central Bureau of Investigation vs. Ravi Shankar
   Srivastava, /AS & Anr. (2006) 7 SCC 188.

            13. In the light of the well-settled principles, it is to be seen
C     whether the allegations in the complaint filed against ARC I 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
D     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
 E    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
 F    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
 G 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
 H complainant to part with his property or money, then the liability
 INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER                 313
     METALLURGYv. NIMRACERGLASS [R. BANUMATHI, J.)


 is criminal and the accused is guilty of the offence of cheating. A ·
 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 compla.inant acquires is the remedy for breach of
 contract in a civil court. Mere breach of contract cannot give B
 rise to criminal prosecution for cheating unless fraudulent or
 dishonest intention is shown atthe beginning of the transaction .
.In S. W Palanitkar & Ors. vs. State of Bihar & Anr. (2002) 1
 SCC 241, this Court held as under:
                                                                  c
      "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 D
      act of cheating. A mere failure to keep up promise
      subsequently cannot be presumed as an act leading to
      cheating."

     lhe above view in Palanitkar's case was referred to and      E
followed in Rashmi Jain vs. State of Uttar Pradesh & Anr.
(2014) 13 sec 553.

    15. Various clauses in the agreement indicate that
technology transfer agreement 1999 was only experimental in F.
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 thatARCI is to G
conduct performance test and shall endeavour to ach!eve
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:
                                                                H
314      SUPREME COURT REPORTS                   [2015] 11 S.C.R.


A        "12.2    When all guarantee figures as set forth in Article
         12.1 are achieved during the performance guarantee test,
         thenARCI shall be released thereafter from any liability
         for the performance guarantee of the know-how.

B        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.

c        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
D        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 asARCI shall be
E        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."
 F
       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
G suggest that the Centre is to conduct performance guarante~
  to achieve the product quality/specification of extruded
  ceramic honeycombs as mentioned in annexure-1 of the
  technology transfer agreement and make necessary
H rectification, if required. The agreement provides that in the
 INTERNATIONALA:'/ANCED RESEARCH CENTRE FOR POWDER                315
     METALLURGYv. ~11Vitv-, CERGLASS [R. BANUMATHI, J.]


event of failure to achieve the guarantee figures as per A
specification even after second performance test, option given
toARCI 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 B
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.
                                                                   c
      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 AR Cl's honeycombs could be a substitute for imported D
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. E
Secondly, as seen from Article 2.8 of technology transfer
agreement 1999, NIMRA had earlier entered into an agreement
with ARCl on 28.05.1997 to optimize the wash coat and catalyst
coating by NIMRAonARCl's substrate to achieve conversion F
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 G
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 H
316         SUPREME COURT REPORTS                  [2015] 11 S.C.R.


A     could be attributed to the appellants as is apparent from the
      fact that NIMRAearlier had collaboration withARCI andARCI
      put in sufficient efforts by conducting repeated performance
      guarantee tests.

s      18. Respondent mainly relied upon the letter bearing
  No.ARCl/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
C 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
D No.ARCl/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 despiteARCl's
  best efforts. The said letter further states as under:-
E
           " ... ARCI has already conveyed to NIMRA that ARC I may
           not be able to meet the specifications as presently
           targeted.ARC! had further indicated to NIMRA very clearly
           that it would write to TIFAC requesting short-closure of
F          the project for the above rP.asons. However, Mr. Khaja
           has dissuaded ARC! 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
G          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, invol\ling a flexible mat suitable for canning
H
 INTERNATIONALADVANGED RESEARCH CENTRE FOR POWDER                    317
     METALLURGY, "llMRACERGLASS [R. BANUMATHI, J.)


     honeycomb substrates with warpage, to explore the A
     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 B
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.
                                                                     c
     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 o
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 E
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
betweenARCI and the respondent. The said arbitration petition F
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.           G

     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
                                                                     H
318         SUPREME COURT REPORTS                  [2015] 11 S.C.R.



A     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
 s         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
C          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
D
           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
 E         fraudulent intention of the accused at the time of entering
           into MOU wherefrom it can be inferred thatthe 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
 F         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
G          for not going into these aspects is that a civil suit is
           pending inter se the parties for the amounts in question."

          21. In Mis Indian Oil Corporation vs. NEPC India Ltd. &
      Ors., (2006) 6 SCC 736, this court observed that civil liability
H     cannot be converted into criminal liability and held as under:-
INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER                  319
    METALLURGY v. NIMRA CERGLASS [R. BANUMATHI, J.]


   "13. While on this issue, it is necessary to take notice of A
   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 B
   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, C
   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 UP. (2000) 2 SCC 636 this Court observed: (SCC p. D
   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         E
      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     F
      of the Code. Jurisdiction under this section has to be
      exercised to prevent abuse of the process of any court
      or otherwise to secure th~ ends of justice."

   14. While no one with a legitimate cause or grievance
   should be prevented from seeking remedies available G
   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 H
320          SUPREME COURT REPORTS                   [2015] 11 S.C.R.


·A          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
B           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
C     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
D     Rani vs. M.Hari Narayana Alias Hari Babu (2008) 5 SCC
      765 and Iridium India Telecom Ltd. vs. Motorola Incorporated
      & Ors. (2011) 1 sec 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
E     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
F     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 & O_rs. (1976) 3 SCC 736.

        23. The above decisions reiterate the well-settled
G 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,
H be it, civil or criminal matters, is designed to achieve a salutary
 INTERNATIONALADVANCED RESEARCH CENTRE FOR POWDER                  321
     METALLURGYv. NIMRA CERGLASS [R. BANUMATHI, J.]


public purpose and that a court proceeding ought not to be A
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.
                                                                     B
     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 C
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 D
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 E
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....                                    F

     ·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 G
      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.
                                                                    H
322          SUPREME COURT REPORTS                   [2015) 11 S.C.R.


A           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
 B    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
C     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
o     specifications, ARCI cannot be said to have acted with
      dishonest intention to cheat the respondent. Appellants-ARC I
      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/
E     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
 F    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
G 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.

      Kalpana K. Tripathy                                 Appeal allowed.