IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 702 OF 2017

(Arising out of SLP (Criminal) No. 1431 of 2015)

MEDMEME, LLC AND ORS. ... Appellants

VERSUS

M/S. IHORSE BPO SOLUTIONS PVT. LTD. ... Respondent

O R D E R

Leave granted.

Since the matter was fixed for final hearing, we have

heard the learned counsel for the parties at length.

The facts which are required to be taken note of, in

brief, are that appellant No. 1 (hereinafter referred to as

the 'appellant company') is a company incorporated under the

laws of the United States of America and is having its head

office in New York. It is engaged in the business of

offering data base services internationally for the last

several years. Appellant No. 2 is the Chairman and Chief

Executive Officer of appellant-company and appellant No.3 is

its executive Vice-President. Respondent is a company

registered under the Indian Companies Act, 1956, having its

registered office in Pudducherry, India. It is engaged in

the business of providing quality knowledge based back and

Signature Not Verified

Digitally signed by
NIDHI AHUJA works (KPO) and software solutions to various enterprises in
Date: 2017.04.29
11:21:44 IST
Reason:

the World from its centers based in India.

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CRIMINAL APPEAL NO. 702 OF 2017

Negotiations took place between the respondent-company

and the appellant-company as the appellant-company expressed

its willingness to utilise the services of the respondent,

i.e., knowledge based back and works and software

development skills as well as professional services

capabilities. In this behalf, an agreement dated 01.05.2009

was entered into between the appellant-company and the

respondent whereby the respondent agreed to provide the

aforesaid services on certain remuneration, terms whereof

were also stipulated in the said agreement.

According to the respondent, the appellant company was

irregular in making payments. As on November, 2010, under

the said agreement, for the services rendered by the

respondent, the appellant-company had to make a total

payment of USD 316,513 and as against this, the

appellant-company had made payment of USD 207,558.05. In

this manner, a sum of USD 108,954.95 remained due to be paid

by the appellant-company to the respondent. On the other

hand, the appellant-company took up the position that it is

the respondent which did not provide adequate services to

the appellant-company as per the terms and conditions of the

agreement dated 01.05.2009 and for this reason the

appellant-company cancelled the said agreement dated

01.05.2009. After the cancellation, the parties again

negotiated the matter which resulted into second agreement

dated 01.12.2010. Under this agreement, it was agreed that

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the appellant-company shall make payment of outstanding dues

of USD 108,954.95 under the first agreement in six monthly

installments from December, 2010 to May, 2011. It was also

agreed that no party shall institute any proceedings in any

Court to resolve any dispute with the other party and if any

case arises in future, the same shall be resolved by the

parties amicably by a dispute resolution procedure,

mechanism whereof was provided in clause 1.8 of Article 8 of

the agreement. In fact, this clause is an arbitration

clause as per which parties agreed to settle their disputes

peacefully by means of arbitration.

Unfortunately, in spite of the aforesaid second

agreement entered into between the parties, the working

relationship between them could not be carried out

satisfactorily and disputes again arose between them. As

per the appellant, the respondent again committed breach of

material terms of the second agreement in respect to quality

and timely providing of services and failed to discharge its

contractual obligations which resulted in suffering of

losses by the appellant-company. On the other hand, the

respondent-company maintained that it had provided

satisfactory and complete quality services as per the

agreement and it is the appellant-company which failed to

make payment of the services provided as per the second

agreement and, also, they did not discharge their obligation

to pay the outstanding amount of USD 108,954.95 as well

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CRIMINAL APPEAL NO. 702 OF 2017

which was due in the first agreement. According to the

respondent, only two payments in the sum of USD 24,735 and

USD 122,997 were made which were not complete payments in

respect of the dues which were payable by the

appellant-company to the respondent-company for the services

rendered by the respondent to the appellant-company.

Because of the aforesaid disputes, the appellant-company

sent legal notice dated 20.06.2012 to the respondent-company

invoking the arbitration clause contained in the agreement

dated 01.12.2010 and nominating Mr. Justice Mohan Ram, a

retired Judge of the Madras High Court as Arbitrator and

requested the respondent to also accept the said Arbitrator

for adjudication of disputes between the parties. In

response to the said notice, the respondent sent

communication dated 18.07.2012 wherein the respondent

informed that it had already filed Criminal Complaint No.

142 of 2012 against the appellants alleging that the

appellants had committed offence of cheating and

misappropriation punishable under Sections 420, 406, 409

read with 120(B) of the Indian Penal Code and in the said

complaint, after recording the statement of the complainant,

the learned Magistrate had issued summons dated 05.04.2012

to the appellants finding that prima facie case under the

aforesaid provisions was made out.

The appellants challenged the aforesaid summoning

orders by filing petition under Section 482 of the Code of

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CRIMINAL APPEAL NO. 702 OF 2017

Criminal Procedure, 1973, in the High Court of Madras. This

petition has been dismissed by the High Court vide impugned

judgment dated 11.11.2014 and challenging this judgment, the

instant petition has been preferred by the appellants

wherein leave has been granted hereinabove.

To record the events that have taken place thereafter

and have a bearing on the present case, we may note that

when the respondent-company had refuted the allegations of

the legal notice dated 20.06.2012 sent by the appellants for

appointment of the Arbitrator, the appellant-company filed

petition under Section 11(6) of the Arbitration and

Conciliation Act, 1996, for appointment of an Arbitrator in

this Court in terms of the arbitration agreement. Though

this application was contested by the respondent,

ultimately, on a consensus being arrived at between the

parties, orders dated 08.10.2014 were passed in the said

arbitration application of the appellants, appointing Mr.

Justice Doraiswamy Raju, a former Judge of this Court, as

the sole arbitrator to adjudicate the claims and counter

claims of both the parties. It is also a matter of record

that arbitration proceedings are going on before the learned

Arbitrator. We are informed that both the parties have

filed claims against each other. Evidence of both the

parties is substantially over and the proceedings are at an

advanced stage. We were also informed that the arbitration

award is expected in near future.

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Coming to the case at hand, a perusal of the judgment

of the High Court would show that the High Court formulated

the following three questions for determination:

(i) Whether the complaint is liable to be quashed

on the ground that the allegations made in the
complaint do not constitute any offence under
Section 420 IPC?

(ii) Whether the criminal law can be set in motion

in this case, since the agreement comprises a
provision for arbitration?

(iii) Whether the Magistrate has conducted the

enquiry under Section 202 Cr.P.C., since the
petitioners are residing outside the
jurisdiction of the Court?

The High Court was of the view that the allegations

contained in the complaint filed by the respondent,

particularly in paragraph 7 thereto, satisfy the ingredients

of the offences for which the appellants are implicated.

But the High Court further observed that merely because

arbitration proceedings were pending between the parties, it

would not preclude the respondent from launching criminal

prosecution when prima facie criminal case was also made out

against the appellants. In the three question formulated,

the High Court took the view that the Magistrate had

conducted a proper inquiry under Section 202 of the Code of

Criminal Procedure before proceeding against the appellants.

The moot question before us revolves around Question

No. 1 which was formulated by the High Court and it is to be

seen as to whether dispute between the parties is

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essentially of a civil nature or any case is made out

against the appellants for launching criminal prosecution

under the aforesaid Sections.

After going through the allegations contained in the

complaint and the material on record, we are of firm

conclusion that the matter entirely pertains to civil

jurisdiction and not even a prima facie case is made out for

offences under Sections 420, 406, 409 read with Section 120B

of IPC even if the allegations contained in the complaint

are to be taken on their face value. The complaint gives a

clear impression that it was primarily a case where the

respondent had alleged breach of contract on the part of the

appellants in not making the entire payments for the

services rendered to the appellants. On the other hand, it

is not in dispute that substantial amounts have been paid by

the appellants to the respondent-company for the services

rendered.

Reason for non-payment of the balance amount as given

by the appellants is that the services rendered by the

respondent-company were not in terms of the agreement

entered into between the parties and were deficient in

nature. For this reason, even the appellants have filed

claims against the respondent-company alleging that

appellant suffered losses because of the defective services

provided by the respondent.

On the basis of it, we find that it cannot be said that

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at the time of entering into the agreement, either the first

agreement or even the second agreement, there was any

intention on the part of the appellants to cheat the

respondent. No suspicion of any nature was shown or even

alleged. It is also not the allegation of the respondent in

the complaint that the agreement was entered into with

fraudulent or dishonest intention on the part of the

appellants in inducing the respondent to enter into such a

contract. At best, the dispute between the parties is of a

civil nature, proceedings in respect of which are pending

before the learned Arbitrator.

We, thus, allow this appeal, set aside the judgment of

the High Court and thereby allow the petition filed by the

appellants in the High Court under Section 482 of Code of

Criminal Procedure. The result whereof would be quashing of

the proceedings arising out of Complaint No. 142 of 2012

pending in the Court of Judicial Magistrate-II, Puducherry.

No costs.

........................., J.
[ A.K. SIKRI ]

........................., J.
[ ASHOK BHUSHAN ]

New Delhi;
April 11, 2017.

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 CRIMINAL APPEAL NO. 702 OF 2017

ITEM NO.12 COURT NO.8 SECTION IIC

S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (Crl.) No. 1431/2015

(Arising out of impugned final judgment and order dated 11/11/2014

in CROP No. 12676/2012 passed by the High Court of Madras)

MEDMEME, LLC AND ORS. Petitioner(s)

VERSUS

M/S. IHORSE BPO SOLUTIONS PVT. LTD. Respondent(s)

(With appln. (s) for permission to file additional documents,

interim relief and office report)
(For final disposal)

Date : 11/04/2017 This petition was called on for hearing today.

CORAM :
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE ASHOK BHUSHAN

For Petitioner(s)
Mr. Ratnakar Das, Sr. Adv.
Mr. L. P. Naithani, Sr. Adv.
Mr. P. N. Gupta, Adv.
Ms. Bharti Gupta, Adv.

For Respondent(s)
Mr. Reegan S. Bel, Adv.
Mr. Jogy Scaria, Adv.
Ms. Beena Victor, Adv.

UPON hearing the counsel the Court made the following

O R D E R

Leave granted.
The appeal is allowed in terms of the signed order.

(Nidhi Ahuja) (Mala Kumari Sharma)

Court Master Court Master

[Signed order is placed on the file.]