Criminal liability cannot arise from mere breach of contract unless fraudulent intent is established; disputes governed by an arbitration clause should be resolved civilly.

JUDGMENT :

(Sandeep Kumar, J.)

Heard learned counsel for the petitioners, learned counsel for the State and learned counsel for the opposite party no.2.

2. This application has been filed for quashing the order dated 01.11.2022 passed by the learned A.C.J.M.-X, Patna in connection with Complaint Case No.7271 of 2021, by which the learned Magistrate has taken cognizance against the petitioners for the offence under sections 417 and 418 of the Indian Penal Code.

3. As per the complaint, the petitioners are the Directors of M/s. Comed Chemicals Limited, Vadodara (Gujarat), hereinafter to be referred as the “petitioner-company”, which is engaged in the business of manufacturing of medicines. A trademark license agreement dated 06.03.2013 was duly executed between the petitioner -company and the complainant (opposite party no.2) for manufacturing the medicines as per the order given by the complainant. It has been alleged in the complaint petition that after the agreement, the transactions were going on smoothly and the quality of the medicines prepared by the petitioner-company was to the satisfaction of the complainant. In the year 2015, the complainant supplied the medicines prepared by the petitioner-company to Gujarat and Nigeria and other places but the said medicines were returned from many places as the quality of the medicine was bad. In the agreement, it was agreed between the parties that the petitioner-company will not share or save the formula which has been given by the complainant. It has also been alleged that thereafter the complainant returned the said medicines to the petitioner-company and asked them to make good quality of medicines but despite repeated requests, the petitioners company did not make the good quality of medicines. Thereafter, the complainant sent legal notice to the petitioner-company, but the petitioner-company did not respond the same and thereby, the complainant has suffered a loss of Rs.25,00,000/-. Accordingly, the complaint case has been lodged.

4. Learned counsel for the petitioners submits that the allegation against the petitioners in the complaint petition are false and concocted and based on the manufactured fact and from perusal of solemn affirmation (S.A) and deposition of enquiry witnesses, no case under sections 417 and 418 of the Indian Penal Code is made out against the petitioners.

5. Learned counsel for the petitioners further submits that the opposite party no.2 (complainant) has several trade mark rights with respect to manufacture of pharmaceutical drugs, and has consulted the petitioner-company for manufacturing of pharmaceutical drugs and in pursuance therefore, an agreement dated 06.03.2013 was executed between the parties and clause-22 of the said agreement provides that during the subsistence of the agreement or after its termination if any dispute arose, the same shall be settled by Arbitration under the provisions of the Arbitration and Conciliation Act, 1996.

6. Learned counsel for the petitioners also submits that the opposite party no.2 claimed a business loss of Rs. 25,00,000/-without any substantial ground and for recovery of said business loss arising from said agreement, the present complaint case has falsely been instituted before the Magistrate, who on the basis of the solemn affirmation of the complainant and the statement of enquiry witnesses, passed the impugned cognizance order in a mechanical manner without considering the fact that there is an arbitration clause in the agreement.

7. It has been submitted by learned counsel for the petitioners that the petitioners are the Directors of the Company and have no concern with the business loss of the opposite party no.2. It has also been submitted that while passing the impugned order the learned Magistrate has not considered the fact that the civil right and liability arising from an agreement cannot be enforced by way of criminal proceeding.

8. Learned counsel for the petitioners has relied upon a decision o