SC Judgement

A recent SC judgement on arbitration was reported here. The case pertains to simultaneous continuance of a civil and criminal proceeding. The details of the case are set below.

M/s Sri Krishna Agencies v. State of A.P. & Anr. CRIMINAL APPEAL NO. 1792 OF 2008 decided by ALTAMAS KABIR & MARKANDEY KATJU, JJ. on November 11, 2008.

Facts: A dispute between M/s Sri Krishna Agencies and the State of AP was pending before the arbitral tribunal. The said dispute was relating to an agreement between the parties. In relation to the said dispute, the Respondent had apparently issued three cheques for Rs. 5 Lakhs each to the Appellant but had issued orders to stop payment to the Appellant.

The Appellant had filed before the IInd Additional Chief Metropolitan Magistrate, Hyderabad, under Section 138 of the Negotiable Instruments Act. Subsequently, the Respondents approached the Andhra Pradesh High Court for quashing the above proceedings on the ground that arbitration proceedings were pending between the parties, which the High Court granted.

Decision:

On appeal, the Supreme Court held that the High Court was wrong in quashing the said proceedings because:

1. When a cheque was dishonoured "separate liability arose in terms of Section 138" of the Negotiable Instruments Act and the arbitration proceedings and the proceedings under Section 138 arise from separate causes of action.
2. The Supreme Court in Trisuns Chemical Industry vs. Rajesh Agarwal and Ors., (1999) 8 SCC 686 has held:

We are unable to appreciate the reasoning that the provision incorporated in the agreement for referring the disputes to arbitration is an effective substitute for acriminal prosecution when the disputed act is an offence. Arbitration is a remedy for affording reliefs to the party affected by breach of the agreement but the arbitrator cannot conduct a trial of any act which amounted to anoffence albeit the same act may be connected with the discharge of any function under the agreement. Hence, those are not good reasons for the High Court to axe down thecomplaint at the threshold itself. [The Court also held that quashment of FIR or a complaint in exercise of inherentpowers of the High Court should be limited to very extreme exceptions ]

Hence the Supreme Court concluded that "there can be no bar to the simultaneous continuance of a criminal proceeding and a civil proceeding if the two arise from separate causes of action."