The Madhya Pradesh High Court observed that proceedings under the Arbitration & Conciliation Act,1996 and cheque bounce cases under the Negotiable Instruments Act, 1881 are parallel rather than overlapping.

The Court held thus after the proceedings under the Arbitration Act were challenged on the ground that there are pending proceedings under the N.I. Act.

The bench of Justice Anand Pathak observed, “…So far as maintainability of application under Section 11 of the Act of 1996 viz. a viz. pending proceedings under Section 138 of the N.I. Act is concerned, these are two proceedings moving in different jurisdictional realm and they are parallel in nature rather than overlapping.”

The petitioner, M/S Banco Construction Pvt. Ltd. is a supplier of electricity and the respondent, Narmada Extrusion Ltd. is the purchaser of it. Some amount became due to the respondent. The petitioner issued a legal notice when there was no response to the demand notice by the respondent. However, no action was taken on such notice by the respondent. Therefore, this application was preferred for the invocation of the arbitration clause for dispute resolution.

As per the Counsel for the respondent, Advocate T.C. Narwariya after some cheques were dishonoured the petitioner initiated proceedings under the N.I. Act and once proceedings as per the N. I. Act have been initiated, then the applicant has no locus to file an application under Section 11 of the Act of 1996 for the appointment of the arbitrator as the application suffers from maintainability.

On behalf of the applicant, it was submitted by the Advocate Arun Dudhawat that the dispute is much deep-rooted. They argued that not only the cheque amount but other expenses and recoveries are also required to be made which the respondent is avoiding.

After going through the arbitration clause and the agreement reached between the parties the Court stated that the quantum of amount, nature of the dispute and way out can only be ascertained, if parties approach the arbitrator.

As per the Court, both proceedings may continue as the scope of Section 138 of the N.I. Act is confined to the dishonoured cheques, whereas dispute between the parties appears to be such deep and exact depth can only be fathomed by the arbitrator where parties would have all opportunities to canvas their cause. The Court noted that the dispute goes much beyond the cheque amount mentioned over the cheques which later on got dishonoured.

The Court relied on the decision of the Supreme Court in Trisuns Chemical Industry Vs. Rajesh Agrawal and others (1999) 8 SCC 686 where the SC held that “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 a criminal 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 an offence albeit the same act may be connected with the discharge of any function under the agreement.”

As per the Court, the appointment of an arbitrator is imperative for dispute resolution.

Consequently, the Court allowed the application.

Cause Title: M/S Banco Construction Pvt. Ltd. v. Narmada Extrusions Ltd.


Appellant: Adv. Arun Dudhawat

Respondent: Adv. T.C. Narwariya

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