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Delhi HC Affirms Simultaneous Pursuit of Arbitration and Section 138 NI Act Proceedings

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Published on: November 30, 2023 at 12:42 IST

The Delhi High Court clarified that arbitration proceedings and proceedings under Section 138 of the Negotiable Instruments Act (“NI Act”) can coexist independently as they stem from distinct causes of action.

Justice Amit Bansal, while dismissing a petition seeking the quashing of a complaint under Section 138, asserted that the pendency of arbitration proceedings does not render the NI Act complaint untenable.

The court emphasized that the petitioners’ argument, claiming the inadmissibility of the Section 138 complaint due to ongoing arbitration, lacked merit.

Justice Bansal referred to the Supreme Court’s decision in Sri Krishna Agencies v. State of A.P. & Anr., highlighting that simultaneous continuation of criminal and civil proceedings is permissible when arising from separate causes of action.

The case involved the petitioners issuing a cheque to the respondent, later instructing not to deposit it. However, the respondent deposited the cheque, resulting in its dishonor. Subsequently, the respondent filed a complaint under Section 138 of the NI Act against the petitioners.

The petitioners contended that the complaint was not maintainable due to the initiation of arbitration proceedings, as outlined in an MoU between the parties.

In contrast, the respondent argued that arbitration and Section 138 NI Act proceedings could proceed concurrently, maintaining their independence.

Observing that the nature of the cheque, whether provided as security or not, could only be determined during trial, the court dismissed the petition.