In the matters of dishonour of cheques, can an arbitration proceeding and a proceeding under Section 138 of the NI Act proceed concurrently?
Recently, the Hon’ble High Court of Delhi, while dealing with this issue in the case of Newton Engineering and Chemicals Limited and Ors v. Uem India Pvt Ltd, CRL.M.C. 5931/2023 has held that arbitration proceedings and the proceedings under Section 138 of the Negotiable Instruments Act (“NI Act”) arise from separate causes of action and pendency of one does not affect the other, and accordingly, both can validly proceed concurrently.
In this case, the Petitioners had issued a cheque in favour of the Respondent, however, subsequently requested the Respondent to not deposit the same. The Respondent nevertheless deposited it regardless of the Petitioner’s request and resultantly, the Petitioner’s cheque was dishonoured. The Respondent approached the Court under Section 138 of the NI Act; however, the Petitioner questioned the maintainability of the proceedings under Section 138 of the NI Act on the ground that the arbitration proceedings were already underway as per the MoU between the parties. Accordingly, the Respondent pointed out that the arbitration proceedings and the proceedings under Section 138 were exclusive of each other and entirely independent in nature, as a result of which, both could continue concurrently.
As it so transpired, the High Court upon hearing the submissions of both the Petitioners and the Respondent, dismissed the petition, observing that it can only be proved during the trial whether the cheque was given as a security or not. In furtherance of the same, the High Court, while placing reliance upon the decision of the Hon’ble Supreme Court of India in Sri Krishna Agencies v. State of A.P. & Anr. (CRL.M.C. 5931/2023), observed that a civil proceeding and a criminal proceeding can proceed simultaneously, in the event they are arising from separate causes of action. A proceeding under Section 138 is criminal in nature, whereas, an arbitration proceeding is civil in nature.
What is the provision provided under Section 138 of the NI Act? Section 138 of the NI Act makes the dishonour of a cheque drawn by the maker on his account for the discharge of a debt or other liability, due to insufficiency of funds in his account, or exceeding the amount arranged to be paid from the account, under an agreement between the bank and the maker, a criminal offence punishable with imprisonment up to two years or fine up to twice the amount of the cheque or with both.
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