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Section 138 NI Act Proceedings Do Not Bar Arbitration Initiation; Both Are Independent Paths For Dispute Resolution



The Single-judge bench of Madhya Pradesh High Court (Gwalior Bench) Justice Anand Pathak held that the proceedings under Section 138 of the Negotiable Instruments Act do not preclude the initiation of arbitration proceedings as they are considered separate and parallel avenues for dispute resolution.


The High Court addressed a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996, seeking several reliefs. These included the filing of certified copies of Annexure P-1 to P-5, the appointment of an independent arbitrator in accordance with the arbitration agreement, the assertion of territorial jurisdiction for appointing a sole arbitrator, and any other necessary orders for rendering justice in the case.


The petition stemmed from an agreement dated 07.10.2016 between the petitioner and the respondent regarding the supply of electricity. Disputes arose concerning payment issues, leading to the petitioner issuing demands and legal notices invoking arbitration. The respondent, however, did not respond adequately.


During the proceedings, the respondent's counsel argued against the petition's maintainability, citing payments made through cheques and subsequent dishonour, which led to proceedings under Section 138 of the Negotiable Instruments Act. However, the petitioner contended that the dispute extended beyond the dishonoured cheques, encompassing additional expenses and recoveries.


After considering the arguments and perusing the documents, the Court noted that the agreement between the parties mandated dispute resolution through arbitration. Despite the respondent's objections, the Court found the petition maintainable, emphasizing the distinct jurisdictions of the Arbitration and Conciliation Act and the Negotiable Instruments Act. Proceedings under Section 138 of the Negotiable Instruments Act do not preclude the initiation of arbitration proceedings as they are considered separate and parallel avenues for dispute resolution.


The High Court bench noted, "both may continue because 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.”


Citing precedents, the Court emphasized the need for arbitration to address the broader dispute beyond the dishonoured cheques. Consequently, the Court allowed the application and appointed an arbitrator, the Honorable Shri Justice M.K. Mudgal, a former Judge of the Madhya Pradesh High Court, to resolve the matter. The parties were directed to adhere to the Arbitration and Conciliation Act, of 1996, as amended in 2015.


With these directions, the petition was allowed and disposed of by the High Court.


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