Madhya Pradesh High Court: Sec 138 NI Act And Arbitration Proceedings Run Concurrently, Do Not Overlap

Madhya Pradesh High Court: Sec 138 NI Act and Arbitration Proceedings Run Concurrently, Do Not Overlap

Justice Anand Phatak of the Madhya Pradesh High Court has ruled that the proceedings concerning dishonoring of cheques under Section 138 of the Negotiable Instruments Act and arbitration are separate processes operating within distinct jurisdictional realms. He emphasized that these proceedings run concurrently rather than intersecting.

The court observed that “both may continue because 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 applicant filed a petition before the Madhya Pradesh High Court (High Court) invoking Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) to seek various reliefs. These requests encompassed submitting certified copies, appointing an independent arbitrator(s) in accordance with clause 14.7 of the arbitration agreement, establishing territorial jurisdiction for appointing a sole independent arbitrator, and issuing any additional orders deemed appropriate by the High Court.

The case involves an agreement dated 07.10.2016 between the petitioner (referred to as the applicant) and the respondent. Under this agreement, the petitioner acted as the supplier of electricity, while the respondent was the purchaser. The electricity was to be supplied through a tripartite agreement involving the supplier, Madhya Pradesh Power Management Company Ltd. (M.P.P.M.C.L.) of Jabalpur, and Madhya Pradesh Paschim Kshetra Vidhyut Vitaran Company Ltd. (M.P.P.K.V.V.C.L.) of Indore. The petitioner was to supply electricity generated through a solar plant to M.P.P.M.C.L. and M.P.P.K.V.V.C.L., who would then supply it to the respondent. In exchange, the respondent was obligated to pay tariffs/charges to the petitioner.

Disputes arose between the parties regarding payment, leading to the issuance of a demand notice on 02.06.2021 by the petitioner, which was not affirmatively responded to by the respondent. Subsequently, on 07.02.2022, a legal notice invoking arbitration was sent to the respondent via registered A.D., but no affirmative steps were taken by the respondent in response. As a result, the petitioner has filed an application seeking the invocation of the arbitration clause for dispute resolution. The applicant prayed for arbitration due to the respondent's lack of response to the notices, citing Clause 14.7 of the agreement.

The respondent opposed the plea, citing payments made via cheques totalling Rs. 21,25,244/-. The respondent contended that since these cheques were issued and subsequently dishonored, resulting in proceedings under Section 138 of the Negotiable Instruments Act, the applicant lacked the legal standing to file under Section 11 of the Arbitration Act.

The High Court observed that the agreement, which predominantly constituted a power purchase agreement, incorporated a dispute resolution mechanism in Clause 14.7, specifying arbitration as the means for settling disputes between the parties. Despite the applicant's efforts to raise the dispute through notices, the respondent remained unresponsive. In light of this, the High Court concluded that arbitration was essential for determining the quantum of the disputed amount, the nature of the dispute, and its eventual resolution, in accordance with the agreement mutually accepted by the parties.

Regarding the maintainability of the application under Section 11 of the Arbitration Act of 1996 in the context of pending proceedings under Section 138 of the Negotiable Instruments Act, the court determined that these are two separate proceedings operating within distinct jurisdictional realms and running in parallel rather than overlapping. Therefore, both proceedings may continue concurrently. While the scope of Section 138 of the Negotiable Instruments Act is limited to dishonored cheques, the dispute between the parties appears to be complex and requires a deeper examination that can only be conducted by an arbitrator. The dispute extends beyond the amount mentioned on the dishonored cheques.

The court concluded that the appointment of an arbitrator is necessary for the resolution of the dispute. Consequently, the application for the appointment of an arbitrator was granted. The court appointed Justice M.K. Mudgal, former Judge of the Madhya Pradesh High Court, as the arbitrator.