It is well known and widely accepted that, in today's commercially oriented world, a litigant is typically not limited to seeking only one kind of relief from the Court. This is made possible by the emergence of multiple legal disciplines outside of the traditional criminal and civil domains, such as Negotiable Instrument Act (‘NI Act’) proceedings and arbitration proceedings.

To accentuate the possibility of seeking multiple reliefs and initiating multiple proceedings, often parties to a commercial contract incorporate clauses giving right to the contracting parties to approach civil court and also initiate arbitration proceedings, whenever any dispute arises.

Likewise, when a negotiable instrument such as a cheque is involved in a legal dispute and consequential proceedings are initiated, can a party also maintain an arbitration proceeding against the same defaulting party? Recently, the Hon’ble Delhi High Court duly shed light on this legal issue.

The Petitioner approached the Delhi High Court seeking quashing of a complaint registered under Section 138 of NI Act filed by the Respondent/ Complainant against the Petitioner/ Accused.

Factually speaking, the parties to the present case had executed a Memorandum of Understanding (‘MoU’) in 2014 for Modernization work of ETP Plant at the ONGC Urban Plant where the Respondent Company was to participate as a technical partner to render technical assistance to the Petitioner, provided the contract bid would have bene awarded to the Petitioner by ONGC. The contract was duly awarded to ONGC and pursuant to the same, the Petitioner duly issued a post-dated cheque of Rs, 7,00,000/- in favour of the Respondent.

Unfortunately, the contract was terminated by ONGC in 2017, subsequent to which the Petitioner informed the Respondent via email to not encash the said cheque. However, the Respondent ended up depositing the cheque which ultimately got dishonoured, giving birth to the 138 NI Act Complaint against the Petitioner Company.

The thrust of the Petitioner’s submission was on the fact that in the said MoU executed between the parties, there existed an arbitration clause, pursuant to which arbitration proceedings were duly initiated between the parties and hence, the NI Act Complaint was non-maintainable. Further, the Petitioner contended that, amount due from the Petitioners to the respondent company will be crystalised only upon conclusion of the arbitration proceedings and therefore, the deposit of the cheque by the respondent company was premature.

To counter the twofold submissions of the Petitioner, the Respondent relied upon the judgment of Hon’ble Supreme Court in Sri Krishna Agencies v. State of A.P. & Anr[1], where it was held that, the arbitration proceedings and proceedings under Section 138 of the NI Act are separate and independent proceedings and both can proceed simultaneously.

The Court carefully perusing the submissions and the judgment relied upon by the Respondent, concurred with the Respondent and held that the present NI Act proceedings can run simultaneously with the Arbitration proceedings since both arose from separate causes of action and the pendency of the arbitration proceedings would not affect the proceedings under Section 138 of the NI Act. The Court further observed that, Additionally, whether the aforesaid cheque was given as a security or not is something which can only be proved as a matter of defence during trial.

Thus, the quashing petition filed by the Petitioners was dismissed by the Hon’ble Court.

[1] (2009) 1 SCC 69