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2025 Supreme(MP) 1018
IN THE HIGH COURT OF MADHYA PRADESH AT INDORE
SUBODH ABHYANKAR, J.
Navneet Garg - Applicant
Versus
Pravin Kumar Dadoo – Respondent
Arbitration Case No. 25 of 2023
Decided On : 01-04-2025
For the Applicant :Shri Vivek Dalal, Advocate
For the Respondent:Shri Manoj Munshi, Senior Advocate with Shri Lucky Jain, Advocate.
Parallel criminal proceedings involving serious allegations of fraud and misappropriation are non-arbitrable because they relate to sovereign functions and offenses against the state. Where the same factual matrix is subject to active criminal trial, appointing an arbitrator is neither expedient nor legally appropriate.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 11(6) - Indian Penal Code - Sections 406, 420, 465 - Appointment of Arbitrator - Parallel criminal proceedings involving allegations of fraud and theft - Non-arbitrability of criminal cases - Allegations of siphoning off funds and misappropriation of contractual subject matter touch upon public domain and involve sovereign functions of the state - Appointment of arbitrator is not expedient when issues are identical to those pending before criminal courts. (Paras 10, 11, 12, 13)
Facts of the case:
The parties entered into a partnership agreement regarding the manufacturing and export of commodities. Disputes arose involving allegations of siphoning off stock, payment of personal expenses from firm funds, and misappropriation of assets. Cross-complaints were initiated, leading to the registration of criminal cases against both parties. One party sought the appointment of a sole arbitrator pursuant to the partnership agreement, which was contested by the other party due to the existence of serious criminal allegations being currently adjudicated in criminal courts.
Findings of Court:
The court observed that the dispute involved serious criminal allegations of theft and fraud targeting assets potentially subject to third-party bank charges. Since these criminal matters are essentially offenses against the state and relate to sovereign functions, they fall outside the ambit of private arbitration. The court concluded that when the same factual matrix is being contested in ongoing criminal proceedings, the appointment of an arbitrator would lack expediency and efficacy.
Issues: Whether an arbitrator can be appointed to resolve disputes when parallel criminal proceedings involving serious allegations of fraud and misappropriation over the same subject matter are pending.
Ratio Decidendi: Criminal cases are non-arbitrable as they involve sovereign functions and offenses against the state. Where parties level serious, overlapping allegations of fraud and theft that are already subject to active criminal investigation and trial, the court must decline to exercise its power to appoint an arbitrator to preserve the priority of criminal adjudication over private dispute resolution mechanisms.
Result: Application dismissed.
| Table of Content |
|---|
| 1. factual overview of the partnership dispute and arbitration application. (Para 1 , 2 , 3 , 4 , 5) |
| 2. parties' competing arguments regarding arbitrability amidst concurrent criminal litigation. (Para 6 , 7 , 8 , 9) |
| 3. legal analysis on non-arbitrability of disputes involving criminal offences and sovereign functions. (Para 10 , 11 , 12) |
| 4. conclusion that serious criminal fraud allegations render a dispute non-arbitrable. (Para 13 , 14) |
ORDER :
SUBODH ABHYANKAR, J.
1. This application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act of 1996’) for appointment of Arbitrator.
2. In brief, the facts of the case are that the applicant Navneet Garg, Kshitij Yadav and Navneet Kuma Dadoo, the non-applicant entered into a LLP partnership firm in the name and style of M/s. Keshav Proteins and Organic LLP on 28.01.2019, from which the other partner Kshitij Yadav retired, and a second partnership deed was executed on 20.03.2019. The partnership deed was also amended on 18.06.2021. The partnership was in respect of business of manufacturing and export of soya products, soya meal, soya crude oil etc. including other commodities.
3. Subsequently, a dispute arose between the remaining partners, and it was alleged by the applicant that the complainant/non-applicant started playing fraud with the firm by siphoning off of the stock, remitting payment of complainant’s personal insurance of around Rs.6 lakh and also by payment of instalment of complainant’s personal loan against purchase of residential plot in his and his family members name. It was alleged that the funds were siphoned off in respect of various commodities also.
4. Thus, the applicant also filed a complaint with the Police Station Badgonda for registration of FIR against the non-applicant and his brother Navin Daddu that they have committed cheating, criminal breach of trust, forgery and fraud by siphoning off the stock by theft and appropriating the sale receipts, but the Police did not register the FIR against the non-applicant’s brother, and according to the applicant an amount of Rs.9,72,29,940.17/- is due from the non-applicant, and despite approaching the non-applicant for settlement of dues, there is no response from the non-applicant’s side. It is also stated that as on 30.10.2022, an amount of Rs.6,92,33,619.95/- is due and outstanding with the HDFC Bank also.
5. Thus, with a view to resolve the dispute through arbitration, a notice dated 31.01.2023 was also sent by the applicant to the non- applicant for appointment of Shri Amit Tatke as the sole arbitrator to resolve the dispute between the parties, which was declined by the non-applicant vide their reply dated 04.02.2023. Hence, the present applicant has been filed.
6. Shri Vivek Dalal, learned counsel for the applicant has submitted that an Arbitrator may be appointed to resolve the dispute between the parties, as per Clause No.58 of the partnership deed dated 28.01.2019. Counsel for the applicant has also submitted that it is true that an FIR has also been registered against the applicant, but has nothing to do with the original agreement containing the arbitration agreement, and the alleged offence has nothing to do with the public at large, and in such circumstances, the arbitrator may be appointed.
7. Counsel for the applicant has also relied upon a decision rendered by this Court in the case Navneet Garg Vs. The State of Madhya Pradesh passed in M.Cr.C. No.17717 of 2023 dated 01.05.2023 as also the decisions rendered by the Supreme Court in the case of Avitel Post Studioz Limited and others Vs. HSBC PI Holdings (Mauritius) Limited reported as (2021) 4 SCC 713; and in the case of Vidya Drolia and others Vs. Durga Trading Corporation reported as (2021) 2 SCC 1 in support of his submission that even if a criminal case is pending between the parties, the matter can certainly be referred to the Arbitrator for settlement of disputes.
