The Bombay High Court on 30 October held that the registration of a First Information Report (FIR) does not establish guilt or automatically exclude civil and commercial disputes from arbitration, even when both proceedings arise from the same transactions.
Justice Amit Borkar allowed an application under Section 11 of the Arbitration and Conciliation Act, 1996, filed by M.D. Nehaluddin, and appointed Advocate Ashish Venugopal as the sole arbitrator to adjudicate disputes arising from the partnership of Prime Kitchen Care. The Bench held:
“The registration of the FIR cannot be treated as proof that the Applicant committed the acts alleged against him.”
The dispute arose from a partnership deed executed on 14 March 2014, under which Nehaluddin and Nusarat Shakil Ahmed held 25% and 75% profit shares, respectively. Clause 33 of the deed provided for arbitration.
Disagreements emerged in 2021 over the management of Prime Kitchen Care and Nehaluddin's separately incorporated company, Nejyra Technical Services Private Limited. Following a Memorandum of Understanding dated 1 August 2021, the parties executed a supplementary partnership deed on 22 April 2022, providing for equal participation and remuneration.
The dispute escalated over allegations that partnership stock worth approximately Rs. 24 lakh had been used for Nejyra Technical Services through 121 invoices. Nehaluddin denied the allegations.
On 9 February 2025, Ahmed proposed dissolving Prime Kitchen Care, claiming that it was no longer conducting business. She subsequently lodged an FIR at B.K.C. Police Station, Mumbai, on 2 August 2025, alleging misconduct in connection with the business transactions.
Nehaluddin invoked the arbitration clause on 22 June 2026. After Ahmed failed to agree to the appointment of an arbitrator, he approached the High Court under Section 11 of the 1996 Act in July 2026.
He argued that the disputes concerned partnership property, accounts and contractual obligations. Ahmed contended that the allegations involved separate companies, disputed share transfers, an allegedly forged Will and criminal misconduct outside the scope of the partnership agreement.
Rejecting Ahmed's objections, the Court held that the involvement of separate companies and pending criminal proceedings did not automatically render disputes concerning partnership stock, accounts and partners' obligations non-arbitrable. However, arbitration could not bind companies or individuals who had not agreed to arbitrate without a proper legal basis.
It clarified that arbitration and criminal proceedings serve distinct purposes and may proceed independently. It observed:
“Arbitration and criminal proceedings have different purposes. Arbitration may decide the civil and commercial rights of the parties under the Partnership Deed. Criminal proceedings decide whether an offence has been committed and whether criminal liability arises. One proceeding does not replace or end the other.”
Further, the Bench held that neither the FIR nor Nehaluddin's denial of the allegations could, by itself, establish the truth or falsity of the allegations. The arbitrator could determine the parties' contractual rights without interfering with the investigation or prosecution of criminal offences. It observed:
“The Arbitrator cannot conduct a criminal trial or decide criminal liability in place of the competent criminal court. The Arbitrator cannot direct that the FIR should be treated as false merely because the parties are referred to arbitration.”
Justice Borkar also rejected Ahmed's objection that the arbitration notice was defective because it did not specify a monetary claim, holding that the notice sufficiently identified the existing disputes.
Accordingly, the High Court appointed Advocate Ashish Venugopal as the sole arbitrator to adjudicate claims and counterclaims arising from the partnership, leaving questions of limitation, contractual breaches and the merits of the allegations open for determination by the tribunal.
Appearances for petitioner (M.D. Nehaluddin): Advocate Vijay Dighe.
Appearances for respondent (Nusarat Shakil Ahmed): Advocates Mohammed Zain Khan and Ashraf Kapoor, instructed by One Legal.