Arbitration Can Proceed Despite Parallel Criminal Proceedings In Private Disputes: Madhya Pradesh High Court

The Madhya Pradesh High Court recently reiterated that parallel criminal proceedings between private parties do not bar arbitration unless the allegations have a public character and proceeded to appoint an arbitrator in a dispute arising out of purchase orders between the parties.

A single bench of Justice Vivek Jain emphasised, observing, “Be that as it may be, but it is settled in law that even where criminal proceedings are pending parallelly, then also arbitration proceedings can continue unless the criminal allegation is of such a nature that it amounts to an allegation in rem, but where the criminal action or criminality alleged by one party against the other party is criminality alleged in personam then the arbitration proceedings cannot be scuttled."

SS Associates, a partnership firm, approached the Court  seeking appointment of an arbitrator in its disputes with Dilip Buildcon Limited, relying on Clause 17.1 of the purchase orders, which provides that disputes “shall, unless amicably settled between the parties, be finally settled by arbitration.”

Dilip opposed the plea on two grounds. It argued that SS had failed to attempt an amicable settlement before invoking arbitration. It also claimed that the dispute involved criminality, pointing to a police complaint alleging theft of materials worth Rs.26,750 and accusing SS of offences such as fraud, forgery, and criminal breach of trust under the Bhartiya Nyaya Sahita.

Rejecting the first objection, the court noted that Clause 17.1 did not prescribe any specific procedure for amicable settlement and merely stated that disputes would go to arbitration unless settled amicably.

Given that Dilip had already approached the police against SS, the Court held that there was no real possibility of settlement and that the arbitration clause was not contingent on any mandatory pre-arbitration process.

On the issue of criminality, the Court observed that although a complaint had been made, no FIR or further action had followed. It reiterated that arbitration is not barred merely because criminal allegations are raised, unless such allegations are in rem.

Relying on Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., the court noted that commercial disputes involving allegations of fraud between private parties remain arbitrable.

Holding that the allegations in the present case were in personam, the court rejected the objection and appointed Justice K.K. Trivedi, former judge of the High Court, as the sole arbitrator to adjudicate the disputes between the parties.