The Aryavarth Express
Agency (New Delhi): An Appeals Court has overturned the acquittal of two individuals, B.G. Narayana Reddy and B.G. Babu Reddy, in a cheque dishonour case and remanded the matter back to the trial court for disposal in accordance with the law. The court held that the trial court erred in acquitting the accused solely on the ground that the dispute fell under the purview of arbitration as per the joint development agreement between the parties.
The case arose out of a joint development agreement dated January 27, 2005, between the complainant, M/s. Durga Projects Inc., a registered partnership firm, and B.G. Babu Reddy, B.G. Seenappa, and B.G. Narayana Reddy. As per the agreement, the complainant had deposited a sum of Rs. 27,00,000 as a refundable security deposit, which was to be refunded by the above-mentioned individuals upon completion of the construction project and delivery of the owner’s share, without any interest.
B.G. Narayana Reddy and B.G. Babu Reddy had issued cheques to the complainant for the refund of their share of the security deposit. However, when the complainant presented these cheques for payment, they were dishonoured. Consequently, the complainant filed a complaint against B.G. Narayana Reddy and B.G. Babu Reddy under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act).
The trial court, after hearing arguments from both sides and examining the evidence, acquitted B.G. Narayana Reddy and B.G. Babu Reddy, stating that the nature of the dispute was civil and that the complainant should have approached an arbitrator under the Arbitration and Conciliation Act before filing a complaint under the N.I. Act. Aggrieved by this judgment, the complainant filed appeals in the higher court.
The appeals court, while allowing the appeals, relied on several judgments of the Supreme Court to hold that parallel proceedings under the Arbitration Act and criminal action under Section 138 of the N.I. Act can be maintained simultaneously. The court observed that the existence of an arbitration clause in the agreement does not preclude the complainant from initiating criminal proceedings under the N.I. Act.
The court further clarified that if an award is passed in arbitration proceedings, it can, at most, be used as a defence by the accused in the criminal case and cannot be a ground to hold that a complaint under Section 138 of the N.I. Act is not maintainable. Similarly, if a civil suit is decreed on the same cause of action for the amount covered under the dishonoured cheque, the deposit made in the criminal case must be adjusted accordingly.
The appeals court noted that the trial court had acquitted the accused solely on the ground that the joint development agreement stipulated that any dispute must be referred to an arbitrator and that the matter, being civil in nature, could not be the subject of a complaint under Section 138 of the N.I. Act. In light of the Supreme Court judgments cited, the appeals court held that this finding of the trial court could not be legally sustained, and consequently, the acquittal of the accused on this ground was incorrect.
As the trial court had not addressed the merits of the case, the appeals court remanded the matter to the trial court for disposal in accordance with the law, directing that both sides be given an opportunity to present their case. The court emphasized the need for expeditious disposal of the case, considering that it pertained to the year 2009, and urged the counsels to cooperate for the early resolution of the matter.
The parties, represented by their counsels, have been directed to appear before the trial court on March 11, 2024, to receive further instructions. The registry has been instructed to send the records back to the trial court along with a copy of the appeals court’s order.
This judgment is expected to have significant implications for cases involving cheque dishonour, particularly those where an arbitration clause exists in the underlying agreement between the parties. It reaffirms the principle that criminal proceedings under the N.I. Act can be initiated independently of any civil dispute resolution mechanism, such as arbitration, and that the existence of such a mechanism does not automatically render a complaint under the N.I. Act unmaintainable.
