CLARITY ON ARBITRABILITY OF DISPUTES INVOLVING ADJACENT CRIMINAL PROCEEDINGS: NILESH SHEJWAL v AGROWON AGROTECH INDUSTRIES PVT LTD[1]
The Bombay High Court has held that the mere institution of criminal proceedings will not render a dispute non-arbitrable.
Brief Facts
Nilesh Shejwal was appointed as the CEO of Agrowon Agrotech Industries Pvt Ltd in 2019 and the employment agreement between the two contained an arbitration clause. Differences arose in relation to operational irregularities, due to which Agrowon terminated the employment agreement with Mr Shejwal and also filed a criminal complaint against him for: (i) criminal breach of trust; (ii) cheating, and (iii) falsification of accounts.
Mr Shejwal issued a Notice to Agrowon seeking ₹1.08 crores as wages and revocation of the termination, both of which were refuted by Agrowon. Thereafter, Mr Shejwal invoked arbitration and requested the appointment of an arbitrator, which was resisted by Agrowon.
Contentions
Mr Shejwal’s case was that he was unjustly removed and was entitled to either reinstatement or the entire pay for the tenure of the employment agreement. Agrowon’s resistance was primarily based on the argument that Mr Shejwal had acted fraudulently and since there was an element of criminality, arbitration could not occur.
Court’s Reasoning and Decision
The Court relied on precedents[2] to differentiate between disputes involving rights in rem and rights in personam. The Court held that while the former are to be adjudicated by civil/criminal courts, in the present case, the dispute involved an employment agreement involving the rights of Mr Shejwal. These rights are in personam and thus there is no bar on the arbitrability of the dispute. 1 Judgement dated 5 January 2024 passed by the Hon’ble High Court of Bombay in Arbitration Petition No 14/2022. 2 A. Ayyasamy v Paramasivam & Ors (2016) 10 SCC 386; Vidya Drolia v Durga Trading Corporation (2021) 2 SCC 1. While reviewing precedent, the Court observed that the reason for the non-arbitrability of cases involving criminal charges like fraud until now was the requirement to examine extensive evidence for which a criminal court was better equipped as it would result in a conviction. The Court emphasized that although Mr Shejwal faces ongoing criminal proceedings, there is no justification for the claim of salary/remuneration to be non-arbitrable.
Conclusion
As per this judgment, arbitrable issues arising out of a contract can be decided under the terms of the arbitration agreement in the contract, despite ongoing adjacent/related criminal proceedings. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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Authors:
Arjun Masters
Partner
Ojusvi Chauhan
Associate
