2017 (4) TMI 1560 - SC - Indian Laws

Supreme Court quashes criminal proceedings in service dispute, emphasizes civil nature

Medmeme, LLC and Ors. Versus Ihorse BPO Solutions Pvt. Ltd.

The Supreme Court of India allowed the appeal, quashed the High Court judgment, and directed the criminal proceedings to be dropped in a case involving a ... Seeking appointment of the Arbitrator - dispute between the parties is civil nature or any case is made out against the Appellants for launching criminal prosecution? - Section 11(6) of the Arbitration and Conciliation Act, 1996 - HELD THAT:- The matter entirely pertains to civil jurisdiction and not even a prima facie case is made out for offences Under Sections 420, 406, 409 read with Section 120B of Indian Penal Code even if the allegations contained in the complaint are to be taken on their face value. The complaint gives a clear impression that it was primarily a case where the Respondent had alleged breach of contract on the part of the Appellants in not making the entire payments for the services rendered to the Appellants. On the other hand, it is not in dispute that substantial amounts have been paid by the Appellants to the Respondent-company for the services rendered. Reason for non-payment of the balance amount as given by the Appellants is that the services rendered by the Respondent-company were not in terms of the agreement entered into between the parties and were deficient in nature. For this reason, even the Appellants have filed claims against the Respondent-company alleging that Appellant suffered losses because of the defective services provided by the Respondent - it cannot be said that at the time of entering into the agreement, either the first agreement or even the second agreement, there was any intention on the part of the Appellants to cheat the Respondent. No suspicion of any nature was shown or even alleged. Appeal allowed - decided in favor of appellant. Issues Involved:1. Dispute over non-payment of services between two companies leading to arbitration proceedings.2. Legal challenge regarding criminal prosecution under Sections 420, 406, 409, and 120(B) of the Indian Penal Code alongside pending civil arbitration.Detailed Analysis:Issue 1: Dispute over non-payment of services leading to arbitrationThe case involved a dispute between an Appellant company from the United States and a Respondent company from India regarding non-payment for services rendered. The parties had entered into agreements, but disputes arose over quality and timely delivery of services. Despite a second agreement for payment in installments, the relationship soured, leading to legal notices and the initiation of arbitration proceedings. Both parties filed claims against each other, and the arbitration was ongoing at an advanced stage.Issue 2: Legal challenge regarding criminal prosecution alongside pending civil arbitrationThe High Court had to determine three key questions related to criminal prosecution: whether the complaint constituted offenses under Section 420 of the Indian Penal Code, if criminal law could be invoked when an arbitration provision existed, and whether the Magistrate conducted the inquiry properly. The High Court found that while the complaint satisfied the criminal offense elements, pending arbitration did not preclude criminal prosecution when a prima facie case existed. However, upon review, the Supreme Court concluded that the dispute was primarily civil in nature, with no evidence of fraudulent intent or criminal behavior by the Appellants. As a result, the Supreme Court allowed the appeal, quashed the High Court judgment, and directed the criminal proceedings to be dropped, emphasizing that the matter was civil and pending arbitration.This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive understanding of the case's background, disputes, legal challenges, and the final decision rendered by the Supreme Court of India.