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Updated - March 11, 2024 at 01:39 PM.

Arbitrable issues arising from a contract can be decided under the terms of the arbitration agreement in the contract, regardless of whether there are adjacent criminal proceedings.

This message is clear from a recent Bombay High Court judgment in the case of Nilesh Shejwal vs Agrowon Agrotech Industries.

Nilesh Shejwal was the CEO of Agrowon Agrotech Industries. The employment agreement had an arbitration clause. Shejwal’s employment was terminated by the company, which alleged operational irregularities. The company also filed a criminal complaint against him for criminal breach of trust, cheating and falsification of accounts.

Shejwal issued a notice to the company demanding ₹1 crore in wages and revocation of the termination. The company refused both. Then, he invoked the arbitration clause and asked for an appointment of an arbitrator. Again, the company refused. Agrowon’s stand was that Shejwal had defrauded and because there was an aspect of criminality, there was no room for arbitration.

The issue before the Bombay HC was whether the dispute involved rights in rem (a general right, available against the whole world) or rights in personam (a right conferred against a person.) The distinction was important because it would determine whether the dispute would be adjudicated by a civil court or a criminal court.

In this case, the employment agreement involved the rights of Shejwal. Therefore, the rights are in personam. So, there is no bar on the arbitrability of the dispute.

The Court observed that although Shejwal faced criminal proceedings, there is no justification for the claim of salary/remuneration to be non-arbitrable. It noted that it was a trite position of law that if there is an arbitration clause, it is imperative to invoke it, unless the arbitration agreement itself is found to be invalid.

Shejwal’s claim that he should be permitted to serve the remainder of his employment and whether the Petitioner is entitled for his claim, of being continued in service or not, is ultimately the dispute which arises out of the Employment Agreement. The court disposed of the petition by appointing a sole Arbitrator to adjudicate the matter.

Published on March 11, 2024

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