Existence of Arbitration Clause no Bar to Criminal Prosecution if Allegations Prima Facie Disclose Cognizable Offence

The Petitioners, including the Director and former officials of Securevalue India Ltd., seek quashing of FIR No. 165 of 2025 registered at Dhauli P.S. under Sections 316(2), 318(4), and 3(5) of the Bharatiya Nyaya Sanhita (BNS), 2023

The complaint was lodged by Opposite Party No. 2 (Alaka Manpower Security Services) alleging non-payment of outstanding dues for manpower services provided under contractual agreements dated 15.05.2021 and 15.05.2023

The Petitioners contend that the dispute is purely civil and contractual, noting they had already paid over ₹40 lakhs to the complainant and that the agreements contain mandatory arbitration clauses

1. Whether the allegations in the FIR disclose the commission of cognizable offences or if the dispute is purely civil/contractual in nature justifying quashing under Section 528 of the BNSS

2. Whether the existence of an arbitration clause and the civil nature of a transaction automatically bar criminal prosecution

The court primarily applied Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, which corresponds to Section 482 of the Cr.P.C. regarding inherent powers of the High Court.

It relied on State of Haryana v. Bhajan Lal, which establishes the criteria for quashing an FIR, such as when allegations—taken at face value—do not constitute an offence or are inherently improbable

The court further referenced Hridaya Ranjan Prasad Verma v. State of Bihar to distinguish between a mere breach of contract and the offence of cheating, noting that the latter requires dishonest intention at the inception of the transaction

Additionally, the court noted that the power to quash must be exercised sparingly as per B. Daxaben v. State of Gujarat

The Court observed that while the dispute stems from a contractual relationship, the determination of whether the acts constitute a mere breach of contract or criminal offences (cheating/criminal breach of trust) depends on factual evidence regarding "dishonest intent"

The Court reasoned that the presence of an arbitration clause does not interdict criminal proceedings if the factual allegations prima facie disclose a cognizable offence

Since the investigation is at a "nascent stage," the Court refused to conduct a "mini-trial" to adjudicate the veracity of the claims or the existence of fraudulent inducement at the inception

It concluded that the allegations were not so "absurd or inherently improbable" to meet the Bhajan Lal threshold for quashing at the threshold

The CRLMCs were dismissed, and the interim orders were vacated. The Court directed the investigating agency to proceed in accordance with the law without being influenced by any observations on the merits of the case