Existence of arbitration clause or civil remedy is no bar to criminal prosecution for cognizable offences.

The petitioners filed a writ petition seeking to quash an FIR dated 17.04.2026 under Sections 316(5) and 318(4) of the Bhartiya Nyaya Sanhita (BNS), 2023.

The respondent Company (Hitachi Payment Services) had entered into a Master Franchisee Service Agreement with Petitioner No. 1, which was later transferred to his son, Petitioner No. 2, due to a negative police verification of the father.

The petitioners were entrusted with cash for ATM/CRM replenishment. An audit revealed a shortfall of ₹43,37,600/-, out of which the petitioners returned approximately ₹12.4 lakhs, leaving ₹30,95,700/- misappropriated.

The petitioners argued the dispute was purely contractual/civil, subject to an arbitration clause in the agreement, and that multiple FIRs had been filed for the same cause of action.

The Court applied Section 316(5) (Criminal Breach of Trust by an agent) and Section 318(4) (Cheating) of the BNS, 2023.

It relied on the principle from Kathyayini v. Sidharth P.S. Reddy (2025) and Pratibha Rani v. Suraj Kumar (1985) that civil and criminal remedies are coextensive and not mutually exclusive.

Regarding arbitration, it followed Trisuns Chemical Industry v. Rajesh Aggarwal (1999) and Digambar Pathak v. State of UP (2025), which establish that an arbitration clause is not a substitute for criminal prosecution when an act constitutes a cognizable offence.

It also applied the standard from Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra (2021) regarding the restricted power to quash FIRs at the investigation stage.

The Court observed that Petitioner No. 2 acted as a trustee/custodian of the Company's cash and was explicitly prohibited from using it for personal gain.

While the petitioners claimed the dispute was purely civil, the Court found prima facie evidence of mens rea, as the petitioners withdrew funds but failed to replenish the ATMs, resulting in a wrongful gain to them and wrongful loss to the Company.

The Court reasoned that an arbitrator lacks jurisdiction to investigate or punish criminal acts, even if arising from a contract; thus, the arbitration clause only governs civil consequences.

Addressing the "double FIR" argument, the Court distinguished the cases, noting they involved different ATM locations, different misappropriated amounts, and different police jurisdictions, thereby constituting separate causes of action.

It further held that the separate FIRs were valid as they pertained to distinct transactions and locations.

Consequently, the Court refused to quash the FIR, holding that the matter requires a thorough investigation. The writ petition was dismissed for lack of merit.