Calcutta High Court rules against criminal proceedings to recover amount under arbitration award

Calcutta High Court rules against criminal proceedings to recover amount under arbitration award

Suggests the correct recourse by the party should be to put the award into execution

The Calcutta High Court has held that criminal proceedings cannot be initiated for recovery of the amount due under an arbitration award.

The bench of Justice Tirthankar Ghosh held that a party aggrieved by non-payment of the amount due under a post-award settlement agreement should not resort to filing a criminal case. It cannot give a criminal color to a civil dispute, as it abuses the process of law.

In 2009, the parties had entered into an agreement for the installation of pipelines across River Teesta. A dispute arose between them, and the parties were referred to arbitration. The arbitrator passed an award in favor of the respondent/complainant company.

Thereafter, they entered into a post-award settlement agreement and the award was not put into execution. The respondent raised a tax invoice keeping the base amount to Rs.7,18,87,644.

As per the mandatory amount of the Central Goods and Services Tax (CGST) Act, 2017, and the West Bengal Goods and Services Tax Act, 2017, in the tax invoice, nine percent was charged. But the petitioner refused to pay the GST over and above the awarded amount. It stated that the base amount was inclusive of GST. Due to the disagreement, the respondent intimated to the petitioner to consider the tax invoice as withdrawn.

However, in 2020, the petitioner deposited Rs.6,09,21,732.20 in the account of the respondent company as the base amount, after deducting the GST of Rs.1,09,65,912.

Aggrieved by the deduction, the respondent issued a legal notice for the return of the deducted amount, along with penal interest. Since the petitioner failed to comply, the respondent filed a criminal complaint. The metropolitan magistrate took cognizance and issued a process against the petitioner under IPC. Aggrieved by it, the petitioner filed the revision petition before the high court.

The petitioner submitted a quashing of the case on the grounds:

Accepting the allegations in the complaint, along with the initial deposition and accepting the same, no offence was disclosed.

The non-payment of GST was to be taken up with the statutory authority. Except for bringing it to the latter's notice, the complainant had nothing to do with it.

If the petitioner was aggrieved by the non-payment of the amount, to which it considered it was entitled, it should proceed with the execution of the arbitral award.

The petitioner could not be booked under IPC as petitioner No.1 was a public sector undertaking. The other petitioners had not personally benefited from the amount deducted.

The respondent made the submissions in support of its complaint:

The tax invoice is a valuable security. By striking out the principal amount and inserting a new base amount, the petitioners committed offences for which they were liable to be prosecuted.

The part payment does not exonerate the petitioners from the charges or from their liability to make the full payment.

Due to the forgery and illegal acts committed by the petitioners, the respondent was foisted with the liability to pay the taxes. It resulted in wrongful gains to the petitioners, as it was their obligation to pay the taxes.

The scope of inquiry under CrPC is very limited, as it is an extraordinary power to be exercised with extreme caution and circumspection.

The court held there was no allegation that the accused personally benefited from the deductions. The fixation of the principal amount was a policy decision of the company (petitioner No.1), which the other petitioners could not change in their individual capacities. Therefore, they could not be charged for a policy decision of their company.

The bench noted that the accused company was a public-sector undertaking. None of the officers implicated in the case benefitted personally from the account of the company.

Justice Ghosh further added that if the respondent alleged any statutory violation, it was incumbent upon the complainant to approach the statutory authority. Similarly, if the complaint was filed to recover the amount due under the arbitration award, the correct recourse (on the failure of the post-award settlement) was to put the award into execution.

Thus, allowing the revision petition, the bench stated that the criminal complaint was filed to recover the amount deducted by the petitioner as GST on the tax invoice raised by the respondent. It held that the respondent gave criminal color to a civil dispute, which meant abuse of the process.