- 1 - HC-KAR NC: 2025:KHC:32647 WP No. 24984 of 2025 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF AUGUST, 2025 BEFORE THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM WRIT PETITION NO. 24984 OF 2025 (GM-RES) BETWEEN: SHRI HARSHA K S/O KISHORE AGEDABOUT 24 YEARS R/AT 84, 5TH CROSS GOVINAYAKANAHLLI 1ST MAIN, SAMRUDHI LAYOUT KUMARASWAMY LAYOUT 2ND STAGE, BENGALURU - 560 078. …PETITIONER (BY SRI. YOGANAND P., ADVOCATE) AND: SHRI VISHAL U S/O UMESH KUMAR AGED ABOUT 25 YEARS R/AT 2083, 7TH MAIN VIKRAM NAGAR KUMARASWAMY LAYOUT 2ND STAGE BENGALURU - 560078. …RESPONDENT THIS WP IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 21.07.2025 PASSED BY THE Digitally signed by SHARADAVANI B Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:32647 WP No. 24984 of 2025 HON'BLE COURT OF II ADDITIONAL JUDGE AND ACMM MEMBER, MACT COURT OF THE SMALL CAUSES AT BENGALURU (SCCH-13) IN C.C.NO.14958/2024 REJECTING THE INTERLOCUTORY APPLICATION FILED BY THE PETITIONER UNDER SECTION 8 OF ARBITRATION AND CONCILIATION ACT 1996 VIDE ANNEXURE-A DIRECTING THE TRIAL COURT TO REFER THE ABOVE MATTER FOR ARBITRATION SO AS TO SETTLE THE DISPUTE BY ARBITRATION IN TERMS OF ARBITRATION CLAUSE 7 CONTAINED IN THE AGREEMENT OF LOAN DATED 25.03.2023. THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM ORAL ORDER The accused is before this Court questioning the order of the learned Magistrate who has declined to entertain an application filed by him under Section 8 of the Arbitration and Conciliation Act, 1996 seeking reference of the dispute to arbitration, in view of an arbitration clause in the agreement of loan entered into between the complainant and petitioner herein/accused. The said application has been rejected by the learned Magistrate. - 3 - HC-KAR NC: 2025:KHC:32647 WP No. 24984 of 2025 2. Learned counsel for the petitioner, placing reliance on the arbitration clause contained in the loan agreement executed between the complainant and the petitioner/accused, would contend that all disputes between the parties are contractually agreed to be resolved through arbitration. Referring specifically to Clause 7 of the said agreement, it is urged that any dispute or difference arising out of the terms of the loan transaction is mandatorily required to be referred to a sole Arbitrator for adjudication. On that basis, it is the submission of the petitioner’s counsel that the private complaint instituted by the complainant under Section 200 of Cr.P.C. for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, is not maintainable in view of the arbitration clause. 3. This Court has carefully considered the submissions of the learned counsel for the petitioner. The arbitration clause at Clause 7 of the loan agreement has been meticulously examined. The impugned order, which - 4 - HC-KAR NC: 2025:KHC:32647 WP No. 24984 of 2025 is challenged in the present writ petition, has also been given due consideration. 4. The contention of the petitioner that the offence under Section 138 of the Negotiable Instruments Act also falls within the purview of the arbitration clause and must therefore be relegated to the forum of arbitration is wholly misconceived. This Court is unable to agree with the said submission. While it is true that the loan agreement incorporates an arbitration clause for adjudication of contractual disputes, the present proceedings are not merely in the nature of a civil claim for recovery of money. The complainant has invoked the jurisdiction of the Magistrate alleging that a cheque issued by the petitioner towards repayment of the loan was dishonoured with the endorsement “insufficient funds.” Such dishonour of cheque, after compliance with statutory requirements, constitutes a penal offence under Section 138 of the N.I. Act, and the complainant is legally entitled to set the criminal law in motion by filing a private complaint. - 5 - HC-KAR NC: 2025:KHC:32647 WP No. 24984 of 2025 5. The arbitration clause may, at best, govern civil remedies available to the complainant for recovery of money arising out of the loan agreement. However, the existence of such a clause does not, and cannot, bar the complainant from prosecuting the petitioner for a statutory offence created under the N.I. Act. To accept the argument advanced on behalf of the petitioner would amount to conferring jurisdiction on an Arbitrator to decide criminal liability, which is impermissible in law. Criminal offences, more particularly those under the N.I. Act, are matters falling exclusively within the domain of criminal courts and are not capable of being adjudicated in arbitration proceedings. 6. In view of the above discussion, this Court finds no infirmity in the order under challenge. Once the cheque issued by the accused is dishonoured and statutory notice has been issued and duly served, the payee acquires an enforceable right to initiate prosecution under Section 138 of the N.I. Act. The argument of the petitioner’s counsel - 6 - HC-KAR NC: 2025:KHC:32647 WP No. 24984 of 2025 that even such criminal liability should be referred to arbitration is unsustainable and alien to the settled principles of law. 7. Accordingly, this Court holds that the writ petition is devoid of merits. The impugned order is perfectly legal and valid and does not warrant interference in the exercise of writ jurisdiction. Hence, the writ petition stands dismissed. Sd/- (SACHIN SHANKAR MAGADUM) JUDGE DH List No.: 1 Sl No.: 68