CRIMINALIZATION OF CIVIL DISPUTES: NEED FOR CARE AND GUIDELINES

The process of seeking to settle civil disputes and claims, by applying pressure by way of a criminal prosecution has the potential of having a cataclysmic effect on the economic system and will likely, adversely impact the atmosphere of investment and development

A. Background

Picture the following scenario:

a) A (a foreign company) enters into an agreement with B (an Indian company) for development of certain infrastructure.

b) A proceeds with the contract.

c) Disputes arise between the parties.

d) A initiates arbitration for recovery of monies against B. The seat of arbitration is in India.

e) Arbitration proceedings are on. A’s witnesses are to be cross examined.

f) B files a criminal complaint with the police, alleging offenses under the Indian Penal Code on the facts/issues to be determined in arbitration. First Information Report (FIR) is registered. Police calls A’s Directors for investigation. These Directors are foreign nationals.

g) A concerned Director seeks legal advise. He is told that (i) he could be arrested; (ii) that if arrested, he would need to apply for bail; (iii) if granted bail, he could be told to deposit his passport and/or will be prevented from leaving the country till the trial is concluded; and (iv) anticipatory bail, even if granted, could lead to the imposition of terms similar to (iii) above.

h) The Director decides to leave India.

i) The cross-examinations are derailed at least for the time being. The lawyers of A are now receiving instructions via conference calls at an important stage of the arbitration.

j) The Directors of A file quashing petitions before the concerned High Court. The High Court issues notice and then there is a long gap of several years before the matter is taken up and decided.

k) In the meantime, A decides it has had enough. It settles the dispute with B and the criminal proceedings are withdrawn.

The above scenario is not a self-created one. It was a reality. And this is not the only one.

B. You Get What You Want