Simultaneous proceedings for recovery through sec.138 nia and arbitration

Deepak Nair (Querist) 15 February 2016 This query is : Resolved
Learned Experts,
One of my client is facing simultaneous proceedings with respect to recovery of dues by an NBFC which are as follows:

1. They have filed a complaint under Sec.138 of NI Act by presenting and bouncing a cheque which was given as security. More than 65% of the loan is repaid and around 35% remains to be paid. The cheque is for the total amount of the loan, and not for the actual liability. Now the case is at the stage of evidence.

2. The NBFC have initiated arbitration proceeding to recover the same outstanding amount. Thereafter, the NBFC granted time till April 2016 to clear the outstanding.

Under the circumstances, my queries are as follows:
A) Can the NBFC initiate proceedings under 2 different enactments simultaneously for the same recovery?
B) When the term of loan facility / credit facility has been extended for further period, is the arbitration proceeding valid?
C) isn't the cause of action is nullified by issuance of letter of extension of loan period??
D) Isn't there a need to initiate separate arbitration if the loan is not cleared before the extended period?

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Guest (Expert) 15 February 2016
Based on your description of the case, my observations are as follows:

A) That is a strategy of the NBFC to recover money through harassment through different legal resorces, instead of a single one or through their hired recovery agents, as none of the respective laws has seemingly forbidden action taken under one or the other Act.

B) Extended term, if made under the arbitration proceedings has nothing to do with the case of cheque dishonour under sec. 138 of NI Act.

C) Not automatically, unless contested effectively in case u/s 138 and also if the judge agrees to that. But be aware, the NBFC can also come forward with the plea that the case under sec. 138 pertains to dishonour of cheque, the nature of which case differs as against that of the recovery of total outstanding loan dues through arbitration proceedings. So, if you are ready to counter that plea effectively only then start arguing on that issue, otherwise the action may not perhaps bring any relief to your client.

D) Any interim order in arbitration case cannot be deemed to have wound up the original arbitration case. That is merely a moratorium to the repayment of loan dues, not withdrawl of arbitration case.

Devajyoti Barman (Expert) 15 February 2016
1. Yes, NDFC can initiate both the proceeding under two different heads of Act. There is no legal bar on this account.
2. Extension of time given to the borrower has nothing to do with the merit of the arbitration proceeding and hence the arbitration proceeding will remain untouched by the effort of out of court settlement.
3. Cause of action can not be nullified by letter of extension if the same is issued after initiation of arbitration proceeding. If it is done before the arbitration proceeding is initiated then the arbitration is non-maintainable due to pre-maturity of the cause of action.
4. This point is not clear to me.