The Delhi High Court has affirmed that arbitration proceedings are not hindered by the provisional attachment of assets under the Prevention of Money Laundering Act (PMLA) or by parallel criminal investigations by agencies like the Enforcement Directorate (ED) or Central Bureau of Investigation (CBI).
Justice Amit Mahajan, presiding over the case Lata Yadav v. Shivakriti Agro Pvt. Ltd & Ors., clarified that merely including certain assets in a PMLA attachment order does not automatically strip the arbitral tribunal of its authority. Nor does the existence of concurrent criminal proceedings invalidate the arbitrator’s jurisdiction.
"The pendency of criminal proceedings or a provisional attachment under PMLA does not, by itself, oust the arbitral tribunal’s jurisdiction to adjudicate a contractual dispute," the court emphasized.
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Background of the Case
The petitioner and Respondent No.2 were partners in an LLP that had submitted a resolution plan for a rice milling company. To execute this plan, the LLP secured ₹130 crores and an additional ₹16 crores from Respondent No.1 under a Facility Agreement. Later, Respondent No.1 accused the LLP of breaching the agreement and invoked arbitration.
While the arbitral process, including pleadings and evidence, was underway, ED arrested key representatives and issued a provisional attachment against the disputed rice mill units. The petitioner then filed an application under Sections 16 and 32(2)(c) of the Arbitration Act, arguing the proceedings should be terminated due to fraud and PMLA attachment.
The Arbitrator rejected the application, prompting a constitutional petition under Article 227, asserting that the agreement was void due to fraud, now under ED and CBI scrutiny.
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Petitioner’s Arguments
The petitioner claimed:
- The Facility Agreement was vitiated by fraud.
- Allegations under ED’s provisional attachment and prosecution could invalidate the agreement under Section 23 of the Indian Contract Act.
- The arbitral tribunal had no jurisdiction once criminality was established.
- Section 41 of PMLA bars other authorities from acting on matters under its scope.
Respondents’ Reply
The respondents argued that:
- The petitioner was repeating earlier jurisdictional objections already rejected.
- The arbitration addressed civil contractual matters, distinguishable from criminal proceedings.
- Section 41 of PMLA restricts civil court interference but does not affect arbitral tribunals handling private disputes.
“Allegations of fraud alone do not make a matter non-arbitrable,” the court reiterated, referencing the Supreme Court’s decisions in Ayyasamy v. Paramasivam and Rashid Raza v. Sadaf Akhtar.
Justice Mahajan stressed the limited scope of judicial interference under Article 227 of the Constitution, stating it should only be invoked in exceptional cases of gross legal error.
He further observed that:
- The arbitral tribunal is capable of deciding civil issues even if some facts overlap with criminal allegations.
- The tribunal's role is not obstructed unless the core contract and arbitration clause are shown to be inherently fraudulent.
- Arbitration and criminal proceedings can run concurrently without hindering each other.
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“The same facts may lead to both civil and criminal liability, but the arbitral jurisdiction remains intact unless proven otherwise,” the court held.
The Court concluded that the arbitration proceedings, being nearly complete, should continue unhindered. Any conflicting findings between civil and criminal forums can be resolved later through legal remedies under Sections 16 and 34 of the Arbitration Act.
Accordingly, the petition to terminate the arbitration was dismissed.
Case Title: LATA YADAV versus SHIVAKRITI AGRO PVT. LTD & ORS.
Case Number: CM(M) 53/2025 & CM APPL. 1854/2025
For the Petitioner: Mr. Akhil Sibal, Sr. Adv. with Mr. Gyanendra Shukla, Mr. Krishnesh Bapal & Ms. Jahnavi Sindhu, Advs.
For the Respondent : Mr. Samir Malik (through VC), Ms. Bani Dikshit, Mr. Dhruva Vig & Mr. Uddhav Khanna, Advs. for R1 Mr. Yashvardhan & Mr. Pranav Das, Advs. for R2
