S. Fakhar vs A. Chouhan
Suit Under Order XXXVII CPC Based on Dishonoured Cheque Not Barred by Arbitration Clause
Facts of the Case
In S. Fakhar vs A. Chouhan, the plaintiff instituted a recovery suit under Order XXXVII of the Code of Civil Procedure, 1908 (CPC) on the basis of a dishonoured cheque. The defendant, a well-known property tycoon, had defaulted in payment of monthly rent. Upon persistent demands for clearance of arrears, he acknowledged liability and issued a cheque towards refund/payment. However, the cheque was dishonoured upon presentation. Left with no alternative remedy, the plaintiff invoked the summary procedure under Order 37 CPC, seeking swift recovery on the strength of the negotiable instrument.
Defence Raised by the Defendant
The defendant resisted the suit primarily on the ground that the underlying agreement contained an arbitration clause. It was contended that:
-
01
The dispute arose out of the agreement between the parties.
-
02
In view of the arbitration clause, the matter ought to be referred to arbitration.
-
03
The civil court lacked jurisdiction to entertain the suit.
Legal Issue
Whether a summary suit under Order XXXVII CPC based on a dishonoured cheque can be defeated on the basis of an arbitration clause contained in the original agreement?
Judicial Determination
The learned Sessions Court rejected the defendant's objection and held that:
-
01
A dishonoured cheque constitutes an independent cause of action.
-
02
Liability arising from issuance of a cheque cannot be evaded merely by invoking an arbitration clause.
-
03
A party who has defaulted in his contractual commitment cannot subsequently shield himself behind arbitration to frustrate recovery proceedings.
Reliance on Precedent — 2002 CLD 624
The court relied upon the ratio laid down in 2002 CLD 624, wherein it was authoritatively held that:
A dispute arising from dishonour of a cheque does not fall within the ambit of an arbitration clause contained in the original agreement.
The rationale is that once a cheque is issued, it represents a separate and independent obligation. Its dishonour gives rise to statutory and civil consequences distinct from the contractual framework.
Principle Established
The judgment reinforces the following important legal propositions:
-
01
A cheque is a negotiable instrument creating an independent enforceable liability.
-
02
Arbitration clauses cannot be misused to delay or defeat recovery proceedings based on dishonoured cheques.
-
03
Summary suits under Order XXXVII CPC remain maintainable notwithstanding existence of an arbitration agreement, where the cause of action is founded upon a dishonoured cheque.
-
04
Courts will not permit arbitration to become a tool for evading admitted financial liability.
Legal Significance
This decision serves as a strong precedent in:
-
✦
Recovery suits based on dishonoured cheques
-
✦
Landlord-tenant monetary disputes
-
✦
Commercial litigation involving negotiable instruments
-
✦
Attempts to misuse arbitration clauses to stall civil proceedings
Conclusion
In S. Fakhar vs A. Chouhan, the Sessions Court categorically held that arbitration cannot be invoked as a shield against liability arising from a dishonoured cheque. The summary jurisdiction under Order XXXVII CPC was rightly upheld, ensuring that commercial certainty and financial discipline are not compromised by procedural technicalities.