Court holds that ongoing arbitration and company law proceedings do not bar criminal investigation into alleged suppression of trademark co-existence agreement and dishonest inducement causing wrongful loss
The Karnataka High Court, in its recent judgment dated October 16, 2026, dismissed a criminal petition filed by Mohammadabbas Naushadali Patel and another seeking quashing of a First Information Report (FIR) registered against them in Crime No.157 of 2026. The FIR arises from allegations that the petitioners, as promoters of Tanvi Fitness Private Limited (TFPL), suppressed a pre-existing co-existence agreement restricting the use of the "MYFITNESS" trademark, thereby inducing the complainant-investor, Mensa Brand Technologies Private Limited (Mensa), to invest over Rs. 142 crores and acquire a controlling 51% shareholding in TFPL.
The dispute originates from an agreement dated November 11, 2019, between Tanvi Healthcare (predecessor to TFPL) and Paradise Nutrition Inc., which limited the use of the "MYFITNESS" trademark to certain goods under Class 29 (mainly peanut butter and related products). This co-existence agreement was allegedly not disclosed to Mensa at the time of the investment agreement dated August 25, 2022, between Mensa, TFPL, and the petitioners. Mensa later discovered these restrictions, which severely curtailed its business expansion plans for the "MYFITNESS" brand into other product categories such as gym supplements.
Following Mensa's discovery, a series of proceedings were initiated, including arbitration under the investment agreement, litigation before the National Company Law Tribunal (NCLT), and the filing of a criminal complaint alleging cheating, criminal breach of trust, and dishonest inducement. The petitioners contended that the allegations were purely contractual and already the subject matter of arbitration and company law proceedings, hence no criminal investigation should proceed.
However, the Karnataka High Court held that the mere pendency of arbitration or company law proceedings does not bar a criminal investigation when the complaint discloses allegations of misrepresentation and suppression of material facts with dishonest intent from the inception of the transaction. It emphasized that a FIR is not required to be an encyclopaedia of all facts but need only disclose prima facie cognizable offences to justify investigation.
The Court relied on authoritative Supreme Court precedents such as Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra (2021) and Somjeet Mallick v. State of Jharkhand (2024), which clarify that at the stage of quashing FIR, courts should not delve into the merits of the allegations but consider whether a prima facie case exists for investigation. It noted that no substantial investigation had taken place at the time of the petition, and thus it would be premature to stifle the investigation.
The Court observed that the complaint specifically alleged that the petitioners fraudulently concealed the restrictive co-existence agreement and misrepresented ownership rights over the trademark, inducing Mensa to invest based on false representations. These allegations, if accepted at face value, warranted investigation despite the availability of civil remedies such as arbitration and company law proceedings.
Furthermore, the Court recorded that the NCLT had passed several orders restraining the parties from certain actions and that the arbitration tribunal had been constituted but had not yet adjudicated on the substantive disputes. The Court therefore declined to interfere at this preliminary stage and dismissed the petition, allowing the police investigation to proceed, while reserving the petitioners' rights to approach appropriate forums if the investigation resulted in adverse reports.
This judgment underscores that in complex commercial disputes involving allegations of fraud and suppression of material facts, criminal investigations can proceed concurrently with arbitration and civil proceedings, ensuring that potential criminality is not shielded by contractual disputes.
Bottom Line:
Quashing of FIR - Mere pendency of arbitration and company law proceedings arising out of the same investment transaction does not bar criminal investigation where the complaint alleges suppression of material facts and dishonest inducement at the inception - FIR need not be an encyclopedia - If allegations prima facie disclose cognizable offences, investigation should not be interdicted at the threshold.
Statutory provision(s): Sections 316(2), 318(4), 3(5), 61(2)(b) of Bharatiya Nyaya Sanhita, 2023; Sections 241-242, 244, 246 of Companies Act, 2013; Section 8 of Arbitration and Conciliation Act, 1996
Mohammadabbas Naushadali Patel v. State of Karnataka, (Karnataka) : Law Finder Doc Id # 3004072
