Multiple Arbitrations By Arbitrator Involving The Same Co-operative Bank Under S. 84 Of MSCS Act; Not A Disqualification: Bombay High Court

Noting that in the statutory arbitration contemplated under the MSCS Act, the arbitrator is appointed by the Central Registrar/Commissioner of Co-operative Societies under Section 84 (4) of the MSCS Act, the bench of Justice Bharati Dangre held that the embargo created under clause 22 comes into picture only when the Arbitrator is appointed by one of the parties or an affiliate of one of the parties.

Therefore, the fact that the Arbitrator was appointed on more than two occasions in the past three years, with respect to disputes involving the same Co-operative Bank, would fall outside the purview of the embargo created under clause 22, the Court said.

Clause 22 of Schedule V of the A&C Act provides that if the arbitrator has, within the past three years, been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties in the arbitral proceedings, it would give rise to justifiable doubts regarding his independence or impartiality.

The respondent no. 1, NKGSB Co-operative Bank Ltd, is registered under the MSCS Act. The petitioners, including Kalpesh Shantikumar Mehta, availed certain credit facilities from the respondent Bank. After certain disputes arose between the parties, the same was referred for arbitration under Section 84 of the MSCS Act.

In the arbitral proceedings, the petitioners challenged the constitution of the Arbitral Tribunal and sought recusal of the Sole Arbitrator, by filing an Interim Application under Sections 12(1)(a) and 12(5), read with the Vth Schedule of A&C Act.

After the said application was rejected by the Arbitrator, the petitioner filed an application before the Bombay High Court under Section 14 of the A&C Act, contending that the mandate of the Arbitrator stood terminated as he had become de jure or de facto unable to perform his functions under Section 14(1)(a).

The petitioner, Kalpesh Shantikumar Mehta, pleaded before the Court that as per the disclosure provided by the said Sole Arbitrator, as mandated under Section 12(1), the Arbitrator was appointed to adjudicate upon 10 different disputes to which the respondent, NKGSB Co-operative Bank, is a party. Since he has been appointed as Arbitrator within the past three years, on more than two occasions by one of the parties, the said circumstance would give rise to a justifiable doubt as to his independence and impartiality, the petitioner argued.

Thus, the petitioner averred that the Sole Arbitrator’s appointment fell within the teeth of Section 12 and thus, he was de facto/de jure disqualified to continue with the arbitral proceedings. The petitioner further contended that the provisions of Section 12, as amended by the 2015 Amendment Act, must be read into the MSCS Act.

The Court perused Section 84 (5) of the MSCS Act, which provides that the provisions of the A&C Act shall apply to all arbitration under the MSCS Act.

Since Section 84 of the MSCS Act has referred to A&C Act by way of reference, the Court concluded that, as a necessary consequence, all the amendments in the A&C Act would apply to the arbitration proceedings conducted under Section 84 of the MSCS Act. The amended provisions of the A&C Act, including the one in Section 12, along with Schedule V, VI and VII, would automatically become applicable to the mechanism of arbitration prescribed under Section 84, the Court ruled.

Referring to the facts of the case, the Court observed that the Sole Arbitrator was appointed by the Commissioner of Co-operation and Registrar of Co-operative Societies (respondent no. 3), by acting as a delegate of the Central Registrar (respondent no. 2), who is empowered to appoint an arbitrator under Section 84(4) of the MSCS Act.

The bench concluded that in the present case, the appointment of the Sole Arbitrator fell outside the embargo created under clause 22 of the Vth Schedule. This is because the embargo created under clause 22 comes into picture only when the Arbitrator is appointed by one of the parties or an affiliate of one of the parties, the Court held.

“The MSCS Act contemplate appointment of an arbitrator by the Central Registrar/Commissioner of Co-operative Societies, who is empowered to exercise his power and there is no appointment by any party or an affiliate i.e. either by the disputant bank/borrowers/guarantors,” the Court said.

The bench ruled that in contrast to the contractual arbitration, the arbitration under the MSCS Act is a statutory arbitration, where the power of appointment of Arbitrator is conferred on an authority created under the statute itself i.e., ‘Central Registrar’ or his delegate.

“Hence, there is no appointment of Arbitrator by any party and the petitioners are under the misconception, that the appointment is made by the Bank, who is the disputant, aggrieved by non-payment of the dues,” the Court held.

Dismissing the petitioner’s argument that an Arbitrator cannot be appointed for resolving multiple disputes and that there has to be a separate Arbitrator appointed under the MSCS Act for each dispute involving the co-operative bank, the Court referred to the decision of the Division Bench of Bombay High Court in M/s J. Square Steels Pvt Ltd, Aurangabad vs. Union of India (2017).

The Division Bench while upholding the constitutional validity of Section 84 of the MSCS Act, observed that the Central Registrar is empowered to appoint an Arbitrator under Section 84(4) of the MSCS Act in respect of each Multi-state Cooperative Society for a specified period, in respect of disputes which may be existing or may arise in the future. The Division Bench had ruled that such Arbitrators, who are appointed by the Central Registrar in respect of a particular Multi-state Cooperative Society, is empowered to deal with all such disputes contemplated under Section 84, as and when they arise.

The High Court thus ruled, “The challenge to the validity of Section 84 of the MSCS Act having failed, on the contention that there has to be a separate Arbitrator for every dispute having been declined by the Division Bench, I must necessarily follow a similar course of action by dismissing the present Arbitration Petitions, holding it to be without any merit, as the contention of the petitioners that the Arbitrator appointed to arbitrate the dispute with the disputant has incurred a disqualification, does not hold to be a meritorious contention.”

The Court thus dismissed the petition.

Case Title: Kalpesh Shantikumar Mehta & Ors. vs. NKGSB Co-op. Bank Ltd & Anr.

Citation: 2023 LiveLaw (Bom) 119

Dated: 09.01.2023

Counsel for the Petitioners: Mr.Anshul Anjarlekar i/b Raval Shah Associates

Counsel for the Respondents: Mr. Joel Carlos for the respondent no.1; Mr.Manish Upadhye, AGP for the respondent no.3.

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