Notice Under Section 21 Of Arbitration Act Is Pre-Requisite For Initiation Of Proceedings Under Multi-State Cooperative Societies Act: Delhi High Court

The bench held that:

“…in the absence of any specific proforma, it would be sufficient if the petitioner in case of dispute having being arisen as envisaged under Section 84 of the Multi State Cooperative Socieities Act, 2002 informs the Central Registrar for appointment of an Arbitrator and discloses the disputes.”

Brief Facts:

The Petitioner, Purvanchal Hathkargha Sahakari Sangh Ltd., registered under the U.P. Co-op Society Act, 1965, has been a member of the All India Handloom Fabrics Marketing Coop. Society Ltd. for over thirty years. The Petitioner claims that since 2019, an amount of Rs. 1,83,32,731.22 is due from Respondent No. 1, who allegedly withheld payments for supplies.

The Petitioner made a representation to the Central Registrar requesting the appointment of an arbitrator under Section 84 of the Multi-State Cooperative Societies Act. However, no response was received from the Central Registrar. Feeling aggrieved, the Petitioner approached the Delhi High Court (“High Court”) and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for the appointment of the arbitrator.

Observations by the High Court:

The High Court referred to Section 84 of the Multi-State Cooperative Societies Act, 2002, and held that arbitration is the designated method for resolving disputes involving the management, operations, or constitution of a multi-state cooperative society. It held that the allegations against Respondent No. 1 regarding management failures, corruption, and non-payment of dues fell under the purview of arbitration as outlined in Section 84.

The High Court referred its decision in Appolo Handloom Manufacturing Co-op Society Ltd. v. All India Handloom Fabrics Society & Ors., which dealt with the failure of the Central Registrar to appoint an arbitrator. The bench held that in such situations, the High Court has the authority to intervene and direct the Central Registrar to appoint an arbitrator.

The High Court held that it is necessary for the Central Registrar to appoint an arbitrator when required by the Multi-State Cooperative Societies Act, 2002. It highlighted that the Act grants the Central Registrar the explicit power to appoint an arbitrator to resolve disputes related to the management and operations of cooperative societies.

Furthermore, the High Court addressed the procedural issue raised by the Respondent regarding the service of notice under Section 21 of the Arbitration Act. Referring to the decision in Florentine Estates of India Ltd. & Anr. V. Lokesh Dahiya & Anr., the High Court reiterated that the notice under Section 21 is essential for commencing arbitration proceedings. The High Court held that the Act states that, apart from the Central Registrar's appointment power, other provisions of the Arbitration Act, including the requirement of a notice under Section 21, apply to arbitrations under the Multi-State Cooperative Societies Act, 2002.

The High Court clarified that the purpose of Section 21 is to notify the concerned party about the initiation of arbitration proceedings, thus allowing them to be aware of the dispute. Despite the absence of a prescribed format for such notice, the High Court held that any communication informing the Central Registrar of a dispute and requesting the appointment of an arbitrator satisfies this requirement.

The High Court held that the substantive issues of the dispute, such as monetary claims and the alleged illegal appointment of officials, are matters for the arbitrator to resolve, not the court. Therefore, the High Court directed the Central Registrar to appoint an arbitrator within three weeks and to inform all parties involved.

Case Title: Purvanchal Hathkargha Sahakari Sangh Ltd Vs All India Handloom Fabrics Society And Anr.

Citation: 2024 LiveLaw (Del) 652

Case Number: ARB.P. 75/2024

Advocate for the Petitioner: Ms. Rashmi Singh, Ms. Nabeela Jamil, Advs.

Advocate for the Respondent: Mr. Sandeep Khurana, Mr. Shiven Khurana, Mr. Manjit Singh, Advs. for R-1. Ms. Nidhi Raman, CGSC with Mr. Zubin Singh, Adv. for R-2/ UOI.

Click Here To Read/Download Order or Judgment