'Prior Jural Relationship' With Cooperative Society Necessary For Invoking Dispute Redressal Mechanism U/S 70: Jammu & Kashmir High Court

The Jammu and Kashmir and Ladakh High Court has clarified that Section 70 of the J&K Cooperative Societies Registration Act serves as an internal mechanism for resolving disputes among parties who already have a legal relationship with each other before the dispute arises. It cannot be applied to individuals who do not have any 'prior jural relationship' with the individuals involved in the society's affairs, it emphasised.

Chief Justice Kotiswar Singh made these expositions while hearing an application under Section 8 read with Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator to settle the dispute between the applicant and the respondent- a coorperative society.

The applicant through Sr Counsel Pranav Kohli submitted that they were allotted a shop on lease by the respondent and had been running a Fair Price Shop there. According to the applicant, there was a dispute regarding the rent and interference by the respondent, who was the manager of the shop. The applicant invoked the arbitration clause in the agreement between the parties and proposed the name of an arbitrator for resolution of the dispute.

The respondents opposed the application and argued that the dispute should be resolved under Section 70 of the J&K Cooperative Societies Act, 1989, as the applicant was an employee of the Jammu Cooperative Wholesale Ltd., which is a society registered under the Act. They also claimed that the lease agreement relied upon by the applicant is unregistered and unstamped, making it unenforceable.

Furthermore, the respondents contended that the applicant was not a lessee but an employee and, therefore, the dispute does not fall under the purview of arbitration.

The moot question that fell for adjudication before the bench was as to whether the dispute should be resolved through arbitration under the agreement or referred to the Registrar of Cooperative Societies under Section 70 of the Societies Act.

At the outset, the bench observed that Section 70 can be invoked where the dispute relates to the constitution, management, or business of a cooperative society.

Observing that the dispute in question does not pertain to the constitution or management of the cooperative society but relates to the business of the society, specifically the lease of a shop, the bench said that not all disputes relating to the business of a cooperative society need to be referred to the Registrar, unless, there is some pre-existing jural relationship in existence between/amongst the disputants with reference to the society, prior to any dispute.

Explaining that merely because the applicant happens to be an employee of the Society will not be sufficient to distract from this scheme of Section 70 of confining this mode of dispute resolution amongst the disputants who have pre-existing jural relations qua the Society, the bench noted that the respondents have specifically claimed that the applicant is an employee of the Society, and the applicant has not denied this and hence it may seem that the dispute falls under Section 70(1)(d), as it appears to be between the Society and its employee.

However, the bench, pointing to the Deed of Agreement, observed that the said agreement makes it amply clear that the applicant, who is the second party to the Agreement, has not been referred to as an employee of the Society by himself or by the first party. Although the respondents claim that an employee of the Society cannot be granted a lease of the Society's property, no evidence has been presented to this Court regarding any provision in the bye-laws or rules and regulations of the Society that prohibits such a relationship, the court said.

Since the lease Agreement was executed between the Society and the applicant as a lessee and not in the capacity of an employee, the Court determined that the disputants are not covered under Section 70 of the Co-operative Societies Act. The jural relation between the applicant and the Society is merely a coincidence or accident, the bench underscored.

"Therefore, this Court would hold that even if the dispute between the parties pertains to business of the society, yet, since the parties/disputants do not fall within the category mentioned under sub-clause (c) or any other sub-clause, provision of Section 70 of the Co-operative Societies Act would not be applicable", Chief Justice Singh maintained.

Consequently the court said that the dispute is to be referred to an arbitrator in terms of Clause 11 of the Agreement and not under Section 70 of the Co-operative Societies Act.

It disposed the plea with liberty to the applicant to file the original/certified copy of the deed of Agreement after ensuring that proper stamp is affixed/stamp duty paid, so as to enable the Court to pass appropriate order under Section 11 of the Arbitration Act.

Case Title: Shukal Singh Vs v/s G.M., Jammu Co-Operative Wholesale Ltd.& Anr.

Citation: 2023 LiveLaw (JKL) 156

Counsel For Petitioner: Mr. Pranav Kohli, Sr. Advocate with Mr. Vastav Sharma, Advocate.

Click Here To Read/Download Judgment