5th January, 2011

Respondent Counsel: Ms.MERLYN MONTEIRO

Cases Cited:
Jigar Vikamsey Vs. Bombay Stock Exchange Limited, 2010 (1) BCR 908 [Para 9]

JUDGMENT

JUDGMENT :- None for the Petitioner. The learned counsel appearing for the RespondentBank makes statement that the parties have settled the matter and therefore, probably the petitioner is not appearing in the matter. Even otherwise, except the Petitioner who is a principal borrower, no one appeared before the Arbitrator. Therefore, the order was passed against them. The Petitioner admitted the claim and also the defaults. The finding has been given about the consistent defaults.

2. The Arbitrator while passing the award has directed as follows:

"3. The Disputant Bank is directed to serve this order upon the Employer of the Opponents to recover its dues, failing which, the same be recovered as arrears of land revenue from the employer personally.

4. Manager of Recovery Department of the Disputant Bank is hereby appointed Receiver with all powers under O 40 R 1 Civil Procedure Code 1908 to implement the Award and Report.

5. The Receiver is hereby directed to attach and take possession of the hypothecated Stock and Books Debts and LIC Policies and other personal properties of the opponents and sell the same in public auction and adjust the sale proceeds of the same towards the awarded amount."

3. The arbitrator was appointed by the Registrar as dispute was raised by the Respondent, under Section 84 of the MultiState Cooperative Societies Act, 2002 (for short, MSCS Act). Such arbitration proceedings are governed by the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act).

4. Under the Arbitration Act as well as, the MSCS Act there is no provision, whereby the Arbitrator can issue such directions against any employer with regard to the dues of the employees (the Petitioner); there is also no provision whereby, the Arbitrator is permitted to direct to recover the debt as arrears of land revenue from the employer personally in case of default of the employees, except following the due procedure of enforcement of the award. This is totally beyond the jurisdiction and is impermissible. The appointment of Receiver in such fashion, at this stage, and such directions while passing the award under Order XL, Rule 1 of the Code of Civil Procedure (for short, CPC) is also impermissible. The Manager of Recovery Department of the bank cannot be directed to recover the amount or execute the award in such fashion.

5. Section 83, 84(3), 96 of the MSCS Act and Rule 30 of the MaltiState Cooperative Societies Rules, 2002 (for short, MSCS Rules) are reproduced as under:

"Section 83 of MSCS Act

Repayment, etc.- ( 1) If in the course of an audit, inquiry, inspection or the winding up of a multiState cooperative society, it is found that any person, who is or was entrusted with the organisation or management of such society or who is or has at any time been an officer or an employee of the society, has made any payment contrary to this Act, or the byelaws or has caused any deficiency in the assets of the society by breach of trust or wilful negligence or has misappropriated or fraudulently retained any money or other property belonging to such society, the Central Registrar may, of his own motion or on the application of the board liquidator or any creditor inquire himself or direct any person authorised by him, by an order in writing in this behalf, to inquire into the conduct of such person within a period of two years from the date of the report of the audit, inspection or inquiry or the date of the order of winding up, as the case may be;

Provided that where the Central Registrar is satisfied that such inquiry could not be commenced during the period of two years aforesaid on account of fraud or concealment of facts, he may make or direct the inquiry to be made within such period not exceeding six years from the date of the report of the audit, inspection or inquiry or the date of the order of winding up, as he thinks fit.

(2) Where an inquiry is made under subsection (1), the Central Registrar may, after giving the person concerned a reasonable opportunity of being heard, make an order requiring him to repay to restore the money or property or any part thereof, with interest at such rate, or to pay contribution and costs or compensation to such extent, as the Central Registrar may consider just and equitable."

Section 84 of the MSCS Act:

Reference of disputes

"(1) ...............

(2) ..............

(3) If any question arises whether a dispute referred to arbitration under this section is or is not a dispute touching the constitution, management or business of a multiState cooperative society, the decision thereon of the arbitrator shall be final and shall not be called in question in any court.

(4) Where a dispute has been referred to arbitration under subsection (1), the same shall be settled or decided by the arbitrator to be appointed by the Central Registrar.

(5) Save as otherwise provided under this Act, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to all arbitration under this Act as if the proceedings for arbitration were referred for settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996."

Section 96 of the MSCS Act :-

96. Attachment before award.- (1) Where the arbitrator is satisfied that a party to any reference made to him under section 84 with intent to defeat or delay the execution of any decision that may be passed thereon is about to

(a) dispose of the whole or any part of the property; or

(b) remove the whole or any part of the property from its existing precincts, the arbitrator may, unless adequate security is furnished, direct conditional attachment of the said property or such part thereof as its deems necessary.

(2) The attachment under subsection (1) shall be executed by a civil court having jurisdiction in the same way as an attachment order passed by itself and shall have the same effect as such order.

Rule 30 of the MSCS Rules :-

"30. Disputes.- (1) For the purposes of subsection (4) of section 84 of the Act, the Central Registrar may appoint and fix the fee of the arbitrators subject to the provisions of Arbitration and Conciliation Act, 1996.

(2) Save as otherwise provided under this Act, the provisions of the Arbitration and Conciliation Act, 1996 shall apply to all arbitration under this Act as if the proceedings for arbitration were referred for settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996.

above provisions make it clear that the Arbitration Act and all the applicable provisions are applicable under Section 84(3) of MSCS Act. The Arbitration Act provides special provisions for execution of the award. The Award can be enforced only when the award attains finality as per Section 34 read with 37 of the Arbitration Act and not otherwise. In view of clear provisions, there is no question of appointment of Receiver at this stage, in such fashion to enforce the award and/or to sale the properties, as done in the present case. It is impermissible under both the Acts.

6. The power of attachment as contemplated under Section 96 of the MSCS Act cannot be equated with the power of Receiver under Order XL Rule 1 of the CPC to implement the award as done in the present case. However, as per clause 5, there is a power to attach the property pending the reference under Section 84 of the MSCS Act, if the Arbitrator found that pending the arbitration the party/disputant with intent to defeat or delay the execution of any decision and/or there is a material to show that he is likely to remove the whole or any part of the property from its existing precincts, the Arbitrator can ask for adequate security and/or direct conditional attachment but not once the award is passed. Section 96(2) of the MSCS Act only provides that the attachment order shall be executed by a Civil Court having jurisdiction. Therefore, the order passed by the Arbitrator directing the Manager of DisputantBank to attach the hypothecated Stocks and Books Debts and LIC Polices and other personal properties and further to sell the same in public auction and adjust the sale proceeds of the same towards the awarded amount, is illegal and without jurisdiction.

7. Section 94 of the MSCS Act, provides the provision for execution of decision/ order made under Section 39 or 40 of 83 or 99 or 101 of the MSCS Act and shall be carried out by the prescribed procedure. Rule 37 of the MSCS Rules gives the procedure for execution. All these Sections and/or provisions of the MSCS Act and Rules made thereunder nowhere concerned or referred to Section 84 of the MSCS Act. It applies to the decision and/or award passed:

(a) Under Section 39Only General Meeting of General Body.

(b) Under Section 40Special General Meeting of General Body.

(c) Under Section 83Repayment by defaulted person to find out and payable and/or wrongly paid after audit, inquiry, inspection or the winding up of the Society.

(d) Section 99Appeals

(e) Section 101Review

8. In absence of any specific provisions, even under the MSCS Act, the Arbitrator is not empower to pass the order as done in the present case i.e. clauses 3, 4, 5 as reproduced in para 2. It is beyond jurisdiction. It is necessary to note that once the Arbitration Act is made applicable and the parties appeared before the Arbitrator, they are bound and governed by the provisions of Arbitration Act and not by MSCS Act for execution of the award. It is settled that the intention and object of the MSCS Act needs to be respected. In this regard, there is no conflict against the award so passed under Section 84 of the MSCS Act. There is no specific Appeal and/or Review available for the disputants under the MSCS Act. However, the aggrieved party has remedy under the Arbitration Act as contemplated under Sections 34 and 37 of the Arbitration Act. The enforcement provisions as available is only after the award attains finality under the Arbitration Act.

9. The general principle of Section 34 of the Arbitration Act as laid down by the Apex Court in various Judgments and as observed by this Court (Anoop V. Mohta, J.) in Jigar Vikamsey Vs. Bombay Stock Exchange Limited, 2010 (1), B.C.R. 908, applicable even to the award passed under Section 84 of the MSCS Act by the Arbitrator are as under:

"11. The Petition is under Section 34 of the Act. The Apex Court recently in G. Ramchandra Reddy & Company v. Union of India & anr., (2009) 6 SCC 414 and in Madhya Pradesh Housing Board v. Progressive Writers and Publishers, (2009) 5 SCC 678, while dealing with both the Arbitration Acts and considering the principles to challenge the Arbitral Award has reiterated the following points :

(a) The reappraisal of the evidence by the Court is not permissible (Ispat Engineer Foundary Works vs. Steel Authority of India, (2001) 6 SCC 347). An Award of an Arbitrator need to be read as a whole to find out the implication and meaning thereof of the reasons. The Court, however, does not sit in Appeal over the Award.

(b) The interference, where reasons are given would still be less, unless there exists a total perversity and/or the Award is based on a wrong proposition of law.

(c) Even if two views are possible on an interpretation of central clause, that would not be justification in interfering with the Award specially when the view so taken is possible/plausible one (Sudarshan Trading v. Allied Construction (2003) 7 SCC 396). [G. Ramchandran (Supra)] But the interpretation of the clause which is wholly contrary to law should not be upheld by the Court. [Numaligarh Refinery Ltd v. Daehim Industrial Co. Ltd., 2007(10) SCALE 577/(2007) 8 SCC 466]

(d) The jurisdiction of the Court to interfere with an Award made by an Arbitrator is limited, unless there is an error apparent on the face of the Award and/or jurisdictional error and/or legal misconduct. [Numaligarh Refinery Ltd. (supra).

(e) The wrong point of law and apparent, improper and incorrect findings of facts which are demonstratable on the face of the material on record, may be treated as grave error and/or legal misconduct.

(g) "From the above decisions, the following principles emerge:

(a) An award, which is

(i) contrary to substantive provisions of law; or

(ii) the provisions of the Arbitration and Conciliation Act, 1996; or or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties; is open to interference by the court under Section 34(2) of the Act.

(b) The award could be set aside if it is contrary to :

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality.

(c) The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.

(d) It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India."

[Delhi Devedlopment Authority vs. R.S.Sharma & Co. (2008) 13 SCC 80].

In view of above settled principles of law, the judgments cited by the parties in support of their respective submission on law need no further discussion. The facts are totally distinct and distinguishable."

10. The Arbitrator is also bound by the above basic principles while dealing with the matter/dispute referred under Section 84 or any provisions under the MSCS Act. The Registrar who appoints the arbitrator loses its control once the arbitrator is appointed. But additional factor here is the arbitrator is not appointed by the parties by consent. The Registrar appointed the arbitrator from the list prepared by the concerned department. There is no procedure of obtaining consent from the parties. Therefore, for all the purposes, the arbitration proceedings is or before a third person/ authority. Therefore, a need to give full opportunity and hearing is a must.

11. Section 9 of the Arbitration Act provides for interim measures or reliefs or protection for the parties before the arbitration pending or till the enforcement of the award. Section 17 of the Arbitration Act contemplates and gives power to the Arbitrator to pass interim order and measure as provided. Still Section 96 of the MSCS Act provides and gives power to the Arbitrator to pass order for attachment before the award. Therefore, this provision, as available under the Special Act though not available under the Arbitration Act, yet need to be followed. The Arbitrator has power to pass such attachment order under Section 96 of the MSCS Act though there is a specific provision available under Section 17 of the Arbitration Act. The exception so carved out by the legislature though provides the similar power and provision but on different and additional grounds to the Arbitrator on the foundation of Order XXXVIII Rule 5 of the CPC and as there is no conflict. Still in my view, the award passed by the Arbitrator in Arbitration Proceedings arising out of the reference under Section 84 of MSCS Act has no authority and/or power to appoint Receiver to execute the award so passed without waiting for the finality to be attended and as contemplated under the Arbitration Act.

12. Considering the scope and purpose of the MSCS Act and as by incorporation, the provisions of Arbitration Act has been invoked for deciding the disputes as contemplated under Section 84 of the MSCS Act, I am of the opinion that once the award attains finality, as per the Arbitration Act, it is enforceable award as it is a decree as contemplated under the CPC.

13. Rule 37 of the MSCS Rules provides the procedure for execution of decree, orders and decisions as contemplated under Section 94 of the MSCS Act. The MSCS Rules defines

"(iii) Decree"decree" means any decree of a civil court and includes any decision or order referred to in section 94 of the Act;

(iv) Decree Holder" decree holder" means any person holding a decree as defined in clause (iii);

(v) Defaulter" defaulter" means any multiState cooperative society, member or any other person committing default;

(viii) Judgment Debtor" judgment debtor" means any multiState cooperative society against which or any person against whom a decree has been obtained;

(ix) Recovery Officer" recovery officer" means any person authorised to execute the powers of the Central Registrar under section 94; and

(x) Sale Officer" Sale Officer" means a person authorised by the Central Registrar by a general or special order, to attach and sale the property of judgment debtor or to execute any decree by attachment or sale of property;"

14. In view of above specific provisions, I am of the view that any decreeholder and/or person in whose favour award is passed and once the award becomes final, ought to have permitted to invoke Section 94 of MSCS Act read with Rule 37 of the MSCS Rule, for enforcement of the award which is like a decree as defined even under MSCS Act.

15. However, in view of clear provisions of Section 94 of MSCS Act which exclude Section 84, therefore, once even if award attains finality as per the provisions of Arbitration Act for its enforcement, the general provisions of CPC as contemplated under Section 39 of the Arbitration Act, will be applicable and not Section 94 of the MSCS Act and/or rules made thereunder.

16. In view of this, the impugned award to the extent of Clauses 3, 4 and 5 is quashed and set aside, being without jurisdiction and bad in law. The rest of the award to the extent of clauses 1 and 2, is maintained. However, if the parties have already settled the matter on merits, above observations shall not affect their settlement.

17. The Petition is accordingly disposed of with above observations, with liberty.

Ordered accordingly.