Notice Of Commencement Of Arbitral Proceedings Is A Prerequisite For Initiation Of Proceedings U/S 84 Multi-State Cooperatives Societies Act: Delhi HC

Section 84 of the 2002 Act is about reference of disputes.

The Court said that as there are no specific proforma u/s 21 of the 1996 Act it is sufficient if the other party to inform the Central Registrar for appointment of Arbitrator in case a dispute arises. 

The Court was hearing the petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking the appointment of an arbitrator in terms of Section 84 of the Multi-State Cooperative Societies Act, 2002 to adjudicate the dispute.

The bench of Justice Dinesh Kumar Sharma observed, “There is no particular proforma prescribed under the law for the service of the notice under Section 21 of the Arbitration and Conciliation Act. Though, this Court is of firm view that the notice as required under the Section 21 of the Arbitration and Conciliation Act would be pre-requisite even for initiation of proceedings under Section 84 of the Multi State Cooperative Socieities Act, 2002. However, in 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., a cooperative society, has been weaving traditional Banarasi sarees for over 30 years. They claim that since 2019, the respondent All India Handloom Fabrics Society owes them Rs. 1.83 Cr for supplies, which have been withheld for trivial reasons. Despite filing a representation the Central Registrar has not appointed an arbitrator. The petitioner has now approached the court seeking an order to compel the appointment of an arbitrator.

The Court noted that Section 84 of the 2002 Act reveals that arbitration is to settle any disagreement between a member and the multi-state cooperative society, its board, or any officer, agent, or employee that relates to the organization's management, operations, or constitution.

The Court noted that the current disagreement, also has to do with Respondent’s management, charter, and operations. According to the Court the Petitioner’s submissions centred on the Board of Directors multiple instances of alleged corruption, poor management, and non-payment of dues, which have caused the Petitioner and other member societies of Respondent to suffer significant financial losses. Therefore, Central Registrar has the power to appoint an arbitral tribunal to resolve the dispute between the parties.

The Court mentioned the decision of coordinate bench of Delhi HC in Appolo Handloom Manufacturing Co-op Society Ltd. v. All India Handloom Fabrics Society &Ors. and quoted, “in case the Central Registrar fails to appoint an Arbitrator, the question is whether the Petitioner can be left remedy-less. In such cases, the Court cannot be held to be powerless to refer the matter to the Central Registrar for appointment of an Arbitrator. There being a clear Arbitration Clause in terms of Section 84(5) of the Act, the argument that a petition under Section 11(6) of the Arbitration Act is not maintainable is rejected. Under Section 11(6) of the Arbitration Act, the High Court is empowered to undertake necessary measures for securing the appointment of an Arbitrator, especially when a person or institution, which in the present case is the Central Registrar, has failed to act as required under the procedure specified in Section 84 of the Act.”

While considering that the notice given in the present case can be considered under Section 21 of the A&C Act the Court observed, “the Multi-State Cooperative Societies Act, 2002 has been enacted to serve the interest of the members and to facilitate the voluntary formation and democratic functioning of co-operatives as people’s institutions based on self help and mutual aid and to enable them to promote their economic and social betterment and to provide functional autonomy and for matters connected therewith or incidental thereto.”

The Court noted that the purpose of Section 21 of the Arbitration and Conciliation Act is to put on notice the party regarding the commencing the arbitration proceedings and making the party aware of the dispute involved.

Accordingly, the Court directed the Central Registrar to appoint an arbitrator.