MSCS Act Arbitration Not Invalid For Absence Of Separate Notice Under Arbitration Act: Karnataka High Court

The Karnataka High Court has held that arbitration under the Multi-State Co-operative Societies Act, 2002 cannot be treated as invalid merely because no separate notice was issued under Section 21 of the Arbitration and Conciliation Act, 1996.

Justice Sachin Shankar Magadum observed, “The absence of a separate notice under Section 21, in the circumstances pleaded in these petitions, does not by itself render the appointment of the learned Arbitrator under Section 84 of the MSCS Act invalid, nor does it extinguish the jurisdiction otherwise conferred upon the learned Arbitrator by the statutory scheme.”

The court was dealing with four writ petitions filed by four cold storage companies, Vijaya Sharana Cold Storage Pvt. Ltd., Sri Shyama Sundara Cold Storage, Sarveshwara Cold Storage Pvt. Ltd., and Jaya Sharana Cold Storage Pvt. Ltd.

The petitioners challenged arbitral proceedings and consequential awards arising from disputes involving Sri Veershaiv Co-op Bank Ltd.

The petitioners argued that no separate notice under Section 21 of the Arbitration Act had been served before the proceedings commenced. They contended that Section 21 was mandatory and a condition precedent to commencement of arbitration. Without such notice, they argued, the arbitrator never acquired jurisdiction and the subsequent proceedings were a nullity.

They also questioned the appointment of the arbitrator under Section 84(4) of the MSCS Act, which provides the statutory mechanism for appointment in disputes referred under Section 84.

The bank argued that arbitration under Section 84 is statutory. Its position was that the arbitrator's jurisdiction flows from Section 84 itself and not from a separate arbitration agreement between the parties.

The court accepted this distinction.

Section 84 of the MSCS Act provides for arbitration of specified disputes touching the constitution, management or business of a multi-State cooperative society. Section 84(1) requires such disputes to be referred to arbitration, while Section 84(4) provides for appointment of the arbitrator by the Central Registrar.

Section 84(5) applies the Arbitration Act to proceedings under the MSCS Act, but makes this subject to provisions of the MSCS Act that provide otherwise. Thus, the Arbitration Act supplies the general procedural framework, while the special statutory mechanism under Section 84 continues to govern.

The court held that Section 21 does not confer jurisdiction on the arbitrator.

“In the present case, the source is the statutory reference under Section 84 of the MSCS Act, read with the statutory appointment mechanism contained in Section 84(4). Section 21 cannot therefore be treated as the provision which confers jurisdiction upon the Tribunal," the court observed.

Section 21 nevertheless has a procedural role. It determines when arbitral proceedings are deemed to commence, which can have consequences for limitation and other time-related issues. The court noted that Section 43(2) of the MSCS Act also links commencement of arbitration, for limitation purposes, to the date referred to in Section 21.

The court relied on the Supreme Court's judgment in Bhagheeratha Engineering Ltd. v. State of Kerala, which it held had clarified that Section 21 is concerned with commencement of arbitration, particularly for limitation, and that non-issuance of a separate Section 21 notice does not by itself extinguish the jurisdiction of an otherwise competent arbitral tribunal.

Applying that principle to statutory arbitration under Section 84, the court held that the relevant questions include whether the dispute falls within Section 84, whether the parties are amenable to the statutory arbitration, whether the arbitrator was appointed by the competent statutory authority and whether the parties were given notice and a reasonable opportunity to participate.

Where those requirements are satisfied, the absence of a separate Section 21 notice cannot by itself render the award a nullity.

The court also drew a distinction between the absence of a Section 21 notice and a complete denial of procedural safeguards. If a party was never served with the arbitral proceedings or was denied a reasonable opportunity to present its case, different considerations could arise under Sections 18 and 24 of the Arbitration Act and the grounds available under Section 34.

Likewise, if an arbitrator was appointed by an authority having no statutory power under Section 84(4), the challenge would concern the constitution of the tribunal itself and could, in an appropriate case, warrant the High Court's exceptional writ jurisdiction.

On the challenge to the final awards, the court held that Section 34 of the Arbitration Act provides the ordinary statutory remedy. The availability of writ jurisdiction under Articles 226 and 227 is not completely excluded, but intervention is confined to exceptional cases involving, among other things, patent lack of jurisdiction, complete statutory nullity, or a fundamental breach of natural justice.

The mere absence of a separate Section 21 notice did not fall within those exceptional circumstances, the court held.

It accordingly dismissed the four writ petitions. The court clarified that it had not examined the merits of the claims, the correctness of the findings in the awards, the limitation on the facts of the individual cases or other grounds available under Section 34. Those issues were left open to be raised before the competent court in accordance with law.

For Petitioner (Vijaya Sharana Cold Storage Pvt. Ltd. and connected petitioners): Advocate Shubhendu A. Akalwadi.

For Respondents: AGA Ashok T. Kattimani for R1; Advocate Mahantesh R. Patil for R2 and R3; Ranjeet M. Pawar appeared party-in-person as R4.