and Conciliation Act, 1996 (for short, the Arbitration Act) and thereby
challenged the undated common award. The operative part of the
same is as under:-
"A W A R D
The claim is allowed as follows:
The claimants are entitled to recover Rs.
20,74,359.19 from the Respondent Nos. 1 and 3 to 11
jointly and/or severally together with interest on the above
said amount at the rate of 17.5% p.a. from the date of
recovery Suit i.e. 20.06.1992 till 18.2.2003 and also
further interest at the rate of 14% p.a. (simple mode) from
19.02.2003 till full recovery of the claim is allowed and
also Rs.15,000/- towards cost of administrative charges."
2 The Claim Petitions were filed by Respondent No.1 (Original
Claimant) against the borrower alleged guarantors, Respondent No.
12 Official Assignee, also made party, as Original Respondent No.1
was declared insolvent. The proprietor expired long back.
Respondent Nos. 3 to 7 are his Legal Heirs. The Petitioner in
Arbitration Petition 767 of 2009 is original Respondent No. 8 and
Arbitration Petition No. 677 of 2009 is by original Respondent No.9.
The other Respondents though served not present.
3 The Principal borrower submitted an application on 19 June
1989, for enhancement of Cash Credit Facility from `10 lacs to `15
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lacs. The same was against the Security of Stock and Trade with 25%
margin subject to hypothecation. The Application for Cash Credit
Facility of `15 lacs was filed on 21 January 1991. The same was kept
pending. Because of a considerable loss of more than `13 lacs, an
application to the bank for a settlement on 27 May 1991, and
requested for adjustment. On 8 June 1991, the sanction was granted
for `15 lacs. As there was default, the bank issued demand notices
some time in January 1992. But as alleged, it were not addressed to
the Petitioners.
4 The demand notices were addressed to all other guarantors as
they alleged to have been signed the documents in the year 1989. A
request was made again in 1992 to settle the matter. The claimant
bank ultimately on 20 June 1992 filed a dispute Application No. 721
of 1992 before the Co-operative Court at Mumbai, as at the relevant
time, they were governed by the provisions of Maharashtra Co-
operative Societies Act, 1960 (for short, the "MCS Act-1960").
5 The same was opposed basically by Respondent Nos. 8 and 9
and also by the Principal borrower in the year 1994. The Petitioners
have also filed written statement on 20 April 1995. The issues were
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framed some time in the year 2000. An additional written statement
was also filed. The issues were re-casted on 12 June 2002. By an
order dated 18 February, 2003, the Co-operative Court returned the
plaint to the bank by holding that the Court has no jurisdiction, in
view of the specific provisions of the Multi-State Co-operative
Societies Act- 2002 (for short, "MSCS Act-2002"), which came into
force w.e.f. 3 July 2002.
6 On 28 June 2006, in view of specific provisions as available
under the MSCS Act-2002 (Chapter IX) for the settlement of dispute,
an application was filed for reference of disputes. An Arbitrator was
appointed accordingly. The Petitioners filed written statement some
time in October 2007 before the Arbitrator. The claimant filed claim
affidavit on 21 February 2008. An application was filed by the
Petitioners to produce and furnish copy of the documents referred.
The claim was opposed by the Petitioners also. Notice for production
of documents was also issued in 13 May 2008. The same was replied
by the bank. The Petitioners moved an application directing the bank
to produce the records and proceedings of the Co-operative Court.
The same was opposed. An application was filed by the Petitioners for
framing issues on 28 August 2008. However, the learned Arbitrator by
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an order dated 28 August 2008 rejected the application by holding
that the Arbitrator is not bound by the Code of Civil Procedure (for
short, "the CPC"). No issues were framed. Reply was also filed by the
bank to the Petitioners application for amendment. The Arbitrator,
has passed the undated award some time in the year 2009. The
Petitioners, after receipt of the awards, filed Arbitration Petitions
within time.
7 Undisputed question in the present matters is that though the
application/claim was filed under the MCS Act-1992, and by order
dated 18 February 2003, in view of the provisions of MSCS Act-2002,
the Co-operative Court had returned the Plaint/claim for want of
jurisdiction in the year 2000. The Arbitrator, in view of the MSCS
Act-2002, was appointed on the application filed by the bank on 28
June 2006, much after three years from the date of return of the claim
Petitions. The learned Arbitrator, failed to deal with the aspect of
limitation, specifically when there was a monetary claim raised by the
bank. The specific reasons are necessary before awarding any
monetary claim in this background. It goes to the root of the matter.
The issues were specifically raised. The Arbitrator ought not to have
overlooked it.
Vs. Kin-ship Services (India) Pvt. Ltd. 1 that the point of limitation in
a given facts and circumstances, and specifically referring to Section 3
of the Limitation Act though not raised by the parties, the Arbitral
Tribunal needs to consider the same before awarding any monetary
claim. The relevant para 27 reads as under:-
"It is settled that the plea of limitation, prevent
claiming the party from recovering the amount/claim
though he has a right to claim the same. It debars
the remedy and not the claim. Therefore, the
Arbitrator under the Arbitration Act also bound to
consider this aspect of limitation at least at the time
of awarding the claim so raised by either of the
parties, but within the limit of Limitation Act. In my
view, there is no question of invoking doctrine of
"waiver" and/or "no interference by the Court" as
contemplated under Sections 4 and/or 5 of the
Arbitration Act, specifically at the time of
awarding/granting/passing the final Award. The
arbitration proceedings and the power of Arbitrator
with this regard, are not exceptional to that. The
Arbitrator is bound to pass award within the
framework of substantive as well as procedural laws."
9 The justification, even if any, given by the bank while filing the
reference under Section 84 of the MSCS Act-2002, but when the
question comes to award the monetary claim, where admittedly cause
1 2011(5) Bom. C. R. 572
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of action arose in the year 1989, it was necessary for the learned
Arbitrator to decide the issue before granting any claim in the year
2009. The reasons are missing. It goes to the root of the matter and
the submissions made by the learned counsel appearing for the
Petitioners, though they are not the main borrower, being liable jointly
and severally, though there is no challenge made by the borrower
and/or his legal heirs.
10 Even assuming for a moment that in the present fact, the bank
had filed their claim Petition before the Co-operative Court on 20
June 1992, the Co-operative Court returned the same for want of
jurisdiction, the bank after more than three years, filed the reference
application. There was no challenge raised to the order passed by the
Co-operative Court at the relevant time. Therefore, on that date the
claim Petition filed by the bank was pending. The provisions of
Section 126 of MSCS Act-2002 ought to have been taken note of
before referring the matter. The specific objection was raised by the
Petitioners even for this issue. The learned Arbitrator, again failed to
provide the detailed reasoning in support and/or to oppose the same
objection so raised.
Bank Ltd. Vs. State of Maharashtra & Ors. 2 had dealt with the
similar situation by referring to the Division Bench/decision of this
Court apart from other judgments. The Arbitrator in the given
situation, though wanted to rely upon the Judgment of the Division
Bench to continue with the existing Arbitration proceedings, in that
case also the reasons should have been provided.
12 Another aspect in the matter was that, though various
applications were moved by the Respondent parties, the same were
not considered at the appropriate time in accordance with law. The
proper decision is required to be taken at the relevant time,
specifically when the Respondent parties have raised various
objections including of fraud, representations. No opportunities were
given as such related aspect also goes to the root of the merit of the
matter. The learned Arbitrator though dealt with those aspects on
merit against the Petitioners, yet the issue of jurisdiction and
limitation just cannot be overlooked, as basically when the award
under Section 84 of the MSCS Act-2002, if attained finality, as
contemplated under Section 34 and 36 of the Arbitration Act, became
2 2009(4) Mh. L. J. 929
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executable/ enforceable decree, but if such award and/or decree in
view of the above jurisdictional aspect is without jurisdiction, the
Court has no option but to accept the same as nullity and illegal and
all the proceedings arising out of the same should follow the same
consequences.
13 Though the evidence of cpc and the evidence act are not
applicable in view of Section 19 of the Arbitration Act, still the basic
principle of natural justice, fair-play and the principle of law just
cannot be overlooked by the Arbitrator, appointed under the MSCS
ACT-2002. I have already observed in L & T Sahyadri Earth movers
Vs. Finance Limited & Anr.,3 the role of Arbitrator dealing with the
Arbitration proceedings, is crystalized as under:-
"Pleading - Claim-defence- counter claim- inspection
documents
(i) The Petitioner/claimant to file claim petition with details
particulars and supporting documents, if any. The Respondents be
permitted to file reply/defence/rejoinder/counter claim/ set off
and supporting documents, if any. The Arbitrator may direct the
3 2011 (4) Mh. L.J. 200
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parties to file a list/ compilation of documents and call for more
informations or details. The parties may admit or deny the
documents, after due inspection of the documents.
Interim order or protective order
(vii) The Arbitration Act (S/17) empowers the Arbitrator to pass
just and equitable, appropriate interim or protective order, pending
the arbitration proceedings before him, relates to the "subject
matter of the dispute for and against the parties unless agreed
otherwise. This power operates during the existence of the
tribunal.
Binding Procedural Rules to conduct Arbitration-
(viii) Once all the parties appear, the Arbitrator must decide
and/or discuss the procedure to be followed in conducting the
proceedings, if not already decided or agreed, including the
governing law.
Binding terms and the reference-
(ix) The Arbitral Tribunal needs to proceed in accordance with
the terms of the agreement and or the reference, taking into
consideration the choice of law or governing law.
(x) The Arbitrator may direct the parties to file their respective
issues though it is not mandatory. The issues are helpful for the
proper and effective trial.
(xi) The Arbitrator, after hearing the parties, may finalise the
issues.
List of the witnesses-Call for the witness
(xii) The parties, if they want to examine witness, may file a list
of witnesses. If necessary, seek order from the Court under Section
27 of the Arbitration Act, to call necessary witness with or without
documents.
The evidence in chief - through affidavits-inspection- cross
examination- re-examination, if necessary, including Video
conference/process.
(xiii) The Arbitrator, if decided by the parties, direct the claimant
to file affidavit in support of the claims and permit the
Respondents to cross-examine and also permit the Respondent to
file affidavit in chief in support of their defence; and permit cross
examination to the other side and/or follow such other procedure.
This can be done, if agreed, through video conferences.
(xiv) The Arbitrator may permit the parties to call an expert
witness and/or report or by consent call for expert evidence/report.
Mediation and conciliation
(xv) The Arbitrator by consent of the parties, may refer the
matter for mediation/conciliation.
Arbitrator's power to dismiss for default or pass exparte
award.
(xvi) The Arbitrator is entitled to dismiss the Arbitration Petition
in default if the Petitioner/claimant is absent. The Arbitrator is
also empowered to pass an exparte award, if the Respondent or his
Advocate is absent. But still must act fairly and honestly.
Equal and fair treatment
(xvii) The Arbitrator must give equal opportunity to both the
parties and, therefore, bound to follow the principles of natural
justice, fair play and equity.
CPC & Evidence Act
(xviii) Though Code of Civil Procedure and the Evidence Act
are not applicable strictly, (Section 19), but the settled principles
do apply. The power of Arbitral Tribunal to determine the
admissibility, relevance, materiality and weight of any evidence
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just cannot be overlooked.
To decide jurisdiction :
(xix)The Arbitrator is empowered to decide his own jurisdiction if
objected and even the issue of existence of arbitration
agreement (S/16). It should be decided as early as possible by
passing reasoned order, as this could be additional ground of
challenge u/Section 34 of the Arbitration Act.
Substantial laws- customs-commercial usages and practice
(xx)The Arbitrator is bound by the substantive laws of the land as
well as procedural laws and practice and principle apart from the
custom and usage of the trade referring the business and commerce
between the parties, in all respects.
To Analyse the evidence and the record
(xxi)The Arbitrator is required to consider all the material and
evidence/documents placed by the parties on record read with the
evidence led by the parties. The Arbitrator is, therefore, bound to
analyse and appreciate the same by giving proper and correct
interpretation of terms of the contract subject to provisions of law,
before passing reasoned interim or final award. The Arbitrator to
pass reasoned interim and/or final award, unless agreed
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otherwise.
To award interest-pre-post-future interest- as agreed if not as
per the law
(xxii) The Arbitrator is required to consider/grant pre/post,
pending and future interest as contemplated under Section 31 of
the Arbitration Act.
The Doctrines to be followed
(xxiii)The Arbitrator cannot disregard the substantive and procedural
law. The Arbitrator is therefore bound to take note of law; of
interpretation, precedent, obiter dicta, ratio decidendi, Estoppel,
acquiescence, waiver and res judicata, public policy, natural
justice, fair-play and equity.
The communication/service of the award/interim or final.
(xxiv)The Arbitrator, if other side is absent, needs to send/serve a
copy of the signed arbitral award as per the law so that the
aggrieved party may take appropriate steps to challenge the same
within limitation and as it is also enforceable, executable like
decree.
(xxv) The Arbitrator, if application is moved, may correct an error
or clarify the award, as contemplated under Section 33 of the
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Arbitration Act."
14 The relevant factor here again is that the aggrieved parties
normally select their own procedure and Arbitrator/Judge to settle
their disputes through the Arbitration proceedings. But, in view of
specific provisions of MSCS Act-2002, the parties have no choice to
select their own Arbitrator to decide the dispute between the parties.
Therefore, such Arbitrator appointed under any act just cannot claim
that the provisions of cpc and/or evidence act are not applicable.
The initiation of Arbitration proceedings referring to the Arbitration
Act in my view, is nothing but the statutory Arbitral Tribunal created
under the provisions of MSCS Act-2002 and the Arbitration Act.
Therefore, it is also necessary for such Arbitrator while deciding any
issue for and/or against the parties, he must take note of the basic
principle of CPC and/or the Evidence Act before assessing and/or
giving finding based upon the documents and material placed on
record.
15 It is not the case that the Petitioners have admitted all the
documents, on the contrary the reply and/or submission so raised
shows that they raised various grounds including allegations of fraud
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and misrepresentation. They have made specific case subject to the
validity of those basic documents. Therefore, in such situation the
Bank ought to have led proper evidence to defend and to support the
contents of these documents. It means, again an opportunity to the
other side, if occasions come, even to cross-examine the witnesses. In
the present case, there is no evidence laid by the bank. The aspect of
banking documents treating it to be governed by the provisions of the
Banking Laws, cannot be accepted in favour of the bank, in a situation
like this, when the claim was based upon the cause of action, and
where the borrower failed to appear before the Tribunal, of the year
1989. There is no serious dispute on the basic cash credit facility was
of Rs.10 lacs. The case that it was subsequently enhanced to Rs. 15
lacs without due notice and/or knowledge of the guarantor and/or
sureties is also another facet which the Arbitrator must have taken
care note of, while deciding the award, when the basic claim was filed
in the year 1992 when the governing law was MCS Act-1960.
16 The Petitioners were alleged to be the members of the society.
The aspect of filing of claim against the principal borrower and the
guarantors, even if any, on the basis of provisions of section 85, under
the MSCS Act-2002 was not available under the MCS Act-1960, at the
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relevant time. The general principle of the Limitation Act was in
force. The claim Petition was returned for want of jurisdiction. A fresh
claim Petition was filed before the Arbitrator on 28 June 2006. The
membership, even if any, was no way sufficient to say that the claim
Petition so filed is within the limitation of three years. Section 85 of
the MSCS Act-2002 just cannot be invoked retrospectively, in such
fashion, to protect their claims Petitions against the borrower and/or
the guarantors.
17 As noted, the learned Arbitrator has dealt with the only
contention raised by the Petitioners -borrower on merits of the date
but failed to take note of the fact that though borrower served, as
recorded, but not represented, the documents so referred and rely,
certainly revolved around the case/claim of the main borrower.
Therefore, while deciding the total claim and granting the award
against all the parties, the bank's documents ought to have been
referred for the case and/or the documents of the borrowers also.
18 The aspect of removal of financial assistance and/or fresh
application is also relevant factor, which ought to have been dealt
with from the point of view of the Petitioners- borrowers. Any change
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in banking documents, just cannot be made without consent of all the
parties. The borrower's changed application, cannot be taken as a
foundation to impose liability on the guarantors, as their consent, as
well as, signatures were also necessary. It is not the case of the
claimant bank that they have signed theses documents twice.
19 The contention of the learned counsel appearing for the bank is
that the learned Arbitrator has dealt with this facet taking note of the
admitted signatures on these documents. The point is not the
admitted signatures. The point is the facts and circumstances and
alleged misrepresentation and the changes without the consent of the
guarantors. The Claimant Bank, cannot unilaterally, without consent
of all the borrowers change any terms and conditions of such bank
documents. The Arbitrator has not dealt with this facet also.
20 The last and important facet is that the Arbitrator has passed the
award and granted interest @ 17.5% from the date of recovery Suit
i.e. from 20 June 1992 till 18 February 2003 and @ 14% p. a. from 19
February 2003 till the recovery of the same. Therefore, the findings
should be given again that the Petitioners' guarantors were the
guarantors since the inception. The issue of jurisdiction and of
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limitation, therefore if goes to the root of the matter, then it follows
the grant of interest on such awarded amount. The award is illegal
and perverse and unsustainable.
21 The facts of insolvency proceedings and its effects on the parties
and the litigation ought to have been discussed.
22 Therefore, taking overall view of the matter and considering the
scope and purpose of Arbitration Act and proceedings, and as
observed above, the award so passed is without jurisdiction and
illegal. The Court under Section 34 of the Arbitration Act is entitled
to interfere with the same.
23 Resultantly, the common award passed by the sole Arbitrator, in
Arbitration Proceeding No. 206 of 2006, (Exhibit A), is quashed and
set aside.
24 Both these petitions are accordingly allowed. There shall be no
order as to costs.
(ANOOP V. MOHTA, J.)