Arbitration Clauses Override Cooperative Act: Karnataka HC

In a significant ruling clarifying the intersection of private contracts and statutory regulations, the High Court of Karnataka has held that the existence of an arbitration clause in an agreement supersedes the statutory dispute resolution process mandated under the Karnataka Cooperative Societies Act, 1959.

The Hon’ble Mr. Justice Suraj Govindaraj, while presiding over a series of three Civil Miscellaneous Petitions (CMP Nos. 4, 5, and 6 of 2025), dismissed the contention that disputes involving a cooperative society must exclusively be settled by the Registrar under the Cooperative Societies Act.

Case Background

The dispute arose from a series of contracts dating between 2006 and 2008 between the petitioner, Sri. Ramakrishna House Building Cooperative Society (R), and the respondent, M/s Skilltech Engineers and Contractors Pvt Ltd. Each agreement contained a specific Clause 17, stipulating that any disputes arising between the parties were to be resolved through arbitration proceedings.

Upon reaching an impasse, the petitioner invoked the arbitration clause and nominated an arbitrator. However, the respondent failed to concur, leading the petitioner to approach the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996. The respondent argued that as the petitioner is a cooperative society, Section 70 of the Karnataka Cooperative Societies Act acts as a bar, mandating that the dispute be referred to the relevant Disciplinary Authority rather than an arbitrator.

Legal Analysis

The Court’s decision largely turned on the hierarchy of laws and the sanctity of private contracts. Relying on the Supreme Court’s judgment in Jaipur Zila Dugh Utpadak Sahkari Sangh Limited vs. Ajay Sales and Suppliers (AIR 2021 SC 4869) , Justice Govindaraj noted that the Arbitration and Conciliation Act acts as a "Special Enactment."

The bench highlighted that where parties have explicitly agreed to resolve their differences through arbitration, the statutory requirements found in state cooperative laws do not negate the court’s power to appoint an arbitrator. The Supreme Court ruling clarified that Section 58 of the Rajasthan Cooperative Societies Act—which mirrors Section 70 of the Karnataka Act—does not impede the enforcement of an arbitration agreement entered into by such societies.

Key Observations

The judgment relied on the following pivotal reasoning from the Supreme Court:

• "It cannot be disputed that Arbitration Act is a special Act. Even Subsection (5) of Section 12 also states with non obstante clause."
• "Parties are bound by the agreement and the arbitration clause contained in the Agreement."
• "Therefore, neither Section 58 of the Rajasthan Cooperative Societies Act, 2001 shall not be applicable at all nor the same shall come in the way of appointing the arbitrator under the Arbitration Act."

Court’s Decision

Allowing the petitions, the High Court appointed Hon'ble Sri. Justice K. Sreedhar Rao, former Acting Chief Justice of the High Court of Gauhati, as the sole arbitrator to resolve the disputes. The Court ordered that all legal contentions—including the question of arbitrability—remain open for the arbitrator to decide.

This ruling reinforces the primacy of the Arbitration and Conciliation Act in commercial matters, providing a clear path forward for cooperative societies engaging in private business contracts. The parties are directed to appear before the Director of the Arbitration and Conciliation Centre on November 27, 2025.