Back
2009 Supreme(Bom) 539
2009(6) ALL MR 382
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
D. G. KARNIK, J.
Indian Bank – Appellant
Vs.
The Kapol Co-op. Bank Ltd. & Ors. – Respondent
Arbitration Petition No.470 of 2006
Decided on : 20th April, 2009.
Mr. K. H. MODI i/b JMB Partners, for the Petitioner.
Dr. T ALANKAR i/b Mr. K. M. SANGANI, for the Respondents.
Headnote:Multi-State Co-operative Societies Act, 2002 - Section 84(1)(b) - Reference of dispute between Co-operative Bank and non-members - Jurisdiction of arbitrator - Reference of dispute was without jurisdiction, arbitrator could not have passed award against respondent or petitioner - Whether Tribunal had jurisdictions to pass award is a question of facts and law which is decided upon facts of each case. - The submission cannot be accepted. It is a settled principle of law that the jurisdiction cannot be conferred by consent of the parties. In the present case, the arbitrator claimed/assumed jurisdiction under a statute, viz. The Act, the question of jurisdiction of the arbitrator, in the present case, does not depend on any disputed facts. The facts relevant to the jurisdiction are all undisputed. Whether the arbitral tribunal had jurisdiction in the facts of the present case is a pure question of law to be decided on the basis of admitted facts. The admitted facts disclose that the petitioner and respondent were acceptors of the bills of exchange and admittedly were not members of respondent bank. In the circumstances, the petitioner cannot be prevented from raising the dispute of jurisdiction for the first time in the Court.
Negotiable Instruments Act, 1881 - Section 37 - Bill of exchange - Liability of drawer of bill - Bill of exchange is accepted by putting signature thereon, the acceptor of bill of exchange becomes the principal debtor and all other parties like drawer of bill of exchange and all endorsees are liable as sureties for the acceptor of the bill of exchange, becomes the principal debtor and all other parties to the instrument, i.e. the drawer of the bill of exchange and all endorsees are liable as surety for the acceptor of the bill of exchange. - A bare reading of Section 37 of the Negotiable Instruments Act shows that in respect of a bill of exchange the drawer of the bill of exchange until acceptance is the principal debtor. In other words, the drawer of the bill is primarily liable to the holder of the bill of exchange until the bill is accepted. However, after the bill of exchange is accepted by the acceptor by putting his signature thereon, the acceptor of the bill of exchange becomes the principal debtor and all other parties to the instrument, that is to say the drawer of the bill of exchange and all endorsees are liable as surety for the acceptor of the bill of exchange. This position is clear from Section 37 of the Negotiable Instruments Act.
The petitioner is liable to the respondent co-operative bank as principal debt ors, and not under the respondent bank, it cannot be said that the respondent bank and the petitioner were claiming through or liable under the respondent bank. The very foundation of the jurisdiction of the Central Registrar to refer the dispute between the respondent co-operative bank on the one hand and the respondent bank and the petitioner on the other hand was based upon an assumption that the respondent bank and the petitioner were claiming through or liable under the respondent bank. That assumption was incorrect. Admittedly, the respondent bank and the petitioner are not the members of the respondent co-operative bank. They are also not claiming through or liable under the respondent, a member. Consequently, the dispute qua the respondent and the petitioner could not be referred to arbitration by the Central Registrar and the Arbitrator had no jurisdiction to try the dispute.
2. A short but interesting question that arises for consideration is Whether an arbitrator appointed under section 84 of the Multi State Co-operative Societies Act has jurisdiction to entertain a claim and/or pass an award against an acceptor of a bill of exchange who is not its member merely on the ground that the drawer of the bill is its member?
3. The facts of the case in a narrow compass may be briefly stated thus:
The petitioner is a nationalised bank and the respondent no. 1 is a Multi-State Cooperative Bank. Mr. Dinesh Rupasri, the respondent no.2 herein is a member of the respondent no.1. He was sanctioned bill discounting facility by the respondent no. 1.
The respondent no.2 allegedly sold certain goods to the respondent no.3 who is a constituent of the petitioner bank. The respondent no.2 drew bills of exchange/ hundies in three sets between 6th October, 2000 and 2nd February, 2001 for the price of the goods sold by him to the respondent no.3. The bills were accepted by the respondent no.3 and co-accepted by the petitioner as a banker of the respondent no.3. On the due dates, the bills were dishonoured by non-payment.
According to the petitioner, the bills were fraudulent and the respondents in collusion with an officer of the petitioner bank were attempting to defraud it and therefore it was not liable to honour the bills. Criminal proceedings are stated to have been initiated against the respondents nos.2 and 3 and officers of the petitioner bank in that regard.
In the meanwhile, the respondent no. I requested the Central Registrar to appoint an arbitrator and refer for his decision its claim arising out of dishonour of the bills. The Central Registrar accordingly referred the dispute for arbitration under section 84 of the Multi-State Co-operative Societies Act, 2002 (for short "the Act"). The learned arbitrator, after considering the oral and documentary evidence adduced before it, held that the respondent nos.2, the drawer of the bill as the respondent no.3, and the petitioner bank were jointly and severally liable to pay to the respondent no. 1 bank the amount of the bills of exchange together with interest due thereon.
That award is impugned in this petition.
4. Learned counsel for the petitioner bank submitted that the respondent no.3 and the petitioner, who had co-accepted the bills of exchange, were not the members of the respondent no. 1 co-operative bank and therefore the Central Registrar could not have referred the dispute between the respondent no. 1 co-operative bank on one hand and the respondent no.3 and the petitioner on the other hand to arbitration under the Act. The arbitrator had no jurisdiction to arbitrate upon the dispute and pass an award under section 84 of Act.
5. Per contra, learned counsel for the respondent no.1 submitted that the dispute was covered by clause (b) of sub-section (1) of section 84 of the Act and, therefore, the Central Registrar was right in referring the dispute to arbitration; the arbitrator had the jurisdiction to entertain and try the dispute. He submitted that under clause (b) of sub-section (1) of section 84 of the Act, a dispute between a multi-State co-operative society on the one hand and its member or even a person claiming through or under a member could be referred to arbitration. Since the respondent nos.3 and the petitioner were claiming under the respondent no.2, who was the principal debtor, the dispute between the respondent no. 1 cooperative bank on the one hand and the respondent no.3 and the petitioner on the other hand would be referred to arbitration under the Act.
6. In order to appreciate the contention of the parties, it would be useful to refer to sub-section (1) of section 84 of the Act which reads as under:
"84. Reference of disputes.- (1)
Notwithstanding anything contained in any other law for the time being in force, if any dispute other than a dispute regarding disciplinary action taken by a multi-State co-operative society against
