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High Court of Judicature at Bombay
THE HONOURABLE MR. JUSTICE ANOOP V. MOHTA
M/s. Jayant Industrial Packaging Ltd. & Others
Versus
The Saraswat Cooperative Bank Ltd. & Another
ARBITRATION PETITION NO. 282 OF 2006 IN ARBITRATION CASE NO. ARB/SCB/226 OF 2004
Decided on : 17-03-2011
Arbitration Act - Challenging impugned award under Section 34 - Multi-State Cooperative Societies Act, 2002 - Sections 84, 97 - Summary of Acts and Sections: The court discussed the application of the Arbitration and Conciliation Act, 1996 and the Multi-State Cooperative Societies Act, 2002, particularly focusing on Sections 84 and 97 of the latter act. The court analyzed the jurisdiction of the Arbitrator, the validity of the impugned award, and the powers of the Arbitrator in relation to attachment and sale of properties. The court also considered the principles of natural justice and fair-play, and the applicability of the Arbitration Act in the enforcement of the award.
Fact of the Case:
The Respondent-Bank filed a claim petition against the Petitioners, challenging an impugned award passed by the Arbitrator. The Petitioners were directors of a company that had received banking facilities and had properties mortgaged with the bank. The bank initiated recovery proceedings, leading to the impugned award. The Petitioners challenged the appointment and continuation of the Arbitrator, alleging bias and misconduct.
Finding of the Court:
The court found that the impugned award was passed without following the principles of natural justice and fair-play. The court also held that the Arbitrator's actions, including attachment and sale of properties, were without jurisdiction and contrary to the law. The court quashed the impugned award and remanded the matter for fresh hearing, granting liberty to the parties to submit settlement proposals.
Issues: The issues included the validity of the impugned award, the jurisdiction and powers of the Arbitrator, allegations of bias and misconduct against the Arbitrator, and the applicability of the Arbitration Act in the enforcement of the award.
Ratio Decidendi: The court's decision was based on the finding that the impugned award was passed without following the principles of natural justice and fair-play, and that the Arbitrator's actions were without jurisdiction and contrary to the law. The court also considered the applicability of the Arbitration Act in the enforcement of the award.
Final Decision: The impugned award was quashed and set aside, and the matter was remanded back for fresh hearing. The court granted liberty to the parties to apply and submit settlement proposals, and ordered the initiation of fresh arbitration proceedings with notice to the parties. The Petition was allowed with no order as to costs.
The present Petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short the Arbitration Act), challenging the impugned award dated 31st March, 2006, passed by the Arbitrator, appointed by the Central Registrar of Co-operative Societies, vide order dated 23rd January, 2003, under Section 84 of the Multi-State Cooperative Societies Act, 2002 (the MSCS Act).
2. The basic events are as under:-
On 11/04/2004, a claim petition was filed by the Respondent-Bank before the learned Arbitrator, Mr. R.A. Dalvi, against the Petitioners. On 11/11/2004, an order of attachment before judgment was passed. The execution Application No. 405 of 2004 filed by the Respondent Bank. On 23/11/2004, Chamber Summons No. 1727 of 2004 filed in above Execution Application.
3. On 25/08/2005, this Court in Chamber Summons No. 1727 of 2004 vacated the order of attachment.
4. On 14/09/2005, Appeal No. 791 of 2005, preferred by the Respondents from order dated 24/08/2005 was withdrawn.
5. On 16/09/2005, a statement of defence filed by Petitioner No.2.
6. On 08/10/2005, an application by the Petitioners under Section 13/16 of the Arbitration Act, before the Arbitrator. On 24/10/2005, an affidavit of evidence and an affidavit in rejoinder of Respondents filed. In December, 2005, an affidavit of claims filed along with documents before the Arbitrator including written arguments.
7. On 31/03/2006, the impugned award passed.
8. Petitioner No.1 is, original Opponent No.1 Company. Petitioner No.2 [since deceased, 2(a) to 2(c)], 3 and 4 were the Directors of the Company. They were the members of the Co-operative Bank registered under the Maharashtra Co-operative Societies Act, 1960 (for short, MCS Act). The banking financial facilities had been provided to the Company, after due execution of various requisite documents signed by the Directors, some time in the year 1997. On company’s immovable properties–
(i) land admeasuring 1226.78 sq. mtrs. And bearing Plot Nos. 130 and 138, 177 and 178 under City Survey No. 80A and 81/1, Block No. 93 and situated at Charma Market, Char Rasta under Village Kim Palod, Taluka Mangrol, District Surat in the state of Gujarat, and;
(ii) Office premises located at 104, Janaki Centre, Off. Vira Desai Road, Andheri (West), Mumbai-400 053 in the State of Maharashtra created banks first charge.
9. Some time in 1999, the Company approached the Bank and after due discussion, rescheduled/restructured the existing credit limits after execution of fresh documents.
10. As there were consistent defaults, the Respondent bank initiated recovery proceedings on 19th September, 2002 by filing the application before the learned Assistant Registrar, Co-operative Societies, Mumbai under Section 101 of the MCS Act. As objection was raised with regard to the jurisdiction, by an order dated 28th March, 2004, the learned Additional Registrar directed the Respondent bank to file the application before an appropriate forum.
11. An Application, under Section 84 of the MSCS Act read with the Arbitration Act, was filed against the Petitioners for the due aggregating Rs. 336.61 lacs, as on 31st August, 2004, with interest at contractual rate at 17.75%.
12. Before that, notice dated 25th February, 2003 was issued by the Respondent bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the Securitisation Act). The Petitioners’ challenge was rejected. Therefore, on 26th August, 2004, the Respondent bank took possession of both the properties. Moti Naroli factory of the Petitioners was sold on 29th December, 2004 for Rs. 1,15,11,111/-. As alleged, other factory was in possession of the bank on the date of the award. In the meantime, inspite of the orders, the bank sold the hypothecated properties of the Petitioners. Therefore, a contempt Petition was filed.
13. Petitioner Nos. 2 to 4 who owned the immovable property, (not mortgaged
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