Arbitral award liable to be set aside under Section 34 for patent illegality where arbitrator assumes jurisdiction under Section 84 of Multi-State Cooperative Societies Act without proof of borrowers' membership, required by Section 25 via application and admission.

JUDGMENT :

PRAVIN S. PATIL, J.

1. Heard. Rule. Rule made returnable forthwith. By consent of Mr.Saurav P. Rajurkar, counsel for appellant and Mr R.R. Deo, learned counsel for respondent Nos. 1 and 2, the application is taken up for final hearing at the stage of admission.

2. This appeal is filed under Section 37 of the Arbitration and Conciliation Act, 1996, by the Appellant/Multistate Credit Co-operative Society Limited to challenge the judgment and order passed by Principal District Judge, Yavatmal in Civil Misc. Appeal No. 221/2022, whereby the Arbitration Award passed in Arbitration Case No. ARB/RMCCSY/ylmb/911/2021 dated25/06/2022 is quashed and set aside.

3. The submission of the appellant in the present appeal is that the learned District Judge has transgressed the scope of Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as ‘the Act of 1996’), thereby violating the settled principles of law which stipulate that scope of intervention of the Court in arbitral matters is restricted only to the limited grounds provided under of the Act of 1996.

4. It is further submitted that the case of respondent No.1 and 2 does not fall within any of the grounds provided under Section 34 of the Act of 1996 and, therefore, the indulgence shown by the learned District Judge in the matter is bad in law.

5. In the light of the submissions made by the appellant challenging the judgment of the District Judge, it would be necessary to state certain facts of the present matter to verify whether the case of the respondents falls within the grounds provided under Section 34 of the Act of 1996 or not.

6. In the present case, admittedly, the appellant/society on 27/03/2021 lodged a dispute under Section 84 of the Multi-State Cooperative Societies Act, 2002 (for short ‘the Act of 2002’), read with Section 23 of the Act of 1996, for recovery of an amount of Rs.1,29,34,497/- (Rs. One Crore Twenty Nine Lakh Thirty Four Thousand Four Hundred and Ninety Seven only), along with interest and other charges against the Respondent Nos.1 and 2.

7. The submission of the appellant before the Arbitrator was that present respondent Nos. 1 and 2 are the borrowers, respondent No. 3 and respondent Nos. 4 and 5 are the guarantors of the loan, and they are the members of the Society. It was alleged that after disbursement of loan, respondent Nos. 1 and 2 avoided repayment of the loan as per the installments decided at the time of disbursing the loan. It was further alleged that present respondent Nos. 1, 2, 4 and 5 had availed the membership rights of the society and therefore, the dispute touches the business and management of the society. Hence, as per Section 84 of the Act of 2002, the dispute was referred and the same was tenable under the provisions of law.

8. In response to the lodging of reference to the Arbitrator, notices were issued to the respondent Nos. 1 and 2. The said respondents vide Exhibit Nos. 9 and 10, informed the Arbitrator that because of surge of COVID-19 in the year 2021, their entire business was collapsed and therefore, they are not in a position to repay the loan. Accordingly, requested to grant time for repayment of loan.

9. The said communication of the respondent Nos. 1 and 2 was taken on record by th