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Central Registrar of Cooperative Societies may choose an arbitrator in accordance with Section 84 of the Multi State Cooperative Societies Act, 2002: Delhi High Court

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Case Name: Appolo Handloom Manufacturing Co-Op Society Ltd v. All India Handloom Fabrics Society and Ors 

Case No.: ARB.P. 1261/2023 

Dated: April 8, 2024 

Quorum: Justice Pratibha M Singh 

 

FACTS OF THE CASE: 

For more than thirty years, Apollo Handloom Manufacturing Co-Op. Society Limited, the petitioner, has been a member of the All-India Handloom Fabric Society. The Petitioner filed a petition seeking the appointment of an arbitrator by the Central Registrar of Co-operative Societies, Ministry of Cooperation. 

In order to have an arbitrator appointed by the Ministry of Cooperation’s Central Registrar of Cooperative Societies, the petitioner submitted a petition. Among the disagreements the petitioner brought up are issues, including but not limited to monetary dues, unlawful election of office bearers, and other issues brought up by the respondents. 

Section 84 of the Multi State Cooperative Societies Act, 2002 was cited by the petitioner as the basis for the Arbitration Clause. On May 26, 2023, the petitioner requested the appointment of an arbitrator; however, the Central Registrar did not do so as required by Section 84 of the Act. 

Disappointed by this, the petitioner filed an application under Section 11(6) of the Arbitration and Conciliation Act (A&C Act) requesting the appointment of an arbitrator through the intervention of the court. According to the Court’s ruling, the Central Registrar may be directed to nominate the arbitrator even though it is not permitted to do so itself. 

Apollo Handloom Manufacturing Co-op. Society Limited, the petitioner, complained that the Central Registrar had not appointed an arbitrator in spite of their request. The petitioner was dissatisfied with this inaction and looked for another way to settle the problem. 

The Central Registrar is required by Section 84(4) to designate the arbitrator; but, in the event that the Registrar is unable to do so, the aggrieved party may petition the High Court for guidance. This was clarified by the Court. 

 

CONTENTIONS OF THE PETITIONER: 

The petitioner’s position is that, as a member of respondent, it has a number of disagreements with how respondent operates, including the unpaid balance of certain of the petitioner’s financial obligations. Furthermore, the Attorney maintains that Respondent No. 1’s office bearers were elected in a way that was illegitimate and forbidden.  

A request for the appointment of an arbitrator with another respondent, in the form of a representation, was filed on May 26, 2023. This request pertained to other disputes pertaining to the constituent of Respondent No. 1, for which it had invoked the Arbitration Clause in terms of Section 84 of the Multi State Cooperative Societies Act, 2002 (hereinafter, “the Act”). Moreover, the Petitioner asserts that it has additionally submitted a request for the appointment of an arbitrator on Respondent No. 6-Central Registrar’s website.  

The petitioner claims that because the Central Registrar did not appoint an arbitrator, this court’s jurisdiction is invoked under Section 11(6) of the Arbitration and Conciliation Act, 1996, and a petition has been filed seeking the appointment of an arbitrator in accordance with Section 84 of the Act.  

By way of representation, the petitioner claims that on May 26, 2023, a request was made for the appointment of an arbitrator alongside another respondent. In accordance with Section 84 of the Multi State Cooperative Societies Act, 2002 (hereinafter, “the Act”), Respondent No. 1 had invoked the Arbitration Clause in relation to various conflicts involving its constituent under consideration. In addition, Petitioner also states that it has also filed a request on Respondent No. 6-Central Registrar’s website for the appointment of an arbitrator. 

Under Section 84 of the Act of 2002, the disputes were addressed. Section 84(5) requires the appointment of an arbitrator, which the Central Registrar, as the appointing authority, failed to accomplish. In the absence of an arbitrator, the petitioner was left with no option except to request the appointment through the court. 

 

CONTENTIONS OF THE RESPONDENTS: 

First, the argument is made that the claims and conflicts that need to be sent to arbitration are unclear. The Counsel for Respondent No. 1 further argues that the Petitioner did not provide the Respondent with any notice pursuant to Section 21 of the Arbitration and Conciliation Act, 1996. 

In support of Respondent Nos. 2 through 4, it is argued that an office bearer’s election may only be contested within 30 days and not after that. A petition under Section 11 of the Arbitration Act may also be contested as unmaintainable in light of Section 84(5) of the Act. Respondent Nos. 2 to 4’s legal counsel argues that the petition itself cannot be maintained in light of the Supreme Court’s decision in a precedent-setting ruling that is currently before the highest court. 

The petition’s maintainability was contested by the respondent for the following reasons: It is purported that the petitioner did not supply enough information on the parties’ disagreement. Prior to submitting the application, no notification under Section 21 of the A&C Act was given. The petition under Section 11(6), according to the respondent, could not be maintained because the Central Registrar alone had the authority to appoint.  

 

LEGAL PROVISIONS: 

  • Section 84 of the Multi State Cooperative Societies Act, 2002: This provision, which addresses arbitration in cooperative groups, was cited by the petitioner. It offers a way for conflicts in these kinds of communities to be settled through arbitration. 
  • Section 11(6) of the Arbitration and Conciliation Act (A&C Act): An application under this section was filed by the petitioner. It gives the court the ability to step in and appoint an arbitrator in the event that the authorised authority—in this example, the Central Registrar—fails to act. 

 

COURT’S ANALYSIS AND JUDGMENT: 

Counsels representing each party were present, and the court reviewed the documentation. The provisions of the Arbitration Act would only be applicable in the absence of any additional provisions enacted under the Act, as far as maintainability under Section 84(5) of the Act is concerned.  

The Central Registrar of Co-operative Societies, Ministry of Cooperation, is required by Section 84(4) of the Act to designate an arbitrator; the court noted that this need cannot be questioned. On the other hand, if the Central Registrar is unable to choose an arbitrator, the Petitioner may be left without recourse. It cannot be maintained that the Court lacks the authority to refer the case to the Central Registrar for the appointment of an arbitrator in such circumstances.  

According to Section 84(5) of the Act, the court ruled that there was a clear arbitration clause. As a result, the claim that a petition under Section 11(6) of the Arbitration Act could not be maintained was dismissed. The High Court is authorised under Section 11(6) of the Arbitration Act to take the required actions to ensure the appointment of an arbitrator, particularly in cases where a person or organisation, in this instance, the Central Registrar, has neglected to take the necessary actions n accordance with the protocol outlined in Section 84 of the Act. 

Regarding Respondent Nos. 2 through 4, this Court believes that they are individual office bearers of Respondent No. 1, which is a society. Thus, the primary legal relationship is that of the Petitioner and Respondent No. 6. The Central Registrar, the aforementioned respondent, has only informed the court that it will choose an arbitrator in two weeks without contesting the maintainability of the current case.  

 

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Judgment reviewed by Riddhi S Bhora. 

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“Supreme Court relieves DMRC of hefty arbitral award to DAMEPL in a Curative Petition.”

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Case Title: Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd

Case No.: Curative Petition (C) No(s). 108-109 of 2022Dated: 10th April, 2024
Quorum: CJI Dr. D.Y. Chandrachud, Justice B.R. Gavai and Justice Surya Kant

FACTS OF THE CASE:
This case revolves around the Delhi Metro Connectivity issue with Delhi Metro Rail Corporation Ltd. as the Petitioner. The Respondent (Delhi Airport Metro Express Pvt. Ltd.) is incorporated with a consortium.

The parties entered into a Concession Agreement in 2008 (hereinafter referred to as ‘The Agreement’). The agreement was regarding the construction, operation and maintenance of Delhi Airport Metro Express Ltd. The primary focus of the agreement was revolving the connectivity of focal locations in Delhi. In April 2012, DAMEPL requested a concession fee deferment due to station access delays in their public-private partnership with DMRC. A Joint Inspection Committee was formed to investigate defects. Operations were stopped on 08 July 2012 as per the will of the Respondent.

A notice was issued by the Respondent stating a list of 8 ‘non exhaustive’ defects which, as per their contentions, affected the smooth operation of the metro. Eventually, a notice of Termination was issued by the Respondent as 90 days’ time period had expired with regards to the ‘cure period’.

In 2013, DAMEPL handed over AMEL operations to DMRC. The Commissioner of Metro Railway Safety (CMRS) had issued sanctions with certain restrictions of speed limit. DMRC sought arbitration proceeding in 2013. Order passed was in 2017 in favour of DAMEPL.

Subsequently, DMRC filed a petition in Delhi HC which was dismissed, an appeal was filed which was allowed. Thus, DAMEPL filed an SLP in the apex court to no avail.

CONTENTIONS OF THE PETITIONER:
DMRC claimed that it promptly addressed the defects upon receiving the ‘cure notice’. They engaged with SYSTRA, the original design consultant, and held meetings with the Ministry of Urban Development. It was further DMRC v. DAMEPL contended that DAMEPL played an active role in these measures.

The Petitioner further contends that the termination notice was ultimately triggered by the project’s financial infeasibility, not the aforementioned reasons. DMRC seeks to nullify the termination notice and compel the respondent to fulfill their obligations under the 2008 agreement.

CONTENTIONS OF RESPONDENT:
The Respondent contends that there were delays in providing access to the Stations in question by the DMRC. DAMEPL, further expressed its intention to stop the operation of the metro with immediate affect by issuing a non exhaustive list of 8 defects which hampered the performance of contract as per the the Agreement, 2008.

DAMEPL further contended that these defects rather a “material adverese effect” on the performance of obligations in order to operate, manage and maintain the project.

LEGAL PROVISIONS:
S.34 of Arbitration and Conciliation Act, 1996 provides for Application for setting aside Arbitral Awards: If an aggrieved party is unsatisfied with the award of Arbitration, the only option to set aside the award is to apply to a Court.
S.37 of Arbitration and Conciliation Act, 1996 provides for Appealable Orders: It is the only appellate remedy available against a decision under Section 34.

ISSUES:
– Whether the curative petition is maintainable.
– Whether this Court was justified in restoring the arbitral award which had been set aside by the Division Bench of the High court on the ground that it suffered from patently illegality.

COURT’S ANALYSIS AND JUDGMENT:

The Supreme Court pronounced the judgement and analyzed it in 3 parts-
i) “Curative Petition may be invoked if there is a miscarriage of justice”-
It was held that the court can entertain a Curative Petition only when there is a prima facie scope to prevent the abuse of its process, to prevent infringement or abuse of justice particularly in instances where the principles of natural justice have been violated.

ii) “Scope of interference of Courts with arbitral awards”-
S.34 of the Act lays down provision for setting aside an arbitral award only by means of application to competent courts. It was held that apart from the grounds in S.34(2) , there is another ground for challenging the award which is if the court determines that there’s a clear and obvious legal error in the arbitration award, they can set it aside. This error is known as “patent illegality,” and it’s evident from the award itself. So, in simpler terms, if there’s a glaring legal mistake, the court can intervene and nullify the award.

iii) “The award was patently illegal”-
It was held that there is a prima facie fundamental error, inter alia, in the way the Division Bench of the High Court dealt with the challenge. The Division Bench of the High Court reviewed a decision made under Section 37. They found that the arbitration award had ignored essential facts and evidence that were vital for resolving the issues before the arbitral tribunal.

The Supreme Court further held that The Tribunal’s decision centered around the presence of defects after the cure period. According to their reasoning, the existence of defects at the end of the cure period indicated that they were not fully resolved. However, the Tribunal did not clarify what qualifies as an “effective step” during the cure period. They treated in-progress actions that hadn’t yet resulted in complete defect resolution as insufficient to offset termination. Essentially, the Tribunal equated the components of defect curing and taking effective steps, emphasizing only completed defect resolution as relevant. Yet, they did not elaborate on what constitutes an effective step or why DMRC’s actions fell short within that context.

To summarize it, the Supreme Court swiftly dealt with the fiasco of unanswered questions pertaining to Curative Petition and relieved the Petitioner of about 8000 Crore arbitral award to the Respondent.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Judgment reviewed by- Riddhi S Bhora

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Delhi High Court appointed a substitute Arbitrator on account of abandonment of Arbitration proceedings by the erstwhile Arbitrator

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Case title: North East Centre of Technology Application and Reach (NECTAR) Vs Divine Bamboo Mat Manufacturing Pvt. Ltd. & Anr.

Case no.: O.M.P.(T) 1/2024

Decision on: April 8th, 2024

Quoram: Justice Ms. Justice Neena Bansal Krishna

Facts of the case

The present petition sought for the appointment of a substitute Arbitrator. In this case, NECTAR and Divine Bamboo Mat Manufacturing Pvt. Ltd. had entered into a contract in 2008, through the Original Agreement for Technology Development Assistance valued at Rs. 1,75,00,000/- in lieu of setting up and developing the project for manufacturing of Bamboo Mat Composites. In furtherance of it, a Hypothecation Deed was executed between the parties at New Delhi with regard to certain present and future moveable assets of the respondent. The parties also entered into a Supplementary Agreement (I) which modified the original agreement in respect of the sanction amount. Subsequently, another Supplementary Agreement (II) was entered by the parties, wherein the respondent agreed to repay the amount of Rs. 2,20,00,000/- according to the modified schedule. Though, the petitioners made proposals for settlement, the respondent failed to pay the due amount.

The Clause 17 of Original Agreement provided for Arbitration and also mentioned the venue of Arbitration to be New Delhi. Consequently, the Notice of Invocation of Arbitration was served to the respondent. But however, they ignored the same and stopped communicating with the petitioner. The petitioner appointed the sole Arbitrator to adjudicate the disputes inter se the parties. Upon commencement of arbitral proceedings, both the parties submitted their claims and counterclaims before the Arbitrator. However, the matter reached a deadlock when the respondent filed an Application under Sections 12 and 13 of the Act challenging the appointment of Arbitrator.

Submission of the Parties

The Counsel for the Petitioner detailed the array of facts in the submissions. He asserted that despite the agreement to pay the outstanding amount by the respondents, they defaulted in their repayment obligations in terms of Original Agreement, Supplementary Agreement (I) and (II). Further, he submitted all the facts and circumstances of the case leading to its deadlock. Hence, the Counsel filed a petition under Section 14 read with Sections 15 and 11 of the Arbitration and Conciliation Act, 1996 seeking for the appointment of a substitute Arbitrator to break the deadlock.

The Counsel for respondents on instructions submitted that he has no objection in allowing the present petition. Hence, he did not raise any objections in the present matter.

Legal Provisions

Section 11 – It provides for the Appointment of Arbitrators.

Section 12 & 13 – They provide for the Grounds and Procedure for challenging the Appointment of an Arbitrator.

Section 14 & 15 – They provide for the Termination of Mandate of Arbitrator and his Substitution by another.

Court’s Analysis and Judgement

The Court addressing the question of limitation for filing the application relied on the case of Tarun Kr. Jain, Sole Proprietor vs. M.C.D., which held the limitation period for the substitution of Arbitrator under Section 14 of the Act, 1996 to be three years. It noted that in the present case the time limit for the mandate of the Arbitrator had expired, as per Section 29A of the Act, 1996, even after excluding the COVID-19 Pandemic period. Considering the fact that no proceedings have been undertaken by the Arbitrator since 14.12.2019 when the Application under Section 12 of the Act, 1996 was made, the Court stated that the Arbitrator had abandoned the Arbitration proceedings and also had withdrawn from his Office.

In light of these circumstances, the Delhi High Court allowed the present petition and appointed Mr. Justice V.K. Jain, retired Judge of Delhi High Court, as a substitute Arbitrator to adjudicate the disputes between the parties. Thereby, it facilitated the parties to present their claims and counterclaims before the arbitrator.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Judgement Reviewed by – Keerthi K

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