Appolo Handloom Manufacturing Co-Op. Society Ltd. v. All India Handloom Fabrics Society

“the MSCS Act” hereinafter management or business of a multi-State co-operative society, namely:— (a) a claim by the multi-State co-operative society for any debt or demand due to it from a member or the nominee, heirs or legal representatives of a deceased member, whether such debt or demand be admitted or not; (b) a claim by a surety against the principal debtor where the multi-State co-operative society has recovered from the surety any amount in respect of any debt or demand due to it from the principal debtor as a result of the default of the principal debtor, whether such debt or demand is admitted or not;

(c) any dispute arising in connection with the election of any officer of a multi-State cooperative society. (3) If any question arises whether a dispute referred to arbitration under this section is or is not a dispute touching the constitution, management or business of a multi-State co-operative society, the decision thereon of the arbitrator shall be final and shall not be called in question in any court. (4) Where a dispute has been referred to arbitration under sub-section (1), the same shall be settled or decided by the arbitrator to be appointed by the Central Registrar. (5) Save as otherwise provided under this Act, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to all arbitration under this Act as if the proceedings for arbitration were referred for settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996.”

3. In view of the mandate contained in Section 84 of the MSCS Act, this Court, by order dated 8 April 2024, disposed of Arb P 1261/2023, directing Respondent 6, the Central Registrar of Cooperative Societies, to appoint an arbitrator to arbitrate on the disputes between the petitioner and Respondents 1 to 5.

4. Respondent 6 did so. However, the arbitrator appointed by Respondent 6 subsequently recused from the proceedings, thereby prompting the petitioner to re-approach this Court by way of the present petition, complaining that Respondent 6 had not communicated the details of the arbitrator appointed by it and that no communication was received by the arbitrator either. The petitioner has moved the present petition seeking intervention of this Court to appoint an arbitrator or to require Respondent 6 to appoint an arbitrator.

5. Mr. Saha, learned Counsel for Respondent 6 submits, on instructions, that the arbitrator earlier nominated by Respondent 6 has recused from the proceedings and that his substitute arbitrator would be appointed within a period of two weeks from today.

6. During the course of hearing, one of the issues that arose for consideration was whether, once the arbitrator appointed by Respondent 6 had recused, the power to appoint a substitute arbitrator continues to vest in Respondent 6 or whether it vests in this Court. The Court has examined the matter.

7. Section 84(5) of the MSCS Act makes the provisions of the Arbitration and Conciliation Act, 1996[2] applicable to all arbitrations under the MSCS Act, save as otherwise provided in the MSCS Act itself. Admittedly, the MSCS Act does not contain any provision to “the 1996 Act” hereinafter deal with a situation in which an appointed arbitrator recuses or withdraws from the proceedings. Section 84(5) of the MSCS Act, therefore, obligates the Court, in such a situation, to seek recourse to the 1996 Act, Section 14(1)(b)3 of which specifically deals with such an eventuality and provides that, where the arbitrator, who has been appointed to arbitrate on the disputes, withdraws from the office, the mandate of the arbitrator terminates ipso facto.

8. Section 14(1)(b), read with Section 15(1)4, state that the mandate shall terminate where the arbitrator withdraws from the office. Section 15(2)5 requires that, in such a situation, a substitute arbitrator to be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. The words “according to the rules that were applicable ……” has been interpreted by the Supreme Court in Govt of Haryana v G F Toll Road Pvt Ltd[6] to mean the procedure for appointment of the arbitrator as envisaged in the arbitration agreement between the parties. This, therefore, takes us back to the MSCS Act, as the procedure for appointment of the original arbitrator was contained in Section 84 of that Act.

14. Failure or impossibility to act. – (1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if — (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the parties agree to the termination of his mandate.

15. Termination of mandate and substitution of arbitrator. – (1) In addition to the circumstances referred to in Section 13 or Section 14, the mandate of an arbitrator shall terminate— (a) where he withdraws from office for any reason; or (b) by or pursuant to agreement of the parties. (2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

9. As a result, applying Section 15(2), the substitute arbitrator would also have to be appointed by Respondent 6.

10. Learned Counsel for the parties have no objection to the substitute arbitrator being appointed by Respondent 6, but pray that a time bound direction may be issued in that regard, as this matter has been pending since long.

11. Accordingly, Mr. Saha, learned Counsel for Respondent 6 undertakes, on instructions, to ensure that a substitute arbitrator would be positively appointed by his client within two weeks from today and that her/his details, including email ID and phone number, would be provided to all the parties in this case as soon as the appointment takes place.

12. This Court also requests the Arbitrator, who would be appointed, to communicate with all the parties, so that they are aware of the appointment and the subsequent arbitral proceedings.

13. The application stands disposed of in the aforesaid terms.