Arbitration Between Co-op Society and Member, Governed By S. 85(1) of the MSCS Act and Not Limitation Act: Delhi High Court

The Delhi High Court has ruled that the limitation period for reference of money dispute between the cooperative society and its defaulting member to arbitration, would be determined as per the provisions of Section 85(1)(a) of the Multi State Co-operative Societies Act, 2002 (MSCS Act), and not as per the Limitation Act, 1963.The bench of Justices Rajiv Shakdher and Girish Kathpalia observed that Section 85(1)(a) of the MSCS Act clearly provides that in such disputes, the limitation period for referral to arbitration would be computed from the date on which the member dies or ceases to be a member of the society. Further, the same is notwithstanding anything contained in the Limitation Act.The court remarked that though Section 85(1)(a) of the MSCS Act carves an extraordinary niche out of the general law of limitation, however, the same is in absolute consonance with the basic purpose of creation of the said statute.The bench thus dismissed the contention of the appellant that the dispute was regulated by the provisions of the Limitation Act, attracting a limitation period of three years for reference to arbitration.The 2nd respondent availed a loan from the 1st respondent, M/s Bombay Marcantile Coop Bank, for purchase of a new car against hypothecation, for which the appellant, Najmus Sehar, stood as a guarantor. After the 2nd respondent defaulted on the loan, the respondent- cooperative bank invoked arbitration proceedings against the 2nd respondent (principal borrower) as well as the appellant (guarantor). The same culminated into an ex-parte arbitral award passed in favour of the respondent bank and against the appellant.The appellant, Najmus Sehar, challenged the arbitral award by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the District Judge, which was dismissed.Against this, the appellant filed an appeal under Section 37 of the A&C Act before the Delhi High Court.The appellant argued before the court that since the loan was advanced on 14.01.1998, the reference to the arbitral tribunal on 23.05.2014 was barred by limitation. The appellant claimed that in view of Section 85(2) of the MSCS Act, the limitation period for arbitral reference was only three years from 14.01.1998. Therefore, the arbitral proceedings were time-barred.The appellant further contended that his role was merely as a guarantor. Since the 2nd respondent was the principal borrower and alive, the dispute ought to have been raised only against him, the appellant claimed.Dismissing the contention raised by the appellant, the court said, “To begin with, argument advanced on behalf of the appellant that respondent no. 2 being the principal borrower, in the absence of any action against respondent no. 2, there can be no action against the appellant who was “merely” a guarantor, is contrary to the fundamental legal position that liability of guarantor is co-extensive with that of the principal borrower and both of them are jointly and severally liable to the lender.”The bench further observed that in the present case, the arbitral proceedings were conducted against not just the appellant but against the principal borrower (respondent no. 2) as well as co-guarantor (respondent no. 3), and the same culminated into the arbitral award.While considering the issue of limitation raised by the appellant, the court said, “The rebuttal argument advanced on behalf of appellant that vide Section 85(2) of the Multi State Co-operative Societies Act, the dispute required to be referred to arbitration shall be regulated by the provisions of the Limitation Act as if the dispute were a suit, completely ignores that the said provision operates in disputes other than those mentioned in sub section (1) of Section 85 of the Act.”Referring to Section 85(1) (a) of the MSCS Act, the bench remarked that the said provision clearly provides that where a dispute relates to recovery of money including interest payable to a co-operative society by its member, the period of limitation for referral to arbitration would be computed from the date on which the member dies or ceases to be a member of the society. Further, the same is notwithstanding anything contained in the Limitation Act.“On the face of it, the provision under Section 85(1)(a) of the Act would appear to be an extraordinary provision of law. But on a brief traverse through the concept, it appears to have been created in order to ensure nurturing of the bond between the co-operative society and its member till death of the member or cessation of his membership, coupled with the upkeep of fiduciary interest of the co-operative society,” the court observed.The bench reckoned that in March 2002, Government of India framed a detailed National Policy on Co-operatives. The said policy decision recognized the need for incorporating special provisions in the Co-operative Societies Acts. The said policy decision also recognized the need to provide preferential ...

Arbitration Between Co-op Society and Member, Governed By S. 85(1) of the MSCS Act and Not Limitation Act: Delhi High Court

Parina Katyal

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