Case Note & Summary
The petitioners, Kalpesh Shantikumar Mehta and others, along with KSM Multitrade LLP and others, filed two petitions under Section 14 of the Arbitration and Conciliation Act, 1996, seeking termination of the mandate of the arbitrator appointed by the respondent NKGSB Co-operative Bank Ltd. The Bank, registered under the Multi State Co-operative Societies Act (MSCS Act) and carrying on banking business under the Banking Regulation Act, 1949, had initiated arbitration proceedings against the petitioners, who were borrowers and guarantors of credit facilities. The petitioners claimed they only learned of the arbitration when an ex-parte interim order was passed against them regarding their immovable properties. They challenged the arbitrator's appointment on the ground that the Bank unilaterally appointed the arbitrator without their consent, and that the arbitrator failed to disclose his interest and continued proceedings despite their objection. The court examined whether the arbitrator's mandate stood terminated under Section 14 of the Arbitration Act, and whether the petitioners had waived their right to object by participating in the proceedings. The court held that the arbitrator's mandate terminates if he fails to disclose his interest and continues proceedings despite a jurisdictional challenge, as his de facto authority ceases upon a valid objection. The court also held that mere participation without knowledge of the arbitrator's lack of independence does not constitute waiver under Section 4 of the Act. The court allowed the petitions, terminating the arbitrator's mandate and directing the parties to seek appointment of a new arbitrator in accordance with the MSCS Act.
Headnote
A) Arbitration - Termination of Arbitrator Mandate - Section 14 of Arbitration and Conciliation Act, 1996 - De facto Authority - The court examined whether an arbitrator appointed unilaterally by a co-operative bank under the MSCS Act can continue to act when his mandate is challenged. Held that the arbitrator's mandate terminates if he fails to disclose his interest and continues proceedings despite a jurisdictional challenge, as his de facto authority ceases upon a valid objection. (Paras 1-34) B) Arbitration - Waiver of Right to Object - Section 4 of Arbitration and Conciliation Act, 1996 - Deemed Waiver - The court considered whether the petitioners waived their right to object by participating in the arbitration proceedings. Held that mere participation without knowledge of the arbitrator's lack of independence does not constitute waiver; the right to object is not lost if the objection is raised at the earliest opportunity. (Paras 15-30) C) Co-operative Societies - Appointment of Arbitrator - Multi State Co-operative Societies Act, 2002 - Section 84 - The court analyzed the procedure for appointment of arbitrator under the MSCS Act. Held that the appointment of an arbitrator by the Bank alone, without consent of the other party, is invalid and the arbitrator must be appointed by the Central Registrar or as per the by-laws. (Paras 10-20)
Issue of Consideration
Whether the mandate of the arbitrator stands terminated under Section 14 of the Arbitration and Conciliation Act, 1996, on the ground that the arbitrator was appointed by the respondent Bank unilaterally and failed to disclose his interest, and whether the petitioners have waived their right to object by participating in the arbitration proceedings.
Final Decision
The court allowed both petitions, terminating the mandate of the arbitrator and directing the parties to seek appointment of a new arbitrator in accordance with the Multi State Co-operative Societies Act, 2002.
Law Points
- Termination of arbitrator mandate
- De facto authority of arbitrator
- Waiver of right to object under Section 4 of Arbitration Act
- Appointment of arbitrator by one party
- Co-operative bank arbitration
- Section 14 of Arbitration and Conciliation Act
- 1996
- Multi State Co-operative Societies Act
- 2002
- Banking Regulation Act
- 1949
