Case Note & Summary
The petitioner, Radheshyam S. Gupta, challenged an arbitral award dated 13 August 2008 passed under Section 84 of the Multi-State Cooperative Societies Act, 2002 (MSCS Act). The respondent, Cosmos Cooperative Bank Limited, had claimed recovery of Rs.54,298/- with interest from the petitioner and respondents 2 to 4. According to the bank, respondent no.2 was the principal borrower, and respondents 3 and 4 along with the petitioner were guarantors. The petitioner contended that he was not a member of the bank and had only signed a recommendatory document for the loan, and that the claim was barred by limitation. The loan was obtained on 5.5.1999 from an earlier bank which later merged with the respondent bank. The claim was instituted on 2.12.2006, beyond the three-year limitation period. The court found that there was no material to show the petitioner was a member of the bank, and a non-member cannot be made liable under the MSCS Act. The court also held that the claim was clearly barred by limitation. The Arbitrator's failure to consider these issues rendered the award patently illegal. The court set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996, and allowed the petition.
Headnote
A) Arbitration - Limitation - Section 34 of the Arbitration and Conciliation Act, 1996 - The court considered whether the arbitral award was barred by limitation. The loan was obtained on 5.5.1999, and the claim was instituted on 2.12.2006, beyond the three-year period under the Limitation Act, 1963. The court held that the claim was clearly barred by limitation and the Arbitrator's failure to consider this renders the award patently illegal. (Paras 5-6) B) Cooperative Societies - Membership - Section 84 of the Multi-State Cooperative Societies Act, 2002 - The court examined whether the petitioner, who signed a recommendatory document for a loan, could be treated as a guarantor. The court held that there was no material to show the petitioner was a member of the bank, and a non-member cannot be made liable under the Act. The Arbitrator's finding that the petitioner was a guarantor was perverse and without evidence. (Paras 5-7) C) Arbitration - Patent Illegality - Section 34 of the Arbitration and Conciliation Act, 1996 - The court held that the award suffers from patent illegality as it ignores the limitation bar and the lack of membership of the petitioner. The award is set aside as it is contrary to the public policy of India. (Paras 6-8)
Issue of Consideration
Whether the arbitral award dated 13 August 2008 is liable to be set aside on the ground of limitation and on the ground that the petitioner was not a member of the respondent bank and thus not liable as a guarantor under the Multi-State Cooperative Societies Act, 2002.
Final Decision
The court allowed the petition and set aside the arbitral award dated 13 August 2008. The court held that the claim was barred by limitation and the petitioner was not a member of the bank, thus the award was patently illegal under Section 34 of the Arbitration and Conciliation Act, 1996.
Law Points
- Limitation period for recovery of loan under Multi-State Cooperative Societies Act
- 2002
- Section 84 arbitration is governed by the Limitation Act
- 1963
- and the claim must be filed within three years from the date of default
- a person who merely recommends a loan but is not a member of the cooperative society cannot be treated as a guarantor or liable under the Act
- the Arbitrator's failure to consider the limitation issue and the status of the petitioner as a non-member renders the award patently illegal and liable to be set aside under Section 34 of the Arbitration and Conciliation Act
- 1996.
