Case Note & Summary
The petitioner, Dr. Dalvi Ali Abdul Quadar, was a member and director of M/s Ratna Drugs Ltd., which had obtained a loan from the respondent, Kokan Mercantile Coop. Bank Ltd., a multistate cooperative bank. The petitioner had stood as surety for the loan. The loan was subsequently settled under a compromise settlement, with the Bank waiving an interest amount of Rs.74.87 lacs. However, by letter dated 1st October 2012, the Bank terminated the petitioner's membership and forfeited his shares worth Rs.3,125, adjusting the amount against the loan account of M/s Ratna Drugs Ltd. The petitioner challenged this action by filing a dispute under Section 84 of the Multi-State Cooperative Societies Act, 2002, which was referred to arbitration. The arbitrator, appointed by the Central Registrar, dismissed the dispute application with costs of Rs.40,000. Aggrieved, the petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court. The court framed the issue of whether the arbitral award was perverse and contrary to law. The petitioner argued that the forfeiture of shares was illegal as it was done without following the procedure prescribed under the Act and the Bank's bye-laws, and without any notice or opportunity of hearing. The respondents contended that the forfeiture was valid as per the Bank's bye-laws and the arbitrator's findings were based on evidence. The court analyzed the relevant provisions of the Multi-State Cooperative Societies Act, 2002, particularly Section 84, and the Bank's bye-laws. It noted that the forfeiture of shares could only be done in accordance with the Act and bye-laws, which require a proper procedure including notice and an opportunity to be heard. The court found that the Bank had not followed any such procedure; the decision to forfeit was taken by the Board of Directors without any prior notice to the petitioner. The arbitrator's award was held to be perverse as it ignored these legal requirements and upheld an illegal action. The court set aside the award and directed the Bank to restore the petitioner's membership and shares, with costs.
Headnote
A) Arbitration Act - Section 34 - Challenge to Arbitral Award - Perversity - The court examined whether the arbitral award dismissing the dispute was perverse and contrary to law, as the arbitrator failed to consider the mandatory provisions of the Multi-State Cooperative Societies Act, 2002 and the Bank's bye-laws regarding forfeiture of shares. Held that the award was liable to be set aside as it ignored the legal requirements and the Bank's action was without authority. (Paras 1-16) B) Cooperative Law - Forfeiture of Shares - Procedure - The Bank forfeited the petitioner's shares without following the procedure under Section 84 of the Multi-State Cooperative Societies Act, 2002 and its bye-laws, which require a proper notice and opportunity of hearing. The arbitrator's award upholding such forfeiture was held to be illegal and perverse. (Paras 3-10) C) Natural Justice - Right of Hearing - The Bank's decision to forfeit shares was taken without giving any notice or opportunity to the petitioner, violating principles of natural justice. The arbitrator erred in not considering this fundamental flaw. (Paras 5-8)
Issue of Consideration
Whether the arbitral award dismissing the petitioner's dispute regarding forfeiture of his shares by the respondent Bank is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on the ground that it is perverse and contrary to the provisions of the Multi-State Cooperative Societies Act, 2002 and the Bank's bye-laws.
Final Decision
The court allowed the petition, set aside the arbitral award dated 22nd January, 2013, and directed the respondent Bank to restore the petitioner's membership and shares forthwith. The respondents were also directed to pay costs of Rs.25,000 to the petitioner.
Law Points
- Arbitration Act
- Section 34
- Multi-State Cooperative Societies Act
- 2002
- Section 84
- Forfeiture of shares
- Natural justice
- Perverse award
- Bye-laws
