Madras High Court
*[K.Sankara Narayanan Died And In His ... vs Central Registrar Of Multi State ... on 19 March, 2024
Author: N.Sathish Kumar
Bench: N.Sathish Kumar
Arb.O.P.Nos.384 to 387 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Orders Reserved on : 08..03..2024
Orders Pronounced on : 19..03..2024
Coram
THE HON'BLE MR JUSTICE N.SATHISH KUMAR
Arb. O.P. Nos.384, 385, 386 & 387 of 2018
and
A.Nos.3428, 3429, 3430, 3431, 4730, 4731, 4732,
7968, 7970, 7971 & 7974 of 2018
&
A.Nos.3649 & 3651 of 2021
Arb.O.P.No.384 of 2018
K.Sankara Narayanan (Died)*
(Member – Railway Employees Cooperative Credit Society Ltd.,)
No.5, 6th Street, Periyar Nagar III,
Oorapakkam, Chengalpattu 603 201.
G.Sivakumar,*
(Member – Railway Employees' Co-operative Credit Society),
Residing at No.5/125, Samundeswari Koil Street,
Ichipatur Village, Arakkonam.
*[K.Sankara Narayanan died and in his place G.Sivakumar
was substituted as petitioner by order dated 19.03.2024 made
in A.No.3649 of 2021 ]
..... Petitioner
-Versus-
1.Central Registrar of Multi State Cooperative Credit Societies,
Ministry of Agriculture,
Department of Agriculture and Co-operation,
Krishna Bhavan, New Delhi 110 001.
https://www.mhc.tn.gov.in/judis
1 of 55
Arb.O.P.Nos.384 to 387 of 2018
2.Railway Employees Cooperative Credit Society Ltd.,
Ashok Vihar Complex,
Old Zoo Road, (Near Central Railway Station),
Chennai 600 003.
3.N.Kanniah,
Chairman,
Railway Employees Cooperative Credit Society Ltd.,
Ashok Vihar Complex,
Old Zoo Road, (Near Central Railway Station),
Chennai 600 003.
..... Respondents
Petition filed under Section 84 of the Multi State Co-operative Societies
Act, 2002, praying to set aside the order dated 26.01.2018 passed by the
learned sole Arbitrator Ms.Justice K.B.K.Vasuki, Judge (Retd.,) of Madras
High Court in A.R.C.No.8 of 2016.
Arb.O.P.No.385 of 2018
K.Sankara Narayanan (Died)*
(Member – Railway Employees Cooperative Credit Society Ltd.,)
No.5, 6th Street, Periyar Nagar III,
Oorapakkam, Chengalpattu 603 201.
G.Sivakumar,*
(Member – Railway Employees' Co-operative Credit Society),
Residing at No.5/125, Samundeswari Koil Street,
Ichipatur Village, Arakkonam.
*[K.Sankara Narayanan died and in his place G.Sivakumar
was substituted as petitioner by order dated 19.03.2024 made
in A.No.3651 of 2021 ]
..... Petitioner
-Versus-
https://www.mhc.tn.gov.in/judis
2 of 55
Arb.O.P.Nos.384 to 387 of 2018
1.Central Registrar of Multi State Cooperative Credit Societies,
Ministry of Agriculture,
Department of Agriculture and Co-operation,
Krishna Bhavan,
New Delhi 110 001.
2.Railway Employees Cooperative Credit Society Ltd.,
Ashok Vihar Complex,
Old Zoo Road, (Near Central Railway Station),
Chennai 600 003.
..... Respondents
Petition filed under Section 84 of the Multi State Co-operative Societies
Act, 2002, praying to set aside the order dated 26.01.2018 passed by the
learned sole Arbitrator Ms. Justice K.B.K.Vasuki, Judge (Retd.,) of Madras
High Court in A.R.C.No.1 of 2016.
Arb.O.P.No.386 of 2018
G.Sivakumar,
(Member – Railway Employees' Co-operative Credit Society),
Residing at No.5/125, Samundeswari Koil Street,
Ichipatur Village, Arakkonam.
..... Petitioner
-Versus-
1.Central Registrar of Multi State Cooperative Credit Societies,
Ministry of Agriculture,
Department of Agriculture and Co-operation,
Krishna Bhavan, New Delhi 110 001.
2.The Railway Employees Cooperative Credit Society Ltd.,
Ashok Vihar Complex,
Old Zoo Road, (Near Central Railway Station),
Chennai 600 003.
https://www.mhc.tn.gov.in/judis
3 of 55
Arb.O.P.Nos.384 to 387 of 2018
3.N.Manivannan,
Chief Executive Officer,
Railway Employees' Co-operative Credit Society Ltd.,
Ashok Vihar Complex, (Near Central Railway Station),
Old Zoo Road, Chennai 600 003.
..... Respondents
Petition filed under Section 84 of the Multi State Co-operative Societies
Act, 2002, praying to set aside the order dated 26.01.2018 passed by the
learned sole Arbitrator Ms. Justice K.B.K.Vasuki, Judge (Retd.,) of Madras
High Court in A.R.C.No.7 of 2016.
Arb.O.P.No.387 of 2018
G.Sivakumar,
(Member – Railway Employees' Co-operative Credit Society),
Residing at No.5/125, Samundeswari Koil Street,
Ichipatur Village, Arakkonam.
..... Petitioner
-Versus-
1.Central Registrar of Multi State Cooperative Credit Societies,
Ministry of Agriculture,
Department of Agriculture and Co-operation,
Krishna Bhavan, New Delhi 110 001.
2.The Railway Employees Cooperative Credit Society Ltd.,
Ashok Vihar Complex,
Old Zoo Road, Chennai 600 003.
..... Respondents
Petition filed under Section 84 of the Multi State Co-operative Societies
Act, 2002, praying to set aside the order dated 26.01.2018 passed by the
learned sole Arbitrator Ms. Justice K.B.K.Vasuki, Judge (Retd.,) of Madras
High Court in A.R.C.No.2 of 2016.
https://www.mhc.tn.gov.in/judis
4 of 55
Arb.O.P.Nos.384 to 387 of 2018
For Petitioner(s) : Mrs.D.Nagasaila for petitioner in
all Original Petitions
For Respondent (s) : Mr.K.S.Jeyaganeshan,
Senior Panel Counsel for R1 in
all Original Petitions
Mr.A.Jenasenan for R2 in all
Original Petitions
COMMON ORDER
Original Petition No.385 of 2018 was filed by one K.Sankara Narayanan, one of the Members of the Railway Employees' Cooperative Credit Society Limited (2nd respondent) against the common order dated 26.01.2018 passed by the learned sole Arbitrator, a Retired Judge of this Court in A.R.C.No.1 of 2016 dismissing the claim of the petitioner challenging the election to the Board of Directors while Original Petition in O.P.No.384 of 2018 was filed by him against the order dated 26.01.2018 passed by the learned sole Arbitrator, a Retired Judge of this Court in A.R.C.No.8 of 2016 dismissing the claim of the petitioner challenging the appointment of the 3rd respondent – N.Kanniah as Chairman of the 2nd respondent Society.
2. Similarly, Original Petition No.387 of 2018 was filed by one G.Sivakumar, another member of the Railway Employees' Cooperative Credit Society Limited (2nd respondent) against the common order dated 26.01.2018 https://www.mhc.tn.gov.in/judis 5 of 55 Arb.O.P.Nos.384 to 387 of 2018 passed by the learned sole Arbitrator, a Retired Judge of this Court in A.R.C.No.2 of 2016, dismissing the claim of the petitioner challenging the election to the Board of Directors while Original Petition in O.P.No.386 of 2018 was filed by him against the order dated 26.01.2018 passed by the learned sole Arbitrator, a Retired Judge of this Court in A.R.C.No.7 of 2016 dismissing the claim of the petitioner challenging the appointment of the 3rd respondent – N.Manivannan as the Chief Executive Officer of the 2nd respondent Society. A.Nos.3649 of 2021 & A.No.3651 of 2021:
3. Pending original petitions, the sole petitioner in O.P.Nos.385 and 384 of 2018 died on 26.08.2019, hence the sole petitioner-G.Sivakumar came forward with the applications in A.Nos.3649 of 2021 and 3651 of 2021 for substitution of his name in the place of the deceased sole petitioner - K.Sankara Narayanan in O.P.Nos.385 & 384 of 2018. A copy of the death certificate of K.Sankara Narayanan which was downloaded from the official website of the Department of Municipal Administration and Water Supply was filed for the perusal of this court.
4. This court has heard both the parties in the applications.
5. Considering the nature of the relief sought for in the applications and the nature of the disputes involved, this court is of the view that question of https://www.mhc.tn.gov.in/judis 6 of 55 Arb.O.P.Nos.384 to 387 of 2018 succession right would not arise as they were only disputes touching upon the election to the 2nd respondent society and the applicant-G.Sivakumar wanted to represent the cause of another member-K.Sankara Narayanan (since deceased).
Hence, the applications are allowed. G.Sivakumar is substituted as petitioner in the place of K.Sankara Narayanan in O.P.Nos.385 and 384 of 2018 respectively.
6. Since the issue involved in O.P.Nos.385 & 387 of 2018 is one and the same touching upon the election conducted to the 2nd respondent society and the issue involved in the other two O.P.Nos.384 & 386 of 2018 is with regard to amendment to the Service Regulations of the year 2004 and election of the Chairman and Chief Executive Officer to the 2nd respondent society, all these original petitions were taken up together for hearing, heard and are being disposed of by this common order.
7. The brief facts leading to the filing of these original petitions are as under:-
(a) Disputes with regard to conduct of election to the society governed by the Multi State Co-operative Societies Act, 2002 [for short, “the MSCS Act, 2002”] was referred to the Sole Arbitrator. The election was mainly challenged on the ground that any election process should begin with the election of the https://www.mhc.tn.gov.in/judis 7 of 55 Arb.O.P.Nos.384 to 387 of 2018 Representatives General Body (for short “the RGB Members”), then, RGB members should elect the Board of Directors and then, the Board of Directors should elect the Executive Committee of the Office Bearers i.e., the Chairman and Vice-chairman which would administer the society and oversee the day-to-
day functioning of the society.
(b) The main dispute originally raised by two of the members of the 2nd respondent society is with regard to conduct of election to elect the RGB members and election for electing the Board of Directors and Board of Directors electing the Executive Members. The election process was complete and some of the persons were elected in the election process.
(c) Citing various violations in the bye-laws of the 2nd respondent society, at the instance of the two of the members of the 2 nd respondent society, disputes with regard to election were referred to the sole Arbitrator. The sole Arbitrator was appointed by the Central Registrar, the MSCS Act, 2002 pursuant to orders of this court dated 27.11.2015 made in O.P.Nos.164 and 165 of 2013 and also by orders of this court dated 27.11.2015 made in the two other original petitions in O.P. Nos.425 & 637 of 2015.
(e) The society had taken a defence that election dispute was raised beyond the mandatory period of limitation of one month. The other defence https://www.mhc.tn.gov.in/judis 8 of 55 Arb.O.P.Nos.384 to 387 of 2018 which the society had taken is that the election to all the posts was conducted as per the rules and there were no violations in the election conducted to the 2 nd respondent society.
(f) The learned Arbitrator framed necessary issues in A.R.C.Nos.1 & 2 and after considering both oral and documentary evidence dismissed the claims of the members of the 2nd respondent holding that the dispute in respect of election to Board of Directors of the 2nd respondent society was barred by limitation and the election to the Board of Directors was validly held in accordance with the procedure laid down under the Act, Rules and Bye-Laws and no grounds were made out by both the members to declare the election as illegal and null and void. While dismissing the claims, the learned Arbitrator directed the parties to bear their own costs of the arbitral proceedings including the fee for the Arbitrator and both the members of the 2nd respondent society (claimants) were directed to reimburse the 2nd respondent society their share of the costs of arbitral proceedings including the fee of the Arbitrator paid by the 2nd respondent society towards the share of both the claimants.
(g) Insofar as reference made in A.R.C.No.7 of 2016 is concerned, appointment of Chief Executive Officer was put to challenge on the ground that appointment by the Board was made in violation of the bye-law 25(C). The https://www.mhc.tn.gov.in/judis 9 of 55 Arb.O.P.Nos.384 to 387 of 2018 above reference in A.R.C.No.7 of 2016 was also dismissed by the learned Arbitrator by award dated 26.01.2018 holding that the validity of service regulations No.III(2) and note appended to the same relating to service conditions of Chief Executive and the appointment of the 3rd respondent as Chief Executive of the 2nd respondent are not arbitrable issues and the dispute regarding the same was raised beyond the period of limitation and could not be gone into in the arbitration proceedings. The learned Arbitrator further held that even otherwise, the appointment of the 3rd respondent as Chief Executive of the 2nd respondent society was legal and valid in all respects and no ground was made out by the claimant for declaring the same to be null and void. Here also, the learned Arbitrator while dismissing the claim, directed the parties to bear their own costs of the arbitral proceedings including the fee of the arbitrator and the claimant/member of the 2nd respondent society (sole claimant) was directed to reimburse the 2nd respondent society his share of the costs of arbitral proceedings including the fee for Arbitrator borne by the 2nd respondent society towards the share of the claimant.
(h) As far as A.R.C.No.8 of 2016 is concerned, challenge was made to the appointment of the 3rd respondent – N.Kanniah as the Chairman. According to the petitioner, as per Section 44(2) of the MSCS Act, 2002, no person can be https://www.mhc.tn.gov.in/judis 10 of 55 Arb.O.P.Nos.384 to 387 of 2018 appointed as the Chairman after he had completed two terms in the same capacity provided he has not been in the position of President or Chairman continuously for one full term. The above said Arbitration Case was also dismissed by the learned Arbitrator holding that the dispute regarding the election of the 3rd respondent as the Chairman of the 2nd respondent society in the election held on 03.02.2013 for the tenure between 2013-2018 was barred by limitation. The election of the 3rd respondent as the Chairman of the 2nd respondent was hit by Section 44(2) of the MSCS Act, 2002 and the same was legal and valid and the member/claimant had not made out any ground to declare the election of the 3rd respondent as the Chairman of the 2nd respondent society as illegal and null and void. Here also, the learned Arbitrator while dismissing the claim, directed the parties to bear their own costs of the arbitral proceedings including the fee of the Arbitrator and both the member of the 2nd respondent society (sole claimant) was directed to reimburse the 2nd respondent society his share of the costs of arbitral proceedings including the fee for Arbitrator borne by the 2nd respondent society towards the share of the claimant.
(i) Challenging the common award passed by the learned Arbitrator in A.R.C.Nos.1 and 2 of 2016 dismissing the disputes raised by K.Sankara https://www.mhc.tn.gov.in/judis 11 of 55 Arb.O.P.Nos.384 to 387 of 2018 Narayanan (since deceased) and G.Sivakumar, members of the 2nd respondent society in respect of the election to Board of Directors of the 2nd respondent society on the ground that dispute of election to the Board of Directors was barred by limitation under Section 85(1)(c) of the MSCS Act, 2002 and that the election was validly held in accordance with the procedure laid down under the Act, Rules and Bye-laws and the award directing the claimant(s) therein in both the cases to reimburse the 2nd respondent society their share of costs of arbitral proceedings including the fee for the arbitrator paid by the 2nd respondent society towards the share of both of them, the present original petitions in O.P.Nos.385 and 387 of 2018 have been filed.
(j) The common award was put under challenge mainly on two grounds that the learned arbitrator failed to correctly appreciate the bye-laws of the 2 nd respondent society and also failed to appreciate all the evidence and the cause shown by the petitioner(s) / claimant(s) and erred in holding that the dispute regarding election of Board of Directors was hit by limitation as per Section 85(1)(c) of the MSCS Act, 2002 without following the power conferred under Section 84 of the MSCS Act, 2002.
(k) The other ground of attack is that the learned Arbitrator has not only failed to consider that the arbitration was a statutory arbitration and not a https://www.mhc.tn.gov.in/judis 12 of 55 Arb.O.P.Nos.384 to 387 of 2018 commercial arbitration but also failed to consider the relevant factor while determining the fee structure and imposed costs of the arbitration proceedings on the claimants. The imposition of such huge costs on the claimants would only pose a threat that no member of the 2nd respondent society in the future could come forward to challenge the action or misdeeds of the management out of fear that they might be directed to bear such a huge cost in the event they wanted to enforce their statutory remedy guaranteed under the statutes i.e, the MSCS Act, 2002.
(l) O.P.Nos.384 and 386 of 2018 have been filed challenging the individual awards of the arbitrator on the grounds that (i) the arbitrator has failed to consider the fact that the larger interests of the members of the society had not been protected and the 3rd respondent in O.P.No.384 of 2018 was appointed as the Chairman and the 3rd respondent in O.P.No.386 of 2018 was appointed as the Chief Executive Officer of the 2nd respondent respondent society in violation of the provisions of the Act, Rules and the Bye-laws of the 2nd respondent society; and (ii) the award in respect of costs directing the respective parties to bear their own costs of the arbitral proceedings including the fee of the Arbitrator and both the member of the 2nd respondent society (sole claimant) was directed to reimburse the 2nd respondent society his share of the https://www.mhc.tn.gov.in/judis 13 of 55 Arb.O.P.Nos.384 to 387 of 2018 costs of arbitral proceedings including the fee for Arbitrator borne by the 2nd respondent society towards the share of the claimant.
(m) Though all these original petitions have been filed challenging the common arbitral awards in A.R.C.Nos.1 and 2 of 2016 and individual awards of the learned arbitrator in A.R.C.Nos.7 and 8 of 2016 on the ground there were violation of bye-laws in the election to the board of directors which were not properly considered by the learned arbitrator and the cost imposed by the arbitrator on the claimants was as against the public policy of India, the learned counsel for the petitioner in all the original petitions would canvas her case only with regard to imposition of huge costs on the petitioner(s) and would fairly concede that at this juncture nothing survives to adjudicate upon the dispute regarding conduct of election, amendment made to the bye-laws and appointment made to the post of Chairman and Chief Executive as the tenure of the posts itself had been over.
(n) The learned counsel for the petitioner would submit that under the law, there is no bar to apply the doctrine of severability in cases where the awards are severable and therefore, she would contend that when the award relates to the imposition of huge cost on the ordinary Class II and III categories employees of the railways, who are the members of the 2nd respondent society, https://www.mhc.tn.gov.in/judis 14 of 55 Arb.O.P.Nos.384 to 387 of 2018 which is governed by the MSCS Act, 2002 and if it is contrary to the substantive law (viz. MSCS Act, 2002), such portion of the award is severable one. She would further add that as the severability is an established concept, the court can very well set aside that portion of the award relating to costs alone which suffers from illegality or irregularity though not in its entirety with regard to dismissal of the claim relating to the election dispute and amendment to the service regulations.
(o) In a nutshell, the submission of the learned counsel for the petitioner is that though O.P.Nos.164 and 165 of 2013 were filed for appointment of arbitrator, this court had, in fact, by order dated 27.11.2015, directed the Central Registrar to appoint an arbitrator as per the MSCS Act and the Central Registrar, in turn, appointed an arbitrator, however, while appointing an arbitrator the Central Registrar did not fix any fee as per Rule 30 of the MSCS Rules, 2002 and whereas he had simply appointed the arbitrator leaving it open to the arbitrator to fix her fee thereby the Central Registrar had violated the very provision of the Act and Rule.
(p) The learned counsel for the petitioner would further contend that the dispute raised is not a commercial dispute and it is a statutory arbitration and if any dispute touching upon the election is raised, such dispute is referable to the https://www.mhc.tn.gov.in/judis 15 of 55 Arb.O.P.Nos.384 to 387 of 2018 arbitrator. Though the provisions of the Arbitration and Conciliation Act, 1996 would apply to all the arbitrations in respect of any dispute referred to under the MSCS Act, 2002 only when all the provisions of the MSCS Act were complied with, the arbitrator could fix fee as per the Arbitration and Conciliation Act, 1996. Therefore, according to the learned counsel, when a statute directs that a particular act should be done in a particular manner, even to fix the fee by the Central Registrar and the Central Registrar leaving to discretion of the arbitrator to fix the cost including her fee as that of the commercial dispute and directing that cost should be borne by the ordinary Class II & III categories of employees would in fact only silence them from taking recourse to the legal remedy as guaranteed under the statutes.
(q) The learned counsel would further contend that the learned arbitrator has fixed fee of Rs.50,000/- (Rupees Fifty Thousand only) for every two and half hours sitting and total fee fixed in all the matters would come to around Rs.30,00,000/- (Rupees Thirty Lakhs only) in which a sum of around Rs.15,00,000/- was directed to be recovered from the employees who just raised a dispute regarding election to ventilate their grievance by way of statutory arbitration. While fixing the fee, the learned arbitrator has not even considered the factum that the claimants were all ordinary Class II and III https://www.mhc.tn.gov.in/judis 16 of 55 Arb.O.P.Nos.384 to 387 of 2018 categories of employees of railways who had been espousing their cause as members of the 2nd respondent society.
(r) Further the learned Arbitrator has not even exercised her discretion judiciously as provided under Section 31A of the Arbitration and Conciliation Act, 1996 and passed an order arbitrarily and mechanically against the members of the 2nd respondent society imposing such a huge cost which would shock the conscience of any prudent and reasonable person. The learned arbitrator has not even recorded any reason whatsoever for imposing such a huge cost and thrusting the same on the ordinary Class II and III categories of employees of the railways who are the members of the society. Therefore, the award insofar as the imposition of cost on the members of the society is concerned cannot be sustained in the eye of law as it is in gross violation of Fundamental Policy of Indian law and also in conflict with the most basic notion of justice. Thus, according to her, the awards with regard to imposition of cost roughly around Rs.15,00,000/- on the claimants are liable to be set aside by applying the doctrine of severability.
(s) The learned counsel for the petitioner in all the matters in support of her contention would place reliance heavily upon the judgments in the cases of Vipulabhai Chaudhary v. Gujarat Milk Cooperative Federation Limited [(2015) https://www.mhc.tn.gov.in/judis 17 of 55 Arb.O.P.Nos.384 to 387 of 2018 8 SCC 1]; Oil and Natural Gas Corporation v. Afcons Gunanusa JV [(2022) SCC OnLine SC 1122]; Sanjeev Kumar Jain v. Raghubir Charitable Trust [(2012) 1 SCC 455]; Union of India v. Alcon Builders & Engineers Pvt. Ltd., [Judgment dated 17.01.2023 in O.M.P.No.146 of 2008 of the High Court of Delhi]; Union of India v. Singh Builders Syndicate [(2009) 4 SCC 523]; NHAI v. Gayatri Jhansi Roadways Ltd., [(2020) 17 SCC 626]; Associate Builders v. Delhi Development Authority [(2015) 3 SCC 49] and Union of India v. Singh Traders [Judgement dated 22.03.2021 in Arb. Appln. No.9 of 2008 of Jammu & Kashmir High Court]; and Autocraft Automobiles v. Akshar Automobiles [2016 SCC OnLine Bom 5185].
(t) However, the learned counsel for the petitioner was fair enough to address this court that as far as awards of the learned arbitrator with regard to dismissal of the dispute in respect of (i) election to the Board of Directors; (ii) amendment made to the service regulations; and (iii) appointment of the Chairman and the Chief Executive as the period of tenure has already been over, nothing would survive at this juncture and she would fairly concede that the petitioner will not have any grievance over the award on the above aspects.
8. Per contra, the learned counsel for the 2nd respondent would contend that the arbitrator in all the arbitration cases was appointed by the Central https://www.mhc.tn.gov.in/judis 18 of 55 Arb.O.P.Nos.384 to 387 of 2018 Registrar only pursuant to the direction of this court in original petitions in O.P.Nos.164 and 165 of 2013 and O.P.Nos.425 & 637 of 2015.
9. The learned counsel for the 2nd respondent would further contend that instead of canvassing their grievances by raising one dispute or reference, the petitioners who are the members of the society have raised four disputes. The learned arbitrator has fixed the fee as provided under Section 31-A of the Arbitration and Conciliation Act,1996. The election dispute ought to have been referred to arbitration within one month from the date of declaration of the result of the election, however, the dispute in respect of election was raised beyond the mandatory period as contemplated under Section 85 of the MSCS Act, 2002. Hence, according to the learned counsel when the arbitrator has fixed the fee and cost the general rule is that the unsuccessful party shall be ordered to pay cost of the successful party as per Section 31A (2) of the Arbitration and Conciliation Act, 1996.
10. The law provided the learned arbitrator with discretion to exercise her power in determining the cost including her fee and the learned arbitrator has exercised her discretion judiciously after considering the various objections raised at the initial stage and directed the members of the society to reimburse their respective shares in the total cost including the fee of the arbitrator and if https://www.mhc.tn.gov.in/judis 19 of 55 Arb.O.P.Nos.384 to 387 of 2018 such unscrupulous litigants are not directed to pay the cost, it would only led to opening of flood gate and in the future many of the members of the society could resort to challenge the statutory election under the pretext of enforcing their right. The 2nd respondent society has already paid the entire cost as directed by the arbitrator and the society is now sought to recover their share of costs from their service/terminal benefits. Therefore, the petitioner cannot, at this stage, seek to set aside the cost portion alone. According to him, the award cannot be severed and award can be set aside only in its entirety if any illegality or irregularity is found. In the cases on hand, the awards passed by the learned arbitrator were perfectly right and no illegality or irregularity could be attached to the same insofar as it relates to the cost as well.
11. In the light of the above, now, the common points that arise for consideration in these original petitions are:
(1) Whether the awards can be severed and interfered with in respect of cost alone?
(2) Whether awards suffer from any of the grounds as set out in Section 34 of the Arbitration and Conciliation Act, 1996?
12. As far as severability of the award is concerned, it would be useful to refer to a few judgements of the Hon'ble Supreme Court as well as the Bombay https://www.mhc.tn.gov.in/judis 20 of 55 Arb.O.P.Nos.384 to 387 of 2018 High Court.
13. In the case of J.G.Engineers Pvt. Ltd. v. Union of India [(2011) 5 SCC 758], the Hon'ble Supreme Court has held as under:-
“25. It is now well settled that if an award deals with and decides several claims separately and distinctly, even if the court finds that the award in regard to some items is bad, the court will segregate the award on items which did not suffer from any infirmity and uphold the award to that extent. ....” [emphasis supplied]
14. Similarly, in the case of R.S.Jiwani (M/S.) Mumbai v. Ircon International Ltd., Mumbai [2009 SCC OnLine Bom 2021], a Full Bench of Bombay High Court while dealing with the concept of severability of the decision on various claims and counter claims comprised in an award has held as follows:-
“17. The argument raised before us is that sub- clauses (i) to (iii) and (v) of clause (a) of sub-section (2) of section 34 are the grounds where it is mandatory for the Court to set aside the whole award and there is no other choice before the Court. It is only in the class of cases falling under section 34(2)(a)(iv) that with the aid of the proviso to that sub-section, the Court can apply principle of severability. In that case, if the matter https://www.mhc.tn.gov.in/judis 21 of 55 Arb.O.P.Nos.384 to 387 of 2018 submitted to the arbitration can be separated from the one not submitted then the Court may set aside that part of the award alone which is not submitted to arbitration. This argument is founded on the Division Bench judgment of this Court in the case of Mrs. Pushpa P. Mulchandani v.
Admiral Radhakrishin Tahiliani, 2008(7) LJ Soft, 161, and which was relied upon by the respondents for inviting the decision against the Appellant. Thus, we have to examine the provision of section 34 of the 1996 Act to find whether it permit of any other interpretation than the one put forward by the respondents. Sub-clauses (i), (ii),
(iii) and (v) of clause (a) of sub-section (2) of section 34 deal with certain situations which may require the Court to set aside an award of the arbitral tribunal. These may be the cases where the party was under incapacity, the agreement is not valid under the law in force, where proper notice was not given to the party or otherwise enable to present his case, and the composition of arbitral tribunal or procedure was not in accordance with the agreement between the parties and lastly the subject- matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. Explanation to section 34(2) which is in the nature of a declaration further explains that when an award is in conflict with the public policy of India when the award was induced or affected by (i) fraud or (ii) by corruption; https://www.mhc.tn.gov.in/judis 22 of 55 Arb.O.P.Nos.384 to 387 of 2018 or (iii) was in violation of section 75 or 81 of the Act. It is difficult for this Court to hold that under all these categories it would be inevitable for the Court to set aside the entire award. It may not be very true that even under these categories, it would be absolutely essential for the Court to set aside an award. It is true that where a party was under incapacity or was not served with the notice at all and the arbitration agreement itself was not valid that an award may have to be set aside in its entirety. But even within these clauses, there is possibility of a situation where it may not be necessary for the Court to set aside the entire award. Let us take an example that where a party is given a notice has participated in the proceedings before the arbitral tribunal but was unable to lead evidence or present himself or submit his counter claim. Would it be fair for the Court to set aside an award of the arbitral tribunal in its entirety in this situation? A party who participated in the arbitral proceeding even led evidence and cross-examined the witnesses of the claimants in relation to the claims but for any reason was not able to place his evidence on record in relation to the counter claims or he was not granted sufficient opportunity to present his case or for some reason was unable to present his case before the arbitral tribunal, would it not be just, fair, equitable and in line with the object of the Act of 1996 to consider setting aside award https://www.mhc.tn.gov.in/judis 23 of 55 Arb.O.P.Nos.384 to 387 of 2018 only regarding counter claim. Is such a party which has succeeded in the claims made by it, which are otherwise lawful and not hit by any of the stated circumstances, should be awarded his reliefs while either rejecting or even altering the award with regard to the counter claim filed by the aggrieved party before the Arbitrator. Situation may be different where arbitration agreement is not valid. …” ..... ..... ..... .....
..... ..... ..... .....
18. In the event the arbitration agreement between the parties is not valid means where it is unlawful or void, the whole award will have to be set aside as the very root of the matter suffers from a defect of law and is not valid under the law for the time being in force. Severability is an established concept. It is largely applicable to various branches of civil jurisprudence. Where it is possible to sever the bad part from the good part, the good part of the contract can always be enforced and partial relief can be granted. Doctrine of severability has been applied to law of Contract since time immemorial of course, it could be said that substantial severability and not textual divisibility is the principle controlling this concept. ...” ..... ..... ..... .....
..... ..... ..... .....
“20. The cases would be different where it is not https://www.mhc.tn.gov.in/judis 24 of 55 Arb.O.P.Nos.384 to 387 of 2018 possible or permissible to sever the award. In other words, where the bad part of the award was intermingled and interdependent upon the good parts of the award there it is practically not possible to sever the award as the illegality may affect the award as a whole. In such cases, it may not be possible to set aside the award partially. However, there appears to be no bar in law in applying the doctrine of severability to the awards which are severable. In the case of Messrs. Basant Lal Banarsi Lal v. Bansi Lal Dagdulal, AIR 1961 SC 823, though the Supreme Court was dealing with an application for setting aside an award passed by the Bombay City Civil Court, contending that forward contract in groundnuts were illegal as making of such contracts was prohibited by Oil Seeds (Forward Contract Prohibition) Order, 1943 and hence arbitration clause contained in the forward contracts in groundnuts between the parties was null and void, where it was found as a matter of fact that it was not possible to segregate the dispute under the various contracts as there was direct link between them. The Supreme Court held as under: “It would follow that the arbitration clause contained in that contract was of no effect. It has therefore to be held that the award made under that arbitration clause is a nullity and has been rightly set aside. The award, it will have been noticed, was however in respect of disputes under several contracts one of which we have found to be void. https://www.mhc.tn.gov.in/judis 25 of 55 Arb.O.P.Nos.384 to 387 of 2018 But as the award was one and is not severable in respect of the different disputes covered by it, some of which may have been legally and validly referred, the whole award was rightly set aside.” ..... ..... ..... .....
..... ..... ..... .....
“30. If the principles of severability can be applied to a contract on one hand and even to a statute on the other hand, we fail to see any reason why it cannot be applied to a judgment or an award containing resolution of the disputes of the parties providing them such relief as they may be entitled to in the facts of the case. It will be more so, when there is no statutory prohibition to apply principle of severability. We are unable to contribute to the view that the power vested in the Court under section 34(1) and (2) should be construed rigidly and restrictedly so that the Court would have no power to set aside an award partially. The word “set aside” cannot be construed as to „only to set aside an award wholly", as it will neither be permissible nor proper for the Court to add these words to the language of section which had vested discretion in the Court. Absence of a specific language further supported by the fact that the very purpose and object of the Act is expeditious disposal of the arbitration cases by not delaying the proceedings before the Court would support our view otherwise the object of https://www.mhc.tn.gov.in/judis 26 of 55 Arb.O.P.Nos.384 to 387 of 2018 Arbitration Act would stand defeated and frustrated.” ..... ..... ..... .....
..... ..... ..... .....
“38. For the reasons afore-recorded, we are of the considered view that the dictum of law stated by the Division Bench in the case of Ms. Pushpa Mulchandani (supra) is not the correct exposition of law. We would predicate the contrary view expressed by different Benches of this Court for the reasons stated in those judgments in addition to what we have held hereinabove. It is difficult to prescribe legal panacea which, with regard to the applicability of the principle of severability can be applied uniformally to all cases. We find that the principle of law enunciated by us hereinabove is more in comity to object of the Act, legislative intent, UNCITRAL Model Law and will serve the ends of justice better. Thus, we proceed to record our answers to the questions framed as follows:
1. The judicial discretion vested in the Court in terms of the provisions of section 34 of the Arbitration and Conciliation Act, 1996 takes within its ambit power to set aside an award partly or wholly depending on the facts and circumstances of the given case. In our view, the provisions of section 34 read as a whole and in particular section 34(2) do not admit of interpretation which will https://www.mhc.tn.gov.in/judis
27 of 55 Arb.O.P.Nos.384 to 387 of 2018 divest the Court of competent jurisdiction to apply the principle of severability to the award of the Arbitral Tribunal, legality of which is questioned before the Court. The Legislature has vested wide discretion in the Court to set aside an award wholly or partly, of course, within the strict limitations stated in the said provisions. The scheme of the Act, the language of the provisions and the legislative intent does not support the view that judicial discretion of the Court is intended to be whittled down by these provisions. 2. The proviso to section 34(2)(a)(iv) has to be read ejusdem generis to the main section, as in cases falling in that category, there would be an absolute duty on the Court to invoke the principle of severability where the matter submitted to arbitration can clearly be separated from the matters not referred to arbitration and decision thereupon by the Arbitral Tribunal.” (emphasis supplied)
15. The judgment of the Full Bench of the Bombay High Court in the case of R.S. Jiwani (supra) was relied upon by the Bombay High Court in a judgment in the case of National Highways Authority of India Through its Project Director and Another vs. Additional Commissioner and Others https://www.mhc.tn.gov.in/judis 28 of 55 Arb.O.P.Nos.384 to 387 of 2018 [2022 SCC OnLine Bom 1688].
16. Considering the fact that the cost imposed by the learned Arbitrator is contrary to the MSCS Act, 2002, this court is of the view that in the light of the judgment of the Hon'ble Supreme Court and the Full Bench of Bombay High Court, the portion of the award in respect of costs directed by the learned arbitrator is certainly severable one.
17. It is relevant to note here that under Section 84 of the MSCS Act, 2002 any dispute arising in connection with the election of any officer of a multi-state cooperative society can be referred to the arbitrator to be appointed by the Central Registrar.
18. Sub-section (5) of Section 84 of the MSCS Act, 2002, reads as under:-
“84. Reference of disputes (1) ..... ..... .....
(2) ..... ..... .....
(3) ..... ..... .....
(4) ..... ..... .....
(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 https://www.mhc.tn.gov.in/judis 29 of 55 Arb.O.P.Nos.384 to 387 of 2018 Arbitration and Conciliation Act, 1996.”
19. The above provision would make it clear that only when there is no provision provided under the Act, the provision of the Arbitration and Conciliation Act shall apply to all the arbitrations under the MSCS Act,2002 as if the proceedings for arbitration were referred for settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996.
20. It is further relevant to extract hereunder Rule 30 of the Multi State Cooperative Societies Rules, 2002 which reads as under:-
“30. Disputes (1) For the purposes of sub-section (4) of section 84 of the Act, the Central Registrar may appoint and fix the fee of the arbitrators subject to the provisions of Arbitration and Conciliation Act, 1996.
(2) Save as otherwise provided under this Act, the provisions of the Arbitration and Conciliation Act, 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.” https://www.mhc.tn.gov.in/judis 30 of 55 Arb.O.P.Nos.384 to 387 of 2018 The aforesaid provision would thus make it clear that while appointing arbitrators, the Central Registrar might have fixed the fee of the arbitrators subject to the provisions of the Arbitration and Conciliation Act, 1996, but it was not done in the cases on hand. Thus it is clear that the Central Registrar had not followed the mandate under the rule referred to above in fixing the fees of the arbitrators.
21. It would be relevant to extract hereunder the statements of objects and reasons under the the MSCS Act, 2002:-
"STATEMENT OF OBJECTS AND REASONS
1. The co-operative sector, over the years, has made significant contribution to various sectors of national economy and has achieved voluminous growth. ..... ..... ..... ..... .....
2. ..... ..... ..... .....
3. The Central Government is committed to ensure that the co-operative societies in the country function in a democratic, professional, autonomous and economically sound manner. With a view to bring the necessary reforms, it is proposed to incorporate a new Part in the Constitution so as to provide for certain provisions covering the vital aspects of working of co- operative societies like democratic, autonomous and professional functioning. A new article is also proposed https://www.mhc.tn.gov.in/judis 31 of 55 Arb.O.P.Nos.384 to 387 of 2018 to be inserted in Part IV of the Constitution (Directive Principles of State Policy) for the States to endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies. .....”
22. From the statements of objects and reasons, the court can find that the very object of the enacting a separate law (viz., MSCS Act, 2022) is to ensure that the cooperative societies in the country function in a democratic, professional, autonomous and economically sound manner in tune with the 'Directive Principles of the State Policy' for the States to endeavor to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies. Further the very object of the act is for settlement of disputes by a quasi-judicial authority, namely, the Co-operative Disputes Settlement Authority replacing the existing system of such settlement by the Central Registrar which would envisage the settlement of disputes in a quicker and more judicious manner.
23. When the very object of the Act is to ensure quick disposal of dispute in a more judicious manner and the very purpose of incorporating the rule directing the Central Registrar to fix the fee at the time of appointing the arbitrators, makes it clear that fee should be commensurate with the financial https://www.mhc.tn.gov.in/judis 32 of 55 Arb.O.P.Nos.384 to 387 of 2018 status of the employees. The employees cannot be mulcted with huge fees in order to silence the members of the society from vindicating their statutory rights provided by statute viz., MSCS Act, 2002.
24. In the case of Vipulabhai Chaudhary v. Gujarat Milk Cooperative Federation Limited [(2015) 8 SCC 1], the Hon'ble Supreme Court has held that “democratic functioning is an essential feature of the cooperative societies. Democratic functioning and autonomy have now become the core constitutional values of a cooperative society”. It has further held that “it is expected that these provisions will not only ensure the autonomous and democratic functioning of co-operatives, but also ensure the accountability of management to the members and other stakeholders and shall provide for deterrence for violation of the provisions of the law.” Therefore, the members of the society complained of violations of certain provisions by way of amendment in conducting the election and when the statute itself provides for reference to such dispute, the cost should be reasonable. If the costs are imposed as in the case of commercial contract and mulcted on the ordinary Class II and III categories of employees, who raised their voice against the management and such costs are sought to be recovered from their terminal benefits, the same would silence the employees from https://www.mhc.tn.gov.in/judis 33 of 55 Arb.O.P.Nos.384 to 387 of 2018 voicing their legal and statutory remedies as guaranteed under the statute.
25. Now, in the light of the above rival submissions let this court consider whether the cost imposed by the learned arbitrator is just and reasonable and fall within the ambit of any of the provisions in Section 34 of the Arbitration and Conciliation Act, 1996 or it is in violation of the very fundamental public policy of India.
26. In order to bring within the ambit of the above said provision, the award must be in conflict with the public policy of India. The explanation would make it clear that if the award is in contravention to the fundamental policy of Indian law or it is in conflict with the most basic notions of morality or justice, the same can be interfered with. As already indicated sub-section (5) of Section 84 of the MSC S Act, 2002 makes it very clear that only when there is no provision made under the MSCS Act, 2002, the provision of the Arbitration and Conciliation Act, 1996 would apply. When there is a specific provision made for the fee of the arbitrator to be fixed by the Central Registrar under Rule 30 of the MSCS Rules, 2002, as a matter of right the discretion provided under the Arbitration and Conciliation Act, 1996 in Section 31A - 'Regime for Cost' cannot be applied mechanically.
27. It is relevant to note here that the minutes of the arbitrator placed on https://www.mhc.tn.gov.in/judis 34 of 55 Arb.O.P.Nos.384 to 387 of 2018 record would indicate that when the second sitting was held at 03.00 p.m. on 24.02.2016, the learned arbitrator has fixed her fees as under:-
“i. The Arbitrator shall be paid a sum of Rs.50,000/- (Rupees Fifty Thousand only) per each sitting of 2 ½ hours / per day or part and the same shall be equally shared by the claimant and the RECCS (third respondent) and shall be paid an advance of four sittings, including the present first sitting. The amount fixed is provisional and may be subjected to revision as and when any counter claim is filed, or any additional claims are raised in respect of sitting after the filing of such counter claims / additional claims.
(ii) The Reading fee is provisionally fixed at Rs.50,000/- (Rupees Fifty Thousand only) and the same shall be equally shared by the claimant and the RECCS (third respondent).
(iii) The fees for the arbitrator for four sitting, reading fees and the secretarial and out of pocket expenses of Rs.10,000/- shall be paid both by the claimant and the Railway Employees Cooperative Credit Society Limited and each had to pay Rs.1,30,000/- in cheque within 2 weeks from today.”
28. It is further relevant to note here that immediately a memo was filed by the claimants stating that they are after all ordinary Class II and III https://www.mhc.tn.gov.in/judis 35 of 55 Arb.O.P.Nos.384 to 387 of 2018 categories of employees and survive on a fixed monthly salary. As it was a statutory arbitration for vindication of their statutory rights as members of the Railway Employees Cooperative Credit Society Limited, the fee of the arbitrator might be fixed keeping in mind the capacity of the claimants to pay the same. The salary slips of the employees were also filed before the arbitrator. Therefore, the claimants requested the arbitrator to reconsider the fixation of fee and also prayed the arbitrator to direct the respondent society to bear the cost including the fee of the arbitrator. The 2nd respondent society had taken an objection to the effect that since the claimants had approached the court under Section 11 of the Arbitration and Conciliation Act, 1996, they being the parties to the initiation of lis could not be allowed to claim that the 2nd respondent society should bear the cost of the proceedings. Taking note of all the above, the learned arbitrator passed an order on 02.05.2016. The learned arbitrator mainly considered Section 31A of the Arbitration and Conciliation Act, 1996, however, held that claimants have admittedly not raised the plea of financial incapacity to meet out the expenses for the proceedings in any of the proceedings referred to above. Such a plea was raised for the first time only in these arbitration proceedings. The learned arbitrator did not accede to the request of the employees who are the members of the 2nd respondent https://www.mhc.tn.gov.in/judis 36 of 55 Arb.O.P.Nos.384 to 387 of 2018 society and held that claimants cannot be entirely relieved of their liability in the payment of cost and held that it was the issue to be decided with the discretion of the arbitral court at the time of passing the final wards.
29. The relevant portions of adjudication made by the learned arbitrator on 02.05.2016 in paragraphs 11 and 12 read as under:-
“11. Claimants having though fit to avail legal remedy they cannot be entirely relieved of their liability to bear their expenses. That is the issue to be decided in the discretion of the court while passing final award having regard to all circumstances as envisaged under Section 31(A). It is also to be noted herein that no plea is raised herein that the arbitral fees fixed by the Arbitrator is either higher or unreasonable. The only plea raised herein is that the claimant employees have no sufficient means to pay the same.
12. However considering the plea raised at this stage and considering the number of proceedings pending this court deems it fit to direct the respondent RECCSL to pay for the present the share of the claimants in the expenses of the arbitration proceedings including that of the Arbitrator's fees. It is made clear that in this order that such direction issued to the respondent society RECCSL to bear the expenses shall not be treated as precedent. It is made abundantly clear https://www.mhc.tn.gov.in/judis 37 of 55 Arb.O.P.Nos.384 to 387 of 2018 that such direction is issued having regard to the peculiarity of the circumstances involved herein such as the financial status of the employees as claimed by them and the nature of the issue raised herein. It is further made very clear that the direction issued herein is subject to exercise of discretionary power vested on the arbitrator under Section 31A to pass appropriate order regarding payment of costs and the party to bear such costs at the time of passing final award. The memos are accordingly ordered.”
30. The above paragraphs in the award passed by the learned arbitrator would make it clear that the learned arbitrator has, in fact, reserved her discretion to exercise while passing the final award with regard to fixation of fee. In the final award, the learned arbitrator, however, except directing the parties to bear their own costs including the fee of the arbitrator and directing the claimants to reimburse the 2nd respondent society, no reason whatsoever was given in the final award with regard to the nature of the fee payable by them. Pending arbitration proceedings, in the adjudication made on 02.05.2016, as extracted already, the learned arbitrator has held that claimant could not be entirely relieved of paying their expenses that issue raised by the claimants would be decided in the discretion of the arbitral tribunal while passing the final award. Having reserved the right to exercise her discretion at the time of https://www.mhc.tn.gov.in/judis 38 of 55 Arb.O.P.Nos.384 to 387 of 2018 passing final award, the award did not contain any reason as to why half of the cost fixed by the arbitrator was directed to be shared by the respondent society and the respective claimants equally. The learned arbitrator only on the basis of discretion vested in the arbitral tribunal under Section 31A of the Arbitration and Conciliation Act, 1996 imposed such a huge costs.
31. It is relevant to extract hereunder Section 2(2)(iv) of the Arbitration and Conciliation Act, 1996 which read as under:-
2. Definitions.—(1) In this Part, unless the context otherwise requires,— ... ...... .....
(2) This Part shall apply where the place of arbitration is in India:
...... ...... ..... ..... ..... .....
...... ...... ..... ..... ..... .....
(3) ...... ...... ..... ..... ..... .....
(4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any https://www.mhc.tn.gov.in/judis 39 of 55 Arb.O.P.Nos.384 to 387 of 2018 rules made thereunder.”
32. The above provision would make it clear that part (1) will apply to every arbitration under any other enactment for the time being in force except insofar as the provisions of this part are inconsistent with that other enactment or with any rules made thereunder. Therefore, when the other enactment viz., MSCS Act, 2002 specifically provides for fixation of fee by the Central Registrar, the learned arbitrator invoking the discretion provided under Section 31A of the Arbitration and Conciliation Act, 1996 is in violation of the very statute itself. Be that as it may, Section 31A of the Arbitration and Conciliation Act, 1996 reads as under:-
“31A. Regime for costs.—(1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine—
(a) whether costs are payable by one party to another;
(b) the amount of such costs; and
(c) when such costs are to be paid. Explanation.— For the purpose of this sub-section, “costs” means reasonable costs relating to— https://www.mhc.tn.gov.in/judis 40 of 55 Arb.O.P.Nos.384 to 387 of 2018
(i) the fees and expenses of the arbitrators, Courts and witnesses;
(ii) legal fees and expenses;
(iii) any administration fees of the institution supervising the arbitration; and
(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.
(2) If the Court or arbitral tribunal decides to make an order as to payment of costs,—
(a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or
(b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.
(3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including—
(a) the conduct of all the parties;
(b) whether a party has succeeded partly in the case;
(c) whether the party had made a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings; and
(d) whether any reasonable offer to settle the https://www.mhc.tn.gov.in/judis 41 of 55 Arb.O.P.Nos.384 to 387 of 2018 dispute is made by a party and refused by the other party.
(4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay—
(a) a proportion of another party’s costs;
(b) a stated amount in respect of another party’s costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f ) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date. (5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.”
33. The above provisions would make it clear that arbitral tribunal shall have discretion to determine the cost. The explanation would however make it clear that cost means reasonable cost relating to — (i) the fees and expenses of the arbitrators and witnesses; legal fees and expenses; (iii) any administration https://www.mhc.tn.gov.in/judis 42 of 55 Arb.O.P.Nos.384 to 387 of 2018 fees of the institution supervising the arbitration; and (iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award. Therefore, the discretion vested in the arbitral tribunal should not be an arbitrary one and the arbitral tribunal should exercise its discretion judiciously and cost also must be reasonable one and should not be an unreasonable one.
34. In WHARTON'S LAW LEXICON – Fifteenth Edition, taking reference from the judgment of the Hon'ble Supreme Court in the case of Aero Traders Pvt. Ltd. v. Ravinder Kumar Suri [AIR 2005 SC 15], the legal meaning of word 'discretion' has been explained as under”-
“The word 'discretion' connotes necessarily an act of a judicial character, as used with reference to discretion exercised judiciously, it implies the absence of a hard and fast rule, and it requires an actual exercise of judgment and a consideration of the facts and circumstances which are necessary to make a sound, fair and just determination and a knowledge of the facts upon which discretion may properly operate. When it is said that something is to be done according to the rules of reason and justice and not according to the private opinion; according to law and not honour. It only gives certain latitude liberty accorded by statute or rules, to a judge as https://www.mhc.tn.gov.in/judis 43 of 55 Arb.O.P.Nos.384 to 387 of 2018 distinguished from a ministerial or administrative official, in adjudicating on matters brought before him.
35. The above would make it clear that the word 'discretion' connotes necessarily an act of a judicial character and discretion should be exercised judiciously.
36. In WHARTON'S LAW LEXICON – Sixteenth Edition, taking reference from the judgment of the Hon'ble Supreme Courts in the cases of Veerayee Ammal v. Seeni Ammal [(2002) 1 SCC 134] and Azar Sultana v. B.Rajamani [(2009) 17 SCC 27, the legal meaning of the word ' reasonable' has been explained as under:-
“The word 'reasonable' has in law prima facie meaning of reasonable in regard to those circumstances of which the person concerned is called upon to act reasonably know or ought to know as to what was reasonable. The reason varies in its conclusion according to idiosyncrasy of the individual and the time and circumstances in which he thinks.
37. Similarly WHARTON'S LAW LEXICON – SIXTEENTH EDITION, taking reference from the judgment of the Hon'ble Supreme Court in the cases of V.Subramaniam v. Rajesh Raghavendra Rao [(2009) 5 SCC 608]; and https://www.mhc.tn.gov.in/judis 44 of 55 Arb.O.P.Nos.384 to 387 of 2018 Chintamanrao v. State of M.P. [AIR 1951 SC 118], the legal meaning of the word 'reasonable' has been explained as under”-
“The word 'reasonable' implies intelligent care and deliberation, that is, the choice of a course which reason dictate.”
38. From the above settled position, it is clear that discretion must be exercised judiciously and should not be arbitrary.
39. It is admitted that total amount of fee claimed by the arbitrator is Rs.30,61,000/- and in which half of the amount was directed to be shared by the claimants and the same is now sought to be recovered from the terminal benefits of the claimant(s).
40. It is also relevant to extract hereunder the judgment in the case of Oil and Natural Gas Corporation v. Afcons Gunanusa JV [(2022) SCC OnLine SC 1122] with regard to imposition cost and fixation of fee wherein the Hon'ble Supreme Court has held as under:-
“119. To conclude, the arbitral tribunal while deciding the allocation of costs under Sections 31(8) read with 31A or advance of costs under Section 38 cannot issue any binding or enforceable orders regarding their own remuneration. This would violate the principle of party autonomy and the doctrine of https://www.mhc.tn.gov.in/judis 45 of 55 Arb.O.P.Nos.384 to 387 of 2018 prohibition of in rem suam decisions 145, which postulates that the arbitrators cannot be the judge of their own claim against parties' regarding their remuneration. The principles of party autonomy and the doctrine of prohibition of in rem suam decisions do not restrict the arbitral tribunal from apportioning costs between the parties (including the arbitrator(s) remuneration) since this is merely a reimbursement of the expenses that the successful party has incurred in participating in the arbitral proceedings. Likewise, the arbitral tribunal can also demand deposits and supplementary deposits since these advances on costs are merely provisional in nature. If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators' fees (in the absence of an agreement), it cannot be enforced in favour of the arbitrators. The party can approach the court to review the fees demanded by the arbitrators.”
41. In the above said judgment, the Supreme Court has further held in para 124 as under:-
124. We believe that the directives proposed by the amicus curiae, with suitable modifications, would be useful in structuring how these preliminary hearings are to be conducted. Exercising our powers conferred under Article 142 of the Constitution, we direct the https://www.mhc.tn.gov.in/judis 46 of 55 Arb.O.P.Nos.384 to 387 of 2018 adoption of the following guidelines for the conduct of ad hoc arbitrations in India:
“1. Upon the constitution of the arbitral tribunal, the parties and the arbitral tribunal shall hold preliminary hearings with a maximum cap of four hearings amongst themselves to finalise the terms of reference (the “Terms of Reference”) of the arbitral tribunal. The arbitral tribunal must set out the components of its fee in the Terms of Reference which would serve as a tripartite agreement between the parties and the arbitral tribunal.
2. In cases where the arbitrator(s) are appointed by parties in the manner set out in the arbitration agreement, the fees payable to the arbitrators would be in accordance with the arbitration agreement.
However, if the arbitral tribunal considers that the fee stipulated in the arbitration agreement is unacceptable, the fee proposed by the arbitral tribunal must be indicated with clarity in the course of the preliminary hearings in accordance with these directives. In the preliminary hearings, if all the parties and the arbitral https://www.mhc.tn.gov.in/judis 47 of 55 Arb.O.P.Nos.384 to 387 of 2018 tribunal agree to a revised fee, then that fee would be payable to the arbitrator(s).
However, if any of the parties raises an objection to the fee proposed by the arbitrator(s) and no consensus can be arrived at between such a party and the tribunal or a member of the tribunal, then the tribunal or the member of the tribunal should decline the assignment.”
42. In the case of Associate Builders v. Delhi Develoment Authority [(2015) 3 SCC 49], the supreme Court has dealt with Fundamental Policy of India and has held as under:
Fundamental Policy of Indian Law
(i) Compliance with statutes and judicial precedents Violation of Indian statutes i.e., the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affecf the administration of justice and would be regarded as being contrary to the fundamental policy of Indian law. Furthermore, the binding effect of the judge men of a superior court being disregarded would be equally violative of https://www.mhc.tn.gov.in/judis 48 of 55 Arb.O.P.Nos.384 to 387 of 2018 fundamental policy of Indian law.”
43. In the above said judgment, the Supreme Court has followed the judgment in the case of ONGC Ltd. v. Saw Pipes Ltd. [(2003) 5 SCC 705 wherein the Hon'ble Supreme Court has held as under:-
“31. Therefore, in our view, the phrase ‘public policy of India’ used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term ‘public policy’ in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal. The result would be —award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or https://www.mhc.tn.gov.in/judis 49 of 55 Arb.O.P.Nos.384 to 387 of 2018
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.”
44. Ultimately, in para 42(1) and 42(2) of the judgment the Hon'ble Supreme Court has held as under:-
“42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under:
“28.Rules applicable to substance of dispute.—(1) Where the place of arbitration is situated in India—
(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;” https://www.mhc.tn.gov.in/judis 50 of 55 Arb.O.P.Nos.384 to 387 of 2018 42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality — for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.”
45. Considering the settled position of law, this court is of the view, that when the arbitration proceedings in the cases on hand are statutory arbitrations and when the Special Act provides for fee to be fixed by the Central Registrar, the arbitrator fixing the fee without exercising her discretion judiciously, imposing such huge cost against ordinary class II and III categories of employees of railways, who are members of the 2nd respondent society, is certainly unfair and it shocks the conscience of the court. Such order with respect to costs of the arbitration proceedings is certainly violative of fundamental policy of India. Further, reasonableness and discretion were also not exercised judiciously. Further, the arbitrator having reserved her discretion to pass order as to costs including fee at the time of final award, there was no reason assigned by the learned arbitrator in final awards in support of her conclusion. While imposing cost including fee of the arbitrator and directing the ordinary Class II and III categories of railway employees to reimburse half of the costs to the 2nd respondent and the learned arbitrator has simply passed https://www.mhc.tn.gov.in/judis 51 of 55 Arb.O.P.Nos.384 to 387 of 2018 such an order in respect of cost of the arbitration proceedings without any reason, the same could also be regarded as patent illegality. In such view of the matter, this court is of the view that awards in respect of imposition of costs of the arbitration proceedings including the fee of the arbitrator on the claimants when they sought to vindicate their statutory right imposing such huge cost in the statutory arbitration proceedings would in fact only prevent the members of the society from agitating their legal right, which cannot be allowed as it would go against the fundamental policy of Indian law. When the statute itself guarantees legal right to vindicate certain rights of the employees, and exercise of such right cannot be suppressed by imposing huge cost particularly in the statutory arbitration proceedings.
46. Though the argument of the learned counsel for the 2nd respondent society that if the 2nd respondent society is directed to bear the entire costs of the arbitration proceedings in all the matters, it would lead to opening the floodgate appears to be attractive, this court is not in a position to accept the same. It is needless to state that if the fee was fixed by the Central Registrar at the time when the arbitrator was appointed as provided under Rule 30 of the MSCS Rules, 2002, then it could be said that there is no scope under Section 84 of the MSCS Act, 2002 for the claimants to challenge such costs. https://www.mhc.tn.gov.in/judis 52 of 55 Arb.O.P.Nos.384 to 387 of 2018
47. As this court has already held in the preceding paragraphs that arbitral award with respect to cost has the effect of distinct claim, that portion of the award alone could be severable, this court is inclined to set aside the awards only with respect to the direction issued to the claimant/petitioner herein and the other claimant (since deceased) for reimbursement of costs of arbitration proceedings including the fees of the arbitrator to the 2 nd respondent society. The 2nd respondent society in all the matters is directed to bear the entire costs in the respective arbitration proceedings.
In the result, (i) Applications in A.No.3649 of 2021 in Arb.O.P.No.384 of 2018 and A.No.3651 of 2021 in Arb.O.P.No.385 of 2018 are allowed and the applicant is substituted in the place of the deceased sole petitioner in the both original petitions. The Registry is directed to carryout necessary amendment in the original petitions.
(ii) Original Petitions in Arb.O.P.Nos.384, 385, 386, 387 of 2018 are partly allowed and the awards insofar as they direct G.Sivakumar, the claimant in A.R.C.Nos.2 & 7 2016 and K.Sankaranarayanan, the claimant in A.R.C.Nos.1 & 8 of 2018 are set aside. The 2nd respondent society is directed bear the entire costs of the arbitration proceedings in all the matters including the fees of the arbitrator.
https://www.mhc.tn.gov.in/judis 53 of 55 Arb.O.P.Nos.384 to 387 of 2018 As the main dispute with regard to election was not canvassed by the learned counsel for the petitioners in all the matters before this court, the awards insofar as they relate to the dismissal of the dispute in respect of election to the board of directors and appointment of the Chairman and Chief Executive and the other office bearers are upheld.
Considering the peculiar facts and circumstances of the case and the status of the parties, each party is directed to bear their own costs in these proceedings. Consequently connected applications are closed.
19..03..2024
Index : yes / no
Neutral Citation : yes.
Speaking / Non Speaking Order
kmk
https://www.mhc.tn.gov.in/judis
54 of 55
Arb.O.P.Nos.384 to 387 of 2018
N.SATHISH KUMAR.J.,
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Pre-delivery common order
in
Original Petition Nos.384, 385, 386 & 387 of 2018 and connected Applications
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