Bombay High Court
Dewan Realtors Private Limited vs Unity Small Finance Bank on 20 March, 2024
Author: Sandeep V. Marne
Bench: Sandeep V. Marne
2024:BHC-OS:4751
Neeta Sawant WP(L)-6994-2024-JR-FC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (LODG.) NO. 6994 OF 2024
Emerald Realtors Pvt. Ltd. ..PETITIONER
V/S.
1. Unity Small Finance Bank Ltd
2. Government of Maharashtra
3. Central Registrar for Co-op. Societies ..RESPONDENTS
WITH
WRIT PETITION (LODG.) NO. 3669 OF 2024
Dewan Realtors Pvt. Ltd. ..PETITIONER
V/S.
1. Unity Small Finance Bank Ltd
2. Government of Maharashtra
3. Central Registrar for Co-op. Societies ..RESPONDENTS
___________
Mr. Navroz Seervai, Senior advocate with Mr. Subir Kumar, Ms.
Disha Shah, Ms. Valentine Mascarenhas and Mr. Abhinav
Palshikar i/by. SDS Advocates for the Petitioner in Writ Petition
(L) No. 6994 of 2024.
Mr. Subir Kumar with Ms. Disha Shah, Ms. Valentine
Mascarenhas and Mr. Abhinav Palshikar i/by. SDS Advocates for
the Petitioner in Writ Petition (Lodg.) No. 3669 of 2024
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Neeta Sawant WP(L)-6994-2024-JR-FC
Mr. Ramesh Dubepatil, with Ms. Bhavana Dupepatil and Mr.
Kushal Mishra i/by. Jay & Co., for Respondent No.1.
Ms. Gaurangi Patil, AGP for State-Respondent No.2.
___________
CORAM : SANDEEP V. MARNE, J.
Judgment Resd. On : 8 March 2024.
Judgment Pron. On : 20 March 2024.
JUDGMENT :
1) Rule. Rule is made returnable forthwith. With the consent of the learned counsels appearing for the parties, the Petitions are taken up for final hearing and disposal.
2) These two Petitions raise two broad issues :
i) Can arbitration proceedings initiated at the instance of a Multi-State Cooperative Society under Section 84 of the Multi State Co-operative Societies Act, 2002 be continued and concluded after amalgamation of such Society into an entity, which is not a Multi-State Cooperative Society ? and
ii) Whether mandate of Arbitral Tribunal comes to an end at expiry of period specified in Section 29A of the Arbitration and Conciliation Act 1996 ?
Connected with the above two issues, is the issue of entertainment of a Writ Petition by this Court, in exercise of jurisdiction under Article 226 and/or 227 of Constitution of India, to interdict pending arbitration proceedings.
Page No. 2 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC 3) Issues arise in the light of Petitioners' challenge to the
continuation of arbitration proceedings initiated at the instance of Punjab and Maharashtra Cooperative Bank, a Multi-State Cooperative Society, after its amalgamation with Unity Small Finance Bank Ltd, which is not a Multi-State Cooperative Society. In Writ Petition (Lodg.) No. 6994 of 2024, continuation of arbitration proceedings which are being conducted by the sole arbitrator is questioned essentially on two counts (i) that Respondent No.1-Bank is not a Multi-State Co-operative Society within the meaning of Multi State Co-operative Societies Act, 2002 (MSCS Act) and that therefore the appointment of an Arbitrator under Section 84 of that Act is invalid; and (ii) that the mandate of the sole Arbitrator has ended as per the provisions of Section 29A of the Arbitration and Conciliation Act, 1996 (Arbitration Act) and that therefore the said Arbitrator can no longer continue with the arbitration proceedings. On the other hand, in Writ Petition (Lodg.) No. 3669 of 2024, the arbitration proceedings in seisin before the learned Arbitrator are questioned on multifarious grounds including the ground if the mandate of the Arbitrator being terminated under Section 29A of the Arbitration Act.
4) Punjab and Maharashtra Co-operative Bank Ltd (PMC Bank) was a Multi-State Cooperative Society registered under the provisions of the MSCS Act and was carrying on the business of banking as per the license issued under the provisions of the Banking Regulation Act, 1949. Petitioners applied for credit Page No. 3 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC facilities with PMC Bank from time to time. On account of the default committed by Petitioners in repaying the credit facilities availed from the PMC Bank, it desired to initiate recovery proceedings against them.
5) Under Section 84 of the M.S.C.S. Act, all disputes touching the constitution, management or business of a Multi- State Co-op. Society, including the claim by the Society or any debt or demand due to it from a member is required to be referred to arbitration. By Order dated 4 November 2020, the Commissioner for Co-operation and Registrar of Co-operative Societies, Maharashtra State, Pune appointed Mr. K.J. Paratwar as the Arbitrator for PMC Bank in respect of the offices located within the State of Maharashtra. The Arbitrator was appointed for 21 new proposals mentioned in Annexure-A to the Order. The appointment of the Arbitrator was valid for a period of one year from the date of the order or upto expiry of his empanelment on the panel, whichever was earlier.
6) On 11 December 2020, PMC Bank filed Statement of Claim against M/s. Dewan Realtors Pvt. Ltd. (Petitioner in Writ Petition (L.) No. 3669 of 2024) for recovery of amount of Rs.144,07,84,764.25/- and for various other reliefs. The said proceedings were numbered as Arbitration Application No. 7 of 2020.
Page No. 4 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC 7) Similarly, on 11 December 2020, the PMC Bank filed
Statement of Claim against Emerald Realtors Pvt. Ltd and Ors. (Petitioners in Writ Petition (L) No. 6994 of 2024) for recovery of amount of Rs.172,54,89,893.97/- and other reliefs. The case was registered as Arbitration Application No. 8 of 2020.
8) The learned sole arbitrator, Mr. K.J. Paratwar issued notices in both the arbitration applications. It appears that on similar lines several arbitration proceedings were filed against the sister concerns of the Petitioner before the same learned sole arbitrator by filing Claim Statements by PMC Bank. The Respondents in those proceedings filed applications under Section 16 of the Arbitration Act challenging jurisdiction of the Arbitrator on various grounds including the ground that the relief sought in the Statements of Claim were in rem and were not arbitrable. The learned arbitrator proceeded to reject the applications challenging his jurisdiction under Section 16 of the Arbitration Act by detailed Order dated 28 July 2021.
9) In Arbitration Case No. 8 of 2020, Petitioner-Emerald Realtors Pvt. Ltd filed Statement of Defence on 5 April 2021. However, in some of the other proceedings, including Arbitration Application No. 7 of 2020, Petitioner-Dewan Realtors Pvt. Ltd. continued agitating the issue of jurisdiction of the learned arbitrator by filing application under Section 16(2) and 16(3) of the Arbitration Act inter-alia on the ground that the loan transactions are fraudulent and that the officials of the Bank were Page No. 5 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC involved in such fraud. Relying upon the FIRs lodged with Economic Offences Wing, Mumbai it was sought to be urged that the issues raised in the Statement of Claims were not arbitrable. Those applications were rejected on 23 August 2022.
10) In the meantime, upon expiration of the tenure of the learned arbitrator, Mr. K.J. Paratwar, the Commissioner for Co- operation and Registrar of Co-operative Societies, Maharashtra State, Pune issued Order dated 1 October 2022 appointing Mr. K.J. Paratwar for a further period of one year.
11) In the meantime, the Government of India (GOI), Ministry of Defence, Department of Financial Services, Banking Division, issued Notification dated 25 January 2022 in exercise of powers under Section 45(A) of the Banking Regulation Act, 1949 and sanctioned the Scheme for Amalgamation of PMC Bank Ltd with Unity Small Finance Bank Ltd. The Scheme is named 'The Punjab & Maharashtra Co-operative Bank Ltd. (Amalgamation with Unity Small Finance Bank Limited Scheme) 2022', which came into effect from the appointed date i.e. 25 January 2022. The entire Undertaking of the PMC Bank stood transferred and vested in Unity Small Finance Bank Ltd. and the Transferor Bank ceased to exist by operation of the Scheme. However, under Clause-3.3 of the Scheme, all actions initiated by the Transferor-Bank before any Court or Tribunal or arbitrator were continued and permitted to be prosecuted and enforced by the Transferee Bank, as if the same were initiated by the Transferee-bank. This is how, Page No. 6 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC Respondent No.1-Bank took over the entire affairs of PMC Bank under the Scheme of Amalgamation sanctioned vide Notification dated 25 January 2022.
12) It appears that the learned sole arbitrator Mr. K.J. Paratwar expressed his inability to continue with the arbitration proceedings on account of his old age and ill-health and therefore Respondent No.1 made a request to the Commissioner for Co- operation for substitution of Arbitrator under Section 15(2) of the Arbitration Act by letter dated 29 August 2023. The Commissioner for Co-operation issued Order dated 16 October 2023 appointing Mr. Ravindra Yashwant Oak as the arbitrator for Unity Small Finance Bank Limited under Section 84 of the M.S.C.S. Act for nine pending proposals mentioned in Annexure to the Order. The appointment is valid for one year from the date of the Order.
13) In pursuance of his appointment vide Order dated 16 October 2023, the learned arbitrator Mr. Ravindra Oak issued notice in Arbitration Application No.8 of 2020 to the Petitioner in Writ Petition (Lodg) No. 6994 of 2024 summoning the Respondents therein to appear before him on 9 November 2023 for final arguments. Petitioner-Emerald Realtors has filed Writ Petition (Lodg.) No. 6994 of 2024 challenging the letter dated order dated 16 October 2023 appointing an arbitration for Respondent No. 1 under Section 84 of the MSCS Act.
Page No. 7 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC 14) So far as Writ Petition (Lodg.) No. 3669 of 2024 is
concerned, it appears that Mr. Ravindra Oak is functioning as arbitrator in Arbitration Case No. 7 of 2020 as well. However, Petitioner-Dewan Realtors Pvt. Ltd. has not challenged or questioned the appointment of Mr. Ravindra Oak in Writ Petition (Lodg.) No. 3669 of 2024. On the contrary, it appears that Petitioner-Dewan Realtors Pvt. Ltd appeared before the arbitrator Mr. Ravindra Oak in pursuance of the Notice dated 23 October 2023 and participated in various meetings of arbitration. As observed above, the grievance of Dewan Realtors Private Limited in Writ Petition (Lodg.) No. 3669 OF 2024 appears to be slightly different. The said Petitioner is essentially aggrieved by the manner in which the arbitration proceedings are conducted in not providing opportunity for cross-examination, acting in bad faith, non-disclosure by Arbitrator, conduct of proceedings at the venue of Bank's offices etc. Continuation of arbitration proceedings beyond the period specified under Section 29A of the Arbitration Act is also questioned in Writ Petition (Lodg.) No. 3669 of 2024.
15) Mr. Seervai, the learned senior advocate would appear on behalf of the Petitioner in Writ Petition (Lodg.) No. 6994 of 2024. He would submit that the learned sole Arbitrator, Mr. Ravindra Y. Oak completely lacked jurisdiction to conduct arbitration proceedings. That appointment of Mr.. Ravindra Oak as directed by Order dated 16 October 2023 is ab-initio void as the Commissioner, Cooperation has illegally made arbitrator's appointment in exercise of power under Section 84 of the M.S.C.S. Page No. 8 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC Act in respect of Respondent No.1-Bank, which is admittedly not a Multi-State Co-operative Society. That Respondent No.1 is a Private Bank operating under the license issued by the Reserve Bank of India under Section 22 of the Banking Regulation Act, 1949. That since Respondent No.1 is not a Multi-State Co- operative Society within the meaning of M.S.C.S. Act, the Commissioner, Co-operation had no jurisdiction to appoint an Arbitrator in respect of Respondent No.1-Bank under Section 84 of the M.S.C.S. Act.
16) Mr. Seervai would take me through the Scheme of Amalgamation brought into effect vide Notification dated 25 January 2022 and according to him, PMC Bank ceased to exist by operation of the scheme w.e.f. 25 January 2022. That the arbitration proceedings under Section 84 of the Act of 2002 can be initiated only against a member and since Petitioner has ceased to be a member on account of non-existence of PMC Bank., the arbitration proceedings under Section 84 of the MSCS Act cannot be conducted against it. Mr. Seervai would therefore submit that the arbitration proceedings conducted by the learned arbitrator are wholly without jurisdiction and the Petitioner is therefore entitled to question the same by filing Writ Petition under Articles 226 and 227 of the Constitution of India. He would submit that what is challenged in the present petition is the Order dated 16 October 2023 issued by the Commissioner, Co-operation and that therefore the present petition would be maintainable as the validity of order issued by the Commissioner, Co-operation Page No. 9 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC under Section 84 of the Act of 2002 cannot be questioned before the Arbitrator under Section 16 of the Act.
17) In the alternative, Mr. Seervai would submit that the mandate of the learned Arbitrator has come to an end under Section 29A of the Arbitration Act. According to Mr. Seervai, the pleadings were complete on account of filing of statement of defence by the Petitioner on 5 April 2021 and therefore on 4 April 2022 the mandate for the Arbitrator to make an Award came to an end under Section 29A(1) of the Arbitration Act. That the parties did not consent for continuation of the mandate under Section 29A(3), which, at the highest, could have been extended by a period of six months. That once the maximum period of mandate prescribed under Section 29A(1) read with Section 29A(3) comes to an end, the Commissioner, Co-operation cannot invoke the provisions of Section 15 of the Arbitration Act for appointing a new Arbitrator outside the maximum limit prescribed under Section 29A of the Act. That power to substitute Arbitrator under Section 15 is to be exercised within the maximum limit prescribed under Section 29A of the Act. That if the provisions of Section 15 of the Arbitration Act are read to mean that appointment of new Arbitrator can be made even after maximum period specified under section 29A of the Arbitration Act, the same would enable a claimant to restart the arbitration proceedings terminated by operation of Section 29A at an indefinite point of time, which is not the statutory scheme of the Arbitration Act. He would therefore submit that the mandate of the Arbitrator was Page No. 10 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC terminated on 4 April 2021. Alternatively, he would submit that even if the order of reappointment of Mr. K.J. Paratwar issued on 1 October 2021 is to be taken into consideration, the mandate otherwise expired on 31 October 2022 after which no fresh appointment of arbitrator could be made by Commissioner, Co- operation. Mr. Seervai would submit that seen from any angle, the mandate of the Arbitrator has come to an end and therefore continuation of arbitration proceedings by Mr. Ravindra Oak is wholly without jurisdiction. Mr. Seervai would therefore pray that Order dated 16 October 2023 in Arbitration Case No. 8/2020 be set aside.
18) Mr. Subir Kumar, the learned counsel appearing for the Petitioner in Writ Petition (L) No. 3669 of 2024 would adopt the submissions canvassed by Mr. Seervai. Additionally, he would press various other grounds raised in the petition about the manner in which the arbitration proceedings were conducted by Mr. K.J. Paratwar and now by Mr. Ravindra Y. Oak. About the objection of authorisation of Mr. Sarang Wadhwan, to file the petition, Mr. Kumar would submit that the Director of Dewan Realtors Pvt. Ltd. has authorised Mr. Sarang Wadhwan to institute/defend legal proceedings for the Petitioner by Resolution dated 8 October 2018.
19) Mr. Dubepatil, the learned counsel appearing for Respondent No.1-Bank would oppose the petitions submitting the Petitions are not maintainable as Petitioners have alternate Page No. 11 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC remedy of raising objection of jurisdiction under Section 16 of the Arbitration Act. That Petitioners are deliberately delaying the arbitration proceedings by raising one or the other technical grounds. That there are huge outstandings from Petitioners, on account of which, depositors of the erstwhile PMC Bank are suffering. That as many as 16 depositors have faced death on account of their hard-earned savings being duped by Petitioners. He would take me through the reply to indicate as to how Directors of Petitioners have siphoned off monies borrowed from PMC Bank. He would also question authority of Mr. Sarang Wadhwan to file Writ Petition (L) No. 3669 of 2024.
20) Mr. Dubepatil would further submit that under Clause-3.3 of the Amalgamation Scheme, all arbitration proceedings initiated by PMC Bank are specifically protected. He would submit that Clause-3.3 of the Amalgamation Scheme specifically directs that no proceedings initiated by PMC Bank before the Arbitrator shall be discontinued or be prejudicially affected on account of the Scheme of Amalgamation. He would submit that Clause-3.3 specifically directs that any proceedings initiated under Section 84 of the M.S.C.S. Act would be continued, if the same was initiated by Respondent No.1-Bank. He would submit that Respondent No.1-Bank would be prohibited from initiating fresh arbitration proceedings under Section 84 of the M.S.C.S. Act but all the pending and ongoing arbitration proceedings are permitted to be continued under Section 3.3 of the Scheme.
Page No. 12 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC 21) So far as the objection of termination of mandate of
the Arbitrator is concerned, Mr. Dubepatil would submit that termination of arbitration proceedings and termination of mandate of an Arbitrator are entirely two different concepts. That even if mandate of an Arbitrator terminates under Section 15(1) of the Arbitration Act, sub-section (2) thereof permits substitution of the Arbitrator. That the Arbitration Act does not recognise the concept of termination of arbitration proceedings and what terminates is merely the mandate of a particular Arbitrator. He would submit that Mr. K.J. Paratwar withdrew as arbitrator on account of ill-health and old age. This would not automatically mean that the liabilities of the Petitioners towards the erstwhile PMC Bank, and now towards Respondent No.1-Bank, would get washed out. He would therefore submit that Petitioners cannot now be permitted to raise technical objections so as to delay and frustrate the arbitration proceedings. He would submit that all objections relating to jurisdiction of the Arbitrator can be raised only under Section 16 of the Arbitration Act. That so far, Emerald Realtors Pvt. Ltd has filed such objection once and Dewan Realtors Pvt. Ltd. has filed such objection twice under Section 16 of the Arbitration Act. That present petitions are yet another attempt on the part of the Petitioners to somehow stall the arbitration proceedings with a view to delay recovery of dues by the Bank from them.
Page No. 13 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC 22) Ms. Gaurangi Patil, the learned AGP appearing for
Respondent No.2-State would oppose the petitions and justify the appointment of Mr. Ravindra Yashwant Oak as Arbitrator under Section 84 of the M.S.C.S. Act. She would place reliance on Clause-3.3 of the Amalgamation Scheme, under which, according to her, all pending arbitration proceedings are saved. She would submit that if Petitioners have any objection about jurisdiction of the Arbitrator, the same must be raised only before the Arbitrator himself under Section 16 of the Arbitration Act. She would therefore question the maintainability of the present petitions. She would pray for dismissal of the petition.
23) Rival contentions of the parties now fall for my consideration.
24) Before I proceed to examine the merits of the rival contentions raised, it would be necessary to first deal with the objection of maintainability of the petitions raised by Respondents. Both Mr. Dubepatil and Ms. Patil have questioned the maintainability of the present petitions on the ground that Petitioners have alternate remedy of questioning Arbitrator's jurisdiction under Section 16 of the Arbitration Act. On the contrary, it is Mr. Seervai's submission that challenge to the Order dated 16 October 2023 passed by the Commissioner for Cooperation cannot be raised under Section 16 of the Arbitration Act. He also submits that if the proceedings are wholly without jurisdiction, this Court would be justified in exercising Page No. 14 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC jurisdiction under Articles 226 and 227 of the Constitution of India for interdiction of the arbitral proceedings.
25) As observed above, jurisdiction of the arbitrator is questioned in these Petitions on two counts: (i) that an arbitrator cannot be appointed in respect of an entity, which is not a multi- state cooperative society, in exercise of power under Section 84 of the MSCS Act and (ii) that the mandate of the arbitrator has come to an end under Section 29A of the Arbitration Act and continuation of arbitral proceedings are without jurisdiction.
26) This Court had an occasion to decide the issue of maintainability of writ petition challenging the Award passed by the Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 in a case where objection was raised about jurisdiction of the Council to decide the dispute which arose before coming into effect of the MSME Act. After considering the various judgments on the subject, this Court held in Bajaj Auto Ltd V/s. State of Maharashtra and Others Writ Petition No. 8496 of 2019 Bench at Aurangabad decided on 20 October 2022 paras-19 to 24 as under:
19. Having held that the Facilitation Council did not have jurisdiction to decide the disputes and that the Award of the council is without jurisdiction, now I turn to the issue of maintainability of the present petition. In Whirlpool Corporation (supra), the Apex Court has held that when a writ petition is filed for enforcement of any fundamental rights or where there has been a violation of the principles of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged, writ petition is Page No. 15 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC maintainable notwithstanding existence of an alternate remedy. In this regard para 13 of the judgment reads thus:
"13. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decision of the evolutionary era of the constitutional law as they still hold the field."
20. Mr. Vakil has relied upon the three decisions of various High Courts, wherein writ petitions were entertained challenging awards passed by the Facilitation Council after it was found that the awards were without jurisdiction. In M/s. Gats Financial Reconstructors Ltd. (supra), the Punjab and Haryana High Court has held in para Nos. 9 and 10 as under :
"9. Now the question arises whether in the present case the provisions of the MSMED Act will apply for the acts done prior to coming into force of the MSMED Act and whether the benefit of provisions of the MSMED Act can be given to the petitioner for the services rendered prior to its registration ?
10. The perusal of record reveals that reference relates to October 2005 when the MSMED Act was not in force so question of applicability of the provisions of the MSMED Act retrospectively does not arise as the Act came into force w.e.f. 18.07.2006 so question of answering the reference does not arise. Furthermore the provisions of the MSMED Act cannot be made applicable for the services done prior to the registration of the petitioner with the respondents No. 1 and 2. Otherwise also the services assigned to the petitioner service provider are not covered in the WTO list under the financial services category (Annexure R1 Colly). Respondents No. 1 and 2 have Page No. 16 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC declined reference after receiving advice from the Government of India. The petitioner is required to prove by cogent evidence that it has been authorised by the concerned bank i.e. Indian Overseas Bank for providing financial consultancy services. Learned counsel for the petitioner has failed to show any document authorising the petitioner by the concerned bank for the services for which it claims interest on delayed payment, in these circumstances elaborated reasons were not required to be given for declining reference."
21. In Karnataka Power Transmission Corporation Ltd. (supra) the Single Judge of the Karnataka High Court was dealing with the issue where initially suits were filed challenging the award of the Facilitation Council, which were withdrawn. Later, writ petitions were filed in the High Court challenging the award. The Karnataka High Court has held in para Nos. 13, 15 and 22 as under :
13. The main ground of attack of the petitioner is that the provisions of the Act are not applicable to the present case on hand for the reason that the respondent No.2 is not a 'supplier' in terms of Section 2(n) of the Act and is not governed by the provisions of the Act. To analyse the same, it is apt to refer to Section 2(n) of the Act in terms of which, 'supplier' means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of Section 8.
15. Nextly it is beneficial to refer to the judgment Hon'ble Apex Court in the case of Shanti conductors wherein the Hon'ble Apex Court considering the provisions of the Industrial Undertakings Act 1993 which is akin to the Act 2006 has held that the incidence of applicability of the liability under the Act is supply of goods or rendering of service. In the said case, the Assam Electricity Board placed an order for supply of all conductors on 31.3.1992.
The supplies were made during June and December 1992. On 13.5.1992 another order was placed by the Board for the supply of various types of conductors. On 23.09.1992 the President of India promulgated an ordinance, namely , the Interest on Delayed Payment to Small Scale Ancillary Industrial Undertakings Ordinance, 1992. Subsequently, on 02.04.1993, the interest on Delayed Payment to Small Scale and Ancillary Industrial Undertaking Arbitration Page No. 17 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC Act, 1993 was enacted and it was deemed to have come into force with effect from 23.09.1992.
22. For the aforesaid reasons, it is held thus:
(i) the Respondent Nos.2 are not suppliers in terms of section 2(n) of the Act.
(ii) provisions of the Act, 2006 are not applicable to the supplies made by the respondent Nos.2 prior to the enforcement of the Act.
(iii) claim/s made by the respondent Nos.2 is/are barred by limitation in terms of the provisions of the Limitation Act, 1963.
(iv)The award impugned passed by the Council under the provisions of the Act, 2006 is being without jurisdiction, writ petition is maintainable.
(v) Respondent No.1 not being a proper and necessary party to the proceedings, liability fastened jointly and severally on the respondent No.1 cannot be substantiated.
22. In Central Coalfields Ltd. (supra), a Single Judge of the Jharkhand High Court has held in para No. 9 as under :
9. In this case, admittedly, the work order issued in the year 2001 and the respondent no.2 completed the work in the year 2002. Thereafter, petitioner paid all the contractual dues to the respondent no.2 after deducting the penalty and tax etc. It is specifically stated in the writ application that the respondent no.2 received the aforesaid amount without any objection. However, it appears that the respondent no.2 raised some dispute for refund of the security amount, thus the above dispute raised before commencement of the said Act. Therefore, in my view, said dispute can only be adjudicated by the regular forum by filing a civil suit. In that view of the matter, in my opinion, respondent no.2 has no right to file application before the Council under section 18 of the aforesaid Act and the impugned order passed by the Council is also without jurisdiction.
23. The issue of maintainability of writ petition is also considered by the Division Bench of this Court in JSW Steel Limited (supra). The Division Bench has held that, though this Court would not exercise its jurisdiction under Article 226 of the Constitution of India against any or every order passed by an arbitral tribunal, when the order or award passed by the Page No. 18 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC statutory arbitral tribunal is a nullity, such writ petitions can be entertained. In para No. 88 of the judgment the Division Bench of this Court has held as under :
"88. The above are jurisdictional facts which were absent before respondent No.2 could assume jurisdiction. In the absence of such jurisdictional facts, respondent No.2 could not have proceeded under section 18(3) of the MSMED Act and could not have passed the impugned order (award) dated 08.05.2015. As held by the Supreme Court in Arun Kumar (supra), in the absence of the jurisdictional facts, respondent No.2 had rendered itself coram non judice. Any order or award passed by an authority which is rendered coram non judice is a nullity and can certainly be interfered with by the High Court under Article 226 of the Constitution of India. Therefore, reverting back to our discussions made in paragraph 37 of this judgment, from an analysis of the judgments of the Supreme Court in Patel Engineering (supra) and Modern Industries (supra) the position becomes very clear. While the High Court in exercise of its jurisdiction under Article 226 of the Constitution of India would not entertain any and every order passed by an Arbitral Tribunal, certainly the High Court would entertain an order or award passed by a statutory Arbitral Tribunal which is a nullity or when the Tribunal had rendered itself coram non judice.
24. Since the award passed by the Facilitation Council is without jurisdiction and, therefore, a nullity, I am of the view that writ petition filed by Petitioner challenging award is maintainable.
27) Thus, if an Arbitral Tribunal wholly lacks jurisdiction to decide a dispute and still proceeds to conduct arbitration proceedings, this Court would be justified in exercising jurisdiction under Article 226 or 227 of the Constitution of India to interdict such arbitral proceedings. However, the objection of absence of jurisdiction should stem out of some statutory provisions and not through clauses of arbitration agreement. The objection of jurisdiction thus should not emanate out of absence Page No. 19 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC of arbitration clause in the agreement. That objection can obviously be raised and decided before the Arbitrator under Section 16 of the Arbitration Act. When dispute resolution mechanism is statutorily provided, conduct of arbitration proceeding cannot be contrary to that Statute. Thus, in a rare case where conduct of arbitration is ostensibly in exercise of statutory power and the statute does not provide for conduct of the same, this Court would be justified in exercising writ jurisdiction.
28) In the present case, Petitioner in Writ Petition (Lodg.) No. 6994 of 2024 submits that since Respondent No.1-bank is not a multi-state cooperative society, within the meaning of M.S.C.S. Act, an arbitrator cannot be appointed by Commissioner, Co- operation in exercise of power under sub-section 84 of the M.S.C.S. Act. To paraphrase, what Petitioner submits is total absence of authority for Commissioner, Cooperation to exercise power under Section 84 of the M.S.C.S. Act to appoint an Arbitrator in respect of dispute of an entity, which is not a multi- state cooperative society. This is how jurisdiction of this Court is invoked by filing Writ Petition (L) No. 6994 of 2024.
29) One more aspect needs to be considered while deciding the issue of maintainability of petitions. What Petitioner in Writ Petition (L.) No.6994 of 2024 seeks to challenge is the order passed by the Commissioner, Cooperation dated 16 October 2023, which constitutes the arbitral tribunal by making appointment of arbitrator under Section 84 of the M.S.C.S Act.
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Under 16 of the Arbitration Act, the arbitrator will not be in a position to decide the validity of Order so passed by Commissioner, Cooperation in exercise of power under Section 84 of the M.S.C.S. Act. In my view therefore, it cannot be said that the issue of validity of Order dated 16 October 2023 could be raised by Petitioners only before the arbitrator under Section 16 of the Arbitration Act. Therefore, so far as challenge to the Order dated 16 October 2023 is concerned, Writ Petition (L) No. 6994 of 2023 is held to be maintainable.
30) However, when it comes to the other issue raised in both the Petitions about termination of mandate of the arbitrator, in my view, the said objection can be and needs to be raised before the arbitrator under Section 16 of the Arbitration Act. The Arbitral Tribunal is authorised to rule on its own jurisdiction. Section 16 reads thus:
16. Competence of arbitral tribunal to rule on its jurisdiction.--
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be Page No. 21 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub- section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.
31) Therefore, whether the mandate of the arbitrator has expired or continues to operate is something which can still be raised under Section 16 of the Arbitration Act. The Arbitral Tribunal can rule on the said objection and in the event the Tribunal rejects the application, the decision of the arbitrator can then be challenged by making an application for setting aside the Award under Section 34 of the Arbitration Act. Similar is the position in respect of other objections raised in Writ Petition (L.) No. 3669 of 2024 about correctness of proceedings conducted by the Arbitrator, which cannot be decided in a writ petition and needs to be raised in Petition filed under Section 34 of the Act, in case occasion arises to challenge the final award.
32) In my view therefore, Writ Petition (L) No. 3669/2024 is not maintainable and deserves to be rejected leaving open the liberty to Petitioner therein to raise all issues raised in the Petition either before the arbitrator by making appropriate application in that regard or in Petition filed under Section 34 of the Arbitration Page No. 22 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC Act, if and when filed. Similar is the position in respect of the objection about expiry of mandate of the arbitrator raised in Writ Petition (L) No. 3669 of 2024, where again the Petitioner would be at liberty to raise the said objection before the Arbitrator.
33) The present discussion is therefore restricted to the validity of Order dated 16 October 2023 issued by the Commissioner, Cooperation appointing Arbitrator under Section 84 of the M.S.C.S. Act. about which issue, Writ Petition (L) No. 6994 of 2024 is held to be maintainable.
34) Though Petitioner in Writ Petition (L) No. 6994 of 2024 has challenged the Order dated 16 October 2023, the same is not placed on record alongwith the petition. However, copy of the same is produced alongwith the Affidavit in reply filed on behalf of Respondent No.1. Perusal of the Order dated 16 October 2023 would indicate that the same is passed by the Commissioner, Cooperation in exercise of power under Section 84 of the M.S.C.S. Act appointing Mr. Ravindra Oak as the arbitrator in respect of nine pending proposals mentioned in Annexure-A to the order.
35) It is Petitioner's contention that since Respondent No.1 is not a multi-state co-operative society within the meaning of M.S.C.S. Act, power of appointment of arbitrator cannot be exercised by the Commissioner, Co-operation under Section 84 of the Act. Section 84 of the MSCS Act reads thus:
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84. Reference of disputes (1) Notwithstanding anything contained in any other law for the time being in force, if any dispute [other than a dispute regarding disciplinary action taken by a multi-state cooperative society against its paid employee or an industrial dispute as defined in clause (k) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947)] touching the constitution, management or business of a multi-state cooperative society arises-
(a) among members, past members and persons claiming through members, past members and deceased members, or
(b) between a member, past members and persons claiming through a member, past member or deceased member and the multi-state cooperative society, its board or any officer, agent or employee of the multi-state cooperative society or liquidator, past or present, or
(c) between the multi-state cooperative society or its board and any past board, any officer, agent or employee, or any past officer, past agent or past employee, heirs or legal representatives of any deceased officer, deceased agent or deceased employee of the multi-state cooperative society, or
(d) between the multi-state cooperative society and any other multi- state cooperative society, between a multi-state cooperative society and liquidator of another multi-state cooperative society or between the liquidator of one multi-state cooperative society and the liquidator of another multi-state cooperative society, such dispute shall be referred to arbitration.
(2) For the purposes of sub-section (1), the following shall be deemed to be disputes touching the constitution, management or business of a multi-state cooperative society, namely:-
(a) a claim by the multi-state cooperative society for any debt or demand due to it from a member or the nominee, heirs or legal representatives of a deceased member, whether such debt or demand be admitted or not;Page No. 24 of 37
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(b) a claim by a surety against the principal debtor where the multi- state cooperative society has recovered from the surety any amount in respect of any debt or demand due to it from the principal debtor as a result of the default of the principal debtor, whether such debt or demand is admitted or not;
(c) any dispute arising in connection with the election of any officer of a multi-state cooperative society.
(3) If any question arises whether a dispute referred to arbitration under this section is or is not a dispute touching the constitution, management or business of a multi-state cooperative society, the decision thereon of the arbitrator shall be final and shall not be called in question in any court.
(4) Where a dispute has been referred to arbitration under sub- section (1), the same shall be settled or decided by the arbitrator to be appointed by the Central Registrar.
(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 Arbitration and Conciliation Act, 1996.
Thus dispute resolution mechanism is statutorily created under Section 84 of the MSCS Act in respect of dispute touching constitution, management or business of a Multi-State Cooperative Society.
36) Petitioner has placed reliance on clause 8.3 of the Scheme of Amalgamation, under which P.M.C. Bank has ceased to exist by operation of the Scheme w.e.f. 25 January 2022. Petitioner therefore contends that since PMC Bank has ceased to Page No. 25 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC exist and a new entity has taken over business operations of PMC Bank and since the new entity is not a multi-state cooperative society, arbitration proceedings under Section 84 of the MSCS Act are not maintainable qua Respondent No. 1 Bank.
37) The Notification dated 25 January 2022 is issued by the Government of India, Ministry of Finance, Department of Financial Services, Banking Division in exercise of powers under Section 45 of the Banking Regulations Act. Under Section 45 of the Act, the Reserve Bank can apply to the Central Government for suspension of business by a banking company or for preparation of scheme for reconstruction or amalgamation of any banking company. Section 45 of the Banking Regulation Act reads thus :
45. Power of Reserve Bank to apply to Central Government for suspension of business by a banking company and to prepare scheme of [reconstruction] or amalgamation.--
(1) Notwithstanding anything contained in the foregoing provisions of this Part or in any other law or any agreement or other instrument, for the time being in force, where it appears to the Reserve Bank that there is good reason so to do, the Reserve Bank may apply to the Central Government for an order of moratorium in respect of a banking company.(2) (3)
(4) During the period of moratorium or at any other time, if the Reserve Bank is satisfied that--
(a) in the public interest; or
(b) in the interests of the depositors; or
(c) in order to secure the proper management of the banking company; or Page No. 26 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC
(d) in the interests of the banking system of the country as a whole, it is necessary so to do, the Reserve Bank may prepare a scheme
--
(i) for the reconstruction of the banking company, or
(ii) for the amalgamation of the banking company with any other banking institution (in this section referred to as "the transferee bank").
(5) The scheme aforesaid may contain provisions for all or any of the following matters, namely:--
(a) the constitution, name and registered office, the capital, assets, powers, rights, interests, authorities and privileges, the liabilities, duties and obligations of the banking company on its reconstruction or, as the case may be, of the transferee bank;
(b) in the case of amalgamation of the banking company, the transfer to the transferee bank of the business, properties, assets and liabilities of the banking company on such terms and conditions as may be specified in the scheme;
(c) and change in the Board of directors, or the appointment of a new Board of directors, of the banking company on its reconstruction or, as the case may be, of the transferee bank and the authority by whom, the manner in which, and the other terms and conditions on which, such change or appointment shall be made and in the case of appointment of a new Board of directors or of any director, the period for which such appointment shall be made;
(d) the alteration of the memorandum and articles of association of the banking company on its reconstruction or, as the case may be, of the transferee bank for the purpose of altering the capital thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation;
(e) subject to the provisions of the scheme, the continuation by or against the banking company on its reconstruction or, as the case may be, the transferee bank, of any actions or proceedings pending against the banking company immediately before the reconstruction or amalgamation;
(f) the reduction of the interest or rights which the members depositors and other creditors have in or against the banking company before its reconstruction or amalgamation to such extent as the Reserve Bank considers necessary in the public interest or in the interests of the members, depositors and other Page No. 27 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC creditors or for the maintenance of the business of the banking company;
(g) the payment in cash or otherwise to depositors and other creditors in full satisfaction of their claim--
(i) in respect of their interest or rights in or against the banking company before its reconstruction or amalgamation; or
(ii) where their interest or rights aforesaid in or against the banking company has or have been reduced under clause (f), in respect of such interest or rights as so reduced;
(h) the allotment to the members of the banking company for shares held by them therein before its reconstruction or amalgamation [whether their interest in such shares has been reduced under clause (f) or not], of shares in the banking company on its reconstruction or, as the case may be, in the transferee bank and where any members claim payment in cash and not allotment of shares, or where it is not possible to allot shares to any members, the payment in cash to those members in full satisfaction of their claim--
(i) in respect of their interest in shares in the banking company before its reconstruction or amalgamation; or
(ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced;
(i) the continuance of the services of all the employees of the banking company (excepting such of them as not being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947) are specifically mentioned in the scheme) in the banking company itself on its reconstruction or, as the case may be, in the transferee bank at the same remuneration and on the same terms and conditions of service, which they were getting or, as the case may be, by which they were being governed, immediately before the [reconstruction or amalgamation:
Provided that the scheme shall contain a provision that--
(i) the banking company shall pay or grant not later than the expiry of the period of three years from the date on which the scheme is sanctioned by the Central Government, to the said employees the same remuneration and the same terms and conditions of service as are, at the time of such payment or grant, applicable to employees of corresponding rank or status of a comparable banking company to be determined for this purpose by the Reserve Bank (whose determination in this respect shall be final);
(ii) the transferee bank shall pay or grant not later than the expiry of the aforesaid period of three years, to the said employees the same remuneration and the same terms and Page No. 28 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC conditions of service [as are, at the time of such payment or grant, applicable] to the other employees of corresponding rank or status of the transferee bank subject to the qualifications and experience of the said employees being the same as or equivalent to those of such other employees of the transferee bank:
Provided further that if in any case under clause (ii) of the first proviso any doubt or difference arises as to whether the qualification and experience of any of the said employees are the same as or equivalent to the qualifications and experience of the other employees of corresponding rank or status of the transferee bank, [the doubt or difference shall be referred, before the expiry of a period of three years from the date of the payment or grant mentioned in that clause,] to the Reserve Bank whose decision thereon shall be final;
(j) notwithstanding anything contained in clause (i) where any of the employees of the banking company not being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947) are specifically mentioned in the scheme under clause (i), or where any employees of the banking company have by notice in writing given to the banking company or, as the case may be, the transferee bank at any time before the expiry of the one month next following the date on which the scheme is sanctioned by the Central Government, intimated their intention of not becoming employees of the banking company on its reconstruction or, as the case may be, of the transferee bank, the payment to such employees of compensation if any, to which they are entitled under the Industrial Disputes Act, 1947 (14 of 1947), and such pension, gratuity, provident fund and other retirement benefits ordinarily admissible to them under the rules or authorisations of the banking company immediately before the [reconstruction or amalgamation];
(k) any other terms and conditions for the reconstruction or amalgamation of the banking company;
(l) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.
(6) (a) A copy of the scheme prepared by the Reserve Bank shall be sent in draft to the banking company and also to the transferee bank and any other banking company concerned in the [reconstruction or amalgamation], for suggestions and objections, if any, within such period as the Reserve Bank may specify for this purpose.Page No. 29 of 37
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(b) The Reserve Bank may make such modifications, if any, in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the banking company and also from the transferee bank, and any other banking company concerned in the amalgamation and from any members, depositors or other creditors of each of those companies and the transferee bank.
(7) The scheme shall thereafter be placed before the Central Government for its sanction and the Central Government may sanction the scheme without any modifications or with such modifications as it may consider necessary; and the scheme as sanctioned by the Central Government shall come into force on such date as the Central Government may specify in this behalf:
Provided that different dates may be specified for different provisions of the scheme.
(7A) The sanction accorded by the Central Government under sub-section (7), whether before or after the commencement of section 21 of the Banking Laws (Miscellaneous Provisions) Act, 1963 (55 of 1963), shall be conclusive evidence that all the requirements of this section relating to reconstruction, or, as the case may be, amalgamation have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the Central Government to be a true copy thereof, shall, in all legal proceedings (whether in appeal or otherwise and whether instituted before or after the commencement of the said section
21), be admitted as evidence to the same extent as the original scheme.
(8) On and from the date of the coming into operation of the scheme or any provision thereof, the scheme or such provision shall be binding on the banking company or, as the case may be, on the transferee bank and any other banking company concerned in the amalgamation and also on all the members, depositors and other creditors and employees of each of those companies and of the transferee bank, and on any other person having any right or liability in relation to any of those companies or the transferee bank 1 [including the trustees or other persons managing, or connected in any other manner with, any provident fund or other fund maintained by any of those companies or the transferee bank.Page No. 30 of 37
20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC (9) On and from the date of the coming into operation of, or as the case may be, the date specified in this behalf in the scheme the properties and assets of the banking company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and vest in, and the liabilities of the banking company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and become the liabilities of the transferee bank.
(10) (11) (12) (13) (14) (15)(emphasis added)
38) The recitals to the Notification dated 25 January 2022 record that certain instances of fraud by Housing Development and Infrastructure Ltd. and its group companies in PMC Bank were detected in September 2019 and considering its precarious financial condition, complete erosion of capital as well as substantial deposit erosion of P.M.C. Bank, the Reserve Bank of India has issued directions under Section 35A and 56A of the Banking Regulation Act to protect interest of depositors to ensure that Bank's available resources were not misused or diverted. The Reserve Bank of India thereafter suspended the Board of Directors of the Bank on 23 September 2019 and appointed an Administrator in its place. The Reserve Bank of India thereafter applied to the Central Government under Section 45 of the Banking Regulation Act, for preparation of Scheme of Amalgamation of PMC Bank. It appears that the Centrum Financial Services Ltd. as Promoters alongwith Resilient Page No. 31 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC Innovations Private Limited as joint investor, expressed an interest in acquiring PMC BANK through the Scheme of Amalgamation with a new bank to be registered as Unity Small Finance Bank. Accordingly, Unity Small Finance Bank Ltd. was granted banking license by the Reserve Bank of India on 12 October 2021. Unity Small Finance Bank Ltd. accordingly started transacting business of the Bank on 1 November 2021. The Reserve Bank of India thereafter submitted a draft of Amalgamation Scheme to the Central Government under sub- section 6 of Section 45 of the Banking Regulation Act and after considering the suggestions and objections of the Draft Scheme, the Central Government in exercise of powers under sub-section 7 of Section 45 of the Banking Regulation Act, sanctioned the Amalgamation Scheme by Notification dated 25 January 2022.
39) Under the draft Scheme prepared by the Reserve Bank of India for amalgamation, various matters are to be included and one of the matters that needs to be included is a provision for continuation by or against the Banking Company on its reconstitution or the transferee bank of any actions or proceedings pending against the Banking Company immediately after reconstruction or amalgamation.
40) This is how in the amalgamation scheme, Clause-3 has been incorporated which deals with transfer of assets and liabilities and general clauses thereof. Sub-clause (3) of Clause-3 Page No. 32 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC deals with continuation of actions initiated by PMC Bank by the transferee Bank. Sub-clause (3) of Clause-3 reads thus:
3.3. If on the appointed date any cause of action, suit, decrees, recovery certificates, appeals or other proceedings of whatever nature is pending by or against the transferor bank before any court or tribunal or arbitrator or any other authority the same shall not abate, be discontinued or be in any way prejudicially affected, but shall, subject to the other provisions of the Scheme, be prosecuted and enforced by or against the transferee bank, including any proceedings under Section 84 of the Multi-State Co-operative Societies Act, 2002, as if such proceedings were initiated by or against a person eligible to maintain the proceedings under such Act:
Provided that where a contravention of any of the provisions of any statute or of any rule, regulation, direction or order made thereunder has been committed by, or any proceeding for a criminal offence has been instituted against a director or secretary, manager, officer or other employee of the transferor bank before the appointed date, such director, secretary, manager, officer or other employee shall be liable to be proceeded against under such law and punished accordingly as if transferor bank had not been amalgamated.
(emphasis and underlining added)
41) Thus under Clause-3.3 of the Amalgamation Scheme, the Central Government has specifically directed that all proceedings pending before Arbitrator shall not abate or be discontinued or prejudicially affected by the Scheme of Amalgamation and that the same shall be prosecuted and enforced by the transferee-Bank, as if they were instituted by the transferee-Bank. To make things clearer, Clause-3.3 specifically uses the word "including any proceedings under sub-section (4) of the Multi State Co-operative Societies Act, 2002".Page No. 33 of 37
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42) Thus, the Scheme of Amalgamation specifically contains a provision for continuation of arbitration proceedings initiated by the Transferor bank under section 84 of M.S.C.S. Act even after amalgamation thereby enabling the Transferee Bank to continue to prosecute the same. Thus, Clause-3.3 of the Amalgamation Scheme specifically enables Respondent No.1- Bank to continue to prosecute the arbitration proceedings initiated by the PMC Bank prior to the scheme of amalgamation. Mere cessation of existence of PMC Bank under clause-8.3 of the Scheme on the appointed date does not have any effect on arbitration proceedings that were initiated prior to the coming into effect of the scheme of amalgamation. Clause 8.3 will have to be read along with provisions of Clause 3.3 of the Scheme. In fact the provision for continuation of arbitration proceedings initiated under Section 84 of the MSCS Act under Clause 3.3 of the Scheme of Amalgamation is made to save those proceedings notwithstanding cessation of existence of PMC Bank under Clause 8.3 of the Scheme.
43) Though Mr. Seervai has sought to contend that what Clause-3.3 saves is mere abatement of proceedings, in my view, use on the words 'arbitrator' and 'including any proceedings under Section 84 of the Multi State Cooperative Societies Act, 2002" would clearly indicate that even after amalgamation of PMC Bank into Respondent No.1-Bank and even though Respondent No.1-bank is not a Multi-State Co-operative Society, the arbitration proceedings initiated under Section 84 of the Page No. 34 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC M.S.C.S. Act would continue and can be prosecuted by the transferee bank.
44) Petitioners have not set up a challenge to the Scheme of Amalgamation vide Notification dated 25 January 2022. Under Section 45 (8) of the Banking Regulations Act, the Scheme is binding on all members of transferor bank. It thus binds Petitioner and its directors who were members of PMC Bank. Therefore, all the provisions of Scheme would apply and be binding on Petitioner and its directors. Without challenging the Scheme, its effect cannot be challenged by Petitioner. In that view of the matter, the arbitration proceedings initiated by PMC Bank under Section 84 of the M.S.C.S. Act can be prosecuted by Respondent No.1 notwithstanding the fact that it is not a Multi- State Co-op. Society within the meaning of M.S.C.S. Act.
45) If Petitioners' contention is accepted, mere amalgamation of PMC Bank into Respondent No. 1 Bank would frustrate the remedy initiated by PMC Bank for recovery of dues from its borrowers and Respondent No. 1 will have to initiate fresh proceedings under the Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002. It must be borne in mind that the objective behind sanctioning the Scheme for Amalgamation is inter alia to protect interests of the depositors, who have lost their deposits due to mismanagement of PMC Bank. It appears that Petitioners, their promoters and directors and other sister concerns are accused as the main Page No. 35 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC conspirers in the alleged fraud perpetrated on PMC Bank. PMC Bank was required to be amalgamated inter alia to ensure that the depositors get back their deposits. Under Clause 6(c) of the Scheme, there is a provision for return for deposit upto Rs. 5,00,000/- to the depositors of PMC Bank immediately after coming into effect of the Scheme and for return of balance deposits in a phased manner. Keeping in mind the obligations imposed on Respondent No. 1 Bank, the Central Government has made a special provision under the Scheme for continuation of arbitration proceedings initiated by PMC Bank under Section of 84 of the MSCS Bank by Respondent No. 1 Bank, notwithstanding the fact that Respondent No. 1 is not a multi-state cooperative society. I need not delve any further into the reasons for making the special provision under Clause 3.3 of the Scheme in absence of challenge thereto. Suffice it to observe that clause 3.3 of the Scheme provides for continuation of arbitral proceedings initiated under Section 84 of the MSCS Act by Respondent No. 1 Bank even though Respondent No. 1 is not a Multi-State Cooperative Society.
46) In my view, therefore the arbitration proceedings initiated against Petitioner under Section 84 of the M.S.C.S. Act have not lapsed merely on account of cessation of existence of PMC Bank and can validly be continued and prosecuted by Respondent No. 1 Bank as per Clause 3.3 of the Scheme of Amalgamation. Therefore, Order dated 16 October 2023 passed by the Commissioner, Co-operation changing the arbitrator is not Page No. 36 of 37 20 March 2024 ::: Uploaded on - 20/03/2024 ::: Downloaded on - 21/03/2024 11:33:36 ::: Neeta Sawant WP(L)-6994-2024-JR-FC without jurisdiction. Since clause 3.3 of the Scheme provides for continuation of arbitral proceedings, the Commissioner, Co- operation would be authorized to exercise jurisdiction under Section 84 of the MSCS Act. The impugned order dated 16 October 2023 is therefore not vitiated on account of implementation of Scheme of Amalgamation w.e.f. 25 January 2022. Whether such new Arbitrator can continue with the arbitration proceedings in view of the provisions of Section 29A of the Arbitration Act is something which the Petitioners will have to raise by filing an appropriate objection under Section 16 of the Arbitration Act. All issues in that regard are left open.
47) I therefore do not find any valid ground to interfere in both the petitions. Reserving the liberty to the Petitioners to raise objections about jurisdiction of the arbitrator under Section 16 and/or Section 34 of the Arbitration Act, the Writ Petitions are dismissed without any order as to costs. Rule is discharged in both the petitions.
SANDEEP V. MARNE J.
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