2012 (3) TMI 602 - HC - Indian Laws

Summary

Issues Involved:
1. Jurisdiction of the Arbitrator
2. Limitation period for filing claims
3. Compliance with procedural laws and principles of natural justice
4. Validity of the award and interest granted

Summary:

1. Jurisdiction of the Arbitrator:
The principal borrower applied for an enhancement of Cash Credit Facility in 1989. The Cooperative Court returned the plaint to the bank in 2003, citing lack of jurisdiction under the Multi-State Cooperative Societies Act, 2002 (MSCS Act 2002). The Arbitrator was appointed in 2006, but failed to address the jurisdictional issues. The court emphasized that the Arbitrator must consider jurisdictional aspects before awarding any monetary claim.

2. Limitation period for filing claims:
The claim was initially filed in 1992 under the Maharashtra Cooperative Societies Act, 1960 (MCS Act 1960). The Cooperative Court returned the claim in 2003, and the bank filed a reference application in 2006. The Arbitrator did not address the limitation period, which is crucial as the cause of action arose in 1989. The court highlighted that the Arbitrator must consider the limitation period as per Section 3 of the Limitation Act before awarding any claim.

3. Compliance with procedural laws and principles of natural justice:
The Arbitrator rejected the application for framing issues, stating that the Code of Civil Procedure (CPC) does not bind him. However, the court noted that the principles of natural justice and fair play must be followed. The Arbitrator failed to provide detailed reasoning for rejecting objections and did not consider various applications and objections raised by the Petitioners, including allegations of fraud and misrepresentation.

4. Validity of the award and interest granted:
The Arbitrator awarded interest at 17.5% from 1992 to 2003 and 14% thereafter. The court found the award to be illegal and perverse due to the lack of jurisdiction and failure to address the limitation period. The court emphasized that any change in banking documents requires the consent of all parties, which was not obtained in this case.

Conclusion:
The court quashed and set aside the common award passed by the sole Arbitrator, citing lack of jurisdiction, failure to address the limitation period, and non-compliance with procedural laws and principles of natural justice. The petitions were allowed, with no order as to costs.