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Issues involved: Whether an arbitrator appointed u/s 84 of the Multi State Cooperative Societies Act has jurisdiction to entertain a claim against a non-member acceptor of a bill of exchange based on the membership of the drawer.
Summary: The case involved a dispute where a nationalized bank (petitioner) and a Multi State Cooperative Bank (respondent No. 1) were parties to bills of exchange drawn by a member of the cooperative bank (respondent No. 2) and accepted by another entity (respondent No. 3) with the petitioner as a co-acceptor. The dispute arose when the bills were dishonored, leading to arbitration under Section 84 of the Act. The arbitrator held the respondents jointly liable to pay the amount of the bills to the cooperative bank. The petitioner challenged the award on the grounds of lack of jurisdiction. The petitioner argued that as non-members, they should not have been subject to arbitration under the Act. The respondent No. 1 contended that the dispute fell under Section 84(1)(b) as the respondents were claiming through the member who drew the bills. The court analyzed Section 84(1)(b) and concluded that the dispute must involve members or those claiming through members for arbitration under the Act. The court further examined the liability of parties under the bills of exchange, citing Section 37 of the Negotiable Instruments Act. It clarified that the acceptor and co-acceptor were principal debtors, not claiming through the drawer. As the respondents were not members or claiming through a member, the court held that the arbitrator lacked jurisdiction to pass the award against them. The court rejected the argument that once a dispute is referred, the arbitrator automatically gains jurisdiction. It emphasized that jurisdiction cannot be conferred by consent and that the arbitrator's jurisdiction in this case was based on incorrect assumptions. Therefore, the court set aside the award, ruling in favor of the petitioner. In conclusion, the court allowed the petition, set aside the award, and directed each party to bear their own costs.
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