Rama Rice and General Mills vs General Manager, J&K Co-operative Supply & Marketing Federation Ltd.

This is a petition u/s 20 of the Arbitration Act seeking a reference of the disputes mentioned in it to an Arbitrator, other than the one mentioned

in the Arbitration agreement.

The petitioner is a firm which carries on the business of husking paddy. Its case is that the respondent on behalf of the J&K Cooperative Supply

and Marketing Federation, entered into an agreement with it for husking paddy (China) during the year 198182, as a consequence where of, he

delivered on 1111981 at its mill, paddy weighing 410021 Qts No husking order was later on placed with it, with the result that the same could not

be husked. The petitioner on the expiry of the period of agreement laid to the respondent a claim for the storage of the said paddy at the rate of

Rs. 1/ per bag per day, which was received by the latter and the fact acknowledged by him by writing a letter to it on 1951982. The petitioner

submits that the respondent has disputed his liability to pay the aforesaid storage charges to it, which amount to Rs. 1177500/ and seeks a

reference of the aforesaid dispute to an Arbitrator other than Registrar of Cooperative Societies, Jammu and Kashmir, who, according to it, bring

the head of the deptt: is not only supposed to be baised against it, but has also exhibited that bias by his conduct.

3 The respondent's case however, is that Om Parkash, ore of of the partners in the petitioner is admittedly a member of the Cooperative Society,

Section 63 of the J&K Cooperative Societies Act is a clear bar to the maintainability of the present petitioner. He has also denied the allegation

that no order for husking of the paddy was ever placed with the petitioner. The petitioner who was required to husk the paddy entrusted to it, has

misappropriated the same, which weighted more than 12000 Qtls: It is not at all entitled to any claim for its storage charges under the terms of

agreement. He has denied that the Registrar of Cooperative Societies is biased against the petitioner and has challenged the maintainability of the

petition on the additional ground that neither the petitioner firm being registered under the Partnership Act, and nor Om Prakash Gupta who has

signed the petition on its behalf, having been shown as one of the partners in the firm in the record of Registrar of firms the petition is not

maintainable u/s 69 of the partnership Act.

Learned counsel for the parties were heard at length.

Admittedly the parties have entered into an agreement for the settlement of their disputes through arbitration. This court has, therefore, only to

see whether the present petition which is for a reference of their disputes to arbitration, is maintainable under law. What was the quantity of paddy

delivered to the petitioner, whether or not any order for its husking was placed with it and whether or not it is entitled to pay storage charges, and if

so to what extent, are all these disputes which shall have to be determined not by the court, but by the Arbitrator himself.

As already indicated, only two objections have been raised to the maintainability of the petition, out of which the first relates to Section 63 of the

Cooperative Societies Act, and the second to section 69 of the partnership Act. Much need not be said on the second objection, because the

petitioner has produced two certified copies i. e. one relating to acknowledgment of registration of the petitioner firm 'A' showing Om Parkash as

one of the partners in the firm. These two copies undoubtedly furnish a complete answer to the second objection raised to the maintainability of the

petition, which is accordingly under rules.

Subsection (15 of sec. 63 of the Cooperative Societies Act) requires a dispute between its member and Cooperative Society, touching the

constitution, management or business of the society to be referred to the Registrar for its decision, and it further provides that no court shall have

jurisdiction to entertain any suit for other proceeding in respect of such dispute This is notwithstanding any thing contained in any law for the time

being in force clearly, therefore, subsection (1) excludes the application of section 20 of the Arbitration Act to a dispute which is between a

cooperative Society and its member when if section 36 of the Arbitration Act were to be brought in aid to uphold the maintainability of such and

application for, subsection (1) 63 of the Cooperative Societies Act in such case shall clearly come into conflict with section 20 of the Arbitration

Act. A similar view appears to have been taken by Orissa High Court in Nityauanda Sahu V/s. Post Master General AIR 1977 Orissa 48 with

which I respectfully agree. Even though pleadings of the parties are not clear enough on the point as to whether the petitioner firm itself is a member

of the respondent society or whether Om Parkash Gupta who has signed the agreement on its behalf is alone its member. But, even assuming that

the petitioner firm is itself a member of the society, the question still remains as to whether or not the disputes raised in the petition or such can be

said to be the disputes touching the constitution, management, or business of the cooperative society.

7 The key to the retaining and interpretation of the expression any dispute touching the constitution, management or the business of the society

concerning in Subsection (2) has been provided by subsection (2) of section 63 which is extracted as below:

For the purposes of subsection (2) the following shall be deemed to be disputes touching the constitution management or the business of a

cooperative society, namely:

(a) a claim by the 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;

(b) a claim by a surety against the principal debtor under the society has recovered from the surety any amount in respect of any debtor demand

due to it from the principal debtor as a result of 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 the society.

(d) the question whether a person is or was a member of a cooperative society or not.

The only three disputes which emerge from the pleadings of the parties are:

(f) What was the quantity of paddy delivered to the petitioner for husking;

(ii) was any order for its husking placed with the petitioner; and

(iii) if any, is it entitled toils storage charges and if so, to what extent ?

Note of these disputes obviously falls within these four clauses. These cannot, therefore, be said to be disputes touching the constitution,

management and business of a cooperative society requiring a statutory arbitration in terms of Sec. 63. That a part what appears to be the intention

behind the enactment of section 63 is the settlement of only those disputes which a member may raise in regard to the constitution, management

and business of the society in his capacity as its member, pure and simple, and not in any other capacity. The object is to avoid unnecessary

prolongation of the disputes by intervention of a civil court by putting the members of a Cooperative society in a separate class on the basis of the

benefit which the society may confer on them exclusively by virtue of their being its members. Viewed thus, the claim at visaged by clause (a) of

Subsection (2) of Section 63 that a cooperative society may have against its member, must arise out of a transaction which the society could not

have had with him, had he not been its members. The procedure provided by section 63 which takes away the right of a member of avail any other

remedy in a civil court by way of suit or application is un doubtedly barred. If a Cooperative society were to enter into two similarly situated, but

husking with two different persons otherwise similarly situated, but of whom one is its member and the other is str...... than whereas the member

contractor shall have to seek recourse to section 63 alone the nonmember contractor will be liberty, to approach a civil court. Viewed thus, section

63 may be expressed to an attach of infringing the gurantee of quality provided by article 14 of the constitution, because nothing has been brought

to the notice of the court that the respondent society was bound to enter into husking contracts with its members alone. I am thus clearly of the

opinion that the disputes raised in the pleading of the parties are not such as can be reasonably brought within the purview of section 65.

At this stage it may also become necessary to notice Subsection (3) of section 63, even though the learned counsel for the parties did not

advance any argument on its basis. This SubSection for the sake of ready reference is also reproduced as bellows:

(3) If any question arises whether a dispute referred to the Registrar under this section is a dispute touching the constitution, management or the

business of a cooperative society. It shall be decided by the Registrar.

What this subsection says is that even if a dispute may not be covered by SubSection (1) read with SubSection (2) yet the Registrar as an

arbitrator, once the dispute referred to him. will have the power to decide whether or not it is such as ought to have been referred to him in terms

of SubSection (1) of Section 63. This SubSection however does not take away the right of the civil court to determine as to whether or not the

dispute is such as could have been decided by the Registrar alone, where a reference to this has not yet been made. In the instant case no

reference of any dispute has so far been made to the Registrar, Consequently, Sub section (3) will not came in the way of the court in determining

as to whether or cot the disputes raised in the pleading of the parties herein are such as are required to be decided by the Registrar alone for, the

foregoing reason the second ground also fails.

Then the next question to whom should the reference be made ? The arbitration on clause in the agreement reads as follow:

All disputes and differences arising cut of or in any manner touching or concerning this agreement what so ever shall be referred to the sale

arbitration of Registrar Cooperative Societies, J&K. All points of law and fact will be exclusively decided by the arbitrators and it shall not be

open to the contractor and the surety to plead that the Registrar Cooperative Societies, J&K is the Head and the officer of the party No. 1.

It is evident, that the arbitrator appointed by the parties is Registrar, Cooperative Societies, Jammu and Kashmir. The petitioner seek his

removal and appointment of a new arbitrator in his place on the ground of bias which, according to it, he is not only expected to entertain being the

head of the Cooperative Deptt. but which he has also exhibited by refusing to acknowledge the receipt of the claim petition submitted to his by the

petitioner, and further by remarking that no such claim could be entertained against the Deptt This averment has no doubt denied in the written

subjections to the petition, but denial has come not from the Registrar, but from the General Manager of the respondent society. He has denied it

on personal acknowledge, ever though the allegation has been made not against his but against the Registrar. It was the Registrar who alone could

have denied it on the basis of his personal knowledge. The General Manager could not have done so. For denying it, he ought to have disclosed

the source of his knowledge, which he had failed to disclose. His denial is not therefore, much significance.

It is now will settled that probability of the presence of basis in the mind of the arbitrator is a sufficient ground for reliving the parties of the

bargain and appointment of another arbitrator in his place: In Uttar Pardesh Cooperative Federation Ltd V/s Sunder Bros, Delhi. AIR 1967 S. C.

249 their lordships bad refused to say the suit U/s 34 of the Arbitration Act interalia on the ground that there was apprehension that the arbitrator

was not likely to act fairly in the matter, It was held:

It is alleged by the respondent that the Registrar of Cooperative Society is exofficer of the Society and it was with his approval that the agreement

in dispute was terminated. It was also pointed out that the Registrar was the Chief controlling and supervising officer of the society under its

byelaws. It was submitted for the respondent that the Registrar may not therefore, act fairly in the matter and it is improper that he should be

arbitrator in the dispute between the parties. In our opinion, there is much validity in this argument. The legal position is that an order of stay of suit

under S. 34 of the India arbitration Act will not be granted, it can be shown that there is good ground for apprehending that the arbitrator will not

act fairly in the matter or that it is for same reason improper that he should arbitrate into the disputes between the parties. It is, of course, the

normal duty of the court to hold the parties to the contract and to make them present their disputes to the forum of their choice but an order to stay

the legal proceedings in a court of law will not be granted if it is shown that there is good ground for apprehending that the arbitrator will not act

fairly in the matter or that it is for the same reason improper that he should arbitrate in the disputes"".

After enhustively discussing a number of decisions, including the aforesaid supreme court decision, a single Judge of this court in the M/s

Roshan Lal Sethi, V/s. The Chief Secretary and others, AIR 1971, Jammu and Kashmir 91 and observed as under :

Taking all these things into consideration it has been decided by English as well Indian authorities including the Supreme Court that a party may be

released from an arbitration clause if he can show that the selected arbitrator is likely to show bias or there is sufficient reason to suspect that he

will act unfairly of that he has been guilty of continued unreasonable conduct, or that has prejudged or formed an opinion about any matter likely to

be referred to his arbitration. For deciding this point it is not necessary to proved that the arbitrator being designate will necessarily act unfairly but

all that is necessary is to prove that there is likelihood of a reasonable apprehension in the mind of one of the parties that the arbitrator may not act

fairly. If the arbitrator has prejudiced certain matters of his mind is made up on certain matters which are likely to come up for adjudication before

him, that by itself is a sufficient disqualification for the arbitrator to act as such.

A similar view was taken by Division Bench of this Court in Messrs Handa & Co. V/s State of J&K 1971 K. L. J. 119.

The arbitration clause reproduced heretofore there can be no manner of doubt, gives very vide powers to the Registrar, in deciding the

disputes between the parties. From the averments made in the petition, the possibility of bias in his mind even otherwise cannot be completely ruled

cut, let alone the fact that he is who the head of the Cocoperative Societies, Deptt. The greater his powers under the arbitration agreement, the

greater the care that should be taken by the court to obviate any in justice at his hands. It is therefore, a fit case for the court to intervene and

replace the arbitrator mentioned in the agreement by new arbitrator The parties cannot agree another arbitrator and the respondents insist that the

disputes should be referred to the Registrar alone, and to none else. Keeping in view the facts and circumstances of the case. I appoint District

Judge, Jammu) as the arbitrator to decide the disputes mentioned heretofore. He is directed to enter upon the reference and give his award

positively within two months from today in accordance with law. The original agreement which has been placed on the record shall be sent to him

alongwith copies of this order, the petition U/s. 20 of the arbitration act and the objection filed thereto.

As sufficient quantity of paddy is lying stocked in the mill premises of the petitioner of the arbitrator will immediately after he enters upon the

reference pass an order for its disposal subject, of course, to such conditions as he may deem necessary to impose in the circumstances of the

case. This is fortiori necessary to avoid public loss which is reasonably apprehended in case the paddy sets rotten due to lapse of time.

Arbitration application No. 100 of 1982 is finally disposed.