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2009 DIGILAW 539 (BOM)

Indian Bank v. Kapol Co-op. Bank Ltd.

2009-04-20

D.G.KARNIK

body2009
JUDGMENT:- Heard. 2. A short but interesting question that arises for consideration is Whether an arbitrator appointed under section 84 of the Multi State Co-operative Societies Act has jurisdiction to entertain a claim and/or pass an award against an acceptor of a bill of exchange who is not its member merely on the ground that the drawer of the bill is its member? 3. The facts of the case in a narrow compass may be briefly stated thus: The petitioner is a nationalised bank and the respondent no. 1 is a Multi-State Cooperative Bank. Mr. Dinesh Rupasri, the respondent no.2 herein is a member of the respondent no.1. He was sanctioned bill discounting facility by the respondent no. 1. The respondent no.2 allegedly sold certain goods to the respondent no.3 who is a constituent of the petitioner bank. The respondent no.2 drew bills of exchange/ hundies in three sets between 6th October, 2000 and 2nd February, 2001 for the price of the goods sold by him to the respondent no.3. The bills were accepted by the respondent no.3 and co-accepted by the petitioner as a banker of the respondent no.3. On the due dates, the bills were dishonoured by non-payment. According to the petitioner, the bills were fraudulent and the respondents in collusion with an officer of the petitioner bank were attempting to defraud it and therefore it was not liable to honour the bills. Criminal proceedings are stated to have been initiated against the respondents nos.2 and 3 and officers of the petitioner bank in that regard. In the meanwhile, the respondent no. I requested the Central Registrar to appoint an arbitrator and refer for his decision its claim arising out of dishonour of the bills. The Central Registrar accordingly referred the dispute for arbitration under section 84 of the Multi-State Co-operative Societies Act, 2002 (for short "the Act"). The learned arbitrator, after considering the oral and documentary evidence adduced before it, held that the respondent nos.2, the drawer of the bill as the respondent no.3, and the petitioner bank were jointly and severally liable to pay to the respondent no. 1 bank the amount of the bills of exchange together with interest due thereon. That award is impugned in this petition. 4. 1 bank the amount of the bills of exchange together with interest due thereon. That award is impugned in this petition. 4. Learned counsel for the petitioner bank submitted that the respondent no.3 and the petitioner, who had co-accepted the bills of exchange, were not the members of the respondent no. 1 co-operative bank and therefore the Central Registrar could not have referred the dispute between the respondent no. 1 co-operative bank on one hand and the respondent no.3 and the petitioner on the other hand to arbitration under the Act. The arbitrator had no jurisdiction to arbitrate upon the dispute and pass an award under section 84 of Act. 5. Per contra, learned counsel for the respondent no.1 submitted that the dispute was covered by clause (b) of sub-section (1) of section 84 of the Act and, therefore, the Central Registrar was right in referring the dispute to arbitration; the arbitrator had the jurisdiction to entertain and try the dispute. He submitted that under clause (b) of sub-section (1) of section 84 of the Act, a dispute between a multi-State co-operative society on the one hand and its member or even a person claiming through or under a member could be referred to arbitration. Since the respondent nos.3 and the petitioner were claiming under the respondent no.2, who was the principal debtor, the dispute between the respondent no. 1 cooperative bank on the one hand and the respondent no.3 and the petitioner on the other hand would be referred to arbitration under the Act. 6. In order to appreciate the contention of the parties, it would be useful to refer to sub-section (1) of section 84 of the Act which reads as under: "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 co-operative society against its past 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 co-operative society arises (a) ..... (b) between a member, past member and persons claiming through a member, past member or deceased member and the multi-State co-operative society, its board or any officer, agent or employee of the multi-State co-operative society or liquidator, past or present. (c) ..... (b) between a member, past member and persons claiming through a member, past member or deceased member and the multi-State co-operative society, its board or any officer, agent or employee of the multi-State co-operative society or liquidator, past or present. (c) ..... (d) ..... such dispute shall be referred to arbitration. " [clauses (a), (c) and (d) being not relevant are omitted]. 7. Perusal of clause (b) of subsection (1) of section 84 of the Act shows that a dispute between a member, past member and persons claiming through a member, past member or deceased member on the one hand and the multi -State co-operative society, its board or any officer, agent or employee on the other hand touching the management, constitution or business of the society would be referred to arbitration. There can therefore be no dispute that the dispute between the respondent no.1 co-operative bank on the one hand and the respondent no.2, who is its member. concerns the business of the respondent no. 1 and consequently could be referred to arbitration. Similarly, if the respondent no.3 and the petitioner are held to be claiming under the respondent no.2 member, the dispute between the respondent no. 1 on the one hand and the respondent no.3 and the petitioner on the other would also have to be referred to arbitration. The learned arbitrator has held that they claim and/or are liable under the respondent no.2 as they were the co-acceptors of the bill drawn by the respondent no.2. In my view, the reasoning of the learned arbitrator is unsustainable in law for the reasons mentioned below. 8. The respondent no.2 is the seller of the goods and the respondent no.3 is the purchaser of the goods. The respondent no.2 drew bills of exchange on the respondent no.3 payable to himself. The respondent no.3 accepted the bills and the petitioner became co-acceptor. The consideration for the bills of exchange was the price payable by the respondent no.3 to the respondent no.2 for the supply of goods. The respondent no.2 discounted the bills with the respondent no. 1 co-operative bank and endorsed the bills of exchange in its favour. The primary liability, namely to pay the price of the goods for which the bills of exchange were drawn, was thus of the respondent no.3. The respondent no.2 discounted the bills with the respondent no. 1 co-operative bank and endorsed the bills of exchange in its favour. The primary liability, namely to pay the price of the goods for which the bills of exchange were drawn, was thus of the respondent no.3. The petitioner being a co acceptor of the bills was liable along with, that is to say jointly with the respondent no.3 to pay the price of the goods having accepted the bills of exchange. In my view, therefore, the respondent no.3 and the petitioner were primarily liable under the bills of exchange. They were not liable under the respondent no.2 but they were the principal debtors. Therefore, the respondent no.3 and the petitioner cannot be said to be claiming through or liable under the respondent no.2. 9. I am fortified in my view by section 37 of the Negotiable Instruments Act. Section 37 of the Act speaks about the liability of the maker, drawer and acceptor of a bill of exchange and reads thus: "37. Maker. drawer and acceptor principals.- (1) The maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be." A bare reading of section 37 of the Negotiable Instruments Act shows that in respect of a bill of exchange the drawer of the bill of exchange until acceptance is the principal debtor. In other words, the drawer of the bill is primarily liable to the holder of the bill of exchange until the bill is accepted. However, after the bill of exchange is accepted by the acceptor by putting his signature thereon, the acceptor of the bill of exchange becomes the principal debtor and all other parties to the instrument, that is to say the drawer of the bill of exchange (and all endorsees) are liable as surety for the acceptor of the bill of exchange. This position is clear from section 37 of the Negotiable Instruments Act. 10. In the present case, the bills of exchange were drawn by the respondent no.2 and the respondent no.3 was the drawee. This position is clear from section 37 of the Negotiable Instruments Act. 10. In the present case, the bills of exchange were drawn by the respondent no.2 and the respondent no.3 was the drawee. Therefore, until the acceptance of the bills of exchange, the respondent no.2 being the drawer was liable to the holder of the bills of exchange as a principal debtor. However, on acceptance of the bills of exchange by the respondent no.3, he became liable to the holder as the principal debtor. As the bills of exchange were co-accepted by the petitioner, it also became liable as principal debtor jointly with the respondent no.3 to the holder of the bills of exchange. The respondent no.3 and the petitioner as acceptor and co-acceptor of the bills of exchange became principal debtors of the respondent no. 1 who was the holder. The liability of the respondent no.2 as a drawer of the bills, in view of section 37 of the Negotiable Instruments Act, is that of a surety for the respondent no.3 and the petitioner. Viewed thus, the respondent no.3 and the petitioner cannot be said to be claiming through or liable under the respondent no.2. They are liable as principal debtors and the respondent no.2 is liable as a surety. 11. In my view, as the respondent no.3 and the petitioner are liable to the respondent no.1 co-operative bank as principal debtors, and not under the respondent no.2, it cannot be said that the respondent no.3 and the petitioner were claiming through or liable under the respondent no.2. The very foundation of the jurisdiction of the Central Registrar to refer the dispute between the respondent no. 1 co-operative bank on the one hand and the respondent no.3 and the petitioner on the other hand was based upon an assumption that the respondent no.3 and the petitioner were claiming through or liable under the respondent no.2. That assumption was incorrect. Admittedly, the respondent no.3 and the petitioner are not the members of the respondent no.1 co-operative bank. They are also not claiming through or liable under the respondent no.2 who is a member. Consequently, the dispute qua the respondent no.3 and the petitioner could not be referred to arbitration by the Central Registrar and the arbitrator had no jurisdiction to try the dispute.. 12. Learned counsel for respondent no. They are also not claiming through or liable under the respondent no.2 who is a member. Consequently, the dispute qua the respondent no.3 and the petitioner could not be referred to arbitration by the Central Registrar and the arbitrator had no jurisdiction to try the dispute.. 12. Learned counsel for respondent no. 1 submitted that the issue of jurisdiction and particularly regarding effect of section 37 of the Negotiable Instruments Act was not specifically raised before the learned arbitrator and that cannot be allowed to be raised for the first time before this Court. In my view, the submission cannot be accepted. It is a settled principle of law that the jurisdiction cannot be conferred by consent of the parties: In the present case, the arbitrator claimed/assumed jurisdiction under a statute, viz. The Act. The question of jurisdiction of the arbitrator, in the present case, does not depend on any disputed facts. The facts relevant to the jurisdiction are all undisputed. Whether the arbitral tribunal had jurisdiction in the facts of the present case is a pure question of law to be decided on the basis of admitted facts. The admitted facts disclose that the petitioner and respondent no.3 were acceptors of the bills of exchange and admittedly were not members of respondent no.1 bank. In the circumstances, the petitioner cannot be prevented from raising the dispute of jurisdiction for the first time in this Court. 13. Learned counsel for respondent no.1 stated that section 84 of the Act only applies in respect of reference of a dispute and once the dispute is referred, the arbitrator gets the jurisdiction to decide. The submission is mis-conceived. The Central Registrar did not have the jurisdiction to refer the dispute between the respondent no.1 and the nonmembers to the arbitration. The arbitrator lacked the jurisdiction and could not have passed the award against the respondent no.3 or the petitioner. 14. For these reasons, the petition succeeds. The impugned award is set aside. In the facts and circumstances, the parties shall bear and pay their own costs. Petition allowed.