Bombay High Court upholds arbitrator’s jurisdiction under MSCS Act and dismisses challenges to recovery awards

A Single-judge bench of Justice Sharmila U. Deshmukh heard petitions under Section 34 of the Arbitration and Conciliation Act, 1996 challenging two awards rendered by an arbitrator appointed under Section 84 of the Multi‑State Co‑operative Societies Act, 2002 (MSCS Act). The petitions raised the central issue whether a multi‑state co‑operative bank could invoke the statutory arbitration mechanism under Section 84, or whether recovery proceedings fell exclusively within the jurisdiction of forums under the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act).

Decision Summary: The High Court dismissed both petitions and upheld the awards dated 5 December 2022 and 3 July 2023, concluding that the arbitrator possessed jurisdiction under Section 84 of the MSCS Act. The court held that the RDB Act expressly permitted a multi‑state co‑operative bank to "opt to initiate proceedings under the Multi State Co‑operative Societies Act, 2002" and that the non obstante clause in Section 84 gave the arbitration mechanism overriding effect "notwithstanding anything contained in any other law." The Court noted that Section 16 of the Arbitration Act provided that "the arbitral tribunal is competent to rule on its jurisdiction," and therefore the arbitrator properly adjudicated its own jurisdiction. The Court, in its reasoning, observed: “(1A) Every bank, being multi State co‑operative bank referred to in sub‑clause (vi) of clause (d) of Section 2, may at its option, opt to initiate proceedings under the Multi State Co‑operative Societies Act, 2002(39 of 2002) to recover debts, whether due before or after the date of commencement of the Enforcement of the Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 from any person instead of making an application under this Chapter.

(1B) In case, a bank being, multi State co‑operative bank referred to in sub‑clause (vi) of clause (d) of Section 2 has filed an application under this Chapter and subsequently opts to withdraw the application for the purpose of initiating proceeding under the Multi‑State Co‑operative Societies Act, 2002(39 of 2002) to recover debts, it may do so with the permission of the Tribunal and every such application seeking permission from the Tribunal to withdraw the application made under sub‑section (1A) shall be dealt with by it as expeditiously as possible and disposed of within thirty days from the date of such application.

Provided that in case the Tribunal refuses to grant permission for withdrawal of the application filed under this sub‑section, it shall pass such orders after recording the reasons therefor.”

Background
The disputes arose after the petitioners, borrowers and members of the respondent multi‑state co‑operative bank, defaulted on financial facilities. The bank invoked Section 84 MSCS Act and referred the disputes to an arbitrator appointed under that provision; it also initiated enforcement measures under the Sarfaesi Act. The arbitrator found (i) default in repayment, (ii) that the petitioners were members of the bank, and (iii) that statutory arbitration under Section 84 was maintainable without party consent because the appointment was statutory. Petitioners challenged the awards under Section 34, arguing that banking and debt recovery fell within Entry 45, List I and therefore central enactments — the RDB Act and Sarfaesi Act — exclusively governed recovery and ousted Section 84 arbitration. Petitioners relied on the scope of banking regulation and on precedents including Vidya Drolia.

The High Court reviewed relevant authorities, including Pandurang Ganpati Chaugule (on Sarfaesi’s applicability to co‑operative banks) and Indiabulls/Transcore decisions (on concurrent remedies). The court held that the RDB Act, by amendment, expressly allowed multi‑state co‑operative banks the option to pursue recovery under the MSCS Act; thus the statutory option was available and not inconsistent with central recovery laws. The court found no demonstrable conflict between MSCS Act and Sarfaesi Act and reiterated that enforcement proceedings under Sarfaesi did not oust adjudicatory arbitration. The court distinguished Vidya Drolia as inapposite on non‑arbitrability grounds in the present context. Resultantly, both Section 34 petitions and interim applications were dismissed and the awards were upheld.

Case Details:
Case No.: Commercial Arbitration Petition Nos. 742 of 2025 and 200 of 2025
Case Title: A. Navinchandra Steel Pvt. Ltd. & Ors. v. Board of Directors of the Abhyudaya Co‑Op. Bank Ltd. & Ors.
Appearances:
For the Petitioner(s): Mr. Mathews Nedumpara with Ms. Hemali Kurne and Mr. Dayanand
For the Respondent(s): Mr. Madhur Rai with Sanjiv P., Mr. Durgesh Telang and Mr. Yogesh Mishra (i/b PRS Legal)