[Cites 15, Cited by 0]

Bombay High Court

Yash Multi State Rural Cooperative ... vs Shri Bharat Arjundas Narang And Others on 30 March, 2026

2026:BHC-AUG:13405

                                           1                      Arba23.2025

                     IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                               BENCH AT AURANGABAD

                             ARBITRATION APPEAL NO. 23 OF 2025

              .      YASH MULTI STATE RURAL COOPERATIVE
                     CREDIT SOCIETY LTD.,
                     BRANCH NAVI PETH, AHMEDNAGAR,
                     THROUGH AUTHORIZED SIGNATORY
                     PRAVIN BALASAHEB CHAUDHARI
                                                                 .. Appellant
                                                           (Orig. Respondent)

                                Versus

              1.     BHARAT ARJUNDAS NARANG,
                     Age:49 Yrs., Occ.: Business

              2.     SANJAY ARJUNDAS NARANG,
                     Age: 55 Yrs., Occ.: Business

                     Respondents No.1 and 2 R/o. 1542,
                     Gondhavani Cross Road, Ward No.1,
                     Shrirampur, Tal. Shrirampur,
                     Dist.: Ahmednagar

              3.     SMT. SANTOSHKUMARI ARJUNDAS NARANG (DECEASED)
                     Through legal heirs Resp. No.1, 2 and 4

              4.     SMT. JYOTI ALIAS JYOTIBALA RAJENDRAKUMAR AHUJA,
                     Age: 57 Yrs., Occ.: Household,
                     R/o.: 2058D, Kasai Galli,
                     Vaijapur, Tal.: Vaijapur,
                     Dist.: Sambhajinagar

              5.     NIJAR NANJI ELECHIYA,
                     Age: 54 Yrs., Occu.: Business

              6.     BADRUDDIN ALIAS RAJU NANJI ELECHIYA,
                     Age: 49 Yrs., Occ.: Business,

                     Respondents No.5 and 6 R/o. Plot No.288,
                     Punjabi Colony, Zulelal Path, Ward No.1,
                     Shrirampur, Dist. Ahmednagar               .. Respondents
                                                                (Ori. Applicants)
                              2                          Arba23.2025

                                  ...
     Advocate for Appellant : Mr. Abhijit Chandrakant Darandale
      Advocate for Respondents No.1, 2, 4 to 6 : Mr. S. D. Kotkar
                                  ...
                                WITH
               CIVIL APPLICATION NO. 7665 OF 2025
                                  IN
                          ARBA/23/2025
                                  ...

                            CORAM : ARUN R. PEDNEKER, J.
                            DATE     : 30.03.2026

ORDER:

1. Heard.

2. By the present Arbitration Appeal under Section 37 of

the Arbitration and Conciliation Act, 1996 (for brevity "the Act"),

the Appellant challenges the impugned order dated 07.11.2024,

passed by the learned Principal District Judge, Ahmednagar in

Arbitration Application No.03 of 2024 filed under Section 34 of the

Act. The learned Principal District Judge, Ahmednagar was

pleased to set aside the arbitral Award dated 19.10.2023, passed

by the learned Arbitrator in Reference No.04 of 2023.

3. Facts in brief are that the Appellant - Yash Multi State

Rural Co-operative Credit Society Ltd. (for brevity "Society")

issued cash credit loan facility to the extent of Rs.1,20,00,000/- to

the Respondents / Borrowers. It is stated that the Borrowers and

Guarantors executed necessary documents. It is the case of the 3 Arba23.2025

Appellant / Society that the Respondents / Borrowers and

guarantors were admitted as nominal members of the Appellant /

Society and the loan amount of Rs.1,20,00,000/- was sanctioned

and disbursed to the Respondents. The Respondents / Borrowers

failed to repay the loan amount and the recovery notice dated

26.09.2022 was issued to them of Rs.1,65,51,739/-. It is stated that

the respondents failed to pay the outstanding amount and, thus,

the Appellant / Society was constrained to file a Reference before

the statutory Arbitrator under Section 84 of the Multi-State

Cooperative Societies Act, 2002 for recovery of the amount of

Rs.1,65,51,739/- together with interest at the rate of 20% per

annum from 01.09.2022 till realisation. The Respondents filed

their Reply denying the claim of the Appellant. The affidavit in

evidence was filed. Thereafter, the Respondents remained absent

on consecutive dates and no evidence order was passed against

them. On 19.10.2023, the Arbitrator allowed the claim of the

Appellant and held the Respondents / Borrowers / Guarantors

liable to pay Rs.1,65,51,739/- along with interest at the rate of 18%

per annum and in addition penal interest at the rate of 2% per

annum from 01.09.2022 till realisation of the entire amount. The

Respondents / Borrowers / Guarantors challenged the Award

before the learned Principal District Judge, Ahmednagar under

Section 34 of the Act. By the impugned order the learned Principal 4 Arba23.2025

District Judge, Ahmednagar allowed the Arbitration Application

and set aside the Award dated 19.10.2023 passed by the

Arbitrator.

4. The learned counsel for the Appellant submits that the

Award is not set aside on merits, however, the learned Principal

District Judge, Ahmednagar has set aside the Award in favour of

the Appellant / Society, relying upon the Judgment of the High

Court in the case of Prakash Vrundavan Thakkar Vs. Nagpur

Nagrik Sahakari Bank Ltd., 2014 (3) Mh.L.J. 349. The learned

Principal District Judge, Ahmednagar held that unless it is shown

that the dispute is between the members, past members or the

person claiming through such members and the Multi-State Co-

operative Society, it's board or any officer, agent or employee, no

such dispute can be referred to the Arbitrator.

5. It is observed in the impugned Order by the District

Court that, in the case in hand, there was no form (k) placed on

record before the Arbitrator and the documents filed including an

application at Exhibit-18 , promissory note and loan agreement.

There is no document disclosing the membership of the

Respondents. Though the evidence of the applicant remained

unchallenged. Perusing the same by signing the loan agreement,

letter of guarantee, promissory note and other necessary 5 Arba23.2025

documents and also a mortgage deed and other documents. But,

there is no evidence regarding the membership of the present

Respondents, which is the prime requirement. No membership

forms are filed on record as cited in the above referred Judgment.

The court held that it was necessary for the Appellant / Society to

come with the claim that the respondents applied for membership,

their membership were accepted and, then, being member, the loan

was disbursed. Section 84 of the Multi-State Cooperative Societies

Act is highlighted to draw inference. But, merely because the

dispute is referred, it cannot be inferred that the Respondents are

the members of the Society. Therefore, unless and until the

Respondents / Borrowers status of members of society is proved,

no dispute can be referred to Arbitrator.

6. The court has further observed that the Arbitrator

while deciding the dispute did not decide the point of membership

and directly went to the documents of loan agreement, mortgage

deed etc. despite there being written statement denying the

execution of documents and the loan obtained. Therefore, the

award passed is erroneous on facts and law. Unless the basic and

foundational facts are proved, no legal appreciation can be made on

the same. Thus, the court primarily relying upon the abovereferred

Judgment held that the Appellant / Society failed to establish that 6 Arba23.2025

the Respondents were members of the Society and set aside the

arbitral award.

7. The learned counsel for the Appellant / Society in the

above factual scenario submits that Section 26 of the Multi-State

Cooperative Societies Act provides for nominal members and for

the purpose of granting loans nominal membership is given to the

borrower. For nominal membership there is no separate

membership certificate issued.

He submits that the loans of a Multi-State Cooperative

Societies are given to members which includes nominal members.

He submits that the loan document produced on record itself

showed that the Respondents / Borrowers had applied as member

of the society. The Appellant submits that the common notice dated

26.09.2022 issued to the borrowers and guarantors also at

Paragraph No.2 mentions that the borrowers and guarantors are

the members of the Credit Society and this fact is not disputed by

the Respondents. The applicant had specifically stated in the

application referring the matter to the Arbitrator that the

respondents are members of the Society and the said fact is not

disputed by the respondents and, thus, no issue was formulated,

whether the respondents are the members of the society. He points

out Clause No.9 of the Arbitration Application as under:

7 Arba23.2025

"9] JURISDICTION:-

All the opponents are the members of the claimant society. The opponent No.1 to 4 has borrowed loan from the claimant society, and opponent No.5 and 6 stud guarantor to the said loan. The said loan was not repaid by the opponents, therefore, society has filed present reference before the authority. The said dispute comes under section 84 of the Multi-State Co-operative Societies Act, 2002 and this Hon'ble Arbitral Tribunal has jurisdiction to settle / decided this claim application."

He submits that the Respondents have denied all other

assertions but as regards the membership they have not denied the

same and correspondingly no issue as regards the membership

arises for consideration and once the Arbitrator has decided based

on the material, more particularly, when there is no denial of

membership and the loan application form itself shows that the

Respondents are the members, there was no occasion for the

Arbitrator to enter into the issue of membership. He submits that

the Award passed by the Arbitrator cannot be set aside on some

non-application of law or incorrect application of law or facts. The

dispute raised by the Respondents that the Arbitrator has not

formed any issue in this regard. As such, he submits that the

reliance placed in the abovereferred case is misplaced.

8. Per contra, the learned counsel for the Respondents /

Borrowers / Guarantors has not disputed above noted Clause No.9

in the Arbitration Application, however, has taken me through the 8 Arba23.2025

written submissions (Say), particularly, paragraph no.14, as

under:

"अर्जदाराने सदरचा अर्ज हा खोट्या तयार केलेल्या कागदपत्राचे आधारे दाखल केला असून सदर अर्जास योग्य व संयक्ति ु क कारण घडलेले नसलेने तसेच लवाद अर्जातील अर्जदार सोसायटी व सामनेवाले यांचे दरम्यान कोणताही कायदेशीर व व्हॅलिड असा करारनामा झालेला नसल्याने तसेच सदरचा अर्ज हा मल्टीस्टेट को-ऑपरेटिव सोसायटीज अॅक्ट 2002 मधील सेक्शन 84 च्या व्याख्येत येत नसल्याने या मेहरबान लवाद अधिकारी यांनी प्रस्तुतचा लवाद अर्ज चालविण्याचा हक्क, अधिकार नसलेने लवाद अर्ज खर्चासह रद्द होणेस पात्र आहे."

Relying upon the above paragraph he submits that the

objection was raised as regards the jurisdiction of the Arbitrator to

entertain the application under Section 84 of the Multi-State

Cooperative Societies Act.

9. Considered submissions.

10. The Hon'ble Supreme Court in the case of Arun Kumar

and other Vs. Union of India and others, 2006 SCC OnLine SC 966

has held that the A "jurisdictional fact" is a fact which must exist

before a court, tribunal or an authority assumes jurisdiction over a

particular matter. A jurisdictional fact is one on existence or non-

existence of which depends jurisdiction of a court, a tribunal or an

authority. It is the fact upon which an administrative agency's

power to act depends. If the jurisdictional fact does not exist, the

court, authority or officer cannot act. The Hon'ble Supreme Court 9 Arba23.2025

also quoted the decision from Halsbury's Laws of England, as

under:

""Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affairs may be described as preliminary to, or collateral to the merits of, the issue. If, at the inception of an inquiry by an inferior tribunal, a challenge is made to its jurisdiction, the tribunal has to make up its mind whether to act or not and can give a ruling on the preliminary or collateral issue; but that ruling is not conclusive."

The Hon'ble Supreme Court has further observed that

the existence of jurisdictional fact is thus sine qua non or condition

precedent for the exercise of power by a court of limited

jurisdiction.

The Hon'ble Supreme Court further observed at

paragraph no.84 asunder:

"84. .. it is clear that existence of "Jurisdictional fact"

is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of "jurisdictional fact", it can decide the "fact in issue" or "adjudicatory fact". A wrong decision on "fact in issue" or on "adjudicatory fact" would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present."

11. The Hon'ble Supreme Court in the case of Ramesh

Chandra Sankla and Ors. vs. Vikram Cement and Ors.

MANU/SC/7810/2008 : (2008) 14 SCC 58, as under:

10 Arba23.2025

"55. A `jurisdictional fact' is one on existence of which depends jurisdiction of a Court, Tribunal or an Authority. If the jurisdictional fact does not exist, the Court or Tribunal cannot act. If an inferior Court or Tribunal wrongly assumes the existence of such fact, a writ of certiorari lies. The underlying principle is that by erroneously assuming existence of jurisdictional fact, a subordinate Court or an inferior Tribunal cannot confer upon itself jurisdiction which it otherwise does not possess."

12. Perusal of the application made for reference before the

Arbitrator and the Reply, more particularly, paragraph no.14 as

noted above, it can be seen that the Appellant has particularly

mentioned in the Arbitration Application that the Respondents are

the members of the society. The loan application made by the

respondents also indicates that the borrowers are the members of

the society. Notice dated 26.09.2022, issued by the Appellant to the

Respondents also mentions that the Respondents are the members

of the Credit Society.

13. In this factual scenario, it is to be seen that there is no

dispute raised as regards the 'membership' by the respondents

although there is a general statement made in the Written

Statement that the Arbitrator has no jurisdiction to proceed under

Section 84 of the Multi-State Cooperative Societies Act. It is

nowhere stated in the defence statement that the respondents are

not the members of the society. Ordinarily the Society grants loans 11 Arba23.2025

only to members of the Society. Accordingly, no issue is framed as

regards whether the borrowers are the members of the Society and

further no evidence is lead to that effect. In this factual situation

the Arbitrator had not committed any error.

14. I may refer to the Judgment of this court in the case of

Mirza Sharique Baig and others vS. Mohd. Nasim,

MANU/MH/2527/2022 : 2022 (5) BomCR 55, wherein this court

has observed that an admission by a tenant about existence of a

statutory ground for eviction, expressly or impliedly, will be

sufficient and there need not be any evidence before the Court on

the merits of the grounds before the compromise order is passed

and, as such, in such a situation, a compromise decree cannot be

called a nullity to enable the executing court to go behind it.

15. As regards the abovereferred Judgment of Prakash

Thakkar (supra) relied upon by the borrowers, it is to be seen that

the issue as regards, whether the guarantors were the members of

the Society was specifically raised and was dealt with by the court.

In the above case, this court came to the conclusion that the

guarantors were not members.

This court in the case of Prakash Thakkar (supra) held

that in absence of any evidence that the Respondents are the

members of the society at the time of referring the dispute under 12 Arba23.2025

Section 84(1)(B) of the Multi-State Cooperative Societies Act the

Arbitrator did not have any jurisdiction to dealt with the matter.

However, in the instant case, I find that the

Respondents have not disputed that they are the members of the

society. The Respondents have not raised any dispute as regards

the membership of the cooperative society. The loan application

form itself indicates that the borrowers are the member of the

society, as such, in absence of any dispute being raised as regards

membership the Arbitrator has not formulated any issue as

regards the membership of the Society. The dispute between the

society and the members existed as there was no dispute raised as

regards the membership of the borrowers and guarantors. Prakash

Vrundavan Thakkar Vs. Nagpur Nagrik Sahakari Bank Ltd.

(supra) has no application in the instant case, where the society

was called upon to prove that the respondent guarantor is a

member of the society in that case.

16. The learned counsel for the Appellant / Society

submitted that the issue of jurisdiction can be raised at any stage

and there can be no dispute as regards the legal proposition

canvassed. However, the foundational facts for raising such a

dispute that the Respondent are not members of the society has

not been pleaded. There is a specific assertion by the Appellant / 13 Arba23.2025

Society that the Respondents are the members of the Society and

to dislodge the jurisdiction of the Arbitrator, it was necessary for

the Respondents to plead that they are not the members of the

society. If the issue was raised it could have framed by the

Arbitrator and decided. The appellant could have lead evidence in

this regard and the matter could have been decided. In ordinary

context, when loans are only given to members and the arbitration

application along with loan document shows that the borrowers are

the members of the Society and this fact being not controverted by

the Respondents, the Arbitrator was entitled to proceed on the

basis that the Respondents are the members of the Society and

deal with the matter on it's own merits, which the Arbitrator has

done.

17. The power of the court while entertaining an

application under Section 34 / 37 of the Act is circumscribed by the

limitation under Section 34 / 37 of the Act. The Hon'ble Supreme

Court in the case of PSA Sical Terminals Private Limited Vs. Board

of Trustees of V.O. Chidambaranar Port Trust Tuticorn and Anr.

reported in (2023) 15 SCC 781 has held has observed that it is a

settled legal position, that in an application under Section 34, the

court is not expected to act as an appellate court and reappreciate

the evidence. The scope of interference would be limited to grounds 14 Arba23.2025

provided under Section 34 of the Arbitration Act. The interference

would be so warranted when the award is in violation of "public

policy of India", which has been held to mean "the fundamental

policy of Indian law". A judicial intervention on account of

interfering on the merits of the award would not be permissible.

However, the principles of natural justice as contained in Section

18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the

grounds of challenge of an award. The ground for interference on

the basis that the award is in conflict with justice or morality is

now to be understood as a conflict with the "most basic notions of

morality or justice". It is only such arbitral awards that shock the

conscience of the court, that can be set aside on the said ground.

An award would be set aside on the ground of patent illegality

appearing on the face of the award and as such, which goes to the

roots of the matter. However, an illegality with regard to a mere

erroneous application of law would not be a ground for

interference. Equally, reappreciation of evidence would not be

permissible on the ground of patent illegality appearing on the face

of the award.

18. Similarly, in the case of Government of Jammu and

Kashmir Vs. Hindustan Construction Company Ltd. and others,

MANU/JK/0116/2017 : AIR 2017 J&k 82, has observed as under:

15 Arba23.2025

"12. The Supreme Court in Mc Dermott International Inc. v. Burn Standard Co. Ltd. MANU/SC/8177/2006:

(2006) 11 SCC 181: (2006 AIR SCW 3276 while taking note of the decision rendered by it in Renusagar Power Co. Ltd. v. General Electric Co., MANU/SC/0195/1994 :

1994 Supp (1) SCC 644: (AIR 1994 SC 860) held that an arbitral award can be set aside if it is contrary to fundamental policy of Indian law; the interests of India; or justice or morality. However, subsequently, in the case of ONGC Ltd. v. Saw Pipes Ltd., MANU/SC/0314/2003: (2003) 5 SCC 705: (AIR 2003 SC 2629), the Supreme Court added another ground for exercise of Courts' jurisdiction for setting aside the award i.e. if it is patently arbitrary. In Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd., MANU/SC/8146/2006: (2006) 11 SCC 245: (AIR 2007 SC (Supp) 1770) it was held by the Supreme Court that if an award suffers from patent illegality which goes to the root of the matter, the Court can interfere with the award passed by the arbitrator. Thereafter in a recent decision in the case of Associate Builders v. Delhi Development Authority, MANU/SC/1076/2014: (2015) 3 SCC 49: (AIR 2015 SC 620) the Supreme Court after taking note of various previous judgments rendered by it with regard to scope of interference with the arbitral award held that none of the grounds contained in Section 34(2)(a) of the Act deals with the merits of the decision rendered by an arbitrator. It is only when the award is in conflict with the public policy of India as prescribed in Section 34(2)(b)(ii) of the Act that the merits of an arbitral award are to be looked into under certain specified circumstances. It was further held that the Court would interfere with an award passed by an arbitrator if it is in violation of statute, interest of India, justice or morality, patent illegality, contravention of the Act or terms of the contract. It was also held that the Court hearing an appeal does not act as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score."