20 March 2024 Arbitration Law >> Business & Commercial Law  

Two companies, Emerald Realtors and Dewan Realtors, are challenging ongoing arbitration proceedings initiated by a bank to recover outstanding loans. The twist? The bank that filed the claim merged with another institution, raising questions about the validity of the arbitration process.

Background:

The companies, Emerald Realtors and Dewan Realtors, had outstanding loans with PMC Bank, a multi-state cooperative society. To settle the dispute, PMC Bank invoked its rights under the Multi-State Co-operative Societies Act (MSCS Act) and appointed an arbitrator to resolve the matter.

However, things took a turn when PMC Bank merged with Unity Small Finance Bank, a private entity. This merger has thrown the arbitration process into question.

Key Issues:

The core of the dispute revolves around two critical questions:

1. Can arbitration initiated under the MSCS Act continue after the bank involved is no longer a multi-state cooperative society?

2. Did the arbitrator's authority to handle the case expire due to the bank merger?

Arguments Presented:

The companies argue that since Unity Small Finance Bank isn't a multi-state cooperative society, the appointment of an arbitrator under the MSCS Act becomes invalid. They further contend that the bank merger terminated the arbitrator's mandate, making it impossible to appoint a new one.

On the other hand, the bank (now Unity Small Finance Bank) argues that a clause within the merger agreement allows ongoing arbitration proceedings to continue uninterrupted. They also point out that the companies have the option to raise objections regarding the arbitrator's jurisdiction under a separate law, the Arbitration and Conciliation Act.

Arguments in Favor of Continuing Arbitration:

• The amalgamation scheme has a provision (Clause 3.3) that allows pending arbitration proceedings to continue.
• This provision specifically mentions proceedings under Section 84 of the MSCS Act.
• Petitioner is bound by the amalgamation scheme and cannot challenge its effect without contesting the scheme itself.
• Disallowing continued arbitration would force the bank to initiate new proceedings, potentially delaying recovery of dues.

Conclusion:

The court has acknowledged the challenge to the arbitrator's appointment, considering it a jurisdictional issue. However, objections related to the termination of the arbitrator's authority need to be presented directly before the arbitrator itself.

The court's final decision will determine whether appointing a new arbitrator under the MSCS Act for a bank that is no longer a multi-state cooperative society holds legal ground. This case has implications for similar situations where mergers or acquisitions lead to changes in the legal status of institutions involved in ongoing arbitration processes.

  MULTI-STATE CO-OPERATIVE SOCIETIES ACT, 2002    Arbitration and Conciliation Act, 1996