Bombay high court upholds arbitrator appointed under section 84 of the MSCS act, says section 21 notice not required

Bombay High Court Confirms Arbitrator Appointment Under Section 84 of the MSCS Act, Rules Section 21 Notice Unnecessary.

Case Name: Universal Textile Waterproof Co. (India) v. Central Registrar of Co-Operative Societies and Ors.

Case No: Writ Petition (L) No. 23098 of 2026 with Writ Petition (L) No. 26560 of 2026, decided on 1 October 2026

Coram: Justice Bharati Dangre and Justice Ashish S. Chavan

Citation: (2026) ibclaw.in 6044 HC The Bombay High Court has dismissed two writ petitions challenging the appointment of an arbitrator by the Central Registrar of Co-operative Societies under Section 84 of the Multi State Co-operative Societies Act, 2002 (MSCS Act). The Division Bench held that absence of a notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 does not stop arbitration under Section 84, that the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) was of no help to the petitioners, and that appointment of one arbitrator for multiple disputes of the bank does not disqualify him.

The petitioners were a partnership firm and its two partners, who stood as guarantors. The firm had availed a term loan of Rs. 6 crore from NKGSB Co-operative Bank, sanctioned on 6 November 2012. After default, the bank issued a notice under Section 13(2) of the SARFAESI Act on 11 September 2019. Personal insolvency proceedings under Section 95 of the IBC were also pending against both partners, which brought an interim moratorium under Section 96. Meanwhile, an arbitrator was appointed under Section 84 of the MSCS Act for disputes of the bank, and his appointment was revalidated for 13 new disputes. The petitioners challenged the appointment order dated 9 March 2026 and sought to restrain the arbitrator from proceeding.

Two main objections were raised. First, it was argued that the appointment violated Section 21 of the 1996 Act as arbitration was never invoked. Reliance was placed on Regenta Hotels Private Limited v. Hotel Grand Centre Point & Ors., where the Supreme Court held that commencement of arbitral proceedings is a statutory event fixed by Section 21. Second, it was argued that the moratorium under Section 96 of the IBC barred continuation of arbitral proceedings against the petitioners.

On the first objection, the Court examined Sections 84 and 85 of the MSCS Act. Under Section 84, a claim by a multi-state co-operative society for a debt due from a member, whether admitted or not, is deemed a dispute touching its constitution, management or business and must be referred to arbitration. The arbitrator is appointed by the Central Registrar, and under Section 84(5) the 1996 Act applies unless the MSCS Act provides otherwise. Section 85 separately prescribes limitation, which for recovery of a sum due from a member is computed from the date the member dies or ceases to be a member.

The Court also referred to Bhagheeratha Engineering Limited v. State of Kerala, where the Supreme Court held that there is no mandatory prerequisite of a Section 21 notice before arbitration begins, and that its absence is not fatal if the claim is valid and the dispute arbitrable. Since Section 84(5) makes the procedure of the 1996 Act applicable subject to the MSCS Act, and Section 85 itself prescribes limitation, the Court found no reason why arbitration should not continue merely because arbitration was not invoked as contemplated under Section 21. The objection was rejected.

On the second objection, the Court noted that the petitioners relied on the position that moratorium attaches to the debt and not only the debtor, as recognised in Dilip B. Jiwrajka v. Union of India. The Court, however, took note of Section 96(4) of the IBC, inserted by the Amendment Act of 2026 with effect from 26 May 2026, under which Section 96 does not apply where an application is filed for initiating insolvency resolution process of a personal guarantor to a corporate debtor. The Court relied on the decision of a Single Judge in Tata Capital Financial Services Limited v. Neel Motors LLP & Ors., which held that the phrase "where an application is filed" covers applications already filed and pending, and that such reading gives prospective effect from the date the provision took effect. Following this, the Court held that the moratorium had no effect on the personal guarantor, and that the partnership firm could not derive any benefit as its partners were undergoing the insolvency process.

On impartiality, the Court relied on the earlier decision of Justice Dangre sitting singly in Kalpesh Shantikumar Mehta & Ors. v. NKGSB Co-op. Bank Ltd. & Anr. It noted that under the MSCS Act the arbitrator is appointed by a statutory authority from a panel and not by any party or its affiliate. Therefore, the Fifth Schedule circumstance concerning an arbitrator appointed more than twice by a party or its affiliate does not apply. The arbitrator had also given a declaration under Section 12(1) of the 1996 Act. The Court added that a person can be appointed for several references of a particular bank and that the constitutional validity of Section 84 had earlier been upheld by a Division Bench in J. Square Steels Pvt. Ltd. v. Union of India.

Finding no merit in the contentions, the Court dismissed both petitions and discharged the Rule with no order as to costs.