Civil Procedure Code (CPC)

Validity of arbitration agreement


If an redevelopment agreement is void ab initio due to non execution of M20 BONDS under section 73 (1AB) of MCS Act 1960,whether the arbitration clause under such an illegal, void document is valid under the new Act of Arbitration And Conciliation Act 1996. 

In Waverly Jute Mills Co. Ltd. Vs. Rayman & Co. (India) Pvt. Ltd. AIR 1963 SC 90 the Supreme Court of India held that if a contract contained an arbitration clause and the contract was itself illegal and void, the arbitration clause would also perish with the contract. But this is as per old Arbitration Act 1940. 

 

Does the new Act 1996 gives rights to an arbitrator even if agreement is void ab initio due to M20 bonds non execution, and allow him to continue his jurisdiction and give an award. 

 

Can the jurisdiction of arbitrator be challenged in such an situation as M20 bonds is a legislative law, how can an arbitrator skip that. 

Does section 16 or any of its sub section empower the arbitrators jurisdiction Dispite agreement being void ab initio. 

 
Reply   
 
Legal Consultancy

Dear Ravindra:

In case you are trying to make a point that the Agreement containing an arbitration clause itself is void due to non-compliance of M-20 formality by the Managing Committee, hence the Arbitration Clause also becomes less effective, then please note :

The State govt under Maharashtra Ordinance II of 2013 (effective 14 Feb 2013) has got rid of MCS Act's  Section 73 (1AB) concerning the mandatory Bond under Rule 58-A [Form M-20] and proceeded further by replacing it by inserting Section 73-ID Sub-sections 1 & 2, thereby unexpectedly making the Managing Committee of Societies more robust.

Although once the Section 73 (1AB) was challenged under Indian Constitution’s Article 226 and Bombay High Court upheld the legislature, but now after Feb 14, 2013 onwards the scenario has changed.

Thus Bond under Form M-20 is no more needed to be filed by the Managing Committee.  You may go through an Article by me on this subject.

 

Ibrahim Deshmukh
Legal Consultant
www.law-india.com

ibdesh@gmail.com

 

 

 

 

 
Reply   
 



Dear Sir, 

 

The agreement was signed by the MC in 2002, and had not executed M20 bonds, therefore agreementvoid ab initio.

Now the case is referred to arbitration. 

 

Hence my question as above. Not a new case. Therefore new ammendments are not applicable. 

 
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Legal Consultancy

Dear Ravindra

You should have narrated the fact in the initial stage of your question. Anyway, If You are one of the party to the said arbitration and If the Arbitrational Award is not yet declared and/or  not yet executed, then you will need to approach Tribunal with your query.

 And Second option is :

 Under Section 9 (ii)  (e) of the Arbitration and Conciliation Act, 1996, you may apply for Interim measures through competent court, again subject to above conditions if you met with.

 If the Award is declared but not yet executed then one more option exist for which you will need to email me separately.

Ibrahim Deshmukh
Legal Consultant
www.law-india.com

ibdesh@gmail.com

 
Reply   
 

Dear Sir,

Firstly, Thank you for your earlier replies.

Arbitrator has given an Award in our favour. He has held the original agreement void-ab-initio. 

We have appeared Arbitration process on our own due to lack of funds, and also fighting high court case on our own. Till date were able to get the above order in our favor.

 

Now the Award is challenged in high court again. The argument by claimants is that since general body has approved the redevelopment process and agreement, the committee though illegal or though they may have not executed the Bonds is irrelevant as General body has the supreme power and the committee had signed the agreement in good faith,  and all decisions taken in general body are binding on all. 

The claimants argument is that society has recieved initial amount of 10% i.e. 12lacs as per agreement and therefore arbitrator has not considered the same, while making his decision therefore saying that arbitration award is bad in law.

The case is admitted though by the Judge. He asked whether the M20 issue was taken up in cooperative court.

We replied that yes, the registrar had himself given show cause notice to the then committee which through its advocate had replied that the committee did not sign the M20 bonds as it was not needed as it was elected in the general body and not by elections.

Dispite telling that the matter was taken up by registrar, and as per section 73, registrar has the full rights to decide on the this matter, 

Though its clear that "An act which is illegal ab initio being contrary to the provisions of the co operative socities Act, Rules and Bye Laws of the Socities is not saved under sec 77 of MCS ACT.

 

Contravention of the bye laws of a society is an illegality. This illegality cannot be cured under sec 77(1), rectification of an illegal act apcannot make it legal.

 

Despite this the case is admitted in court.

 

Sir, Please despite above is there a chance thst the judge may over turn arbitrators Order, and if yes, on what basis. What can be the argument against the above case to go against us.

Thank you.

 

 

 
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