Karnataka High Court Upholds Arbitration Clause in Cooperative Society Dispute

Arbitration clause prevails over statutory dispute resolution under the Karnataka Cooperative Societies Act, 1959.

In a significant ruling, the Karnataka High Court has reinforced the supremacy of arbitration clauses in agreements over statutory dispute resolution mechanisms provided under the Karnataka Cooperative Societies Act, 1959. The decision was delivered by Justice Suraj Govindaraj in the case of Sri. Ramakrishna House Building Cooperative Society (South) versus M/s Skilletch Engineers and Contractors Pvt Ltd.

The core issue revolved around whether disputes involving cooperative societies could bypass the statutory authority under Section 70 of the Karnataka Cooperative Societies Act, 1959, in favor of arbitration as prescribed in their contractual agreements. The petitioners, represented by advocate Sri. Y K Narayana Sharma, sought the appointment of a sole arbitrator to adjudicate disputes as per the arbitration clauses in their agreements with the respondents.

In contrast, the respondents, represented by advocate Sri. Umesh B N., argued that disputes involving cooperative societies should be referred to the Disciplinary Authority under the Cooperative Societies Act.

However, the High Court relied on the Supreme Court's precedent in Jaipur Zila Dugh Utpadak Sahkari Sangh Limited v. Ajay Sales And Suppliers, which established that arbitration clauses in agreements override statutory dispute resolution mechanisms. The Supreme Court had affirmed that the Arbitration and Conciliation Act, 1996, being a special enactment, took precedence over statutory provisions of cooperative society laws when an arbitration clause is present.

Justice Govindaraj appointed Hon'ble Sri. Justice K. Sreedhar Rao, former Acting Chief Justice of the High Court of Gauhati, as the sole arbitrator to resolve the disputes. The court directed that all contentions, including questions of arbitrability, be left open for the arbitrator to decide.

This judgment underscores the judiciary's support for arbitration as a preferred method for dispute resolution when agreed upon by parties, even in the face of statutory provisions to the contrary.

Bottom Line:

Arbitration clause in an agreement overrides statutory dispute resolution mechanism under the Karnataka Cooperative Societies Act, 1959, as per the precedent set by the Supreme Court in Jaipur Zila Dugh Utpadak Sahkari Sangh Limited v. Ajay Sales And Suppliers.

Statutory provision(s):  

• - Arbitration and Conciliation Act, 1996, Section 11(6)
• - Karnataka Cooperative Societies Act, 1959, Section 70

Sri. Ramakrishna House Building Co Opeative Society (R ) (South) v. M/s Skilletch Engineers and Contactors Pvt Ltd., (Karnataka) : Law Finder Doc Id # 2816628