The Bombay High Court has clarified that multi-state co-operative banks retain the statutory right to initiate debt recovery proceedings under the Multi-State Co-operative Societies Act, 2002, even when other recovery mechanisms like the SARFAESI Act or RDB Act are available. This decision reinforces the principle that legislative choice, not exclusivity, governs recovery forums for co-operative financial institutions.
Background & Facts
The Dispute
The petitioner companies, members of Abhyudaya Co-operative Bank, defaulted on loans availed from the bank. In response, the bank initiated three parallel proceedings: (1) arbitration under Section 84 of the Multi-State Co-operative Societies Act, 2002 (MSCS Act); (2) enforcement of security interest under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); and (3) insolvency proceedings under the Insolvency and Bankruptcy Code. The arbitral award, which upheld the bank’s claim and ordered repayment, was challenged under Section 34 of the Arbitration and Conciliation Act, 1996.
Procedural History
- 2021: Bank referred disputes to arbitration under Section 84 of the MSCS Act.
- December 2022 & July 2023: Arbitrator issued two awards in favor of the bank, holding that the disputes fell within the scope of the MSCS Act.
- 2025: Petitioners filed two Section 34 petitions before the Bombay High Court, challenging the arbitrator’s jurisdiction.
- January 2026: Arguments concluded; judgment reserved.
- February 12, 2026: Court dismissed both petitions.
Relief Sought
The petitioners sought to set aside the arbitral awards on grounds that the arbitrator lacked jurisdiction, as recovery of banking debts is exclusively governed by the RDB Act and SARFAESI Act. They also contended that the arbitrator could not rule on his own jurisdiction and that parallel proceedings under multiple statutes were impermissible.
The Legal Issue
The central question was whether a multi-state co-operative bank, having the option under the Recovery of Debts and Bankruptcy Act, 1993, to initiate recovery before a Debt Recovery Tribunal, may instead elect to pursue arbitration under Section 84 of the Multi-State Co-operative Societies Act, 2002, and whether such an election ousts the jurisdiction of other recovery forums.
Arguments Presented
For the Petitioner
The petitioner argued that banking, as a subject under Entry 45 of List I of the Seventh Schedule, is exclusively governed by central laws like the RDB Act and SARFAESI Act. They contended that the MSCS Act, enacted under Entry 32 of List II (co-operative societies), cannot override these central statutes. Reliance was placed on Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd to assert that banking functions of co-operative banks fall under Entry 45. Further, they cited Vidya Drolia v. Durga Trading Corporation to argue that an arbitrator cannot determine his own jurisdiction. They also contended that invoking SARFAESI, RDB, and MSCS Act simultaneously amounted to forum shopping and violated the doctrine of election.
For the Respondent
The bank countered that Section 84 of the MSCS Act contains a non-obstante clause, granting it overriding effect over other laws. It emphasized that Section 19(1A) and (1B) of the RDB Act, inserted by the 2013 amendment, expressly permits multi-state co-operative banks to opt for MSCS Act arbitration instead of RDB Tribunal proceedings. The bank relied on Indiabulls Housing Finance v. Deccan Chronicle and M.D. Frozen Foods v. Hero Fincorp to establish that SARFAESI and arbitration proceedings are complementary, not mutually exclusive. It further argued that membership and loan agreements placed the dispute squarely within the scope of Section 84(2)(a) of the MSCS Act.
The Court's Analysis
The Court undertook a detailed statutory and constitutional analysis. It first affirmed that while banking is a central subject under Entry 45 of List I, the RDB Act itself, through its 2013 amendment, explicitly grants multi-state co-operative banks the option to pursue recovery under the MSCS Act. The Court emphasized that statutory choice cannot be negated by judicial interpretation.
"The amendment gives an option to multi-State co-operative bank... to initiate proceedings under the Multi State Co-operative Societies Act, 2002 instead of approaching the Tribunal for recovery of its debts."
The Court held that the non-obstante clause in Section 84 of the MSCS Act operates as a legislative directive to prioritize its own mechanism where applicable. It further noted that Section 84(2)(a) specifically deems a claim by the society against a member for debt as a dispute touching its business, thereby bringing the present case within its ambit.
Regarding the arbitrator’s jurisdiction to rule on his own authority, the Court relied on Section 16 of the Arbitration and Conciliation Act, 1996, which explicitly empowers arbitral tribunals to rule on their jurisdiction. The Court rejected the petitioner’s reliance on Vidya Drolia, distinguishing it as inapplicable to statutory arbitrations under special legislation.
On the issue of parallel proceedings, the Court cited Indiabulls Housing Finance and M.D. Frozen Foods to hold that SARFAESI Act proceedings, being enforcement-oriented, do not preclude adjudicatory arbitration under the MSCS Act. The Court observed:
"Sarfaesi proceedings are in the nature of enforcement proceedings while arbitration is an adjudicatory process."
It concluded that no conflict existed between the statutes, and Section 37 of the SARFAESI Act, which provides that its provisions are in addition to other laws, further supports concurrent applicability.
The Verdict
The petitioners’ challenge failed. The Court upheld the validity of the arbitral awards, holding that multi-state co-operative banks may validly elect arbitration under Section 84 of the MSCS Act for debt recovery, even while pursuing SARFAESI or RDB Act remedies. The Court affirmed that statutory choice, non-obstante clauses, and complementary statutory frameworks permit concurrent proceedings.
What This Means For Similar Cases
Arbitration Under MSCS Act Is a Valid Alternative to RDB Act
- Practitioners must now recognize that co-operative banks have a statutory right to bypass Debt Recovery Tribunals and initiate arbitration under the MSCS Act.
- Applications under Section 19 of the RDB Act seeking permission to withdraw and opt for MSCS arbitration are not mandatory if the bank initiates arbitration first.
- Legal notices and pleadings should explicitly cite Section 19(1A) of the RDB Act to substantiate the bank’s election.
SARFAESI and Arbitration Are Not Mutually Exclusive
- Banks may simultaneously initiate SARFAESI enforcement and MSCS Act arbitration without fear of estoppel or forum shopping allegations.
- Courts will not stay arbitration merely because SARFAESI proceedings are pending.
- Advocates should argue that SARFAESI is an enforcement tool, while arbitration is an adjudicatory mechanism - both serve distinct purposes.
Non-Obstante Clauses in Special Statutes Prevail
- When a special statute like the MSCS Act contains a non-obstante clause, courts must give it overriding effect unless a direct, irreconcilable conflict is proven.
- General recovery laws like RDB Act or SARFAESI Act do not impliedly repeal special statutory arbitration mechanisms.
- Drafting of loan agreements should reference MSCS Act arbitration clauses to strengthen enforceability.
