Bombay HC Quashes Award Ordering Bank To Repay State ₹2 Lakh For Deputed Employee’s Heart Treatment, Finding Dispute Not Arbitrable Under MSCS Act

Respondent No. 1, a Maharashtra Government employee deputed to the Appellant Bank, incurred medical expenses of Rs. 2,01,233 after suffering a heart attack during the deputation.

He sought reimbursement before the Maharashtra Administrative Tribunal (MAT), which directed the Commissioner for Co-operation to deposit the amount; the MAT later disposed of the application after recording that the dispute could be considered by an arbitrator and permitted recovery from the Bank.

The Commissioner appointed an arbitrator in September 2007, who directed the Bank to pay the amount with interest. The Bank’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996 was dismissed, leading to this appeal under Section 37.

Section 84(1)(c) of the Multi-State Co-operative Societies Act, 2002 provides for arbitration of specified disputes between a multi-State co-operative society or its board and, among others, its officers, agents or employees, including past officers, agents or employees.

A dispute must fall within the categories specified by that provision to be arbitrable under it.

Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 governed the challenge to the award and the appeal, respectively.

The Maharashtra Civil Services Rules and the deputation principle were raised in submissions, but the Court did not determine the Bank’s ultimate liability to bear the expenses; it confined its decision to arbitrability and the validity of the arbitral proceedings.

The Court treated the question as one of arbitrability, notwithstanding its observation that the ultimate obligation to bear the medical expenses appeared to lie with the Bank.

The claim before the arbitrator was, in substance, the State’s effort to recover from the Bank money deposited with the MAT and used by Respondent No. 1. The Court held that this recovery dispute did not, on its face, fall within Section 84(1)(c).

The Bank was not a party to the MAT proceedings, and the arbitrator was appointed after the MAT had disposed of Respondent No. 1’s application, notwithstanding the MAT’s recorded understanding that an arbitrator had already been appointed.

The arbitrator did not properly determine the Bank’s jurisdictional objection, and the District Court likewise failed to give sufficient reasons establishing arbitrability or to address whether a reference application had been made as required by Section 84.

The ruling did not prevent Respondent Nos. 2 to 4 from seeking, in accordance with law, recovery of the Rs. 2,01,233 expended on Respondent No. 1’s medical treatment; there was no order as to costs.