Proof of membership is a jurisdictional prerequisite for arbitration under the Multi-State Cooperative Societies Act.

The Appellant society initiated arbitration proceedings against Respondent Nos. 1 and 2 (borrowers) and Nos. 3 to 5 (guarantors) for the recovery of Rs. 1,29,34,497/- under Section 84 of the Multi-State Cooperative Societies Act, 2002 ("MSCS Act")

The Arbitrator passed an award on June 25, 2022, holding the respondents jointly and severally liable

The Respondents challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996 ("1996 Act"), before the Principal District Judge, Yavatmal, arguing that they were never admitted as members of the society, thereby ousting the Arbitrator's jurisdiction

The District Judge set aside the award, finding no documentary evidence of membership

The Appellant society approached the High Court under Section 37 of the 1996 Act, contending that the District Judge exceeded the limited scope of judicial intervention allowed under Section 34

The court applied Section 34(2)(a)(iv) and Section 34(2-A) of the Arbitration and Conciliation Act, 1996, which permit setting aside an award for "patent illegality" appearing on the face of the record

It relied on Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd., defining patent illegality as a view that no reasonable person would take or an award based on no evidence

The court further applied Section 84 of the MSCS Act, 2002, which mandates arbitration only for disputes among members

Section 25 of the MSCS Act, which stipulates that membership is not automatic and requires an express application and society decision

Finally, it followed Prakash Vrundavan Thakkar v. Nagpur Nagrik Sahakari Bank Ltd., which held that membership must be established by evidence for the Arbitrator to have jurisdiction under Section 84

The Court observed that for an Arbitrator to exercise statutory jurisdiction under Section 84 of the MSCS Act without the parties' explicit consent, the disputants must be proven members of the society

Upon perusing the record, the Court found that the Appellant relied solely on a ledger book entry showing share capital to assert membership, failing to produce membership applications or records of admission as required by Section 25 of the MSCS Act

The Court noted that the Arbitrator reached a finding of membership in a summary manner without discussing how the respondents attained that status

Applying the "patent illegality" test, the Court reasoned that a finding based on no concrete evidence or one that ignores vital statutory requirements (like the procedure under Section 25) is perverse and subject to interference under Section 34

The Court distinguished the Appellant's cited precedents, affirming that the lack of inherent jurisdiction due to non-membership is a fundamental defect that cannot be waived

Since the respondents were not proven to be members of the society, the Arbitrator lacked the jurisdiction to entertain the dispute under Section 84 of the MSCS Act

The Court dismissed the appeal, affirming the District Judge's order to quash and set aside the arbitral award

No order as to costs was made