Bombay High Court Rejects Arbitration in Government Employee Medical-Reimbursement Dispute

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 10.11.2026

Bombay High Court Rejects Arbitration in Government Employee Medical-Reimbursement Dispute

The Bombay High Court has quashed an arbitration award directing The Nashik Merchant’s Co-operative Bank Ltd. to reimburse Rs. 2,01,233 in medical expenses, holding that the recovery dispute was not arbitrable under Section 84 of the Multi-State Co-operative Societies Act, 2002.

Background of the case

The dispute arose from the deputation of the Respondent, a government employee, to The Nashik Merchant’s Co-operative Bank Ltd. The Respondent suffered a heart attack during the deputation period and incurred medical treatment expenses of Rs. 2,01,233.

The Respondent approached the Maharashtra Administrative Tribunal (MAT) seeking reimbursement from the State authorities. In November 2005, MAT directed the Commissioner for Co-operation and Registrar of Co-operative Societies to deposit Rs. 2,01,233 with the Tribunal. The amount was deposited.

In March 2006, MAT disposed of the Respondent’s application after being informed that the reimbursement issue could be considered through arbitration. The Respondent was permitted to withdraw the amount deposited before MAT.

Arbitration proceedings and award

In September 2007, the Commissioner for Co-operation and Registrar of Co-operative Societies appointed an arbitrator under Section 84 of the Multi-State Co-operative Societies Act. The arbitrator was asked to decide the dispute concerning reimbursement of the Respondent’s medical expenses incurred while on deputation.

The Bank objected to the arbitration proceedings. It argued that the dispute did not fall within Section 84 and that no valid application had been made for appointment of an arbitrator. Despite this objection, the arbitrator passed an award on 30 December 2010 directing the Bank to deposit Rs. 2,01,233 with the State of Maharashtra, along with interest at 15% per annum from 20 January 2006.

The Principal District Judge, Nashik upheld the award in September 2015. The Bank then appealed to the Bombay High Court under Section 37 of the Arbitration and Conciliation Act, 1996.

Bank’s main arguments

The Bank contended that the arbitration was legally invalid because the Respondent remained an employee of the parent government department during deputation and could not be treated as the Bank’s employee for the purpose of invoking Section 84.

It also argued that the Respondent’s personal reimbursement claim had already been satisfied when the State deposited, and the Respondent withdrew, the medical-expense amount. The remaining issue was therefore a recovery claim between the State authorities and the Bank, rather than a dispute between the Bank and the Respondent.

High Court’s reasoning

Justice Arif S. Doctor found that the Bank was ultimately responsible for the medical expenses under the applicable service rules. Clause 14 of Appendix II to the Maharashtra Civil Services Rules provides that medical costs of a government employee on foreign service are to be borne by the foreign employer. Since the Respondent was serving on deputation with the Bank, the Bank was the foreign employer for this purpose.

However, the Court drew a clear distinction between substantive liability and arbitral jurisdiction.

After the State deposited the full medical-expense amount and the Respondent used it, the Respondent’s claim stood satisfied. The subsequent dispute was essentially between the State and the Bank over recovery of the money paid by the State. Section 84(1)(c) applies to specified disputes between a multi-state co-operative society and its officers, agents, employees, former employees, or their legal representatives. The Court held that the State–Bank recovery dispute did not fall within that statutory category.

The Court also noted important procedural deficiencies:

• The Bank was not a party to the MAT proceedings.
• MAT’s March 2006 order referred to an arbitrator as already appointed, but the arbitrator was appointed only in September 2007.
• The Bank had expressly objected to the arbitrator’s jurisdiction and to the maintainability of the proceedings.
• The arbitrator did not independently determine the Bank’s jurisdictional objection and relied substantially on MAT’s observations.
• The District Court did not give sufficient reasons for concluding that the dispute was arbitrable under Section 84.

Final order

The Bombay High Court allowed the Bank’s appeal and set aside both the arbitration award dated 30 December 2010 and the District Court order dated 15 September 2015. No order as to costs was made.

The Court clarified that its ruling does not prevent the State authorities from recovering Rs. 2,01,233 from the Bank through a lawful legal process. The decision only holds that statutory arbitration under Section 84 of the Multi-State Co-operative Societies Act was not the valid route for pursuing that recovery.

Significance of the ruling

The judgment confirms that an underlying financial obligation does not automatically make a dispute suitable for arbitration. Even where the borrowing employer may be liable for a deputed employee’s medical expenses, the parties must use a legally available dispute-resolution mechanism.

The ruling is particularly relevant to multi-state co-operative societies, government departments, and employers receiving employees on deputation.

It underscores the importance of verifying statutory jurisdiction, properly addressing objections to arbitration, and distinguishing an employee’s claim from a later recovery claim between public authorities and an employer.

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Source: Bombay High Court

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