Mumbai District Central ... vs Divisional Joint Registrar Of ...
2001 Latest Caselaw 532 Bom

JUDGMENT

D.Y. Chandrachud, J.

1. Rule, made returnable forthwith. The counsel for the Respondents waive service. Taken up for final hearing.

2. The Writ Petition which is being disposed of in these proceedings has been instituted by the Mumbai District Central Co-operative Bank Limited. The Bank seeks to impugn an order dated November 22, 2000 passed by the District Deputy Registrar, Co-operative Societies, Mumbai and an order in revision passed under Section 154 of the Maharashtra Co-operative Societies Act, 1960 by the Divisional Joint Registrar, Co- operative Societies on March 28, 2001. The dispute which has been sought to be raised is in relation to the affairs of the Swastik Janata Co-operative Bank Limited, which is now m liquidation. The Board of Liquidators which has been appointed by the State Government has been impleaded as the Fourth Respondent to these proceedings. Respondents No. 5 to 26 are persons who have been employed and engaged by the Bank in liquidation, and whose claim for the payment of their terminal dues including gratuity is to be considered in accordance with the provisions of the Act. The petitioner had extended credit facilities to the Bank in liquidation including cash credit and term loan facilities. The dues of the petitioner as of 1991 are stated by the learned counsel appearing on behalf of the petitioner to be in the amount of Rs. 3.45 crores. The outstanding dues at present would, in the submission of the learned counsel for the petitioner, be in excess of Rs. 8 crores. The Petition recites in paragraph 2(g) that credit facilities were granted to the Bank in liquidation against the execution of documents such as a promissory note and deed of hypothecation. The learned counsel appearing on behalf of the petitioner has fairly stated that the position of the petitioner is largely that of an unsecured creditor. Under the provisions of Section 67 of the Maharashtra Co-operative Societies Act, 1966, every co-operative society is required to maintain a Reserve Fund to which atleast 1/4th of the net profits of each year are required to be credited. An amount of Rs. 20.70 lacs was held by the Bank in liquidation with the petitioner in terms of a fixed deposit. This amount of Rs. 20.70 lacs was part of the Reserve Fund under Section 67 and about this there is no dispute, since it is so averred in paragraph 2(s) of the Writ Petition.

3. The Board of Liquidators which has been appointed in respect of the Bank in liquidation is necessarily required to exercise its powers in accordance with the provisions of Section 105 of the Maharashtra Co-operative Societies Act, 1960. Clause (e) of Sub-section (1) of Section 105 requires the Liquidator to investigate all claims against the society and subject to the provisions of the Act, to decide questions of priority arising out of such claims. The Liquidator is also required to pay a class or classes of creditors in full or ratably according to the amount of the debt, the surplus being applied in payment of interest from the date of liquidation.

4. On March 11, 1999, the Board of Liquidators has lodged a complaint with the Deputy Commissioner of Police, Economic Offences Wing alleging serious acts of omission and commission on the part of the erstwhile Board of Directors of the Bank in liquidation. On October 19, 2000, the Board of Liquidators submitted a proposal to the Deputy Registrar under which about 190 awards involving a total amount of Rs. 2.66 crores would be assigned to the petitioner Bank in lieu of the dues of the petitioner in the total amount of Rs. 3.44 Crores, upon which all the remaining dues of the petitioner would be shown as satisfied and would be deleted from the account of the Bank in liquidation. The grievance of the petitioner is that without even as much as furnishing the petitioner an opportunity of being heard, the District Deputy Registrar by an order dated November 22, 2000 approved the proposal of the Board of Liquidators. Aggrieved by the order of the Deputy Registrar, the petitioner preferred a revision which was rejected by the impugned order passed by the Divisional Joint Registrar.

5. Having heard the learned counsel appearing on behalf of the contesting parties, I am of the view that the petitioner is entitled to succeed. Apart from the fact that the Deputy Registrar passed the impugned order dated November 22, 2000 without hearing the petitioner, and in breach of the principles of natural justice, the order ex facie discloses a complete non- application of mind to the provisions of the Maharashtra Co- operative Societies Act, 1960. The petitioner is a creditor of the Bank which is in liquidation. The Board of Liquidators must necessarily exercise its powers under Section 105 of the Act. The Board is to carry on the business of the society in liquidation so far as may be necessary for the beneficial winding up of the same (Clause (b) of Sub-section (1) of Section 105). What the Deputy Registrar has done by the impugned order is to assign 190- awards in the total amount of Rs. 2.66 Crores in favour of the petitioner Bank and in lieu thereof to delete from the statement of account a sum of Rs 3,45,625.29, which was the amount of the loan outstanding due and payable to the petitioner. It defies explanation as to how the Board of Liquidators could have made such a proposal to the Deputy Registrar. Equally, it defies logic or explanation as to how the impugned order could have been passed by the Deputy Registrar. For one thing, the grievance of the petitioner is that these 190 awards involving Rs. 2.66 Crores have not been executed for variety of reasons including the reason that the judgment debtors are not traceable or available. The awards are therefore, awards on paper of which even execution has not been attempted or where attempted, is stated to be not possible. The Board of Liquidators has clearly failed to discharge the bounden duty and obligation under Section 105 of realizing the assets of the Bank in liquidation and thereafter seeking to distribute them pro rata in the course of the winding up after determining questions of priority. What the Liquidator proposes to do is to assign these 190 awards, largely in executable, to the petitioner and to write off a much larger claim of the petitioner in lieu of the assignment of the said awards. The Board of Liquidators has clearly failed to discharge its statutory obligation and duty under the provisions of the Act and a serious note must be taken by the Court of the clear dereliction of duty on the part of the Board of Liquidators. The manner in which the large outstandings due and payable to the petitioner Bank are sought to be adjusted, would call for a serious note to be taken of in regard to the conduct of the Liquidators. Besides, it is just not permissible for the Board of Liquidators even assuming that the awards are valid awards capable of enforcement at the present point of time, to create any preference in the course of winding up in favour of a particular creditor and any attempt to confer a benefit on any one creditor at the cost of the body of creditors, would be contrary to the provisions of the Act and the well settled principles of law relating to the winding up of the affairs of a Company in liquidation.

6. The District Deputy Registrar passed the order of November 22, 2000 without as much as offering the petitioner an opportunity of being heard. On a matter as important as the realization of the large outstandings of the petitioner, which is a District Central Co-operative Bank, it is impossible to perceive how the impugned order could have been passed without furnishing an opportunity of being heard to the petitioner. When the petitioner went in revision before the Divisional Joint Registrar, the revisional authority, passed an order dated March 28, 2001. In the brief order of two pages, there is not even a sentence disclosing an application of mind by the Divisional Joint Registrar. The Divisional Joint Registrar has not expressed any reason why he has affirmed the order of the Deputy Registrar, save and except for stating that he agreed with the contention of the Liquidator. The revisional authority, thus passed an order without any application of mind to the provisions of the Act.

7. In the circumstances, there is substance in the grievance of the petitioner that the impugned orders have been passed in violation of the provisions of Section 105. The impugned orders are, therefore, liable to be quashed and set aside. The Board of liquidators as statutory authorities, must determine and investigate all claims against the Bank in liquidation having regard to the provisions of Section 105 of the Maharashtra Co-operative Societies Act, 1960. An ancillary issue which has been dealt with by the order of the Deputy Registrar dated November 22, 2000 relates to the claim for gratuity of Respondents Nos. 5 to 26, who are alleged to be erstwhile employees of the Bank in liquidation. By the order dated November 22, 2000, the Deputy Registrar directed the petitioner to encash the fixed deposit receipt worth Rs. 20.70 lacs held by the petitioner and to pay the amount of the claim for gratuity as well as other legal dues and the rent of the premises on a priority basis. The learned counsel appearing on behalf of the petitioner sought to urge that this amount of Rs. 20.70 lacs is a security which is held by the petitioner and that under the terms of sanction granted for credit facilities to the Bank in liquidation, the petitioner has a right to or recover the amount of the outstanding loan from any deposit held with the petitioner. Prima facie, this contention of the petitioner does not hold substance. The amount of Rs. 20.70 lacs was part of the Reserve Fund of the Bank in liquidation under Section 67 the Act. This Reserve Fund was held with the petitioner Bank. Once the Bank has gone into liquidation, the Reserve Fund like any other asset of the Bank must be duly realised by the Board of Liquidators and distributed subject to the provisions of Section 105 of the Act.

8. The claim of the employees to the payment of gratuity should be considered and disposed of by the Liquidators in terms of the provisions of Clause (e) of Sub-section (1) of Section 105 of the Maharashtra Co-operative Societies Act, 1960. The learned counsel appearing on behalf of the employees seeks to rely on the provisions of Section 14 of the Payment of Gratuity Act, 1972, under which the provisions of the Act are to have overriding force and effect, not-withstanding anything inconsistent therewith contained in any other law for the time being in force. The claim of the employees, Respondents No. 5 to 26 to the payment of gratuity and other terminal dues shall consequently be considered and disposed of by the Liquidator after giving an opportunity of being heard to the employees as well as the petitioner within a period of two weeks from today. The Liquidator shall take necessary steps for disbursing such of the claims of the employees which upon scrutiny are found to be eligible for the payment of terminal dues and upon determining the question of priority.

9. In the circumstances, the Petition succeeds in the aforesaid terms. The impugned orders dated November 22, 2000 and March 28, 2001 are accordingly quashed and set aside.

10. There shall be no order as to costs. Certified copy expedited.