Bombay High Court
M/S. Panama Builders And ... vs M/S. Nutan Kalpana Co-Op, Hsg. ... on 5 June, 2023
Bench: G. S. Kulkarni
2023:BHC-OS:4347
Arbt-Pet-441-2015-24.05.23.doc
PVR/PSV
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 441 OF 2015
M/s. Panama Builders & Developers Pvt. Ltd. )
A company duly registered under the provisions )
of the Companies Act, 1956 having its office )
at 416, Narshi Natha Street, Mahavir Darshan )
Mumbai - 400 009. )...Petitioner
Versus
M/s. Nutan Kalpana Co-op. Housing Society Ltd. )
A co-operative Society registered under the )
Maharashtra Co-op. Societies Act, 1960 having )
its Buildings and office at Sarojini Naidu Road, )
Mulund (W.), Mumbai - 400 080. ) ...Respondent
___________
Ms. Gulnar Mistry a/w. Mr. Guru Shanmugam i/b M&M Legal Ventures
for Petitioner.
Mr. Atul Daga for Respondent.
___________
CORAM: G. S. KULKARNI, J.
DATE : 5 June 2023
JUDGMENT:-
The judgment has been divided into the following parts:
Particulars Paragraphs
A Petitioner's case. 2 to 16
B Respondent - Society's Reply 17 to 24
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C Submissions on behalf of the Petitioner 25 to 26
E Analysis and Conclusion. 28 to 55
1. This petition filed under Section 37 of the Arbitration and
Conciliation Act, 1996, (for short 'the Act'), challenges an order dated 28
November, 2014 passed by the learned Sole Arbitrator (for short, 'the
arbitral tribunal'), whereby an application filed by the respondent-Nutan
Kalpana Cooperative Housing Society Ltd., (for short, 'Society'), under
Section 16 of the Act, stands allowed, consequence being that the
arbitration proceedings as initiated by the petitioner stand
terminated/dismissed.
(A) Petitioner's case
2. The relevant facts are:-
The society was contemplating redevelopment of its structures/
chawls sometime in the year 2000. On 30 July, 2000, the society held its 40 th
Annual General Meeting (for short, 'AGM' ), in which a unanimous
resolution was passed to take steps to redevelop/ construct building no. 5 in
place of 'A' and 'B' chawls/structures of the society, for which a committee
of members of society can be appointed.
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3. Sometime in December 2000, the society issued a circular inviting
offers for the construction work to be undertaken for such redevelopment.
Two offers were received, one from the petitioner and another from a third
party, who were shortlisted as potential developers. The petitioner showed
its willingness to take up the work of demolition and construction.
4. On 12 August, 2001, the 41st Annual General Body meeting of the
society was held, in which the minutes of the previous (40 th) meeting were
confirmed. The resolution to that effect is stated to have been unanimously
passed whereunder the Managing Committee and its office bearers were
authorized to finalize the terms and conditions and appoint a developer to
whom the construction in relation to such project could be entrusted. The
petitioner has stated that the minutes of the said meeting as recorded makes
a mention of the fact that the offer made by the petitioner was beneficial,
and in the interest of society.
5. On 09 July, 2002, a Memorandum of Understanding (for short,
'MoU'), was executed between the petitioner and the society delineating the
broad terms and conditions in relation to the project in question.
Thereafter, on 11 August, 2002, the 42nd AGM of the society was held. In
such meeting, the minutes of the previous (41 st) AGM were unanimously
confirmed. In such meeting, members of the "Managing Committee" of
the society, were elected in place of the retiring members. The petitioner
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has stated that in the said meeting the MoU entered between the society and
the petitioner was also approved and confirmed by the General Body. It is
stated that the minutes of the meeting recorded that the MoU was read out
and the terms and conditions were explained to the members. The
petitioner has contended that the members present at the General Body
Meeting were also informed of the draft Development Agreement and an
irrevocable Power of Attorney to be entered between the parties. It is
stated that the minutes of the meeting also recorded that the draft of both
these documents was read out and explained in vernacular as also in
English, and were unanimously approved. It is stated that the office bearers
of the Managing Committee were authorized to execute all necessary
documents to effectuate the resolutions of the General Body. It is the
petitioner's case that such resolution as passed in the said meeting were not
challenged by the Society.
6. The petitioner contends that Section 73(1AB) of the MCS Act was
inserted by Maharashtra Act No. 41 of 2000 providing that the members of
the Managing Committee would be required to execute bonds in favour of
the society to undertake that they would be jointly and severally responsible
for all acts and omissions detrimental to the interest of the society within a
period of fifteen days from the assumption of office. In the year 2011,
such a period was extended upto 45 days. The said provision, however, was
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repealed in the year 2012. Such provision being applicable and prevailing at
the relevant time, a failure to execute such a bond within the specified
period resulted in the member automatically vacating her/his office.
7. As the new members of the Managing Committee were elected in the
said Annual General Meeting (42 nd AGM), held on 11 August, 2002 in
accordance with the provisions of Section 73 (1AB) of the Maharashtra Co-
operative Societies Act, 1960, (for short, 'the MCS Act'), such elected
members of the Managing Committee were required to execute mandatory
"bonds" in favour of the society, undertaking that they would be jointly and
severally responsible for all acts and omissions detrimental to the interest of
the society. Such bonds were to be submitted within 15 days of the
members assuming office.
8. It is the petitioner's case that it was subsequently revealed to the
petitioner by the society that the members did not file the necessary
indemnity bond within the stipulated period of 15 days and consequently,
by operation of law, namely, of the provisions of Section 73(1AB) of the
MCS Act, the members of the managing committee were deemed to have
vacated their office on 26 August, 2002 namely from the period of 15 days
of these members assuming office.
9. The elected members of the Managing Committee in law had
deemed to have vacated their office, however, it appears that on 13
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September, 2002, a Development Agreement was executed between the
petitioner and the society, as executed by such dis-entitled Managing
Committee members. It is contended by the petitioner that after the
execution of the Development Agreement, the petitioner took steps to
commence the construction and paid an amount of Rs.12,00,000/- out of
the total consideration of Rs. 1.2 crores under the Development Agreement
to the society, which was accepted by the society. It appears that for 7 years
after the execution of the Development Agreement, nothing happened and
the project remained at a standstill.
10. After almost 7 years, i.e. on 12 January, 2009, a notice was addressed
by some members of the society to the petitioner purporting to raise a
grievance regarding the terms of the Development Agreement, inter alia,
stating that the bond required to be executed by the Managing Committee
members as per the provisions of Section 73(1AB) of the MCS Act was not
executed. It was recorded that the Deputy Registrar was looking into the
matter as also a show cause notice was said to have been issued. The
petitioner contends that correspondence was exchanged between the
members of the society and the petitioner on such issue. Also on 18
February, 2009, the Managing Committee appointed in the 42 nd AGM held
on 11 August, 2002, was superseded by the Deputy Registrar of Co-
operative Societies on the ground that the mandatory bonds under Section
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73(1AB) required to be executed by the elected members of the Managing
Committee were not executed by them. By such order, the Deputy
Registrar appointed an Administrator to look into the affairs of the society.
On 22 May, 2009, the petitioner by its letter addressed to the Administrator,
informed regarding the redevelopment. The Administrator in his letter
dated 29 May, 2009, set out the antecedents in regard to what had happened
between the petitioner and the society in regard to redevelopment.
According to the petitioner, the Administrator confirmed the parties having
entered into the Development Agreement.
11. On the above backdrop, the society held a special general meeting on
20 December, 2009 to discuss the issues in regard to the redevelopment
being undertaken by the petitioner. It was discussed that the members of
the Managing Committee elected on 11 August, 2002, had not submitted
the required bonds under the provisions of Section 73(1AB) of the MCS
Act which implied that they had no authority to enter into the Development
Agreement. For such reason, a resolution for termination of the
Development Agreement was passed, also to this effect, a notice dated 30
January, 2010 was issued by the society to the petitioner.
12. In November 2011, the society issued a public notice inviting tenders
for the proposed development. The petitioner raised an objection to such
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public notice but contends that it was of no avail. The petitioner, therefore,
filed a Civil Suit (Suit (L) No, 266 of 2013) praying for specific performance
of the Development Agreement. By an order dated 08 April, 2013, passed
on such suit, the Court referred the disputes between the parties to
arbitration by a sole arbitrator, who came to be appointed. The learned sole
arbitrator entered reference.
13. In the arbitral proceedings, on the basis of preliminary defense filed
by the Society, the following preliminary issues were framed by the learned
sole arbitrator for determination, namely,
(i) Whether there is a valid and binding arbitration
agreement between the appellants/claimants and the
society ? and,
(ii) Whether the appellants' claim was barred by
limitation?
14. The learned sole Arbitrator who was initially appointed, resigned and
by a further order dated 14 August, 2014 passed by this Court, a retired
Judge of this Court was appointed as a Substitute Arbitrator.
15. The learned sole Arbitrator heard the parties on the preliminary
issues and by the impugned order dated 20 November, 2014, as rendered on
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the first preliminary issue held that the Development Agreement entered
between the petitioner and the society was void ab initio, as a consequence
of which the petitioner/claimant had no right to claim specific performance
of the Development Agreement. It was also held that in view of the
findings on the first issue, the second issue was not required to be decided.
16. On the above conspectus, assailing the order dated 20 November,
2014 passed by the arbitral tribunal, the present petition has been filed.
(B) Respondent - Society's Reply
17. On behalf of the Society, a reply/affidavit has been filed by Mr.
Mandar Suhas Jopule, Secretary of the Society opposing the petition. The
reply affidavit inter alia, states that the plot of land has four structures
which were constructed in or about 1964-80 and had become old. It was
hence decided to construct a new building in place of building no. 5. It is
stated that accordingly, an AGM was held on 30 July, 2000. It is further
stated that on 11 August, 2002, the new Managing Committee was elected,
and as per the provisions of Section 73(1AB) of the MCS Act, the elected
members of the Managing Committee were required to execute a bond
within 15 days from the date of assuming office. It is stated that although
these elected members of the Managing Committee, had assumed office on
11.08.2002, such members were under a mandate to execute their respective
bonds in favour of the Society as per the said provisions of the MCS Act by
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25 August, 2002. It is contended that as the members of the Managing
Committee failed to execute their respective bonds, the Managing
Committee members automatically by operation of law were deemed to
have vacated their office on 26 August, 2002. It is stated that despite such
legal bar, on 13 September, 2002, the purported Development Agreement
came to be executed and signed by Kum. Leelu S. Lalwani (Chairperson),
Shri. Manohar Bhau Kamble (Secretary) and Shri Yogesh L. Desai
(Treasurer) of the Society, who had already vacated their office as members
of the Managing Committee by operation of law. Hence, the development
agreement entered by persons who had no authority to execute such
Development Agreement which itself was illegal, bad in law and void ab
initio. There are other contentions to the effect that no tenders were invited
by the society so as to give the redevelopment rights in favour of a
developer as also no procedure was followed. This according to the Society
being clear from the fact that the managing committee came to be elected in
the AGM dated 11 August, 2008 and in the same meeting, the Committee
approved the draft for the Development Agreement. Thus, according to
the Society, keeping the members of the society in dark, the development
rights were purportedly awarded in favour of the petitioner.
18. It is next contended that before executing such Development
Agreement, the Managing Committee had not placed the draft of the
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Development Agreement for approval before the General Body of the
Society and the members were mislead to obtain the approval from the
General Body. It is submitted that as the bonds were not furnished by the
elected managing committee members, their election as per the requirement
of law was illegal, hence any decision taken by the managing committee
after the period of fifteen days from the date of election as stipulated by the
provision of Section 73(1AB) for submitting of the bonds, was illegal and
not binding on the society. It was contended that thus the Development
Agreement dated 13 September, 2002 was illegal void ab initio.
19. It is also the case of the society that in the year 2008-09, some of its
members had lodged complaint with the Registrar, Co-operative Societies
against the Managing Committee of the society. The Deputy Registrar of
Co-operative Societies (T ward, Mumbai), accordingly, had issued a show
cause notice dated 09 January, 2009 to the Managing Committee under
Section 78 of the MCS Act. On such proceedings, the Deputy Registrar
passed an order dated 18 February, 2009 and appointed Mr. Y. E. Salunkhe,
as an Administrator for the re-election of the Managing Committee and
submitted his report. It is stated that the Administrator held elections in
October 2009 and after the elections, handed over the charge of the society
to the newly elected committee on 29 October, 2009 and, accordingly, the
new Managing Committee took charge of the affairs of the society.
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20. It is contended that after the said election of the new Managing
Committee, on 28 December, 2009, a Special General Body meeting was
convened, in which it was unanimously decided to terminate the
Development Agreement, and a decision was taken that the society would
proceed with the redevelopment of its premises. Accordingly, a notice was
published by the society in the newspaper 'Times of India: Mumbai Edition'
dated 22 November, 2011, whereby objections were invited in regard to the
redevelopment of the entire property of the respondent. It is contended
that in pursuance of such notice, the petitioner raised an objection by its
letter dated 02 December, 2011, however, the society did not accept the
petitioner's objections and proceeded to publish a public notice as per the
Government guidelines inviting tenders for redevelopment of the society's
premises/property. Such notice was also published in the Mumbai Edition
of the Times of India dated 25 February, 2013. It is contended that the
petitioner again by its letter dated 09 March, 2013, recorded its objections to
the said tender notice. Thereafter, the petitioner filed a civil suit before this
Court against the society. An interim application (Notice of Motion) was
moved in the said suit praying for interim reliefs. By an order dated 08 April,
2013 passed by the learned Single Judge of this Court, the matter was
referred for adjudication by appointing a sole arbitrator. It was ordered that
the notice of motion in the suit be treated as an application under Section
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17 of the Act, to be decided by the arbitral tribunal. The arbitral tribunal
being constituted, decided the Section 17 application. By an order dated 11
May, 2013, the petitioner's Section 17 application was dismissed. The
learned sole arbitrator observed that the petitioner-claimant had committed
default and delayed the performance of its obligation under the agreement.
As also, there was gross delay and laches on the part of the petitioner in
initiation of the proceedings, and for about eleven years, the petitioner had
not been able to carry out redevelopment work as also the petitioner was
presently not in a position to carry out the said work. It is contended that
the Section 17 order passed by the learned Arbitrator when challenged by
the petitioner was upheld by the learned Single Judge of this Court in the
proceedings of Arbitration Petition No. 1079 of 2013, which came to be
dismissed by the co-ordinate bench of this Court by an order dated 24
January, 2014. The appeal against the order passed by the learned Single
Judge was also dismissed by the appeal Court by its order dated 05 May,
2014.
21. It is contended by the society that the termination notice dated 30
January, 2010 also specifically and clearly mentioned that the Committee
signing the Development Agreement dated 13 September, 2002 itself was
illegal, as the members of the Committee had not executed bonds as per the
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requirement of Section 73(1AB) of the MCS Act and hence, the agreement
itself was void ab initio.
22. It is next contended that the petitioner's reliance on Section 77 of the
MCS Act, is not relevant as the Registrar had removed the Managing
Committee for non-compliance of the mandatory provisions under Section
73(1AB) of the MCS Act. It is contended that Section 77 does not give any
protection to persons who had violated the mandate of the bye-laws and
the rules under the Co-operative Societies Act. It is contended that the
action which is illegal and void ab initio being contrary to the provisions of
the act and rules are not saved under section 77 of the MCS Act. Referring
to the provisions of Section 77(3), it is contended that the Registrar in the
present case had already taken a decision and had removed the Managing
Committee after issuing a show cause notice and appointing an
Administrator under Section 78 of the MCS Act by an order dated 18
February, 2009, which signifies that the Committee had no mandate to
discharge any duties as on Managing Committee so as to bind the society. It
is contended that once an action of the Managing Committee or its
members is illegal, there is no question of any sanctity being accorded to an
illegal act by taking recourse to section 77 of the MCS Act.
23. It is contended by the society that the learned Arbitrator in the
impugned order, considering the legal position, has correctly held that the
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Committee absolutely had no power and authority to enter into any
Development Agreement, and much less an agreement as serious as the
Development Agreement, involving properties of crores of rupees. It is
contended that it was rightly observed by the learned Arbitrator in the
impugned order that the Committee itself had deemed to vacate its office
on its failure to submit a bond on or before 26 August, 2002 and hence
w.e.f. 22 August, 2002, the Committee had no existence in the eyes of law
much less to execute the Development Agreement on 13 September, 2002.
It is thus contended that the petition be dismissed.
24. On the above pleadings, Ms. Gulnar Mistry learned Counsel for the
petitioner and Mr. Daga, learned Counsel for the society, have made detailed
submissions.
(C) Submissions on behalf of the petitioner:
25. Ms. Mistry has made the following submissions:
(i) The Development Agreement dated 13 September, 2002 was
unanimously approved by the General Body of the society and recorded in
the minutes of the General Body held on 12 August, 2002. It is submitted
that Section 72 of the MCS Act, inter alia, provides that the "final authority
of every society shall vest in the General Body of members in general
meeting". It is submitted that the impugned order ignores the purport of
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Section 72 and the binding nature of the Development Agreement,
executed in pursuance of the general body resolution.
(ii) The execution of the Development Agreement by the Managing
Committee was in substance a ministerial act which implemented the final
decision of the general body. Hence, the execution of the agreement was
not an independent act of the Managing Committee.
(iii) The resolution of the General Body approving the draft
Development Agreement and authorizing its execution by the Chairman,
Secretary and Treasurer, was never challenged. Such aspect has been
overlooked by the arbitral tribunal and as also arbitral tribunal had failed to
appreciate the significance of the General Body resolution.
(iv) Notwithstanding the defect in the constitution of the Managing
Committee, the execution of the Agreement between the petitioner and the
Society was also saved by Section 77 of the MCS Act, as Section 77 interalia
provides that the acts done in good faith in pursuance of the business of
the Society, shall not be deemed to be invalid by reason only of some defect
subsequently discovered in the constitution of the Managing Committee.
(v) The impugned order fails to appreciate the significance of the letter
dated 29 May, 2009 addressed by the Administrator appointed to look into
the affairs of the respondent, confirming that the agreement was valid and
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binding on both the parties. Under Section 78(6), all acts of the
administrator were binding on the Committee subsequently appointed.
(vi) It is submitted that there can be no quarrel with the propositions that
Section 73 (1AB) is a mandatory provision and that the managing
committee members vacated office as a result of their failure to file the
required bonds, however, the acts done by the Managing Committee despite
such disqualification, were saved by the provisions of Section 77 of the Act.
Hence, the provisions of Section 73 (1AB) are mandatory is no answer to
the implication as brought about by Section 77 of the MCS Act, by which
acts done by disqualified committee members stand saved. This contention
of the petitioner has not been meaningfully addressed by the respondent,
except for the respondent's reliance on Section 73 (1AB).
(vii) The provisions of Section 77 of the MCS Act becomes relevant as
Section 77 stipulates that no act of the Society or a Committee or "any
officer" done in good faith and in pursuance of the business of the Society
shall be deemed to be invalid by reason only of some defect subsequently
discovered in the organization of the society or in the constitution of the
committee or in the appointment of the election of an officer, or on the
ground that such officer was disqualified for office. Section 2(20) defines
"officer" to expressly include a member of the Committee. This is also
held by this Court in Babasaheb Borade vs. Additional Divisional
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Commissioner1 that members of the Managing Committee fall within the
definition of "Officer".
(viii) The submission is that saving provisions are found in various
statutes that provide for the circumstances in which certain acts are saved
notwithstanding a disqualification that may attach in respect of the
appointee/person undertaking such an act. It is the savings provision that
is required to be interpreted to arrive at a conclusion on whether or not acts
done are saved. In the present case, such provision is Section 77 of the
MCS Act. The respondent has not made out a case to show why Section 77
does not operate to save acts done by the Managing Committee.
(ix) The respondent's contention that due to disqualification attached to
the Managing Committee, its members were " akin to a person disqualified
for contracting by the law to which they were subject", under Section 11 of
the Indian Contract Act, 1872, is misplaced. The reason being that the
Managing Committee of the Cooperative Society is not a legal person. In
the present case, it is not the Managing Committee that is the contracting
party and the contracting party is a respondent-Society. Under Section 36
of the MCS Act, the registration of a society renders it as a body corporate
with perpetual succession and the power to enter into a contract and to do
all other things as are necessary for the purpose for which it is constituted.
1 2011 6 BomCR 63.
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The society is an artificial legal person who has contracted with the
petitioner under the Development Agreement dated 13 September, 2002.
Thus, the Society was under no disqualification and was not incompetent to
contract. Moreover, the genesis of the contract between the parties lies in
the General Body Resolution dated 11 August, 2002, by which the draft
Development Agreement was unanimously approved. The Managing
Committee was merely a delegate of the General Body of the Society,
which was authorized to execute the Development Agreement.
Consequently, the provisions of Section 11 had no application whatsoever
to the present case. Thus, under Section 72 of the MCS Act the final
authority of the Cooperative Society vests in the General Body, unless
otherwise indicated under the MCS Act. If the disqualified Managing
Committee had first executed the contract and then placed it before the
General Body for ratification, such an act would be considered a "stillborn
act", as it was without authority at its inception. That is not so in the
present case, as the the Society's General Body had first resolved to execute
the Development Agreement and it is only thereafter that the contract was
entered into. This is hence a case where the Society was seeking to resile
from the solemn contractual obligation on the specious ground that its own
officers, who were expressly authorized by the General Body Resolution had
vacated office at the time of execution of the said agreement and therefore
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the Development Agreement is void. Such an argument is an argument of
convenience and has no foundation in law and ought to be rejected.
(x) There exists no conflict between the provisions of Sections 72 and
73 or Section 73 (1AB) of the MCS Act. The contention of the society that
Section 72 must yield to Section 73 (1AB) as the provisions of Section 72
are "subject to" other provisions of the MCS Act, ought not to be accepted.
It is submitted that Section 72 interalia provides that the final authority of
every society vests in the General Body in a general meeting summoned in
such a manner as may be specified by the bye-laws. Section 73 provides
that the management of every society shall vest in a committee which shall
exercise such powers and perform such duties as may be conferred or
imposed by the Act, rules, and bye-laws. These provisions do not in any way
conflict or interfere with the other. In support of the contention that
Section 72 provides for the primacy of the General Body, reliance is placed
on the decisions in (a) A-I Cooperative Housing Society v. Laxminarayan
Goel2 and (b) B. Madappa v. State of Karnataka3.
(xi) It is submitted that the mandatory prescription under Section
73 (1AB) does not, and cannot, operate to nullify the decisions made by the
General Body in a general meeting. The words "subject to" at the
beginning of Section 72 could only mean that unless otherwise indicated in
2 (1969)71 BLR 616
3 ILR 1990 Kar 1785
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the Act or in the rules framed thereunder, the General Body acting in
pursuance of a validly convened general meeting will be the final authority.
In certain situations prescribed under the Act, the General Body is not the
final authority. Thus, despite a disqualification of the Managing Committee
that may have resulted due to a failure to comply with the provisions of
Section 73(1AB), the General Body retains its primacy under Section 72,
except as otherwise indicated under the Act. Section 73(1AB) does not
provide, whether expressly or impliedly, for overriding the primacy of the
General Body.
26. On the above submissions, it is submitted that the petition be
allowed.
(D) Submissions on behalf of the Respondents:
27. Mr. Daga, learned Counsel appearing on behalf of the respondent-
Society has made the following submissions:
i. In so far as the provisions of Section 73 (1AB) of the MCS Act are
concerned, it is submitted that the new Managing Committee of the society
was elected on 11 August, 2002 and assumed office. It is submitted that as
per the said provisions of the MCS Act which were in force and applicable,
the Managing Committee was bound to execute the M20 bonds within a
period of 15 days from assuming office, in the prescribed format and the
members who fail to execute such bonds within the specified period shall be
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deemed to have vacated their office as members of the Managing
Committee as specifically provided by the said provision. It is submitted
that the period of 15 days expired on 26 August, 2002. It is a matter of fact
that none of the members of the Committee executed the requisite bond
within the stipulated time period of 15 days from 11 August, 2002 and
therefore, they have deemed to be and / or automatically vacated office on
26 August, 2002.
ii. It is submitted that it is not in dispute that the subject agreement was
executed on 13 September, 2002 i.e. after expiry of 15 days time period for
the elected Managing Committee members to mandatorily execute the bond
as per the provisions of Section 73(1AB), consequently they ceased to have
any power or authority to perform any duty or task on behalf of the
respondent society, much less to enter into a Development Agreement
which is an act of a very serious nature. It is submitted that the committee
had no authority on 13 September, 2002 or post 26 August, 2002 and
therefore they could not have entered into any contract on behalf of the
society so as to bind the society or its members. Consequently, the subject
agreement dated 13 September, 2002 and all acts/decisions taken by such
committee on or after 26 August, 2002 are void ab initio and non-est.
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iii. It is submitted that the Registrar by his Order dated 18 February,
2009 has superseded the said Managing Committee and appointed an
administrator for violation of Section 73 (1AB) of the MCS Act being
failure to execute the M20 bonds within the stipulated time period of 15
days. The said Order dated 18 February, 2009 has not been challenged and
had attained finality. Even after the new committee was appointed, there
was no ratification of the said agreement dated 13 September, 2002 by the
new Managing Committee which subsequently came into existence and took
charge.
iv. It is submitted that the provisions of Section 73 (1AB) of the MCS
Act are mandatory and not merely directory. This is a well settled position in
law. In supporting such submissions, reliance is placed on the decision of
the Division Bench of this Court in the matter of 'Assissi CHS Ltd. vs.
State of Maharashtra & Ors.' [Appeal No.683/2006 in WP No.501/2005].
Such view was reiterated by the other Benches of this Court in the matter
of (i) Gulab Rameshnath Khote vs. State of Maharashtra & Ors. 4, (ii)
Shashikant Jesrani & Ors. vs. Assistant Registrar & Ors. 5, and (iii) Dr.
Deepak Panditrao & Ors. vs. State of Maharashtra6.
4 (2008) 1 Mh.L.J. 83
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v. It is next submitted that the use of the words "shall be deemed to
have vacated his office" in the proviso to Section 73 (1AB) of the MCS Act
shows that there is a 'deeming fiction' engrafted into the language of the
said section. In the context of Section 9-A of the Maharashtra Municipal
Councils, Nagarpanchayats & Industrial Townships Act 1965 (for short "the
1965 Act"), the Full Bench of the Bombay High Court in the matter of
'Anant H. Ulhahalkar vs. Chief Election Commissioner '7 had the occasion
to consider the effect of deeming fiction contained in the proviso to
Section 9-A of the 1965 Act and so as to consider whether the
interpretation of the provision when it stipulated a period of 6 months for
the production of a validity certificate was directory or mandatory. The
Court while interpreting the provisions of Section 9-A of the 1965 Act held
that the same is pari materia to the provisions of Section 73 (1AB) of the
MCS Act and that the language of the two provisions are materially
identical.
vi. It is not in dispute that the members of the Managing Committee
who executed the Development Agreement on 13 September, 2002 were
ineligible and therefore, disqualified on the date when the said agreement
was executed. The position of these members was nothing but akin to a
person who was disqualified from contracting by any law to which they
7 (2017) 1 Mh.L.J. 431
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were subjected as per Section 11 of the Indian Contract Act, 1872. Section
11 of the Indian Contract Act is certainly relevant in the present context as
Section 11 of the Indian Contract Act provides that "Every person is
competent to contract who is of the age of majority according to the law to
which he is subject, and who is of sound mind and is not disqualified from
contracting by any law to which he is subject". In support of this
proposition, reliance is placed on the decision in (Lal) Chandradwaj Deo Vs.
(Lal) Artraran Deo8. It is submitted that this decision would also go to show
that the position of the committee members was clearly covered by the
provisions of Section 11 of the Contract Act, therefore the agreement
never came into existence and hence, cannot give rise to any claim even
based on Section 65 of the Contract Act. For such reason, even the
subsequent act of the Registrar of writing a letter dated 29 May, 2009
cannot be of any consequence or effect.
vii. It is submitted that the 'de-facto doctrine' is not applicable. The
reliance of the petitioner on the decision of ' Gokaraju Rangaraju Vs. State
of Andhra Pradesh9, and 'Hamilton Houseware Private Limited vs.
Designate Authority, DGAD&LD10' is misplaced. Whether the Committee
members were eligible on the date when the Development Agreement is
8 AIR (1936) Nagpur 15
9 (1981)3 SCC 132
10 2012 (1) MhLJ 442
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executed i.e. on 13 September, 2002, is the core issue and not something
that arises collaterally. It is submitted that it is only in case of a dispute
between two private litigants when the issue of defective appointment of a
de facto Judge cannot be permitted to be questioned, because in such a case
"a litigant is not directly concerned with the authority or a title of the Judge
to his office."
viii. It is next submitted that Section 72 of the MCS Act cannot be an
answer. Section 72 cannot be read as having any overriding effect on
Section 73 (1AB) or cannot be read in a manner completely ignoring the
provisions of Section 73 (1AB). If any other provision of the MCS Act is
being violated, the shelter under Section 72 cannot be taken. Section
73(1AB) will prevail over Section 72 if there is a conflict between the said
provisions. This contention is supported by placing reliance on the decision
of the Supreme Court in the case 'Aloys Wobben vs Yogesh Mehra11.
ix. It is submitted that the reliance on the Minutes of the General Body
Meeting dated 11 August, 2002 is entirely misplaced, as an action was filed/
initiated for specific performance of the Development Agreement and not
the Minutes or the Resolution. The resolution and minutes are internal
documents of the respondent society and cannot create any vested right in
11 (2014) 15 SCC 360
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favour of the petitioner. Further, the resolution never authorized ineligible
or disqualified committee members to execute the Development
Agreement. The said persons were authorized to execute only in their
capacity as members of the managing committee and not otherwise.
x. It is next submitted that this is not the case where there is a conflict
between the society and the Managing Committee.
xi. It is submitted that the petitioner's case based on Section 77 of the
MCS Act is misconceived. The emphasis on behalf of the petitioner on the
words "good faith" appearing in Section 77 as to protect the action of the
Committee members also ought not to be accepted. It is submitted that it
cannot be disputed that "good faith" is a question of fact that has to be
pleaded and then proved by the party who wants to take advantage of such
a provision. There is no pleading of good faith by the petitioner. Also, the
redevelopment of the building of the respondent society is not relatable to
the business of the society as the said activity cannot be considered as
touching the business of the society. In such context, reliance is placed on
the decision of this Court in ' Mohinder Kaur Kochar Vs. Mayfair
Housing12', to contend that redevelopment of the property of a society
does not mean that the society is engaged in the business of
redevelopment. The process of redevelopment of the society in the facts of
12 (2013)1 Mh.L.J. 389
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the present matter does not constitute the business of the society within the
meaning of Section 91 of the MCS Act. The object of the society is not to
engage in the business of construction and real estate. Moreover, the bye-
laws of the society are identical to the bye-laws that were the subject matter
in the case of 'Mohinder Kaur Kochar' (supra), as seen from paragraphs 14
and 15 of the said decision. Further, even the petitioner considered that the
redevelopment in the present case was not in pursuance of the business of
the society and therefore, it did not give any notice under Section 164 of the
MCS Act to the Registrar before filing the suit. Therefore, the petitioner
itself proceeded on the basis that the execution of the said agreement was
not in pursuance of the business of the society or touching the business of
the society and therefore, now cannot be permitted to place reliance on
Section 77 of the MCS Act. Such an argument is also afterthought not
realizing that by the conduct of not giving notice under Section 164 of the
MCS Act, the petitioner had accepted that the proposed redevelopment did
not relate to something that touches the business of the society.
xii. It is next submitted that the view taken by the tribunal is a plausible
view and is not perverse. In such context, it is submitted that in a challenge
to an order or an award made under Section 16 upholding the jurisdictional
objection raised, this Court cannot go into facts and law on every aspect
and substitute its own opinion in place of the tribunal. The Court would be
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required to consider whether the order passed by the tribunal was a
plausible view and once this test is applied to the facts of the present case,
no interference is called for in the impugned order.
(E) Analysis and Conclusion:
28. I have heard learned counsel for the parties as also with their
assistance, I have perused the record.
29. It is not in dispute that the Society was contemplating redevelopment
of its structures in the year 2000 and in that regard, a unanimous decision
was taken in the meeting held on 30 July, 2000. It is also not in dispute that
in December, the Society issued a circular inviting offers for construction
work to be undertaken. In pursuance thereto, two offers were received, one
of them being of the petitioner. It appears that on 12 August, 2001, the
41st Annual General Body Meeting was held in which a resolution was
passed whereunder the Managing Committee and its office bearers were
authorized to finalize the terms and conditions and appoint a developer to
whom the redevelopment project could be entrusted. On 09 July, 2002, an
MoU was executed between the petitioner and the society delineating the
broad terms and conditions in relation to the project in question.
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30. On 11 August, 2002, the 42 nd AGM of the society was held in which
the minutes of the 41st AGM held on 12 August, 2001 were confirmed
unanimously. Significantly in such meeting nine members of the Managing
Committee of the society were elected for the term 2003 to 2005 in place
of the retiring members.
31. The case of the petitioner is that the MoU as also the draft
Development Agreement were placed before the AGM dated 11 August,
2002. In so far as the draft Development Agreement is concerned, it is
stated that it was resolved that the draft Development Agreement as well as
irrevocable General Power of Attorney be drawn on requisite stamp paper
and the same be signed and executed for and on behalf of the society by its
Chairman, Secretary and Treasurer.
32. It needs to be observed that simpliciter election of the
Managing Committee would not empower the managing committee
members to act on behalf of the society, unless they become eligible and/or
qualified in law to discharge the functions of the Managing Committee as
specifically provided at the relevant time namely on the Managing
Committee members executing a bond in favour of the society as per the
requirement of Section 73(1AB) of the MCS Act. Section 73 of the MCS
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Act came to be incorporated by Maharashtra Act No. 41 of 2000 which was
prevailing at the relevant time and reads thus:-
"73. Committee, its powers and functions.
(1) The management of every society shall vest in a committee,
constituted in accordance with this Act, the rules and bye-laws, which
shall exercise such powers and perform such duties as may be
conferred or imposed respectively by this Act, the rules and the bye-
laws.
(1AB) The members of the committee shall be jointly and severally
responsible for all the decisions taken by the committee during its
term relating to the business of the society. The members of the
committee shall be jointly and severally responsible for all the acts and
omissions detrimental to the interest of the society. Every such
member shall execute a bond to that effect within fifteen days of his
assuming the office, in the form as specified by the State Government
by general or special order. The member who fails to execute such
bond within the specified period shall be deemed to have vacated his
office as a member of the committee :
Provided that, before fixing any responsibility mentioned
above, the Registrar shall inspect the records of the society and
decide as to whether the losses incurred by the society are on account
of acts or omissions on the part of the members of the committee or
on account of any natural calamities, accident or any circumstances
beyond the control of such members :
Provided further that, any member of the committee, who
does not agree with any of the resolution or decision of the
committee, may express his dissenting opinion which shall be
recorded in the proceedings of the meeting and such member shall
not be held responsible for the decision embodied in the said
resolution or such acts or omissions committed by the committee of
that society as per the said resolution. Such dissenting member, if he
so desires, may also communicate in writing his dissenting note to the
Registrar within seven days from the date of the said resolution or
decision. Any member, who is not present for the meeting in which
the business of the society is transacted, and who has not
subsequently confirmed the proceeding of that meeting, such
member shall also not be held responsible for any of the business
transacted in that meeting of the society."
(emphasis supplied)
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33. As the learned counsel for the parties have also referred to the
provisions of Sections 72, 77, and 78, the same are also required to be
noted which read thus:-
"72. Final authority of society.-- Subject to the provisions in this
Act and the rules, the final authority of every society shall vest in the
general body of members in general meeting, summoned in such a
manner as may be specified in the bye-laws. Where the bye-laws of a
society so provide, the general meeting shall be attended by delegates
appointed by the members, and such meeting shall be deemed to be
the meeting of the general body, for the purpose of exercising all the
powers of the general body.
.. .. .. ...
77 Acts of societies, etc. not to be invalidated by certain defects.
(1) No act of a society or a committee or any officer, done in
good faith in pursuance of the business of the society shall be deemed
to be invalid by reason only of some defect subsequently discovered in
the organisation of the society, or in the constitution of the
committee, or in the appointment or election of an officer, or on the
ground that such officer was disqualified for his office.
(2) No act done in good faith by any person appointed under this
Act, the rules and the by-laws shall be invalid merely by reason of the
fact that his appointment has been cancelled by or in consequence of
any order subsequently passed under this Act, rules and the by-laws.
(3) The Registrar shall decide whether any act was done in good
faith in pursuance of the business of the society ; and his decision
thereon shall be final.
78. Power of removal of committee or member thereof.-- (1) If,
in the opinion of the Registrar, the committee of any society or any
member of such committee makes default, or is negligent in the
performance of the duties imposed on it or him by this Act or the
rules or the bye-laws, or commits any act which is prejudicial to the
interests of the society or its members, or willfully disobeys directions
issued by the State Government, or by the Registrar for the purposes
of securing proper implementation of Co-operative policy and
development program approved or undertaken by the State
Government or is otherwise not discharging its or his functions
properly and diligently or where a situation has arisen in which the
committee or any member of such committee refuses or has ceased to
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discharge its or his functions and the business of the society has or is
likely to come to a stand still, or where any member of such
committee stands disqualified by or under this Act for being a
member, the Registrar may, after giving the committee or the member,
as the case may be, an opportunity of stating its or his objections, if
any, within 15 days from the date of receipt of notice, and after
consultation with the federal society to which the society is affiliated,
by order-
(a) (i) remove the committee, and
(ii) appoint a committee consisting of three or more members (who
shall not be the members of the committees so removed) of the
society in its place, or appoint one or more Administrators who need
not be members of the society, but who shall not be the members of
the committee so removed to manage the affairs of the society for a
period not exceeding six months, which period, at the discretion of
the Registrar, be extended by a further period Dot exceeding three
months so, however, that the total period does not exceed nine
months in the aggregate:
Provided that, the Registrar shall have the power to change the
committee or any member thereof or the administrator or
administrators appointed under paragraph (ii) at his discretion even
before the expiry of the period specified in the order made under this
sub-section;
(b) Remove the member and appoint any person as member of such
committee in his place, or direct the society to elect or appoint a
member in his place, for the remainder of the term of office of the
member so removed.
Provided that, the member who has been so removed, shall not be
eligible to be re-elected, re-appointed, re-nominated, or re-co-opted, as
a member of the committee till the expiry of the period of next one
full term of the committee from the date on which he has been so
removed or till such lesser period as may be laid down under the
provisions of section 73FFF or 144E, as the case may be.
Provided further that, the supersession or removal of the
committee of the District Central Co-operative Bank or the State Co-
operative Bank under this sub-section shall not be done without prior
consultation with the Reserve Bank of India;
Provided also that, the committee of a primary agricultural co-
operative credit society shall not be superseded by the Registrar except
under the following circumstances, namely:-
(i) if a society incurs losses for three consecutive years; or
(ii) if serious financial irregularities or frauds have been identified ; or
(iii) if there are judicial directives to this effect; or
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(iv) if there is perpetual lack of quorum:
Provided also that, the members of the Board of a primary
agricultural credit co-operative society which has been superseded
shall not be eligible to be re-elected, re-appointed, re-nominated or re-
co-opted, as a member of the committee for a period of three years
from the date of supersession of the Board.
(1A) When a notice is issued against any committee or member
under sub-section (1), if resignation from any office is tendered by the
committee or member, it shall not be valid or effective until two
months have elapsed from the date of issue of the notice or until it is
permitted to be accepted by the Registrar, whichever is earlier.
(2) The committee or administrator so appointed shall, subject to the
control of the Registrar and to such instructions as he may from time
to time give, have power to exercise all or any of the functions of the
committee or of any officer of the society, and take all such action as
may be required in the interests of the society. [The committee or
administrator appointed as aforesaid shall, notwithstanding anything
contained in the bye-laws, have power to call a special general meeting
of the society to review or to reconsider the decision or the resolution
taken or passed at the general meetings called by the previous
committee or to endorse action taken by it.]
(2A) The Registrar may fix the remuneration payable to the
administrators and any expenses of management which shall be
payable out of the funds of the society within such time and at such
intervals as the Registrar may fix, and if such remuneration or
expenses are not paid within such time or at intervals, the Registrar
may direct the person having custody of the funds of the society to
pay to the administrators such remuneration and expenses in priority
to any other payments (except land revenue, any arrears of land
revenue, or any sum recoverable from the society as arrears of land
revenue) and he shall, so far as the funds to the credit of the society
allow, comply with the orders of the Registrar.]
(3) If at any time during any period, or extended period referred to in
sub-section (1), it appears to the Registrar, that it is no longer
necessary to continue to carry on the affairs of the society as
aforesaid, the Registrar may, by an order direct that the management
shall terminate; and on such order being made, the management of
the society shall be handed over to a new committee duly constituted.
(4) The committee or administrator shall, at the expiry or termination
of its or his term of office, arrange for the constitution of a new
committee in accordance with the bye-laws of the society :
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Provided that, the committee or Administrator shall make
arrangements for constitution of a new committee of co-operative
credit structure entity, within a period of two months from the date of
order of supersession of board of co-operative credit structure
entity;
Provided further that, if a new committee is not, or cannot
be, constituted at the expiry or termination of the term of office of
the committee or administrator, for any reason beyond the control of
the committee or administrator, the term of office of the committee
or the administrator, as the case may be, shall be deemed to be
extended, until the new committee is duly constituted.
Provided also that, in no circumstances, the term of office of
the committee of, or the Administrator appointed on, the co-operative
credit structure entity shall exceed six months from the date of
supersession of the committee.
(5) All acts done or purported to be done by the committee or
administrator during the period the affairs of the society are carried
on by the committee or administrator appointed under subsection (1),
shall be binding on the new committee."
34. It appears that the newly elected managing committee members did
not discharge their mandatory obligation to execute bonds within 15 days
of their assuming office in compliance with the provision of sub-section
(1AB) of Section 73 of the MCS Act. There is an automatic consequence
brought about by the said provision by which, by operation of law, the
member who fails to execute the bond within the specified period, shall be
deemed to have vacated his/her office as a member of the committee. It,
therefore, appears that as the election was held on 11 August, 2002, as
decided in the 42nd Annual General Body Meeting, within 15 days of the
said election, the elected managing committee members were required to
execute bonds within 15 days i.e. till 26 August, 2002, and having not
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executed such bonds, by operation of law and/or automatically as per the
provisions of sub-section (1AB) of Section 73, a consequence was brought
about of these members having vacated their offices. In fact, the word
"shall" has been used in sub-section (1AB) of Section 73 of the MCS Act
which indicates the mandatory consequence, being brought about and
taking place, namely these members vacating their office as members of the
Managing Committee.
35. It is on such backdrop and having attained disqualification and/or
ineligibility, it appears that the concerned Managing Committee members
went ahead, who on 13 September, 2002 entered into a Development
Agreement with the petitioner. Certainly, such an act of the newly elected
managing committee members would be opposed to what has been
provided by Section 73(1AB), namely that these managing committee
members were no more the members of the managing committee as they
had deemed to have vacated their offices. This is the plain conclusion that is
brought about by the provisions of Section 73(1AB) of the MCS Act.
36. Once Section 73(1AB) of the MCS Act mandates and has brought
about such consequence merely because the petitioner was not aware of
these members not executing the mandatory bonds, would not alter the
consequence which is brought about by Section 73(1AB). This for the
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reason that once these members ceased to be members of the Managing
Committee by operation of law and they were rendered to be mere
members of the society, as they lost their status of being the elected
members of the Managing Committee. As mere members of the society,
they are at par with the other members of the society, consequently, they
would not have any authority to bind the society with any such of their acts
of executing a Development Agreement and bind the other members of
the society and/or the society itself by such acts. This appears to be the
plain consequence as brought about by the provisions of Section 73(1AB)
of the MCS Act.
37. However, the contention as urged on behalf of the petitioner is
relying on the provisions of Section 72 of the MCS Act, which provides
that "the final authority of every society shall vest in the General Body of
members in general meeting". The contention is that once the general body
has approved the draft of the Development Agreement, the same would be
binding on the society and the execution of the same by the managing
committee members, who were not eligible for want of compliances under
Section 73(1AB) of the MCS Act, becomes secondary. In my opinion, such
an argument needs to fail for more than one reason. Firstly, it cannot be
conceived that Section 72 in any manner condones or effaces or takes away
the mandate of Section 73(1AB). Both these provisions stand independent
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of each other. Both are required to read in conjunction. There is also no
conflict between two, the object and purpose which is sought to be achieved
by these provisions is clear from the wording of Section 72 of the MCS Act
which itself provides "to be subject to the provisions in the Act and the
rules." This itself contemplates that the effect and operation of Section
73(1AB) has not been disturbed by the legislation, the compliance of which
was binding on the society and its elected members. There is another
reason to reject such contention of the petitioner namely that the General
Body Resolution itself provided that the Development Agreement would be
required to be executed. Thus, once the General Body itself provides that
such an agreement is to be executed by the persons having such authority to
execute, then there is no gainsaying for the petitioner to contend that the
execution of the development is secondary and what is primary and/or
binding on the society, is a resolution approving the Development
Agreement. It would be too far-fetched to conclude that mere approval of
the Development Agreement in the general body meeting would bring
about a binding contract between the society and the petitioner without
such a document being executed between the parties. This would be against
the basic norms as to what can be a contract between the parties as
provided for under the Indian Contract Act, 1972. In this context Section
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11 of the Contract Act is also relevant which provides as to who is
competent to contract. Section 11 reads thus:-
"11. Every person is competent to contract who is of the age of
majority according to the law to which he is subject, and who is of
sound mind, and is not disqualified from contracting by any law to
which he is subject."
38. It can thus be noted from Section 11 of the Contract Act that a party
entering into a contract cannot be disqualified from contracting by any law
to which he is subject. In the present case, it is clear that Section 73(1AB)
brought about a direct disqualification of the elected members of the
managing committee in as much as they ceased to be the members of the
managing committee who had deemed to have vacated their offices as
members of the managing committee. If that be so, there is no question of
these elected persons having any authority in law to execute an agreement.
Also it cannot be that the person who is disqualified in law, can enter into
any binding agreement. Countering the respondent's submission on Section
11 of the Contract Act, the petitioner's contention that the Managing
Committee of a co-operative society is not a legal person but the Society is
a legal person considering the provisions of Section 36 of the MCS Act,
and it is the Society which had entered into a Development Agreement, is
factually as also legally untenable. It is factually untenable as such argument
is contrary to the General Body Resolution of the Society as noted above. It
is legally untenable for the reason that Section 11 of the Indian Contract
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Act, 1872 categorically speaks about "every person" who would be
competent to contract and who is entirely not disqualified from contracting
by any law to which he is subject, to mean only the Society and not the
members of the Managing Committee, as canvassed by the petitioner would
be nothing short of misreading the provisions of Section 11 of the Indian
Contract Act, 1872. In such context respondent's reliance on the decision in
(Lal) Chandradwaj Deo vs. (Lal) Artraran Deo (supra) is apposite.
39. It may also be observed that mere approval of the draft
Development Agreement by the general body cannot bring about a binding
contract between the parties. It is for such reason, the petitioner has
consciously not prayed for any relief in the arbitral proceedings that the
general body resolution of the 42 nd AGM held on 11 August, 2002 be
considered as a binding contract. The prayer in the arbitral proceedings is
purely on the purported rights under the Development Agreement executed
on 13 September, 2002 which is clear from the prayers as made in the
arbitral proceedings. The relevant extract of the prayers in the award needs
to be noted, which reads thus:-
"a) That this Hon'ble Court be pleased to declare that the
Agreement dated 13-09-2002 and Power of Attorney dated 24-09-2002
executed by and between the Plaintiff and the Defendant are valid
subsisting and binding on the Defendant and the Plaintiff is entitled to
specific performance of the terms and conditions of the said
Agreement in respect of the suit property admeasuring 4657.50 sq. mt.
along with the buildings & structures standing thereon situated lying &
being at Village Mulund, Tal. Kurla, Dist. MSD, within limits of Gr.
Mumbai Municipal corporation bearing Revenue S. No. 189B & 190A,
H. No. 1 (pt) having corresponding CTS no. 667, 668 & 668/1 to 40.
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b) That this Hon'ble Court by an order be pleased to direct the
Defendants to specifically perform the Agreement dated 13-09-2002
executed by and between the Plaintiff and the Defendant on the terms
and conditions, in respect of the suit property admeasuring 4657.50 sq.
mt. along with the building & structures standing thereon situate lying
& being at Village Mulund, Tal. Kurla, Dist. MSD, within limits of Gr.
Mumbai Municipal Corporation bearing Revenue S. No. 189B & 190A,
H. No. 1 (pt) having corresponding CTS no. 667, 668 & 668/1 to 40.
c) In the alternative in the event this Hon'ble Court is the opinion
that for any reason, specific performance of the said MOU cannot be
granted in favour of the Plaintiff then in that case, this Hon'ble Court
be pleased to direct the Defendants to pay sum of Rs. 41,11,93,000/-
(Rupees Forty One Crores Eleven Lacs, Ninety three thousand only) as
and by the way of damages as per the Particulars of the Claim annexed
hereto as Exhibit-Z-d."
40. The next contention as urged on behalf of the petitioner is relying
on the provisions of Section 77 of the MCS Act, which as noted above,
provides for the act of a society not to be invalidated by certain defects. In
my opinion, the petitioner's contention relying on Section 77 of the MCS
Act is totally untenable, in as much as if such a contention is accepted, it
would amount to Section 77 of the MCS Act overriding the provisions of
Section 73(1AB) which is not the intention of the legislature as seen from
the plain reading of these provisions. Secondly, sub-section (1) of Section
77 when it talks about no act of a society or a committee or any officer,
done in good faith in pursuance of the business of the society shall be
deemed to be invalid by reason only of some defect subsequently
discovered interalia in regard to the organization of the society or in the
constitution of the committee, or in the appointment or election of an
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officer, or on the ground that such officer was disqualified for his office.
Thus the provision talks about mere defects in regard to such specific
incidents as referred to in sub-section (1) of Section 77. Sub-section (1) of
Section 77 when it speaks about defects, cannot take within its ambit
and/or bring about a consequence that it would render sub-section (1AB)
of Section 73 nugatory. Once by operation of law, the elected members are
deemed to have vacated their office by virtue of sub-section (1AB) of
Section 73, it cannot be countenanced that Section 77 is a provision that
would validate and/or nullify the mandate and effect brought about by sub-
section (1AB) of Section 73 of the MCS Act. Thus, Section 77 of the MCS
Act does not bring about any consequence to remove the bar and invalidity
as mandated and occasioned by the provision of Section 73(1AB) of the
MCS Act. For such reason, the petitioner's contention relying on Section 77
of the MCS Act to contend that the act of the disqualified members signing
the Development Agreement is saved by Section 77 of the MCS Act is ill
founded.
41. The next contention as urged on behalf of the petitioner is that the
execution of the Development Agreement by the members of the
managing committee was a ministerial act and what was imperative was the
general body's decision is totally unacceptable for the above reasons.
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42. The aforesaid discussion would lead me to conclude that the
provisions of Section 73(1AB) in so far as it required the elected members
of the managing committee to submit bonds as per the specific
requirements of the said provision, was certainly a necessary and mandatory
compliance. I am not shown any provision which would exempt the elected
members from dispensing with the requirement of submitting such bonds.
The provision itself makes it crystal clear as to what would be the legal
effect of such elected members not submitting their bonds namely that on
the lapse of a period during which they were under a mandate to submit the
bonds and the bonds being not submitted by operation of law, they were
deemed to have vacated their offices as elected members. The legal
consequence also is that in law they ceased to be members of the managing
committee and were rendered to be mere members of the society without
any status of being members of the managing committee which is certainly
a different status from that of a mere member.
43. It also cannot be forgotten that the object and intention of the
legislature to make the provision in the nature of sub-section (1AB) of
Section 73 was to bring about the accountability of the members of the
managing committee towards the society. It was thought appropriate that
such accountability can be brought about by providing that the elected
members would mandatorily furnish bonds within 15 days of their
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assuming office and that too in "Form M-20" specified by the State
Government by general or special order. There cannot be any other reading
of Section 73(1AB) of the MCS Act. As noted above, neither Section 72
nor Section 77 of the MCS Act would obliterate and/or override the
mandate of Section 73(1AB) of the MCS Act.
44. Now coming to the decisions as cited on behalf of the parties. In
the context of what has been observed above, Mr. Daga would be justified
to rely upon the decision of the learned Single Judge of this Court in the
case of Assissi Co-operative Housing Society Limited & Ors. Vs. The State
of Maharashtra & Ors. (supra). The learned Single Judge, considering the
provisions of Section 73(1AB) of the MCS Act, held that there is no
provision for an extension of time for the execution of the bond. Even if
there is just and sufficient cause for non-execution of the bond within 15
days, the statute does not give power to the Registrar to extend the period
for execution of the bond beyond the statutory period of 15 days. It was
observed that the provision may appear draconian but if the legislature, in
its wisdom, had chosen to enact and provide for the automatic vacation of
the office without any power to grant an extension of time with a view to
check the malpractices committed by the members of the committee of a
society and that the Court cannot refuse to give full effect to it. The
relevant observations of the Court are required to be noted with read thus:-
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"7. Sub-section (1AB), consists of two parts. The first part lays
down that the members of the committee shall be jointly and severally
responsible for all decisions taken by the committee during its term
relating to the business of the society and that members of the
committee shall be jointly and severally responsible for all acts and
omissions detrimental to the interest of the society. Proviso to sub-
section (1AB) requires the Registrar to inspect the records of the
society and decide whether any losses incurred by the Society are on
account of the acts or omissions on the part of the members of the
committee or on account of any other cause such as natural calamities,
accident or any circumstances beyond the control of the members of
the committee. Second proviso to sub section (1AB) says that where
any member of the committee expresses his dissenting opinion to any
resolution or decision of the committee the dissent shall be recorded in
the proceedings of the meeting and such member would not be
responsible for the decision embodied in the said resolution. So also
any member of the committee who is not present for the meeting in
which the business of the Society is transacted and who has not
subsequently confirmed the proceedings of that meeting would not be
held responsible for the business transacted in that meeting of the
society. Thus, the two provisos are exception to the principle of joint
and several liability of the members of the committee for their acts and
omissions. If the circumstances covered by the provisos exists, the
member or the members of the committee may escape the liability for
their acts and omissions. Second part of Sub-section (1AB) provides
that every member of the committee shall execute a bond in the
prescribed form, regarding his liability for the loss caused to the society
by his acts and omissions, within 15 days of his assuming the office.
Joint and several liability of every member of the committee for the
actions of the committee arises statutorily out of the first part of sub-
section (1AB) of section 73 of the Act. However, in order to leave no
doubt, the legislature has introduced further provision requiring every
member of the committee to execute the bond regarding his joint and
several liability. The legislature has further provided that a member of
the committee who fails to execute the bond within the specified period
shall be deemed to have vacated his office as a member of the
committee. Vacation of the office is automatic and the statutory
consequence of non execution of the bond within 15 days of assuming
the office. Sub-section (1AB) of section 73 of the Act does not make
any exception to the vacating of the office on non execution of the
bond within 15 days. There is no provision for extension of time for
execution of the bond. Even if there is just and sufficient cause for non
execution of the bond within 15 days, the statute does not give power
to the Registrar to extend the period for execution of the bond beyond
the statutory period of 15 days. The provision may appear drachonic
but if the legislature, in its wisdom, has chosen to enact and provide for
automatic vacation of the office without any power to grant extension
of time with a view to check the malpractices committed by the
members of the committee of a society, the Court cannot refuse to give
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full effect to it. It is for the legislature to amend the law, if it so thinks
necessary to grant any suitable relief in appropriate cases by extension
of time for execution of the bond. If the language of the statute is
clear, the Court cannot refuse to enforce it on the ground that the
enforcement would cause hardship."
The above decision of the learned Single Judge was subject matter of assail
in proceedings of Appeal No. 683 of 2006. The Division Bench dismissed
the appeal affirming the view taken by the learned Single Judge.
45. In Gulab Rameshnath Khote Vs. State of Maharashtra & Ors. (supra)
a Division Bench of this Court referring to the decision of the learned
Single Judge of this Court in Assisi Co-operative Housing Society Limited
& Ors. Vs. The State of Maharashtra & Ors. (supra), observed that the
provision of Section 73(1AB) is not directory, but it is mandatory. The
Division Bench observed thus:-
"10A. Shri Kumbhakoni, learned Addl. Advocate General has placed
reliance on a case Assissi Co-op. Hsg. Soc. Ltd. v. State of Maharashtra,
wherein while deciding the Appeal No. 683 of 2006 the Division Bench
of this Court has clearly observed that the provision of Section
73(1AB) is not directory, but it is mandatory. We are in full agreement
with the view expressed by the Division Bench of this Court in the
above matter. So, relying upon the said ruling we hold that the said
provision is mandatory."
46. In Dr. Deepak Panditrao & Ors. vs. The State of Maharashtra & Ors.
(supra), the learned Single Judge of this Court, again considering the
provision of Section 73(1AB) of the MCS Act, held that the said provision
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was mandatory and non-compliance of the said provision incurred
automatic disqualification by operation of law. In such context, the Court
observed thus:-
"In so far as the elected executive members, who failed to execute the
bond, in view of the mandatory provisions of Section 73(1AB), they
incurred automatic disqualification by operation of law. As a result, four
vacancies were automatically caused in the Managing Committee
consisting of seven members."
47. It is thus clear from the above decisions that consistently this Court
has held the provision of Section 73(1AB) as prevailing at the relevant time
to be mandatory and not directory. Once such consistent view has been
taken, the petitioner would not be correct in placing reliance on the
judgment of A-I Co-operative Housing Society Limited vs. Laxminarayan
Goel (supra) to contend that the act of the general body in its meeting held
on 11th August, 2002 to approve the draft Development Agreement would
bring about a legal consequence that the Development Agreement executed
by the disqualified members of the managing committee would stand
validated, is an untenable proposition. No doubt it is the general body
which was required to take certain decisions, but when it comes to executing
an agreement, as serious as the Development Agreement, it was required to
be executed on behalf of the society by persons who were delegated such
task by the Society in its General Body Meeting namely the Managing
Committee the members of which who were qualified in law to do so, and
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not by such persons, who have attained any disqualification as noted above,
even considering the provisions of Section 11 of the Indian Contract Act.
Thus in the present facts, in view of the clear provisions of Section
73(1AB), the decision of the Division Bench in AI Cooperative Housing
Society V. Laxminarayan Goel (supra) would not be applicable.
48. In so far as the petitioner's reliance on the decision of Girish
Mulchand Mehta & anr. Vs. Mahesh S. Mehta & Anr. 13 to support a
proposition that a resolution of the general body meeting to approve the
draft Development Agreement is concerned, is not well founded
considering the prayers as made in the arbitral proceedings which are to
enforce the Development Agreement dated 13 September, 2002. It is not
the prayer of the petitioner that the resolution of the general body is
enforced as discussed in detail in the foregoing paragraphs.
49. Also the contention as urged on behalf of the petitioner that de
facto doctrine is applicable in the present case, is untenable. It is well settled
that the defective appointment of de facto Judge may be questioned directly
in the proceedings to which he is a party, and cannot be permitted to be
questioned in a litigation between two private litigants. The two litigants
litigating a private dispute cannot be permitted to bring an issue and litigate
13 2010(1) Bom.C.R. 31
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upon the authority and title of a judge to his office. However, the present
matter is not a case where there is a collateral attach on the eligibility of the
committee members of the respondent society. In such context reliance on
behalf of the respondent on the decision of the Supreme Court in
Kishanlal Bishnoi Vs. Authorised Officer14 is well founded, where the
Supreme Court has reiterated the said principle even referring to the
decision in Gokaraju Rangaraju Vs. State of Andra Pradesh (supra). Thus
de facto doctrine cannot be made applicable in the facts of the present case
so as to hold that the Development Agreement in question is legal and
valid. Also, the decision of the Division Bench in Hamilton Housewares
Pvt. Ltd. vs. Designated Authority, Directorate General of Anti-Dumping
and Allied Duties and others (supra) discussing the principles of de facto
doctrine, is not applicable in the facts of the case. It needs to be observed
that the principles of de facto doctrine in respect of a Government Officer
appointed to discharge functions of a designated authority can in no
manner be comparable to the position of the elected members of a
cooperative society having rendered disqualification under the provisions of
Section 73(1AB) of the MCS Act. For such reason also, reliance on the
decision of Hamilton Housewares Pvt. Ltd. vs. Designated Authority
(supra) is totally untenable.
14 (2017)2 Mh.L.J. 928
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50. The decision in the case of Shiromani Sugar Mills Limited v. Debi
Prasad (supra) would also not assist the petitioner for more than one reason.
Firstly, the position of the disqualification of directors of a company
registered under the Companies Act cannot be compared to disqualification
rendered by the managing committee members in the specific terms as
contemplated under Section 73(1AB) of the MCS Act. The present case is
not a case where an occasion has arisen to consider whether the act done by
the elected directors to execute the Development Agreement on 13
September, 2002 was an act in good faith and was not hit by provisions of
Section 73(1AB) of the MCS Act. In any event this is a question of fact
and there was no material to accept any such contention by the petitioner
that such act on the part of the Managing Committee members was taken
in good faith. Thus, once by operation of law the elected members of the
Managing Committee had attained disqualification, it hardly mattered as to
whether the elected members of the Managing Committee had in their
minds that they were acting in good faith. The situation which was
considered by the Division Bench of Allahabad High Court in ' Shiromani
Sugar Mills Limited v. Debi Prasad ' (supra) was totally distinct from the
present facts, when the Court made the following observations:-
"In the present case, the Directors certainly knew that they had not
paid the allotment and call moneys, but there is nothing to indicate that
the fact that they had thereby disqualified themselves was present to
their minds at the time when they allotted the shares and made the calls.
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There was no defect in their appointment as Directors ; the only defect
is that they continued to act as Directors even after their
disqualification. There is no suggestion that they acted dishonestly in
passing the resolutions of allotment and making the calls. It seems that
they acted bona fide, oblivious of the fact of their disqualification.
There is no evidence of the fact of their disqualification having ever
been brought to their minds. The language of Article 181 fully protects
their actions. Had it been a case of only one or two Directors
continuing to act as such despite the disqualification, I would have had
no hesitation in forming the conclusion that I have. Here we have to
deal with a large number of Directors acting as such despite the
qualification. But there is no other circumstance f com which it can be
said that they were conscious of the fact of their disqualification and
yet continued to act as Directors So I come to the conclusion, though
not without some hesitation, that the acts of allotting the shares to the
opposite parties and making the first and second calls were valid."
The above observations of the Court itself would make it clear that the said
decision is not relevant in the present case.
51. The next decision as relied on behalf of the petitioner is the decision
of the learned Single Judge of this Court in Vithal Nagar Co-operative
Housing Society Ltd. vs. Divisional Joint Registrar, CS, Mumbai Division
and others (supra). This was a case where the elected members having
achieved disqualification by non-submission of the mandatory bonds as per
the provisions of Section 73(1AB) of the MCS Act, was an issue for
consideration. However, it appears that number of illegal acts were
performed by such members being the members of the Managing
Committee. It is in such context, in considering the issue of delay and
latches, the learned Single Judge observed that there would be no quarrel on
the issue that the provisions contained in Section 73(1AB) of the MCS Act
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are mandatory and that the consequence of not executing the Bonds within
the prescribed period of 15 days of assuming office would result in vacation
of the office by the members of the Managing Committee by operation of
law. It was observed that this has also been held so, even by two Division
Benches of this Court. It is in such context, the Court made the following
observations:-
"There can be no quarrel on the issue that the provisions contained in
Section 73(1AB) of MCS Act are mandatory and that the consequence
of not executing the Bonds within the prescribed period of 15 days of
assuming office would result in vacation of the office by the members
of the Managing Committee by operation of law. This has been held
so, even by two Division Benches of this Court as indicated earlier.
Primafacie though, I find it hard to accept that because the members
of a Managing Committee of a Society did not execute the M-20
Bonds within the prescribed period, until an Administrator is
appointed under Section 78 of the MCS Act who would hold elections
of the Managing Committee, all the actions and decisions taken by the
Society during the interregnum through subsequent Managing
Committee would be set at naught for all times to come, on account of
lack of competence, which period in a given case may even be decades.
That, in my prima facie view would be an extreme proposition and
would not be in sync with the cooperative movement. In any case, this
issue is an important issue that needs to be determined in an
appropriate case after a proper debate and certain parameters may be
required to be laid down after construing section 77 of the MCS Act
and I do not deem it appropriate to express any final opinion on this
aspect in the present case where the issue is somewhat diluted as the
Petitioner-Society has agreed to go in for a fresh election of the
Managing Committee. None of the judgments cited before me
specifically deal with the issue of delay and latches read in conjunction
with section 77 of the MCS Act."
52. It is thus clear that these are mere observations and not the final
decision of the Court, as the Court itself had left the situation to be
determined in an appropriate case. Even otherwise the said observations as
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made by the Court would not assist the petitioner in view of the clear
mandate as laid down by this Court in Assissi CHS Ltd. vs. State of
Maharashtra & Ors. (supra) and Gulab Rameshnath Khote vs. State of
Maharashtra & Ors. (supra) and the other decisions as noted above.
53. It is also difficult to accept the contention as urged on behalf of the
petitioner that although the elected members of the Managing Committee
having cased to be members of the Managing Committee by operation of
law, namely by the provisions of Section 73(1AB), nonetheless their act of
executing the Development Agreement would amount to matter touching
the business of the society. In such context, the reliance on behalf of the
petitioner to submit that Section 77 would have an application in the
present facts as such action on the part of the members would amount to
an action in good faith in relation to the business of the society, is not an
acceptable proposition, even relying on the decision of the learned Single
Judge in Suprabhat Co-operative Housing Society Ltd. and another vs. Span
Builders and another15. Moreover, the facts of the said case are totally
inapplicable to the facts of the present case, in as much as what was
impugned before the Court in the said case, was an order passed by the
learned Single Judge, Senior Division, who had dismissed the application
filed on behalf of the applicants therein praying that the plaint be rejected
15 2002(3) Mh.L.J. 837
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under the provisions contained in Order 7, Rule 11(d) of the Code of Civil
Procedure, 1908, on the ground that notices prior to the institution of the
suit under Section 164 of the MCS Act had not been given.
54. In the light of the above discussion, the arbitral tribunal has correctly
applied the mandate of Section 73(1AB) of the MCS Act to hold that the
members of the Managing Committee, who executed the Development
Agreement dated 13 September, 2002, had no authority to execute the said
agreement, hence, such a document, being the only subject matter for
consideration, would not confer any right on the petitioner to enforce any
arbitration against the society. The arbitral tribunal has appropriately
exercised its jurisdiction under Section 16 of the Act.
55. Resultantly, the petition is without merit. It is accordingly dismissed.
No costs.
G. S. KULKARNI, J.
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