R.P.Keshari vs Central Registrar Of Cooperative ...
2011 Latest Caselaw 4708 Del

        *             IN THE HIGH COURT OF DELHI AT NEW DELHI


                                               Reserved on : 29.08.2011
        %                                   Date of decision : 23.09.2011


        +                         WP (C) No.429/2011


        R.P.KESHARI                     ...       ...       ...       ...PETITIONER


                     Through :          Mr.Sandeep Sethi, Sr.Adv. with
                                        Mr.Bharat Gupta, Mr.Rahul Mittal &
                                        Mr.Varun Tyagi, Advocates.


                                        -VERSUS-


        CENTRAL REGISTRAR OF COOPERATIVE SOCIETIES & ANR.

                                                ...             RESPONDENTS

                   Through :            Ms.Sweety Manchanda, Adv. for R-
                                        1.

                                        Ms.Deepti Dogra, Adv. for R-2.


        CORAM:
        HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
        HON‟BLE MS. JUSTICE RAJIV SHAKDHER


        Whether the Reporters of local papers
        may be allowed to see the judgment?                             YES

        To be referred to Reporter or not?                              YES

        Whether the judgment should be                                  YES
        reported in the Digest?


        SANJAY KISHAN KAUL, J.

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1. The petitioner, an erstwhile consultant of National

Agricultural Cooperative Marketing Federation of

India Limited (NAFED)/R-2, in the present writ

petition filed under Article 226 of the Constitution of

India seeks to impugn the show cause notice dated

15.07.2010 issued by R-1.

2. The petitioner was appointed as a consultant by R-2

for rendering consultancy services in connection

with the tie up business of the said respondent on a

monthly lump sum remuneration of Rs.15,000/- with

other perquisites as per letter dated 22.07.2005

initially for a period of three months and continued

till 30.04.2008 when he ceased to be the

consultant. The nature of work of the petitioner, as

contained in the letter dated 22.07.2005, is as

under:

"1. He will render consultancy services in connection with the work relating to tie up business viz. commodity financing, collateral security services, risk coverage measures, client rating, analysis of balance sheets of the clients and possibility of structured financing if the client is relatively new in the field, formatting of necessary agreements etc. He may be assigned any other duties relating to Tie up work from time to time as may be deemed fit by the competent authority."

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3. The petitioner had been employed with R-2 as an

Additional Managing Director and retired from

service on 28.02.1998. It is after a lapse of more

than 7 years that the services of the petitioner were

sought to be deployed in respect of the tie up

business which was stated to be already in

existence since the year 2003-2004.

4. It is the say of the petitioner that as a consultant he

had no administrative business or financial powers

to take any decisions in respect of the business of

R-2 and in support of this fact has relied upon an

office order dated 24.06.2002 which records the

decisions of the Board of Directors of R-2 in its

meeting held on 07.06.2002 setting out the

guidelines/rules relating to engaging consultants in

NAFED/R-2. In para 6 of this office order, the powers

of consultants have been specified. The same para

reads as under:

"6. Powers of the Consultants

Since Consultants/Experts are to be engaged on short-term contract basis, they will not be delegated with any financial/administrative powers."

5. The petitioner claims that the Managing Director of

R-2 vide an order dated 04.01.2006 gave additional

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responsibility to the petitioner to handle the legal

cases in the period when the petitioner was working

as a consultant when M/s Disha Impex Private

Limited, with whom a memorandum of

understanding had been entered into on

10.03.2004, gave additional security to the tune of

Rs.12.29 crores by way of post dated cheques.

There was a default in the refund of the advance

amount and the cheques bounced. The petitioner

advised R-2 to initiate legal action not only for

dishonoured cheques but also for initiation of

arbitration proceedings. These steps are stated to

have been taken. However, the petitioner was

alleged to be responsible for causing deficiencies to

the assets of R-2 to the tune of Rs.8.92 crores as on

31.03.2010. It is the say of the petitioner that the

agreement with M/s Disha Impex Private Limited

was entered into even prior to the petitioner being

appointed as consultant and substantial funds were

released prior to his appointment. In any case, the

petitioner denies any role in connection with the

funding for which requests were made to R-2 by M/s

Disha Impex Private Limited. The petitioner claims

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that the basis of the show cause notice is an

internal note penned down by him as a consultant

on 20.07.2005, which is as under:

"A view has been taken to discourage providing of finance for non-agro items and to implement this view in phased manner."

6. The petitioner had written to the committee which

was authorized in this behalf to take a final view in

the matter of which the petitioner was not a

member. The matter was placed before a tie up

committee appointed by the competent authority

and in its meeting held on 20.07.2005, which was

attended by the petitioner in the capacity of a

consultant, the decision was taken.

7. The Central Registrar of Cooperative Societies/R-1

appointed two Inquiry Committees over a period of

time under Section 83(1) of The Multi-State Co-

operative Societies Act, 2002 („the said Act‟ for

short). The said provision reads as under:

"83. Repayment, etc. - 1) If in the course of an audit, inquiry, inspection or the winding up of a multi-State co-operative society, it is found that any person, who is or was entrusted with the organization or management of such society or who is or has at any time been an officer or an employee of the society, has made any payment contrary to this Act, or by bye-laws or has

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caused any deficiency in the assets of the society by breach of trust or willful negligence or has misappropriated or fraudulent retained any money or other property belonging to such society, the Central Registrar may, of his own motion or on the application of the board, liquidator or any creditor inquire himself or direct any person authorized by him, by an order in writing in this behalf, to inquire into the conduct of such person within a period of two years from the date of the order of winding up, as the case may be:

Provided that where the Central Registrar is satisfied that such inquiry could not be commenced during the period of two years aforesaid on account of fraud or concealment of facts, he may make or direct the inquiry to be made within such period not exceeding six years from the date of the report of the audit, inspection or inquiry or the date of the order of winding up, as he thinks fit.

2) Where an inquiry is made under sub-section (1), the Central Registrar may, after giving the person concerned a reasonable opportunity of being heard, make an order requiring him to repay to restore the money or property or any part thereof, with interest at such rate, or to pay contribution and costs or compensation to such extent, as the Central Registrar may consider just and equitable."

(emphasis supplied)

8. The first Inquiry Committee was constituted on

30.01.2008 to enquire into the conduct of the

members of the Board of Directors, the Committee,

Executive Committee and the then Chairman,

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Managing Director, Additional Managing Director

and officers of R-2/NAFED for causing losses to R-

2/NAFED. The second Inquiry Committee was set up

on 24.02.2009 to enquire into the conduct of the

members of the Board of Directors of R-2/NAFED

and its officers with regard to 13 cases. The second

Inquiry Committee inter alia found the Chairman

and officers being negligent and imprudent in their

acts and omissions while sanctioning the loan

amount to the parties and post loan monitoring.

The petitioner claims that he has never been given

an opportunity to represent his case before the

Inquiry Committee and the finding, if any, arrived at

is without any hearing being granted to the

petitioner. It is on the basis of the finding of the

Inquiry Committees that the show cause notice

dated 15.07.2010 under Section 83(2) of the said

Act has been issued to the petitioner. The relevant

para 13 of the said notice reads as under:

"And whereas the Inquiry Committee has also named the officers of NAFED and indicated members of Business Committee responsible for causing deficiency in the assets of NAFED to the tune of Rs.1602.37 crores. On the basis of the findings of the first Inquiry Committee, it is, therefore, justified to issue notice to all the members

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and local Directors of the Business Committee who were present and were party to the decisions taken for approval of tie-up business in its meetings in the years 2003-04 and 2004-05. It is also justified to issue notice to all the officers including the Consultants and Advisors found responsible by the Inquiry Committee for causing deficiency in the assets of NAFED."

9. The notice called upon the petitioner to show cause

within eight weeks from the date of the issue of the

notice why the petitioner should not be held

responsible for causing deficiency in the assets of

R-2/NAFED by breach of trust and wilful negligence

to the tune of Rs.8.92 cores jointly and severally

and why he may not be required to repay to restore

the money or part thereof with interest as may be

found just and equitable. The petitioner seeks to

challenge the show cause notice on the following

grounds:

i) The show cause notice is only in respect of

the losses caused on account of the decisions

taken consequent to approval of tie-up

business and in its meetings held in the year

2003-04 and 2004-05 when the petitioner was

not even in the picture as the petitioner was

appointed only on 22.07.2005.

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ii) The petitioner was paid a lump sum

remuneration of Rs.15,000/- per month as a

consultant and such engaging consultants are

to be appointed in R-2/NAFED on a short term

basis and are not to be delegated any

financial/administrative powers as specified in

the office order dated 24.06.2002.

iii) In view of the aforesaid facts and taking into

consideration the provisions of Section 83

read with Section 3(t) of the said Act, the

show cause notice is completely without

jurisdiction.

iv) The findings of the Inquiry Committee are in

violation of principles of natural justice as the

petitioner was never given an opportunity to

explain his stand.

v) The disbursements to M/s Disha Impex Private

Limited were much prior to the appointment

of the petitioner as a consultant with R-

2/NAFED.

vi) The petitioner had submitted a reply to the

show cause notice dated 15.07.2010 inter alia

raising the plea of maintainability of the show

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cause notice, but instead of deciding that

question, the R-1 has proceeded with the

merits of the case.

10. We are conscious of the fact that only a show

cause notice has been issued to the petitioner to

which he has responded and no adverse orders

have been passed as yet. Thus, insofar as the

aforesaid pleas of merits are concerned, the

present stage would not be the appropriate stage to

examine the same as no order has been passed by

R-1. The question of violation of principles of natural

justice would also not arise as post the inquiry, the

petitioner has been issued the show cause notice to

which he has responded. Thus, the only plea which

is really required to be examined is as set out in the

third plea relating to the aspect of the notice being

without jurisdiction in view of the provisions of the

said Act.

11. Learned senior counsel for the petitioner thus

contended that if the provisions of Section 83 of the

said Act are scrutinized closely, the inquiry against

a person can take place only if that person is or was

entrusted with the organization or management of

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such society or who is or has at any time been an

officer or an employee of the society.

12. If any person who fits the bill has made any

payment contrary to the said Act or the bye-laws or

has caused any deficiency in the assets of the

Society by breach of trust or willful negligence or

has misappropriated or fraudulently retained any

money or other property belonging to the society,

an inquiry can be made into the conduct of such

person within a period of two years from the date of

the report of the audit. The expression „officer‟ has

been defined in Section 3(t) as under:

"3. Definitions - In this Act, unless the context otherwise requires, -

....

(t) "officer" means a president, vice- president, chairperson, vice chairperson, managing director, secretary, manager, member of a board, treasurer, liquidator, an administrator appointed under section 123 and includes any other person empowered under this Act or the rules or the bye-laws to give directions in regard to the business of a multi-State co-operative society;

13. Learned senior counsel for the petitioner thus

contended that the petitioner was not an officer

within the definition of Section 3(t) of the said Act.

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The petitioner was also not entrusted with the

organization or management of such Society being

a consultant and the rules/powers of a consultant

being defined under the office order dated

24.06.2002. In fact, such an officer is not to be

delegated any financial/administrative powers. It is

in view of the aforesaid that learned senior counsel

for the petitioner contended that the petitioner‟s

alleged conduct could not be called into question

under Section 83(1) of the said Act.

14. The response of R-1 is that the amounts in

respect of the tie-up business undertaken with M/s

Disha Impex Private Limited are still outstanding

and that the petitioner failed to exercise due

diligence and care in conduct of the tie-up business.

The petitioner ought to have considered whether

the proposal was according to the bye-laws of R-

2/NAFED and thus by recommending the proposal,

the petitioner failed to ascertain the financial

soundness of M/s Disha Impex Private Limited. The

loans, as per bye-law 3(A)(xix) of R-2/NAFED, could

have been advanced only to its members and other

cooperative institutions and M/s Disha Impex

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Private Limited did not fit in this category. The fact

that the petitioner attended the meeting of the tie-

up committee and signed the minutes have been

held against the petitioner as they amounted to

taking an active part in the decision making

process. Copies of the minutes of the meeting of

the tie up committee held on 20.07.2005 have been

filed which are signed by the petitioner albeit in the

capacity as a consultant. The second affidavit

affirmed on 02.08.2011 filed by R-1 states that in a

particular case of M/s Disha Impex Private Limited,

the file was examined by the petitioner on

27.07.2005 when he recommended further finance

contrary to the bye-laws of R-2/NAFED over-ruling

the junior officers who recommended against

financing of M/s Disha Impex Private Limited. In

addition to the petitioner, all the

officers/consultants and nine members of the then

business committee of R-2 have been served with a

show cause notice. The fact that the notice

referred to business for the period 2003-04 and

2004-05 is not disputed, but the role of the

petitioner arising from his recommendation dated

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27.07.2005 is stated to be the cause of the show

cause notice.

15. R-2/NAFED admits that the petitioner

remained only a consultant from 22.07.2005 to

30.04.2008, but is stated to have exceeded his

jurisdiction in re-commending the release of funds

to M/s Disha Impex Private Limited.

16. We may note that if it was the note of the

petitioner as a consultant made on 20.07.2005

which was called into question, it is not understood

as to how in para 13 of the show cause notice,

cause for the same was specified to be the approval

of tie-up business in its meetings in the year 2003-

04 and 2004-05. If the period of 2005-06 had been

called into question, the note of the petitioner

would be material.

17. Be that as it may, as set out aforesaid, we are

not examining the merits of the controversy as it

would not be appropriate keeping in mind that the

stage is one of show cause notice. Thus, we are

only examining the issue as to whether the

petitioner falls within Section 83(1) read with

Section 3(t) of the said Act.

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18. On a plain reading of Section 83(1) of the said

Act, we are of the view that the conduct of only a

person who is or was entrusted with the

organization or management of such society or who

is has at any time been an officer or an employee of

the society, can be called into question. The office

order dated 24.06.2002 is not disputed by the

respondents and thus there is no doubt about the

fact that the consultant is not to be delegated any

financial/administrative powers. It is not even the

case of the respondents that contrary to the circular

any financial/administrative powers were, in fact,

delegated to the petitioner. The role of the

petitioner was to advise as a consultant and that

advise was then placed before the committee/board

for necessary approval. The role of the petitioner

was only advisory. It was always open to the

committee or the board to reject the advice of the

petitioner which was not binding. Thus a mere

advisory role without having the authority to take

decisions cannot make the petitioner a person who

is entrusted with the organization or management

of such society. The respondents have sought to

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place reliance on the fact that in the meeting of the

relevant tie-up committee dated 20.07.2005, the

petitioner was present. That is no doubt true but it

is obvious that he was present in the capacity as a

consultant and has signed in that capacity. It has

clearly been specified "Mr.R.P.Keshari, Consultant".

The signing of the minutes of the tie up committee

in the capacity of the consultant thus would not

vest the petitioner with any managerial authority

nor such an authority being delegated to the

petitioner is claimed by the respondents. The

petitioner thus clearly does not fall within the

definition of a person who is or was entrusted with

the organization or management of such society.

19. That brings us to the second part of the

clause (1) of Section 83 of the said Act i.e. "has any

time been an officer or employee of the society". As

to who is an officer is defined under Section 3(t) of

the said Act. The petitioner admittedly did not hold

any post at the relevant time. The respondents did

seek to contend that since the petitioner had held a

post of Additional Managing Director at an earlier

stage from which he demitted office on 28.02.1998,

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the expression "has at any time been an officer"

would cover him under the said provisions of

Section 83(1) of the said Act.

20. In our considered view, this is a

misconstruction of the provisions of Section 83(1) of

the said Act. The mere fact that a person has been

an officer at any past period of time cannot make

him liable unless that past period when he was

holding such a post is called into question. It is

nobody‟s case that when the petitioner was

functioning as an Additional Managing Director or at

any earlier stage of time, any conduct of the

petitioner was found wanting. The petitioner was,

in fact, engaged as a consultant after more than 7

years of his demitting office as an Additional

Managing Director. The role which has been called

into question is of petitioner as a consultant. The

role of consultant is not covered under the

provisions of Section 83(1) of the said Act.

21. We are thus of the view that the role of the

petitioner as a consultant was advisory in character

and cannot bring him within the purview of Section

83(1) of the said Act where only the conduct of a

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person who is entrusted with the organization or

management of the society or who is or has at any

time been an officer or employee of the society can

be enquired into. We, however, make it clear that

in the present case we are only concerned with the

show cause notice dated 15.07.2010 issued to the

petitioner and not with the show cause notices

which may be issued to other persons who fit the

bill under Section 83(1) of the said Act.

22. The impugned show cause notice dated

15.07.2011 issued to the petitioner is thus quashed

qua the petitioner and the rule is made absolute

leaving the parties to bear their own costs.

23. The writ petition is allowed in the aforesaid

terms.

SANJAY KISHAN KAUL, J.

SEPTEMBER 23, 2011 RAJIV SHAKDHER, J.

dm

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