Swaminarayan Coperative Bank Ltd vs State Of Gujarat
2022 Latest Caselaw 188 Guj

      C/SCA/11111/2016                                  ORDER DATED: 06/01/2022




             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

             R/SPECIAL CIVIL APPLICATION NO. 11111 of 2016
                                  With
          CIVIL APPLICATION (FOR FRESH NOTICE) NO. 1 of 2017
            In R/SPECIAL CIVIL APPLICATION NO. 11111 of 2016
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                   SWAMINARAYAN COPERATIVE BANK LTD.
                                 Versus
                      STATE OF GUJARAT & 10 other(s)
================================================================
Appearance:
DHIRAJLAL A THAKKER(8784) for the Petitioner(s) No. 1
HIMANSHU SUTHAR(8098) for the Petitioner(s) No. 1
MR DHAWAN JAYSWAL, ASST. GOVERNMENT PLEADER/PP(99) for the
Respondent(s) No. 1,2
MR BS PATEL, SENIOR ADVOCATE (602) for the Respondent(s) No.
10,11,4.1,6.1,7,8
MR CHIRAG B PATEL(3679) for the Respondent(s) No. 10,11,4.1,6.1,7,8
NOTICE NOT RECD BACK(3) for the Respondent(s) No. 5.1
NOTICE SERVED BY DS(5) for the Respondent(s) No. 1,2,3
NOTICE UNSERVED(8) for the Respondent(s) No. 9
================================================================

 CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                             Date : 06/01/2022
                              ORAL ORDER

Heard learned advocate Mr.Himanshu Suthar for the petitioner, learned Assistant Government Pleader Mr.Dhawan Jayswal for the respondent Nos.1 and 2 and learned Senior Advocate Mr.B.S. Patel assisted by learned advocate Mr.Chirag B. Patel for the respondent Nos.4 to 11.

2. By this petition under Article 227 of the Constitution of India, petitioner has challenged the order dated 2nd April, 2016 passed by the Deputy Secretary (Appeals), Agriculture and Cooperative Department, under Section 155 of the

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Gujarat Co-operative Societies Act, 1961 (for short "the Act of 1961").

3. It is the case of the petitioner Society, which is in liquidation, that the respondent Nos.4 to 11 were Ex-Directors and respondent Nos.4.1, 5.1 and 6.1 were the legal heirs of the Ex-Directors of the petitioner Society in liquidation are liable to pay the amount of interest reduced by the award of the Board of Nominees in lavad Suit on outstanding dues of the borrowers under section 93 of the Act of 1961.

3.1 The petitioner filed the Summary Suit Nos.758 of 2002 and 733 of 2003 before the Board of Nominees for recovery of the outstanding dues of two borrowers namely, Peter Plast Synthetic Pvt. Ltd. and Crist Polymers Pvt. Ltd. for recovery of Rs.1,45,82,321/- and Rs.2,04,01,152.40/- respectively.

3.2 The Board of Nominees passed an award under Section 96 of the Act of 1961 on deposit of Rs.1,14,72,964/- by Peter Plast Synthetic Pvt. Ltd. and on deposit of Rs.1,35,27,036/- by Crist Polymers Pvt. Ltd. by considering simple rate of interest at 12% per annum as both the borrowers were ready and willing to deposit the said amount immediately with the petitioner Society.

3.3             Thereafter,             it           appears          that             the





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respondent                No.2        -        Registrar,             Co-operative

Societies, passed an order dated 13th July, 2006 to initiate inquiry under Section 93 of the Act of 1961. The aforesaid order of inquiry was challenged by the respondent Nos.4 to 11 by preferring Revision Application No.137 of 2006 which was partly allowed by an order dated 21st April, 2004 and the case was remanded back to the Registrar for reconsideration on the ground that the Registrar did not verify as to whether there was any waiver in the principal amount or the amount of interest is reduced while accepting the award passed by the Board of Nominees by the respondent Nos.4 to 11. The Revisional Authority also observed that the Government has issued directions for granting relief in the interest under One Time Settlement Scheme.

3.4 The respondent No.2 thereafter, issued a show-cause notice dated 11th August, 2015 calling upon the respondent Nos. 4 to 11 to show cause as to why the proceedings under Section 93 of the Act of 1961 should not be initiated as there was waiver of about Rs.1,02,91,007.50/- in both the accounts of the borrowers, as per the award dated 2nd August, 2003 passed by the Board of Nominees in the meeting of the Board of Directors of the petitioner Society as the order passed by the Board of Nominees was accepted by passing a resolution to that effect.

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3.5 The respondent Nos. 4 to 11 filed their reply to the show-cause notice on 7th October, 2015 and 28th October, 2015 contending inter alia that action under Section 93 can be taken for any damages or negligence on the part of the Board of Directors of the Co-operative Societies. It was also pointed out that the Board of Nominees has passed the award under Section 96 of the Act of 1961 and therefore, the provisions of Section 93 cannot be invoked. It was also contended that in place of the Board of Directors, custodian was appointed and custodian has also accepted the amount deposited by both the borrowers and the accounts are approved in the General Body of the petitioner Society. The auditor of the petitioner Society has also approved the account. The Reserve Bank of India has also conducted inspection of the account for the year 2003-04 and no objection is raised and re-audit was also done for both the accounts and without considering the provisions of Sections 93 and 96 of the Act of 1961, the show-cause notice was issued.

3.6 However, the respondent No.2 without considering the contentions raised on behalf of the respondent Nos.4 to 11 passed the order dated 25th February, 2016 for conducting inquiry under

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Section 93 of the Act of 1961.

3.7 The respondent Nos.4 to 11 being aggrieved by the order dated 25th February, 2016 preferred Revision Application No.20 of 2016 before the Appellate Authority. The Appellate Authority by the impugned order dated 2nd April, 2016 allowed the Revision Application, quashing and setting aside the order dated 25th February, 2016 relying upon the decision of this Court in case of Sardar Khetivishyak Vividh Karyakari Sahakari Mandli Limited (In Liq.) v/s. Natverlal K. Shah1 on the ground that the provisions of Sections 93 and 96 are similar and once the amount is determined under Section 96 of the Act of 1961, proceedings cannot be initiated under Section 93 of the Act of 1961.

4. Learned advocate Mr.Suthar for the petitioner submitted that the respondent Nos.4 to 11 have waived an amount of more than Rs.1 Crore to be recovered from the borrowers and thereby they have committed breach of trust in relation to the

are liable and accountable for such waiver of the amount by accepting the award passed by the Board of Nominees in Summary Lavad Suit Nos.758 of 2002 and 733 of 2003.

4.1             It was submitted that the liquidator of

1    1979 (2) GLR 626





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the petitioner Society has made a report before the respondent No.2 Registrar and based upon such report the show-cause notice was issued and after giving an opportunity of hearing to the respondent Nos.4 to 11, the Registrar passed the detailed order on 25th February, 2016 and the Revisional Authority without considering the said order passed by the Registrar has quashed the same only on the ground that the provisions of Section 93 could not be invoked when there is an order passed under Section 96 of the Act of 1961. It was submitted that there was no order passed under Section 96 of the Act of 1961 against the respondent Nos.4 to 11 and therefore, the proceedings under Section 93 is rightly initiated for the loss caused to the petitioner Society for more than Rs.1 Crore by waiver of the amount to be recovered from the borrowers as the award passed by the Board of Nominees was not challenged by way of an appeal and was accepted by the Board of Nominees at the relevant point of time by passing a resolution.

4.2 It was therefore, submitted by learned advocate Mr. Suthar that reliance placed by the Revisional Authority upon the decision of this Court in case of Sardar Khetivishyak Vividh Karyakari Sahakari Mandli Limited (In Liq.) (Supra) is not applicable in the facts of the case.

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4.3 Learned advocate Mr.Suthar also referred to the Additional Affidavit filed on behalf of the petitioner to point out that the proceedings under Section 93 are initiated considering the report of the liquidator submitted before the respondent No.2 on 19th August, 2014 and 13th April, 2015 as referred to in the order dated 25th February, 2015 passed by the respondent No.2.

4.4             It        was     also     pointed             out      that          this
petition            is     filed      by     the          liquidator           of        the

petitioner Society as per the orders passed by the respondent No.2 on 19th April, 2016 and 25th February, 2016 to challenge the order passed by the Revisional Authority in exercise of the powers under Section 110 of the Act of 1961.

4.5 Learned advocate Mr.Suthar also relied upon the decision of this Court in case of Ishwarbhai Narottambhai Patel vs. K.H. Trivedi and Ors.2 to submit that where the recovery of a lawful claim by the Society is waived or condoned by the Managing Committee, Section 93 of the Act of 1961 can be resorted to recover such amount which is waived by the Managing Committee of the Society. It was therefore, submitted that the proceedings under Section 93 of the Act of 1961 has rightly been initiated by the respondent No.2, so as to assess the damages caused by the respondent Nos.4 to 11 by accepting the award

2 2003 (1) GLR 537

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passed by the Board of Nominees under Section 96 of the Act of 1961 and not challenging the same by preferring an appeal before the Tribunal.

5. On the other hand, learned Senior Advocate Mr. B.S. Patel assisted by learned advocate Mr. Chirag Patel appearing for the respondent Nos.4 to 11 submitted that the Revisional Authority has rightly quashed and set aside the order dated 25th February, 2016 passed by the respondent No.2, appointing the Inquiry Officer under Section 93 of the Act of 1961 in view of the decision of this Court in case of Sardar Khetvishyak Vividh Karyakari Sahakari Mandli Limited (In Liq.) (Supra), wherein, it is held that, once the proceedings under Section 93 of the Act of 1961 are initiated, parallel proceedings under Section 96 cannot be initiated as proceedings under Sections 93 and 96 for all practical purpose are parallel proceedings, and hence, proceedings under Sections 93 and 96 are mutually exclusive in the sense that in the judicial proceedings, earlier finding would operate as res judicata.

5.1 It was submitted that as the Board of Nominees has already passed the award under Section 96 of the Act of 1961, the respondent No.2 could not have initiated proceedings under Section 93 to recover the reduced amount of interest from the respondent Nos.4 to 11, as there is finality achieved by the award passed by

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the Board of Nominees, and only because the respondent Nos.4 to 11 have accepted the award, it would not amount to any negligence or misfeasance on the part of the respondent Nos.4 to 11 for not preferring an appeal as the respondent Nos.4 to 11, while discharging their duties as the Board of Directors, at the relevant point of time, have taken the decision in the interest of the petitioner Society as the borrowers have deposited the amount of more than Rs.3 Crore with the Bank on the same day on which the award was passed by the Board of Nominees on 2nd August, 2003.

5.2 Learned Senior Advocate Mr. Patel therefore, submitted that the Revisional Authority has rightly come to the conclusion that the Board of Directors have not waived any amount personally and only the award passed by the Board of Nominees is accepted in the meeting by the Board of Directors by passing a resolution and as held by this Court in case of Sardar Khetvishyak Vividh Karyakari Sahakari Mandli Limited (In Liq.) (Supra) that provisions of Sections 93 and 96 are mutually exclusive and therefore, once there is an award passed by the Board of Nominees, the Revisional Authority has rightly allowed the revision application.

5.3 With regard to the decision relied upon on behalf of the petitioner Society in case of

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Ishwarbhai Narottambhai Patel (Supra), it was submitted that the facts of the said case are different as in the said case the Managing Committee of the Society paid additional amount of Rs.23,41,000/- in addition to the amount of Rs.13,74,000/-, which was agreed to be paid for the supply of certain machineries for the Sugar Factory and contract on turn-key basis was granted and pursuant to such payment, inquiry under Section 93 of the Act of 1961 was ordered by the Director of the Sugar, Gandhinagar. It was therefore, submitted that in the facts of the case when there is an award passed by the Board of Nominees under Section 96 of the Act of 1961, proceedings under Section 93 could not have been initiated.

6. Having heard the learned advocates for the respective parties, it appears that the proceedings under Section 93 of the Act of 1961 are initiated by the respondent No.2 only on the ground that the respondent Nos.4 to 11 at the relevant point of time accepted the award passed by the Board of Nominees and did not challenge the same by passing a resolution in the meeting held on 2nd August, 2003, and thereby, there was a waiver of about Rs.1,02,91,010/- on paper.

6.1 Section 93 of the Act of 1961 reads as under :

"Section 93 :- Power of Registrar to assess damages

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against delinquent promoters, etc.

(1) Where, in the course of or as a result of at audit under section 84, or an inquiry raider section 86 or an inspection under section 87, or the winding up of a society, the Registrar is satisfied on the basis of the report made by the auditor or the person authorised to make inquiry under section 86, or the person authorised to inspect the books under section 87, or the Liquidator under section 110 that any person, who has taken any part in the organisation or management of the society or any deceased, or past or present officer of the society has, within a period of five years prior to the date of such audit, inquiry, inspection or order for winding up, misapplied or retained, or become liable or accountable for, any money or property of the society, or has been guilty of misfeasance or breach of trust in relation to the society, the Registrar or a person authorised by him in that behalf may investigate the conduct of such person or persons and after framing charges against such person or persons, and after giving a reasonable opportunity to the person concerned and in the case of a deceased person to his representative who inherits his estate, to answer the charges, make an order requiring him to repay or restore the money or property or any part thereof, with interest at such rate as the Registrar or the person authorised under this section may determine, or to contribute such sum to the assets of the society by way of compensation in regard to the misapplication, retention, misfeasance or breach of trust, as he may determine.

(2) The Registrar or the person authorised under sub-section (1) in making any order under this section, may provide therein for the payment of the costs or any part thereof of such investigation, as he thinks just, and he may direct that such costs or any part thereof shall be recovered from the person against whom the order has been issued.

(3) This section shall apply, notwithstanding that the act is one for which the person concerned may be criminally responsible."

6.2 On perusal of the above provisions of

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Section 93, it is crystal clear that the Registrar can initiate the proceedings of inquiry to investigate the conduct of the person with regard to misapplication of the funds of the Society for holding them liable or accountable for any money or property of the Society or guilty of misfeasance or breach of trust in relation to the Society and after giving an opportunity of hearing to such persons and after framing charges against them, pass an order requiring them to repay or restore the money or property or any part thereof at such interest to the assets of the Society by way of compensation in regard to the misapplication, retention, misfeasance or breach of trust as may be determined.

6.3 In the facts of the case, the Board of Nominees passed the award under Section 96 of the Act of 1961 against two borrowers of the petitioner Society by reducing the rate of interest to simple rate of interest @ 12% per annum, thereby, there was reduction in the interest amount payable by the borrowers as the borrowers were ready and willing to deposit the principal amount with simple interest @ 12% per annum immediately. The award passed by the Board of Nominees was accepted by the Board of Directors of the petitioner Society considering the financial condition of the petitioner society as stated before the respondent No.2 in the reply

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that there was only Rs.27 Lakh available with the petitioner Society at the relevant point of time on 2nd August, 2003 and the borrowers have deposited more than Rs.2,50,00,000/- immediately, and therefore, in the interest of the Society, it was decided by the Board of Directors not to challenge the award passed by the Board of Nominees.

6.4 It also emerges from the order dated 25th February, 2016 that the accounts of the petitioner Society were audited for the year 2003-04 and no remarks were placed by the auditor and such accounts were accepted in the General Body of the petitioner Society.

6.5 This Court in case of Sardar Khetvishyak Vividh Karyakari Sahakari Mandli Limited (In Liq.) (Supra) while considering the question of applicability of Section 93 vis-a-vis Section 96 of the Act of 1961 has held as under :

"2. It is, therefore, evident that the proceedings under sec. 93 are judicial proceedings. Once the proceedings under sec. 93 of the Act are initiated and concluded, the parallel proceedings under sec.

96 of the Gujarat Co-operative Societies Act cannot be initiated and proceeded with. Though the proceedings under sec. 93 of the Act are initiated by the Registrar, and the proceedings under sec. 96 can be initiated by the Co. Operative Society itself, they are for all practical purposes parallel proceedings and the judgment given earlier in one proceedings would bar the second proceedings. The Legislature that had enacted sec. 93 and sec. 96 of

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the Act cannot be credited with a view that it permitted two parallel proceedings even by risking the two conflicting judgments. It is, therefore, inevitable to hold that the proceedings under sec. 93 and those under sec. 96 are mutually exclusive in the sense that even in the judicial proceedings earlier, the said finding would operate as res judicata in respect of the very subject matter. In both these proceedings, the concerned Co.operative Society by necessity is presumed to be a party because the proceedings the proceedings under sec. 93 of the Act cannot be conceivably conducted without the Society being there in full cooperation of the Investigation Officer appointed under sec. 93 of the Act.

3. In the view that I have taken, I am analogically supported by the judgment of the Madras High Court in the case of V. Sundaram Iyer v. Deputy Registrar of Co-operative Societies, reported in AIR 1957 Madras, page 634. Sec. 49 and 51 of the Madras Co- operative Societies Act were under scrutiny. The Madras High Court in that connection has observed as follows:

"In case where the provisions of sec. 49 are inapplicable, it is clear that recourse could be had to sec. 51 and the procedure there contained would alone be applicable. But in cases falling within sec. 49 where (1) sec. 51 has no applicable and (2) cases where a matter falls both within Secs. 49 and 51, the normal rule of construction would be that the two provisions are not intended to operate on parallel lines, leaving open to the Registrar or the departmental authorities to choose to act under either provisions in his or their unfettered discretion. But that sec. 51 which exclude the jurisdiction of the Civil Court, will be strictly constructed, and that in cases where sec. 49 is applicable, sec. 51 would for that reason be excluded."

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6.6 The aforesaid judgment is also referred to by this Court in the case of Ishwarbhai Narottambhai Patel (Supra), wherein, it is held a under :

"17. This takes me to the examination of the contention raised by Mr. Patel with regard to the simultaneous remedies under Sections 96 and 93 of the Act. The perusal of Section 96 read with Section 97 of the Act shows that if the society has to recover any amount by way of claim, then it is upon to the society to resort to the proceedings under Section 96 of the Act. If there is any admitted debt or claim to be recovered by the society from the office-bearers of the society, then possibly Section 96 can also be resorted to. In a matter where the office-bearers of the society have set all the claim unauthorisedly or for there being no authority, then the only proceedings competent is under Section 93 and not under Section 96. Proceedings under Section 93 can also be resorted to in a matter where the society can rather not recover the money on account of the conduct of its own office-bearers, and therefore, Section 93 would apply in the cases including where (1) when the fund is misapplied (2) is written off (3) any liability or accountability has arisen in the money or the property of the society (4) or any office-bearers for guilty of misfeasance or breach of the trust in relation to the society. Therefore, applicability of Section 93 is in a larger field than the proceedings which may be initiated under Section 96 of the Act. It may be that if the amount is already ordered to be recovered under Section 96 of the Act, the Registrar may not initiate the proceedings under Section 93 but thereby it does not mean that the effect of proceedings under Section 93 is to be treated only at par with the proceedings under Section 96 of the Act. In case of "Sardar Kheti Vishayak Vividh Karyakari Sahakari Mandli Ltd. v. Natverlat K. Shah and Ors." reported in 1979 (2) GLR 626 this Court has observed at Para 10, relevant portion of which

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is reproduced below :

"10. It is, therefore, evident that the proceedings under Section 93 are judicial proceedings. Once, the proceedings under Section 93 of the Act are initiated and concluded, the parallel proceedings under Section 96 of the Gujarat Co-operative Societies Act cannot be initiated and proceeded with. Though, the proceedings under Section 93 of the Act are initiated by the Registrar and the proceedings under Section 96 can be initiated by the Co-operative Society itself, they are for all practical purposes parallel proceedings and the judgment given earlier in one proceedings would bar the second proceedings. The Legislature that has enacted Sections 93 and 96 of the Act cannot be credited with a view that it permitted two parallel proceedings even by risking the two conflicting judgments. It is, therefore, inevitable to hold that the proceedings under Section 93 and those under Section 96 are mutually exclusive in the sense that even in judicial proceedings earlier, the said finding would operate as a res judicata in respect of the very subject-matter."

18. Therefore, the proceedings under Sections 93 and 96 are mutually exclusive and the findings in any of the proceedings would operate as res judicata on the same subject-matter, whereas in the present case such is not the situation. In the present case, there are no Section 96 proceedings at all. Merely because the findings in either of the proceedings is treated as res judicata for the very subject-matter in the other proceedings, it cannot be said that the consequences under Section 93 and the consequences under Section 96 are the same, and it should meet with the same fate. The Rule 32(1)(a) reads as under:

"he is not in default in respect of any loan taken by him for such period as is specified in

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the bye-laws"

Clause (f) of the Rule 32 reads as under :

"no order is made against him under Section

93."

19. Therefore, when the legislature has consequently made provisions for not including the disqualification in a matter where the order is passed under Section 96 of the Act, this Court in exercising power under Articles 227 or 226 of the Constitution of India can neither substitute the wisdom of the legislature, nor can it be said that the order under Section 93 should not be read so as to attach a permanent disqualification to a person concerned for becoming member of the Managing Committee, which otherwise could not have been done if the proceedings under Section 96 were to be resorted to. In the present case, though there is no proceedings under Section 96 of the Act, the effect of the order under Section 93 of the Act qua the disqualification cannot be deleted or nullified when the legislature has specifically intended to attach the disqualification in respect to order passed under Section 93 only, and therefore, I cannot accept the submission made by Mr. Patel that since the society can also resort to the proceedings under Section 96, the order under Section 93 of the Act should not attach the Disqualification as provided under Rule 32 of the Rules."

7. In view of the above settled legal position, and more particularly, when there is nothing on

have misapplied the funds of the petitioner Society nor there was any finding with regard to misfeasance or breach of trust in relation to the Society and there is no liability and accountability which can be said to have been

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arisen in the money or the property of the Society, so as to initiate proceedings under Section 93 of the Act of 1961, merely because, no appeal is filed considering the interest of the Society, by the respondent nos.4 to 11 who were the members of the Board of Directors at the relevant point of time. Therefore, it cannot be said that the decision to not to prefer an appeal was for any personal gain of any of the members of the Board of directors so as to cause damage or misfeasance to the Society. The respondents have not come to the conclusion based upon any material on record in this regard and only conclusion is arrived at on the basis of not preferring an appeal against the order passed by the Board of Nominees under Section 96 of the Act of 1961.

7.1 In view of the foregoing reasons, the petition is devoid of any merits and is accordingly dismissed. Notice is discharged. No order as to costs.

8. In view of the disposal of the Special Civil Application, the civil application for fresh notice also stands disposed of accordingly.

(BHARGAV D. KARIA, J)

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