Gujarat High Court
Dilipbhai Nanjibhai Patel vs State Of Gujarat on 14 October, 2022
Bench: Bhargav D. Karia
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7842 of 2008
With
R/SPECIAL CIVIL APPLICATION NO. 7843 of 2008
With
R/SPECIAL CIVIL APPLICATION NO. 7844 of 2008
With
R/SPECIAL CIVIL APPLICATION NO. 7870 of 2008
With
R/SPECIAL CIVIL APPLICATION NO. 7892 of 2008
With
R/SPECIAL CIVIL APPLICATION NO. 9382 of 2008
With
R/SPECIAL CIVIL APPLICATION NO. 9383 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
==========================================================
DILIPBHAI NANJIBHAI PATEL & 1 other(s)
Versus
STATE OF GUJARAT & 2 other(s)
==========================================================
Appearance:
ADVOCATE NOTICE SERVED for the Petitioner(s) No. 2
MR SAURABH G AMIN, MR PS CHAMPANERI, MR MANAV MEHTA for the
Petitioners.
MR DHAWAN JAYSWAL,AGP for the Respondent(s) No. 1
MR TUSHAR MEHTA(472) for the Respondent(s) No. 3
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
MR VC VAGHELA(1720) for the Respondent(s) No. 3
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 14/10/2022
CAV JUDGMENT
1.Heard learned advocate Mr. Saurabh G. Amin
for petitioners in Special Civil Application
No. 7842 of 2008, learned Assistant
Government Pleader Mr. Dhawan Jayswal for
respondent Nos.1 & 2-State, learned advocate
Mr. V.C.Vaghela for respondent No.3, learned
advocate Mr. Manav Mehta for the petitioner
of Special Civil Application No. 7892 of 2008
and learned advocate Mr. P.S. Champaneri for
the petitioners of Special Civil Application
No. 7870 of 2008, 9382 of 2008 and 9383 of
2008.
2.By these petitions, the petitioners have
prayed for quashing and setting aside the
judgment and order dated 16.05.2008 passed by
the Gujarat State Cooperative Tribunal (For
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
short "the Tribunal") confirming the order
dated 28.06.2004 passed by respondent no.2
inquiry officer under section 93 of the
Gujarat Cooperative Societies Act, 1961 (For
short "the Act, 1961").
3.Section 93 of the Act, 1961 reads as under :
"93. Power of Registrar to assess
damages against delinquent,
promoters, etc. (1) "Where, in the
course of or as a result of an audit
under section 84, or an inspection
under sub-section (8) of section 84,
or an inquiry under section 86 or an
inspection under section 87 or
section 88, 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 sub-section (8) of
section 84, 87 or 88 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
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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 him 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."
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
4.By order dated 22.02.2022, this Court
observed as under :
"6.With regard to other Special
Civil Applications listed and tagged
along with Special Civil Application
No. 7842 of 2008 are concerned, in
Special Civil Application No. 7843
of 2008, advocate notice is unserved
whereas in Special Civil Application
No. 7844 of 2008, advocate notice is
served for the petitioner No.1 and
learned advocate Mr. Vimal Patel has
filed his vakalatnama for petitioner
No.2.
7.Learned advocate Mr. Manav Mehta
submitted that he has no
instructions to appear for the
petitioner so far as Special Civil
Application No. 7892 of 2008 is
concerned.
8.Learned advocate Mr. Champaneri
also has no instructions to appear
for the petitioners so far as
Special Civil Application Nos. 7870
of 2008, 9382 of 2008 and 9383 of
2008 are concerned.
9.It appears that these petitions
were heard earlier and were allowed
by the Co-ordinate Bench [Coram:
Hon'ble Mr. Justice Mohinder Pal, as
his Lordship was then] vide order
dated 29.09.2016. The respondent-
Bank challenged the order by
preferring Letters Patent Appeal No.
789 of 2017 and other allied
matters. The Division Bench [Coram:
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
Hon'ble Acting Chief Justice Anant
S. Dave and Hon'ble Mr. Justice
Biren Vaishnav] by order dated
22.04.2019 allowed the Letters
Patent Appeal and common oral
judgement dated 29.09.2016 was
ordered to be quashed and set aside
and these special Civil Applications
are restored to file to be decided
afresh by the Single Judge on merits
in light of the observations made in
the said order.
10. The Division Bench has observed
in the aforesaid order as under:
"9 Having perused the judgment
under challenge of the learned
Single Judge, what is evident is
that though such contention was
raised as is evident on reading
para 5 of the Page 8 of
judgment, the same was not
decided by the learned Single
Judge. The learned Single Judge,
solely considered the issue in
context of the case being
similar to those of the Mahesana
and the Kheralu Banks.
10. We are in agreement with the
submission of Mr.Vaghela that
there could not have been a
parity between cases of the
banks of Mahesana and Kheralu to
that of the appellant bank
inasmuch as in those cases, the
Inquiry Officer had exonerated
the respondent-Directors which
is not so in the case on hand.
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
11 Considering the aforesaid
arguments, we deem it fit to
remand the matters back to the
learned Single Judge for fresh
consideration, particularly to
examine the issue on hand in
context of the Circular of RBI
referred to hereinabove and in
view of the fact that though the
contention that the Circular was
not applicable to the appellant
was raised, the same was not
decided by the learned Single
Judge."
11. After remand of the matters by
the Division Bench, these matters
were listed before this Court from
time to time and lastly, on
20.01.2022. Learned advocates Mr.
Champaneri and Mr. Manav Mehta
sought time to contact the
respective petitioners and to take
instructions. However, today both
the learned advocates have submitted
that they have no instructions to
appear for the respective
petitioners after remand of the
case.
12. Considering the submissions made
by learned advocate Mr. Amin for the
petitioners of Special Civil
Application No. 7842 of 2008, I am
of the opinion that such submissions
would be applicable to the
petitioners of all other petitions
as the Gujarat State Cooperative
Tribunal has passed a common order
rejecting the appeals filed by all
the petitioners challenging the
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
common order passed by the
respondent-authority.
13. In such circumstances,
irrespective of the appearance of
the learned advocates for the
petitioners and considering the
submissions of learned advocate Mr.
Saurabh Amin applicable to all the
petitioners, in the interest of
justice, the matters are finally
heard as it pertains to the year
2008 as no prejudice would be caused
to the petitioners as sufficient
care is taken by learned advocate
Mr. Amin on facts as well as law
with regard to issues involved in
these matters."
5.In view of above order, this group of
petitions was heard finally.
6.The facts of all these petitions are similar
as the petitioners were either members of the
Executive Committee and/or Ex-Director of
respondent no.3- Baroda Central Cooperative
Bank Limited which is a society registered
under the provisions of the Act, 1961 and
respondent no.3 society is engaged in the
business of banking.
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
7.Since the surplus fund was available with
respondent no.3 and with a view to earn more
interest on surplus funds, it was decided to
invest such surplus fund of respondent no.3-
bank in various financial institutions/ Non
Banking Finance Companies including CRB
Capital Market Limited (For short "the said
company") as such institutions were granting
higher rate of interest.
8.The meeting of the Executive Committee was
held on 24.06.1996 whereby by Resolution
No.45 it was resolved to invest/deposit
surplus funds with other institutions/
companies by way of deposit. The decision of
the Executive Committee was approved by the
Board of Directors in the meeting held on
20.07.1997. Respondent no.3-bank made an
investment of Rs. 70 Crore with various
institutions and out of the said amount,
amount of Rs. 67 Crore was recovered except
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
an amount of Rs. 3 Crore deposited with the
said company.
9.Summary Suit No.4447/1997 was instituted on
behalf of the respondent no.3 by respondent
no.2 inquiry officer against the said company
and others for decree of Rs.3,53,04,148/- and
interest of Rs. 78,444/- before the City
Civil Court, Ahmedabad who passed the decree
dated 22.09.2000 for the amount claimed in
the suit.
10. Thereafter, the recovery proceedings
were also initiated against the said company
by filing the execution proceedings. The
proceedings under section 138 of the
Negotiable Instruments Act, 1881 were also
initiated against the said company in view of
dishonour of post-dated cheque issued by it
and complaint nos. 1753 to 1758 of 1997 were
filed against the said company and its
Directors.
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
11. Respondent no.3 issued a show cause
notice dated 11.10.1999 to the petitioners to
show cause as to why inquiry under section 93
of the Act, 1961 should not be initiated in
view of the audit report submitted by the
Special Auditor for the period from 1.04.1996
to 31.03.1998 in respect of loss caused to
respondent no.3 amounting to Rs.
3,53,04,148/- for the investment made in the
said company.
12. The petitioners filed reply to the show
cause notice. Respondent no.2 inquiry
officer, however, by order dated 28.06.2004
held the petitioners liable for the loss
suffered by respondent no.3 bank pursuant to
investment made in CRB Capital Market Limited
and claiming excess sitting fees, foreign
travel expenses or litigation expenses and
passed a separate order of recovery of
proportionate amount of loss of Rs.
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
3,05,12,260/- from each of the petitioner.
13. The petitioners being aggrieved by the
order passed by the inquiry officer under
section 93 of the Act, 1961 preferred appeals
before the Gujarat State Cooperative Tribunal
(For short "the Tribunal") being Appeal Nos.
587, 589, 595 and 611 of 2004.
14. It emerges from the record that the
Tribunal passed the interim orders directing
the petitioners to deposit amount as per the
order passed under section 93 of the Act,
1961 during the pendency of the appeal which
were challenged by the petitioners before
this Court and this Court granted stay
against the interim order passed by the
Tribunal and directed the Tribunal to hear
the appeals filed by the petitioners. As the
details of such interlocutory proceedings are
not relevant for the purpose of deciding
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
these petitions, the same is not dealt with
in detail.
15. The Tribunal thereafter heard the
appeals and by judgment and order dated
16.05.2008 dismissed the appeals filed by the
petitioners, confirming the order passed by
respondent no.2 fastening the liability upon
the petitioners under section 93 of the Act,
1961 for the loss suffered by respondent
no.3 bank by making investment in the said
company in the year 1996-1997 and on other
issues of foreign travel, litigation
expenses. etc.
16. This Court (Coram : Hon'ble Mr. Justice
Ravi R. Tripathi, As His Lordship was then)
by order dated 10.07.2008 admitted these
petitions and granted interim relief after
taking into consideration the peculiar facts
of the case which are set out in judgment and
order dated 16.03.2006 passed by the Division
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
Bench in Special Civil Application Nos.
15859,15862, 15863 of 2004 arising from the
interim orders of the Tribunal, more
particularly paragraph nos. 9 to 12 thereof,
by staying order dated 16.05.2008 passed by
the Tribunal as well as the order dated
28.06.2004 passed by respondent no.2 and
disqualification arising from liability under
section 93 of the Act, 1961.
17. Thereafter this Court (Coram : Hon'ble
Mr. Justice Mohinder Pal, As His Lordship was
then) by common judgment and order dated
29.9.2016 allowed these petitions. The
Division Bench however in Letters Patent
Appeal No. 789 of 2016 and other allied
matters considering the objections raised on
behalf of the respondent no.3 bank that the
contentions raised were not considered in
judgment and order dated 29.09.2016, remanded
the matters back again for fresh
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
consideration, particularly, to examine the
issue on hand in context of circular of RBI
referred to in the said order and to examine
whether such circular is applicable or not.
As observed in order dated 22.02.2022
reproduced here in above, these petitions are
finally heard on submissions made by learned
advocate Shri Saurabh G. Amin for the
petitioner in Special Civil Application
No.7842/2008 as facts in other petitions are
similar.
18. Learned advocate Mr. Amin submitted that
the petitioners who are Ex-Directors and/or
members of the Executive Committee of the
respondent no.3 bank have taken due care
before making investment of the surplus
reserve funds of respondent no.3 bank.
19. Learned advocate Mr. Amin invited the
attention of the Court to the averments made
in the petition in support of such
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
submission, more particularly, in paragraph
nos. 5 to 7 which reads as under :
"5. The rating credit symbol of the
said company was "AAA" and had a
good reputation and goodwill in the
market having immovable properties
in Metropolitan Cities like Delhi,
Mumbai, Bangalore, Hyderabad,
Ahmedabad and other places. The
Reserve Bank of India also gave a
Banking License to the said company.
The petitioner states that the
Reserve Bank of India issued
guidelines dated 23/11/1995 to all
the cooperative banks permitting to
deposit in 13 private sector Mutual
Funds which includes CRB Mutual Fund
Annexed hereto and marked as
ANNEXURE "C" is a copy of the letter
dated 23/11/1995. Even the Charity
Commissioner has issued a list
permitting investment /deposits in
various institutions which includes
the said company. An Office Order
bearing No.41/97 has also been
issued to that effect by the Charity
Commissioner. Annexed hereto and
marked as ANNEXURE "D" is a copy of
the list along with the office order
bearing No. 47 / 97.
6. The other institutions like
Gujarat Industrial Investment
Corporation, State Bank of India,
Bank of India, Bank of Baroda, Bank
of Rajasthan, Federal Bank, Karur
Vysaya Bank. Union Bank of India,
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
Bank of Tokyo, State Bank of
Travancore. United Western Bank,
Kheda Jilla Madhyasth Sahkari Bank,
Mehsana Central Cooperative Bank,
Dena Bank. Kenfin Home Ltd. and
other banks and societies have
invested and deposited money with
the said company. Even Mr.
Atmarambhai Patel who was President
of Mehsana District Madhyasth
Sahkari Bank and the then Cabinet
Minister with the Government of
Gujarat had also deposited the money
with the said company for short term
period.
7. Considering the overall
reputation and goodwill of the said
company, an amount of Rs.4 Crores
was deposited by way of inter-
corporate deposit for a short term
period of 91 days with the said
company. In lieu thereof the said
company vide letter dated 08/01/1997
allotted 26 Lakhs shares of R40 each
to respondent no.3 along with duly
signed transfer deeds and hoard
resolutions of the respective
holder. During the month of January
1997, the lowest and highest rate of
the share of the said company was
Rs.19.75 and Rs. 25.50 respectively.
In short in the month of January
1997 the value of the said shares
given to respondent no.2 was worth
Rs.54 Crores. Further six post dated
cheques were issued by the said
company for the amount inclusive of
interest which was payable on
maturity of the deposit. Annexed
hereto and marked as ANNEXURE "E" is
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a copy of letter dated 08/01/1997
along with the stock price of the
said company for the month of
January 1997. Thereafter in an
Annual General Meeting held on
30/09/1997 the deposit made was
approved vide Resolution No.2 passed
in the said meeting, a copy whereof
is annexed hereto and marked as
ANNEXURE "F"".
20. Referring to above facts which is not
denied by respondent no.3 bank, it was
submitted that respondent no.2 inquiry
officer as well as Tribunal misinterpreted
the provisions of section 93 of the Act, 1961
by fastening the liability upon the
petitioners though none of the ingredients
thereof is attracted in the facts of the
case.
21. It was submitted that reliance placed on
application of section 71 of the Act, 1961
read with bye-law no.6 of respondent no.3
bank is not applicable in the facts of the
case and no prior permission of the Registrar
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
was required at the relevant point of time
for making investment by the respondent no.3-
bank. Learned advocate Mr. Amin referred to
and relied upon section 71 of the Act, 1961
as it existed in 1996-1997 prior to amendment
which reads as under :
"71. Investments of funds.- (1) A
society may invest, or deposit its
fund,
(a) in a Central Bank, or the State
Co-operative Bank,
(b) in the State Bank of India,
(c) in the Postal Savings Bank,
(d) in any of the securities
specified in Section 20 of the
Indian Trusts Act, 1882 (II of
1882).
(e) in shares, or security bonds, or
debentures, issued by any other
society with limited liability, or
(f) in a Scheduled co-operative bank
as defined in clause (2) of Section
2 of the Reserve Bank of India Act,
1934 and having its registered
office within the State or in any
nationalised bank;
(g) in any land or building,
(i) where the money in a building
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fund established by a society is
sufficient for the purpose; or
(ii) where the money in such a fund
is insufficient for the purpose or
where a society has not established
such fund, with the previous
sanction of the Registrar:
Provided that the Registrar shall
endeavour to decide the question as
to previous sanction be given or
not, within ninety days of the
receipt of an application for such
sanction,
(g) in any corporation owned or
controlled by the Government of
Gujarat and other Scheduled Banks
not covered under clause (f), with
the prior approval of the State
Government subject to such terms and
conditions as may be prescribed in
this behalf:
Provided that in the case of the
State Co-operative Bank, the Central
Co-operative Banks and the Primary
Agricultural Credit Co-operative
Societies, the Reserve Bank of India
may issue further guidelines
restricting or enlarging the scope
of investment in any institutions
approved for the purpose under this
section.]
(2) Notwithstanding anything
contained in sub-section (1), the
Registrar may, with the approval of
the State Co-operative Council,
order a society or a class of
societies to invest any funds in a
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particular manner, or may impose
conditions regarding the mode of
investment of such funds."
22. Learned advocate Mr. Amin submitted that
on perusal of the section 71 only clause (g)
thereof would be applicable and for that
purpose Rule 29 of the Gujarat Cooperative
Societies Rules, 1965 (For short "the Rules")
is relevant which reads as under:
"29. Investment of Funds.- (1) With
the previous sanction of the
Registrar any society may invest its
funds or a portion thereof
[(a) [***]
(b) in loans raised by a local
authority in the State under the
authority of the Local Authorities
Loans Act, 1914 (IX of 1914).
(c) in the purchase or leasing of
land or buildings, and in the
construction of buildings:
Provided that the purchase of such
land or the construction of such
building is likely to be
advantageous to the society in the
conduct of its business,
(2) Notwithstanding anything
contained in sub-rule (1), an urban
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co-operative bank-
(a) which has a paid up share
capital of not less than Rs. 50,000,
and a reserve fund of not less than
Rs. 50,000.
(b) which has completed ten years
from the date of its registration,
and
(c) which is classed A or B at the
last audit made under Section 84,
may invest its surplus funds in such
shares or debentures of any company
registered under the Companies Act,
1956 as may be approved by the
Registrar."
23. It was therefore, submitted that
considering section 71 read with Rule 29, no
prior permission of the Registrar was
required and that the inquiry officer has
passed the order dated 28.06.2004 without any
basis.
24. Learned advocate Mr. Amin submitted that
respondent no.2 and Tribunal have committed
an error in holding the petitioners liable
under section 93 of the Act, 1961 inasmuch as
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in case of Mehasana District Central
Cooperative Bank Ltd. and Kheralu Nagrik
Sahkari Bank Ltd. on similar facts with
regard to investment made in CRB Capital
Market Limited by the said bank, a contrary
view is taken by the inquiry officer holding
that the Directors of the said banks were not
liable for any loss under section 93 of the
Act, 1961. It was pointed out that the
inquiry officer in case of both the banks
held that due care was taken by the Directors
and CRB Capital Market Limited was having A+
rating and was recognized by IDBI and RBI and
therefore, there was no question of any
misapplication or misfeasance by the
directors for investment made in the said
company. It was further pointed out from the
said order that GIIC which is a Government
company has also made investment in CRB
Capital Market Limited. The inquiry officer
in case of both the banks held that there was
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no need for prior permission of the Registrar
in view of provisions of section 17(1)(d) of
the Act, 1961 as the investment in the said
company can be considered as investment and
security under section 20 of the Indian Trust
Act, 1982. It was further held that it was
not mandatory for the said banks to take
permission under section 71 as the said
section refers to word "may" for investment
to be made by the cooperative society.
25. Referring to above orders which are
placed on record at Annexure-J of Special
Civil Application No.7842/2008, learned
advocate Mr. Amin submitted that respondent
no.2 inquiry officer in facts of the case has
taken a contradictory view.
26. It was further submitted that RBI has
also by letter dated 23.11.1995 addressed to
all Primary Cooperative Banks have permitted
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the investment with the said company by
considering it to be a safe investment. It
was therefore, submitted that the petitioners
have relied upon such letter of the RBI along
with other consideration of higher rate of
interest and investment made by other
financial institutions in the said company.
There was no intention on the part of the
petitioners to cause any loss to the
respondent no.3 bank.
27. It was submitted that the petitioners
have neither misapplied, retained the funds
of respondent no.3 bank nor have become
liable or accountable for such loss due to
misfeasance or breach of trust in relation to
the respondent no.3 bank. It was submitted
that respondent nos. 2 and 3 have therefore,
invoked the provisions of section 93 of the
Act, 1961 contrary to the facts and prima
facie evidence on record and the impugned
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order confirmed by the Tribunal are
therefore, liable to be quashed and set
aside.
28. In support of his submissions reliance
was placed on the decision of this Court in
case of Shankarbhai Devjibhai Patel and
others v. Sabarkantha Jilla Sahakari Kharid
Vechan Sangh Ltd. and others reported in 1984
GLH 498 to submit that the petitioners cannot
be held personally liable for the amount
invested by the society as there is nothing
on record to show that the petitioner have
committed any misfeasance or breach of trust
for any personal gain.
29. Reliance was placed on the decision in
case of Laxmidas Kurjibhai & Ors. v. District
Registrar & Ors. reported in 2002(3)GLH 773
wherein it is held by this Court in the facts
of the said case that when it was resolved in
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the meeting and approved by the general body
in its annual meeting to distribute certain
gifts to all the members of the society,
though such distribution was not in
consonance with the provisions of the Act,
1961, however, since no individual member
alone was benefited, such distribution was
not held to be mala fide and section 93 of
the Act, 1961 could not be invoked to make
the petitioner personally liable for the loss
suffered by the society. It was submitted
that in facts of the present case also, the
decision to make investment in the said
company was approved in the meeting of the
Executive Committee as well as the Board of
Directors and therefore, loss suffered by
respondent no.3 bank to the tune of Rs. 3
Crore out of total investment of Rs. 70 Crore
cannot be compensated by the petitioners as
the petitioners have not been benefited by
such investment made by respondent no.3 bank
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and therefore, section 93 of the Act, 1961
cannot be invoked to make the petitioners
personally liable for such loss suffered by
respondent no.3 bank.
30. It was further submitted that the
petitioners cannot be held liable for breach
of bye-law no.6 of respondent no.3 bank for
making investment by respondent no.3 bank as
it clearly provides for making investment as
per the provisions of section 71 of the Act,
1961 or as per section 20(e) of the Indian
Trust Act.
31. On the other hand, learned advocate Mr.
V.C. Vaghela appearing for respondent no.3
bank submitted that there is a clear
violation of the provisions of section 71 of
the Act, 1961 inasmuch as no prior permission
of the Registrar was obtained and therefore,
the inquiry officer has rightly held that in
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
absence of prior permission from the
Registrar, investment could not have been
made by respondent no.3 bank and as the
petitioners were at helm of affairs at the
relevant point of time in the year 1996-1997,
the petitioners have misapplied the funds of
the bank causing huge loss.
32. It was further submitted that reliance
placed by the petitioners upon the letter
issued by RBI is also not applicable for
investment made by respondent no.3 bank as
such letter was applicable to the Primary
Cooperative Banks whereas the petitioner is a
District Cooperative bank and such
instructions was not meant for respondent
no.3 bank.
33. It was submitted that loss was caused to
respondent no.3 bank due to negligence of the
petitioners and respondent no.3 bank also had
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
to incur the expenses for litigation for
recovery of such loss. It was further
submitted that the petitioners have
undertaken foreign travel without any
sanction and have also charged exorbitant
sitting fees and therefore, there is clear
violation of provisions of section 93 of the
Act, 1961.
34. Pursuant to the directions issued by
this Court respondent no.3 bank has filed
additional reply on 8.09.2016 to provide
information as to how much profit, bank had
earned on investment of Rs. 67 Crore in the
year 1996-1997. In the said affidavit,
deponent of the respondent no.3 bank has
stated on oath as under:
"2. It is submitted that as per the
records of the Bank the Bank has
invested about Rs.31 Crores in the
Loyds Finance Limited. It is
submitted that bank has invested
Rs.2 Crores in Mafatial Finance
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
Limited. About 4 Crores have been
invested in Mafatlal Industries
Limited. The bank has invested 14
Crores in Gujarat State Fertilizers
company limited. The Bank has
invested Rs. 1 Crores in Alembic
Chemicals works Limited. The Bank
has invested about 10 Crores in
Anagram Finance Limited. The Bank
has invested about 8 Crores in CRB
Capital Market Limtied. In CRB
Capital out of 8 crores 5 Crores
have been returned but 3 Crores and
its interest therein are not
returned. The Bank in the year 1996-
97 out of this investments have
earned interest income of Rs.271.60
Lakhs on 67 Crores. It is submitted
that therefore, in all the Bank has
earned Rs.271.60 Lakhs on the
investment of 67 Crores in the year
1996-97."
35. Considering the provisions of section 93
of the Act, 1961, Registrar of the
Cooperative Society has power to assess
damage against delinquent, promoters, etc. in
course of or as a result of an audit under
section 84 or an inquiry under section 86 or
an inspection under section 87, or winding up
of a society, if the Registrar is satisfied
on the basis of such report that any person
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
who has taken part in organization or
management of the society or any deceased or
past or present officers of the society has
within the period of five years prior to the
date of such report, misapplied or retained
or become liable or accountable for any
money, property of the society, or has been
guilty of misfeasance or breach of trust in
relation to society, then Registrar or person
authorized on his behalf, may investigate
conduct of such person or persons and after
framing charges against such person or
persons and after giving reasonable
opportunity to them, make an order requiring
such persons to repay or restore the money or
property or any part thereof with interest as
may be determined or to contribute such sum
to the assets of the society by way of
compensation with regard to the
misapplication, retention, misfeasance or
breach of trust as may be determined. In
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
facts of the case, respondent no.2 inquiry
officer has held the petitioners liable for
gross negligence for causing loss by
misapplying the funds of respondent no.3 bank
in CRB Capital Market Limited without
obtaining the prior permission of the
Registrar under section 71 of the Act, 1961
and on other grounds. It was held that due to
negligence and lack of due care by the
petitioners, respondent no.3 bank had to
suffer loss.
36. On perusal of section 71 of the Act,
1961 read with bye-law no.6 of the bye-laws
of respondent no.3 bank, it was held that the
petitioners have misapplied the funds of the
respondent no.3 bank without prior permission
of the Registrar causing loss of more than
Rs. 3 Crore and therefore, under the
provisions of section 93 of the Act, 1961
order was passed on 28.06.2004 for recovery
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
of proportionate amount of loss of Rs.
3,05,12,260/- from the petitioners/ex
directors as under :
Sr. Name and Special Civil Investment Expe Advocat Seating Seating Total amount Note/
No address of Application No. of Rs. 3 nses e Fees Fee of Fee of Rs. Mark
accused Crore in of and 1996-97 1997-98 3,05,12,260/-
C.R.B tour Court and and excess
outs Expense excess fund
ide . fund collected
Indi Rs. collected Rs.
a. 3,40,00 Rs. 22,350/-
Rs.1 0/- 24,910/-
,25,
000/
-
1 Shri Dilipbhai SCA 33,34,000/- 1,25 18,889/ 3,510/- 2925/- 34,84,324/-
Nanjibhai Patel No.7842/2008 ,000 -
Sudamapuri /-
Society
Manjalpur,Jain
Derasar road,
Vadodara-11
2 Shri Sureshbhai 33,34,000/- - 18,889/ 2950/- 3000/- 33,88,839/-
Jhaverbhai -
Patel
Mu.Bithili Tal. -
Sinhor Vadodara
3 Shri Vijaykumar 33,34,000/- - 18,889/ 1525/- 1650/- 33,56,064/-
Ramdas Patel -
Station road,
Mu.Naswadi, -
Vadodara
4 Advocate Shri 11,11,000/- - 18,889/ 525/- 600/- 11,31,014/-
Ashwinbhai -
Chitabhai Patel
B-27 Uma -
Society,
Mu.Dabhoi,
Vadodara
5 Shri Arvindbhai 11,11,000/- - 18,889/ 825/- 1050/- 11,31,764/-
Chitabhai Patel -
Mu.Kandari, -
Tal.Karjan,
Dist. Vadodara
6 Shri Dinsha SCA 11,11,000/- - 18,889/ 675/- 825/- 11,31,389/-
Nanubhai Patel NO.9382/2008 -
B/49 Indrapuri
Society, Harni
Road Vadodara
7 Shri SCA 11,11,000/- - 18,889/ 1325/- 1125/- 11,32,339/-
Vipinchandra NO.7870/2008 -
Ravjibhai Patel
A/12, Vallabh
Nagar society,
opposite Mental
hospital,
Karelibaug,
Vadodara
8 Shri Haribhai SCA 11,11,000/- - 18,889/ 1575/- 1800/- 11,33,264/-
Nathabhai Patel NO.7844/2008 -
Mu. Diver,
Tal.Sinhor
Dist. Vadodara
9 Shri Ganpatsinh 11,11,000/- - 18,889/ 600/- 450/- 11,30,949/-
Mavsinh Solanki -
129-
Jaggannathpuram -
, Manjalpur,
Vadodara
10 Shri 11,11,000/- - 18,889/ 975/- 1575/- 11,32,439/-
Praveensinh -
Kesarisinh
Parmar -
24-
Narsinhnagar
Near S.T. Depo,
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
Mu. Padre,
Dist. Vadodara
11 Shri Rameshbhai SCA NO. 11,11,000/- - 18,889/ 450/- 775/- 11,31,114/-
Ambalal Patel 7843/2008 -
Geet Bunglow,
GIDC Road,
Village
Manjalpur,
Vadodara
12 Shri 33,34,000/- - 18,889/ 2050/- 1350/-` 33,56,289/-
Jayantibhai -
Ishwarbhai
Patel
7 Jayesh -
Colony,Near
Besides Navyug
school,
Fatehganj,
Vadodara.
13 Shri SCA 11,11,000//- - 18,889/ 1100/- 1050/- 11,32,039/-
Narendrabhai M. NO.7892/2008 -
Patel
Mu. Kharkhadi,
Tal. Padra,
Dist. Vadodara
14 Shri Nanalal 11,11,000/- - 18,889/ 1150/- 300/- 11,31,339/-
Dhayabhai -
Chokshi
Mehta Pole, -
Vadodara
15. Shri SCA 11,11,000/- - - 825/- - 11,11,825/-
Prahaladbhai NO.9383/2008
Ishwarbhai
Patel
20- Manmohan
Society, Lal
Baug Road,
Vadodara
16 Shri Dineshbhai 11,11,000/- - - 675/- - 11,11,675/-
Jethabhai Patel
Mu.Bhaatpura,
Tal. Sankheda, -
Dist. Vadodara
17 Shri 33,34,000/- - 18,889/ - - 33,52,889/-
Praveenbhai M. -
Patel
(GENERAL
MANAGER) -
Bank has not
provided
address.
18. Shri Dasratbhai - - 18,889/ - 300/- 19,189/-
Salubhai Rathva -
Mu.Harakhpur,
Tal.Pavi , -
Jetpur,
Vadodara.
19 Shri Himmatsinh - - 18,889/ - 600/- 19,489/-
U. Vakil -
Mu.5-Devla ,
Tal. Vaghodiya, -
Vadodara
20 Shri Naginbhai - - 18,889/ - 525/- 19,414/-
Kushalbhai -
Patel
Mu.Savli, -
Tal. Savli,
Dist. Vadodara
37. As per the provisions of section 71 as
it existed in the year 1996-1997, respondent
no.3 bank may make investment in various
securities stated therein. Therefore, there
was no need for prior permission of the
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
Registrar as per the said section at the
relevant point of time, the premise based on
which the impugned order dated 28.06.2004 is
passed by respondent no.2 inquiry officer is,
therefore, contrary to the provisions of
section 71 of the Act, 1961 existing at the
relevant point of time. Similarly Rule 29 of
the Rules provides for previous sanction of
Registrar in loans raised by local authority
for any purchase or leasing of land and
building and in construction of building
only. Therefore, prior permission of
Registrar was not required for investment of
funds in any financial institution.
38. It also emerges from the record as a
matter of fact, investment made by the
respondent no.3 bank in the year 1996-97 as
per the details given in additional affidavit
of the respondent bank as under :
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
Sr No Investment made in Amount Invested
1 Loyds Finance Limited 31 Crore
2 Mafatlal Finance ltd 2 Crore
3 Mafatlal Industries 4 Crore
ltd
4 Gujarat State 14 Crore
Fertilizers company
limited
5 Alembic Chemicals 1 Crore
6. Anagram Finance 10 Crore
Limited
6 CRB Capital Market 8 Crore
Ltd. ___________
Total 70 Crore
39. From the above details, it is further
revealed that in CRB Capital Market Limited
out of Rs. 8 Crore, Rs. 5 Crore have been
returned but Rs. 3 Crore and interest thereon
was not received back by respondent no.3 bank
and further the respondent no.3 bank earned
interest income of Rs. 271.60 Lakh on Rs. 67
Crore in the year 1996-1997.
40. In view of above facts emerging on
record, it cannot be said that the
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
petitioners have remained negligent and did
not take due care while making investment in
CRB Capital Market Limited. Therefore, the
petitioner cannot be fastened with liability
to compensate the loss suffered by respondent
no.3 bank for making investment in regular
course of business without there being any
allegation of personal gain by the
petitioner.
41. The Tribunal while confirming the
order passed by the inquiry officer has also
failed to take into consideration the
provisions of section 71 which existed at the
relevant point of time. The Tribunal has
misapplied the provisions of section 73 which
refers to the final authority of the society
and section 74 which provides for powers and
functions of the Executive Committee. The
petitioners have not in any manner violated
the powers conferred upon them for taking a
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
decision to invest surplus fund of respondent
no.3 bank and therefore, the Tribunal has
committed an error in confirming the impugned
order dated 28.06.2004.
42. It is true that letter issued by RBI may
not be applicable to respondent no.3 bank
being a District Cooperative Bank and inquiry
report in case of other banks being Mehasana
District Central Cooperative Bank and Kheralu
Nagrik Sahkari Bank Ltd. may not be
considered as a binding precedent for the
inquiry officer who has arrived at
independent findings in facts of the present
case. However, considering the facts of the
present case, it cannot be said that the
petitioners have misapplied the funds of
respondent no.3 bank or by any misfeasance or
breach of trust so as to compensate the loss
suffered by respondent no.3 bank under
section 93 of the Act, 1961, more
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
particularly, when there was no breach of
section 71 of the Act, 1961 read with bye-law
no.6 of the bye-laws of the Bank in any
manner.
43. With regard to the other issues
regarding charging excess sitting fees,
foreign travel expenses and litigation
expenses which were considered by the inquiry
officer for the purpose of invoking section
93 of the Act, 1961, the same cannot be
considered for the purpose of section 93 of
the Act,1961 in absence of any independent
findings arrived at by the inquiry officer in
this regard.
44. In view of foregoing reasons, petitions
deserve to be allowed and are accordingly
allowed. The impugned order dated 28.06.2004
passed by respondent no.2 inquiry officer
under section 93 of the Act, 1961 and order
C/SCA/7842/2008 CAV JUDGMENT DATED: 14/10/2022
dated 16.05.2008 passed by the Tribunal in
the respective appeals are hereby quashed and
set aside. Rule is made absolute to the
aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J)
RAGHUNATH R NAIR
