The Bombay High Court ruled that the responsibility for financial losses caused by fraudulent loan applicants rests with the entire management committee of a cooperative society.
The court dismissed the liability of individual committee members who merely signed disbursement cheques. The decision came in response to a writ petition filed by Brihanmumbai Police Karmachari Sahakari Pat Sanstha Maryadit, a society of police employees seeking accountability for losses incurred due to fraudulent loans.
Justice Milind N. Jadhav, delivering the verdict, highlighted the collective responsibility of the management committee when a resolution authorizing individual committee members to sign loan cheques was passed by the society. The court stated, "the entire Managing Committee is liable and responsible, and not the member who has appended his signature on the cheque for disbursement of the loan."
The petitioner society discovered in 2004-05 that eight loan applicants who had obtained loans from the society were not genuine police department employees but had acquired the loans through fraudulent means. An enquiry conducted under the Maharashtra Co-operative Societies Act 1960 found that seven society members, including office bearers, were responsible for the loan disbursement and subsequent financial losses amounting to Rs. 6,99,700/-. Among the members held liable to reimburse the society, Chandrakant More, the signatory of the fraudulent loan cheques, was one of them.
An interesting twist occurred when More, who served as the Joint Secretary of the society, appealed against the enquiry report. Initially, the Divisional Joint Registrar (Co-operative Societies) dismissed his appeal. However, the State Minister of Co-operation allowed More's revision application, exonerating him from liability. In response, the society filed a writ petition challenging the Minister's order.
The High Court observed that More's co-signatory, RR Bhogale, the President of the society, was completely absolved of liability despite not participating in the enquiry proceedings or providing any evidence. This inconsistency in indicting More based on his signature while absolving Bhogale raised concerns.
Justice Jadhav remarked, "If More was indicted based on a signature on the cheque, Bhogale should equally have been indicted."
The court stressed the importance of due diligence and appropriate enquiry in such cases. It emphasized that signing the disbursement cheques was only part of the Joint Secretary's responsibilities, and he should not be solely held responsible for disbursing loans to individuals who were not police department employees. The court opined that proper scrutiny, verification of documents, and diligent investigation by those responsible could have exposed the fraudulent nature of the loan applicants.
Consequently, the court held that only More and the three other members who signed the fraudulent loan cheques should not be solely liable for causing financial losses to the society and reimbursing it. The court found the indictment of only four members unjustified when the enquiry report implicated seven individuals for active roles in the alleged fraud.
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