Full Judgment Text
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO. 1584 OF 2006
1. Manda Ananda Salunkhe,
New Police Line, Mulund Police
Station Compound, Room No. 2,
N.S. Road, Mulund (W),
Mumbai 400 080.
2. Dropadabai Laxman Nalawade,
Vijayanagar Yedge Chawl, Room No.
34, B.R. Road, Pipeline, Mulund
(West),Mumbai 400 080.
3. Mrs.Jatin Enterprises,
Prop. Ashok Balaji Sawant,
Shree Laxmi Park No. 1,
Bldg. No. 3, B-301,
Lokmanya Nagar, Thane. ... Petitioners
Versus
1. Yeshwant Sahakari Bank Ltd.
(In liquidation), through Liquidator,
Shri. R.B. Pawar, Dy. Registrar,
C.S., at Venu Apartments, Block
No. 2, B.J. Devrukhkar Road,
Dadar (East), Mumbai 400 014.
2. The Additional Commissioner,
for Cooperation & Registrar of
Cooperative Societies, Maharashtra
State, Central Bldg. Annexe, Pune 1.
3. The Commissioner for Cooperation and
Registrar of Cooperative Societies,
Maharashtra State, Central Building
Annexe, Pune 1.
4. Prataprao Krishna Salunkhe,
Ex-Chairman of Yeshwant Sahakari
Bank Ltd. (In Liquidation), having
his office lat 10/6, Sahakar Nagar,
Wadala, Mumbai 400 031.
5. The Depositors Association
Yeshwant Sahakari Bank Ltd.
(In Liquidation) having their
office at Kasa Maria, Bamanwada,
Sahar, Mumbai 400 099.
6. Sabasad Seva Sangh,
Yeshwant Sahakari Bank Ltd.
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(In Liquidation), having their
Office at Chawl No. 23/24,
K.D. Gaikwad Nagar, P.Y. Thorat
Marg, Chembur, MUmbai.
7. The Reserve Bank of India,
Mumbai Regional Office, Urban
Banks Dept, 2nd Floor, Garment
House, Worli, Mumbai 400 018.
8. The Hon’ble Minister for
Cooperation, Government of
Maharashtra, Cooperation and
Textile Department, Mantralaya,
Mumbai 400 032.
9. The State of Maharashtra,
through Government Pleader,
High Court, Appellate Side,
Mumbai. ... Respondents
Mr. A.S. Desai for Petitioner.
Mr. E.P. Bharucha, Sr. Counsel with Mr. O.P.
Pandya for R. No. 1.
Mr. P.K. Dhakephalkar, Sr. Counsel with Mr. G.W.
Mattows, A.G.P. for R. Nos. 8 and 9.
Mr. A.Y. Sakhare, Sr. Counsel with Mr. Sidhartha
Karpe for R. Nos. 4 and 5.
Dr.Virendra Tulzapurkar, Sr. Counsel with Mr. A.
Munshi and Mr. Kunal Damle i/by Udwadia & Udeshi
for R. No.7.
CORAM: F.I. CORAM: F.I. REBELLO CORAM: F.I. REBELLO & REBELLO
ANOOP V. MOHTA,JJ. ANOOP V. MOHTA,JJ. ANOOP V. MOHTA,JJ.
DATED: SEPTEMBER 21, 2006 DATED: SEPTEMBER 21, 2006 DATED: SEPTEMBER 21, 2006
ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.):
. Rule. Heard forthwith.
. The Petitioners have averred that they are the
depositors and shareholders of Respondent No. 1 a
Cooperative Bank, registered under the provisions of
the Maharashtra Cooperative Societies Act, 1960
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(hereinafter referred to as "MCS Act") and now under
liquidation. The Bank was registered in the year
1968 and commenced business of banking under the
provisions of the Banking Regulation Act, since
1968. It has membership of 8300 persons and number
of depositors is around 4,000 and deposits to the
tune of Rs. 1 Crore, 38 lakhs. The Respondent No.
4 was on the Board of Directors of the bank since
its inception. In the year 1992, the Bank was
declared a weak bank by the Reserve Bank of India.
The Reserve Bank of India on 4.2.2003 cancelled the
Banking licence of Respondent No. 1. On 5.3.2003,
the Commissioner for Cooperative and Registrar of
Cooperative Societies, Maharashtra State, Pune on
the recommendations of the Reserve Bank of India
issued an order under section 110(A)(2) of the
M.C.S. Act, 1960 and appointed Liquidator.
Respondent No. 4 who is Ex Chairman had filed Writ
Petition No. 861 of 2003, challenging the order of
cancellation of the Banking Licence. No stay was
granted to the impugned order. The Liquidator was
however, directed not to sell the property and
amalgamate the Bank and further granted liberty to
the Respondent No. 4 to file appeal challenging the
order of cancelling the banking licence before the
Appellate Authority. The Petition was disposed of
with those directions. The Respondent No. 4
preferred an appeal against the order of
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cancellation of Banking Licence by R.B.I. The
appeal was dismissed by R.B.I.
2. Aggrieved by the order of dismissal of the
appeal challenging the order of cancellation of
Banking Licence, Respondent No. 4 filed writ
Petition challenging the order of the appellate
authority dated 3.2.2004. That Petition was
disposed of with liberty to Respondent No. 4 to
make application to R.B.I. seeking permission to
convert Respondent No. 1 bank into credit society.
By communication of 10.09.2004, the RBI rejected the
said representation giving its reasons and pointing
out that as on March 31, 2001, the accumulated
losses were to the tune of Rs.116.60 lacs. The
R.B.I. also noted that the proposal to convert the
bank into credit society will not improve the
financial health of the bank since the Bank’s net
worth was negative and the interest of the small
depositors would be adversely affected as DICGC
insurance will not be available to depositors. To
complete the narration it may be pointed out that
the RBI by their further communication dated
30.05.2006 informed Respondent No. 4 that the
proposal to convert a UCB into cooperative society
can be agreed to, if the UCB has repaid or has made
provision for repayment of all deposits accepted by
it and the UCB should sent notices to all the
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non-member depositors for obtaining payment of
balance standing to their credit and that the RBI
should be satisfied that the bank is in a position
to pay its non members and members as well. It was
pointed out that the Bank was taken into liquidation
on account of its negative net worth of Rs.18.66
lakh and erosion of deposits to the extent of 3.8%
with reference to its position as on December 31,
2001 and therefore, RBI was not in a position to
accede to the bank’s request to allow it to convert
itself into a cooperative society. As the affairs
of a bank in liquidation are under the overall
control of the liquidator, the Liquidator has to
satisfy the RBI that the Bank has adequate resources
to pay the depositors to consider the proposal.
. Respondent No. 4 had filed Petition being Writ
Petition (L) No. 3060 of 2004 challenging the order
passed by the Commissioner, appointing Liquidator
dated 5.3.2003, the order passed by the R.B.I.
cancelling Banking licence dated 4.2.2003 and the
order passed by the RBI rejecting the permission to
convert the Respondent No. 1 bank into credit
society dated 10.9.2003. The Petitioners herein had
taken out Chamber Summons in Writ Petition (L) No.
3060 of 2004 for joining them as parties.
3. On 1.4.2003 the Ex Chairman made an application
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to the Chief Minister of Maharashtra for conversion
of Respondent No. 1 bank into a Credit Society
instead of liquidating the Bank. By order dated
26.3.2004 the Commissioner for Cooperation and
Registrar/Respondnet No. 3, considering the letter
of Member Seva Sangh, Yashvanta Sahakari Bank Ltd.,
the letter of Ex President of the Bank, as well as
letter of Depositor Association, Yashwant Coop.
Bank Ltd and letter of Hon’ble Chief Minister, Govt.
of Maharashtra granted sanction to the proposal for
permission to convert the cooperative Bank into
Patpedhi (Credit Society) under Section 19 read with
Rule 18 of the provisions of the M.C.S. Act and
Rules, subject to what was set out therein, one of
which was a resolution to be passed at the Annual
General Body Meeting in respect of permission
granted for opening Path Pedhi. On 8.4.2004 the
Cooperative Commissioner and Registrar, Cooperative
Societies, Maharashtra State, Pune intimated to the
persons that the permission granted to convert the
bank into credit society by the permission dated
26.3.2004 was cancelled.
. Respondent No. 4 and some others aggrieved by
the order of the Commissioner dated 8.4.2004
preferred revision application before the Hon’ble
Minister for cooperation. That came to be allowed
by order dated 17.6.2006 which order is the subject
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matter of the present petition.
4. It is the case of the Petitioners herein that
the action of Respondent No. 8 in allowing the
revision application was without jurisdiction and or
acting without the authority of law as the revision
itself was not maintainable and that Respondent No.
3 had withdrawn the order as it was contrary to the
provisions of the Cooperative Societies Act. It is
also submitted that for the purpose of conversion of
the bank into credit society, the procedure under
section 19 of the MCS Act 1960 should be first
followed and the Respondent No. 8 without following
the re-construction procedure under section 19 of
the M.C.S. Act, could not have granted permission
of conversion of bank into the credit society. It
is further submitted that the Bank had gone into
liquidation on 5.3.2003 and no general body meeting
after that date has been held as the Liquidator had
not called for a general body meeting and that
Respondent No. 4 could not have relied on the
resolution passed by the general body meeting of
2003. Respondent No. 4 Prataprao Salunkhe, has
filed affidavit contending that the Petition is not
bona fide and not filed on their own behalf but were
acting as dummies for and on behalf of vested
interests with the aim of destroying the Bank as an
independent entity on account of political rivalry
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between the Directors of Bank and the Directors of
another Cooperative Bank. The Commissioner could
not have reversed the order granting permission by
order dated 8.4.2004 and it is in these
circumstances that the appeal was preferred. The
order of the Commissioner was stayed and
subsequently set aside. By letters dated 27th June,
2006 and 5th July, 2006, the office of the
Commissioner and Registrar of Cooperative Society
has directed the Liquidator of the Respondent No. 1
Bank to initiate appropriate action as per Section
17 of the M.C.S. Act read with Rule 16 of the
M.C.S. Rules, 1961. The other averments have been
denied and the various steps taken by the Respondent
to challenge the orders have also set out. It is
not necessary to refer to those pleadings
considering the controversy which is in issue.
5. We do not propose to go into the issue as to
whether the revision before the Respondent No. 8
was maintainable. The real issue which arises is,
whether the Respondent No. 3 and Respondent No. 8
could have granted permission for converting a bank
in liquidation into a credit society under section
17 of the M.C.S. Act. We have heard the counsels
who have addressed us. In the course of the
hearing, we had asked the counsel for the liquidator
as to whether his client is of the opinion that the
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Bank can be transformed into a credit society. The
learned counsel after taking instructions in the
court from the Liquidator who was present, made a
statement to the court, that his client is of the
opinion that the Bank under liquidation cannot be
converted into a credit society. On the next day of
hearing, it was pointed out to us that that said
liquidator has been removed and some other
liquidator has been appointed. The learned counsel
for the new liquidator made a statement as on that
date, he has no instructions as to whether the bank
can be transformed into a credit society. Pursuant
to our directions, Mr. Anil Udhavrao Diggikar,
Commissioner for Cooperative and Registrar of
Cooperative Societies, Maharashtra State has filed
an affidavit and he points out that the liquidator
himself had sought that he be relieved as Liquidator
of the Respondent No. 1 Bank vide his letter dated
2nd April, 2006 and thereafter by letter dated
16.8.2006 and it is in these circumstances, that he
came to pass the order relieving the liquidator and
appointing some other person as liquidator. We may
note that though an affidavit has been filed stating
reasons for relieving the liquidator and that too
immediately on the next date after he had made
statement to this court saying that the society
cannot be reconstructed, it can be prima facie be
reasonably believed that this has been done for
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extraneous considerations unconnected with what is
set out in the affidavit of Mr. Anil Diggikar,
though it is remotely possible that the Commissioner
considering the letters of the Liquidator which
indicate that Respondent No. 4 was threatening him
of committing suicide could have bonafidely relieved
him. Considering the above, we do not propose to
take any action against Mr. Anil Diggikar in the
present proceedings in the absence of further proof.
6. We shall now address ourselves to the main
issue. For that purpose we may reproduce Section 17
of the M.C.S. Act which reads as under :
"17. Amalgamation, transfer, division or
conversion of Societies - (1) A society may,
with the previous approval of the Registrar,
by resolution passed by two thirds majority
of the members present and voting at a
special general meeting held for the
purpose, decide -
(a) to amalgamate with another society; (b)
to transfer its assets and liabilities, in
whole or in part, to any other society; (c)
to divide itself into two or more societies;
or (d) to convert itself into another class
of society;
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. Provided that when such amalgamation,
transfer, division or conversion, aforesaid,
involves a transfer of the liabilities of a
society to any other society, no order on
the resolution shall be passed by the
Registrar, unless he is satisfied that :
(i) the society, after passing such
resolution, has given notice thereof in such
manner as may be prescribed to all its
members, creditors, and other persons, whose
interests are likely to be affected
(hereinafter in this section referred to as
"other interested persons"), giving them the
option, to be exercised within one month
from the date of such notice, of becoming
members, of any of the new societies, or
continuing their membership in the
amalgamated or converted society, or
demanding payment of their share or interest
or dues, as the case may be;
(ii) all the members and creditors and other
interested persons, have assented to the
decision, or deemed to have assented thereto
by virtue of any member or creditor or any
other interested person failing to exercise
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his option within the period specified in
clause (i) aforesaid; and
(iii) all claims of members and creditors
and other interested persons, who exercise
the option within the period specified, have
been met in full or otherwise satisfied."
. It will thus be clear that amalgamation, transfer
or conversion requires the previous approval of the
Registrar and a subsequent resolution passed by
two-thirds majority of the members present and
voting at a special general meeting held for the
purpose of considering a resolution for converting
itself into another class of society. No further
order can be passed by the Registrar, untill he is
satisfied that the requirements set out under
Section 17(i), (ii) and (iii) are met. It will thus
be clear that the first requirement is that the
society must be in existence and its members pass a
resolution by 2/3rd majority of those present and
voting at a special general meeting held for that
purpose. After that is done, the second requirement
is that the Registrar must satisfy himself that the
predicates of the proviso to Section 17 are met.
This is the scheme of Section 17 of the M.C.S. Act.
. In so far as Section 19 of the M.C.S. Act is
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concerned, it is in the matter of Reconstruction of
societies. Section 19 reads as under :
"19. Reconstruction of societies :- Where a
proposal for a compromise or arrangement -
(a) between a society and its
creditors, or
(b) between a society and its
members,
is approved at a special general meeting,
called for the purpose, the Registrar may,
on the application of the society or of any
member or of any creditor of the society, or
in the case of a society which is being
wound up, of the Liquidator, order
reconstruction in the prescribed manner of
the society."
. Reconstruction in case of society in liquidation
is possible, when the proposal for compromise or
arrangement between the society and its creditors or
between the society and its members is approved by
the special general body meeting called for the
purpose. The Registrar may on the application of
society or any member or any creditor of the
society, or in the case of a society which is being
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wound up, of the Liquidator, order reconstruction of
the society. The Liquidator is required to apply
under Form "H". In other words. the Registrar
could have acted on an application of the Liquidator
provided there is a proposal for compromise between
the society and its creditors or between the society
and its members and the Liquidator had applied to
the Registrar. Another relevant provision is
Section 103(5) of the M.C.S. Act which sets out
that when an order of winding up has been passed and
a Liquidator appointed, the officers of the society
shall vacate their offices and while the winding up
order remains in force the general body of the
society shall not exercise any powers. Section
105(f) sets out that the Liquidator appointed under
Section 103 shall have powers, subject to the rules
and the general supervision, control and direction
of the Registrar to make any compromise or
arrangement with creditors or persons claiming tobe
creditors or having or alleging themselves to have
any claims, present or future, whereby, the society
may be rendered liable and to take all such other
steps as contemplated by Section 105. On an order
of appointment of a Liquidator, it is the Liquidator
who acts on behalf of the society in winding up to
the exclusion of the shareholders. However, in a
case of a society in liquidation, the Liquidator if
he has received a proposal for compromise or
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arrangement, even if satisfied, before he moves the
Registrar, will have to summon the General Body to
get their opinion. Such a construction will avoid
undue influence being exercised on the liquidator
and the members of the society can have their say.
Needless to say if the proposal is not accepted by
the Members, the Liquidator will not move the
Registrar and proceed with the process of
liquidation. An additional aspect of the matter is
the order of R.B.I. cancelling the Banking licence
and ordering liquidation. The Liquidator in these
circumstances, cannot move the Registrar unless the
scheme of compromise after approval by the
Shareholder meets the approval of R.B.I.
7. Was it therefore, open to Respondent No. 8 to
pass the impugned order. Assuming that a revision
is maintainable, Respondent No. 8 could have
exercised jurisdiction if Respondent No. 3 had
jurisdiction. A perusal of the order, English
translation of which has been supplied to us, would
indicate that the persons present at the hearing was
Respondent No. 4 herein and his advocate and the
Registrar. It was urged before the Revisional
Authority that the order cancelling the earlier
order was without giving an opportunity to the
Respondent No. 4 and as such was against the
principles of natural justice and that the society
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will have to bear tremendous loss if the permission
is not granted to convert the society into a credit
society. The Respondent No. 8 held that as
Respondent No. 4 was not heard and it was against
the principles of natural justice and accordingly
set aside the order dated 8.4.2004 and thereafter
granted permission to convert the bank into credit
society without remanding the matter to Respondent
No. 3 for re-consideration. The Revisional
Authority did not consider whether the requirements
of Section 17 of the MCS Act had been satisfied
assuming Section 17 was attracted or whether Section
17 would not be attracted at all. From our
discussion, it is clear that section 17 would come
into play on the facts of the case only after the
reconstruction of the society in liquidation is
ordered under section 19 and that would mean setting
aside the order of liquidation. In the instant
case, Section 17 could never have come into play
considering the society is still under liquidation.
The question therefore, of conversion of the
society, from a bank in liquidation into credit
society, could not have been ordered unless the bank
in liquidation was reconstructed as required under
Section 19. The impugned order of Respondent NO. 8
is clearly therefore, arbitrary and without
authority of law.
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. The provisions of section 19 also could not have
been invoked, as the Liquidator had not applied to
the Registrar as there was no proposal for
compromise or arrangement pending as required under
Section 19. No proposal was placed before the
general body meeting as there was no proposal before
the liquidator to call a general body meeting to
consider the proposal for compromise or arrangement.
In fact no such proposal was also there before the
Respondent No. 3 or Respondent No. 8. The order
therefore, by Respondent No. 8 and or the earlier
order by Respondent No. 3 were clearly without
jurisdiction.
. In the light of the above, Rule made absolute in
terms of Prayer Clause (b). In the circumstances of
the case, there shall be no order as to costs.
(ANOOP V. MOHTA,J.) (ANOOP V. MOHTA,J.) (F.I.REBELLO, J.) (ANOOP V. MOHTA,J.) (F.I.REBELLO, J.) (F.I.REBELLO, J.)
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