Central Registrar Must Enforce Ombudsman Orders Through Winding Up and Liquidation to Protect Depositors' Interests

The Petitioners, primarily retired or serving employees of Steel Authority of India (SAIL), are members of the Steel Authority of India Limited Employees Co-operative Credit Society Limited ("Respondent Society")

Having deposited substantial sums in Fixed Deposits, the Petitioners sought withdrawals for personal exigencies (medical, weddings, etc.), which the Society failed to honor

Most Petitioners obtained favorable orders from the Co-operative Ombudsman under Section 85A of the Multi-State Cooperative Societies (MSCS) Act, 2002, directing repayment with interest within 15 days

Despite these binding directions, the Society remained in default

Subsequent inquiries by the Institute of Public Auditors of India (IPAI) and a forensic audit revealed a net deficit of approximately ₹365 crores, severe financial mismanagement, and illegal diversion of funds into a private trust and market investments

The Directorate of Economic Offences, West Bengal, subsequently froze the Society’s bank accounts and arrested the erstwhile Chairman

1. Whether the Multi-State Cooperative Societies Act, 2002, provides an adequate mechanism for the enforcement of orders passed by the Co-operative Ombudsman

2. Whether the financial condition and mismanagement of the Respondent Society warrant the initiation of winding-up proceedings and the appointment of a Liquidator under the MSCS Act

The Court applied Section 85A of the MSCS Act, 2002, which establishes the Co-operative Ombudsman for grievance redressal regarding deposits but lacks an explicit execution mechanism for its orders

It relied on Section 78 (Inquiry by Central Registrar), Section 86 (Winding up of multi-State co-operative societies), and Section 89 (Appointment of Liquidator) of the MSCS Act

The Court followed Rule 29 of the MSCS Rules, 2002, which dictates the priority of payment during liquidation, placing pro-rata repayment of deposits high in the hierarchy

The Court followed the precedent in Writers & Publishers (P) Ltd. v. Super Bazar Official Liquidator (2021), which clarifies the statutory scheme of winding up and the Liquidator's power to prioritize claims

The Court observed a significant legislative lacuna: while Section 85A(2) makes the Ombudsman’s directions binding, the MSCS Act provides no penalty or enforcement procedure for non-compliance, rendering such directions "paper orders"

Applying the statutory scheme to the facts, the Court noted that the forensic audit confirmed the Society's net worth was eroded due to defalcation and fraudulent market investments prohibited by Section 64

Since the Society ceased to function on cooperative principles and failed to respond to the Central Registrar’s show-cause notice dated November 28, 2025, the Court found it necessary to trigger the winding-up provisions under Section 86

The Court reasoned that to protect the senior citizen depositors, the assets (including hospitals and holiday homes) must be vested in a Liquidator under Section 90 to ensure systematic liquidation and priority-based repayment as per Rule 29

It directed the Central Registrar to pass an order for the winding up of the Respondent Society and appoint a Liquidator by June 15, 2026. The Liquidator was ordered to take charge of all assets, transfer funds to a nationalized bank account by July 15, 2026, and endeavor to settle the claims of the Petitioners and those with Ombudsman orders by October 15, 2026. The petitions were disposed of with these relief measures