Central Registrar must proactively enforce Cooperative Ombudsman orders through winding up proceedings when societies fail to repay depositors.

The petitioners are retired or serving employees of Steel Authority of India (SAIL) and members of the SAIL Employees Co-operative Credit Society Ltd. (Respondent Society), a multi-state cooperative society

Since 2024, the Society failed to return substantial fixed deposits to members facing financial and medical hardships

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

Despite these binding orders, the Society—citing poor financial health, frozen accounts by the West Bengal Economic Offence Wing, and alleged defalcations by previous management—failed to comply

A forensic audit revealed a net deficit of approximately Rs. 365 crores against total deposit exposures of Rs. 430 crores

Section 85A of the MSCS Act, 2002 (as amended in 2023), which establishes the Co-operative Ombudsman for redressal of member complaints regarding deposits and mandates society compliance within one month

Section 86 regarding the winding up of societies and Section 89 for the appointment of a Liquidator

Rule 29 of the MSCS Rules, 2002 was applied to establish the order of priority for liabilities, placing pro-rata repayment of deposits of members second only to outside liabilities

Precedent in Writers & Publishers (P) Ltd. v. Super Bazar Official Liquidator (2021), which clarified the distribution of assets during the winding up of a multi-state cooperative society

The Court observed a significant statutory lacuna: while Section 85A(2) makes the Ombudsman’s orders binding, the Act lacks a penal or enforcement mechanism for non-compliance, rendering such orders mere "paper orders"

The Court found that the Society’s financial health was severely compromised due to administrative mismanagement and illegal investment of over Rs. 100 crores into a separate trust (Ispat Cooperative Foundation) without Central Registrar approval

Applying the forensic audit findings, which showed eroded net worth and fraudulent transactions, the Court determined that the Society had ceased to function on cooperative principles

Leveraging its extraordinary writ jurisdiction, the Court concluded that since a show-cause notice for winding up had already been issued by the Central Registrar on November 28, 2025, without a response from the Society, immediate transition to liquidation was necessary to protect the senior citizen depositors from further hardship

The Liquidator is directed to seize all assets—including hospitals, holiday homes, and frozen bank accounts—disclosed in the Society’s affidavit

The Court ordered that all Society funds be consolidated into a nationalized bank account by July 15, 2026

Specifically, the Court held that the claims of the petitioners and others with Ombudsman orders must be honored in a time-bound manner, with an endeavor to pay them by October 15, 2026, according to the priority established in Rule 29

Criminal proceedings against the former management remain unaffected