Legal Headline: Central Registrar must proactively wind up Multi-State Cooperative Societies to enforce Ombudsman orders and protect depositors' interests._

The Petitioners are retired or serving employees of Steel Authority of India (SAIL) who deposited life savings and fixed deposits with the respondent, the Steel Authority of India Limited Employees Co-operative Credit Society Limited

Despite being a Multi-State Co-operative Society, the respondent failed to release matured deposits even after members obtained favorable orders from the Co-operative Ombudsman under Section 85A of the MSCS Act

Forensic audits and inquiries conducted during the litigation revealed a net deficit of approximately ₹365 crores and substantial financial defalcation by the erstwhile management, including the illegal diversion of funds to a private trust and market investments prohibited by law

Furthermore, the Directorate of Economic Offences, West Bengal, had frozen the Society's bank accounts and arrested the erstwhile Chairman

The Court primarily considered Section 85A of the Multi-State Co-operative Societies (MSCS) Act, 2002, which empowers the Ombudsman to issue binding directions to societies regarding deposits

It noted the procedural priority of claims under Rule 29 of the MSCS Rules, 2002, which prioritizes pro-rata repayment of loans and deposits to members second only to outside liabilities

The Court also relied on the Supreme Court precedent in Writers & Publishers (P) Ltd. v. Super Bazar Official Liquidator (2021), which outlines the statutory scheme for winding up under Sections 86, 89, and 90 of the MSCS Act, affirming that assets vest in the liquidator to realize and pay claims according to priority

The Court observed a significant legislative lacuna: while Section 85A makes Ombudsman orders binding on a Society, the MSCS Act lacks a specific mechanism for members to enforce these orders, rendering them mere "paper orders"

The Court found that the Society’s net worth had been completely eroded and it had ceased to function on cooperative principles

By applying the findings of the forensic audit—which confirmed illegal market investments and unauthorized diversion of funds—the Court determined that the only viable solution to protect the senior citizen depositors was to trigger the winding-up provisions of Section 86

The Court rationalized that since the Society ignored the 15-day show-cause notice issued by the Central Registrar, the exercise of extraordinary writ jurisdiction was necessary to ensure the liquidator could consolidate assets and honor the priority of member deposits as per Rule 29

The Liquidator is directed to take charge of all assets, including those disclosed in the Society's affidavit and any others discovered through inquiry

The Court ordered that all funds be consolidated into a nationalized bank account by July 15, 2026, and an endeavor be made to pay the claims of the Petitioners and other similarly situated depositors by October 15, 2026

These directions were clarified to be without prejudice to ongoing criminal proceedings by the Directorate of Economic Offences, West Bengal