Liquidator must conduct mandatory inquiry under Section 110(h) if a member disputes the debt recovery demand.

The Petitioner and her husband were Directors of Janu Impax Private Limited. In 2000, they applied for a loan of Rs. 30 Lakhs from Respondent No. 3 (the Bank). However, the Petitioner claims the loan was never disbursed as they secured funds elsewhere

Respondent No. 3 issued a demand notice dated 24.02.2009 under Section 110(h) of the Gujarat Cooperative Societies Act, 1961, seeking recovery of Rs. 29,69,054/- plus interest and liquidation charges

This notice followed an unsuccessful appeal by the Petitioner before the Deputy Secretary (Appeals)

The Petitioner challenged the recovery notice on the grounds that no debt existed and no mandatory inquiry had been conducted by the Liquidator

Whether it is mandatory for a Liquidator to hold an inquiry under Section 110(h) of the Gujarat Cooperative Societies Act, 1961, when the liability is expressly denied by the party against whom a demand notice is issued

Section 110(h) and Section 110(m) of the Gujarat Cooperative Societies Act, 1961

Section 110(h) empowers the Liquidator to determine the contribution or debts due from members after giving them an opportunity to answer the claim

Under Section 110(m), the Liquidator is granted the powers of a Civil Court to summon witnesses and compel the production of documents

Choksi Yashvantkumar Natvarlal v. Vijapur Navyuvak Sahakari Shakhvali Nagrik Sahakari Mandali and others (2008 (3) GLR 2397), which established that a summary inquiry is a "must" before a final decision on recovery is recorded if the claim is denied

The court observed that the Petitioner fundamentally disputed the disbursement of the loan, thereby denying any liability to the Bank

Applying the ratio from Choksi Yashvantkumar Natvarlal, the court reasoned that once a member denies a claim, the Liquidator cannot proceed with recovery without first conducting an inquiry

The court noted that in the present case, the Liquidator had not initiated or held such a mandatory inquiry as conceived under Section 110(h)

The court emphasized that the Liquidator possesses the powers of a Civil Court for this specific purpose and must exercise them to determine the validity of the debt before issuing demand notices for enforcement

Consequently, the recovery notice issued without such a procedural foundation was legally unsustainable

The High Court disposed of the petition by directing the respondents to initiate and conclude a mandatory inquiry under Section 110(h) of the Act regarding the impugned demand notice dated 24.02.2009. The inquiry must be completed within six months from the date of extension of the liquidation tenure. Rule was discharged with no order as to costs