Appeal Nos.1197 & 1546 of 2003,IN Complaint Nos.615 of 2002, 637 of 2002, 638 of 2002, 639 of 2002, 702 & 705 of 2002

4th November, 2005

Petitioner Counsel: Mr. A. V. PATWARDHAN
Respondent Counsel: Mr. J. M. BAPHNA,Mr. G. B. PAWAR
Other Counsel: Mr. H. G. MISAR

Cases Cited:
M/s. Mahavir Nagari Sahakari Path Sanstha Ltd. Vs. Bhanudas S. Kulkarni, 2000 (CTJ) 332 [Para 19]
Smt. Kalawati Vs. M/s. United Vaish Co-op. Thrift & Credit Society Ltd., 2002 Consumer 5793 (NS) : 2002 CCJ 1106 [Para 20]
Secretary, Thirumurugan Co-op. Agricultural Credit Society Ltd. Vs. M. Lalitha, 2004(5) ALL MR 108 (S.C.)=(2004) CTJ 1 (SC) : 2004(1) CPPR 35 : AIR 2004 SC 448 [Para 21]
Ravikant Vs. M/s. Veena Bhatnagar, 1(1996) CPJ 260 (NC) [Para 31]

JUDGMENT

Mr. Justice M. S. RANE, Hon'ble President :- The most crucial and important point arising in these group of appeals is as to whether the members of the Board of Directors of the Credit Society (in vernacular described as "Pat Sanstha") be held personally and individually liable, accountable and responsible for the discharge of liabilities of the Pat Sanstha, vis-a-vis its Depositors/Investors for compliance of the awards passed by the Consumer Forum against it i.e. Pat Sanstha in the claims instituted by its depositors/investors.

2. All these appeals are being disposed of with a common judgment, since the issues involved therein are identical as noted above. The Credit Society/Pat Sanstha involved is the same, so also its members of the Board of Directors, as also nature of claims therein.

3. The District Forum, Kolhapur has held them i.e. Directors jointly and severally liable and has made the awards for payment of diverse amounts covering the amount under deposits with accrued benefits, to the depositors of the Pat Sanstha, who were complainants before it in the respective complaints and which order has been impugned in these appeals.

4. The then Directors of the Pat Sanstha, who were O.P.s before the District Forum in the above complaints have filed these appeals except Appeal No.1442/03 which is filed by the Administrator appointed by the concerned Authority to look after the affairs of the said Pat Sanstha and against whom also Forum has made the award for the compliance of the award against the Pat Sanstha and its Directors impugned in the appeals herein.

5. (For brevity's sake, appellants are referred to as "O.P.s" and respondents as "Complainants").

6. Pat Sanstha/Credit Society involved in the matter herein is Bhudargad Nagari Sahakari Pat Sanstha Ltd., District Kolhapur (Hereinafter will be referred to as 'Pat Sanstha' for brevity's sake).

7. It is not necessary to have detailed advertance to the factual aspects, since the claims of the complainants/depositors in the matters herein as adjudicated by the District Forum Kolhapur are not in dispute.

8. It is however a fact, which requires to be noted that at presently the Administrator, who is appellant in Appeal No.1442/03 is on the scene under the order of the authority exercising power under Co-operative Societies Act 1961, which, it is stated, because of mis-management of the affairs of the Pat Sanstha by then members of the Board of Directors.

9. District Forum has passed the orders as stated in favour of the complainants/depositors and against the appellants and the said Pat Sanstha and since the same were not complied with that the execution proceedings, which include even proceedings u/sec.27 were initiated by and on behalf of the complainants/depositors and it is stated that in some of the matters Forum has also proceeded to issue the processes. It is in these circumstances, that these appeals have been filed.

10. In assailing order of the District Forum, the appellants/Directors have taken up the contention in these appeals that -

(i) the disputes as filed are not amenable to the jurisdiction of the Consumer Fora.

(ii) they i.e. O.Ps. as Directors cannot be held personally and individually liable and accountable for payment of the dues against the Pat Sanstha, which is as stated earlier is a crux of the matter.

(iii) some of the Directors were not duly served with the processes by the Forum and that being so, the awards made against them following by issuance of process in execution are not binding and therefore, cannot be enforced against them.

(iv) on election of the Members of the Board of Directors, they (i.e. Directors) were required to execute Bonds of Indemnity under the Rules and Regulations and By-laws in that behalf and that they have not executed the same and therefore, they cannot be held liable and responsible.

11. We have heard the submissions made across by and on behalf of both the parties by their respective Advocates, as also perused the pleadings filed therein.

12. Since all the complainants/depositors were not represented, we requested Mr. H. G. Misar, Senior Counsel to assist this Commission as Amicus Curie in the matters and we must record out appreciation that Mr. Misar rendered most valuable assistance to us.

13. Certain judicial pronouncements were also referred to which we would deal with herein below.

14. It would be noticed that the points involved in particular, point nos.1, 3 & 4 have statutory implications, and they would depend upon the existing position of the Law and its construction and interpretation in the light of judicial pronouncements.

15. We as stated earlier refrain from going into the details of the factual aspects, which we consider unnecessary, but only advert so far relevant to determine the points involved as above.

16. It is to be stated at the outset that the relevant Statute under which Pat Sanstha/Credit Society has been constituted is Maharashtra Co-op. Societies Act, 1960 in short "Societies Act". We would therefore also refer to the relevant provisions of the said Act as well.

17. We now proceed to consider the appeals herein in the light of points raised as above. As far as first point is concerned namely the maintainability of the complaints as consumer disputes, the same would not detain us any longer. In fact, in view of settled position of the Law on the point as well as referred to herein below, the same aspect is no more res-integra.

18. The nature of transactions as obtained in the matters herein are, as is very obvious are transactions of investments and as such having financial implication. That is to say that the transaction between the Financing Institution and the Investors-Complainants being Investors and Credit Society-Pat Sanstha being Financial Institution and as such under the definition of Service as appearing in Section 2(1)(o) of Consumer Protection Act, 1986, the service involved therein would squarely fall within the purview of the said definition and as such a consumer dispute.

19. The precise issue was before this Commission in the matter namely M/s. Mahavir Nagari Sahakari Path Sanstha Ltd. & Ors. Vs. Bhanudas S. Kulkarni & Ors. reported in 2000 (CTJ) page-332, wherein the similar point was raised by and on behalf of the Pat Sanstha and on consideration of the legal provisions as also surveying various judicial pronouncements, we have held that the kind of service rendered by the Pat Sanstha in accepting deposits from the Investors, the service which is rendered to the Investors like the complainants herein would be squarely amenable to the jurisdiction of the Consumer Fora within the meaning of service as defined in Section 2(1)(o) of Consumer Protection Act, 1986.

20. The Hon'ble National Commission has also recently in the case of Smt. Kalawati & Ors Vs. M/s. United Vaish Co-op. Thrift & Credit Society Ltd. reported in 1986-2002 Consumer 5793 (NS) : 2002 CCJ page-1106, held that the service rendered by the Pat Sanstha-Credit Society was one, which was squarely coverable under the definition of Service as appearing in Section 2(1)(o) of Consumer Protection Act, 1986.

21. Recently, Hon'ble Supreme Court in its judgment in the case of Secretary, Thirumurugan Co-op. Agricultural Credit Society Ltd. Vs. M. Lalitha reported in (2004) CTJ page-1 (SC) : 2004(1) CPPR page-35 : 2004(5) ALL MR 108 (S.C.) : AIR 2004 SC 448, has clearly held that the services hired by the Members of the Co-op. Housing Society constituted under the Co-operative Societies Act, 1960, fall within the purview of Consumer Fora.

22. The Law on the point being very clear, we have no hesitation in rejecting the submissions advanced by and on behalf of the O.Ps. on the point.

23. As far as Point Nos.(ii) & (iv) are concerned, both these points, we take for consideration together to avoid overlapping of discussions.

24. Submissions advanced on behalf of the appellants-O.Ps. are that they cannot personally or individually be held liable and accountable for payment of the dues of the Pat Sanstha and on their election of the Members of Board of Directors of the said Pat Sanstha, they have not executed the Bonds of Indemnity under the Rules & Regulations and therefore they cannot be held accountable for the dues of the Pat Sanstha.

25. We would notice the Statutory provisions on the point. As stated the Pat Sanstha has been registered under the provisions of the Maharashtra Co-operative Societies Act, 1960, Chapter VII of the said Act, title, as "Management of Societies" laid down the powers and functions as also duties of the Management Committee. The relevant is Section 73, which is as under :-

"73. Committee, its powers and functions - (1) The management of every society shall vest in a committee, constituted in accordance with this Act, the rules and the bye-laws which shall exercise such powers and perform such duties as may be conferred or imposed respectively by this Act, the rules and the bye-laws. (reproduced relevant portion in the matter)."

(1AB) The members of the committee shall be jointly and severally responsible for all the decisions taken by the committee during its term relating to the business of the society. The members of the committee shall be jointly and severally responsible for all the acts and omissions detrimental to the interest of the society. (Emphasis Supplied)

Provided that, before fixing any responsibility mentioned above, the Registrar shall inspect the record of the society and decide as to whether the losses incurred by the society are on account of acts or omissions on the part of the members of the committee or on account of any natural calamities, accident or any circumstances beyond the control of such members."

26. Sub-Section (1AB) was introduced in the Act by way of amendment effected in the year 2000. The plain reading of the said provision would clearly and unequivocally show that the Members of the Committee are made jointly and severally responsible for all the decisions taken relating to the business of the Society and that the Member of the Committee shall be jointly and severally responsible for all the acts and omissions detrimental to the interest of the Societies.

27. The proviso reproduced herein above, however, stipulates that the Appropriate Authority exercising judicial powers shall probe and determine the acts and omissions of the members, etc.

28. It is to be stated that at the relevant time O.Ps.- appellants were the Members of the Managing Committee of the Pat Sanstha has not been disputed.

29. The record clearly shows and this also conceded position that when the O.Ps. were in the management of the affairs of the Credit Society-Pat Sanstha, the Society suffered financial losses, and under the Maharashtra Co-operative Societies Act, Society, which functioned through its Committee was duty bound to safeguard the interest of its depositors. The concerned authority on being satisfied about the various irregularities in managing the financial affairs of the Society, which resulted in financial condition of the Society reducing to most critical stage, had appointed an Administrator. The record shows that the affairs of the Society or rather mis-management was thoroughly probed by the concerned Authority under the Maharashtra Co-operative Societies Act, which rendered the Report leading to the appointment of the Administrator. Prima-facie, therefore it thus lends support to the stand of the depositors of their being deficiencies in services on the part of the Pat Sanstha, who was at the relevant time managed and controlled by the present appellants-O.Ps. and there requires no further elaboration on this point.

30. With regard to the execution of Indemnity Bond, it needs to be stated that the appellants-O.Ps. cannot be allowed to take advantage of their own wrongs. It is a serious omission if they have not executed the Indemnity Bonds. It is a serious and grave lapse on their part of non-compliance of statutory requirements. The material clearly shows notwithstanding they continue to manage the affairs of the Society-Pat Sanstha by virtue of being Committee Members of the Managing Committee and held out to be as such Members of the Managing Committee of the Pat Sanstha and at such a belated stage cannot be permitted to take advantage of their own wrongs. That being so, we proceed to reject both these contentions raised by and on behalf of the O.Ps. - appellants.

31. Now, with regard to point No.(iii), it is asserted that some of the O.Ps. were not duly served with the process of the Forum. It is asserted that some of the O.Ps. at the relevant time were in the custody. Usefully, we may also refer to the decision of the National Commission on the point in the case of Ravikant & Anr. Vs. M/s. Veena Bhatnagar & Ors. reported in 1(1996) CPJ page-260 (NC), wherein the facts show that the position obtained was identical as obtained in the matter herein. In that case, the Directors of the Limited Company namely Instant Growth Funds Pvt. Ltd. and I.G.F. Leasing Pvt. Ltd. against whom the awards were made by the Consumer Fora and because of their failure to comply, proceedings under Section 27 of Consumer Protection Act, 1986 were adopted for default in compliance of the awards against them as is the case in hand. The similar objections as obtained in the matter herein were raised by and on behalf of the Directors that they were not personally liable to pay the decreetal amounts of the companies. The Law was luminously and succinctly laid down by the National commission while rejecting the submissions made as above and we only reproduce the Head Note (i) of the said judgment:-

"It was also feebly urged that the Directors were not personally liable to pay the decreetal amount and, therefore, no complaint could be filed under Section 27 of the Act against the Appellants personally. The State Commission rightly came to be conclusion that action can be taken against the Appellants under Section 27 of the Act and observed that a commond to a Corporation is in fact a command to those who are officially responsible for the conduct of the affairs of the Company. If after being apprised of the order directed to the corporation, they prevent compliance or fail to take appropriate action, within their power for the performance of duty of obeying those orders, they and the Corporate Body are both guilty of failure in the compliance of the orders. The corporate veil has rightly been lifted and the managing director and the Director who have failed to comply with the basic orders of the State Commission, besides being personally liable under some decrees to discharge the obligations of the payment of decreetal amount, have been rightly convicted and sentenced. We uphold the conclusion and the sentence awarded by the State Commission in the impugned order."

32. It is stated by the O.Ps.- appellants that all were not served with the process of the Forum in the consumer disputes. The org. O.P.No.2 who is also one of the appellants in A-1546/03 has pleaded that he was in the custody during the period of 22nd February, 2003 to 25th April, 2003.

33. It is to be stated that the depositors-complainants have made available before us clinching evidence with regard to the service of the processes. It is noticed that Forum's initial processes were transmitted through Registered Post Acknowledgement Due and almost all the O.Ps. were duly served and postal acknowledgements in that behalf have been made available. Not only that as an abundant precaution on 9th January, 2003 under the directions of the District Forum, processes were also published as and by way of services to the O.Ps. in the local newspaper published on 9th January, 2003, the extract of which has also been made available. It would thus be noticed that the publication in the local newspaper, in any event was a proper service upon the O.Ps. As far as grievances of O.P.No.2 that he was in custody, considering the period during which he was in custody, which was between 22nd February, 2003 to 25th April, 2003, as a ground of non-service, it is necessary to note that the publication in the newspaper has been done on 9th January, 2003 i.e. much before the said O.P. was lodged in the custody.

34. That being so, the contention raised by the O.Ps. - appellants of non-service of processes would require to be rejected.

35. In the circumstances, we hold that since, there was failure on the part of the Pat Sanstha to honour its commitments of reimbursement of the amounts deposited with accrued benefits to its Investors, the same would clearly constitute deficiency in services and that being so, the findings rendered by the District Forum, Kolhapur to that effect are required to be upheld.

36. It is to be stated that awards against the O.Ps. have remained to be complied with and that being so, in view of default in compliance, the steps initiated by the District Forum seeking execution of the awards including initiation of action under Section 27 of Consumer Protection Act, 1986 against O.Ps. - appellants are also justified.

37. Before concluding, we would like to express out grave concern about the manner in which certain Credit Societies-Pat Sansthas and Co-operative Banks are functioning in total disregard and concern to the interest of the depositors, displaying total lack of diligence and prudence required in carrying on banking business. The Consumer Fora is flooded with the disputes of such nature all over the State. The modus-operandi in the system is identical almost in all the cases namely that on or after getting elected as Directors/Members of the Managing Committee, rosy pictures are depicted and projected before the common people, which include large number of persons from Rural area as well by offering high rate of interest on the deposits and thus and thereby inducing and alluring prospective investors to invest in a Fixed Term Deposit. However, when the question of honouring of the commitment of reimbursing the amounts to the deposits together with accrued benefits reaches, the financial affairs of the Credit Society-Pat Sanstha get completely dwindled virtually reverting them to the door steps of bankruptcy. It is relevant to note that in the inquiry Report, concerned Authority under the Maharashtra Co-operative Societies Act has highlighted this aspect noting advancement and sanction of the loans to certain persons, without ascertaining their repayment capacities.

38. To repeat, in the matters herein, findings of the Statutory Authority under the Maharashtra Co-operative Societies Act, which probed the affairs of the Credit Society, one of the grounds mentioned for such types of affairs is lack of exercise of proper precaution and prudency on the part of the Management Committee to advance and sanction the loans to the parties without examining their financial stability and repayment capacity. We are told that the Reports strongly indicts the Members of the Management Committee who were at the relevant time at the helm of the affairs. However, as it is stated that the matters are pending before the appropriate authority, we refrain from having our elaborate comments thereupon. However, the experience, which is common in all the matters, which have been brought before us, the pattern goes on the same line. It is now high time, therefore that the concerned authority takes appropriate and stern financial measures to curb and prevent such happenings before hand and not to let go things as fait accomplice. It is expected and hoped that in interest of the consumers-depositors and healthy banking practice, such steps well in advance are needed.

39. In the circumstances, we hold that both these appeals are devoid of merits.

40. Hence the following order :-

-: O R D E R :-

1. Appeal Nos.1197 & 1546/2003 stand dismissed.

2. However, there shall be no order as to costs.

3. It is clarified that in the light of our findings in the body of the judgement, Forum shall pursue the processes issued in execution against the appellants/org.O.Ps.

4. Copies of the order herein to be furnished to the parties.

5. We also direct the Registry of this Commission to forward copies of this judgement to the Reserve Bank of India and the concerned Secretary in charge of Co-operation of the Government of Maharashtra.

Appeals dismissed.