Goa State Cooperative Bank Ltd. vs Krishna Nath A. (Dead) through Lrs. and Others

109 of the Maharashtra Co–operative Societies Act, 1960, cannot be strictly applied so as to defeat the very purpose of the legislative intent of recovery of amount. The recovery of public money from defaulting members is absolutely necessary failing which huge financial loss would be caused to the appellant–bank. The interim stay granted by the tribunal cannot come to the prejudice of the bank. Thus, the provisions of section 109 have to be construed in such a fashion so as to enable continuance of the proceedings for recovery. As the interim order of the court cannot work to the prejudice of any of the parties, the provision of section 109 of the Act should be construed in a manner that it is not used to interdict recovery from the defaulting members. [Para 15, 16] [731-E-G]

1.2 It is apparent from the facts of the instant case that the winding up of the Society has been ordered and liquidator has been appointed as the Society has utterly failed to achieve its avowed objectives in disbursement of loans to proper persons and in its recovery. No doubt about it that the liquidation of the Society has come to an end after a particular period of time as fixed under section 109. However, on lapse of time as fixed under sub–section (1) of section 109 of the Act, proceedings have to be terminated by the Registrar on receipt of final report from the liquidator as ordered under section 109(2). However, at the same time, the Registrar has power to extend the period of 6 years fixed under section 109(1), not exceeding one year at a time and four years in the aggregate, and maximum for 10 years. In case time is not extended, the winding up comes to an end on the expiry of 6 years or at the end of the extended period. The total period can be 10 years. The second proviso to section 109 makes it clear that if the Registrar comes to a conclusion that the work of liquidation could not be completed by the liquidator due to the reasons beyond his control, he shall call upon the liquidator to submit his report. After getting the report, if the Registrar is satisfied that the realisation of assets, properties, sale of properties still remains to be realised, he shall direct the liquidator to complete the entire work and carry out the activities only for the purposes of winding up and submit his report within such period not exceeding one year reckoned from the date of receipt of the report from the liquidator. [Para 17] [731-H; 732-A-D] A. (D) THR. LRS.

1.3 Section 109 (2) of the Act contains a non-obstante clause which empowers the Registrar to terminate the liquidation proceedings on receipt of the final report from the liquidator. The liquidator shall state in the report that the liquidation proceedings of the society have been closed, and how the winding up has been conducted and the property and the claims of the society have been disposed of and shall include a statement showing a summary of the account of the winding up including the cost of liquidation, the amount, if any, standing to the credit of the Society in liquidation, after paying off its ‘liabilities’ including the share or interest of members and suggest how the surplus should be utilised. [Para 18] [732-E-F]

1.4 It is apparent that on the termination of the liquidation proceedings, liability of the members for the debts taken by them does not come to an end. There is no such provision in the Act providing once winding up period is over, the liability of the members for loans obtained by them which is in their hands, and for which recovery proceedings are pending shall come to an end. No automatic termination of recovery proceedings against the members is contemplated. On the other hand, on completion of the period fixed to liquidate the society, final report has to be submitted as to the amount standing to the credit of the society in liquidation after paying off its liabilities including the share or interest of members. Thus, even in the case of liquidation the accountability remains towards surplus and liabilities do not come to an end. Even if the period fixed for liquidation of society is over, that does not terminate the proceedings for recovery which have been initiated and appeals are pending. [Para 20] [732-H; 733-A-C]

1.5 The concept of restitution is a common law principle and it is a remedy against unjust enrichment or unjust benefit. It is a settled law that when there is stay of proceedings by court, no person can be made to suffer for no fault on his part and a person who has liability but for the interim stay, cannot be permitted to reap the advantages on the basis of interim orders of the court. The court cannot be used as a tool by a litigant to perpetuate illegality. A person who is on the right side of the law, should not have a feeling that in case he is dragged in litigation, and wins, he would turn out to be a loser and wrong–doer as a real gainer, after 20 or 30 years. Thus, the members who have obtained stay in appeal or on recovery proceedings or the case is pending, cannot take advantage of the fact that the period fixed for Liquidator under the Act is over. [Para 23] [734-C-D]

Amarjeet Singh v. Devi Ratan (2010) 1 SCC 417 : [2009]

15 SCR 1010 ; South Eastern Coalfields Ltd. v. State of M.P. (2003) 8 SCC 648 : [2003] 4 Suppl. SCR 651 – referred to.

1.6 Once a report has been submitted, the Registrar has to take action in terms of the report and in such circumstances when the proceedings for recovery are pending against the members and the Society has taken loan from the banks for its member, the actual money has to go to the creditor i.e., to the bank who is going to be benefitted by recovery of public money in the hands of members. In such cases it would be appropriate for the Registrar to send notice of the proceedings to a person who is to be benefitted from the recovery. In the instant case, the bank itself is a prime lender cum liquidator. The proceedings cannot come to the end. Thus, it is open to the bank to continue with the recovery proceedings and make recoveries from the defaulting members. Merely on the liquidation of Society, or the factum that the period fixed for liquidation is over, liability of the members for the loans cannot be said to have been wiped off. The disbursement of loan in an arbitrary manner and failure to recover was the very fulcrum on the basis of which winding up of the Society was ordered. [Para 24] [734-E-G]

1.7 The decision of the High Court being to the contrary, is set aside. Though the Liquidator cannot continue once the proceedings are over. Notice in such cases should be issued by the Registrar to the creditors and to persons for whose benefit recovery is to be made, to continue the pending proceedings in the instrumentality of court/tribunals/recovery officers etc. Appellant Bank can continue the pending proceedings. [Para 25] [735-A-B]

A. (D) THR. LRS.