Goa State Cooperative Bank Ltd. Vs. Krishna Nath A. (Dead) through L.Rs. and Ors. - (Supreme Court) (20 Aug 2019)

No automatic termination of recovery proceedings against members is contemplated on termination of liquidation proceedings

MANU/SC/1123/2019

Trusts and Societies

The question involved in the present matter is whether under the provisions of Section 109 of the Maharashtra Co-operative Societies Act, 1960 on expiry of the period fixed for liquidation, the proceedings for recovery of dues instituted/pending as against the members, shall stand closed.

Goa, Daman and Diu Cooperative Fisheries Federation Limited (Society) was registered under the Act as it is applicable to Goa. During the period from 1974 to 1980, the Society advanced loans to its members to the extent of Rs. 316 lacs to purchase engines/hull, winches, nets, etc. by raising loan from the Goa State Cooperative Bank Limited.

While granting loan to its members, serious irregularities were committed by the Board of Directors of the Society. Due to which, Registrar of Cooperative Societies filed Misfeasance Case. On the basis of enquiry conducted under Section 83(1) of the Act and in view of the report, the Registrar of Cooperative Societies, Goa passed an interim order under Section 102(1)(a) of the Act for winding up of the Society.

The Bank in the capacity of Liquidator filed 156 recovery cases against the defaulting members of the Society, to whom the loans were advanced. The amount of outstanding was reduced to Rs. 56 lacs towards principal and Rs. 154 lacs towards interest. Out of 156 cases filed against the defaulting members, 99 appeals were preferred to the Cooperative Tribunal, which were pending adjudication. The recovery could not be completed in view of the pendency of the appeals, interim stay granted by courts etc.

In the year 2001, one of the defaulting members of the Society filed Writ Petition in the High Court. The High Court allowed the writ petition vide judgment. It has been declared that, the winding up proceedings in respect of the Society are deemed to have been terminated with retrospective effect from 24th January, 1993. The Registrar and the Liquidator have been restrained from continuing with the winding up/liquidation proceedings in respect of the Society.

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. 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.

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. 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.

The concept of restitution is a common law principle and it is a remedy against unjust enrichment or unjust benefit. The court cannot be used as a tool by a litigant to perpetuate illegality. 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.

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. The decision of the High Court to the contrary, deserves to be and is hereby set aside. Though, the Liquidator cannot continue once the proceedings are over. Appellant Bank can continue the pending proceedings. The appeal is allowed.

Tags : LIQUIDATION LIABILITY PROCEEDINGS MEMBERS