JUDGMENT : Hrishikesh Roy, J. Heard Mr. PN Goswami, the learned counsel for the petitioner Union in the PIL No.33/2010. Also heard Mr. UK Nair, learned counsel who represents the petitioner in the WP(C) No.2379/2014. The 17 petitioners in the WP(C) No.4368/2006 are represented by Mr. HA Sarkar, learned counsel. 2. From the respondents‘ side, Dr. B. Ahmed, the learned Standing Counsel appears for the Registrar of Co-operative Societies and the Officers of the Cooperation Department. The Union Co-operative Bank Ltd. (hereinafter referred to as ‘the co-operative entity) are represented by the learned counsel Mr. BD Goswami. This co-operative entity was registered on 2.4.2001, under the Assam Co-operative Societies Act, 1949 (hereinafter referred to as ‘the Co-operative Act, 1949‘). The private respondents in the PIL No.33/2010 were responsible for the interim management of the co-operative entity and learned Advocates Mr. R. Islam and Mr. R. Sarma appear for a few of them. The senior counsel Mr. SS Sharma appears for the Reserve Bank of India (RBI) (respondent No.5), in the PIL. 3.1 The petitioners in the PIL is a registered association of the employees of the co-operative entity, which was previously known as the Deposit Wing of the Assam State Co-operative Agriculture & Rural Development Bank Ltd. (ASCARD). They allege anomalous functioning of the co-operative entity and seek inquiry upon those, managing the organisation. 3.2 The writ petitioner Motiur Rahman was designated as the CEO of the Interim Board of Management of the co-operative entity and his plea in the WP(C) No.2379/2014 is to disburse his unpaid salary, totaling Rs.14.45 lakh, from June, 2005 to July, 2012. 3.3 The 17 petitioners in the WP(C) No.4368/2006 have purchased shares and invested in the co-operative entity and in the WP(C) No.4368/2006 they prays for refund of their investment. 4. The formation of the co-operative entity relate back to the now defunct, M/s. Krishna Credit Co. Ltd., which managed their business in Assam through twenty five branches. When Krishna Credit was disbanded, attempt was made to continue the business in the Assam Branches of the Krishna Credit and this was formalized through an agreement dated 5.3.1993, between the ASCARD Bank and the management of the Krishna Credit. The new entity was given the nomenclature, the Deposit Wing of the ASCARD Bank. When Krishna Credit was disbanded, attempt was made to continue the business in the Assam Branches of the Krishna Credit and this was formalized through an agreement dated 5.3.1993, between the ASCARD Bank and the management of the Krishna Credit. The new entity was given the nomenclature, the Deposit Wing of the ASCARD Bank. Subsequently the ASCARD Bank disassociated themselves from the business but the entity continued to retain the name of ASCARD Bank, in their name. 5. When irregularities in the functioning of the entity was noticed, few collecting agents from the Silchar Branch of the Deposit Wing of the ASCARD Bank, filed the Civil Rule/ PIL No.2454 of 1995 and in that proceeding, the High Court on 12.1.2000 declared, inter alia, that the 25 Branches of Krishna Credit Co. Ltd. are working independently of the Company and also of the ASCARD Bank. 6. During the proceeding of the case, formal recognition was attempted for the co-operative entity and this led to the communication dated 8.1.2001 (Annexure-B) of the RBI, under which the RBI approved the proposal for an Interim Board of Management to manage the affairs of the entity. The Board was approved to be constituted with 5(five) serving officers and Motiur Rahman being the senior-most, was designated as the Chief Executive Officer of the Interim Management Board. 7. But since in the meantime, the Krishna Credit Co. Ltd. was disbanded and the ASCARD Bank had withdrawn, the functioning of the new entity had to be formalized and this led to incorporation of the Union Co-operative Bank Ltd. which was registered under the Co-operative Act, 1949. In the registration certificate issued on 02.04.2001 to the co-operative entity, their area of operation was specified as the 25 urban area branches of the Krishna Credit Co. After the new entity was formed, the RBI noticed that they had failed to satisfy the terms of the conditional approval granted on 8.1.2001 and accordingly the RBI‘s approval was withdrawn on 10.9.2005 (Annexure- D). As a result, the co-operative entity was directed to stop doing banking business and they were also advised to refund the deposits collected from the non-members. 8. In the RBI‘s withdrawal order of 8.9.2005 (Annexure-E), the following observation was made: “……………. 3. As a result, the co-operative entity was directed to stop doing banking business and they were also advised to refund the deposits collected from the non-members. 8. In the RBI‘s withdrawal order of 8.9.2005 (Annexure-E), the following observation was made: “……………. 3. With a view of fully satisfy itself about the proposed bank’s eligibility for license and to verify its compliance with the conditions of “in-principle” approval, two scrutinizes were carried out by Reserve Bank of India in August 2004 and November 2004 under section 22(3) of the Banking Regulation Act, 1949 (AACS), Major findings of the scrutinies were as under: a. The Chief Executive Officer (CEO) of the entity could not provide the list of share holders and contribution made by each of them towards share capital in the name of Union Co-Operative Bank Ltd. b. Bye-laws were not amended to ensure two professionals on the Board at all times. c. Bye-laws were not amended to enhance the authorized share capital of the proposed bank from Rs.200.00 lakh to the required minimum stipulated in „in principle? approval of RBI. d. The entity could not show its balance sheet and P&L A/C for the last three financial years. It was not maintaining any books of accounts at Administrative office. e. The entity was collecting deposits from the public in the name of the ASCARD bank (Deposit Wing) through its various branches. The CEO could not furnish information regarding total deposits collected from the public through all its branches. f. No proper record was available at the administrative office to verify the collection of share application money by the various branches of ASCARD Bank Ltd. (Deposit Wing) and subsequent remittance of the same to its earlier Administrative office at Maligaon, Guwahati. However, sample checking of the share applications revealed that in some applications, money receipts evidencing contribution made by the applicants were not available. Further, in the share application, the space kept for office use, confirming that the proposed bank had accepted the applications together with admission fees and subsequently admitted the applicants as members was lying vacant in respect of all applications. g. The shares were sold by Interim Board of Management of ASCARD bank (deposit wing). Further, in the share application, the space kept for office use, confirming that the proposed bank had accepted the applications together with admission fees and subsequently admitted the applicants as members was lying vacant in respect of all applications. g. The shares were sold by Interim Board of Management of ASCARD bank (deposit wing). The entity had not made any formal order for allotment of shares due to lack of expertise and the provisional share certificates had been issued only to those shareholders who had asked for the same. h. The entity was not maintaining proper books of accounts and failed to furnish the financial statements like balance sheet, profit and loss account etc. of its 24 branches for the financial years 2000-01, 2001-02, 2002-03 and 2003-04. Hence the financial position of the proposed entity could not be ascertained. i. The internal control system was totally absent in the entity. The Head office does not have any control over its 24 branches and development centers which are operating independently. 4. The audit of accounts of the proposed bank was conducted by M/S B.K. Bhattacharjee & Co. Guwahati (Chartered Accountants) for the year 2001-02, 2002-03 & 2003-04. A copy of audit report for the above stated years was submitted by the firm to RBI in June 2005, the audit report revealed following serious deficiencies/irregularities in the functioning of the proposed entity. (i) The ASCARD bank (deposit wing) is not maintaining its books of accounts in conformity with the generally accepted principles and practices followed by the financial institutions. (ii) Each branch has been functioning independently, barring the 7 branches, indicated in para 4.02 of the repost, which were visited by the auditors, for balance sheet and P/L accounts of the other branches, the reliance was made mainly on the certification by the Management. (iii) In most of the branches, General ledger was not available, rough sheets/work sheets were produced, recording information in some cases, like General ledger. (iv) Bank statements in respect of accounts with other banks were not on records for verification in case of certain branches. (v) Inter-office transactions as on March 31, 2004 as shown in the balance sheet could not be reconciled. (vi) There was lack of proper internal control and internal audit in accounts maintained by the branches. (iv) Bank statements in respect of accounts with other banks were not on records for verification in case of certain branches. (v) Inter-office transactions as on March 31, 2004 as shown in the balance sheet could not be reconciled. (vi) There was lack of proper internal control and internal audit in accounts maintained by the branches. (vii) Capital and reserve and surplus of the entity of all the years ended March 31, 2001, 2002, 2003 and 2004 have been reported to be nil and (viii) The entity was continuously incurring cumulative net losses from financial year ended 2001 to 2004, its net losses as at the end of March 31, 2004 stood at Rs.456.93 lakh. 5. In view of the above, it is concluded that the proposed bank is not complying with section 22(3)(a, b and e) of the Banking Regulation Act, 1949 (AACS). Keeping in view these findings the Reserve Bank is satisfied that continuing the activities of such entity and granting of licence to such an entity will be detrimental to the interest of its present and future depositors. Therefore, in exercise of the powers granted to Reserve Bank of India under section 22(3) of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies), the “in principle” approval granted to the proposed Union Co-operative Bank Ltd. Guwahati stands withdrawn from the date of receipt of this order. The proposed Union Co-operative Bank Ltd. (erstwhile deposit wing of ASCARD bank ltd.) shall therefore stop conducting banking business from the date of receipt of this order and deposits collected by it from non-members should be refunded immediately.” 9. Although the approval granted to the Interim Board of Management was withdrawn by the RBI in September, 2005 itself, this information was not disclosed to the Court and accordingly on 22.3.2007 (Annexure-F), the Civil Rule/PIL No.2454 of 1995 was disposed of with the observation that the Interim Board, approved by the RBI, will revive the activities of the co-operative entity and also take steps to satisfy the criteria of the RBI, to secure the Banking license. 10. However although the co-operative entity was allowed to operate, they failed to secure the banking license, under Section 22 of the Banking Regulation Act. 10. However although the co-operative entity was allowed to operate, they failed to secure the banking license, under Section 22 of the Banking Regulation Act. From the RBI‘s letter of 19.11.2013 sent to the Registrar of Co-operative Societies, we now know that banking license can‘t be granted, as the earlier policy of permitting new Urban Co-operative Banks or conversion of Co-operative Society into Co-operative Banks, has been discontinued. Thus the RBI clarified that the application for Banking license can‘t be considered and accordingly the Registrar of Co-operative Societies was requested to direct the co-operative entity to delete the word “Bank” from certificate of registration and also from the bye-laws and to ensure that they do not engage in any banking activities. 11. Since serious allegations are made in the PIL about unauthorized collection of money by the co-operative entity and their misappropriation in the branch offices and also in the head office, this Court on 3.5.2013 had directed an inquiry with participation of all stakeholders on the following aspects on the functioning of the entity:- (i) Extent of funds collected from the depositors; (ii) Extent of funds available for return to the depositors; (iii) Remedial steps required to be taken by way of proceeding against the persons responsible for committing illegalities/irregularities or otherwise; (iv) Status of functioning of erstwhile Union Co-operative Bank as thrift and credit co-operative society. 12. Following the court‘s directions, the inquiry was conducted by the Jt. Secretary of the Cooperation Department and in his report dated 19.10.2015, the Inquiry Officer noted that 13 of the 25 branches of the co-operative entity are non-functional. Moreover around Rs.6.68 crores was collected from the depositors. The Inquiry Officer found from the balance sheet (audited or otherwise) that money is not available to refund the dues of the share holders/depositors. It was further noted that the accumulated amount is kept in fixed deposit and the interest thereof is being utilized, for the functioning of the entity. 13. The following portion of the Inquiry Report of 19.10.2015 being relevant is extracted for ready reference: “……………………. Extent of funds available for return to the depositors:- From the Balance Sheet available for the period from 2003-04 to 2012-13 (Annexure-IV) and unaudited Balance Sheet of 2013-14 and 2014-15 (Annexure- V) it has come to light that there is no fund for refund to the shareholders/depositors. Extent of funds available for return to the depositors:- From the Balance Sheet available for the period from 2003-04 to 2012-13 (Annexure-IV) and unaudited Balance Sheet of 2013-14 and 2014-15 (Annexure- V) it has come to light that there is no fund for refund to the shareholders/depositors. The profit and loss status of the last 3 years i.e. 2012- 13, 2013-14 and 2014-15 is as udner:- Year Income Expenditure Loss 2012-13 3,56,42,868.00 3,60,04,528.00 3,61,660.00 2013-14 3,89,60,143.00 4,01,95,496.00 12,27,353.00 2014-15 3,35,21,004.00 4,10,07,552.00 74,86,547.00 From the above, it can be construed that there is no fund available for refund to the depositors. It is found from the Balance Sheet (Annexure-IV & V series) that the authority of the Union Co-operative Bank Ltd. has been investing Rs.6.68 crore and the interest amount is being utilized for various purposes. The petitioners submitted during hearing that the interest amount of Rs.6.68 crore may suffice to a certain extent to refund the money to the depositors. This is, however, not a practical proposition since the actual amount deposited could not be ascertained and numbers of depositors also are not completely available. It is only after the confirmation of number of depositors and amount deposited that the refundable amount could be ascertained. The alternative way to arrange fund for refunding to the depositors may be liquidation of assets of the Union Co-operative Bank Ltd. The assets of the Union Co-operative Bank Ltd. is now valued at Rs.459.97 lakh. Since the deposited amount accounted for is Rs.6.68 crore, disposal of assets also may not suffice the refund. Remedial steps required to be taken by way of proceedings against the persons responsible for committing illegalities/irregularities or otherwise: From the particulars received form the petitioners (Annexure-I, II) as well as examination of relevant documents (Annexure-III, IV, V) it has come to light that any single person cannot be held responsible for committing illegalities or irregularities. It is sure that the funds deposited by the shareholders were not accounted for completely which otherwise can be treated as misappropriation. But the amount of irregularities or misappropriation could not be ascertained since all the 25 branches of the said Union Co-operative Bank Ltd. are not functioning as of now. Verification of records of the remaining branches may yield partial result only. But the amount of irregularities or misappropriation could not be ascertained since all the 25 branches of the said Union Co-operative Bank Ltd. are not functioning as of now. Verification of records of the remaining branches may yield partial result only. On the other hand, though RBI had withdrawn the banking license of the Union Co-operative Bank Ltd., the institution has been functioning in the name and style of Union Co-operative Bank Ltd. with the withdrawal of banking licence by the RBI, the Union Co-operative Bank Ltd. has no further authority to use the term “Bank”. RBI has repeatedly been requesting for deletion of the word “Bank” from the entity’s name and its bye-laws. A copy of letter No. UBD (Guwa) 318/04.17.000/2013-14, dated 7.11.2013 is enclosed at Annexure-VI. There is no harm in running the organization as a thrift and credit co-operative society under the provision of the Assam Co-operative Societies Act, 2007. The organization is found to be using the term “bank” without the authority of RBI. A list of the chief functionaries of the Union Co-operative Bank Ltd. is enclosed at Annexure-VII. Status of functioning or erstwhile Union Co-operative Bank Ltd. as thrift and credit co-operative society: The accounts together with the Balance Sheet of the Union Co-operative Bank Ltd. located at Kanaklata Path, Bhangagarh, Guwahati-5 have been verified for the years from 2003-04 to 2014-15. It is found from the accounts and Balance Sheet that the organization is not making profit at all. It has been investing the depositor’s fund of Rs.6.68 crore and utilizing the interest besides other business as thrift and credit co-operative society. Even then, the organization fails to make profit. The management of the organization should prepare concrete plan to make it a profit making thrift and credit co-operative society. …………………………..” 14. As can be seen from the Inquiry Report quoted above, the functioning of the co-operative entity is unsatisfactory, but improvement may be possible. But in the absence of banking license, the co-operative entity must delete the word “Bank” from their name, since reflection of this word in the registered name, is likely to mislead the investors and others. Therefore, steps will have to be taken to correct the nomenclature of the registered entity. 15. But in the absence of banking license, the co-operative entity must delete the word “Bank” from their name, since reflection of this word in the registered name, is likely to mislead the investors and others. Therefore, steps will have to be taken to correct the nomenclature of the registered entity. 15. The bye-laws of the co-operative entity was perused by us and we find from Clause 5 that it was conceived to be an Urban Co-Operative Bank under license from the RBI. But since earlier RBI policy was withdrawn w.e.f. 2004 and the RBI is not going to issue fresh banking license, the expectation of the registered entity to convert itself into a co-operative bank, may not fructify at this stage. Therefore some changes in the co-operative entity will have to be made so that it can function as a normal co-operative society, without the liberty and responsibility of a licensed bank. 16. The inquiry report of 19.10.2015 reveals that the co-operative entity is not making any profit and it is kept operational with the F.D. interest earned from the depositors fund, invested in fixed deposits. Under the applicable law, the Registrar of co-operative societies has a key role in lawful functioning of a co-operative society. The Registrar is made responsible under Section 81 of the new Co-operative Act, 2003 to cause the accounts to be audited and also to ensure that proper accounts is maintained. The power of inspection of a co-operative society is vested on the Registrar and the officer is also empowered to settle the disputes between the society and their employers. He also has the power to cancel the registration of a society, under Section 94 of the Co-operative Act. 17. The co-operative societies are expected to adhere to the norms applicable for them under the Co-operative Act and if any deviation is noticed, rectificatory steps can be taken by the Registrar or the errant society can be penalized. Therefore, when we are confronted with employee‘s complaint of unpaid salary and non refund of the dues of the investors, we feel that the Registrar is eminently capable to deal with such situation. In so far as change of nomenclature and the bye-laws of the co-operative entity is concerned, requisite steps can also be taken in this regard, by the Registrar. 18. In so far as change of nomenclature and the bye-laws of the co-operative entity is concerned, requisite steps can also be taken in this regard, by the Registrar. 18. In such circumstances, we are of the considered opinion that interest of all stakeholders will be best served by directing the Registrar, Co-Operative Societies to not only act on the recommendation made by the Inquiry Officer but also to deal with the complaints of the investors and the employee of the co-operative entity. If nomenclature of the entity needs to be changed to avoid misleading of the investors and to reflect that it is not engaged in any banking activities, steps should be taken by the co-operative entity to amend their name and also to alter their bye-laws to avoid misrepresentation of those who deal with them. On these aspects, pro-active steps are allowed to be taken by Registrar, as per the request letter of the RBI. 19. Under the RBI‘s current policy, no license can be expected for new Urban Co- Operative Banks or conversion of co-operative societies into banks and therefore banking activities will not be legally permissible for the co-operative entity. But if there is any change of policy, this order will not preclude the entity to apply for consideration, in accordance with the Section 22 of the Banking Regulation Act. 20. We find from the inquiry report of the Joint Secretary that he was unable to secure the records from the 13 closed branches. Moreover even the operational branches didn‘t co-operate with the enquiry officer. But it is important to protect the interest of the investors and the employees. Therefore both groups are given the liberty to apply before the Registrar of co-operative societies, for his effective intervention, to protect their respective interest. 21. In our perception, a competent enquiry is likely to unearth more relevant facts to deal with the claims made upon the entity and therefore we direct the Registrar to make the inquiry into the functioning of the co-operative entity so that the allegations made in these cases can be verified. Upon conclusion of inquiry, whatever action is warranted, the Registrar should take those steps in the interest of the employees, investors and the co-operative entity itself. Appropriate steps for revival of the co-operative entity may also be taken by the Registrar in conformity with Registration Act and the applicable norms. Upon conclusion of inquiry, whatever action is warranted, the Registrar should take those steps in the interest of the employees, investors and the co-operative entity itself. Appropriate steps for revival of the co-operative entity may also be taken by the Registrar in conformity with Registration Act and the applicable norms. It is directed accordingly. 22. With the above order, all three cases are disposed of by leaving the parties to bear their respective cost.