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2020 DIGILAW 224 (GUJ)

Hemantkumar Dilipbhai Patel v. Registrar

2020-02-03

A.Y.KOGJE

body2020
ORDER : 1. This petition under Article 226 of the Constitution of India is filed by the petitioners for setting aside the order dated 24.12.2019 and order dated 04.01.2020 passed by the respondent No.2-District Registrar. 2. By the aforesaid order, the District Registrar has appointed an administrator for the Olpad Sayan Kim Nagrik Dhiran Sahakari Mandali Limited, Olpad and appointed committee members of custodian committee in place of administrator by a subsequent order dated 04.01.2020. 3. Learned advocate appearing for the petitioners submit that the effect of the this order is that the petitioners are now barred from contesting elections of the committee members which is a serious consequence, but the grounds on which such order is passed are the grounds which are either negligible and which can be treated as minor infirmity in the administration of the society. He drew attention of this Court to the conclusion drawn in the impugned order dated 24.12.2019 and submitted that the order is passed on the basis of audit report for the period between 2016-17 and 2017-18. The petitioners who are Directors were elected in the March-2017 and therefore, could not be held responsible for the period prior thereto. Another irregularity is with regard to non-maintenance of the register of members, which according to the petitioners is the only infirmity of a form mentioning legal heirs not being appended. This infirmity can be attributed to the office bearers, for which the petitioners who are Directors, cannot be held directly responsible. It is submitted that yet another infirmity is with regard to byelaw No.18/1 and non framing of any rules for the purpose of accepting of fixed deposits. It is submitted that the society has been in existence since 1968 and therefore, such discrepancy cannot be attributed only to the petitioners who came in the year 2017 when the practice has been followed without any objections since inception. 2.1. It is submitted that the main issue is with regards to misappropriation of the funds of the society, which report to the tune of Rs.34 Lakh and odd however, the same is attributed to one agent Jitnedranbhai Purshottambhai Patel, who has taken up the responsibility of repayment. 2.1. It is submitted that the main issue is with regards to misappropriation of the funds of the society, which report to the tune of Rs.34 Lakh and odd however, the same is attributed to one agent Jitnedranbhai Purshottambhai Patel, who has taken up the responsibility of repayment. He drew attention of this Court to certain documents to indicate that the petitioners had taken up the responsibility that the said amount of misappropriation would be recovered from Jitendrabhai Patel or else the petitioners themselves would make good such loss and it is indicative of the bonafide conduct of the petitioners towards the society. It is submitted that the Chairman himself had exonerated the petitioners from any responsibility of misappropriation. It is lastly submitted that the respondent has acted on the dictum of political leader namely member of Legislative Assembly of that area to accept his recommendation and straightway named the persons recommended by him to be appointed as committee persons. It is submitted that before passing the impugned order, the respondent-District Registrar ought to have verified the credentials of such members as according to the petitioners, one such member is facing criminal prosecution, another member was a person who was defeated in election and thereby by back door entry, has made entry into the committee. He therefore, relied upon the decision of Apex Court in the case of State of Madhyapradesh and another v/s. Sanjay Nagayach and others, reported in (2013) 7 SCC 25 and drew attention of this Court to para-42. 3. As against this, learned senior advocate appearing for the caveators submitted that the issue at the root is negligence on the part of the petitioners which has resulted in financial loss to the tune of approximately Rs.34 Lakhs to the society and at the same time loss of faith amongst its members investors who are only small time businessmen like street vendors who are making investment on daily basis with the society. It was the prime responsibility of the petitioners as the misappropriation has taken place in connection with the investment from the constituency of the society. It is submitted that the respondent authorities have acted as per the provisions of law and upon receiving the detailed report of special auditor have issued show-cause notice to which the petitioners have made necessary representation and after considering the same, the impugned orders have been passed. It is submitted that the respondent authorities have acted as per the provisions of law and upon receiving the detailed report of special auditor have issued show-cause notice to which the petitioners have made necessary representation and after considering the same, the impugned orders have been passed. It is submitted that by virtue of the impugned order, the Chairman is also removed and will also face disqualification alongwith all the committee members and it is only five committee members who have been removed alongwith the Chairman have challenged this order. 3.1. It is submitted that is it s case of gross financial irregularity which has necessitated the impugned orders. Learned advocate has submitted that merely because the member of Legislative Assembly has made recommendation that in itself cannot be the ground of presuming malafides. It is submitted that since it is question of financial recovery from the local person and still in confidence of the local investors, the order is passed forming the committee of administrators which is out of the members who would be in a better position to effect recovery. 3.2. Learned senior advocate has lastly submitted that the orders in question are appealable under Section 153 of the Gujarat Co-operative Societies Act, 1961 (for short “the Act”) and any order under Section 153 is still revisable under Section 155 of the Act. It is also submitted that Rule 79 of the Rules onwards prescribed for the procedure for preferring an appeal and therefore, any person who is aggrieved can prefer an appeal. 4. In rejoinder, learned advocate for the petitioners submitted that the alternative remedy is available to the petitioners as the committee consist of 15 members of which the petitioners constitute 5 and therefore, when the order under Section 81 of the Act is with regards to the supersession of committee, it is only the committee, which can challenge such order by way of appeal as petitioners do not form the majority of the committee, the petitioners in their individual capacity cannot prefer the appeal. He reiterate that effect of order under Section 81 of the Act which is impugned particularly under Section 81(7) which will render the petitioners ineligible to become members of the society for a period of six years. 5. The Court has considered the rival submissions of the parties and perused the documents placed on record. He reiterate that effect of order under Section 81 of the Act which is impugned particularly under Section 81(7) which will render the petitioners ineligible to become members of the society for a period of six years. 5. The Court has considered the rival submissions of the parties and perused the documents placed on record. The root for initiating the action is the financial irregularity. The Olpad Sayan Kim Nagrik Dhiran Sahakari Mandali Limited, Olpad was established on 14.10.1968 under the provisions of the Act with an objective of protecting the interest of its members and as a part of its operation, have invited small time street vendors and other small business persons to make investment on day to day basis for which agents were being appointed to go to the member investors and received their small investment on daily basis. Over the period looking to the objectives of the Society according to the sub-Rule, the society has to collect the share capital and various types of deposits from the society members and finance the members of the society as per their requirement. At the end of the year 2018-19, the society has the following deposits. (1) Package savings Rs.5,20,17,950/- (2) Permanent membership deposit Rs.2,30,61,066/- (3) Recurring saving scheme Rs.9,26,16,100/- 6. It appears from the report submitted by the auditor on 05.09.2019 that misappropriation was in the following manner. Out of the aforesaid deposits, the society runs daily recurring in the name of Recurring Saving Scheme by appointing of the agents. Total five agents were appointed in the society, of which Mr. Jitendrabhai Parsottambhai Patel was appointed vide Managing Committee Resolution No. 12 dated: 22/07/2006. Thus, as Mr. Jitendrabhai Parsottambhai Patel, residing at: Omnagar society, Gothan Road, Sayan, Ta-Olpad, Dist: Surat misappropriated the money, the misappropriation of Rs. 14,02,280/- was estimated as per his preliminary confession, but as the office bearers of the society verified total 522 of his daily recurring accounts, the total amount of Rs.34,80,840/- was found to be misappropriated. 51 out of the aforesaid accounts have been closed and 16 accounts have not been verified. Thus, the said misappropriation is only for the Sayan village.Society's chairman Shri Sanmukhbhai Govindbhai Dhimmar has filed a complaint with Olpad Police Station bearing Crime Registration Number 75/2019 under Section(s) 406, 409, 420 of the I.P.C. against accused Shri Jitendrabhai Parshottambhai Patel on 13/07/2019 for misappropriating Rs.34,80,840/-. Thus, the said misappropriation is only for the Sayan village.Society's chairman Shri Sanmukhbhai Govindbhai Dhimmar has filed a complaint with Olpad Police Station bearing Crime Registration Number 75/2019 under Section(s) 406, 409, 420 of the I.P.C. against accused Shri Jitendrabhai Parshottambhai Patel on 13/07/2019 for misappropriating Rs.34,80,840/-. The stated offence is being investigated by Olpad Police Station. Considering the resolutions passed by society, no resolution has been passed with regard to overseeing administration of the stated scheme as well as evaluating performance and books of accounts of Recurring Agents on month on month basis in a board meeting. Shri Jitendrabhai Parshottambhai Patel, an agent in Recurring Scheme, has signed an indemnity of Rs.2,00,000/- on 08/05/2017. A copy thereof is annexed here with. Considering the sub-rules of society, Sub-rule 16(6) provides that the books of accounts be supervised and examined by the Management Committee. The duties of Manager of Society has been decided vide Sub-rule 16(14). Accordingly, as per Sub-rules 9 and 11 of society, the responsibility of accounting work rests with the Manager. As per sub-rule 18(1) of the society, the society can collect deposit from the members in the form of savings or fixed deposits and rules for the same will be decided by the administrative committee. The administrative committee should have prescribed rules for recurring deposit, which they have not prescribed. Also, the manager is required to sign the daily sheet as functioning of an agent is under direct control of the manager and this suggests his negligence. On examining the audit report and the rectification report of 2016-17 and 2017-18 of the society, the administrative committee has acted against the interest of majority of the society members by violating Section - 39 and Section - 85 of Gujarat Cooperative Society Act, 1961 and Section - 21 of Gujarat Cooperative Society Act, 1965 and the duties assigned to them under the cooperative laws and the bye-laws. The society has not rectified the defects contained in Audit report and thereby violated the Section - 85. For instance, the following deficiencies are occurring repeatedly in the last two years reports of the society and the society committee is continuously violating the legal duties assigned to them. The committee is continuously violating provisions of Section - 39 and Section - 21 of Gujarat Cooperative Society Act, 1961. No proper steps have been taken by the committee to rectify such deficiencies. 7. The committee is continuously violating provisions of Section - 39 and Section - 21 of Gujarat Cooperative Society Act, 1961. No proper steps have been taken by the committee to rectify such deficiencies. 7. On the basis of such report, show-cause notice dated 16.09.2019 came to be issued to the society which recorded irregularities as under:- (1) Provide copy of by-laws including modifications to the members. (2) To file arbitration petition against debtor at the end of tenure. (3) Maintain membership register in stipulated format. (4) On hand cash has crossed limit in some cases. Regarding obtaining approval for the same in the next administrative meeting. (5) Regarding preparing budget in the beginning of year and match the same with actual income and expenditure from time to time. (6) Regarding paying interest of dividend savings to members into accounts instead of cash. (7) Before approving credit, make it a procedure to accept loan procedure after ensuring regular guarantors and to obtain proof of income from all applicants to verify capacity to repay loan. With respect to No.7 in reference, it is referred that amount of Rs.34,80,840/- was mismanaged in total 522 recurring accounts and agent Shri Jitendrabhai Parshottambhai Patel misappropriated money. Thus, administrative committee of the Society has failed in managing Society’s funds by maintaining interest of majority members. Further, total lack of care has been displayed in keeping direct control over work of manager and recurring agent. By doing so, the Committee has failed in checking mismanagement of valuable funds of the Society and violated the provisions of Co-operative Laws and By-laws. 8. At this stage, it is pertinent to refer to complaint given by the Chairman of the society to the police authorities against the erring agents and the Directors of the society that is to say the petitioners, wherein the allegations are to the effect that the accused no.3 to 7 were holding important post of director of the company and they are legally bound to keep the interest of the society secured, despite that, benefit was availed by accused no.2 to 8 also alongwith accused no.1. Other accused persons in collusion with accused no.1, with malafide intention to protect accused no.1, hatched conspiracy and gave written guarantee and by not complying the said guarantee and misusing their post and criminal liability of these accused persons also arise as there is probability of collusion of all these accused person in the misappropriation committed by accused no.1, and by planning conspiracy to misappropriate fund of the society, they have committed offences like fraud, breach of trust, cheating and misappropriation punishable under Section-409, 420, 120B and 114 of the Indian Penal Code. Hence, the complaint is filed to take legal against them. 9. In connection with this, an FIR has been filed bearing C.R.No.I-75 of 2019 against the erring agent. The investigation is going on and the said agent has been enlarged on regular bail on condition to deposit the amount with the society. However, such amount has also not been yet deposited with the society and the society is still continued to face financial loss. 10. The Court is of the view that in the facts of the present case, when it is a case of misappropriation for an amount approximately of Rs.34 Lakhs, causing financial loss to the society and that no steps having been taken by the society for effecting recovery and the resolutions which are passed in the directions of recovery are merely an eyewash, the Court does not deem it fit to interfere. 11. The impugned order is clearly order under Section 81 of the Act, against which appeal is provided under Section 153 of the Act. Section 153 of the Act provides for an appeal against an order or decision under Section 81 of the Act, including other sections mentioned therein. In the present case, the order which is passed by the District Registrar, Section 153(A) of the Act provides for appeal to the State Government. The procedure for filing an appeal is prescribed under Rule 79 of the Rules. Section 80 of the Act provides for the procedure for presentation of an appeal. In none of the aforesaid provisions, the Court is able to find out any exclusion of a person to preclude him from preferring an appeal as contended by the petitioners. The procedure for filing an appeal is prescribed under Rule 79 of the Rules. Section 80 of the Act provides for the procedure for presentation of an appeal. In none of the aforesaid provisions, the Court is able to find out any exclusion of a person to preclude him from preferring an appeal as contended by the petitioners. In the opinion of the Court, the petitioners who were members of the society and if aggrieved by the order passed under Section 81 of the Act, they cannot be precluded from preferring an appeal on the ground that the order under Section 81 of the Act is an order of supersession of committee and therefore, such order is against the committee and therefore, if any appeal is to be preferred, it is only the committee which can prefer an appeal. Therefore, the ground that the petitioners could not have preferred the appeal under Section 153 of the Act as the petitioners are not the majority of members of the committee which is superseded, is unfounded. 12. The Apex Court in the case of State of Madhya Pradesh (Supra) v/s. Sanjay Nagayach and others is inclined to give general directions keeping in view the mushrooming of cases in various Courts, where supersession of the elected members was sought to be challenged. While doing so, in paras-42.3 and 42.4, the Court has held as under:- “42.3 Elected Committee in the office be given sufficient time, say at least six moths, to rectify the defects, if any pointed out in the audit report with regard to incidents which originated when the previous committee was in office. 42.4 The Registrar/Joint Registrar are legally obliged to comply with all the statutory formalities, including consultation with the financing banks/controlling banks etc. Only after getting their view, an opinion be formed as to whether an elected Committee be ousted or not.” In the opinion of the Court, the facts of the present case are pertaining to the grave financial irregularity and more particularly financial irregularity in case of a society which is meant for protecting the investors of small time business people like street vendors, it was for more obligatory upon the committee members to protect the investors and once having realized about the misappropriation, to take effective steps to bring back such misappropriate amount. But in the instant case, it is found that the efforts made for recovering the amount was merely an eyewash with no effective results of getting the money back with the society. 13. The Court may have proceeded further to deal which each contentions on merits as has been argued by the learned advocate however, as the Court has considered the issue of alternative remedy as aforesaid, the observations made on merits may be treated to be observations for the limited extent of not interfering with the orders under Article 226 of the Constitution of India lest it may not come in way of the petitioners to prefer an appeal under Section 153 of the Act. 14. In view of the aforesaid, no case is made out for interfering. The petition is hereby dismissed.