The liability of a member of the Managing Committee of a Co-operative Society for misfeasance requires proof of an injurious transaction and negligence on the part of the member.

Headnote:
CO-OPERATIVE SOCIETY - MISFEASANCE - LIABILITY OF MEMBER OF MANAGING COMMITTEE - NECESSITY TO PROVE INJURIOUS TRANSACTION AND NEGLIGENCE - TRANSACTION OF CONVERSION OF SECURITIES - ABSENCE OF EVIDENCE OF INHERENT INJURY OR NEGLIGENCE - LIABILITY NOT ESTABLISHED.
Fact of the Case:

The petitioner, a member of the Managing Committee of a Co-operative Bank, was held liable for misfeasance and ordered to pay compensation for losses incurred by the Bank due to fraudulent transactions involving the conversion of Government Securities. The transactions were carried out by an authorized Broker, Barve, who was introduced to the Bank by the petitioner. The petitioner was aware that the Chairman and Secretary of the Bank were not authorized to make such transactions without the approval of the Managing Committee, but the Committee ratified the transactions after they were completed.
Finding of the Court:

The Court found that there was no evidence to prove that the transaction of conversion of securities on October 3, 1951, was inherently injurious or that the petitioner was negligent in not preventing the Chairman and Secretary from delivering securities to Barve on that date. The Court held that the failure of Barve at a subsequent stage should not have been visited on the petitioner.
Issues: 1. Whether the petitioner was guilty of misfeasance in connection with the conversion of Government Securities by an authorized Broker, Barve, resulting in losses to the Bank. 2. Whether the transaction of conversion of securities on October 3, 1951, was inherently injurious or that the petitioner was negligent in not preventing the Chairman and Secretary from delivering securities to Barve on that date.
Ratio Decidendi: 1. The liability of a member of the Managing Committee of a Co-operative Society for misfeasance requires proof of an injurious transaction and negligence on the part of the member. 2. In the absence of evidence proving that the transaction of October 3, 1951, was inherently injurious, negligence of the petitioner in not preventing the Chairman and Secretary from delivering securities to Barve on that date cannot be held to be sufficient for imposing any liability on him.
Final Decision: The Court set aside the decree and award passed by the Authorised Officer and confirmed by the Tribunal against the petitioner. The petition was allowed, and the rule was made absolute with no order as to costs.

JUDGMENT - Desai, J.

1. In this petition, under Art, 227 of the Constitution the petitioner has challenged the correctness of the order of the Maharashtra State Co-operative Tribunal in Appeal No. 52 of 1966 dated July 8, 1966, whereby the Tribunal inter alia made findings against the petitioner and confirmed the order of the Authorised Officer dated January 17, 1966 whereby the petitioner was directed to pay Rs. 1,06,000/- for the loss and damages in consequence of his misfeasance and Rs. 533.33 as costs to the 1st respondent-Bank.

2. The facts which require to be noticed are as follows :

3. The petitioner has been working as a Clerk in the Gernal Department of National and Grindlays Bank. In 1949-50 the petitioner on election to the Managing Committee of the 1st respondent-Bank (hereinafter referred to as "the Bank") was also elected as the Secretary. During the years 1950-51 and 1951-52 he was a Member of the Managing Committee of the Bank. In 1950-51, the 2nd respondent Madhusudan Shankar Khopkar was the Honorary Secretary. During that period (1950-51) one Moreshwar Yeshwant Shringarpure since deceased, now represented by the Opponents Nos. 3 and 4, was the Chairman of the Bank.

4. In connection with certain transactions effected in 1950-51-52, an inquiry was held under Rule 72 (2) of the Rules framed under the Maharashtra Co-operative Societies Act, 1960. As a result of the inquiry report an order was passed on May 20, 1964, directing that charges may be framed against the petitioner, the said Khopkar as also the said Shringarpure. The petitioner was served with the charge-sheet dated February 10, 1965 and called upon to show cause in connection with the charges mentioned in the charge-sheet. The first charge was that the petitioner had formed a conspiracy with Broker Barve to cheat the 1st respondent-Bank and in furtherance of that intention he had introduced Broker Barve to the Managing Committee of the bank, and induced the members of the Committee to entrust to Barve the work of selling the Government Securities held by the bank, and purchasing new securities in lieu thereof; and the petitioner was aware that Barves financial position was not sound and had not disclosed that fact to the Members of the Managing Committee. The petitioner had induced the Chairman and the Secretary of the Bank to endorse Government Securities in favour of Barve, from time to time between September 25, 1950 and October 3, 1951 and to hand over such securities to Barve, without the sanction or approval of the Managing Committee in that behalf. The petitioner failed to take care to see that Barve promptly purchased new Securities in lieu of the old ones and returned the new securities to the Bank diligently.

5. The second charge was that the petitioner had induced the Chairman and the Secretary (Khopkar and Shringapure) of the old Managing Committee to endorse Government Securities of the face value of Rs. 4,10,000/- in favour of Barve on October 4, 1951 and to hand over those Securities to Barve, thus enabling Barve to commit fraud and misappropriation. The petitioner had assured the Managing Committee from time to time that Barve was financially sound and reliable, and thus misled the Managing Committee.

6. On the basis of the above two charges, the allegation was that by his acts of omission, commission and misfeasance, the petitioner caused loss amounting to Rs. 3,33,443 to the Bank and was liable to make good that loss.

7. Upon appreciation of the evidence on record, the Authorised Officer by his decision and order dated January 17, 1966 held the above charges to have been proved. he directed the petitioner to pay Rs. 1,06,000/- for loss and Rupees 533.33 for costs and expenses. Khopkar and Shringarpure were directed to pay exactly similar amounts.

8. The petitioner and the above two parties filed their respective appeals before the Maharashtra State Co-operative Tribunal. All the three appeals were disposed of by the Tribunal by common judgm

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