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2002 Supreme(Bom) 655
IN THE HIGH COURT OF BOMBAY
Kochar R.J., J.
Vinyachandra Tulsidas Madhalani others .... Petitioners.
Versus
State of Maharashtra others.... Respondents.
Writ Petition No. 1430 of 2002, decided on 9-7-2002.
Advocates appeared :
Shekhar Naphade with Mahendra Ghelani i/b. Law Charter, for petitioners.
R.M. Sawant, G.P. with K.R. Belosay, A.G.P., for respondent Nos. 1, 2, 3 5.
Virag Tulzapurkar with K.G. Munshi i/b. U.U. Berjis, for respondent No. 4.
Headnote:
The Court held that the Registrar was bound to act in accordance with the Reserve Bank directions and the right of hearing is excluded in section 110-A of the Maharashtra Co-operative Societies Act, 1960. The Court further held that the action of the Reserve Bank and the Registrar is legal but it cannot be said to be a proportionate action in the given circumstances. The Court directed the petitioners and the other directors of the respondent bank to jointly and severally or collectively bring back the entire amount of Rs. 5.41 crores within eight weeks from today.
Fact of the Case:
The petitioners are directors/members of the Managing Committee of the Raghuvanshi Co-operative Bank Limited (6th respondent bank). The said bank is registered under the provisions of the Maharashtra Co-operative Societies Act, 1960 in December 1977. The said bank appears to be dominated by the Raghuvanshi community. It is specifically averred in the petition that it derives substantial financial support from the said community and that substantial deposits in the said bank are from the members/institutions of the said community. It is claimed by the petitioners that it has 6700 shareholders and more than 21000 depositors and account holders. The petitioners have further claimed that its deposits had reached the climax of Rs. 40 crores. Though, however, in the last 15-20 days the depositors worth Rs. 10 to 12 crores had withdrawn their deposits on account of scam news in the co-operative banking sector. The alleged scam was in respect of a broker Home Trade Limited, through which a number of Co-operative Banks including the respondent No. 6 bank had purchased Government securities. It may be mentioned at this stage itself that according to the learned Counsel for the State Government and also the Reserve Bank of India, the scam wherein the Home Trade Ltd., is involved, more than Rs. 350 crores are lost and investigation in this scam in going on Shri Sawant, the learned Government Pleader has pointed out that all the Co-operative Banks which are concerned with the said Home Trade Ltd., their Board of Directors have been similarly superseded under section 110-A(iii) of the Maharashtra Co-operative Societies Act.
Finding of the Court:
The Court held that the Registrar was bound to act in accordance with the Reserve Bank directions and the right of hearing is excluded in section 110-A of the Maharashtra Co-operative Societies Act, 1960. The Court further held that the action of the Reserve Bank and the Registrar is legal but it cannot be said to be a proportionate action in the given circumstances. The Court directed the petitioners and the other directors of the respondent bank to jointly and severally or collectively bring back the entire amount of Rs. 5.41 crores within eight weeks from today.
Issues: Whether the Registrar was bound to act in accordance with the Reserve Bank directions and the right of hearing is excluded in section 110-A of the Maharashtra Co-operative Societies Act, 1960.
Ratio Decidendi: The Court held that the Registrar was bound to act in accordance with the Reserve Bank directions and the right of hearing is excluded in section 110-A of the Maharashtra Co-operative Societies Act, 1960. The Court further held that the action of the Reserve Bank and the Registrar is legal but it cannot be said to be a proportionate action in the given circumstances. The Court directed the petitioners and the other directors of the respondent bank to jointly and severally or collectively bring back the entire amount of Rs. 5.41 crores within eight weeks from today.
Final Decision: The Court held that the Registrar was bound to act in accordance with the Reserve Bank directions and the right of hearing is excluded in section 110-A of the Maharashtra Co-operative Societies Act, 1960. The Court further held that the action of the Reserve Bank and the Registrar is legal but it cannot be said to be a proportionate action in the given circumstances. The Court directed the petitioners and the other directors of the respondent bank to jointly and severally or collectively bring back the entire amount of Rs. 5.41 crores within eight weeks from today.
KOCHAR R.J., J.:---Rule. In view of the urgency and importance of the matter, by consent rule made returnable forthwith. Respondents waive service.
2. Heard. The petitioners are directors/members of the Managing Committee of the Raghuvanshi Co-operative Bank Limited (6th respondent bank). The said bank is registered under the provisions of the Maharashtra Co-operative Societies Act, 1960 in December 1977. The said bank appears to be dominated by the Raghuvanshi community. It is specifically averred in the petition that it derives substantial financial support from the said community and that substantial deposits in the said bank are from the members/institutions of the said community. It is claimed by the petitioners that it has 6700 shareholders and more than 21000 depositors and account holders. The petitioners have further claimed that its deposits had reached the climax of Rs. 40 crores. Though, however, in the last 15-20 days the depositors worth Rs. 10 to 12 crores had withdrawn their deposits on account of scam news in the co-operative banking sector. The alleged scam was in respect of a broker Home Trade Limited, through which a number of Co-operative Banks including the respondent No. 6 bank had purchased Government securities. It may be mentioned at this stage itself that according to the learned Counsel for the State Government and also the Reserve Bank of India, the scam wherein the Home Trade Ltd., is involved, more than Rs. 350 crores are lost and investigation in this scam in going on Shri Sawant, the learned Government Pleader has pointed out that all the Co-operative Banks which are concerned with the said Home Trade Ltd., their Board of Directors have been similarly superseded under section 110-A(iii) of the Maharashtra Co-operative Societies Act. The petitioners have challenged the order passed by the Registrar of Co-operative Societies under section 110-A(iii) to remove the petitioners and other directors of the bank. By the impugned order, the Registrar had dissolved the present Board of Directors of the said bank and appointed an administrator to look after the day to day affairs of the bank. The petitioners have challenged the said order as not legal, proper and bona fide as they were not given any show cause notice or they were not given any opportunity of hearing and in gross violation of the principles of natural justice. According to the petitioners, there was only one investment of Rs. 5.41 crores bona fide made in the Government securities through the Home Trade Ltd., about which the controversy appeared in the newspapers. The petitioners have claimed that they had in the past six such transactions with the said broker, which were successfully completed and that neither the co-operation department nor the Reserve Bank of India had raised any objection during the course of their audit/inspection. The petitioners have claimed that even the last transaction entered by the bank with the said broker was strictly in accordance with the rules, regulations and the law. The petitioners, however, have candidly admitted that they had no knowledge or information about the scam in which the said broker, Home Trade Ltd. was involved and that they had bona fide entered into the contract as prescribed under the Securities Contracts (Regulation) Act, 1956 (for short "the Securities Act") and in accordance with the Securities and Exchange Board of India Act, 1992 (for short "the SEBI Act). The petitioners have further pointed out that the last transaction of Rs. 5.41 crores was also in the same manner entered into as were the past six transactions with the same broker. The petitioners have averred that since no objections of any nature were raised by the auditors of the co-operation department, nor by the Reserve Bank of India in its regular inspection, the bank management had no occasion, ground or reason to think that the last transaction was in violation of the rules, regulations or guidelines of Reserve B
