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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
MILIND N. JADHAV, J.
Mahesh Govind Kargutkar & Ors. - Petitioners
Versus
The Liquidator, Bhandari Co-op. Bank Ltd & Ors. - Respondents
Writ Petition Nos. 9377, 9375, 9376, 9378 of 2022 With Writ Petition Nos. 12243, 12325, 12353, 12123, 12581, 11808, 11809 of 2019 With Interim Application No. 1499 of 2020 With Writ Petition Nos. 11810, 12023, 12029, 12098, 12097, 11926, 12094 of 2019 With O.S. Writ Petition (ST) No. 523 of 2020
Decided On : 17-01-2023
Constitution of India, 1950 – Article 6 – Maharashtra Co-operative Societies Act, 1960 – Section 88, 152, 2(20) – Member of Committee – Guilty of misfeasance – Breach of Trust – Quashing of inquiry report – Loan against Hypothecation – Citizenship of certain persons who have migrated from Pakistan – Power of Registrar to assess damages against delinquent promoters, etc – Whether expressly provided or not – Held, it is concluded that liability of Petitioners for amounts arrived at for causing financial fraud to Bank cannot be sustained – Inquiry report / order under Section 88 merely reiterates loan policy (in Marathi language) for all Petitioners verbatim and is an arithmetical exercise carried out foisting liability on Petitioners without taking any cogent steps against perpetrators of real fraud loan agents who were recipients of rickshaw loan – In so far as housing loan fraud is concerned, it has come on record that all 69 cases were subjudiced / some were to be filed in Court at then time – Appellate Authority while passing identical impugned order in all cases has also committed same error without giving finding on principles of inquiry under Section 88 of said Act – Both orders namely common order / inquiry report under Section 88 and individual orders, all passed in Appeal under Section 152 and all consequential actions taken thereafter against Petitioners call for interference of this Court for not following statutory due process of law as discussed in findings and are therefore quashed and set aside – Ordered Accordingly.
Based on the provided legal document, the key points are as follows:
The court has disposed of a group of 19 Writ Petitions challenging the inquiry report dated 25.09.2018 under Section 88 of the Maharashtra Co-operative Societies Act, 1960, and the subsequent appellate order dated 20.09.2019, which upheld the inquiry findings (!) (!) .
The inquiry held 27 persons liable for causing financial loss to the bank through alleged fraudulent disbursements of rickshaw and housing loans, with liabilities ranging from approximately Rs. 50 Lacs to Rs. 2.21 Crores per individual (!) (!) .
The Petitioners, including employees, Directors, and employee-Directors, challenged these findings, asserting that the inquiry was conducted without following proper statutory procedures, including the principles of natural justice and due process of law (!) (!) (!) .
The Petitioners argued that their roles were limited to routine disbursement activities, and they lacked authority or decision-making power regarding sanctioning or recommending loans, which were primarily handled by loan agents, the Board, or designated committees (!) (!) (!) .
The Petitioners contended that the inquiry report relied heavily on the loan policy and standard procedures, and that the actual role of the loan agents—who were responsible for the submission of fake RC books—was not adequately considered or proven to be attributable to them or the Petitioners (!) (!) (!) (!) .
The court observed that the inquiry was conducted in a mechanical manner, with the inquiry report merely reiterating the loan policy verbatim and assigning liability through a proportional division of the total alleged loss, without establishing specific acts of fraud or misfeasance by the Petitioners (!) (!) (!) .
The court found that the inquiry did not follow the due process, including the procedural requirements of providing adequate opportunity to the Petitioners, calling for and examining all relevant evidence, and establishing a clear nexus between the Petitioners' roles and the alleged financial misconduct (!) (!) (!) (!) .
The findings indicated that the liability of the Petitioners for the alleged financial fraud could not be sustained because the inquiry failed to identify any specific wrongful act attributable to them, especially considering that the primary fault lay with loan agents who submitted fake documents, and the Petitioners' involvement was limited to routine disbursement activities without active participation in the fraud (!) (!) .
The court emphasized that the legal provisions under Section 88 require a proper, evidence-based, and reasoned inquiry, which was not followed in this case, rendering the impugned orders and inquiry reports liable to be quashed (!) (!) (!) (!) .
Consequently, all the Writ Petitions were allowed, and the inquiry reports and appellate orders were set aside, with directions that the proceedings based on these orders are nullified for not adhering to statutory due process (!) (!) (!) .
The court also acknowledged the importance of following proper procedures, including the recording of reasons and providing fair opportunities to the Petitioners, and noted that the inquiry lacked these fundamental procedural safeguards (!) (!) (!) (!) .
Overall, the judgment underscores that liability under the relevant statutory provisions cannot be established on a mechanical or superficial basis, but must be supported by concrete evidence demonstrating specific wrongful acts attributable to the Petitioners, which was absent in this case (!) (!) (!) .
These points collectively reflect that the court found the inquiry process flawed, the liability unsubstantiated, and the orders passed without proper adherence to legal standards, leading to the quashing of the impugned orders and orders in the petitions.
JUDGMENT :
A. FACTS:-
1. This group of 19 Writ Petitions are disposed of by this common Judgment and Order.
2. Facts in all Writ Petitions are identical. Challenge in all Writ Petitions is to the Inquiry Report Order dated 25.09.2018 under Section 88 of the Maharashtra Co-operative Societies Act, 1960 (for short “the said Act”) and to the Order dated 20.09.2019 passed by the Hon’ble Minister Co-operation, State Government, Maharashtra in Appellate proceedings under Section 152 of the said Act upholding the order dated 25.09.2018.
3. By virtue of common order dated 25.09.2018, the Authorized Officer indicted and held 27 persons liable for committing fraud on the Bhandari Co-operative Bank Ltd ( for short “the Bank”) by holding them culpable for causing financial loss to the Bank due to non-recovery of outstanding rickshaw loans and housing loans disbursed by the Bank to the tune of Rs.13.91 Crores and Rs.6.88 Crores respectively to its borrowers during the period 2007-2009.
4. 19 persons out of the above 27 Employees / Directors of the Bank are Petitioners before me. All Petitioners challenged the order indicting them for causing financial loss passed under Section 88 of the said Act by filing statutory Appeal under Section 152 before the Appellate Authority. By identical but separate orders, all dated 20.09.2019, Appeals were dismissed and the order dated 25.09.2018 was upheld.
5. Before I advert to the facts and submissions of the parties, it would be convenient to compartmentalize all 19 Petitions into 3 groups as under for the purpose of consideration on the basis of facts:-
(ii) Writ Petition Nos.12581/2019, 11808/2019, 11818/2019, O.S. (St) 523/2020, 11809/2019, 12023/2019, 12029/2019 and 12098/2019 and 12094/19 are filed by Petitioners who were Directors the Bank;
(iii) Writ Petition Nos.12097/2019 and 11926/2019 have been filed by Petitioners who were the Employee / Director of the Bank i.e. representative of the employees on the Managing Committee / Board of Directors of the Bank.
5.1. Facts and Exhibits of Writ Petition Nos. 9377/2022 and 12581/2019 shall be referred to for convenience as they are common for all save and except those which are different and also stated herein. As seen in the table annexed at page 296 of Writ Petition No. 9377 of 2022, Petitioners are held liable for causing financial loss to the Bank to the extent of the amount shown against each Petitioner’s name. The total liability of approximately Rs. 20.79 Crores has now swelled to Rs.23.75 Crores by applying interest @ 12% p.a. from 01.03.2013 to 31.12.2022 as informed by the Official Liquidator for the Bank.
6. To appreciate the lis, it would be useful to note down certain relevant facts leading to the passing of the two orders by the statutory Authorities indicting the Petitioners. Following are such of the relevant facts:
6.1. In the case of the first group of Petitions filed by the Employees following are relevant facts:
6.1.1. All Petitioners in this group had either joined the Bank as a clerk or as a Junior Officer right at the inception of their career and rose to the post of Officer / Manager / Branch Manager and were deployed in various branches of the Bank in Mumbai.
6.1.2. During the period of 2006 – 2009, Petitioners were working as Managers / Junior Accountants / Branch Managers in various branches.
6.1.3. One Panchani Associates, Chartered Accountant was appointed as Special Statutory Auditor to conduct the audit of the Bank by Commissioner for Co-operation and Registrar of Co-operative Societies, Maharashtra State, Pune vide Order dated 13.04.2011. Panchani Associates conducted the statutory audit of the Ban
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