SCA/19130/2005 1/38 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 19130 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE JAYANT PATEL ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== DOSHI CHEMICALS PVT.LTD. & 1 - Petitioner(s) Versus STATE OF GUJARAT & 18 - Respondent(s) ============================================================== Appearance : MR BM MANGUKIYA for Petitioner(s) : 1 - 2. GOVERNMENT PLEADER for Respondent(s) : 1, NOTICE SERVED BY DS for Respondent(s) : 1 - 3,7 - 12, 14,16 - 17. MR TUSHAR MEHTA for Respondent(s) : 4, MR DHARMESH V SHAH for Respondent(s) : 5, MR SN THAKKAR for Respondent(s) : 6, MR PS CHAMPANERI for Respondent(s) : 13, 15, MR BB NAIK for Respondent(s) : 0.0.0, 18, ================================================================== CORAM : HONOURABLE MR.JUSTICE JAYANT PATEL Date : 09, 23 & 28/03/2006 ORAL JUDGMENT SCA/19130/2005 2/38 JUDGMENT 1.Leave to delete respondent No.3. 2.I have heard Mr.B.M. Mangukiya, learned counsel appearing for the petitioner, Ms.M.S. Panchal, learned A.G.P. appearing for the respondent Nos.1 and 2, Mr.Nanavati with Mr. Tushar Mehta, learned counsel appearing for the respondent No.4-City Co-operative Bank and Shri Jaykrushna Maganlal Mevawala, Mr. Dharmesh Shah V. Shah, learned counsel for The Suryapur Co-operative Bank Ltd., Mr. Mihir Joshi with Mr.S.N. Thakkar, learned counsel for The Pragati Alco-chem Private Ltd., and Mr.P.S. Champaneri, learned counsel appearing for Parinay Organizers Private Ltd., Mr.Mukeshbhai N. Desai, Niraj D.Desai, Kumud B.Desai, Bharat M. Naik and Mr.B.B. Naik for Babu Gamit and Jagdish Chandulal Jariwala who is wrongly described as Jhaveri for final disposal of the petition. The Respondent No.3 is deleted but for the sake of convenience parties shall be referred to as original , prior the such deletion. 3.It appears that there is dispute for transaction of loan between original respondent No.4 Bank and the petitioner herein as well as original respondent No.6 and its Director and also original respondent No.5 SCA/19130/2005 3/38 JUDGMENT Bank. However, it appears that the suits were filed by the original respondent No.5 Bank before the Registrar's Board of Nominees for recovery of the amount of alleged loan transaction. It appears that as per the original respondent No.6 Bank, the consent pursis were filed and based on the same, consent awards were passed by the learned Nominee. As per some of the respondents, who moved the application for restoration (fari file), the consent awards were upon the fraud played and upon mis-representation and, therefore, they did pray to the learned Nominee of setting aside and recalling of the concerned consent awards and examine the matter afresh. It appears that the learned Nominee upon the said application for fari file (restoration/recalling) issued notice to the petitioner who was plaintiff in the suit and other parties and at that stage the original respondent No.4 Bank preferred revisions before the Tribunal challenging the initiation of the proceedings by the order by the learned Nominee. The Tribunal ultimately rejected the revision against which SCA Nos.4400 to 4402, 4410 and 4411 of 2004 were preferred by the original respondent No.4 Bank and the said petitions have been disposed of vide order dated 22.3.2006 passed by this Court SCA/19130/2005 4/38 JUDGMENT observing, inter alia, that there is jurisdiction with the learned Nominee to examine the aspect of fraud or misrepresentation etc., if any, while passing consent awards and, therefore, it may not be necessary to refer to the said aspects in the present proceedings. 4.It appears that there were earlier litigation between the original respondent No.4 Bank and some of the respondent herein. The property in question was attached on 27.3.2004 by original respondent No.4 Bank and at that stage the petitioner had preferred SCA No.3914 of 2004 and in the said petition this Court (Coram: K.M.Mehta, J.) as per the order dated 27.3.2004 had granted ad-interim relief in favour of the petitioner directing to vacate the premises and the plant and machineries, which was the property in question and return the possession of the property to the petitioner forthwith. It may be recorded that at that time, the declaration was made on behalf of the petitioner that the petitioner therein would deposit Rs.10 lac by 3rd April. 2004 and further Rs.10 lac by 12th April, 2004 before this Court and the amount of Rs.10 lac is deposited thereafter accordingly. It appears that thereafter the said SCA had come up for hearing on 11.8.2004 and the petition was withdrawn in SCA/19130/2005 5/38 JUDGMENT view of the order dated 29.7.2004 passed by this Court in SCA No.17116 of 2003 and with a view to resort to appropriate remedy before appropriate forum and the ad- interim relief which was granted was not continued. 5.It may be recorded that SCA No.17116 of 2003 was preferred by the original respondent No.4 Bank herein against the respondent authorities for not taking any civil/criminal action against the bank, members of the Managing Committee, its office-bearers or officers and it was also prayed by the petitioner for directing the respondent authority not to cause any interference/hurdle or hindrance to the Bank for effecting attachment over the property in question of The Pragati Alco-chem Pvt. Ltd., and recovering the amount as per the award of the Nominee. In the said petition vide order dated 28.7.2004, the original respondent No.4 Bank herein who was the petitioner therein did not press the petition qua the prayers made for prohibiting the authorities from taking action by initiating civil/criminal action/proceedings against the petitioner No.1 Bank or its members of Managing Committee or its office-bearers or officer. So far as the recovery of the amount as per the award of the Nominee is concerned, it was observed by this Court SCA/19130/2005 6/38 JUDGMENT that unless there is any prohibitory order of any competent Court/competent Forum, staying the recovery or otherwise, the petitioner Bank will be at liberty to proceed for recovery of the amount in accordance with law. It may also be recorded that The Suryapur Bank Agent D. B. H. Samiti had preferred SCA No.5315 of 2004 in this Court for directing the authority to take action on the ground of alleged irregularity/illegality/fraud/misappropriation of the bank money for various transactions of the loan including the transaction in question which is alleged to have been entered with the petitioner and Pragati Alco-chem Pvt. Ltd., original respondent No.6 herein. In the said petition this Court on 11.8.2004 had passed the following order: “ . , Upon hearing Mr Vyas learned Counsel for the petitioners, Mr.S.B.Vakil appearing with Mr.Chhatrapati, learned Counsel for respondent No.1, Mr.Thakore with Mr.Tushar Mehta, learned Counsel for respondent No.3 Bank and Mr.Dave, learned AGP for respondent No.2, it prima facie appears that for a property which purchased by the registered sale-deed of Rs.3.50 crore in the auction proceedings of this Court even as per Respondent No.3 bank, the loan is given by the Office-bearers of respondent No.3 Bank for about Rs.10 crore to Pragati Alco Chem Ltd. On the date when the loan was sanctioned, the property was not legally conveyed to the loanee. Prima facie it appears that no prudent and responsible Office-bearers of the Bank will sanction three-times the loan amount than its value which is by registered sale-deed in an auction proceedings of this Court. Consequently, it results into loss to the corpus of the Bank of about more than Rs.6 crore. 2. Mr.Thakore, learned Counsel appearing for respondent No.3 Bank submitted that the valuation report SCA/19130/2005 7/38 JUDGMENT of Mr.Arvind Chokshi was produced of the property worth showing valuation of Rs.18,93,36,825/= as on 30th September, 2002 and he also submitted that one Mr.Mukesh M. Shah, another valuer, has given valuation report of Rs.14,48,08,511/=, which is also of 30th September, 2002. The surprising aspect prima facie appears to be that in none of the valuation reports, there is reference to the purchase price reflected in the registered sale deed of the property nor any detail thereof. When a property is purchased in the auction of court proceedings, prima facie can be accepted as the value for the purpose of genuine valuation. In spite of the same, more than Rs.6 crore amount is additionally sanctioned and disbursed than the actual valuation of the property. The aforesaid, prima facie, is not only serious illegality in banking business, but can also be said to be fraud with the monies of the depositors of the Bank which is held by the Bank, leaving aside the question regarding adjustments of the entry by clearing the loan amount and re-crediting the same in the account of Suryapur Coop. Bank. Even transaction and clearing of cheques of Rs.10 crore and more, in spite of prohibition by R.B.I., with Suryapur Coop. Bank can also be said as serious breach of statutory provisions of Banking Regulations Act. 3. Further, respondent No.1 RBI has undertaken its statutory inspection for respondent No.3 Bank and the said report is made available to the Court during the course of the hearing. The said report, inter alia, provides for not only large number of major irregularities, but it also refers to the sanctioning of the loan from Rs.25 lac to Rs.800 lac and no record of the sanction of the amount is available in the Bank file. Mr.Thakore, learned Counsel appearing for respondent No.3 Bank, however, submitted that respondent No.3 Bank is not aware of the inspection report of RBI and the opportunity may be given to respondent No.3 Bank to meet with the aforesaid report of RBI. He also submitted that the copy of the report is also not given and, therefore, a copy may be supplied and the Bank may be given opportunity for such purpose. Mr.Vakil, learned Consel for R.B.I. has stated that it is a Confidential Report and can only be shown to the Court and, therefore, R.B.I. has produced the said report. To what extent ultimately RBI's inspection report will be acted upon by State Registrar for the purpose of filing Civil as well as Criminal action against the office-bearers of the Bank will be a subsequent aspect, but as per the scheme of Banking Regulations Act, the status of RBI is that of an expert body in the banking business and if the expert body in the banking business, in discharge of the statutory inspection, has found out as per the inspection of the record of the bank itself, such, in my view, prima facie can be sufficient ground to attract the power of appointing Administrator by the Registrar immediately in place of the elected office-bearers of the Bank. SCA/19130/2005 8/38 JUDGMENT 4. On behalf of the Registrar of Coop. Societies, respondent No.2 herein, the affidavit-in-reply is filed. The ground contended in para 10 clearly shows that the inspection report of RBI is received by the Registrar including the letters from RBI requiring the action to be taken. The stand taken on behalf of respondent No.2 is that there was interim injunction granted by this Court in SCA No.17116/2003 restraining the authorities including the Registrar from taking Civil or Criminal action against the officials of the Bank. The said interim injunction has come to an end on 29-7-2004. In spite of the same, respondent No.2 has not taken any action against the office-bearers of respondent No. Bank. The only ground sought to be canvassed in the affidavit-in-reply at para 10 is that that the Registrar will take appropriate action against the officials of City Coop. Bank for violation of Sections 45 and 71 of the Gujarat Coop. Societies Act. Further, a vague statement is made by respondent No.2 in the said affidavit that in the interest of cooperative movements, depositors and general public necessary action will be taken as per the Act. Prima facie it appears that when such serious lapses are brought to the notice of respondent No.2 in the functioning of respondent No.3, it was expected for respondent No.2 to immediately take action, more particularly after 29-7-2004 i.e. vacating of injunction granted by this Court. When expert body like RBI has already inspected the record of the Bank and has shown major irregularities running into crores of rupees, the inquiry under Section 86 may throw some additional light, but prima facie such inquiry under Section 86 cannot nullify the statutory effect or the weightage to be given to the inspection report of RBI which is an expert body. 5. It is required to be recorded that it is on account of large-scale illegalities in the field of cooperative banking business in the State, the depositors and the banking business has suffered a lot. Respondent No.2 who is the Registrar of the State cannot prima facie ignore such aspects prevailing in the State. It was expected for respondent No.2 to immediately respond to take action to ensure that those who have prima facie misapplied the funds of the Coop. Bank are immediately removed or are not allowed to enjoy situation which may put the interest of the depositors at stake. 6. Mr.Vakil, learned Counsel for RBI has stated before the Court that the RBI has no objection if the Court upon inquiry finds that the Administrator is to be appointed in place of the elected body. Respondent No.3 is a primary level coop. bank and the figures submitted on behalf of respondent No.3 Bank shows that it is having the deposits of Rs.96,82,79,060/= in the accounting year of 2003-04 and it is having reserve of Rs.13,18,66,804/=. It prima facie appears that if immediate actions are not taken for appointing the administrator in place of the SCA/19130/2005 9/38 JUDGMENT present office-bearers of respondent No.3 bank, who are prima facie involved in the aforesaid action of misapplication of the funds and of granting loan without there being any sanction in the record of the bank as per the RBI inspection report, it may result into allowing the preferential payment till the proceedings are completed before this Court and it may also leave room to those office-bearers in power to allow the preferential withdrawal of only those persons of their choice and consequently may adversely affect depositors who may not be found suitable to the office-bearers of respondent No.3 Bank. 7. Whether the investigation should be ordered to be conducted by C.B.I. or not will be examined subsequently, but considering the facts and circumstances and in view of the prima facie reasons recorded hereinabove, I find that even while admitting the matter interim directions deserve to be issued in the larger interest of all depositors including the petitioners herein, who are claiming to have the interest. 8. I have also heard Mr.N.D.Nanavati, learned Counsel appearing for the applicants of Civil Application No.6215/2004, which is filed by the depositors of respondent No.3 Bank to mainly consider the interest of the depositors at large and functioning of the Bank in a better and proper manner. 9. In view of the aforesaid, I am inclined to pass the following order: 9.1) Rule. 9.2) By ad-interim order, it is directed that respondent No.2 shall appoint Administrator in place of elected body of respondent No.3 Bank within a period of one week from today and respondent No.2 shall appoint a person as Administrator, who is well conversant with the banking business and if required, respondent No.2 may also consult RBI in this regard. 9.3) Until the Administrator is appointed, respondent No.2 is directed to ensure that the charge from the elected body is taken over by the District Registrar, Surat as In-charge Administrator tomorrow at the opening time of the Bank i.e. between 10.30 to 11 O'clock in the morning. 9.4) It is further directed that respondent No.2 shall inquire regarding the aforesaid illegal actions and misapplication of the funds which is prima facie considered by the Court, for the purpose of taking Civil as well as Criminal action against the Office-bearers of respondent No.3 Bank. Such inquiry shall be completed within a period of SCA/19130/2005 10/38 JUDGMENT fifteen days from the date of receipt of the order of this Court and if, as an outcome of the said inquiry, it is found by respondent No.2 that the Office-bearers of respondent No.3 Bank, while in office, have committed offences or have misapplied the funds or have committed illegality, necessary action shall be taken within a period of fifteen days thereafter and the report shall be submitted to this Court within two weeks after taking action. 9.5) The respondent No.3 by further order, is restrained from allowing functioning of its office-bearers from tomorrow i.e. 12-8-2004 onwards. 9.6) Rule in Civil Application No.6215/2004, to be heard with main Special Civil Application. 9.7) Registrar of this Court shall keep the Reports of R.B.I. in sealed cover and safe custody. 10. Put up on 29th September, 2004 for passing further orders and for reporting compliance. If the report is not submitted before this Court prior to 27th September, 20004 the Registrar, respondent No.2 herein, shall personally remain present before this Court on the next date. 11. Mr.Thakore, learned Counsel for respondent No.3 Bank requests that the operation of this order be stayed for some time so as to enable respondent No.3 Bank to approach before the higher forum. As such, the order cannot be said as against interest of Respondent No.3 Bank. Further, if the operation is stayed, it may result into creating a situation whereby the preferential payments may be made and, therefore, the said request is rejected. 12. Mr.Dave, learned AGP has agreed to communicate the order passed by this Court today and he has declared before the Court that the District Registrar, Surat will be taking charge tomorrow i.e. 12-8-2004 between 10.30 to 11 O'clock.” 6.In pursuance of the order passed by this Court, the Administrator took over the charge on 12.8.2004. It also appears that the LPA was preferred against the aforesaid order dated 11.8.2004 passed by this Court in SCA No.5315 of 2004 by seeking leave to prefer appeal SCA/19130/2005 11/38 JUDGMENT being Civil Application No.6432 of 2004 vide order dated 19.8.2004 of the Division Bench of this Court (Coram: B.J.Shethna and M.C.Patel, J.J.) in C.A. No.6432 of 2004 in LPA (St.) No.1607 of 2004, the Division Bench made observations, permitting the applicant therein to move the Single Bench of this Court for recalling of the order and ultimately the application for leave to prefer appeal was rejected. The LPA was also preferred by the City Cooperative Banks' Depositors' Association against the order dated 11.8.2004 passed by this Court passed in SCA No.5315 of 2004 with the other LPAs and as per the order dated 19.8.2004 passed by the Division Bench of this Court, leave was not granted and consequently the LPA was also rejected. The original respondent No.4 also preferred LPA No.1526 of 2004 against the order dated 11.8.2004 passed by this Court in SCA No.5315 of 2004 and vide order dated 19.8.2004, the Division Bench of this Court (Coram: B.J.Shethna and M.C.Patel, J.J.) dismissed the LPA. It appears that one Anil M. Patel and others have preferred Special Leave to Appeal before the Hon'ble Apex Court against the order dated 19.8.2004 passed by the Division Bench of this Court (Coram: B.J.Shethna and M.C.Patel, J.J.) in Civil Application No.6432 of SCA/19130/2005 12/38 JUDGMENT 2004 in LPA (St.) No.1607 of 2004 and the Hon'ble Apex Court has issued notice and status-quo as on the date of the order is ordered to be maintained vide order dated 24.8.2004. 7.It appears that in the meantime the Misc. Applications No.31 of 2004 to 42 of 2004 were preferred before the learned Nominee contending, inter alia, that without joining the proper properties which are to be affected by the awards, consent awards are passed and the premises belongs to the petitioner herein. The learned Nominee vide order dated 31.8.2004 issued notice and ordered ad-interim relief against the implementation of the consent award passed in Lavad Suit Nos.165 of 2003, 166/2003, 183/2003, 184/2003, 187/2003, 188/2003, 189/2003, 190/2003, 191/2003, 192/2003, 206/2003 and 248/2003 and the hearing was fixed on 13.9.2004. It appears that on 1.9.2004, the Administrator who was appointed and who has to work under the guidance of the Registrar of cooperative Societies, made the representation before the learned Nominee that the guidance was sought from the Registrar of Cooperative Societies and, therefore, the learned Nominee passed the order on 1.9.2004, whereby it was observed that there were no possibilities of taking any action by the SCA/19130/2005 13/38 JUDGMENT Administrator of the Bank against the provisions of law and as fari file (restoration) applications are pending and the petition of the bank is also pending in this Court and, therefore, it is not necessary to grant any relief and, hence, all the applications No.31 of 2004 to 42 of 2004 were rejected. 8.On 17.7.2005, it appears that the seals are applied by the Officer of respondent no.4 Bank, who is original respondent No.17 in the present proceedings in capacity as sale officer stated in the affidavit in reply filed on behalf of the bank such seals are applied in pursuance of the notice dated 2.12.2003 and it is under these circumstances, for challenging the said action of taking possession and applying seal over the factory premises which was alleged to be in possession of the petitioner company, the petitioner has approached this Court by preferring the present petition. 9.It may be recorded that in the affidavit in reply filed on behalf of the original respondent No.4 Bank by Mr.Jaykrushna Maganlal Mevawala, who is also respondent No.17 in the present petition, at para 13 it has been stated that on 2.12.2003 respondent No.4 bank gave a final notice to M/s.Pragati Alco-chem Pvt. Ltd. intimating to the said company that the order of SCA/19130/2005 14/38 JUDGMENT attachment will be effected on 17.12.2003 and thereafter the copy of the notice of attachment is produced. At para 14 in the affidavit in reply it has been stated that before the recovery could take place SCA No.17113/2003 was filed, which has been disposed of vide order dated 28.7.2004 under which and as per law, the respondent No.4 is recovering the amount pursuant to the order passed by the competent Court namely; Registrar's Board of Nominee, which is not stayed by any prohibitory order or other order of any Court. In the said affidavit on internal page 6 the statement made at sub-para 2, inter alia, is as under: “I state and submit that the aforesaid petition also challenged the action of the respondent No.4 bank in taking over possession of the plant and machinery of M/s.Pragati Alco-chem Pvt. Ltd., based upon final notice dated 2.12.2003. The possession, which I have taken on 17.7.2005 is also in pursuance of the very same notice issued to M/s.Pragati Alco-chem Pvt. Ltd. (emphasis supplied)”. 10.Therefore, even as per original respondent No.4 bank, the possession is taken or the seals are applied in pursuance of the notice dated 2.12.2003, copy whereof SCA/19130/2005 15/38 JUDGMENT is produced at Annexure R-10 and such aspect is not in dispute. 11.The perusal of the said notices show that they are being issued in exercise of the power under Section 159 of the Gujarat Cooperative Societies Act (hereinafter referred to as “the Act”) read with Rules 96 to 133 of the Gujarat Cooperative Societies Rules (hereinafter referred to as “the Rules”). The notice has been issued to The Pragati Alco-chem Pvt. Ltd., Sainath Shankar Rao Nikam and Others, who are described as the Directors of M/s.Pragati Alco-chem Pvt. Ltd. No notice even for attachment is issued to the petitioner Company, which is a different company than Pragati Alco-chem Pvt. Ltd. During the course of the hearing, the letter or rather report prepared by the said Officer Shri Mevawala addressed to the Chief Executive Officer