W.P.(C) No.7323/2008 Page 1 of 28 * IN THE HIGH COURT OF DELHI AT NEW DELHI Judgment reserved on: 03.02.2010 % Judgment delivered on: 03.03.2010 + W.P.(C) No.7323/2008 VIRENDER KUMAR YADAV .....Petitioner Through: Mr. S.P. Kalra, Sr. Adv. with Mr. S.K. Pruthi and Mr. Manoj Ahuja, Advocates Versus DELHI CO-OPERATIVE SOCIETY & ORS. ......Respondents Through: Ms. Parul Sharma for Mr. V.K. Tandon for Respondent No.1 Mr. R.K. Gupta for Respondent No.2 Mr. Ankur Arora for Respondent No.3 CORAM: HON’BLE MR. JUSTICE GITA MITTAL HON’BLE MR. JUSTICE VIPIN SANGHI 1. Whether the Reporters of local papers may be allowed to see the judgment? : Yes 2. To be referred to Reporter or not? : Yes 3. Whether the judgment should be reported in the Digest? : Yes J U D G M E N T VIPIN SANGHI, J. 1. The petitioner has assailed the common order dated 28th July, 2008 passed by the Delhi Cooperative Tribunal in Appeal No.178/2009-DCT and Appeal No.199/2005-DCT, preferred by the petitioner and the respondent No.2 society. W.P.(C) No.7323/2008 Page 2 of 28 2. The facts giving rise to the present petition are in a narrow compass and to the extent necessary, are set out hereafter. The New Subhash Cooperative Group Housing Society, respondent no. 2 herein is a cooperative group housing society registered under the Delhi Cooperatives Societies Act, 1972. This society was allotted a plot of land by the Delhi Development Authority bearing plot no. A-2 Paschim Vihar, New Delhi for the construction of 58 flats for allotment to its 58 members. 3. Sh. Lal S. Vaswani, respondent no. 3 herein was enrolled as an original member of the respondent no. 2 in the year 1971 and was allotted a flat no. 57 in the allotments effected on 7th December, 1980 to the members. It appears that the respondent society passed a resolution on 21.9.1997 to expel Shri Lal S. Vaswani from the primary membership of the society on account of his alleged default in making payment of dues. The case of expulsion of Shri Vaswani was placed before the Registrar, Co-operative Societies in accordance with Rule 36 of the Delhi Co-operative Societies Rules 1973. In those proceedings, Shri Vaswani relied upon the audit report for the year 1994-95 of the accounts of the society. He also stated that he made payment of Rs.66,000/- and a loan was also advanced by DCHFC Limited to the society on his account. He contended that he was not a defaulter. He also challenged the rate of interest which had been charged by the society. 4. After hearing the society and Shri Vaswani, the Registrar W.P.(C) No.7323/2008 Page 3 of 28 Co-operative Societies vide order dated 8/13.10.1998 held that the society had not followed the procedure under Rule 36 scrupulously and had merely completed the formalities to harass Shri Vaswani. The conduct of the society in not producing, or giving the statement of dues pending against Shri Vaswani was held as substantiating his allegations of ulterior motive, mala fide and harassment made against the society. Consequently the Registrar Co-operative Societies dropped the proceedings for expulsion of Shri Lal. S. Vaswani. 5. The respondent society preferred an appeal from the Registrar’s order before the Financial Commissioner, Delhi which was registered as Case No.376/98-CA. The Financial Commissioner also did not accept the plea of the respondent society and dismissed the appeal. Consequently the expulsion proceedings undertaken by the respondent society against respondent no.3, Shri Lal. S. Vaswani stood dropped, as the orders passed in those proceedings attained finality and were not challenged by the society any further. 6. It appears that despite the aforesaid orders, the disputes between the respondent society and Shri Lal. S. Vaswani continued to persist. According to Shri Vaswani, he sent communications to the society enquiring about the genuine and verifiable dues of the society to make payment of the same, but there was no response from the society. At the behest of Shri Vaswani, the Registrar of Co- operative Societies ordered an inspection under Section 54 of the W.P.(C) No.7323/2008 Page 4 of 28 Delhi Co-operative Societies Act vide order dated 03.02.2004. Respondent no.3, it appears, learnt from the inspection report prepared on the orders of the Registrar Co-operative Societies that flat no.57 which had been allotted to him, had been further allotted to Shri Virender Kumar Yadav, the petitioner herein, even though no allotment of the said flat had been made in his favour by the DDA. 7. At that stage, the respondent no.3 invoked Section 60 of the Delhi Co-operative Societies Act, 1972 to seek reference to his claims against the respondent society and the petitioner to arbitration. He claimed possession of flat no.57 from the society and Shri Virender Kumar Yadav, the petitioner herein. He further sought a direction that the respondent society should provide the genuine, bona fide and verifiable amount due and payable by him. Respondent no.3 claimed that he had tendered various amounts to the respondent society in the year 2004, but the same were returned by the respondent society. He also claimed a sum of Rs. 6,000/- per month w.e.f. September 2001, till the date of handing over of possession of the flat, as damages for delay in handing over possession of flat no.57 to him. 8. The Registrar, Co-operative Societies vide order dated 18.2.2005 held that, in his opinion, a dispute existed regarding the membership, management and business of the Co-operative society. It was held that the prayer with regard to the claim of possession of flat no.57 and for a direction to the respondent society to provide to W.P.(C) No.7323/2008 Page 5 of 28 him the genuine, bona fide and verifiable amount due and payable by him, is arbitrable. 9. The Registrar Co-operative Societies appointed Shri D.P. Dwivedi as the Arbitrator. After hearing Shri Vaswani, the society and Shri Virender Yadav - the petitioner herein, the Arbitrator passed a detailed award dated 13th of September 2005 in favour of respondent no.3, Shri Vaswani holding that the respondent society had violated the orders of the Registrar Co-operative Societies dated 30.10.1998 (sic 13.10.1998) and the order of the Financial Commissioner dated 07.01.1999 whereby the expulsion proceedings against Shri Vaswani had been dropped. It was held that without taking the issue of the expulsion of Shri Vaswani to its logical conclusion, the respondent society had acted in violation of the Delhi Co-operative Societies Act, the Rules and the directives issued thereunder, as the society had proceeded to accept money from the petitioner for handing over possession of flat no.57 to him. The arbitrator held that the respondent society was under a duty to raise a verifiable and genuine demand on Shri Vaswani and upon payment of the same, to hand over possession of flat no.57 to him. The respondent society was also held solely responsible for its conduct in dealing with Shri Yadav, the petitioner herein. The society was directed to make efforts to retrieve the account of Shri Vaswani as had been done in the case of other defaulter members so that Shri Vaswani could make payment of the amount due, along with interest as applicable. He also held that Shri Virendra Kumar Yadav the W.P.(C) No.7323/2008 Page 6 of 28 present petitioner was not entitled to allotment of a flat. The allotment of flat made to the petitioner and his possession thereof was held to be illegal and he was directed to hand over the same to the respondent society. He also held the transaction between the society and the petitioner herein to be illegal and void. The Arbitrator also directed that the Registrar should take necessary action against the Managing Committee of the respondent society for violation of the provisions of the Act provided under the Chapter- Offences and Penalties. 10. The petitioner-Shri Virender Kumar Yadav and the respondent society preferred appeals bearing nos. 178/05-DCT and 199/2005 DCT respectively before the Delhi Co-operative Tribunal against the aforesaid award of the learned Arbitrator. By its order dated 28th July, 2008, the learned Delhi Co-operative Tribunal has dismissed both the appeals and affirmed the arbitrator’s award dated 13.9.2005, after hearing the parties. 11. Shri S.P. Kalra, learned senior counsel for the petitioner submits that respondent no.3 Shri Vaswani was a persistent defaulter and he had not paid the amounts due from him from the beginning. He submits that even after the passing of the order dated 07.01.1999 by the Financial commissioner dropping the expulsion proceedings, and despite repeated demands made by the society, Shri Vaswani failed to make payment of the amounts due from him. W.P.(C) No.7323/2008 Page 7 of 28 12. The further submission is that in respect of the loan disbursed to the respondent society by the Delhi Co-operative Housing Financial Corporation Limited (DCHFC Ltd.), the said corporation had initiated arbitration proceedings to recover an amount of Rs.13,21,859/- as principal along with interest and costs. The Arbitrator appointed by the Registrar Co-operative societies had passed an award in favour of DCHFC Ltd and against the society on 28.01.2003 directing payment of Rs.13,84,383/-. He submits that with a view to liquidate the liability of DCHFC Ltd., the general body of members of the respondent society decided to enrol the petitioner as a member of the society. The petitioner is stated to have paid a sum of Rs.13,75,000/- towards cost of the flat as demanded by the society. Mr. Kalra contends that in these circumstances there is no equity in favour of respondent no.3 who has been a persistent defaulter, and, at the same time, equity lies in favour of the petitioner who is a bona fide purchaser of the said flat for valuable consideration. The further submission is that the petitioner came to the rescue of the society by providing the necessary funds to the society to clear the dues of DCHFC Ltd. under the award. Shri Kalra has also submitted that the Registrar, not having disapproved the expulsion of respondent No.3 in terms of Rule 36 of the Delhi Cooperative Societies Rules, 1973 within the statutory period of 6 months, the expulsion of respondent no.3 attained finality and by passing the subsequent orders, the Registrar and the learned Financial Commissioner, as aforesaid, could not have restored the W.P.(C) No.7323/2008 Page 8 of 28 membership of respondent No.3. 13. In support of his submissions, Shri Kalra, learned senior counsel appearing for the petitioner has also placed reliance upon the following decisions: (i) R.K. Aggarwal V. Registrar Coop. Societies, Delhi & Ors., 45(1991) DLT 105 (DB); (ii) Anand Lok Co-op. Group Housing Society Ltd V. The Registrar Co-op Societies & Ors., 68 (1997) DLT 246; (iii) Myurdhwaj Cooperative Group Housing Society Ltd V. The Presiding Officer, Delhi Cooperative Tribunal and Others; 74(1998) DLT 316 (SC). We shall deal with the said decisions a little later. 14. The petition has been contested by respondent no.3, Shri Vaswani. We may note that respondent no.2 society has not advanced any submission in opposition of the writ petition. On the contrary, the respondent society has filed its reply dated 12.11.2009 wherein they have supported the stand of the petitioner. 15. The submission of Mr. Ankur Arora, learned counsel for respondent no.3 is that the management of the respondent society has always acted in a mala fide and motivated manner against respondent no.3. He submits that upon the passing of the order dated 07.01.1999 by the learned Financial Commissioner, the expulsion proceedings against respondent no.3 attained finality and his expulsion was a closed chapter. Without challenging the said order any further and obtaining approval in respect of the earlier expulsion proceedings or undertaking fresh expulsion proceedings W.P.(C) No.7323/2008 Page 9 of 28 against respondent no3, the respondent society could not have de facto treated the respondent no.3 as having been expelled. Consequently, respondent no.2 could not have enrolled any other person as a member of the society in place of respondent no.3 with a view to allot to him the flat in question which already stood allotted to respondent no.3. He further submits that the respondent society failed to comply with the orders passed by the learned Arbitrator and the learned Financial Commissioner and did not issue a genuine verifiable demand with which respondent no.3 could have complied. He submits that respondent no.3 has always been ready and willing to make payment towards the outstanding cost of the flat and has even tendered various amounts from time to time which the management of the respondent society has refused to accept arbitrarily and in a mala fide manner. 16. Respondent no.3 also submits that in order to pay the outstanding liability of DCHFC Ltd., the respondent society could not have misappropriated the flat of respondent no.3 by illegally enrolling the petitioner as a member of the society. The liability owed to DCHFC Ltd. was not only in respect of the petitioner or the flat in question, but was also a liability of the respondent society and extended to each of the 58 members. He submits that the respondent no.3 has been made the sacrificial goat by the respondent society to liquidate the entire liability of the society and by placing the entire burden against the respondent no.3 alone. He further submits that though the initial cost of the flat in question was W.P.(C) No.7323/2008 Page 10 of 28 only about Rs.1.60 Lacs, the respondent society had acted malafidely by raising exorbitant demands in excess of Rs.22 Lacs and Rs.50 Lacs from respondent No.3. 17. It has come in the impugned award of the learned Arbitrator dated 13.9.2005 that the respondent society had raised a demand of Rs.22,48,279/- on 9.8.1998 against respondent no.3 and thereafter, in purported compliance of the order dated 07.01.1999 passed by the learned Financial commissioner, had raised a fantastic demand of Rs.50,37,199.76 vide their demand letter dated 10.11.1999. The learned Arbitrator has further recorded that vide letters dated 17.06.1999, 22.06.1999, 20.09.1999 and 01.07.2004, respondent no.3 had demanded from the society a proper statement of accounts and the amounts due and payable by him but the respondent-society did not come forward with the requisite information. 18. The learned arbitrator held that the crux of the order of the Financial Commissioner was not only to intimate to the respondent No.3 the outstanding dues, but also to ensure that the same were genuine and verifiable. He also explained the expression “verifiable”, in the context, to mean that the demand has been raised after checking the records and after arriving at a satisfaction that the same is as per the records. He held that the society had not produced any document to show that after raising the demand on respondent No.3, the society had offered its accounts and W.P.(C) No.7323/2008 Page 11 of 28 calculations for verification of respondent No.3. The arbitrator also held that the demand, prima facie, appeared to be unsustainable on account of non application of mind as a demand of Rs.22,48,279/- raised on 09.06.1998 could not have become Rs.50,37,199.76 on 10.11.1999. The arbitrator has concluded that the said conduct of the society shows its malafide intent to circumvent the order of the learned Financial Commissioner and, in process, to harass the respondent No.3. 19. It is apparent that before the learned arbitrator the stand of the respondent society was that an amount of Rs.22,78,158/- was outstanding against the respondent No.3. However, the respondent society did not produce any records to substantiate the said claim and the arbitrator rejected the said quantification of the dues by the respondent society in the absence of any genuine or verifiable records. The learned arbitrator has also gone into the aspect of the records of the society not being retrieved by the management from the Malviya Nagar Police Station, where they have been lying, as certain complaints had been made in the past. The learned arbitrator held that the concerned Metropolitan Magistrate had passed an order on 21.08.1991 directing the return of the records to Sh. N.K. Arora, an office bearer of the respondent society. In spite of that order, the respondent society had not collected the records. He held that for this inaction of the respondent society, the petitioner could not be made to suffer. W.P.(C) No.7323/2008 Page 12 of 28 20. So far as the aspect of membership of the petitioner is concerned, the learned arbitrator examined the records produced by the society which showed that payments had been received from him by the society on 12.03.2003 and 12.09.2003 i.e. even before holding of the AGM on 14.09.2003, which purportedly approved the enrolment of the petitioner as a member of the society. Pertinently the resolution of the AGM, purportedly passed on 14.09.2003, was not produced before the learned arbitrator. 21. The learned arbitrator also held that the respondent society had not produced any document to establish the compliance of the requirement of Rule 24 of the Delhi Cooperative Societies Rules, 1973 before enrolling the petitioner as a member. Under Rule 24 of the aforesaid rules, it was imperative for the respondent society to have advertised the vacancy, if any, in the newspapers to invite applications from all eligible persons, and to hold a draw of lots before enrolling a new member to fill up an existing vacancy. It has been admitted by Shri Kalra, learned senior counsel appearing for the petitioner, that the respondent society did not issue any advertisement in compliance of Rule 24 and that the petitioner came into the picture as he was acquainted with some of the office bearers of the respondent society at the relevant time. The arbitrator, consequently, concluded that the enrolment of the petitioner as a member of the respondent society was in violation of the Delhi Cooperative Societies Act, the Rules and the directives W.P.(C) No.7323/2008 Page 13 of 28 issued by the Registrar of Cooperative Societies and that his membership was void-ab-initio. 22. The award made by the learned arbitrator was upheld by the learned Delhi Cooperative Tribunal in the appeals preferred by the petitioner and the respondent society. The Tribunal has noted all the relevant facts, as aforesaid, and has considered the submissions made by the petitioner and the respondent society. Before us, Shri Kalra has not even ventured to assail the order passed by the learned Tribunal on any of the legal submissions advanced before it, each of which has been turned down by the Tribunal. We may note that the petitioner and the respondent society had raised the issue of the arbitrator exceeding his jurisdiction, and of the claim of respondent No.3 being barred by limitation. The Tribunal has dealt with these issues in the following manner:- “So far as the issue of limitation is concerned, the Financial Commissioner had directed the society in 1999 to issue verifiable/genuine demand and Sh. Vaswani pursued the matter with the society but the society did not revise the demand. Instead of giving the correct figure of the demand the society enrolled Shri Yadav in 2003 and therefore the claim was filed by Sh. Vaswani in 2004. Since the Delhi Cooperative Societies Act provides for six years’ limitation period for such claims and since the claim was filed within this period we hold that it was not time barred. Coming to other issues also the society appears to be on a weak wicket. It is not denied by the society that the Financial Commissioner had finally rejected the expulsion of Sh. Vaswani done W.P.(C) No.7323/2008 Page 14 of 28 by the society and had directed the society to issue him verifiable/genuine demand. The society deliberately ignored this order and raised demand of Rs.22 lacs/50 lacs which obviously was unreasonable and highly exaggerated considering the fact that the cost of construction of the flat is only Rs.1.60 lacs. On the other hand, Sh. Vaswani’s claim of his payment of Rs.60/80 thousands made by him to the society has not been contradicted by the society and no justification has been given for raising the exaggerated demands. Besides, it is also a fact that Sh. Vaswani was not expelled again after the Financial Commissioner’s order of 1999 which was final as it was not further challenged. This means that he continues to be a member in the society and since only one flat was available it has to be held that this flat was indirectly reserved for him. The enrollment of Sh. Virender Yadav in the year 2003 was therefore wrong because no vacancy was existing in the society on the date of his enrolment. It is also argued based on the records that the society had already accepted money (Rs.13 lacs) from him even before the proposal for his enrollment was brought before the General Body meeting and this fact leads to a conclusion that there was some sort of collusion between the then Managing Committee and Sh. Yadav. It also needs to be noted that the enrollment of Sh. Yadav has not been approved by the Registrar Cooperative Societies or the Delhi Development Authority and therefore also the allotment of a flat to him is unauthorized. The excuse given by the society that the society was in urgent need of money can not be accepted because even if there are defaulters in the society the society is expected to deal with them in accordance with the law and to raise money by legal means by filing arbitration cases against the defaulters; and not by illegal means like selling of somebody’s flat to a newcomer by enrolling him illegally. In this case, the society has ignored all the legal actions and formalities and has not only harassed Sh. Vaswani for obvious personal W.P.(C) No.7323/2008 Page 15 of 28 reasons but has also deprived him of his flat by not complying with the Financial Commissioner’s order. Sh. Virender Yadav’s argument that no direct claim was raised against him can not be accepted because he is the allottee and the possessor of the flat which should have legally gone to Sh. Vaswani and he was made a party in the original claims u/s 60. The arbitrator has rightly held that the society has now to deal with him at their own level.” 23. Having heard learned counsel, we find no merit in the submissions of Shri Kalra that the petitioner, while making the payment, acted bonafide and in the belief that the allotment of the flat in question made to him was legal. The petitioner ought to have been aware of the law that a cooperative group housing society could have enrolled a new member only after complying with the provisions of Rule 24(2) of the Delhi Cooperative Societies Rules, 1973, which states that the vacancy “shall be filled by the Committee by notifying it in leading daily newspaper of Delhi in Hindi and English. In case of number of applications are more than the notified vacancies the membership shall be finalized through draw of lot in the presence of authorized representative of the Registrar”. Admittedly, these steps were not taken by the respondent society. The fact that he made part payment to the respondent society even before the holding of the purported Annual General Meeting, which is claimed to have approved his enrolment as a member, clearly shows the nexus between the petitioner and the office bearers in the management in the respondent society at W.P.(C) No.7323/2008 Page 16 of 28 the relevant time. It is not explained, how the petitioner came to be allotted/delivered the flat in question on payment of Rs.13.75 Lacs, when the demand against respondent No.3 (who admittedly was a member since 1971 and had made some payments) as on that date was over Rs.50 Lacs. It is evident that the petitioner illegally and irregularly came to occupy the flat in question with the connivance and the blessings of the office bearers of the society by riding roughshod over the rights of respondent No.3. 24. Moreover, there was no existing vacancy in the respondent society against which any other person, including the petitioner, could have been enrolled. Even if it were to be assumed for the