In the High Court of Punjab and Haryana at Chandigarh ESA No. 4320 of 2001 Date of decision: 12-2006 State Co-operative Spinning Mills Federation ..........Appellant Versus Shakti Traders Cotton and oil Merchants & Ors ..........Respondents CORAM: Hon'ble Mr.Justice Vinod K.Sharma Present: Mr. Puneet Kansal, Advocate, for the appellant. Mr. O.P.Goyal, Sr. Advocate with Ms.Mamta, Advocate, for the respondents. VINOD K.SHARMA,J. The Liquidator of the Kotakpura Co-operative Spinning Mills Ltd. Sandhwan, a society under liquidation, has filed the present appeal against the order passed by the learned Additional District Judge, Faridkot, dated 28-07-2001 dismissing the appeal filed by the present appellant and respondent Nos. 2 and 3 herein against the order dated 29-3-2001 passed by the learned Civil Judge, (Sr. Divn.), Faridkot, vide which the application moved by the appellant under Sections 58 and 59 read with Section 82 of the Punjab Co-operative Societies Act, 1961 (for short the 'Act') for dismissal of the execution application filed by the decree-holder was dismissed. The decree-holder-respondent No.1 herein filed a suit for -2- ESA No. 4320 of 2001 recovery against the appellant and respondent No.2 for recovery of sum due to it on account of supply of cotton bales to respondent No.2 herein. During the pendency of the suit, respondent No.2 herein went into liquidation vide order dated 26th of March 1998 passed by the Registrar, co-operative Societies, Punjab, and the Deputy Registrar, Co-opearative societies, Faridkot, was appointed as a Liquidator of the mill. The Liquidator was impleaded a par ty to the suit. The suit wlas decreed in favour of the plaintiff decree-holder and a decree for a sum of Rs. 24,85, 531. 74 Ps along with future interest @ 1.5% per month from the date of filing of the suit till realisation was passed. The decree holder filed execution application wherein an application was filed by the petitioner stating therein as per the provisions of Section 56 of the Act, whole assets of the society now vest in the Liquidator. It was further submitted that sub-section ( c ) of Section 59 of the Act the Liquidator is to decide the question of priority arising between the claimants. It was further submitted that under Section 82 of the Act, no Civil or Revenue Court would have the jurisdiction in respect of any matter concerning winding-up and dissolution of a cooperative society. Sub-section (2) of Section 82 of the Act further provides that no suit or proceedings relating to the business of the said society shall be proceeded with or instituted against the Liquidator. It was the further case of the appellant that Liquidator had invited claimants from the claimants through Public notice and decree-holder has put his claim before the Liquidator. The appellant further -3- ESA No. 4320 of 2001 submitted that all the assets and liabilities were being investigated by the Liquidator so as to settle the same as per provisions of the Act. The jurisdiction of the executing Court to decide the claim of the decree- holder was also disputed and accordingly a prayer was made that the execution application be dismissed. The decree-holder contested the objections filed by the appellant and it was claimed that the appointment of the Liquidator did not affect the rights of the plaintiff in execution of lawful and valid decree which was already passed in favour of the decree-holder. It was further claimed that the judgment and decree operates as res judicata and, therefore, is binding on the parties. It was also claimed that the judgment-debtor had not taken objections in the main suit and now they ate estopped by their act and conduct from raising these objections. It was further the case of of the decree-holder that it was only the court passing the decree, has to take the decision on the execution application. It was also disputed that the provisions of Section 82 of the Act are not applicable to the facts and circumstances of the present case. It was further claimed that the dispute in the present case was not covered under the provisions of the Act and it was not touching with the business of the society. It was also claimed that the decree-holder submitted his claim before the Liquidator. However, no action on the said claim has been taken. Thus, it was claimed that the Court had the jurisdiction to execute the lawful and valid decree. -4- ESA No. 4320 of 2001 The learned executing Court as well as the learned Appellate Court came to the conclusion that the dispute in this was regarding the purchase of cotton by the society from the decree-holder and the said amount was not paid by the society and, therefore, the transaction could not be said to be relating to the business of the society so as to attract the bar under Section 82 of the Act. The Courts further came to the conclusion that the executing Court could not go behind the decree and, therefore, rejected the objections. Mr. Puneet Kansal, learned counsel for the appellant, argued that the objection raised by appellant was as per the provisions of Sections 58 and 59 of the Act. it was the Liquidator, who was to adjudicate the claim. This important aspect of the matter has not been answered by the learned Courts below. Learned counsel for the appellant fairly conceded that he was not disputing the decree passed in favour of the decree-holder, but objected to the execution of the decree in view of the bar contained under Sections 58,59 and 82 of the Act. The contention of the learned counsel for the appellant was that there was a bar under Section 82 (2) of the Act in view of the fact that the appellant was under winding-up. Section 82 of the Act reads as under:- “82. Bar of jurisdiction of Courts - Save as provided in this Act, no civil or revenue court shall have any jurisdiction in respect of - -5- ESA No. 4320 of 2001 (a) the registration of a co-operative society or its bye- laws or amendment of bye-laws; (b) the removal of committee; (c ) any dispute required under section 55 to be referred to the Registrar; and (d) any matter concerning the winding-up and the dissolution of a co-operative society. 2. While a co-operative society is being wound up no suit or other legal proceedings relating to the business of such society shall be proceeded with or instituted against the liquidator as such or against the society or any member thereof except by leave of the as Registrar and subject to terms as he may imposed. 3. Save as provided in this Act, no order, decision or award made under this Act shall be questioned in any court on any ground whatsoever.” The contention of the learned counsel for the appellant, therefore, was that in absence of the permission have not been granted by the Registrar, no proceedings could have been instituted and thus the decree passed by the Court was void and not capable of being executed. Though the contention raised by the counsel for the appellant is correct, however, the same cannot apply to the facts of the present case as the Liquidator was impleaded as a party in the suit, who contested the same and after having taken a chance, it was not open to the judgment-debtor thereafter to raise a plea that the suit as framed was not competent or was barred under Section 82 (2) of the -6- ESA No. 4320 of 2001 Act. The objections of the appellant on this ground cannot be sustained and it has to be held that the decree-holder is entitled to the decretal amount. The next contention of the learned counsel for the appellant was that it was only the Liquidator, who could decide the claim of the decree-holder as per the priority. Section 59 of the Act reads as under:- “59. Power of Liquidator. - (1) Subject to any rules made in this behalf, the whole of the assets of a co- operative society, in respect of which an order for winding-up has been made, shall vest in the liquidator appointed under Section 58 from the date on which the order takes effect and the liquidator shall have power to realise such assets by sale or otherwise. 2. Such liquidator shall also have power, subject to the control of the Registrar - (a) to institute and defend suits and other legal proceedings on behalf of the co-operative society by the name of his office; (b) to determine from time to time the contribution ( including debts due and costs of liquidation) to be made or remaining to be made by the members or past members or by the estates or nominees, heirs, or legal representatives of deceased members or by any officers or former officers, to the assets of the society; -7- ESA No. 4320 of 2001 ( c) to investigate all claims against the co- operative society and subject to the provisions of this Act, to decide questions of priority arising between claimants; (d) to pay claims against the co-operative society, including interest upto the date of winding up according to their respective priorities, if any, full or ratebly, as the assets of the society may permit; the surplus, if any, remaining after payment of the claims being applied in payment of interest from the date of such order of winding up at a rate fixed by him but not exceeding the contract rate in any case; (e) to determine by what persons and in what proportions the costs of the liquidation are to be borne. (f) to determine whether any person is a member, past member or nominee of deceased member; (g) to give such directions in regard to the collection and distribution of the assets of the society as may appear to him to be necessary for winding up the affairs of the society; (h) to carry on the business of the society so far as may be necessary for the beneficial winding up of the same; (i) to make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging to have any claim, present or future, whereby the society may be rendered liable. -8- ESA No. 4320 of 2001 (j) to make any compromise or arrangement with any person between whom and the society there exists any dispute and to refer any such dispute to arbitration; (k) after consulting the members of the society, to dispose of the surplus, if any, remaining after paying the claims against the society, in such a manner as may be prescribed and (l) to compromise all calls or liabilities to calls and debts and liabilities capable of resulting in debts and all claims present or future, certain or contingent subsisting or supposed to subsist between the society and a contributory or alleged contributory or other debtor or person apprehending liability to the co-operative society and all questions in any way relating to or affecting the assets or the winding up of the society on such terms as may be agreed and take any security for the discharge of any such call, liability, debt or claim and give a complete discharge in respect thereof. 3. When the affairs of a co-operative society have been wound up, the liquidator shall make a report to the Registrar and deposit the records of the society in such place as the Registrar may direct.” Learned counsel for the appellant thereafter referred to provisions of Section 85 of the Act to contend that the State -9- ESA No. 4320 of 2001 Government is empowered to frame rules for following procedure by the Liquidator appointed under Section 58 in respect of the provisions of Section 59 of the Act . It cannot be disputed that in pursuance of the powers conferred under Section 85 of the Act, statutory rules called The Punjab Co-operative Societies Rules, 1963 ( hereinafter called the 'rules' ) have been framed and rule 63 of these rules reads as under:- “Distribution of assets (Sections 59 (1) and 85 (2) (xxvi) – The liquidator shall distribute the realised assets in such manner and in such priority as the Registrar may direct.” In terms of Section 63, a consolidated circular has been issued including the one dealing with to pay off all the liabilities of the society under liquidation. Circular No.17.32 of the said circulars reads as under:- “17.32. The liabilities of a society under liquidation should be paid off in the following order:-- (a) Liquidation expenses. (b) Government Dues. ( c) Claims or employees in respect of Provident and security deposit. (d) Pay and other claims of the employees. (e) Secured creditors (Both principal and interest). (f) Ordinary creditors (Principal only) (g) Interest to ordinary creditors. -10- ESA No. 4320 of 2001 (h) Share money to the members. (i) Any surplus should be disposed of as ordered by the Registrar. In each of the above groups, all persons must share in the payments in proportion to their total claims and each group must be fully paid off before payment of the next group is concerned.” By making reference to this circular, the contention of learned counsel for the appellant was that the decree-holders are to be treated as original creditors and the decretal amount has to be paid by the Liquidator as per the priorities referred to above. In support of this contention, learned counsel for the appellant placed reliance on the judgment of this Court in Letters Patent Appeal No. 1435 of 2001 (The Central Coop. Consumer Store Ltd. (Super Bazar) now under liquidation through its liquidator and another ) Vs. Super Bazar, Chandigarh Employees Union and others), decided on November 22,2001, wherein it has been held as under:- “ It is further the case of the appellants that all the liabilities of the Super Bazar shall be discharged in accordance with the provisions of Rule-63 of the Punjab Coop. Societies Act, 1963 read with order of priorities of discharge of liabilities prescribed vide Standing Order 17.32 of the Book of Consolidated Circulars issued by the Registrar, Coop. Societies, Punjab, prevalent as on 1.11.1966 which are binding upon the Union Territory of Chandigarh under the Punjab Re-Organisation Act, 1966 -11- ESA No. 4320 of 2001 read with notification dated 20.11.1968 whereby all the State Acts, Rules, Orders, Bye laws, Schemes, Notifications or other instructions were adopted by the Chandigarh Administration w.e.f. 01-11-1966. It is also the case of the appellants that liquidator had no authority to discharge liability except in accordance with the priorities fixed by the Registrar, Coop. Societies. Under the Standing Order 17.32 of the Consolidated Circular of the Coop. Department, the following line of priorities in the distribution of assets is prescribed:- (a) Liquidator expenses. (b) Government dues ( c ) Claims of employees in respect of Provident and security deposit. (d) Pay and other claims of the employees. (e) Secured creditors (both principal and interest) (f) Ordinary creditors (principal only) (g) Interest to ordinary creditors. (h) Share money to the ordinary creditors. (i) Any surplus should be disposed of ordered by the Registrar.” It may be noticed that after observing the provisions as referred to above, the Hon'ble Division Bench of this Court was pleased to order that the petitioners would be p;aid their admitted dues -12- ESA No. 4320 of 2001 in accordance with the priorities settled and mentioned above. Learned counsel for the appellant thereafter contended that the provisions of Section 82 (2) of the Act are similar to the Section 446 of the Companies Act and accordingly placed reliance on the order passed by this Court in CA No.561 of 2001 (M/S Sanchi Security Co. Pvt. Limited Vs. The Punjab Wireless System Ltd. Mohali), wherein this Court was pleased to order that the petitioner- company in the said application would be at liberty to lodge the claim with the Official Liquidator and in case any such claim is lodged, the same has to be considered in accordance with law. Learned counsel for the appellant thereafter placed reliance on the judgment of this Court in CA No.268 of 2005 in Company Petition No. 163 of 2001 ( In the matter of M/S Kartar Glass Work Limited (in liquidation) Vs. Civil Judge (Sr. Divn.) Nawanshahr & another, decided on 23-02-2006 to contend that in view of the decree passed by the civil Court, the decree holders have to be treated as unsecured creditors and their claims have to be decided as per the priorities. The order passed by this Court reads as under:- “The application is by the Official Liquidator to stay the proceedings in Execution Cases Nos. 85,86 and 147 of 1997 against the company in liquidation pending in the Court of Civil Judge (Senior Division), Nawanshahr. It has been pointed out that the decree has been passed in favour of respondent No.2 as an unsecured -13- ESA No. 4320 of 2001 creditor. Therefore, claim of unsecured creditor in respect of company in liquidation cannot have any preference against the rights of the secured creditors.” Keeping in view the said fact the proceedings in Execution Cases 85,86 and 147 are stayed. However, the Official Liquidator shall take into consideration the said decrees while settling the claim of unsecured creditors at the appropriate stage. With the said observation, the application stands disposed.” Learned counsel for the appellant also placed reliance on the judgment of the Hon'ble High Court of Delhi in the case of Reserve Bank of India Vs. Crystal Credit Corporation Ltd. (2006) 132 Com0 Cas 363 (Delhi) to contend that the decree-holder is entitled to get money only along with other creditors and Official Liquidator is to take steps to realize money disbursed. In the said case, the Hon'ble Delhi High Court has been pleased to order as under:- “At the same time, it has to be borne in mind that the sale proceeds of the property put to auction have to go to the official liquidator and these are required to be distributed, along with other money realized by the Official Liquidator in accordance with the provisions of the Act by distributing the dividends to various creditors. The decree -14- ESA No. 4320 of 2001 holders who have been able to get the money in the said sale would only be creditors along with other creditors and by realizing the money after the passing of the winding up orders they have been able to get the said money to which they were not entitled at this stage. The money was disbursed to various decree holders and the applicant has filed the list of those decree holders, who were disbursed of the money. For that appropriate steps which the official liquidator should take would be to file application under section 446 of the Act against the said decree holders for realizing this money.” Learned counsel for the appellant also placed reliance on the order passed by this Court in CA No.208 of 2003 in Company Petition No. 45 of 1997 wherein this Court was pleased to hold that where the sale is conducted by the Civil Court with the permission of the Company Court, the same cannot be allowed for the benefit of unsecured creditors. Learned counsel thereafter placed reliance on the judgment of this Court in the case of H.S.Oberoi & Associate V. Punjab Wireless Systems Ltd. in Company Petition No. 174 of 2000 in Company Petition No.226 of 1999, decided on July 11,2001, wherein this Court was pleased to hold that the property attached by the Civil Court in execution of a decree did not create any interest in the decree-holder. The operative part of the judgment reads as under:- “ On the basis of the conclusion drawn above that no -15- ESA No. 4320 of 2001 charge stands created in favour of the Corporation vis-a- vis the property of the respondent company i.e. Punwire attached vide orders dated 17.8.1999 and 6-12-1999, it is not possible for this Court to accept the prayer of the Corporation to allow it to execute the judgment and decree date 19.9.1999 against the respondent-company i.e. Punwire, for the recovery of a sum of Rs. 7,42,27,312/- besides costs and interest from the attached properties as a secured creditor. Thus viewed, I find no merit in the claim of the petitioner-Corporation for being permitted to continue the execution proceedings initiated by it by filing execution proceedings in this Court to enforce the judgment and decree dated 9-9-1999. The corporation may, if be so advised, make an appropriate claim in this behalf before the liquidator in view of the fact that a winding-up order has already been passed in furtherance of company petition No.226 of 1999 on 1-2-2001.” On the basis of the judgments referred to above, the contention of the learned counsel for the appellant was that it was not open to the executing Court to execute the decree in view of the provisions contained in Sections 58 and 59 read with Section 82 (2) of the Act and, therefore, the only remedy with the decree-holder was to file a claim with the Liquidator on the basis of the decree passed in its favour and it was for the Liquidator to liquidate the liabilities of the -16- ESA No. 4320 of 2001 society as per the priority fixed and that thereafter should have sought for setting aside of the impugned judgments passed by the learned Courts below. Shri O. P. Goel, Senior Counsel appearing on behalf of the respondent decree-holder vehemently contended that the right of the parties stands determined by the decree of the Civil Court dated 20th March 1999 and the parties are bound by the decree unless the same is valid. It was further argued that the objections of all sorts could be taken before the trial Court by the Liquidator. When the said objections have been overruled and the decree has become final, the same cannot be allowed to be taken in the execution proceedings. It was further contended by the learned Senior Counsel for the respondent-decree holder that the executing Court cannot go behind the decree and, therefore, was bound to execute the same as passed without looking into any other matter unless the Court did not have the jurisdiction or the decree was a nullity. It was also contended by the learned Senior Counsel that once the Liquidator was a party to the suit, therefore, the objections sought to be taken now could only be taken before passing of the decree. It was next contended by the learned Senior Counsel for that the provisions of the Company Act regarding winding-up and the powers of the Liquidator cannot be imported into the provision of the Punjab Co-operative Societies Act, 1961 and, therefore, it was claimed that the authorities relied upon by the learned counsel for the -17- ESA No. 4320 of 2001 appellant were distinguishable. It was also contended by the learned counsel for the respondent-decree-holder that the reliance on circular No.17.32 of the consolidated circulars of the Co-operative Department cannot be placed for want of source of the said circular. It was claimed that the charge over the property has been created when the application was filed before the Civil Judge, (Sr. Divn.), Chandigarh on 28-11-1996 and, therefore, the executing Court was bound to dispose of the said application for execution of the decree. Learned senior counsel in support of this contention placed on the judgment of this Court in the case of Ram Sarup Vs. Food Corporation of India, Patiala and another, AIR 1979, P&H 116 to contend that where no lack of inherent jurisdiction in the Court passing the decree, the executing Court cannot go behind the decree. The learned Senior Counsel also placed reliance on the judgments of the Hon'ble Supreme Court in the cases of Vasudev Dhanjibhai Modi Vs. Rajabhai Abdul Rehman and others, AIR 1970 SC 1475, Ravinder Kaur Vs. Ashok Kumar and another, AIR 2004 SC 904