[Loan Disbursement] If one signing authority exonerated; the other cannot be held liable: Bombay High Court

Bombay High Court: In a writ seeking to quash and set aside order dated 14-1-2016 passed in Revision Application under Section 154 of Maharashtra Co-operative Societies, Act 1960 (1960 Act), which exonerated culpability and liability of member of Managing Committee of the Society for loan disbursement of a person who was not a member of the Police Department, Milind N. Jadhav, J. upheld the Revisional Authority's order and said that the entire Managing Committee must be held liable and not the member who appended his signature on the cheque.

The petitioner was a registered Co-operative Society having employees of the Police Department of Maharashtra Government serving within Greater Mumbai as its members, more than 33,000 in numbers. The Society advances loan to the members and EMI against such loan is deducted from the monthly salary of members and remitted to the Society. The procedure for loan involves submission of certificate of employment with Maharashtra Police Department issued by the Departmental Head, along with duly filled application form, being a sine qua non for seeking loan from the Society.

In 2004-05, the Society came to know about 8 applicants who were not employees of Police Department but availed the loan from the Society. A criminal complaint was filed under Sections 406, 408, 170, 419, 465, 467, 468, 471 read with 34 of Penal Code, 1860 (‘IPC'). Meanwhile, an inquiry was initiated under Section 83 of 1960 Act, after which, action was recommended under Section 88 of 1960 Act, report submitted on 11-05-2009.

The Court perused the said report and found “indictment of six persons/members of the Society having committed serious discrepancies in recommending and disbursement of funds of the Society without adhering to the laid down procedure.” Conferring membership on persons other than the employees of Police Department and disbursement of loan amount to such persons was also pointed out. The said report was challenged under Section 152 of 1960 Act before the Divisional Joint Registrar, which was dismissed on 29-09-2009 while upholding the Enquiry Report.

A revision application before the State Minister of Co-operation was allowed and one of the respondents was exonerated from liability, which has been challenged in the instant petition.

Court's Analysis

The Court pointed out that the said respondent was appointed as member of Managing Committee in 2000 till 2005. The impugned loan was disbursed and the alleged signature for such disbursement was dated 13-01-2005 and 18-03-2005 respectively. The Court noted that all the four cheques in question in the instant matter, signed by the respondent, were counter signed by then President of the Society, who has been completely exonerated from any liability.

The Court observed that if the respondent was to be indicted for his signature on loan disbursement cheque, the then President ought to have been indicted. It further said that if the Enquiry Report names 7 people responsible for their active role in the alleged fraud, indictment of 4 out of 7 was not justified. The Court expressed that “Allegations of fraud are not only required to be pleaded but also proved with sufficient and reliable evidence. Fraud cannot be based upon conjectures and surmises.” Noting his acts as part of his duty, the Court regarded all of them as the acts for which the respondent could not be held liable.

The Court commented that the findings of Enquiry Officer upheld by Appellate Authority were not well founded. The Court said that the respondent, then Joint Secretary, cannot be solely responsible for disbursement of loan to a person who was not an employee of the Police Department, and that the most important aspect in the instant case was consideration of due diligence, which could have unearthed the applicants' genuineness. The Court, after understanding the assigning and authorizing powers to individual Managing Committee members, said that the entire Managing Committee must be held liable and not the member who appended his signature on the cheque.

Noting the exoneration of other members, the Court held the indictment of respondent and 3 other members as high handed and arbitrary. The Court reiterated that “verification, due diligence and scrutiny of the application for seeking loan is the most important step which is verified by the Manager of the Society or those responsible who are entrusted with the said work and appointed by the Society for the same.”

On the question of tampering, it was noted that the members allowed cheques to be encashed as bearer cheques with categorical reference to two letters intimating the bank for the cheques to bear signatures of two office bearers, to be converted from a crossed cheque to a bearer cheque after authorization of one such officer bearers after the respondent's tenure got over.

The Court refused to interfere with the findings of the Revisional Authority while regarding the same to be effective in the facts and circumstances of the instant case, thereby upholding the Revisional Authority's order dated 14-01-2016.

[Brihanmumbai Police Karmachari Sahakari Pat Sanstha Maryadit v. State of Maharashtra, 2023 Scc Online Bom 1176, decided on 14-6-2023]

*Judgment by: Justice Milind N. Jadhav

Advocates who appeared in this case :

For Petitioner: Senior Advocate Narendra V. Bandiwadekar

For Respondents: AGP V.S. Nimbalkar, Advocate Bhushan Walimbe

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