Entire Managing Committee Of Society Liable & Not Only Member Who Signed Cheque For Disbursement Of Loan To Fraudulent Person: Bombay HC

The Bombay High Court has held that the entire Managing Committee of the registered society is liable and not just the member who had signed the cheque for the disbursement of the loan to a fraudulent person.

A Single Bench of Justice Milind N. Jadhav observed, “… the entire Managing Committee is liable and responsible and not the member who has appended his signature on the cheque for disbursement of loan. If the Enquiry Officer has exonerated the other Managing Committee members then in that case indictment of Respondent No.6 is high handed and arbitrary. All that is needed to be seen in the present case is that the Managing Committee members had been authorised by the Managing Committee to sign the cheques for disbursement of loan.”

The Bench reiterated that verification, due diligence, and scrutiny of the application for seeking a 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.

Senior Advocate Narendra V. Bandiwadekar represented the petitioner while AGP V.S. Nimbalkar and Advocate Bhushan Walimbe represented the respondents.

Facts -

A plea was preferred by the petitioner praying for the direction to quash the order passed by the Minister, Co-operation Department, and challenged the legality and validity of the said order under Section 154 of The Maharashtra Co-operative Societies, Act 1960. The petitioner was a registered co-operative society and the employees of the Police Department of the Government of Maharashtra serving within Greater Mumbai were its members. It had more than 33,000 members.

The petitioner advanced loan to its members and to avail the same, the applicants were required to submit a certificate issued by the Head of the Department. It was noticed thereafter by the petitioner that eight applicants who availed loan were not employees of the police department and had taken the loan by fraud. As per the enquiry report, it was held that some of the society members were liable for such an act as they were the signing authority.

The High Court in view of the above facts noted, “… the findings returned by the Enquiry Officer and upheld by the Appellate Authority are not well founded. … In the given facts and circumstances of the present case, it cannot be fathomed that Respondent No.6 being the Joint Secretary of the Society and one of the office bearers of the Managing Committee can be solely held responsible and liable for disbursement of loan to a person who is not an employee of the Police Department. The most important aspect for consideration is the fact of due diligence in such a case.”

The Court said that an appropriate enquiry and due diligence if carried out by those responsible to do so before recommending the application of such persons for loan sanction to the Managing Committee could have unearthed the genuineness of the applicants and, therefore, the role of the respondent needs to be understood in its proper perspective.

“… it cannot be held that only Respondent No.6 and three other members of the Committee are liable for causing financial loss to the Society and are liable for reimbursement of the said financial loss. … This is a classic case where the Managing Committee has sanctioned the loan amount and an individual office bearer of the Managing Committee who has been entrusted with the responsibility and duty of signing the cheques is held responsible for disbursement of loan. This cannot be countenanced in the facts of the case. It cannot be stated that Respondent No.6 was not authorised for appending his signature”, further noted the Court.

The Court, therefore, refused to disturb the findings of the revisional authority and offer an alternate view as the same according to it were not only cogent but effective in the facts and circumstances of the case being based on sound reasoning.

Accordingly, the Court dismissed the plea and upheld the order of the revisional authority.

Cause Title- Brihanmumbai Police Karmachari Sahakari Pat Sanstha Maryadit v. State of Maharashtra & Ors. (Neutral Citation: 2023:BHC-AS:15622)

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