Tag Archives: #loandisbursement

INTRODUCTION

The High Court of Bombay passed a judgement on 14 June 2023. In the case of BRIHANMUMBAI POLICE KARMACHARI SAHAKARI PAT SANSTHA MARYADIT Vs THE STATE OF MAHARASHTRA THROUGH THE SECRETARY, CO-OP. DEPT. AND ORS. IN WRIT PETITION NO.1475 OF 2017which was passed by a single bench comprising of HONOURABLE SHRI JUSTICE MILIND N. JADHAV, the court examined a petition challenging the legality and validity of an order passed by the state minister in a revision application. The case involved a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960. The petitioner alleged fraudulent practices in the disbursement of loans by the society’s managing committee, resulting in a significant financial loss. The court was tasked with determining whether the respondent, who was a member of the managing committee, should be held responsible for the financial loss and liable for repayment.

FACTS OF THE CASE

The petitioner, a co-operative society, primarily provided loans to employees of the Police Department in Maharashtra. The loan repayment process involved deducting equated monthly instalments (EMIs) from the borrowers’ salaries. To obtain a loan, applicants were required to submit a certificate issued by the Head of the Department, verifying their employment status.

During an inquiry initiated by the petitioner, it was discovered that several loan applicants were not actual employees of the Police Department. Criminal complaints were filed against these individuals, and a case was pending. Additionally, an Enquiry Report conducted under Section 88 of the Maharashtra Co-operative Societies Act revealed serious discrepancies in the loan recommendation and disbursement process. The report implicated six members of the managing committee, including the respondent, for not adhering to the prescribed procedures.

The Enquiry Report held the respondent responsible for disbursing loans to four alleged members, even though they were not genuine employees. The report also accused the respondent of erasing the crossing on loan disbursement cheques to make them appear as bearer cheques, which is a violation of protocol. The petitioner, along with three other members, was held liable for the financial loss caused to the society.

1. Maharashtra Co-operative Societies Act, 1960: This act governs the functioning and administration of co-operative societies in the state of Maharashtra. It provides guidelines on the formation, registration, management, and dissolution of co-operative societies.
2. Section 88 of the Maharashtra Co-operative Societies Act: This section empowers the Registrar of Co-operative Societies to conduct an inquiry into the affairs of a co-operative society if there are allegations of misconduct, mismanagement, or any other irregularities. The inquiry report plays a crucial role in determining the responsibility of the members involved and the subsequent action to be taken.
3. Indian Penal Code (IPC): The IPC contains provisions related to criminal offenses in India. In the case of fraudulent loan disbursement, specific sections of the IPC may be relevant, such as:
   • Section 420: This section deals with offenses involving cheating and dishonesty, which may be applicable if there is evidence of fraudulent practices in the loan disbursement process.
   • Section 468: This section pertains to forgery for the purpose of cheating, which could be relevant if the respondent tampered with cheques to deceive the co-operative society.
4. Banking Regulations Act, 1949: This act regulates the banking sector in India and provides guidelines for various banking operations. While co-operative societies may not fall directly under the purview of this act, certain provisions related to banking practices and cheque issuance could be considered while examining the legality of converting crossed cheques into bearer cheques.

LEGAL PROCEEDINGS

Following the Enquiry Report, the respondent filed an appeal challenging the findings. However, the Divisional Joint Registrar dismissed the appeal and upheld the Enquiry Report. Subsequently, the respondent filed a revision application before the State Minister of Co-operation, who, after hearing the parties, allowed the revision and exonerated the respondent from liability.

The petitioner, dissatisfied with the revisional order, approached the court seeking to quash the impugned order and uphold the Enquiry Report and the appellate order.

ARGUMENTS

The petitioner contended that the respondent, as a member of the managing committee, had played a significant role in the fraudulent loan disbursement. The petitioner argued that the respondent’s act of tampering with the cheques and converting them from crossed cheques to bearer cheques was illegal and beyond their authority. The petitioner emphasized that the Enquiry Report and the Divisional Joint Registrar’s order had found the respondent guilty of serious misconduct, resulting in a financial loss to the society.

On the other hand, the respondent argued that all members of the managing committee shared responsibility for the loan disbursement process. They claimed that the verification of loan applications was the committee’s duty, and the loans were sanctioned after due consideration by the managing committee. The respondent contended that their actions were in accordance with the committee’s resolution, which authorized individual members, including themselves, to sign the loan disbursement cheques.

COURT’S DECISION

After considering the arguments presented by both parties and examining the facts of the case, the court rendered its decision. The court acknowledged that the fraudulent loan disbursement had indeed caused a significant financial loss to the society. It noted that the respondent, as a member of the managing committee, was responsible for signing the cheques and had tampered with them, converting them into bearer cheques.

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JUDGEMENT REVIEWED BY VETHIKA D PORWAL, BMS COLLEGE OF LAW

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