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Gangadhar Dattatraya Sule Vs. the C.K.P. Co-operative Credit Bank Ltd., Bombay and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai High Court
Decided On
Case NumberSpecial Civil Appln. No. 2161 of 1966
Judge
Reported inAIR1973Bom186; (1972)74BOMLR814; (1972)9CompLJ20(Bom)
ActsMaharashtra Co-operative Societies Act, 1960 - Sections 88
AppellantGangadhar Dattatraya Sule
RespondentThe C.K.P. Co-operative Credit Bank Ltd., Bombay and ors.
Appellant AdvocateM.B. Chitre and ;V.S. Kohojkar, Advs.
Respondent AdvocateV.V. Albal and ;P.D. Kamerker, Advs.
Excerpt:
.....of 1961) -- tribunal constituted under act when dealing with question of misfeasance of member of managing committee of co-operative society how should proceed.;whilst dealing with the question of misfeasance of any member of the managing committee of a co-operative society, the maharashtra state co-operative tribunal constituted under the maharashtra co-operative societies act, 1960, will have to first consider the advisability of the transaction from which loss has resulted. full and complete evidence must be led on behalf of the prosecuting and/or accusing party to prove that the transaction was injurious and illadvised and that the offending and/or guilty party had neglected to examine that question as a prudent person would in ordinary circumstances do.;one gangadhar (petitioner)..........1951. he had delayed the delivery of the balance of the converted securities and delivered to the bank. securities of the face value of rs. 1,40,000/- by two batches respectively on 27th and 29th september 1951. in connection with the delay in delivering the converted securities, certain members of the managing committee appear to have expressed anxiety. by letter (ex. 111) dated september 28, 1951. barve had suggested that the securities of the face value of rs. 3 lakhs should be converted into the new issue of municipal bonds of the bombay municipal corporation. he had underwritten the new issue of municipal bonds to the extent of rs. 5 lakhs and he was receiving brokerage of 8 annas per cent for selling the new issue of municipal bonds. he addressed the above letter to the.....
Judgment:

Desai, J.

1. In this petition, under Art, 227 of the Constitution the petitioner has challenged the correctness of the order of the Maharashtra State Co-operative Tribunal in Appeal No. 52 of 1966 dated July 8, 1966, whereby the Tribunal inter alia made findings against the petitioner and confirmed the order of the Authorised Officer dated January 17, 1966 whereby the petitioner was directed to pay Rs. 1,06,000/- for the loss and damages in consequence of his misfeasance and Rs. 533.33 as costs to the 1st respondent-Bank.

2. The facts which require to be noticed are as follows :

3. The petitioner has been working as a Clerk in the General Department of National and Grindlays Bank. In 1949-50 the petitioner on election to the Managing Committee of the 1st respondent-Bank (hereinafter referred to as 'the Bank') was also elected as the Secretary. During the years 1950-51 and 1951-52 he was a Member of the Managing Committee of the Bank. In 1950-51, the 2nd respondent Madhusudan Shankar Khopkar was the Honorary Secretary. During that period (1950-51) one Moreshwar Yeshwant Shringarpure since deceased, now represented by the Opponents Nos. 3 and 4, was the Chairman of the Bank.

4. In connection with certain transactions effected in 1950-51-52, an inquiry was held under Rule 72 (2) of the Rules framed under the Maharashtra Co-operative Societies Act, 1960. As a result of the inquiry report an order was passed on May 20, 1964, directing that charges may be framed against the petitioner, the said Khopkar as also the said Shringarpure. The petitioner was served with the charge-sheet dated February 10, 1965 and called upon to show cause in connection with the charges mentioned in the charge-sheet. The first charge was that the petitioner had formed a conspiracy with Broker Barve to cheat the 1st respondent-Bank and in furtherance of that intention he had introduced Broker Barve to the Managing Committee of the bank, and induced the members of the Committee to entrust to Barve the work of selling the Government Securities held by the bank, and purchasing new securities in lieu thereof; and the petitioner was aware that Barve's financial position was not sound and had not disclosed that fact to the Members of the Managing Committee. The petitioner had induced the Chairman and the Secretary of the Bank to endorse Government Securities in favour of Barve, from time to time between September 25, 1950 and October 3, 1951 and to hand over such securities to Barve, without the sanction or approval of the Managing Committee in that behalf. The petitioner failed to take care to see that Barve promptly purchased new Securities in lieu of the old ones and returned the new securities to the Bank diligently.

5. The second charge was that the petitioner had induced the Chairman and the Secretary (Khopkar and Shringapure) of the old Managing Committee to endorse Government Securities of the face value of Rs. 4,10,000/- in favour of Barve on October 4, 1951 and to hand over those Securities to Barve, thus enabling Barve to commit fraud and misappropriation. The petitioner had assured the Managing Committee from time to time that Barve was financially sound and reliable, and thus misled the Managing Committee.

6. On the basis of the above two charges, the allegation was that by his acts of omission, commission and misfeasance, the petitioner caused loss amounting to Rs. 3,33,443 to the Bank and was liable to make good that loss.

7. Upon appreciation of the evidence on record, the Authorised Officer by his decision and order dated January 17, 1966 held the above charges to have been proved. he directed the petitioner to pay Rs. 1,06,000/- for loss and Rupees 533.33 for costs and expenses. Khopkar and Shringarpure were directed to pay exactly similar amounts.

8. The petitioner and the above two parties filed their respective appeals before the Maharashtra State Co-operative Tribunal. All the three appeals were disposed of by the Tribunal by common judgment and order dated July 8, 1966.

9. As regards the first charge it is not necessary to enter into any discussion in this judgment because the Tribunal has in para 13 of its order observed as follows :

'Nay, as already stated, there is no evidence that any of the appellants with a deliberate design, joined hands with Barve to cause loss to the Bank. xx xx xx xx xx Therefore, without going into the question of conspiracy in the case of the appellants including Sule, the proper test to adopt would be whether each of the three persons, namely, the deceased Shringarpure, Khopkar and Sule has acted in relation to the securities of the bank in a manner in which a person of ordinary prudence would have acted in regard to his own personal property.'

10. Now, as regards the second charge before the referring to the findings of the Tribunal, the following facts require to be stated :

11. Between 23rd September 1950 and end of May 1951 from time to time Government Securities of the aggregate value of Rs. 8,82,700 were delivered to Barve, who was a Member of the Stock Exchange of Bombay and authorised Broker dealing in Government Securities. The Securities were delivered for converting them into substituted profitable securities. Between November 1950 and April, 1951, Barve had by sale and conversion of the original Securities delivered to him, delivered back to the Bank the Securities of the aggregate value of Rs. 6,32,700/-. During the period when the securities were delivered for conversion the petitioner was a Member of the Managing Committee of the Bank . The petitioner was the Secretary of the Managing Committee in 1949-50. New election of the Managing Committee took place and a new committee was elected on September 24, 1950. In that election, Khopkar was elected as Secretary and Shringarpure was elected as Chairman. This new committee had taken charge of the affairs of the Bank as from October 1, 1950. The Managing Committee had passed resolution on September 23, 1950 for the delivery of the first batch of Government Securities of the value of Rs. 1,90,000/- for conversion thereof into new substituted securities. Under the bye-laws the Chairman and the Secretary were by themselves not entitled to make transaction through any authorised Broker or otherwise for conversion of Securities. The power of dealing with investments was vested in the Managing Committee. That the date of delivery of Government Securities being September 1950, the Secretary and the Chairman had endorsed over the original Securities without taking authority from the Managing Committee. The Managing Committee, however, had from time to time ratified the act of the Secretary and the Chairman of delivering the original securities for conversion to Barve.

12. The election of the new Managing committee for 1951-52 took place on September 30, 1951 and in that election one Korlekar was elected as Secretary and one Tipnis was elected as Chairman. The second charge relates to the delivery of securities for conversion purposes in 3rd October 1951. Prior to that date securities of the face value of Rs. 8,82,700/- were delivered to Barve and he had delivered back to the Bank converted Securities of the value of Rs. 6,32,700/- by April 1951. he had delayed the delivery of the balance of the converted securities and delivered to the Bank. Securities of the face value of Rs. 1,40,000/- by two batches respectively on 27th and 29th September 1951. In connection with the delay in delivering the converted Securities, certain members of the Managing Committee appear to have expressed anxiety. By letter (Ex. 111) dated September 28, 1951. Barve had suggested that the Securities of the face value of Rs. 3 lakhs should be converted into the new issue of Municipal Bonds of the Bombay Municipal Corporation. he had underwritten the new issue of Municipal Bonds to the extent of Rs. 5 lakhs and he was receiving brokerage of 8 Annas per cent for selling the new issue of Municipal Bonds. He addressed the above letter to the petitioner, so that he could put up the question before the Chairman and the Secretary and possibly the Managing Committee. Barve had promised by his letter, to give share of 6 Annas of his brokerage to the Bank. According to Barve, by the conversion suggested by him, the Bank would make large profits. It appears that in connection with this question Barve directly approached Shringarpure and thereafter there was some discussion between Shringarpure and the petitioner. It also appears that Shringarpure contacts Korlekar the Secretary of the new Managing Committee, so that the question would be decided by the new Committee. Korlekar was of the view that the new Committee had not taken charge and Shringarpure should, therefore, decide the question. In the above circumstances, on October 3 1951, Shringarpure as the Chairman and Khopkar as the Secretary were agreeable to the suggestion of Barve and endorsed and delivered Securities of the face value of Rs. 3 lakhs and Reserve Bank Certificate relating to certain other Securities of the value of Rs. 1,10,000/- to Barve for converting them into the new issue of Municipal Bonds. There is no dispute that 3rd October 1951 was the last date on which the new Municipal Bonds could be purchased; this being the closing date in that connection. Now it appears that Barve acted fraudulently in connection with these Securities endorsed and entrusted to him by Shringarpure and Kohopkar on October 3, 1951. Ultimately these Securities were cheating by Barve. The second charge against the petitioner relates to these Securities delivered to Barve on October 3, 1951. The case of the Bank was that the petitioner was in that connection negligent as a Member of the Managing Committee of the Bank and guilty of misfeasance.

13. In support of the case, reliance was largely placed on behalf of the Bank on the fact that in September 1950, Messrs. Nabar and Company were acting as authorised Brokers for the Bank, the petitioner had introduced Barve to the Bank for acting as its authorised Broker. In connection with the matter of conversion of the Securities and its delivery to Barve from September 1950 onwards. Barve had throughout addressed correspondence to the petitioner and also directly to the Honorary Secretary of the Bank. The petitioner had taken interest in the matter of the conversion of the Securities into substituted Securities through Barve. The petitioner was aware that Chairman and Secretary by themselves had no power to decide from time to time matters of changing investments and conversion of securities petitioner induced the Chairman and the Secretary (Shringarpure and Khopkar) to enter into the above last transactions of conversions. the petitioner was aware of the deteriorated financial position of Barve. The loss of securities to the Bank was due to negligence and misfeasance of the petitioner.

14. Now, in this connection the Tribunal examined the evidence on the record and observed in paras. 15 and 16 of its decision that under bye-law 24 (13) the Secretary and the Chairman were not authorised by the Managing Committee to enter into transaction was authorised by the resolution of the Managing Committee dated September 23, 1950, but the rest of the transactions were first made and subsequently ratified by the Managing committee. The transaction of the 3rd October 1951 was without authority from the Managing Committee. The Tribunal observed that those responsible for endorsing the securities on 3rd October 1951 were acting recklessly. For this finding the Tribunal referred to the history of dealings of the Bank with Barve and that Barve was not acting in a manner in which a straightforward Broker would do. The Tribunal observed that Barve was not regular in returning substituted securities and that in the share market the substituted securities were liable to be delivered, if not on the next day of the date of delivery for the conversion), within a couple of days. 'It observed that this was a circumstance which should have awakened and put on guard Shringarpure and Khopkar (if not Sule), before fresh securities were entrusted to Barve.' According to the Tribunal :

'xx xx xx xx the history of the dealing with Barve just referred to was sufficient to put anybody on suspicion that the dealings of Barve were not straight and if not indicating dishonestly at least they indicated that all could not be well with him xxx.'

For this reason the Tribunal held against Shringarpure and Khopkar that they were guilty of negligence and misfeasance, when they endorsed and delivered securities (of the face value of) and the Reserve Bank certificate in the aggregate of the value of Rs. 4,10,000/- on October 3, 1951 to Barve.

15. We are here not concerned with and do not propose to discuss the above findings made by the Tribunal against Shringarpure and Khopkar. The Tribunal dealt with the question of liability of the petitioner in para 17 of its decision. The Tribunal found the petitioner to be negligent and guilty of misfeasance by holding that he omitted to exercise the powers which he could exercise as a member of the Managing Committee. He has introduced Barve to the Bank. According to the Tribunal when the securities were entrusted on 3rd October 1951 to Barve, the petitioner was trying to favour Barve, if not shielding. Barve was then evading or putting off returning of previously converted (substituted) securities. With this knowledge of Barve's dealings and discussions in the meetings of the Managing Committee held from time to time about remissness of Barve, the petitioner should have cautioned Shringarpure from endorsing and delivering the securities rather than advising him about the steps to be taken to facilitate the transaction. The Tribunal referred to the fact that at the General Meeting held on September 30, 1951 a resolution was proposed to appoint an Investment Sub-Committee and that it was withdrawn because of the advice tendered by the petitioner that the said Sub-Committee was unnecessary. The Tribunal referred to the evidence of Patankar and Tipnis that at a meeting of the Managing Committee previously held in connection with the delay of Barve in returning substituted securities, the petitioner had tried to give explanations. The Tribunal held that the petitioner as Secretary and Member of the Managing Committee was fully aware of the irregularities and un business like conduct of Barve and the conduct of Barve was such as should have put even an ordinary person on suspicion. The petitioner should have accordingly prevented by taking adequate steps the endorsement and delivery of the securities by Shringarpure of the securities by Shringarpure and Khopkar to Barve on October 3, 1951.

16. Now, these findings are challenged in the present petition.

17. In connection with these findings it first requires to be noticed that Barve was admittedly an authorised dealer of securities and a Member of the Bombay Stock Exchange. Though there is no evidence on record in that connection, it may be stated that the firm of Barve had been acting as a dealer in securities and stocks and shares for a very large number of years and was an influential firm. The petitioner was merely an employee and a Clerk in the National and Grindlays Bank in its General Department. The petitioner was comparatively a small man. The petitioner was impressed with the scheme of plan suggested by Barve from about September 1950. The petitioner was not concerned in any manner with the transactions of substitution of the old securities with the new that were made through Barve from September 1950, except as a Member of the Managing Committee of the Bank. In none of the transactions of the substitution of old securities with new that were effected prior to October 3, 1951, the Bank is proved to have suffered losses. The proposal of conversion in the transaction of October 3, 1951 was directly carried by Barve to Shringarpure, who was the Chairman of the Managing Committee for 1950-51. Barve also had some discussion of the very matter with the petitioner. Shirngarpure who is now dead, by his letter dated 19th June 19951 addressed to the President of the Bank, stated facts which transpired in connection with the transaction of October 3, 1951. The petitioner had told Shringarpure that new Committee had been elected on September 30, 1951 and, therefore, Shringarpure should consult the new Chairman and the Secretary in connection with the proposal made by Barve. The petitioner had not dealt with the matter of the transaction except as above, but thereafter the matter was completed between Shringarpure and Barve and Khopkar. There is no doubt that Barve might have had discussion about the transaction that was completed on October 3, 1951 with the petitioner. It is however clear that the petitioner was not a party to the endorsement and delivery of the securities that was completed on October 3, 1951. The question is as to whether because of the previous history of dealings between the Bank and Barve and intervention of the petitioner in connection with those dealings and the fact that the petitioner might have, on behalf of Barve, given explanations regarding the delay of delivery of previously converted and substituted securities by Barve the Tribunal was justified in holding that the petitioner was guilty of misfeasance in respect of the transaction that was made on October 3, 1951.

18. It first requires to be noticed that there is no evidence whatsoever about Barve having become financially unsubstantial in October, 1951. There is no evidence of any kind to prove that the proposed transaction of conversion of the securities delivered on October 3, 1951 to Barve into Municipal Bonds was not profitable or that the transaction as such was one which the petitioner or the Bank was bound to disapprove of. ON the contrary it is clear that the whole of the brokerage amounting to Rupees 2,050/- was agreed to be paid and in fact paid over by Barve to the Bank.

19. In considering the liability for misfeasance of any member of the Managing Committee of a Co-operative Society it must first be remembered that the only substantial and true question would be about the authorised transaction being injurious and such as a reasonable man would not make for himself. Any Tribunal dealing with the question of misfeasance would have to first consider the advisability of the transaction from which loss must have resulted. Full and complete evidence must be led on behalf of the prosecuting and/or accusing party to prove that the transaction was injurious and ill-advised and that the offending and/or guilty party had neglected to examine that question in the manner in which a prudent person would in ordinary circumstances do. In the present case, the Authorised Officer and the Tribunal have not examined this question at all and even so held the petitioner to be guilty of misfeasance. It appears to us that in the absence of evidence proving that the transaction of October 3, 1951 by itself was such as a reasonable and prudent man would not have made, it should be impossible for the Tribunal to make the finding that the petitioner was guilty of misfeasance. So far as we can imagine, the transaction suggested by Barve and admitted to be completed by Shringarpure and Khopkar by delivery of securities to Barve on October 3 1951, would have resulted in profits to the Bank. It is difficult to imagine as to how in connection with such a transaction the petitioner could be held to be guilty of misfeasance.

20. It is true that by reason of certain circumstances, (of which we have no knowledge) within the few months of October 3, 1951. Barve became defaulter and was ultimately adjudicated an insolvent. There is no evidence whatsoever on the record indicating that Barve's financial position in October 1951 had shaken or that the petitioner was aware that the financial position had on that date been deteriorating. It is, however, true that the petitioner was aware that without sanction of the Managing Committee, the Secretary and the Chairman were not entitled to make any transaction for conversion of investments. It is also true that the Managing Committee ratified the previous transactions of conversion of investments effected by the Chairman and Secretary. Where the transaction itself is not proved to be inherently injurious, negligence of the petitioner in not preventing Shringarpure and Khopkar from delivering securities to Barve on October 3, 1951 cannot be held to be sufficient for imposing any liability on him. The facts of delay made by Barve in delivering substituted securities were not sufficient for the petitioner to inform Shringarpure and Khopkar that Barve was a dishonest Broker or that Barve will not complete his liability for substituting the delivery of newly purchased Municipal Bonds with the securities delivered to him on October 3 1951. The failure of Barve at a subsequent stage should not have been visited on the petitioner in any event.

21. It appears to us that the Tribunal was completely wrong in not examining the profitability and/or advisability of the transaction of October 3, 1951 and arriving at its finding regarding negligence and misfeasance of the petitioner. Without examining first these questions the Tribunal should not have proceeded to hold that the petitioner was guilty of misfeasance.

22. The result of the above discussion is that the evidence on record was entirely insufficient to support the finding that the petitioner was guilty of misfeasance.

23. In the result, the petition is entitled to succeed. The decree and award passed by the Authorised Officer and confirmed by the Tribunal as against the petitioner are set aside. Rule absolute as above. There will be no order as to costs.

24. Rule made absolute.


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