2016 (12) TMI 1896 - Commission - Indian Laws

Liability of Ex-Office Bearers in Cooperative Credit Societies Clarified

Amarjit Singh Versus Gagandeep Singh & Ors.

The court held that in ordinary circumstances, ex-office bearers of a Cooperative Credit Society are not considered service providers in dealings with ... Scope of Service Providers - Whether the Ex-Secretary or the Ex-President or other office bearers of any Cooperative Credit Society fall within the category of the service providers? - HELD THAT:- Section 43 of Delhi Cooperative Societies Act, 2003 and Section 36 of Maharashtra Cooperative Societies Act 1960 which are para materia to section 30 of Punjab Cooperative Societies Act are perused - On bare reading of the above, it is clear that a cooperative society on registration is a rendered body corporate, meaning thereby that it acquires an identity distinct from its member shareholders or the office bearers. Therefore, if a consumer has availed of services of the cooperative credit society for consideration, the cooperative credit society alone would be service provider qua that consumer and the office bearers of the said society who by virtue of being elected to the said position to manage the affairs of the society would have no privity of contract with the consumer and could not be termed as service provider. Thus, ordinarily Ex-Secretary or the Ex-President or office bearers of any Cooperative Credit Society will not fall within the category of service providers in respect of any contract between the consumer and the cooperative society as they have the identity distinct from the duly registered cooperative credit society. However, there can be cases in which certain individuals may indulge in unfair trade practice or defrauding of the gullible depositors under the cloak of cooperative society - it is clear that if the Ex-Secretary or the Ex-President or office bearers of any Cooperative Credit Society have indulged in misfeasance and fraudulent practice to defraud the people in order to get material gains under the garb of corporate veil they shall also be treated as service providers to the depositors / complainants and held personally responsible for the deficiency in service, if any. Reference disposed off. Issues Involved:1. Whether the Ex-Secretary or the Ex-President or other office bearers of any Cooperative Credit Society fall within the category of service providersRs.Detailed Analysis:Background and Allegations:The revision petitions arose from consumer complaints by depositors who invested in fixed term deposits with Sarb Bank Employees Cooperative U.S.E.T. & Credit Society Limited. The complainants alleged that the then President, Amarjit Singh, promised high interest rates and assured the safety of their deposits. Initially, interest payments were made, but they eventually ceased. Upon learning of financial mismanagement within the society, the complainants demanded their deposits back, which were not returned, prompting them to file complaints with the District Forum.District Forum and State Commission Orders:The District Forum directed the opposite parties, including Amarjit Singh, to repay the deposits with 16% interest per annum. The State Commission upheld this decision, leading Amarjit Singh to file revision petitions.Legal Arguments:- Petitioner's Argument: The counsel for the petitioner argued that former office bearers of the cooperative society have a distinct entity from the society itself and no privity of contract with the complainants. Therefore, they should not be held responsible for any deficiency in service by the society, citing Section 30 of the Punjab Cooperative Societies Act, 1961.- Respondents' Argument: The respondents' counsel contended that the office bearers were directly responsible for the society's operations and had misrepresented facts to lure depositors, making them liable for deficiency in service. They referenced the judgment in RP No. 1579 & 1580 of 2011 and the Supreme Court's decision in Delhi Development Authority Vs. Skipper Construction Co. (P) Ltd.Legal Definitions and Considerations:- Consumer Protection Act, 1986: A consumer is defined under Section 2 (1) (d) (ii) as a person who hires or avails of any service for consideration. A complaint can be made against a service provider for deficiency in service as per Section 2(1)(c).- Cooperative Societies Act: Section 30 of the Punjab Cooperative Societies Act, 1961, states that a cooperative society is a body corporate with an identity distinct from its members or office bearers.Judgment Analysis:- Corporate Identity: The cooperative society, upon registration, becomes a distinct legal entity. Therefore, the society itself is the service provider, not the individual office bearers.- Exceptions - Lifting the Corporate Veil: The court acknowledged that in cases where office bearers exploit the corporate structure to commit fraud or illegality, the corporate veil can be lifted. This principle was supported by the Supreme Court's observations in the Skipper Construction case, which allows for piercing the corporate veil to hold individuals accountable for fraudulent activities.Conclusion:1. Ordinary Circumstances: Ex-Secretary, Ex-President, or other office bearers of a Cooperative Credit Society do not fall within the category of service providers concerning the society's dealings with depositors.2. Fraudulent Activities: If it is proven that these individuals engaged in fraudulent activities under the guise of the cooperative society, they can be considered service providers and held personally liable for deficiencies in service.The revision petitions will proceed based on this interpretation, considering the specific evidence of fraudulent conduct by the office bearers.