2019 (11) TMI 167 - SC - Indian Laws

Termination of liquidation proceedings - Recovery of dues - time limitation - whether under the provisions of Section 109 of the Maharashtra Cooperative Societies Act, 1960 on expiry of the period fixed for liquidation, the proceedings for recovery of dues instituted/pending as against the members, shall stand closed? HELD THAT - The winding up of the Society has been ordered and liquidator has been appointed as the Society has utterly failed to achieve its avowed objectives in disbursement of loans to proper persons and in its recovery. No doubt about it that the liquidation of the Society has come to an end after a particular period of time as fixed under section 109. However, on lapse of time as fixed under sub-section (1) of section 109 of the Act, proceedings have to be terminated by the Registrar on receipt of final report from the liquidator as ordered under section 109(2). However, at the same time, the Registrar has power to extend the period of 6 years fixed under section 109(1), not exceeding one year at a time and four years in the aggregate, and maximum for 10 years. In case time is not extended, the winding up comes to an end on the expiry of 6 years or at the end of the extended period. The total period can be 10 years. The second proviso to section 109 makes it clear that if the Registrar comes to a conclusion that the work of liquidation could not be completed by the liquidator due to the reasons beyond his control, he shall call upon the liquidator to submit his report. After getting the report, if the Registrar is satisfied that the realisation of assets, properties, sale of properties still remains to be realised, he shall direct the liquidator to complete the entire work and carry out the activities only for the purposes of winding up and submit his report within such period not exceeding one year reckoned from the date of receipt of the report from the liquidator. It is apparent that on the termination of the liquidation proceedings, liability of the members for the debts taken by them does not come to an end. There is no such provision in the Act providing once winding up period is over, the liability of the members for loans obtained by them which is in their hands, and for which recovery proceedings are pending shall come to an end. No automatic termination of recovery proceedings against the members is contemplated. On the other hand, on completion of the period fixed to liquidate the society, final report has to be submitted as to the amount standing to the credit of the society in liquidation after paying off its liabilities including the share or interest of members - Thus, even in the case of liquidation the accountability remains towards surplus and liabilities do not come to an end. It is a settled law that when there is stay of proceedings by court, no person can be made to suffer for no fault on his part and a person who has liability but for the interim stay, cannot be permitted to reap the advantages on the basis of interim orders of the court - The Court should never permit a litigant to perpetuate illegality by abusing the legal process. It is the bounden duty of the court to ensure that dishonesty and any attempt to abuse the legal process must be effectively curbed and the court must ensure that there is no wrongful, unauthorised or unjust gain for anyone by the abuse of process of the court. No one should be allowed to use the judicial process for earning undeserved gains or unjust profits. The object and true meaning of the concept of restitution cannot be achieved unless the courts adopt a pragmatic approach in dealing with the cases. Concept of restitution - Principles of perpetuity - HELD THAT - The concept of restitution is a common law principle and it is a remedy against unjust enrichment or unjust benefit. The court cannot be used as a tool by a litigant to perpetuate illegality. A person who is on the right side of the law, should not have a feeling that in case he is dragged in litigation, and wins, he would turn out to be a loser and wrongdoer as a real gainer, after 20 or 30 years. Thus, the members who have obtained stay in appeal or on recovery proceedings or the case is pending, cannot take advantage of the fact that the period fixed for Liquidator under the Act is over. Once a report has been submitted, the Registrar has to take action in terms of the report and in such circumstances when the proceedings for recovery are pending against the members and the Society has taken loan from the banks for its member, the actual money has to go to the creditor i.e., to the bank who is going to be benefitted by recovery of public money in the hands of members. In such cases it would be appropriate for the Registrar to send notice of the proceedings to a person who is to be benefitted from the recovery. In the instant case, the bank itself is a prime lender cum liquidator. The proceedings cannot come to the end. Though the Liquidator cannot continue once the proceedings are over. Notice in such cases should be issued by the Registrar to the creditors and to persons for whose benefit recovery is to be made, to continue the pending proceedings in the instrumentality of court/tribunals/recovery officers etc. We hold that appellant Bank can continue the pending proceedings - Appeal allowed.

Summary

Issues Involved:
1. Whether the recovery proceedings against members should stand closed upon the expiry of the liquidation period under Section 109 of the Maharashtra Cooperative Societies Act, 1960.
2. The interpretation of Section 109 regarding the extension of the liquidation period.
3. The implications of pending appeals and interim stays on recovery proceedings.
4. The principle of restitution and its application in the context of delayed litigation.

Detailed Analysis:

Issue 1: Closure of Recovery Proceedings Post-Liquidation Period
The primary issue is whether recovery proceedings against members should automatically terminate upon the expiry of the liquidation period as stipulated under Section 109 of the Maharashtra Cooperative Societies Act, 1960. The court observed that Section 109(1) mandates that liquidation proceedings should ideally be completed within six years, with possible extensions not exceeding ten years in total. However, the court clarified that the termination of liquidation proceedings does not imply the cessation of recovery actions. The liability of members for debts does not end with the liquidation period. The court emphasized that there is no provision in the Act that suggests automatic termination of recovery proceedings against members once the liquidation period lapses.

Issue 2: Extension of Liquidation Period
Section 109(1) allows the Registrar to extend the liquidation period by one year at a time, up to a maximum of four additional years. The court noted that if the Registrar concludes that the liquidation work could not be completed due to reasons beyond the liquidator's control, the Registrar can direct the liquidator to continue the work for an additional period not exceeding one year. This provision ensures that the liquidation process is thorough and complete, even if it extends beyond the initially prescribed period.

Issue 3: Impact of Pending Appeals and Interim Stays
The court addressed the complications arising from pending appeals and interim stays granted by courts, which hinder the recovery process. It was noted that the bank, acting as the liquidator, faced significant delays due to these legal hurdles. The court held that the interim orders should not prejudice the bank's efforts to recover dues. The principle that no person should suffer due to the act of the court was reiterated, emphasizing that interim stays should not allow defaulters to evade their liabilities.

Issue 4: Principle of Restitution
The court invoked the principle of restitution, which mandates that any unfair advantage gained through interim orders must be neutralized. This principle ensures that the judicial process is not abused to gain unjust benefits. The court referenced precedents, including Amarjeet Singh v. Devi Ratan and South Eastern Coalfields Ltd. v. State of M.P., to underline that the judicial system should not allow litigants to perpetuate illegality or gain undue advantages from delays in litigation.

Conclusion:
The court concluded that the High Court's decision to terminate the winding-up proceedings with retrospective effect was erroneous. It emphasized that the liability of members for loans does not cease with the end of the liquidation period. The bank is entitled to continue recovery proceedings against defaulting members, despite the expiration of the liquidation period. The decision of the High Court was set aside, allowing the bank to pursue pending recovery actions to ensure the recovery of public funds.

The appeal was allowed to the extent that the appellant bank could continue with the recovery proceedings, reinforcing the principle that the expiry of the liquidation period does not absolve members from their financial obligations.