National Consumer Disputes Redressal
V.C. Sindhwani (Vazir Chand Sindhwani) vs The Pnb Employee Co-Operative (S.E.) ... on 16 August, 2017
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI REVISION PETITION NO. 985 OF 2017 (Against the Order dated 18/11/2016 in Appeal No. 1077/2015 of the State Commission Haryana) WITH IA/5014/2017,IA/8352/2017 1. V.C. SINDHWANI (VAZIR CHAND SINDHWANI) R/O. HOUSE NO. 1086/15, MODEL TOWN, DHAND ROAD, KAITHAL HARYANA. ...........Petitioner(s) Versus 1. THE PNB EMPLOYEE CO-OPERATIVE (S.E.) THRIFT & CREDIT SOCIETY LTD. & ANR. THROUGH ITS SECRETARY, THRIFT & CREDIT SOCIETY LTD., GEETA COMPLEX, DELHI ROAD, ROHTAK HARYANA 2. ALL INDIA BANK EMPLOYEES (S.E.) THROUGH ITS ADMINISTRATOR, THRIFT & CREDIT SOCIETY LTD. GREEN ROAD, ROHTAK HARYANA. ...........Respondent(s) REVISION PETITION NO. 986 OF 2017 (Against the Order dated 18/11/2016 in Appeal No. 1078/2015 of the State Commission Haryana) WITH
IA/5014/2017,IA/8352/2017 1. V.C. SINDHWANI (VAZIR CHAND SINDHWANI) R/O. HOUSE NO. 1086/15, MODEL TOWN, DHAND ROAD, KAITHAL HARYANA. ...........Petitioner(s) Versus 1. THE PNB EMPLOYEE CO-OPERATIVE (S.E.) THRIFT & CREDIT SOCIETY LTD. & ANR. THROUGH ITS SECRETARY, THRIFT & CREDIT SOCIETY LTD., GEETA COMPLEX, DELHI ROAD, ROHTAK HARYANA 2. ALL INDIA BANK EMPLOYEES (S.E.) THROUGH ITS ADMINISTRATOR, THRIFT & CREDIT SOCIETY LTD. GREEN ROAD, ROHTAK HARYANA. ...........Respondent(s) BEFORE: HON'BLE MR. JUSTICE V.K. JAIN,PRESIDING MEMBER For the Petitioner : Mr. Parveen Kumar Aggarwal, Advocate For the Respondent : Mr. Ashok Bhalla, Advocate Mr. Ashok Shukla, Advocate for R-1 Dated : 16 Aug 2017 ORDER JUSTICE V.K. JAIN, PRESIDING MEMBER (ORAL) The complainant / respondent No.1 namely PNB Employees Co-operative (S.E.) Thrift & Credit Society Ltd. instituted a complaint against two persons one being another Society namely All India Bank Employees (S.E) Thrift & Credit Society Ltd. and the other being the petitioner Shri V.C. Sindhwani, stated to be the then Secretary of the All India Bank Employees (S.E) Thrift & Credit Society Ltd. It was alleged in the complaint that the complainant society had deposited sume amount with V.C. Sindhwani, the petitioner in the complaint, subject matter of RP No. 985 of 2017. The complaint was resisted by the petitioner who alleged that he had no concern with All India Bank Employees (S.E) Thrift & Credit Society Ltd. and that the matter was not covered under the provisions of the Consumer Protection Act.
2. Similar averments were made in the complaint subject matter of RP No. 986 of 2017. A perusal of the receipt filed with the complaint would show that it was executed by the authorized signatory and the Hony. Secretary of All India Bank Employees (S.E) Thrift & Credit Society Ltd. and the petitioner was the Hony. Secretary of the Society and in that capacity had executed the aforesaid receipt along with the authorized signatory of the society.
3. The District Forum vide its order dated 17.11.2015 allowed the complaint against both the respondents i.e. All India Bank Employees (S.E) Thrift & Credit Society Ltd. and the petitioner Shri V.C. Sindhwani.
4. Being aggrieved from the order passed by the District Forum the petitioner approached the concerned State Commission by way of two separate appeals. The said appeals having been dismissed, he is before this Commission. No appeal against the order of the District Forum was preferred by All India Bank Employees (S.E) Thrift & Credit Society Ltd.
5. The primary issue involved in these petitions is as to whether the petitioner can be held liable to pay the amount which the complainant had deposited with the society merely because he happed to be the Hony. Secretary of the society at the time the deposits were made and had executed the receipts while receiving the said amount.
6. The issue involved in the matter came up for consideration before a Three-Members Bench of this Commission in Amarjit Singh Vs. Gagandeep Singh & Ors. Revision Petition No. 2512 of 2011 decided on 19.12.2016. The following was the view taken by the Three-Members Bench of this Commission in Amarjit Singh (supra):
16. 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, in our considered view, 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. In our aforesaid view, we find support from the judgment of Bombay High Court in the matter of Sou. Varsha Ravindra Isai Vs. Sou. Rajashri Rajkumar Chaudhari & Ors. reported in AIR 2011 Bombay 6 wherein Hon'ble High court after discussing the provision of Maharashtra Cooperative Societies Act, particularly Section 36 has observed thus:"As stated above, in view of the provisions of Section 36 of the Maharashtra Co-operative Societies Act, the society can be proceeded against and can be sued or the society may defend any action in Civil Court or forum. However, so far as members of the ::: Downloaded on - 09/06/2013 16:43:13 ::: managing committee are concerned, they stand on totally different footing and they cannot be held responsible to contribute to the damages or make payment in respect of dues recoverable from the society unless the methodology prescribed under the Act for holding them responsible for making such payment is adopted. In my view, the Consumer Protection Act, 1986, does not prescribe modalities for holding inquiry against the Directors in respect of acts or omissions committed by them. Unless the members of the managing committee are held responsible for any act detrimental to the interest of the society or any inaction on their part, which caused wrongful loss to the society, they cannot be held responsible to contribute the loss or in respect of liability, which is required to be borne by the society. The forum created under the Consumer Protection Act, 1986 does not provide for an audit, inquiry or inspection, as laid down under Sections 81, 83 and 84 of the Maharashtra Cooperative Societies Act, 1960, nor provides for any methodology for assessing the damages against the members of the managing committee, as contemplated by Section 88 of the Act. The members of the managing committee or the directors cannot be held responsible in their individual capacity. The complaint can be instituted against the society before the Consumer Forum by a depositor or a member of the society and a relief can also be granted as against the society. However, so far as members of the managing committee/ directors are concerned, they stand on a different footing and unless the procedure ::: Downloaded on - 09/06/2013 16:43:13 ::: prescribed under the special enactment i.e. Maharashtra Co- operative Societies Act,1960 is followed and unless the liability is fixed against them, they cannot be held responsible in respect of payment of any dues recoverable from the society."
17. In view of the discussion above, we are of the view that 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. The question is, what would be the liability of the Ex-Secretary or the Ex-President or office bearers of such society in such a case. This issue was dealt by the Hon'ble Supreme court in the matter of Delhi Development Authority Vs. Skipper Construction ( P) Ltd. & Another (supra), wherein Hon'ble Supreme Court has observed thus:
"Lifting the corporate veil:
In Aron Salomon v. Salomon & Company Limited (1897 Appeal Cases 22), the House of Lords had observed, "the company is at law a different person altogether from the subscriber...; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, on any shape or form, except to the extent and in the manner provided by that Act". Since then, however, the Courts have come to recognize several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". [Gower: Modern Company Law - 4th Edn. (1979) at P.137]. Pennington [Company Law - 5th Edn. 1985 at P.53] also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil. A Professor of Law, S.Ottolenghi in his article "From Peeping Behind the Corporate Veil, to Ignoring it Completely" says "the concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn,J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions". [(1990) 53 Modern Law Review 338].
Indeed, as far back 1912, another American Professor L.Maurice Wormser examined the American decisions on the subject in a brilliantly written article "Piercing the veil of corporate entity" [published in (1912) XII Columbia Law Review 496] and summarized their central holding in the following words:
"The various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have vow been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalization which the present state of the authorities would warrant is this:
When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons."
In Palmer's Company law, this topic discussed in Part- II of Vol-I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs: "The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose....Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company".
Similar views have been expressed by all the commentators on the Company Law which we do not think it necessary to refer.
The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar [1964 (6) S.C.R. 885 ]. The following passage form the decision is apposite:
"Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be 'persons who actually work for the corporation ."
In DHN Food Distributors Ltd. & Ors. v. London Borough of Tower Hamlets [ 1976 (3) All.E.R. 462 ], the Court of Appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group".
The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "three-in-one" - and, alternatively, as "one-in-three".
The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a Ploy adopted for committing illegalities and/or to defraud people.
18. From the above, it is clear that if the Ex-Secretary or the Ex-President or office bearers of any cooperative credit society has exploited the corporate character of the cooperative society for purpose of committing illegality or defrauding other, then the Courts would ignore the corporate character of the Cooperative Credit Society and will look into their reality behind the corporate veil so as to pass appropriate orders to do justice to the parties. Thus, 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. This, however, shall be the question of fact to be decided on the basis of evidence.
19. In view of the discussion above, we answer the reference as follows:
a. Ordinarily Ex-Secretary or the Ex-President or other office bearers of any Cooperative Credit Society shall not fall within the category of service providers in respect of any dealing of the depositors with such society.
b. However, if it is established that the Ex-Secretary or the Ex-President or office bearers of any Cooperative Credit Society has indulged in misfeasance / fraudulent activity with view to defraud depositors under the cloak of the cooperative credit society, such person shall fall within the category of service providers and shall be liable to compensate the consumers for deficiency in service.
It would thus be seen that ordinarily office bearers of any Cooperative Society do not fall in the category of service providers in respect of dealings with the society. It is only in a case where it is established that such a person has indulged in in misfeasance/ fraudulent act, with a view to defraud the depositor under the cloak of the cooperative credit society that such a person would fall within the definition of service provider and would be liable to compensate the consumer for the deficiency in the service.
7. In the present case there is no evidence of the petitioner having personally defrauded the complainant in any manner. There is no allegation that the money collected from the complainant was not deposited by the petitioner in the account of the society. This is not a case where an office bearer collects money from a depositor opens a fraudulent bank account and deposits the cheque obtained in the name of the society in that account. Admittedly, the payment by the complainant was made by a cheque and not in cash. There is no allegation that the aforesaid cheque was not credited in the authorized bank account of the society. On the other hand, the Judicial Magistrate, while deciding the criminal case registered against the petitioner and the three others, returned a finding that the factum of the embezzlement had not been proved and therefore the accused could be said to have committed an offence and punishable under Section 409 of IPC.
8. In these circumstances, it cannot be said that the petitioner had indulged in misfeasance/fraudulent activity with a view to defraud the complainant under the cloak of a cooperative credit society. The orders passed by the fora below, to the extent the petitioner was also held liable to pay to the complainant, cannot be sustained. The impugned orders are accordingly set aside with no order as to costs. It is however, made clear that dismissal of the consumer complaint against the petitioner would have no bearing on the verdict delivered against the society namely All India Bank Employees (S.E) Thrift & Credit Society Ltd. The revision petitions stand disposed of accordingly.
......................J V.K. JAIN PRESIDING MEMBER