State Consumer Disputes Redressal Commission
All Goa Manipal Finance Group vs Manipal Sowbhagya Nidhi Limited, on 21 February, 2012
BEFORE GOA STATE CONSUMER DISPUTES REDRESSAL COMMISSION, PANAJI GOA Misc. App. Nos. 3/08, 4/08 in CC Nos. 9 and 10/03, 3/11 and 4/11 in CC. Nos. 9 and 10/11 Misc. App. No. 3/08 All Goa Manipal Finance Group of Companies Creditors Association, having their office at 13/B, Garden Centre, Opp. Police Station, Mapusa, Bardez-Goa. Decree Holders V/s. Manipal Sowbhagya Nidhi Limited, having its registered Office at Manipal House, Manipal 576 119, Karnataka. ... Judgment Debtor Misc. App. No. 4/08 All Goa Manipal Finance Group of Companies Creditors Association, having their office at 13/B, Garden Centre, Opp. Police Station, Mapusa, Bardez-Goa. Decree Holders V/s. Manipal Sowbhagya Nidhi Limited, having its registered Office at Manipal House, Manipal 576 119, Karnataka. ... Judgment Debtor Misc. App. No. 3/11 All Goa Manipal Finance Group of Companies Creditors Association, having their office at 13/B, Garden Centre, Opp. Police Station, Mapusa, Bardez-Goa. Decree Holders V/s. M/s. Manipal Finance Corporation Ltd., having its registered office at Manipal House, Manipal, Karnataka 576104. ... Judgment Debtor Misc. App. No. 4/11 All Goa Manipal Finance Group of Companies Creditors Association, having their office at 13/B, Garden Centre, Opp. Police Station, Mapusa, Bardez-Goa. Decree Holders V/s. M/s. Manipal Finance Corporation Ltd., having its registered office at Manipal House, Manipal, Karnataka 576104. ... Judgment Debtor Dr. Malkarnekar present for the D.Hs. Adv. Shri. S. Samant present for the Judgment Debtor/Managing Director/Directors Judgment Debtors representative is also present in person. Coram: Shri. Justice N.A. Britto, President Smt. Vidhya R. Gurav, Member Dated: 21/02/2012 ORDER
This common order shall deal with the applications dated 8/5/08 and 8/8/11 filed on behalf of the D.Hs, under section 27 of the C.P. Act, 1986.
2. Show Cause notices were issued to Shri. Tonse Narayan Madhav Pai, Managing Director and to Raghavendra Nayak and Chandappa Raja Sherigar, Directors of both the above named Companies on or about 24/08/11 to show cause why action u/s 27 of the C.P. Act should not be taken against them. The said Show Cause notices have been replied to by them by their replies dated 5/9/11 and they have raised issues which are identical. Shri. S. Samant Lr. Advocate submitted that there is no Managing Director at present and none has been appointed after the death of the previous Chairman cum Managing Director. Since such a stance has not been taken by any of them in the replies filed, we proceed on the assumption that they occupy the positions attributed to them on behalf of the D.Hs. Moreover, D.Hs have relied on the 28th Annual report for 2010-2011 of Manipal Finance Corporation, which shows that T. Narayan M. Pai is the Managing Director and the other two as directors.
3. Complaint No. 8/03 was filed by the above named Association for the benefit of more than 161 creditors; Complaint No. 9/03 was filed for the benefit of about 57 creditors; Complaint No. 10/03 was filed for the benefit of about 63 creditors and complaint No. 11/03 was filed for the benefit of about 253 creditors, all named therein. We have not included their names in the cause title of these applications with a view to save time and space, so also the names of the branch offices of both the Companies.
4. The orders dated 28/07/04 or for that matter the decrees, if we may call them attained finality when the National Commission dismissed the appeals filed against them on or about 9/5/06 and the Honble Supreme Court refused to entertain special leave petitions on 18/01/08 yet, they have remained without being complied.
5. Execution applications having being filed, this Commission by order dated 20/03/09 issued under section 25(3) C.P. Act, 1986 directed the District Recovery Officer to recover an amount of Rs. 50,37,255/- in execution application No. 8/04 and Rs. 20,30,800/- in execution application No. 9/04 with specified rates of interest plus costs, arising from complaint Nos. 10/03 and 11/03. Four properties were directed to be attached and two properties have already been attached but a decision regarding objections taken is still awaited. The D.R.O appears to be going at his own pace unmindful of the speed by which the cases under the C.P. Act, 1986 are required to be disposed off.
The objections we are told are raised by two of the group Companies and relate to their claim for first preference of dues to be paid. The Execution Applications are awaiting Compliance of Orders dated 5/6/09 and 17/11/09.
6. In the meantime the J.D Companies have settled many of the creditors on whose behalf the complaints were filed by paying them a sum of Rs. 58,88,500/- in execution application No. 8/04 and Rs. 20,22,364/- in execution application No. 9/04.
Likewise, in execution applications Nos. 1/09 and 2/09 against the amount ordered to be recovered of Rs. 4,57,000/- and Rs. 36,000/- with specified rates of interest and costs, a number of creditors have been settled in the sum of Rs. 56,61,100/- and Rs. 7,95,000/- respectively. Their names have not been deleted so far from the cause title though they are required to be deleted.
7. Section 27 of the C.P. Act either before or after its amendment by Act 62 of 2002 has been looked at differently by different Fora/Courts.
Section 27 read/s as follows:-
27. Penalties (1) Where a trader or a person against whom a complaint is made [or the complainant] fails or omits to comply with any order made by the District Forum, the State Commission or the National Commission, as the case may be, such trader or person [or complainant] shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to three years, or with fine which shall not be less than two thousands rupees but which may extend to ten thousand rupees, or with both.
Provided that the District Forum, the State Commission or the National Commission, as the case may be, may, if it is satisfied that the circumstances of any case so require, impose a sentence of imprisonment or fine, or both, for a term lesser than the minimum term and the amount lesser than the minimum amount, specified in this section.
(2) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the District Forum or the State Commission or the National Commission, as the case may be, shall have the power of a Judicial Magistrate of the first class for the trial of offences under this Act, and on such conferment of powers, the District Forum or the State Commission or the National Commission, as the case may be, on whom the powers are so conferred, shall be deemed to be a Judicial Magistrate of the first calls for the purpose of the Code of Criminal Procedure, 1973 (2 of 1974).
(3) All offences under this Act may be tried summarily by the District Forum or the State Commission or the National Commission, as the case may be.
8. We make it clear that we have reproduced Section 27 as it stood before as well as at present. The Proviso has been deleted and sub-Section 2 & 3 have been inserted w.e.f. 15/3/2003 by virtue of Amendment Act 62 of 2002.
9. The Apex Court in State of Karnataka V/s.
Vishwabharati Co-operative Society and others (AIR 2003 SC 1043) examined the constitutional validity of C.P. Act and we assume it was examined with reference to the C.P. Act, 1986, as a whole, and the Apex Court held, with reference to Section 27, that it confers an additional power upon the Forum and the Commission to execute its order. The said provision is akin to Order 39, Rule 2-A of the C.P.C or the provisions of the Contempt of Courts Act or Section 51 read with Order 21, Rule 37 of C.P.C. Section 25 should be read in conjunction with Section 27. A parliamentary statute indisputably can create a tribunal and might say that non-compliance of its order would be punishable by way of imprisonment or fine, which can be in addition to any other mode of recovery.
The Apex Court also observed that it is well settled that the cardinal principle of interpretation of the statute is that Courts or tribunals must be held to possess power to execute their own order.
Further, the Apex Court held that a statutory Tribunal which has been conferred with the power to adjudicate a dispute and pass necessary order has also the power to implement its order. The Act is a self contained Code, even though it has not been specifically spelt out, must be deemed to have conferred upon the Tribunal all powers in order to make its order effective.
10. There is no dispute that the procedure followed hitherto prior to 15/03/03 to impose the penalty in terms of sub Section (1) of Section 27 of the C.P. Act was to give a show cause notice, invite an explanation from the person whom show cause notice was issued and thereafter pass appropriate orders thereon. The National Commission, in Revision Petition No. 51/1992 had observed as follows:-
If action is to be taken under Section 27 of the Act, natural justice requires that the person sought to be proceeded against should be issued a notice and his explanation should be heard before any conclusion is reached that an order of punishment and imposition of any sentence is called for.
However all the technicalities/procedures of C.P.C or the Cr. P.C. were not required to be strictly followed as Consumer Courts are guided by the principles of natural justice with an objective to provide simple, inexpensive and expeditious disposal of consumer complainants though summary trials to meet the objectives of the C.P. Act 1986
11. The Karnataka State Commission had sent a circular to the District Fora that while dealing with the execution petition under the C.P. Act for non-compliance of the order passed by the District Forum all that they had to do is to follow the principle of natural justice before orders are passed under Section 27 of the Act.
The procedure prescribed under the Criminal Procedure Court was not required to be strictly followed.
Observations to above effect can be seen from paragraphs 6 and 53 of the Lr. Judgement of the Karnataka High Court dated 19/06/09 in W.P. No. 700/2008 M/s. Shantiniketan Housing Foundation V/s. Brig (Retd.) J.N. Dewaya and others) relied upon, by the Lr. Counsel on behalf of the O.Ps.
12. Then came the challenge to the said proviso in the light of Articles 20 and 21 of the Constitution in Parmjit Singh Vs. Union of India and Others 1999(2) Kar. L. J. 54 and the challenge was upheld, inter alia, observing that as the proviso to Section 27 of the Act authorises the Forum and the Commissions to impose a sentence of imprisonment or fine without providing any procedure resulting in deprivation of the rights conferred upon the persons under Articles 20 & 21 of the Constitution, the same was liable to be struck off being unconstitutional. The striking of the proviso to Section 27 of the Act would not, however, render the whole section unconstitutional. As the section creates the offence and provides the penalty, such offence has to be dealt with, tried and concluded in accordance with the provisions of the Code of Criminal Procedure
13. Although the Karnataka High Court held that the said proviso to be unconstitutional, the Allahabad High Court on the other hand, in Ghaziabad Development Authority v/s. Union of India and another (2003 CTJ 863), held, with profound respect of Karnataka High Court, that it had done so without knowing the real nature of proceedings under Section 27 of the C.P. Act. In the opinion of their Lordship of the Allahabad High Court the proceedings under Section 27 are really in the nature of proceedings under civil contempt.
Although Section 27 itself does not mention that the proceedings therein are civil contempt, in the opinion of their Lordships, considering the substance and purpose of the said proceedings they were in the natrure of proceedings for civil contempt.
14. The Judgement of the Karnataka High Court in Parmjit Singh (supra) was carried in appeal before the Supreme Court but by then the proviso came to be omitted and sub Section (2) & (3) came to be inserted and the Honble Supreme Court in State of Karnataka V/s. Parmjit Singh II 2006 CPJ 6 observed that after the amendments were made effective from 15/03/2003 the controversy had become academic and therefore proceeded to dispose off the appeals without any order as to costs.
15. After 15/3/2003 i.e. after deletion of the proviso and insertion of Sub-Sections (2) and (3) the National Commission held this view:
Sub -Section (2) has to be read as under:
Power of Judicial Magistrate of the first class for trial of offences under the Act stand conferred as first option of this sub-section says that notwithstanding anything contained in the Code of Criminal Procedure a forum shall have the power of Judicial Magistrate of the first class.
These powers thus immediately stand conferred and we have not to go to either to High Court or State Government.
When powers of a Judicial Magistrate of first class, as provided in the Code of Criminal Procedure, stand conferred then proceedings are to be conducted under the provisions of this Code, like any other Judicial Magistrate will do. When a Consumer Forum thus has the power of Judicial Magistrate after coming into force of the amended Section, it has to proceed with the trial of the offence as provided under this Code.
16. Then came the challenge to sub-Section (2) & (3) of Section 27 in the case of M/s. Shanti Niketan Housing Foundation (supra), W.P. No. 700/2008 and other group petitions decided alongwith it by order dated 19/06/09.
The Karnataka High Court in M/s. Shanti Niketan Housing Foundation (supra) observed as follows:-
A reading of section 27(1) shows that the object of the said provision is to create an offence under the Act and also provide for the sentence to be imposed on such offence being proved. It is interesting to note that it is not a mere penalty imposed on a defendant or judgment debtor in the case Both the complainant and the respondent in a complaint, if they fail or omit to comply with the order, they are said to have committed offence under this provision. Once the offence is held to be proved, the authorities under the said provision have no discretion except to sentence such a person for a period or term not less than one month or fine not less than Rs. 2000/- the discretion is vested with such authorities The contention that the offence being punishable with maximum period of three years and therefore could not be summarily tried was rejected by the Karnataka High Court as without any substance in the following words:
The contention that in view of the punishment under Section 27(1) of the Act may extend to three years imprisonment, the offence cannot be tried summarily other day, it violates in Article 21 of the Constitution in as much as the procedure prescribed under law by sub Section 3 of Section 27 as contrary to the procedure present for trial of offence in respect of the warrant case in result of any substance.
The contention that no NBW could be issued since the trial had not started and the trial in the warrant case cannot start before framing of charges was answered by the Karnataka High Court by observing that:
The word trial is not defined in the Code and it has no universal meaning The word trial should not be given a restricted meaning so as to include only the proceedings after the accused is actually arrayed before the competent Court for framing or facing charges If the words employed in the provision are capable of two meanings or cast doubts as to the actual meaning, then they have to be interpreted in the light of the object of legislation The word trial used in Section 27 of the Act, is wide enough to cover every kind of inquiry and trial and the word trial in that section has not been used in any limited or restricted sense The offence has to be tried summarily. It is to be tried as a summons case. Only in the event, if it is to be tried as a warrant case even then the aforesaid contention will not hold any water Ultimately the Court held that there was no ground made out for striking down Section 27 (2) (3) of the Act.
The W.Ps challenging constitutional validity of sub Section (2) & (3) of the Section 27 of the Act 1986 was dismissed and all cases were remitted to the Forums and Commission with the direction to try the offence in accordance with the procedure prescribed under the Code of Criminal Procedure read with sub Section (2) & (3) of Section 27 of the Act, on merits, in the light of observation made in the order.
17. The Maharashtra State Commission in M/s.
Sai Anusaya Co-op. Housing Society (2011 (2) CCC 177) has held that Section 27 is a criminal remedy available to the complainant and the said proceedings is a criminal proceedings. Punishment and penalty as stated in sub Section (1) of Section 27 can be imposed. However, since it is criminal proceeding, the procedure as stated in sub Section (3) of Section 27 is required to be followed. In such proceedings the original opponents are the accused persons and either they have to obey the directions given and/or they have to develop their defence in criminal trial. Original complainant gets status of the complaint in criminal case and the original opponent who is under obligation to obey the order get status of an accused.
18. What follows from the judgement of the Karnataka High Court and order of the State Commission is that the Complainant or the opposite party can be penalized u/s 27 (1) only by following the procedure of Section 260 Cr. P. C.
19. The next question is whether the Managing Director or the other Directors can be summoned to be tried in the said offence under Section 27 (1) of the C.P. Act when they were not the parties to the Complaints?
20. Admittedly, in the cases at hand the O.P. who has failed to comply with the orders are the two Companies and none of the Directors or for that matter the Managing Director were made parties to the complaints. On behalf of the said Directors, it is contended that in the absence of specific role having been attributed to them, and in the absence of any provision laid down, they cannot be made parties and imposed any penalty and in this context reliance is placed on S.K. Allagh v/s. State of Uttat Pradesh and Others (AIR 2008 SC 1731), wherein with reference to Section 406 IPC the Honble Apex Court has held that the Managing Director of a Company cannot be considered to have committed an offence under Section 406 IPC. In the absence of any provision laid down under the Statute, a Director of a Company or an employee cannot be held to be vicariously liable for any offence committed by the Company itself.
21. Admittedly, the proceedings under the Act are civil proceedings and for non compliance of the order passed by the Forum, a penalty is prescribed and the penalty can be imposed by following the procedure of a summary trial u/s 260 r/w 251 of the Code of Criminal Procedure, 1973. The applications can be treated as complaints and the procedure of verification under Section 200 Cr. P.C. can be dispensed with, as there is nothing to be verified, as is done in the case of complaints by public servants.
22. A Company acts through its board of directors at the meetings. It is managed through its managing director. It is through him/them that the objections are being taken for the sale of the properties though nothing prevented him/them from not objecting to the sale of the properties and putting forward their claims of preferential payment of other group companies. Can a managing director, use the mask of the Company and file objections before D.R.O. and ultimately delay the recovery of the dues of creditors, and here before the Commission contend that it is the Company who is liable to be penalized and not he? The answer has got to be negative at least in a jurisdiction meant to protect the interests of consumers. Section 27 provides for a penalty to be imposed with a view to ensure compliance of the orders as an additional mode of execution in addition to the mode provided under Section 25 (3). A Managing Director is certainly in-charge of and responsible to the affairs of the Company and as such can be penalized under Section 27 of the Act. A Managing Director cannot be allowed through the Company, not to comply with the order and then in proceedings u/s 27 to contend that only the Company is liable to be penalized. A contrary view can only defeat the provision u/s 27 (1) of the Act which is enacted for greater protection of the interests of the consumers by way of addition at remedy.
23. This view of ours finds support in Byford Leasing Limited V/s. Union of India (57) (1995) DLT 623 which again has been followed in Ravikant & Another V/s. National Consumer Disputes Redressal Commission and others (1997 (2) CPR 65). In Byford Leasing Limited, (supra) a Division Bench of Delhi High Court held that under Section 27, the Chairman and Managing Director of the Company can be proceeded against, he being in-charge of the Management and control of the affairs of the Company. This view was again endorsed in Ravikant & Another (supra) by another Division Bench. The same view was then followed by the New Delhi State Commission in Motilal Jain and others (1998 (1) CPR 605) observing that any steps which would ensure compliance of the order would therefore be according to the spirit of the provision and relying on Byford Leasing Ltd., it was further observed that a person in-charge of and responsible for the conduct of the business of the Company was liable to punishment for disobedience of the order made by Fora under the C.P. Act. Again, we may refer to Door Sanchar Mandilaya Abhiyanta (1996 (3) CPR 415), wherein the Uttar Pradesh State Commission held that the notice under section 27 can be addressed to a person by designation and that would be sufficient compliance for proceeding under section 27 of the C.P. Act, 1986.
24. In Ravikant and another (supra) the Division Bench of the Delhi High Court refered to the unamended Contempt of the Courts Act, 1952 and the decision of the Apex Court in Aligarh Municipality (AIR 1970 SC 1767) and held that a penal provision in Section 27 of the C.P. Act which is applicable to a Company must be treated as applicable to those who are officially responsible for the conduct of its affairs. That was a case of two Petitioners who were the Directors of each of the Companies and it was held that the penal provision of Section 27 can be applied to the Directors of Companies, notwithstanding the absence of the specific provision for action against those in charge of or in control of the affairs of the Company. This conclusion was also reached by invoking the principle of lifting of corporate veil.
Observations to this effect can be found in para 15 of the Lr. Judgment.
25. Show cause notices were issued in consonance with the old procedure prior to 15/3/2003 by the then members of this Commission and not with a view of trying them u/s 27(1) under the new procedure prescribed u/s 260 Cr. P.C. Applications filed cannot be treated as complaints filed under Cr. P.C. nor show cause notices can be taken to be process issued against them, as contended on their behalf. There is no need to follow such procedure and those who do not comply with the orders can be directly tried for the contravention of Section 27 (1) of the C.P. Act.
26. None of the Directors to whom the Show Cause notices were issued have told us that it somebody else who in-charge of or in control of affairs of the Companies. On the contrary we have the 28th annual report. We therefore prima facie have no other option but to proceed against Shri. Tonse N.M. Pai as Managing Director for not complying with our orders till date under Section 27(1) of the C.P. Act. He would be entitled to his defence at the trial. The Managing Director could have complied with our orders by selling the four properties which were to be attached or by not objecting to the attachment of two of the properties or at least by making part payment of the dues of the creditors. The offers made on 20/12/11 show that they are in financial position to comply with the orders, at least by making part payment. They have not complied with and no explanation, much less a satisfactory explanation, is forthcoming. The default can be treated as wilful and deliberate. The observations of Maharashtra State Commission in Nirmala S. Jaipuria (2004 CTJ 1092) are clearly in applicable to the facts of this case.
27. The C.P. Act, 1986 was meant to provide for better protection of the interests of consumers and to provide for them less expensive and more expeditious and simple remedies to settle their grievances.
In case a particular Forum is a little pro-active in indicating a remedy available to the consumers, particularly to those who are un- represented by an advocate that certainly would not tilt the quasi judicial balance a Forum is expected to maintain between the consumers on one hand, and the traders or service providers on the other hand. That should answer the averment of neutrality or want of it on the part of previous members of this Commission made in para 1 of reply dated 5/9/11 filed on behalf of the Managing Director and the other two Directors.
28. The complaint was filed by the Creditors Association for benefit of the Creditors named in each of the complaints. The Association was then registered but now it appears that the said registration has not been renewed w.e.f 5/6/09. Even if it be so, the decrees passed for the benefit of named Creditors can be executed in favour of named creditors. Secondly, it is seen that the Execution Applications as well as the Misc. Applications are vigorously pursued by two of the Members of the Association by name Vasant V. Gharse and Dr. Ramesh Malkarnekar who can always be allowed to represent the consumers/creditors on whose behalf the complaints were filed and orders obtained, in terms of sections 2 (1)(b)
(iv) read with section 13 (6) of the C.P. Act.
Thirdly, the Association could be directed to renew the registration. The objection on this score, therefore need not detain us any further.
29. The contention that the Company does not have any branch in Goa has already been dealt with at the time of passing the final orders. Both the companies have collected the deposits through their branch offices situated within the jurisdiction of this Commission and therefore would be liable to pay the same irrespective of where their registered offices are situated.
30. In our view, the provisions of Section 468 (2) (c.) of Cr. P.C. would not apply to a case of this nature where a fresh cause of action arises from day to day, as long as the order remains without being complied. This is a case of continuous offence. Continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of a failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-compliance occurs and recurs, there is the offence committed. (See State of Bihar v/s. Deokaran, AIR 1973 SC 908).
Breaches and wrongs give rise to a fresh cause of action de die in diem so long as the wrongful state of affairs subsists.
31. As already noted, the orders passed by this Commission have attained finality and have remained without being complied for too long and although recovery certificates were issued way back on 5/6/09 the payment is not forthcoming. We have also noted that some of the Creditors have been settled and their cases are required to be closed. On 20/12/11 on behalf of the Companies an offer was made to the D.Hs that they were prepared to pay 100% of the amount invested with 10% and 6% simple interest from the date of investment until payment. 10% interest in case of Creditors of M/s. Sowbhagya Nidhi Limited and 6% in case of M/s. Manipal Finance Corporation Ltd.,. It appears that those in charge of the Creditors Association declined the offer, but there are others, as can be seen from applications filed subsequently, that they are willing to accept the amount on the said terms.
There could be many others who are unaware of what transpired before this Commission on 20/12/11 and would be willing to accept payment on the said terms. Nothing prevented the Companies or for that matter the Managing Director or the other Directors of the said Companies to have made part payment of the amount due to the Creditors as requisite finances to make the payment are available with them, besides other assets.
32. For reasons aforesaid, we proceed to dismiss the objections raised to the applications and proceed to try Shri. Tonse N. M. Pai, Managing Director under Section 27 (1) of the C.P. Act. He should remain present before this Commission for explaining the substance of accusation on the next date. For failure to attend, his presence will be secured by issuing NBW. However, before we start the trial we would like to give the companies yet another opportunity to comply with our orders i.e. by making part payment at least to all named Creditors in the complaints as per offer made on 20/12/2011. Payment to be made by crossed cheques sent by registered post at the given addresses. We further direct the said Managing Director to file an Affidavit alongwith a statement showing the payment made and the balance that would be payable as per orders, at specified rates, as on 31.3.2012.
Compliance report to be filed on 1/4/2012. On failure to comply with this order, the Managing Director to remain present to be tried on 10/4/2012 at 10.30 a.m. Cases of Creditors who are settled are not to be reopened. Further proceedings adjourned to 3rd and 10th April 2012.
[Smt. Vidhya R. Gurav ] [Justice Shri. N. A. Britto] Member President