IN THE NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
NEW DELHI Revision Petition Nos. 2512, 2513, 2514, 2515, 2516, 2517 and 2518 of 2011 Decided On: 19.12.2016 Appellants: Amarjit Singh Vs. Respondent: Gagandeep Singh and Ors. Hon'ble Judges/Coram: Ajit Bharihoke, J. (Presiding Member), V.K. Jain, J. (Member) and Dr. B.C. Gupta, Member Counsels: For Appellant/Petitioner/Plaintiff: Jaspreet Gogia, Advocate, Proxy Counsel for Vipin Gogia, Advocate For Respondents/Defendant: Yogesh Das, Advocates and Swaran Kaur ORDER Ajit Bharihoke, J. (Presiding Member) 1. The above noted revision petitions have been referred to the Larger Bench by the orders of Hon'ble President dated 31.05.2013 for answering the following question: "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?" 2 . Above noted revision petitions have arisen from almost identical consumer complaints filed by various depositors who had deposited certain amounts in fixed term deposits with opposite party Sarb Bank Employees Cooperative U.S.E.T. & Credit Society Limited with minor variations. The basic allegations in the respective complaints are almost similar. Allegations of the complainants in their respective complaints are that petitioner/opposite party No. 1 Amarjit Singh, the then President of the above noted Cooperative Society approached the respective complainants and represented to them that if they deposit any amount with the cooperative society, they would receive interest @ 15-16% p.a. on their respective fixed deposits. Allegedly, the petitioner/opposite party Amarjit Singh convinced the complainants that the opposite party/cooperative society has been floated by the employees of State Bank of India and there was no risk involved. Being lured by the attractive offer, the complainants deposited specific amounts in fixed deposit with the opposite party/cooperative society. The complainants received interest of their deposit for sometime. Thereafter, remittance on account of interest stopped. On being approached, the petitioner Amarjit Singh informed the complainants that their interest would be duly remitted on clearance of their dues by some loanees. Later, however, the complainants came to know from the newspaper reports that there had been some bungling in the cooperative society. The complainants thus demanded return of their deposits but the opposite parties failed to make payment. This led to the complainants approaching the District Forum concerned and filing their respective complaints.
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3 . The opposite parties on being served with notice of the complaint resisted the respective complaints by filing their written statement. 4 . The District Forum on consideration of the pleadings before it directed all the opposite parties including the petitioner Amarjit Singh to pay to the respective complainants the amount deposited by them with 16% interest p.a. from the date of deposit till the payment. 5. Being aggrieved of the order of the District Forum, the opposite parties preferred appeals. The State Commission UT Chandigarh confirmed the order of the District Forum and dismissed the respective appeals. Aggrieved by the dismissal of appeal, the petitioner Amarjit Singh has filed the above noted revision petitions. 6 . It may be noted that similar revision petitions were filed by Anil Pahwa, the Ex- Secretary of the above noted cooperative society. The aforesaid revision petitions being RP No. 1579 of 2011 and 1580 of 2011 were dismissed by a two member Bench of this Commission vide order dated 31.05.2011. In the said revision petitions, Anil Pahwa opposite party/petitioner took the plea that he could not be held personally liable as he was discharging functioning of an office bearer of the cooperative society and also because an administrator had been appointed to take care of the assets and liabilities of the cooperative society. The two member Bench of this Commission, however was not convinced with the arguments taken by the ex secretary of the cooperative society and they observed that "they do not find anything wrong in the impugned order as the complainant/depositor cannot be left high and dry for the conduct of the petitioner who is held to have connived with opposite party No. 1". The reading of judgment of two member bench in R.P. No. 1579 & 1580 of 2011 filed by Ex-Secretary Anil Pahwa gives an impression that bench was of the view that if the office bearer of a cooperative society is involved in unethical practice, in such a situation, the office bearer would be liable for deficiency in service. 7 . Learned Shri Vipin Gogia, Advocate for the petitioner in the respective revision petitions has contended that former President or former Secretary of the cooperative society or the office bearers have an entity distinct from the cooperative society. They have no privity of contract with the complainant. Therefore, they cannot be held responsible for any deficiency in service on the part of the cooperative society. In support of his contention, learned counsel for the petitioner has referred to section 30 of Punjab Cooperative Societies Act, 1961. 8. Learned counsel for the respondents complainants on the contrary has submitted that President, Secretary or the Office Bearer of a cooperative society were running the affairs of the cooperative society. Therefore, they are directly responsible for deficiency in service. It is further contended that the petitioner who was the President of the society lured the respondents complainants by misrepresentation to deposit money in fixed deposit. Therefore, also, the petitioner is liable for deficiency in service in support of his contention, learned counsel for the respondent has relied upon the judgment of Coordinate Bench of this Commission in R.P. No. 1579 & 1580 of 2011 filed by Anil Pahwa, the then Secretary of the Sarb Bank Employees Cooperative U.S.E.T. & Credit Society Limited decided on 31.05.2011. Learned counsel for the respondent has also relied upon the judgment of the Supreme Court in the matter of Delhi Development Authority Vs. Skipper Construction Co. (P) Ltd. & Another MANU/SC/0497/1996 : (1996) 4 SCC 622. 9. As per the reference order dated 31.05.2013, we are required to answer whether
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the Ex-Secretary or Ex-President or other office bearers of any Cooperative Credit society falls within the definition of service provider. In order to effectively answer this question, it would be useful to have a look on the definition of term "consumer" qua hiring or availing of any service as provided under section 2(1)(d)(ii) of the Consumer Protection Act, 1986 (in short, the Act) The relevant provision is reproduced as under: (d) "consumer" means any person who- (i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or (ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who 'hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purposes. 10. On bare reading of the above it is clear that a consumer is a person who hires or avails of any service for consideration which has been paid, promised or partly paid and partly promised or under any deferred system of payment subject to the exception that a person hiring any service for commercial purpose shall not be a consumer for the purpose of the Act. 11. Complaint has been defined under section 2(1)(c) of Act as under: (i) an unfair trade practice or a restrictive trade practice has been adopted by any trader or service provider; (ii) the goods bought by him or agreed to be bought by him; suffer from one or more defects; (iii) the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect; (iv) a trader or service provider, as the case may be, has charged for the goods or for the service mentioned in the complaint a price in excess of the price- (a) fixed by or under any law for the time being in force (b) displayed on the goods or any package containing such goods; (c) displayed on the price list exhibited by him by or under any law for the time being in force;
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1. agreed between the parties; (v) goods which will be hazardous to life and safety when used or being offered for sale to the public,-- (A) in contravention of any standards relating to safety of such goods as required to be complied with, by or under any law for the time being in force; (B) if the trader could have known with due diligence that the goods so offered are unsafe to the public 1 2 . On reading of the above, it is clear that a consumer can make a consumer complaint against the vendor of the goods or a service provider on the grounds specified in Section 2(1)(c). 13. Thus, the question is whether or not the Ex-Secretary or Ex-President or other office bearers of any Cooperative Credit Society would fall within the category of service provider. 14. In order to find answer to the question under reference, it would be useful to have a look on Section 30 of Punjab Cooperative Societies Act, 1961 which reads thus: 30. Co-operative societies to be bodies corporate.-The registration of a co- operative society shall render it a body corporate by the name under which it is registered having perpetual succession and a common seal, and with power to hold property, enter into contract, institute and defend suits and other legal proceedings and to do all things necessary for the purposes for which it is constituted. 1 5 . It is pertinent to note that we have also taken note of Section 43 of Delhi Cooperative Societies Act, 2003 and Section 36 of Maharashtra Cooperative Societies Act 1960 which are pari materia to section 30 of Punjab Cooperative Societies Act. 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 MANU/MH/1856/2010 : 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 managing committee are concerned, they stand on totally different footing and they cannot be held responsible to contribute to
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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 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
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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 [MANU/SC/0036/1964 : 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
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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
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