Dismissed

Nanded Municipal Council Nanded Thr.Commissioner v. Janata Sahakari Bank Ltd. Pune and Anr.

Bombay HC20 Nov 2014FA/417/2000

Case brief

AI extract

What is this about?

The High Court held that a suit filed by a Municipal Council against a Cooperative Bank for forfeiting a bank guarantee could not succeed due to failure to issue mandatory notice under Section 164. The court also held that non-joinder of the Octroi collector was not fatal.

What did the court decide?

The appeal was dismissed for want of statutory notice issued to the Registrar as required by Section 164 of the Maharashtra Cooperative Societies Act, 1960.

Nanded Municipal Council Nanded… — Contract and Commercial Disputes | Bombay HC (2014)

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FA 417.00.odt

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IN THE HIGH COURT OF JUDICATURE OF BOMBAY BENCH AT AURANGABAD

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FIRST APPEAL NO. 417 OF 2000

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Nanded Municipal Council, Nanded and Nanded Waghala Municipal Corporation, Nanded, through its Commissioner.

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.. APPELLANTS [Ori. Plaintiff}

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VERSUS

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1] The Janata Sahakari Bank Ltd., Pune, Central Office 1444, Shukrawar Peth, Thorle Bajirao Road, Pune 411 002 2] The Janata Sahakari Bank Ltd., Pune, Branch at Aurangabad, Through its Manager. .. RESPONDENTS [Ori. Defendants]

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Mr. Murar V. Deshpande, Advocate for the appellants, Mr. S.V. Natu, Advocate for respondents.

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CORAM : B.P. DHARMADHIKARI & A.M. BADAR, JJ. DATE : 20TH NOVEMBER, 2014.

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ORAL JUDGMENT [ PER B.P. DHARMADHIKARI,J}:-

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1] This appeal under Section 96 of CPC is filed by original plaintiff challenging the judgment and decree dated 24.7.2000 delivered by Civil Judge (Senior Division) Nanded in Special Civil Suit No. 164 of 1995, dismissing the suit for recovery of the amount of Rs.68,97,235/- with future interest @ 20% p.a. The amount represented the sum of bank guarantee

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extended by present respondents (original defendants) in favour of a person, who had been given a contract to collect octroi by appellant/Municipal Council. Needless to mention that appellant is a local authority and a Municipal Council constituted under the Maharashtra Municipalities Nagar Panchayats and Industrial Townships Act, 1965.

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2] The trial court framed following issues and answered the same

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as mentioned against each issue.

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Sr. No.	ISSUES FIND	INGS
1	Does the plaintiff prove the terms and conditions of the contract dated 31.8.1994, executed between plaintiff & Deogiri Pratishthan	Yes
2	Does it further prove that, it has appointed Deogiri Pratishthan, Aurangabad as an agent for collection of Octroi duties for the period for 1.9.1994 to 31.3.1995 for consideration of Rs.3.87 Crores ?	Yes.
3	Does it prove that, defendant No.2 has executed Bank Guarantees in its favour for Rs.61,000,000/- on 30.8.1994 by way of security	Yes.
4	Does it further prove that, the said agent has defaulted in payment of Rs.68,50,824.04 ps. For the period of 12 weeks w.e.f. 1.9.1994 to 21.11.1994 ?	Yes
5	Does it prove that, all the four Bank Guarantees were forfeited and were forwarded for encashment but were dishonoured ?	Yes
6	Does it prove that, the agent committed breach of the terms and conditions and therefore the agency was cancelled by terminatingthe contract ?	Yes

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7	Does it prove that, it demanded the said amount byissuingdemand notices ?	Yes
8	Is the suit bad for non-joinder of necessary party ?	Yes
9	Is the suit barred by territorial jurisdiction ?	No
10	Does the plaintiff prove that, time was the essence of contract ?	Yes
11	Do defendants prove that, the agreement of contract is void agreement ?	No
12	Is the plaintiff entitled for the suit claims of recovery of Rs.68,97,235/- with interest at the rate of 20% per annum upto 30.6.1995 ?	Yes
13	Is the plaintiff entitled for future interest at the rate of 20%per annum ?	Yes
14	Do the defendants prove that, the contract has been frustrated ?	No
15	Whether the suit is maintainable for want of notice U/sec. 164 of Maharashtra Cooperative Societies Act ?	No.
16	What relief as to order and cost ?	The suit and the counter claim are dismissed.

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3] Thus, the suit has been dismissed because of a finding that a necessary party, namely, the contractor, who had agreed to collect Octroi was not joined as party defendant and second ground given is that appellant/plaintiff did not issue notice under Section 164 of the Maharashtra Cooperative Societies Act. If these issues are ignored or answered in favour of the appellant, it is apparent, that in the light of other affirmative answers given by the trial court, suit could have been decreed.

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4] In this background, we have heard Advocate Mr. Deshpande for

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the appellant/Municipal Council and Mr. S.V. Natu for the respondent/original defendants.

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5] Advocate Deshpande submits that bank guarantee submitted by

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Octroi Collector was unconditional and it was invoked in accordance with law. The moment these facts were established, respondent was duty bound to discharge its obligation and refusal thereof is unacceptable. Defence available to Octroi Collector was not relevant. In this situation, he relies on judgment reported at (2006)13 SCC 599, “M/s Reliance Salt Ltd. Vs. Cosmos Enterprises”. He contends, that in this situation, finding that only because the octroi collector is not joined as a party, the suit suffers from non-joinder, is unsustainable and liable to be quashed and set aside.

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6] He further contends that burden to show that notice under Section 164 of the Maharashtra Cooperative Societies Act, was essentially and squarely lay on shoulder of respondents. They ought to have pleaded and proved that respondent No.1 is a cooperative society registered under the Maharashtra Cooperative Societies Act. Certificate of Registration Exhibit 169B does not show that it is so registered.

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7] He further contends that the appellant wanted bank guarantee to safeguard their interest from a Scheduled Bank. The bank guarantee was issued by respondents in that capacity and not as a Cooperative Society. Therefore, the status of respondents as a Cooperative society was totally irrelevant and hence, recourse to Section 164 was not open. In the alternative, by inviting attention to provisions of Section 2(1) and 2(27) of the Maharashtra Cooperative Societies Act, Shri Deshpande, urges that a

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cooperative bank is not a cooperative society and, therefore, protection conferred by Section 164 is not available to a cooperative bank. He invites attention to provisions of Chapter XI of said Act, particularly,to Section 111 and 112 to submit that as respondents are not covered under Chapter XI, therefore, also provisions of Section 164 are not available to it. He invites attention to the provisions of Reserve Bank of India Act, 1934, particularly, the Schedule appended thereto, to show that respondent No.1 finds mention therein and, therefore, it is the said enactment, which regulates and governs its affairs. Attention is also invited to Section 3 of the Banking Regulation Act, 1949 read with Section 56 to submit that when a cooperative society starts functioning as a banking company, it is the provisions of Banking Regulation Act, 1949, which apply and govern its working. Therefore, the provisions of Maharashtra Cooperative societies Act, are not applicable to it.

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8] Advocate Natu, appearing for respondents does not dispute that Bank guarantee was an unconditional undertaking. However, he submits that the bank had given guarantee to appellant, after agreement with Octroi Collector and, therefore, that Octroi Collector was an essential party to the suit. He, therefore, justifies the finding recorded by trial court against Issue No.8.

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9] He relies upon certificate of Registration at Exhibit 169B, to show that the respondent No.1 is duly registered as a cooperative society under the enactment which has been repealed by Maharashtra Cooperative Societies Act, 1960. Section 166 of later Act, recognize, accepts and preserves that registration. Therefore, provisions of Section 164 are

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available to respondent No.1. He further submits that neither the Reserve Bank of India Act, 1934, nor Banking Regulation Act, 1949, stipulate that provisions of the Maharashtra Cooperative societies Act, or then, Section 164 thereof, cease to apply to a cooperative society, which is permitted to carry out business of banking. He submits that, in this situation, distinction attempted by Advocate Deshpande, between the Cooperative Society on one hand and Cooperative Bank on the other hand, is non-existent and provisions of Chapter XI of the Maharashtra Cooperative Societies Act, 1960 have got no bearing in so far as said controversy is concerned. He also invited attention to provisions of Order VI Rule 6 read with Order VII Rule 11 (a) and (d) to argue that burden was upon the appellant/plaintiff to plead while filing suit that all provisions of law have been fully complied with. According to him, it was, therefore, necessary for appellant to plead and point out as to why provisions of Section 164 of the Maharashtra Cooperative Societies Act, are not applicable.

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10] After hearing respective counsel, following issues, arise for our consideration :-

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[a] Whether suit, as filed, is bad for non-joining the Octroi Collector/Contractor as party respondent ?

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[b] Whether suit, as filed, could have been dismissed for not issuing notice under Section 164 of the Maharashtra Cooperative Societies Act.

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11] Arguments noted by us (supra) shows that acceptance of fact that bank guarantee issued by respondent in favour of appellant was

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FA 417.00.odt

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unconditional one. It is, therefore, sufficient for appellants to demonstrate that they have invoked bank guarantee in terms of the arrangement made therefor in the document of bank guarantee. The trial court has not found any fault in so far as that invocation is concerned.

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12] The question of fault on the part of the contractor collecting octroi or otherwise, therefore, was not relevant when bank guarantee was invoked. In this situation, if the respondents wanted to urge that bank guarantee could not have been invoked and there were certain other facts or circumstances, which rendered the invocation of bank guarantee illegal, burden was upon respondents to plead and prove accordingly. Even in that case, the Octroi collecting contractor would not have been a necessary party. At the most, he could have been a witness through whom the necessary facts or dispute could have been brought on record. We, therefore, find that suit could not have been dismissed for non-joinder of the contractor collecting octroi. The finding recorded by trial court against issue No.8 is unsustainable. It is set aside.

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13] This brings us to consideration of the question pertaining to suit notice. Section 164 of the Maharashtra Cooperative Societies Act reads as under :-

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“ 164. No suit shall be instituted against a society, or any of its officers, in respect of any act touching the business of the society, until the expiration of two months next after notice in writing has been delivered to the Registrar or left at its office, stating the cause of action, the name, description and place of residence of the plaintiff and the relief which he claims, and

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FA 417.00.odt

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the plaintiff shall contain a statement that such notice has been so delivered or left. .”

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14] Thus, notice under Section 164 is required to be issued by person filing suit to Registrar of Cooperative Societies. The suit notice, therefore, was not meant to be served upon party defendants. Therefore, the defendants could not have waived the statutory requirement. Hence, facts, whether defendants raised that plea in their written statement, or then, whether plea is raised belatedly, are totally irrelevant.

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15] Here, factually the plea was added by amending the written statement and an issue was also framed/added by trial court, before parties went to trial. The contention of Mr. Deshpande, that the issue was not raised at the earliest possible opportunity, or then, the issue has been raised belatedly, therefore, has got no relevance.

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16] Similarly, provisions of CPC, mentioned supra, clearly show that it is for plaintiff to demonstrate before trial court that, he has complied with all legal formalities before filing the suit. Thus, the effort of learned counsel for appellant, to throw burden on shoulder of respondents, to demonstrate otherwise, is mis-conceived and cannot be sustained.

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17] Mr. Deshpande also attempted to draw a distinction between a cooperative bank and a cooperative society. Provisions of Section 2(27) define a society to mean, a cooperative society registered or deemed to be registered under the Maharashtra Cooperative Societies Act, 1960. Section

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FA 417.00.odt

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2(10) defines a cooperative bank, to mean, a society which is doing business of banking as defined in cause (b) of sub-section (1) of Section 5 of the Banking Companies Act, 1949. Thus, it is a cooperative society which is envisaged under Section 2(10). If a society is not a cooperative society, it cannot be a cooperative bank.

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18] Perusal of clauses (10-ai) to (10-aiii), (10A) and (12) of Section 2, also show, that it is only referring to a smaller fraction i.e. species of a genus, that is, society as defined in Section 2(27). Chapter XI of the Maharashtra Cooperative Societies Act, deals with Cooperative Agricultural and Rural Multipurpose Development Banks. As per Section 111(a), Chapter XI applies to cooperative bank/banks, advancing loans other than short terms loans to or through the Cooperative Agricultural Multipurpose Development Bank, for the purposes therein enumerated. Thus, it again contemplates further narrowing down or classification of a Cooperative bank. A particular type of cooperative bank is dealt with under Chapter XI.

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19] Perusal of provisions of Banking Regulation Act, 1949 and R.B.I. Act, 1934, does not show any provision which will rule out applicability of Maharashtra Cooperative Societies Act, 1960 to defendants.

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20] Respondent No.1 bank is registered under the Maharashtra Cooperative Societies Act and because of that registration only, it has been further permitted to undertake banking business, which is subject to above

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FA 417.00.odt

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mentioned two central legislations.

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21] The effort of Advocate Deshpande, therefore, to contend that a cooperative society and a cooperative bank are two distinct instrumentalities or entities envisaged under the Maharashtra Cooperative Societies Act, 1960 is without any merit. Document at Exhibit 169B is not in dispute. The fact that respondent No.1 is registered under repealed enactment as a cooperative society, is also not in dispute.

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22] The appellants have not attempted to demonstrate that provisions of Section 166 of the Maharashtra Cooperative Societies Act, which deal with repeal, saving and constructions, are not attracted in present facts. Thus, the document of registration Exhibit 169B, enures to the benefit of respondent No.1, even after coming into force of the Maharashtra Cooperative Societies Act 1960, in terms of Section 2(27). respondent No.1 bank, therefore, is deemed to be registered under the Maharashtra Cooperative Societies Act, 1960 .

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23] Provisions of Section 164 are already reproduced by us (supra). Its perusal shows that suit cannot be instituted without serving notice as stipulated therein, in respect of any act, touching the business of society. Respondent No.1 is legally doing business of banking and this fact is not in dispute before the court. Because of that business only, it has issued a bank guarantee and the appellants have accepted it. Effort to contend that bank

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guarantee, therefore, is not issued in course of its business of respondent society cannot succeed.

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24] The bank guarantee is never issued only to a member. Bank guarantee may be required to be issued to a stranger with whom the member of the bank may have a contract. In discharge of that obligation, the bank guarantee came to be issued. Section 164 does not speak of a suit to be instituted only by a member or customer of a bank. It also envisages and takes within its sweep, the suit to be instituted by total stranger, if it is in relation to any act touching the business of society. Hence, the fact that appellant before this court is a total stranger to bank also, does not make any difference. The recognition to respondent No.1 bank as a scheduled bank is only for the purposes of provisions of Banking Regulation Act, 1949 and it does not derogate with its status as a cooperative society or cooperative bank.

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25] The appellants have accepted the bank guarantee which is issued by a cooperative bank i.e. Cooperative society which also qualifies as a Scheduled bank. The appellants, therefore, cannot get rid of the requirement of serving a notice upon Registrar, in terms of Section 164 of the Maharashtra Cooperative Societies Act, 1960.

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26] Shri Deshpande, has relied upon the judgment of the learned Single Judge , reported at (2009) 4 Mh.L.J. 796 “Ramchandra Ramkishan

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FA 417.00.odt

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Sarda Vs. Shri Shankarrao Chavan PVC Pipe Utpadak Sanstha Maryadit and

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another”. Said judgment construes phrase, “touching the business of the society” The object of business of society concerned in that matter, namely, Shri Shankarrao Chavan PVC Pipe Utpadak Sanstha Maryadit, was to manufacture PVC pipes and to sell it. The contract between parties looked into by learned Single Judge was regarding construction of shed for factory and other construction work. Learned Single Judge has found that said contract was, therefore, not covered by the business of society mentioned supra. Thus, the view has been reached in the facts and circumstances of that case. Here, issuance of bank guarantee is act performed by respondent No.1 in furtherance of its business and it has also been accepted by appellant because it was issued by respondent No.1, in the course of its business and not otherwise. Said judgment, therefore, has no application.

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27] We, therefore, find that the finding recorded by trial court against Issue No.15, does not call for any interference. With the result, for want of statutory notice as completed by Section 164 of the Maharashtra Cooperative Societies Act, 1960, suit has been rightly dismissed. Resultantly, the appeal is dismissed. In the circumstances, there shall be no orders as to costs.

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[A.M. BADAR] JUDGE

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[B.P. DHARMADHIKARI] JUDGE.

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grt/-

Nanded Municipal Council Nanded Thr.Commissioner v. Janata Sahakari Bank Ltd. Pune and Anr.

Case brief

What is this about?

What did the court decide?

Nanded Municipal Council Nanded Thr.Commissioner v. Janata Sahakari Bank Ltd. Pune and Anr.

Case brief

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What did the court decide?

What the court decided

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