JUDGMENT Bhanwar Singh, J.
1. M/s. Emondson Engineers (P) Ltd., Lucknow and its Executive Director Shri Pushkar Bajpai have filed this petition for a writ in the nature of certiorari quashing the impugned demand notice dated 24.9.2001 (Annexure-6) whereby they were asked to deposit a sum of Rs. 17,88,048/- within fifteen days, failing which their properties were to be attached and put on auction-sale. A writ in the nature of mandamus commanding the opposite parties not to recover the aforesaid amount nor to attach their immovable properties or put them on sale has also been sought for.
2. Briefly stated, the petitioners' case is that M/s. Emondson Engineers (P) Ltd. is carrying on its business of sale of welding materials and consumable welding machines as also electrodes. A few years ago, the said company requested the opposite parties 2 to 5 for cash credit facility to the extent of Rs. 12 lakhs. The City Cooperative Bank. Ltd., and its authorities sanctioned the cash credit facility on the petitioners company having deposited title deeds of its properties as collateral security apart from personal guarantee. Requisite deeds of hypothecation and guarantee were duly executed by the company. In spite of the fact that the petitioners company is still availing the benefits of the aforementioned credit facility, the Bank declared the company as defaulter. Such a declaration is against the Banking policy and the rules and regulations for extending the financial help either by way of loan or advance. The said Cooperative Bank was closed on account of embezzlement of its huge funds amounting to more than Rs. 150 crores by its Directors and the Chief Executive Officer. As per the Cooperative Societies Act, 1965, all its account holders are also the members of the Cooperative Society and in this way, the petitioners company is also invested with the same status. In case of any dispute between a Cooperative Society and its members, it is mandatory on the part of the society to refer the dispute to arbitration. However, without complying with the provisions of such reference to an arbitrator, the opposite parties 2 to 5 have proceeded to recover the sum of Rs. 17,88,048/- by way demand notice in question. Owing to the defalcation of the funds of the City Cooperative Bank, the District Magistrate, Lucknow was appointed its administrator by the Reserve Bank of India. The Registrar of the Cooperative Society, U.P. had also appointed a Secretary to jointly work with the District Magistrate and look after the daily affairs of the Bank under the guidelines of the Reserve Bank of India.
3. The petitioner company initially received a notice dated 28.4.2001 from the opposite parties 2 and 3 by way of which they required the company to pay Rs. 5,88,048.16 but subsequently in a period of less than one month, the Bank sent another notice dated 14.5.2001 directing the company to pay Rs. 17,88,048/-. The variation of the two sums prima facie expressed the exorbitant increased demand by virtue of the latter notice. As a matter of fact, the City Cooperative Bank cannot initiate recovery proceedings against the petitioner-company unless the dispute subsisting between them is settled by an arbitrator but the authorities of the Bank in hasty and unlawful manner adopted the wrong procedure for recovery of the amount outstanding against the petitioner company. Such an act of the authorities being arbitrary and autocratic deserves to be quashed, otherwise, the petitioner company shall suffer irreparable loss and injury.
4. On the petitioners' request, Mr. P.N. Singh Yadav, Assistant Registrar had requested the Regional Deputy Registrar of the Cooperative Societies to refer the dispute to an arbitrator for being adjudicated upon under the provisions of Chapter IX of the U.P. Cooperative Societies Act but the said recommendation did not find any favour with the higher authorities. Further, in view of the Moratorium issued by the Reserve Bank of India, the administrator of the Bank cannot conduct any business contrary to the guidelines and, as such, the recovery proceedings against the petitioner could not be initiated. As a matter of fact, the City Cooperative Bank assured the petitioners company to raise the cash credit limit from Rs. 12 lakhs to Rs. 25 lakhs with effect from 1.4.2001 but before the assurance could be implemented to the real advantage of the petitioners, the Bank suffered heavy loss on account of embezzlement of huge funds. Now, as said above, for the Moratorium granted by the Reserve Bank of India being in operation, the Bank and its authorities have not" been conducting day-to-day Banking business transaction and, therefore, the recovery proceedings against the petitioners under the provisions of Rule 312(Ga) of the U.P. Cooperative Societies Rules, 1968 are illegal. The notice issued by Pratyadan Adhikari (Recovery Officer) is bad in law as by virtue of the impugned notice, he claims to have proceeded against the petitioner on the basis of a decree which seems to have been passed ex parte without affording an opportunity of hearing to the petitioners. The particulars of such a decree have not been disclosed in the impugned demand notice nor the petitioners have been informed as to whether such a decree had been awarded by some quasi-judicial authority like arbitrator or by an authority under the U.P. Cooperative Societies Act. In this way, the recovery proceedings initiated with the illegal notice of demand in question is an act which apart from being autocratic is arbitrary and unlawful and, therefore, the said notice is liable to be quashed,
5. The opposite parties 3 to 5 filed their reply through counter-affidavit of Shri B.B. Sinha, the Loan Recovery Officer. Mr. Sinha endorsed the petitioners' case of having utilized the cash credit facility of Rs. 12 lakhs extended by the City Cooperative Bank. According to the agreement entered into between the parties, the petitioners had to pay quarterly interest but the company never deposited any amount of interest. When the petitioners' Executive Director, namely, Pushkar Bajpai visited the Bank, he submitted fake assurances to deposit the amount but he did not come alive with his commitments. The petitioners availed the cash credit facility up to the maximum limit and on 12.12.1998, an amount of Rs. 12,01,331.46 was calculated to be as outstanding against them. The petitioners failed to discharge their obligation and committed default in payment of the accrued interest in accordance with the terms of the agreement. The two cheques deposited on March 31, 2000 for amount of Rs. 40,000/- and Rs. 2,52,000/- were dishonoured and, ultimately, the total of the said two sums was shown in debit in the statement of accounts. In this way, the petitioners became defaulter. It was asserted further by Mr. Sinha that no doubt, the erstwhile Director of the City Cooperative Bank in connivance with the then Secretary mismanaged the affairs of the Bank and did lot of bunglings in the accounts but the Bank was never closed. The Reserve Bank of India levied certain restrictions and the Registrar, Cooperative Societies superseded the Board of Management and the District Magistrate, Lucknow was appointed as administrator. The Chief Executive Officer and the Secretary of the Bank were placed under suspension by the administrator. However, the mismanagement was the internal affair of the Bank and the petitioners had nothing to do with the same.
6. The answering opposite parties have already furnished statement of account, copy Annexure C-1 which shows that the petitioners had availed the maximum limit of cash credit facility and on 12.12.1998, a sum of Rs. 12 lakhs was due from them. They failed to discharge their obligation of making repayment of not only the principal amount but also the interest which accrued thereupon. However, in case the petitioners had any doubt regarding genuineness of the accounts, they could have raised a dispute as provided under Chapter IX of the U.P. Cooperative Societies Act, 1965. In the event of a real dispute, there is provision for stay of the recovery under Section 71 Sub-clause (III) of the U.P. Cooperative Societies Act and, as such, the petitioners would have availed the alternative remedy by approaching the Registrar of the Societies for a reference to the Arbitrator. As regards the discrepancy pointed out by the petitioners indicating vast difference of two sums demanded by way of dual notices of April 28, 2001 and of May 14, 2001, it is explained that the amount of interest calculated with quarterly rests was not added in the first demand notice. A sum of Rs. 5,88,048.16 was reckoned with on that count and adding it to the principal sum of Rs. 12 lakhs, it figured to be as Rs. 17,88,048.16. The said sum has further increased to Rs. 18,12,426.16 and it is accelerating progressively with the passage of time. The petitioners were well aware of this variation but still in order to infuse a prejudice, observation with amazement has been pressed into service. Therefore, the petitioners' contention that arbitrary method of calculation of the outstanding sums had been adopted by the Bank is misconceived. When the petitioners committed default in payment of the principal amount of the sum and the interest calculated thereon, the notices were issued to them by the Assistant Registrar, Cooperative Societies under Section 61 of the U.P. Cooperative Societies Act and similar notices were also despatched by registered post to the sureties. Even then, there was no response from the petitioners or the sureties. The answering opposite parties were then left with no other option except to proceed further under the provisions of Section 91 of the Act. The Assistant Registrar, Cooperative Societies issued notice dated 24.9.2001 and, as such, the Bank's dues can be recovered as arrears of land revenue. The petitioners did not comply with the demand notices of April 28, 2001 and May 14, 2001, as a consequence the impugned order of September 24, 2001 was issued by the Recovery Officer under Regulation 312(Ga) of the Uttar Pradesh Sahkari Samiti Regulations, 1968. It has also been pointed out on behalf of the answering opposite parties that instead of the petitioners having moved for appointment of a Commissioner in case of a dispute, if any, the petitioners filed writ petition No. 2884 (M/B) of 2001 and they had also filed a regular suit bearing No. 361 of 2001 in the Court of Civil Judge (Senior Division), Lucknow. In view of the pendency of the two earlier proceedings, there was no justification for the petitioners to have moved again for third, reiterating the same old pleas based on mistaken belief. So, from this point of view also, this petition is not maintainable.
7. We have heard learned Counsels for both the parties and perused the relevant records.
8. The main grounds on the basis of which the petitioners have challenged the validity of the demand notice and the recovery proceedings are that the City Cooperative Bank Ltd., being a victim of fraud and embezzlement of its Board of Directors, has been restrained from conducting any business by the Reserve Bank of India and, as such, recovery proceedings are contrary to the directions issued by the Reserve Bank of India; that the petitioners cannot be placed in the ambit of the definition of 'defaulters'; that the petitioners cannot be asked to deposit the amount unless the dispute is settled by an Arbitrator; that the two demand notices served upon the petitioners within a short span of less than 3 weeks had varying and conflicting sums alleged to be due from them which had indicated arbitrariness on the part of the Bank authorities; that the Bank failed to fulfil its commitment of raising cash credit limit of the petitioners from Rs. 12 to 25 lakhs; and that the recovery of amount, as recited in the impugned notice, is illegal, as they demanded a sum of Rs. 17,88,048/- which was referred to as decretal sum but neither the petitioners are aware of any proceedings or suit in which some decree might have been passed against them nor they have been given an opportunity of contesting such proceedings.
9. Taking all these grounds in seriatim, it may be observed as regards the directions having been issued by the Reserve Bank of India that no restraint has been imposed upon the business activities of the Bank. It is no doubt true that the City Cooperative Bank suffered a serious set-back following defalcation of its funds by the Bank Directors and also it is correct that the Reserve Bank of India has inflicted certain restrictions upon the functioning of the Bank, but such restrictions and guidelines have been issued with a view to curb the expenditures likely to be incurred by the Bank in its day-to-day working. The petitioners are in no way concerned with those restrictions. In the recovery proceedings initiated against them, the Bank has not to spend any amount; instead, it would be to the advantage of the Bank if the huge amount of Rs. 18 lakhs (approximately) is recovered from the petitioners and deposited with the Bank. The Board of Management has been superseded by the Registrar of Cooperative Societies and the District Magistrate, Lucknow was appointed as Administrator. There seems to be no likelihood of the Bank's interest entailing in any kind of jeopardy. The Chief Executive Officer and the Secretary of the Bank were placed under suspension soon after the fact regarding the bungling of accounts came to notice arid, therefore, the Bank has been working with certain checks and bounds and the fact remains that it was never closed. As a matter of fact, the petitioners have nothing to do with the fraud and the bunglings made by the Bank's former directors. The petitioners have to stand on their feet and whatever has happened in the Bank, they are not in any way concerned with. Therefore, the petitioners cannot be permitted to derive any advantage out of Bank's maladies particularly when they are simply borrowers.
10. Apart from above, a bare perusal of the guidelines issued to the City Cooperative Bank as contained in letter of March 22, 2001 (Annexure 5) of the Reserve Bank of India would reveal that the Bank was not restrained from realizing its dues. In fact, this letter curtailed the financial powers of the Bank authorities to grant or renew any loans and advances or make any investment or incur any liability including borrowal of funds and acceptance of fresh deposits. Also the Bank was directed not to enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except as provided in the letter. However, in its day-to-day functioning, the Bank could renew the existing terms of deposits on maturity and was also authorized to incur expenditures on salaries of the employees, rent, rates and taxes, electricity bills, printing, stationery, postage and legal expenses not exceeding Rs. 1,000/- in each case. Payment of premium payable to the Deposit Insurance and Credit Guarantee was also authorized. Certain other directions were also issued to the Bank, which are not relevant from our purpose. Suffice it to say that there was no direct or indirect restriction upon the Bank to realize its money either given as loan or advance or as a cash credit facility.
11. Thus, keeping in view the contents of the letter, we arc not inclined to accept the petitioner's contention that the recovery proceedings initiated at the behest of the Bank by the Recovery Officer are by any stretch of reasoning in conflict with the guidelines of the Reserve Bank of India.
12. The next submission pressed into service by the petitioners is that the Secretary pf the City Cooperative Bank initiated the recovery proceedings without following the mandatory procedure obligatory on the part of every Society to refer the dispute to arbitration. Learned Counsel for the petitioners, while making a reference to the provisions of Section 70 of the U.P. Cooperative Societies Act, contended that the dispute subsisting between the parties should have been referred to the Registrar for action in accordance with the provisions of this Act. Section 70 may, for better understanding of the point, be produced as below:
"70. Disputes which may be referred to arbitration.--(1) Notwithstanding anything contained in any law for the time being in force, if any dispute relating to the constitution, management or the business of a co-operative society other than a dispute regarding disciplinary action taken against a paid servant of a society arises--
(a) among members, past members and person claiming through members, past members and deceased members; or
(b) between a member, past member or any person claiming through a member, past member or deceased member, and the society, its committee of management or any officer, agent or employee of the society, including any past officer, agent or employee; or
(c) between the society or its committee and any past committee, any officer, agent or employee or any past officer, past agent or past employee or the nominee, heir or legal representative of any deceased officer, deceased agent, or deceased employee of the society; or
(d) between a co-operative society and any other co-operative society or societies;
such dispute shall be referred to the Registrar for action in accordance with the provisions of this Act and the rules and no Court shall have jurisdiction to entertain any suit or other proceeding in respect of any such dispute:
Provided that a dispute relating to an election under the provisions of this Act or rules made thereunder shall not be referred to the Registrar until after the declaration of the result of such election."
Having carefully perused the above quoted provisions of Section 70, it may be observed that none of the clauses is attracted for application to the case in hand. There was neither any dispute between the past members nor between a member and the society or its committee of management. It was also not a dispute between the society or committee and its officers, agent or employees. Also there was no case of two co-operative societies having any dispute between them. The provisions of Section 70 can be taken recourse to only if the dispute pertains to the constitution, management or the business of a co-operative society. Obviously, no question of dispute relating to the three categories of the subject of the cooperative Bank was involved. In the case in hand, it was a simple matter regarding recovery of Bank's dues from the petitioners. The contention that every borrower, being a member of the society, would be entitled to have the dispute referred to the arbitration is a far-flung argument and not sustainable.
13. Learned Counsel for the petitioners submitted that the dispute should have been referred to arbitration for settlement on account of two-fold ground--first, the Bank had suffered a serious jolt of its business on account of embezzlement of huge funds; and secondly, the Bank initially demanded a sum of Rs. 5,88,048.16, vide notice of April 28, 2001 and without disclosing any reason, enhanced the demand from the aforesaid sum to Rs. 17,88,048/-, by virtue of notice dated 14.5.2001, i.e., issued merely 16 days after. As regards the defalcation of funds by the Directors of the Board of the Bank, it may be observed that the petitioners are not in any way concerned as it was an internal mismanagement of the Bank and the formers were not entitled to derive any advantage out of the situation. As said earlier, the Bank was never closed and with certain restrictions levied by the Reserve Bank of India, the City Cooperative Bank was allowed to conduct its daily business. The petitioners were to stand on the merit of their case and whatever the bunglings might have happened in the Bank, the petitioners have nothing to do with the same. With the intervention of Reserve Bank of India and the Registrar of the Co-operative Societies, the Banking business of City Co-operative Bank has now been placed under the supervision of the District Magistrate as Administrator and the Bank's daily affairs are now being supervised by him. The petitioners have not denied that they have not availed the cash credit facility nor they have stated that they were not liable to discharge their liability for repayment of loan. It appears that the petitioners being themselves under the financial crisis wanted some-time to repay their debts and it was with this intention to cause delay in repayment of loan that earlier they filed writ petition No. 2884 (MB) of 2001 and then instituted a Civil Suit No. 361 of 2001.
14. The difference of the two sums demanded, by means of two notices, has been very clearly explained by the Loan Recovery Officer, Mr. B.B. Sinha, in his counter-affidavit. In para 11 of his counter-affidavit, Mr. Sinha has mentioned that in the notice of April 28, 2001, the petitioners were asked to make payment of over dues, i.e. exceeding the cash credit limit of Rs. 12 lakhs, which is clearly mentioned in the notice and the petitioners were directed to deposit the said amount of Rs. 5,88,048.16 within ten days and when they failed to comply with they became defaulters with the result that the Bank became entitled to send a demand notice for the total amount of Rs. 17,88,048.16 i.e. principle of Rs. 12 lakhs plus interest of Rs. 5,88,048.16. Subsequently, as recited in Annexure C1, the total dues were calculated as Rs. 18,12,426.16 on November 2, 2001. The petitioners were very well aware of all these calculations. Still they did not restrain themselves from expressing a surprise, which was nothing but an endeavour to create a confusion. It is also noteworthy that these demand notices were issued to the petitioners following their letters dated 28.2.2001 and 15.3.2001, whereby assurances were given by them to make payment. A perusal of letter Annexure C2 addressed to the Secretary, City Cooperative Bank by Mr. Pushkar. Bajpai, Petitioner No. 2 would reveal that M/s. Emondson Engineers (P) Ltd. had been reeling for some-time under a financial crisis but the company was not disheartened, was rather making new venture and renewed efforts to grow its business. A request was also conveyed through this letter to the Bank authorities to bear with the company's handicap and, further, an assurance was submitted that they would come up to the terms and commitments made by them to the Bank by bringing the current outstanding below the cash credit limit of Rs. 12 lakhs. It was in response to this letter that the City Co-operative Bank simply demanded a sum of Rs. 5,88,048.16 only i.e. the sum which exceeded the cash credit limit and, subsequently, the total outstanding dues were asked for being paid.
15. It is, thus, clear that neither there was any dispute which could have been referred to arbitration nor the petitioners denied from their liability towards the loan. They have not refused to make payment of the demanded sums nor they complied with the demand notices. Therefore, it may be held that no dispute had arisen between the parties so as to compel the authorities to make a reference to the Registrar for adjudication through arbitration. Petitioners' request to raise their cash credit limit from Rs. 12 to 25 lakhs was rejected by the Bank authorities. Even if there was any assurance given by the Bank authorities that does not bring the claim and the counter-claim within the ambit of the word 'dispute' so as to attract the provisions of Section 70 of the Act. It was, certainly, within the authority of the Secretary of the Bank to turn down the petitioners' request for enhancement of their cash credit limit, particularly on account of the long drawn default on the part of the company. The petitioners' request made to Mr. P.N. Yadav, Assistant Registrar for referring the dispute to an arbitrator was meaningless, as no controversy for a dispute subsisted for being adjudicated upon.
16. Considering all these aspects of the matter, we hold that the opposite-parties were not in any way obliged to refer the dispute for arbitration.
17. Further, it has been submitted that the impugned Demand Notice (Annexure 6) is based on some ex parte decree and unless an opportunity of hearing was afforded to the petitioners to contest such proceedings, the decree cannot be put in execution. The Demand Notice (Annexure 6) seems to indicate that it was issued by taking recourse to the provisions of Rule 312(Ga) of the U.P. Co-operative Societies Rules, 1968. This notice is not based on any decree or proceedings. If in the column at S. No. 2 the printed nomenclatures of 'decree holder', it does not mean that some 'decree' as defined in Civil Procedure Code, has been passed by some Court. Before referring to the Rule 312, a perusal of Section 92 of the U.P. Co-operative Societies Act appears to be necessary. A perusal of Section 92 would show that an order made under Section 91 may be executed in the manner provided by law for the time being in force. Section 91 of the Act postulates that the Registrar or any other gazetted officer subordinate to him may, on the application of a co-operative society, make an order directing the payment of such debt or outstanding demands due to the society by any member or past member or deceased member, by sale of the property or interest therein. The pre-condition for issuing such an order is that a notice upon a member or nominee or his legal representative must be served, whereby he should be asked to make payment within one month from the date of service.
18. Now coming to Rule 312(c) of the U.P. Co-operative Societies Rules, it may be observed that the Recovery Officer shall verify the correctness of the particulars set forth in the application with records, if any, in the office of the Registrar and prepare or cause to he prepared a demand notice in writing, in duplicate in the form specified by the Registrar setting forth, name of the judgment-debtor and the amount due and forward it to the Sale Officer. The demand notice shall include the expenses, if any, and shall require the payment to be made by a specified date failing which the immovable property in question shall be attached and sold or sold without attachment, as the case may be.
19. Thus, it is clear from a bare perusal of Sections 91 and 92 of the Act and Rule 312(c) of the U.P. Co-operative Societies Rules that an order for recovery of dues of society can be issued by the authorities and such an order can be executed as per procedure laid in Rule 312(c). There is, thus, neither any illegality nor irregularity in the Bank authorities' proceeding with the recovery of its dues from the petitioners' company. As observed earlier, use of words 'decree', 'decree holder' and judgment-holder' is in common parlance and not in as legal a manner as defined in the Code of Civil Procedure. Even the dictionary meaning of the word 'decree' is as follows:
'An official order issued by a ruler or authority that has the force of law'.
If it is a decree drawn on the basis of a judgment of a Court of law, its meaning has to be confined to the four corners of its definition as laid in Code of Civil Procedure. But as recited above, use of this word in Demand Notice (Annexure 6) has been made in common parlance, which means that it is an order issued by an authority and it has the force of law as contained in provisions of Sections 91 and 92 of the U.P. Co-operative Societies Act. Therefore, the authority and sanctity of Demand Notice (Annexure 6) cannot be permitted to be undermined merely because the word 'decree' has been used therein. The decision in Prakash Narain Sharma v. Burmah Shell Cooperative Housing Society Ltd., V (2002) SLT 1 =(2002) 7 SCC 46, is not at all attracted as in that case arbitration proceedings were held and on account of there being a restraint order issued by the Civil Court, one of the parties did not appear before the arbitrator under the mistaken belief that the arbitrator might not proceed with the hearing. It was, in these circumstances, that the ex parte proceedings before the arbitrator were set aside. In the case in hand, there was no prohibitory order of the Civil Court restraining any authority of the society from proceeding further with the recovery of Bank's money nor arbitration proceedings were pending. Therefore, we are of the view that the aforesaid citation does not help the petitioners in any way.
20. Learned Counsel for the petitioners has also placed reliance upon the decision of this Court pronounced in the case of Smt. Sarda Devi v. State of U.P. and Ors., (2001) 2 Selected Allahabad Cases 311. In this decision, it has been held that recovery of outstanding amount of money advanced under the cash credit limit scheme as arrears of land review is illegal and without jurisdiction, unless the advancement was made under a State Sponsored Scheme. This decision too is of no help to the petitioners as the recovery of Rs. 17,88,048/- is not being made as arrears of land revenue. This decision would have helped the petitioners had the recovery been initiated by proceeding under the Land Revenue Act, but it is not so in the case in hand. The cash credit facility was also not extended under a State Sponsored Scheme and, furthermore, it is significant to note that the demand notice contains a clear direction for the petitioners to pay the Bank's dues by 31.3.2001 or otherwise, the petitioners' properties would be put on auction sale either by taking recourse to attachment or even without attachment. It is nowhere mentioned in this notice that the recovery has been initiated as arrears of land revenue, therefore, we are of the view that the aforesaid citation is not at all attracted towards the facts of this case.
21. Thus, it is established from the discussions made above that the petitioners committed default in payment of the Bank's dues amounting to Rs. 17,88,048/- in accordance with the terms of agreement. As asserted by Mr. Sinha, the two cheques deposited on March 31, 2000--one for an amount of Rs. 40,000/- and the other for Rs. 2,52,000/- were dishonoured and, ultimately, the total of these two sums was also shown as debit in the statement of accounts. On account of default on the part of the petitioners in carrying out their part under agreement regarding repayment of the advances, the Bank was well within its full authority to have declined to increase the cash credit facility from Rs. 12 to 25 lakhs.
22. The long and short of the discussions made above is that this writ petition fails and, as such, it is liable to be dismissed. Accordingly, the petition is dismissed with costs.