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Judgment
V.K. Jain, J
The complainant/respondent no.1 instituted several complaints before the concerned District Forum impleading the petitioner and respondents no.2 & 3 as the OPs in the complaint. Cause title of the Consumer Complaints instituted by respondent no.1/complainant reads as under:
Shri Balesh Shivappa Sasalatti
Age: 62 years, Occ: Retd/
R/o House No.1737, Sector No.8,
Anjenaya Nagar, Belagavi. ...COMPLAINANT.
AND:
Shri K.B. Magadum,
Age: 58 Years, Occ: Agriculture
And the Chairman
Belgaum Liberal Credit Souhard Co-operative Society
Limited, Kapeleshwar Road Belagavi.
Shri Ramesh Magadum
Age: 52 Years, Occ: Secretary,
Belgaum Liberal Credit Souhard Co-operative Society
Limited, Kapeleshwar Road Belagavi.
Shri Raju Hosmani
Age: 30 years, Occ: General Manager,
Belgaum Liberal Credit Souhard Co-operative
Society Limited,
Kapeleshwar Road Belagavi. ....OPPONENTS.
Petitioner no.2 & 3 did not reply to the Consumer Complaint and did not appear before the District Form. The case of the petitioner is that he was not served with the notice of the Consumer Complaint and that is why he had not put an appearance before the District Forum. Vide order dated 18.08.2016, the District Forum directed as under:
" XXXX The complaints are partly allowed.
The O.Ps. represented by the Chairman, Secretary and General Manager are hereby directed and liable to pay to the complainant/s as ordered below;
Sl. No.
Complaint No.
F.D.R./ A/c. No.
Date of deposit
Amount deposited
Date of maturity
matured Amount
1
2
3
4
5
6
7
1
120/2016
04042
30/3/2013
3 lakhs
30/3/2014
3.42 lakhs
2
121/2016
02083
1/8/2011
5 lakhs
31/12/2013
5.70 lakhs
3
122/2016
04044
8/5/2013
1 lakh
8/5/2014
1.14 lakhs
4
124/2016
02727
6/6/2012
1.40 lakhs
31/12/2013
1,59,600
5
125/2016
01575
6/6/2012
2 lakhs
31/12/2013
2.28 lakhs
6
126/2016
01415
17/9/2012
35,000
31/12/2013
39,900
7
127/2016
01137
9/6/2012
2 lakhs
31/12/2013
2.28 lakhs
The matured F.D.R/s. amount as mentioned in column No.7 carries future interest at the rate of 8% P.A. from the dates mentioned in column No.6 respectively till realization of the entire F.D.Rs. amount.
Further, in Compt.No.123/2016, the O.Ps. represented by the Chairman, Secretary and General Manager jointly and severally are hereby directed and liable to pay the deposited amount of Rs.3 lakhs in respect of FDR No.000186 and A/c No.555, with rate of interest @14% P.A. from 11/10/2012 upto 11/10/2013 with future interest 8% P.A. from 12/10/2013 till realization of the entire FDR amount.
Further, the O.Ps. represented by the Chairman, Secretary and General Manager jointly and severally are hereby directed and liable to pay Rs.3,000/-, to the complainant towards costs of the proceedings in each complaint.
The order shall be complied within 30 days from the date of the order.
If the order is not complied within stipulated period, O.Ps. are hereby directed to pay a sum of Rs.50/- per day to the complainant from the date of disobedience of order, till the order is complied.
The original order shall be kept in complaint No.120/2016 and the true copy in other clubbed cases.
(Order dictated, corrected and then pronounced in the open Forum on: 18th day of August 2016)"
Being aggrieved from the order passed by the District Forum, the petitioner approached the concerned State Commission by way of an appeal. The said appeal having been dismissed by the State Commission vide impugned order dated 20.09.2018, the petitioner is before this Commission.
It is an admitted position that the deposits were made by the complainant with the society which was duly registered under Karnataka Souhard Sahakari Act. The society being a legal entity in itself, the complaint ought to have been instituted against the society though it could have been served through its Chairman/Secretary etc.
The question as to whether a Consumer Complaint can be maintained against the office bearers of society came up for consideration before a Three-Members Bench of this Commission in Amarjit Singh Vs. Gagandeep Singh & Ors. Revision Petition No. 2512 of 2011 decided on 19.12.2016 and the following view was taken:
On bare reading of the above, it is clear that a cooperative society on registration is a rendered body corporate, meaning thereby that it acquires an identity distinct from its member shareholders or the office bearers. Therefore, in our considered view, if a consumer has availed of services of the cooperative credit society for consideration, the cooperative credit society alone would be service provider qua that consumer and the office bearers of the said society who by virtue of being elected to the said position to manage the affairs of the society would have no privity of contract with the consumer and could not be termed as service provider. In our aforesaid view, we find support from the judgment of Bombay High Court in the matter of Sou. Varsha Ravindra Isai Vs. Sou. Rajashri Rajkumar Chaudhari & Ors. reported in AIR 2011 Bombay 6 wherein Hon'ble High court after discussing the provision of Maharashtra Cooperative Societies Act, particularly Section 36 has observed thus:
"As stated above, in view of the provisions of Section 36 of the Maharashtra Co-operative Societies Act, the society can be proceeded against and can be sued or the society may defend any action in Civil Court or forum. However, so far as members of the ::: Downloaded on - 09/06/2013 16:43:13 ::: managing committee are concerned, they stand on totally different footing and they cannot be held responsible to contribute to the damages or make payment in respect of dues recoverable from the society unless the methodology prescribed under the Act for holding them responsible for making such payment is adopted. In my view, the Consumer Protection Act, 1986, does not prescribe modalities for holding inquiry against the Directors in respect of acts or omissions committed by them. Unless the members of the managing committee are held responsible for any act detrimental to the interest of the society or any inaction on their part, which caused wrongful loss to the society, they cannot be held responsible to contribute the loss or in respect of liability, which is required to be borne by the society. The forum created under the Consumer Protection Act, 1986 does not provide for an audit, inquiry or inspection, as laid down under Sections 81, 83 and 84 of the Maharashtra Cooperative Societies Act, 1960, nor provides for any methodology for assessing the damages against the members of the managing committee, as contemplated by Section 88 of the Act. The members of the managing committee or the directors cannot be held responsible in their individual capacity. The complaint can be instituted against the society before the Consumer Forum by a depositor or a member of the society and a relief can also be granted as against the society. However, so far as members of the managing committee/ directors are concerned, they stand on a different footing and unless the procedure ::: Downloaded on - 09/06/2013 16:43:13 ::: prescribed under the special enactment i.e. Maharashtra Co- operative Societies Act,1960 is followed and unless the liability is fixed against them, they cannot be held responsible in respect of payment of any dues recoverable from the society."
In view of the discussion above, we are of the view that ordinarily Ex-Secretary or the Ex-President or office bearers of any Cooperative Credit Society will not fall within the category of service providers in respect of any contract between the consumer and the cooperative society as they have the identity distinct from the duly registered cooperative credit society. However, there can be cases in which certain individuals may indulge in unfair trade practice or defrauding of the gullible depositors under the cloak of cooperative society. The question is, what would be the liability of the Ex-Secretary or the Ex-President or office bearers of such society in such a case. This issue was dealt by the Hon'ble Supreme court in the matter of Delhi Development Authority Vs. Skipper Construction ( P) Ltd. & Another (supra), wherein Hon'ble Supreme Court has observed thus:
"Lifting the corporate veil:
In Aron Salomon v. Salomon & Company Limited (1897 Appeal Cases 22), the House of Lords had observed,
"the company is at law a different person altogether from the subscriber...; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, on any shape or form, except to the extent and in the manner provided by that Act". Since then, however, the Courts have come to recognize several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". [Gower: Modern Company Law - 4th Edn. (1979) at P.137]. Pennington [Company Law - 5th Edn. 1985 at P.53] also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil. A Professor of Law, S.Ottolenghi in his article "From Peeping Behind the Corporate Veil, to Ignoring it Completely" says
"the concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn,J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions". [(1990) 53 Modern Law Review 338].
Indeed, as far back 1912, another American Professor L.Maurice Wormser examined the American decisions on the subject in a brilliantly written article "Piercing the veil of corporate entity" [published in (1912) XII Columbia Law Review 496] and summarized their central holding in the following words:
"The various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have vow been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalization which the present state of the authorities would warrant is this:
When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons."
In Palmer's Company law, this topic discussed in Part- II of Vol-I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs: "The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose....Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company".
Similar views have been expressed by all the commentators on the Company Law which we do not think it necessary to refer.
The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar [1964 (6) S.C.R. 885 ]. The following passage form the decision is apposite:
"Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be 'persons who actually work for the corporation ."
In DHN Food Distributors Ltd. & Ors. v. London Borough of Tower Hamlets [ 1976 (3) All.E.R. 462 ], the Court of Appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that
"there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group".
The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "three-in-one" - and, alternatively, as "one-in-three".
The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a Ploy adopted for committing illegalities and/or to defraud people.
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.
In view of the discussion above, we answer the reference as follows:
a. Ordinarily Ex-Secretary or the Ex-President or other office bearers of any Cooperative Credit Society shall not fall within the category of service providers in respect of any dealing of the depositors with such society.
b. However, if it is established that the Ex-Secretary or the Ex-President or office bearers of any Cooperative Credit Society has indulged in misfeasance / fraudulent activity with view to defraud depositors under the cloak of the cooperative credit society, such person shall fall within the category of service providers and shall be liable to compensate the consumers for deficiency in service.
In the present cases, there is no personal allegation of fraud against the petitioner. This is also not the case of the complainant in the Consumer Complaint that the deposit was given directly to the petitioner. Therefore, the complaint against the petitioner was not maintainable though it could have been instituted against the Co-operative Society with which the deposits were allegedly made. The impugned order therefore, cannot be sustained and are set aside. The complaint is consequently, dismissed with liberty to the complainant to file a fresh complaint against the concerned Co-operative Society.