Kar HC | Can Court through a judicial order confer on the ‘Administrator’ a power to renew Fixed Deposits of investors? What other powers can be conferred? HC elaborates

Karnataka High Court: A Division Bench of Abhay S. Oka, CJ and M. Nagaprasanna, J. dealt with issue of powers which can be conferred on the Court-appointed Administrator for recovery proceedings.

The instant Writ Petition was filed under Articles 226 and 227 of the Constitution of India praying to issue a writ in the nature of mandamus by constituting a team of Auditors to conduct Forensic Audit of accounts and all transactions of Respondent 7 from the year 2010 till 31-12-2020 at the earliest and to constitute a Special Investigation Team headed by High Ranking Officer to investigate the role of every person involved or connected to Respondent 8 Society both by Respondent 2 and by Respondent 5, 6 and 9 being monitored by this Court and submit report thereby.

The present matter deals with the issue of powers which can be conferred on the Court-appointed Administrator of Sri Guru Sarvabouma Souharda Credit Co-operative Limited (for short “the Credit Co-operative”) The said Credit Co-operative is registered under Section 4 of the Karnataka Souhardha Sahakari Act, 1997 (for short “Act of 1997”). Various allegations have been made about several financial irregularities, acts of misappropriation, acts of embezzlement of funds and creation of fictitious accounts to the extent of 500.00 Crores in relation to the Credit Co-operative. It also deals with the cause of the investors of Sri Guru Raghavendra Sahakara Bank Niyamitha (for short “the said Co-operative Bank”) in which the said Credit Co-operative has invested an amount of about Rs 235.00 Crores which it seeks to recover.

In the order of appointment of an administrator for the said credit cooperative, Court observed

“The State Government has appointed a Competent Authority in accordance with sub-section (1) of Section 5 of the said Act of 2004. However, the powers, duties and functions of the Competent Authority under the said Act of 2004 are well defined. The Competent Authority has not been empowered to look after the day-to-day functioning of the Credit Co-operative.

There is no one who can effectively deal with the investors. Therefore, the question is whether a retired Senior Bank Official can be appointed as an Administrator who will ensure that the day-to-day activities of the Credit Co-operative will continue.”

The order also proposed two names out of which Shri K.S. Shyam Prasad, Retired Deputy General Manager, Canara Bank was appointed as an Administrator and it was observed that what powers can be exercised by the retired Bank Officer who is appointed as the Administrator. The Court observed “To enable the Court to decide the said question, we propose to direct the Administrator to take charge of the Credit Co-operative and to examine the records of the said Credit Co-operative. After examining the records and after making a study of the situation at the grass root level, the Administrator will submit a report to this Court stating what according to him are the immediate steps required to be taken for restoring the functioning of the said Credit Co-operative”

The Court observed that apart from the fact that the Court appointed Administrator, it cannot create new liabilities, the act of renewal of the Fixed Deposits may give a false hope to the investors. Therefore, it was proposed to permit the Administrator to renew the Fixed Deposits of the investors on the requisition in writing submitted by each investor stating that he or she is fully aware that even if the Fixed Deposit is renewed, and that there is no guarantee that the principal amount and interest will be paid by the said Credit Co-operative to him/her. Moreover, the investor will have to give undertaking not to make any personal claim against the Administrator on the basis of the renewed Fixed Deposits.

Other powers granted to the Administrator of Sri Guru Sarvabouma Souharda Credit Co-operative Limited, Mr K.S. Shyam Prasad are:

1. To continue day-to-day functioning of the said Credit Co-operative without creating any liability except the liabilities which are permitted under this order;
2. The administrator shall be empowered to initiate recovery proceedings against the borrowers of the said Credit Co-operative by issuing notices and by filing appropriate proceedings in accordance with law on behalf of the said Credit Co-operative. For that purpose, the Administrator shall be entitled to engage services of Advocates;
3. In the event, any borrower comes forward to repay the loan amount, after obtaining a specific leave of this Court, the Administrator shall be entitled to accept the amount due and payable from the borrower, execute necessary documents and issue provisional discharge certificate. The amount received from the borrowers shall be credited to the account of the said Credit Co-operative in the name of the Competent Authority under the said Act of 2004;
4. We permit the Administrator to accept the upto date amount due and payable from Shri Sreepathi Herele P, to execute necessary registered document of cancellation of mortgage and to issue discharge certificate subject to compliance with the conditions as suggested by the Administrator in his report. The amount received from the said borrower shall be credited to the account of the Competent Authority under the said Act of 2004;
5. On the request in writing made by any member of the Credit Co-operative holding Fixed Deposits for renewal of the Fixed Deposits, the Administrator is permitted to renew the Fixed Deposits provided the person holding the Fixed Deposit, gives a written undertaking stating that he or she is fully aware that even if the Fixed Deposit is renewed, there is no guarantee that the principal amount and interest will be paid by the said Credit Co-operative. The investor shall also give an undertaking that he will be entitled to receive the principal amount of Fixed Deposit and interest only to the extent permitted under the orders of the Special Court under the said Act of 2004. The investor of the Fixed Deposit will also give an undertaking not to make any personal claim against the Administrator on the basis of the renewal of the Fixed Deposit. Only after such undertakings in writing are given by the investor and after making due inquiry about the genuineness of the Fixed Deposit receipt, the Administrator shall renew the Fixed Deposits;
6. The Administrator shall submit a report to the Competent Authority under the said Act of 2004 containing details of the amounts payable as on today towards arrears of the salary of the staff, arrears of rent in respect of office premises, arrears of electricity, water and maintenance charges in respect of the office premises, internet charges, sundry expenditures incurred on running of the office. He will also submit an estimate of the amount required per month for meeting the aforesaid expenditure for running the office of the said Credit Co-operative. The Administrator shall also submit an ad hoc estimate of the amount required towards Advocate’s fees. As soon as the details are received, the Competent Authority shall be immediately make an application to the Special Court for permitting the Competent Authority to release the aforesaid amounts to the Administrator. The Special Court shall pass an order on the applications/report submitted by the Competent Authority within maximum period of one month from the date of filing of the report/application by the Competent Authority;
7. We direct the ED to apply to the Competent Court under the Prevention of Money Laundering Act, 2002, for permitting the said Credit Cooperative toe its office premises for running its office. If such an application is made, the said Court shall decide the same at the earliest;
8. It will be open for the Administrator to make a requisition for conduct of statutory audit or re-audit of the accounts of Credit Co-operative;
9. We direct that the Administrators of both the Co-operative Bank and the said Credit Co-operative shall hold regular meetings to sort out various issues arising between two entities;
10. In the event the Administrator of the Credit Co-operative needs further directions, he will submit a report to the Court through the learned Additional Government Advocate, who will immediately move the Court on the basis of the said report for necessary directions.

The matter will be next heard on 18-08-2021.[K.R. Narsimha Murty v. Secretary Ministry of Co-operative Societies, Writ Petition No. 7350 OF 2020 (GM-RES-PIL), decided on 23-07-2021]

Arunima Bose, Editorial Assistant has reported this brief.

Appearances

IN W.P. NO. 7350 OF 2020

Mr. Sushal Tiwari, Advocate for applicant on I.A.No.12/2020;

Mr. V. Sreenidhi, AGA for R-1 & R-3 to R-6;

Mr. Manmohan P.N. for R-12;

Mr. R.V.S. Naik and Mr. V. Vinay Giri Advocate for R-2 and R-10;

Mr.  Rajesh S.V., Advocate for intervenors;

Mr. A.M. Vijay, Advocate for intervenors;

Mr. Madhukar Deshpande, Advocate for R-11;

Mr. Abhinav R, Advocate for impleading applicant on I.A.No.7/2020;

Mr. S.P.Shankar and Mr. B.V. Malla Reddy, Advocate for impleading applicant on I.A.No.11/2020; R-7 and R-8 are served;

Mr. Halesha R.G., Advocate for impleading applicant on  I.A.No.13/2020;

Mr. Shyam Prasad, Administrator 

IN W.P. NO. 8674 OF 2020

Mr. Satyanand B.S. for petitioners

Mr. V. Sreenidhi, for R-1, R-2, R-4 to R-6 & R-10;

Mr. R.V.S. Naik, Mr. V. Vinay Giri, Advocate for R-3;

Mrs. Vani H, Advocate for R-7