High Court
Legal Reasoning
969.Cri.WP.157.2024+.odtIN THE HIGH COURT OF JUDICATURE AT BOMBAYBENCH AT AURANGABADCRIMINAL WRIT PETITION NO.157 OF 2024Rajendrakumar Aatmaram Agarwal…PETITIONER VERSUS 1.The State of Maharashtraat the instance of Economic OffencesWing, Office of Superintendent,Ahmednagar, Dist. AhmednagarMaharashtra 2.Nagar Urban Co-operative Bankthrough its Liquidator, appointedby Central Registrar of Co-operative Societies Act having office at Bank Road, Ahmednagar – 4140013.Mr. Rajendra Gandhi …RESPONDENTSWITHCRIMINAL APPLICATION NO.1341 OF 2024INCRIMINAL WRIT PETITION NO.157 OF 2024Achyut S/o. Sadashiv Pingale…APPLICANT VERSUS 1. Rajendrakumar Aatmaram Agarwal2.State of Maharashtrathrough, Deputy Superintendent of Police,Economic Offences Wing, Ahmednagar…RESPONDENTSWITHCRIMINAL APPLICATION NO.1370 OF 2024INCRIMINAL WRIT PETITION NO.157 OF 20241.Krishnanath Vishnu Waykar 2.Sulochana Asaram Bhujbal3.Ashok Maruti Suryawanshi,1/14 969.Cri.WP.157.2024+.odt4. Sidharth Kamlakar Shelke,5. Rajshree Kamlakar Shelke,6.Prafulla Mohniraj Mahajan…APPLICANTS VERSUS 1. Rajendrakumar Atmaram Agrawal2.The State of Maharashtra,at the instance of Economic Offence Wing,Office of the Superintendent, Ahmednagar,Dist. Ahmednagar.3. Nagar Urban Co-operative Bank,through its Liquidator,appointed by Central Registrar ofCo-op. Society having its office atBank Road, Ahmednagar – 414 0014. Rajendra Gandhi,…RESPONDENTSWITHCRIMINAL APPLICATION NO.1418 OF 2024INCRIMINAL WRIT PETITION NO.157 OF 20241.Mangesh S/o. Suryakant Jeware 2.M/s. Satyam Traders though its proprietorMahesh S/o. Suryakant Jeware 3. Bhagwan Madhav Gursali4. Tukaram Ganpat Shinde5. Laxmi Uddhav Kshirsagar6.Satish Bhagwan Gursali 7. Sachin Suryakant Ingale 8.Sanjay Mahadeo Kumbhar9. Vimal Bajirao Kale10. Vishnu Gorakh Jore11.Murlidhar Prabhakar Bhakare 12. Bharti Maruti Golekar 13. Maruti Shankar Golekar 14. Devendra Arvind Vibhute15. Mahendra Arvind Vibhute16. Arvind Krishnanath Vibhute 17.Bhausaheb Popat Pathare18.Prafulla Fulchand Kothari19. Suryakant Fulchand Kothari 20. Rani Rajendra Bhosale 2/14
Legal Reasoning
969.Cri.WP.157.2024+.odt21. Balasaheb Dada Pawar 22. Sumit Satish Raut23.Satish Kerba Raut 24. Suman Vasantrao Tapkir 25. Vimal Ajinath Tapkir26. Ajinath Vasant Tapkir27.Ramesh Bhausaheb Tapkir 28. Arun Raosaheb Tapkir 29.Ramchandra Daulat Tapkir 30.Jaydeep Rama Tapkir 31.Ramdas Maruti Mhaske 32.Bhaimrao Dagdu Kale 33.Rajashri Bhausaheb Pathare34.Shanta Murlidhar Prabhakar Bhakare … APPLICANTSVERSUS1.The State of Maharashtraat the instance of Economic Offences Wing, Office of Superintendent, Ahmednagar, Dist. Ahmednagar.2.Nagar Urban Co-operative Bankthrough it's Liquidator, appointed by Central Registrar of Co-operative Societies Act having office at Bank Road, Ahmednagar-414001.3.Mr. Rajendra Gandhi 4.Rajendrakumar Aatmaram Agarwal…RESPONDENT ...Advocate for petitioner : Mr. Vijay Thorat i/b. Mr. Atul M. KaradAddl.P.P. for respondent No.1/State : Mr. M.M. NerlikarAdvocate for respondent No.2 : Mr. Ajay T. KanawadeAdvocate for respondent No.3 : Mr. P.R. KatneshwarkarAdvocate for Applicant in APPLN/1341/2024 : Mr. P.M. SalunkeAdvocate for Applicant in APPLN/1370/2024 : Mr. Y.V. KakdeAdvocate for Applicant in APPLN/1418/2024 : Mr. N.B. Narwade… CORAM : MANGESH S. PATIL & SHAILESH P. BRAHME, JJ.Reserved on : 04.04.2024Pronounced on : 06.05.20243/14 969.Cri.WP.157.2024+.odtJUDGMENT (PER : MANGESH S. PATIL, J.) :Heard. Rule in all these matters. Rule is made returnableforthwith.2.This is a writ petition filed under Article 226 of theConstitution of India read with Section 482 of the Code of CriminalProcedure seeking quashment of Crime No.121/2022 registered withKotwali Police Station, Ahmednagar and subsequently transferred to theEconomic Offences Wing, Ahmednagar, for the offences punishable underSection 409, 420, 467, 468, 471 read with Section 34 of the Indian PenalCode and also under Section 3 of the Maharashtra Protection of Interestof Depositors (In Financial Establishments) Act, 1999 (herein after theMPID Act).3.The substance of the allegations as can be deduced are to theeffect that respondent No.2 is a Cooperative Bank registered under theMaharashtra Cooperative Societies Act, 1960 (herein after theCooperative Societies Act). The Reserved Bank of India (RBI) issuedlicence to it for banking business by order dated 10.12.1986. Thepetitioner was elected as a Director on the Board of Directors for thetenure from November 2014 to November 2019. The RBI appointed anadministrator to manage the affairs of the bank with effect from01.08.2019. After the tenure of the Administrator was over, thepetitioner was elected as a Chairman of the Board of Directors for thetenure 02.12.2021 to December 2026. He is stated to have resigned on4/14 969.Cri.WP.157.2024+.odt06.07.2022 after noticing the irregularities in the administration of thebank by other directors and the staff. 4.Noticing loss suffered by respondent No.2 – Bank resulting innegative net worth, the RBI by order dated 06.12.2021 put restrictions onthe bank and thereafter by the order dated 04.10.2023 it cancelled thebank’s licence and a liquidator was appointed on 08.11.2023. 5.The respondent No.3 lodged a complaint with the EconomicOffences Wing , Ahmednagar (EOW) alleging fraud having been practisedwhile distributing loans. The Administrator was directed by the EOWand conducted an inquiry. 6.The Administrator on inquiry concluded that irregularitieswere committed in respect of disbursement of loan in eight loan accountsholding one Dilip Gandhi, a borrower and guarantor as well as the valuerresponsible for it.7.Simultaneously, respondent No.3 filed a complaint withKotwali Police Station in the year 2019, however, since nothing wastranspiring, Criminal Writ Petition No.1224/2020 was filed in this Courtand pursuant to the directions of the Court the present crime wasregistered at Kotwali Police Station and subsequently it was transferred tothe EOW.8.It is alleged in the FIR that respondent No.3 is the memberand account holder of respondent No.2 - bank. He was also a directorbetween 2008 and 2014 and having personal knowledge about the5/14 969.Cri.WP.157.2024+.odtstatutory audit that was being conducted every year. He alleges that afterhaving gone through the audit reports for the period between 2015-2016and 2020-2021 he realized that there was rampant mismanagement andeven misappropriation committed in connivance by the directors, officersand the borrowers causing huge loss to the Bank. He has given severaldetails in respect of the specific loans disbursed to various entities andthe manner in which misappropriation was committed.9.The learned advocate Mr. Thorat for the petitioner at theoutset would submit that the petitioner does not have any objection forallowing the applications for intervention. He would also submit thateven he has not been objecting to the prosecution and is not putting upany challenge to the offences being invoked against him under the IndianPenal Code under different sections. He submits that he is merely puttingup a challenge to the petitioner’s prosecution under the provisions of theMPID Act.10.He would submit that the object for which MPID Act wasbrought into the statute book was to monitor functioning of the FinancialEstablishments in the State and to protect the interest of the depositorswho are assured of attractive interest but fail to keep the promiseresulting in public resentment since they are duped by the unscrupulousactivities. 11.He would submit that Section 3 of the MPID Act makes anyfraudulent default in repayment of deposit by a financial establishment a6/14 969.Cri.WP.157.2024+.odtcrime. Section 2(d) defines “Financial Establishment” and though itexpressly excludes a co-operative society owned or controlled by anyState or Central Government, his emphasis is on the fact that even thisdefinition of “Financial Establishment” expressly excludes a “BankingCompany” as defined under Clause (c) of Section 5 of the BankingRegulation Act, 1949 (the BR Act). He would submit that thoughrespondent No.2 - bank is neither owned and controlled by the StateGovernment or the Central Government, it would still be a “bankingcompany” as defined under Section 5(c) of the BR Act by implication. Hewould advert our attention to the provision of Section 5(c) of the BR Actwhich defines a ‘Banking Company’ to mean any company whichtransacts the business of banking in India. He would submit that Section56 of the BR Act expressly lays down the extent to which its provisionswould apply to the Co-operative Societies. He would submit that byvirtue of amendment in Section 56 by the Act 39 of 2020, it has nowbeen converted as a non-obstante clause and expressly states thatnotwithstanding anything contained in any other law, the provisions ofthe BR Act would apply to or in relation to co-operative societies as theyapply to the banking companies subject to certain modifications. Hewould submit that by Sub-Clause (cci) of Clause (c) of Section 56,definition of Co-operative Bank and by a similar Sub-Clause (ccii-a) Co-operative Societies have been defined to be a Co-operative Bank or aCentral Co-operative Bank and a society registered under Co-operative7/14 969.Cri.WP.157.2024+.odtSocieties Act. He would, therefore, submit that since by virtue of suchamendment effected in the year 2021, Section 56 expressly declares thatthe provisions of the BR Act would have primacy over any Act in respectof a co-operative society, the whole purpose of promulgating MPID Act asdeclared in the objective stands subserved. He would submit that thevery object which led the State legislature to bring into the statute bookthe MPID Act stands sub-served by implication since even a Co-operativeBank would have to be compliant with the provisions of the BR Acthaving perineal supervision of the RBI.12.Mr. Thorat would then submit that “Financial Establishment”as defined under Section 2(d) of the MPID Act inter alia excludes the“Banking Company” as defined under Clause (c) of Section 5 of the BRAct. In its wisdom the State legislature had thought it appropriate toexclude the banking companies in all probability for the obvious reasonsthat all these banking companies would be under the supervision of theReserve Bank of India. If by virtue of amendment, for all practicalpurposes a co-operative bank has been taken under the sweep of theCentral legislation like the BR Act, the purpose for which the MPID Actwas enacted would no longer be necessary qua the co-operative banksregistered under the Co-operative Societies Act.13.Mr. Thorat would refer to and rely upon the decision in thematter of Pandurang Ganpati Chaugule Vs. Vishwasrao Patil MurgudSahakari Bank Ltd.; (2020) 9 SCC 215 and particularly the conclusion8/14 969.Cri.WP.157.2024+.odtdrawn therein based on the interpretation of the provisions of the BR Actand the amendment effected therein in Section 56(a) which came intobeing on 01.03.1966. He would precisely advert our attention to theparagraph No.103 of the judgment, wherein, it has been observed that asa consequence of inclusion of Section 56(a) in the BR Act with effectfrom 01.03.1966, the category of banking companies as defined underSection 5(c) of the BR Act would encompass co-operative banksregistered under the State Co-operative Laws and Multi-State Co-operative Banks registered under the Multi-State Co-operative SocietiesAct, 2002.14.Per contra, the learned APP, the learned advocate forrespondent No.2, the learned advocate for respondent No.3 and that ofthe intervenors would submit that the very stand of the petitioner thatany co-operative bank registered under the Co-operative Societies Actwould stand excluded from the ambit of MPID Act that too relying uponthe decision in the matter of Pandurang Ganpati Chaugule (supra) isfallacious. A division bench of this Court in the matter of Shridhar S/oUdhav Kolpe V. State of Maharashtra (Criminal Application No.5130 OF2017 dated 03.09.2018) has held that the provisions of the MPID Actwould apply to the co-operative banks except those have been expresslyexcluded by virtue of they being owned and controlled by the StateGovernment in accordance with definition of “Financial Establishment”contained in Section 2(d) of the MPID Act.9/14 969.Cri.WP.157.2024+.odt15.They would submit that in view of the decision in the matterof New Horizon Sugar Mills Ltd. Vs. Government of Pondicherry; (2012)10 SCC 575, State legislatures have been declared to have the authorityto enact laws concerning the financial establishments to safeguard theinterest of the investors. They would refer to the decisions in thefollowing matters :i. K.K. Baskaran Vs. State; (2011) 3 SCC 793,ii.State Vs. K.S. Palanichamy ; (2017) 16 SCC 384iii.PGF Ltd. Vs. Union of India; (2015) 13 SCC 5016.On facts, they would argue that it is a matter of fraudexceeding Rs.100 crore and the offence being cognizable, the prosecutionshould be extended an opportunity to substantiate the charge.17.It is necessary to reiterate that as has been submitted by thelearned advocate Mr. Thorat, the petitioner has not been seriouslyobjecting to invocation of the provisions under the Indian Penal Code andis merely interested in putting up a challenge to invocation of Section 3of the MPID Act. Consequently, the inquiry before us is limited inascertaining as to if a co-operative bank registered under the MaharashtraCo-operative Societies Act stands excluded from the net of the MPID Act,by virtue of implication, in view of amendment w.e.f. 01.04.2021 toSection 56 of the BR Act making it applicable to the co-operative banksregistered under the Central or State legislation. 18.At the outset, it is necessary to bear in mind that as far aspower of the state legislature in enacting MPID Act is concerned, the10/14 969.Cri.WP.157.2024+.odtissue has been authoritatively put to rest by the observations of theSupreme Court in the matter of New Horizon Sugar Mills Ltd. (supra).19.Obviously, the object of enacting MPID Act is to secure theinterest of the investors in the wake of mushrooming growth of thefinancial establishments. Section 3 of the MPID Act inter alia providesfor punishment for any financial misdeeds as contemplated therein. Ituses the word “Financial Establishments” which has been defined underSection 2(d) of the MPID Act and reads thus : “Section 2 (d) : "Financial Establishment" means any personaccepting deposit under any scheme or arrangement or in anyother manner but does not include a corporation or a co-operative society owned or controlled by any State Governmentor the Central Government or a banking company as definedunder clause (c) of section 5 of the Banking Regulation Act,1949.”20.As can be seen, the State Legislature in its wisdom hasexcluded the Co-operative Societies owned and controlled by the StateGovernment, it also excludes the ‘banking companies’ as defined underSection 5(c) of the BR Act.21.At the first blush, the erudite submission of the learnedadvocate Mr. Thorat relying upon Pandurang Ganpati Chaugule (supra) isindeed attractive. However, it overlooks the fact that Pandurang GanpatiChaugule (supra) is a matter, wherein, the Supreme Court was calledupon to decide as to if the provisions of the Securitisation andReconstruction of Financial Assets and Enforcement of Security InterestAct, 2002 (SARFAESI Act) are applicable to the Co-operative Banks11/14 969.Cri.WP.157.2024+.odtregistered under the State legislation. It is in this context that PandurangGanpati Chaugule (supra) will have to be understood. The issue beforeus was not germane to the decision in the matter of Pandurang GanpatiChaugule (supra). With respect, a co-operative bank by virtue of Section56(a) having been included in the BR Act with effect from 01.03.1966,would be a banking company as defined under Section 5(c) of the BRAct. However, the issue before us presents a peculiar state of affairs,which is in the context of MPID Act which makes certain acts punishableprecisely for the object of securing interest of the investors. Even if a co-operative bank for the purpose of the provisions of SARFAESI Act wouldbe a banking company as has been held in Pandurang Ganpati Chaugule(supra), the definition of “Financial Establishment” contained in Section2(d) of the MPID Act would be decisive.22.The State Legislature in its wisdom, while defining “FinancialEstablishment” has consciously excluded only the Co-operative Societiesowned and controlled by the State Government as a distinct and separatecategory, as distinguished from a “Banking Company” as defined underSection 5(c) of the BR Act. If this be so, harmonious interpretation willhave to be resorted to in gathering the intention of the legislature. Had itreally intended to exclude the provisions of MPID Act qua anyestablishment governed by the BR Act, it could have expressly stated so. 23.Bearing in mind the fact that Section 56(a) was inserted inBR Act on 01.03.1966 one will have to proceed on the premise that the12/14 969.Cri.WP.157.2024+.odtState legislature was aware that even a co-operative bank registeredunder the Co-operative Societies Act would be governed by the BR Act.If, still, it has defined ‘Financial Establishment’ by expressly makingdistinction between a ‘co-operative society’ owned and controlled by theState Government and a ‘Banking Company’ as defined under Section5(c) of the BR Act, in our considered view, ‘Financial Establishment’ asdefined under Section 2(d) would include a co-operative bank, notowned and controlled by the Central Government or the StateGovernment. The issue considered and decided by the Supreme Court inthe matter of Pandurang Ganpati Chaugule (supra) will have to beunderstood in the backdrop of these factors, which in our consideredview are important. 24.Conversely, merely because a co-operative bank to which theprovisions of the BR Act are applicable by virtue of insertion of Section56(a) with effect from 01.03.1966 or by virtue of amendment cominginto effect from 01.04.2021 thereby transforming into a non-obstanteclause, cannot be said to have been excluded by implication from theambit of the MPID Act, in view of the definition of ‘FinancialEstablishment’ contained in Section 2(d) of the MPID Act.25.True it is that any co-operative bank registered under theCentral or State legislature to which provisions of BR Act are applicable,would be under supervision of the RBI. However, one cannot lose site ofthe fact that the BR Act merely seeks to have a control over the13/14
Decision
969.Cri.WP.157.2024+.odtfunctioning of all the banking companies or the co-operative banks,however, it does not contain any specific provision defining any act orprovide for any punishment for the offences which are punishable underSection 409, 420, 467, 468 and 471 read with Section 34 of the IndianPenal Code. Only some acts have been made punishable by making theoffences cognizable as mentioned in Section 47.26.Consequently, it cannot be said that the purpose for whichMPID Act has been brought in the statute book stands served by bringingthe co-operative banks registered under the State legislature within thesweep of the BR Act. Both these enactments operate in different spheres.27.With respect, the line of reasoning we have resorted to getscorroboration from a similar view taken by the Supreme Court in thematter of Soma Suresh Kumar Vs. Govt. of A.P.; (2013) 10 SCC 677.28.In view of the above, the Criminal Writ Petition is dismissed.Pending criminal applications are disposed of. Rule is discharged. [ SHAILESH P. BRAHME ] [ MANGESH S. PATIL ] JUDGE JUDGEhabeeb14/14