Chandrakant U. Mehta,
I am from Mumbai, Maharashtra. I have gone through various co-operative related questions answered by you and come to the conclusion that your answers/advice related to the questions are to the point and very useful to the member of the co-operative society. I appreciate your efforts in this respect.
Further, I have to state that the committee members of my society are utilizing huge society fund in criminal cases initiated against them by the ordinary member/s of the society.
There are 3 criminal cases against 9 committee members, out of which 2 cases are under IPC 500 [defamation] and 1 criminal case is under IPC 409, 419 and 120B [breach of trust and cheating]. The committee members spent approximately Rs.8 lacs from the society fund. I as an active member have taken objection for utilization of society fund in personal criminal cases in violation of Section 71-A of MCS Act, 1960 in the AGM and also before the Dy. Registrar Co-operative Society.
The Deputy Registrar Co-operative Society directed them not to utilize the society fund in personal criminal cases. However, the society argued that they are the office bearer/s of the society and any litigation occurring during discharging their official duty as an office bearer/s, they are entitled to utilize the society fund. Over and above the committee members state that the registrar has only jurisdiction under section 78, 78A or 96 [previous 144T].
If any question arises whether any expenditure can be so incurred or not such question referred to and decided by the Registrar, and his decision shall be final.
The society consists of 112 flats and in the AGM meeting only 30 or 35 members are present including the committee members. The committee members are not following Act, Rules & Bye Laws in the affairs of the society. I am the only member who point out discrepancies committed by the committee members and I have no support of any members. The committee members do not like this approach of mine and they try to harass me in one way or the other.
The litigation’s against the committee members are initiated by me since 2004. The present position of the court cases is that the process in defamation case was challenged by them in various courts of law and finally high court gave them stay in their writ petition in the year 2006. The other defamation case was challenged by them in the session court which is now in a final stage. The breach of trust and cheating case was filed in the year 2009 and the summons was issued on 29.12.2014 against all committee members by Metropolitan Magistrate Court.
The Auditor for the said society was appointed from the year 2001 till date [except 2013] and he is not reflecting true, fair and correct views in his Auditor’s Report. I have objected for not expressing his proper and correct view in his Auditor’s Report and classify the said society by “A” grade award classification.
You are requested to kindly advice on how I can stop them from utilizing society fund in criminal cases.
I C Naik
This is an obvious case of members of the Committee defending their own actions alleged to be viewed as Criminal Offences against a citizen. It is conclusively not a case of society being sued for its wrong doings through the Committee acting on behalf of the Society with due authority to act the way it was acting and with due care which they would have exercised as if it was their own personal matter.
Here the claims are on account of the (defamatory) behavior/decisions of the committee members which ought not have been within the authority of individual members, since society as a body corporate defaming the character of individuals is unheard of. Defamatory suits are always against individual conduct, Whether the suit fails is immaterial. And if the suit fails the member’s remedy is counter suit for wrong implications of members. But the Society cannot provide shield to the Committee members for criminal acts.
Even if the members hold it that the cases are being fought in the interest of the Society (that is all members of the Society collectively) it will need authority of the general body meeting with justification that the moneys are bent spent on attaining objects of the Society as per registered Bye-Laws. The conduct leading to a defamation suit cannot be attributable to any of the objects of the Society and any amount spent on matters other than the objects of the Society as per Bye-Laws are ultra virus the sanctioning powers of the general body meeting also for members cannot deploy society funds in non-business purposes.
One example of Government’s control on deployment of the Society funds in to even the business of the Society (not Non-Business Purpose) will open eyes of those indulging in extravaganza.
Rule 54 of the M.C.S. Rules 1961 prescribing rule for “Utilization and investment of reserve fund” in its Sub-Rule(1)(iv) permits deployment of Reserve fund in any immovable property specified by the Registrar by a general or special order ;
[” Provided that, in the case of a society whose reserve fund is equal to or more than its paid-up share capital, such society may invest that portion of the reserve fund which is in excess of its paid-up share capital, or a portion thereof, in its business decided by general body meeting with prior approval of the Registrar.]”
In housing societies Reserve fund is far in excess of its Capital and “to invest ( Not to Spend) that amount in the business of the Society” approval of the Registrar is required even if the general body meeting were to decide. As per another sub-rule 3 Reserve fund can be deployed only for Buiilding Repair and Maintenance i.e. not for meeting expenses on amenities and services to members leave aside to fight legal cases even that of the Society.
So the Auditor is guilty of an incorrect reporting that the accounts reported true and fair view for no funds of the society can be spent on any matter not related to its objects.
Section 71A is restricted to cases under sections 78,78A or 96 but there is another Section under the Act.
The Complaint should be under Section 73(1AB) and the Registrar has to examine the complaint under Section 73(1AB) and to hold whether these expenses which are losses to the society where not recoverable from the Committee members jointly and severally who were responsible to put the Society to losses on account of their incorrect decision to defend defamation suit on behalf of the Society although they are the plaintiffs.
Section 73(1AB): QUOTE: The members of the committee shall be jointly and severally responsible for all the decisions taken by the committee during its term relating to the business of the society. The members of the committee shall be jointly and severally responsible for all the acts and omissions detrimental to the interest of the society.
Provided that, before fixing any responsibility mentioned above, the Registrar shall inspect the records of the society and decide as to whether the losses incurred by the society are on account of acts or omissions on the part of the members of the committee or on account of any natural calamities, accident or any circumstances beyond the control of such members: UNQUOTE
If the Registrar rules in negative or does not give a ruling within reasonable time file a suit in High Court for writ of mandamus where in court orders the Registrar to take a decision one way of the other.
Even if you lose the case which does not look like, that does not justify the Society bearing such legal expenses as these were not the claims on the Society’s funds but were on member’s private properties.
There is one more remedy to approach the Co-operative Court as provided under bye Law No 175(B) filing a complaint as regards item (a) there of namely “Resolutions of the Managing Committee and General Body” which authorized debits of these amount to the Society Accounts. The Court will examine if the Resolution of annual general meeting adopting the accounts thereby placing a seal of approval on such personal expenses was bad and that such personal expenses debited to expenses of the Society should be debited to personal accounts of the Committee members and recoverable as society dues with 21% interest.
Bye-Law No 137 provides that “The members of the Committee shall be jointly and severally liable for making good any loss, which the society may suffer on account of their negligence or omission to perform any of the duties and functions cast on them under the Act, Rules and the bye-laws of the society.’
It may be an inexpensive course of action to file a complaint to Institute of Chartered Accountants of India to disqualify a C A from practice for failure to report a prima facie erosion to cooperative housing society funds by way of expenses on matters not related to objects of the Society. This will strengthen your view point.
The fact that a majority members support these members should not be a matter of worry as in India majority rules has not proved to be always right.