The court cannot be used as a tool by a litigant to perpetuate illegality: SC

Goa, Daman and Diu Cooperative Fisheries Federation Ltd. (the Society) was registered under the Maharashtra Co-operative Societies Act, 1960 (the Act) with the main objective of promoting fisheries and improving socio-economic condition of the fishermen by providing necessary financial assistance, in order to enable them to procure mechanized fishing boats/trawlers. During the period from 1974 to 1980, the Society advanced loans to its members to the extent of Rs.316 lacs to purchase engines/hull, winches, nets, etc. by raising loan from the Goa State Co-operative Bank Limited (appellant).

While granting loan to its members, serious irregularities were committed by the Board of Directors of the Society. Therefore, the Registrar of Co-operative Societies filed a misfeasance case.

After enquiry, the Registrar of Co-operative Societies, Goa passed an interim order under Section 102(1)(a) of the Act for winding up of the Society. The Registrar appointed Goa State Co-operative Bank as Liquidator in order to ensure speedy recovery of loans from the members of the Society.

In 2001, one of the defaulting members of the Society filed a writ petition in the High Court of Bombay at Goa, to declare that the winding up proceedings with respect to the Society be deemed to have been terminated with retrospective effect from 1993 and for an order restraining respondents continuing with the winding up/liquidation proceedings in respect of the Society.

The High Court allowed the writ petition in November 2006, which resulted in heavy financial losses to the Bank as the cases pending before the Adjudicating Authority came to standstill. The High Court held that as per Section 109 of the Act, the winding up proceedings have to be closed as soon as practicable within six years from the date the Liquidator takes control of all the property, unless the period is extended by the Registrar under Section 109 of the Act.

On appeal to the Supreme Court of India, the question involved was whether under the provisions of Section 109 of the Maharashtra Co­operative Societies Act, 1960, on expiry of the period fixed for liquidation, the proceedings for recovery of dues instituted/pending as against the members, shall stand closed.

A Bench of Justices Arun Mishra, S. Abdul Nazeer and M.R. Shah observed that on the termination of the liquidation proceedings, liability of the members for the debts taken by them does not come to an end. There is no such provision in the Act providing once winding up period is over, the liability of the members for loans obtained by them which is in their hands, and for which recovery proceedings are pending shall come to an end. No automatic termination of recovery proceedings against the members is contemplated.

The Supreme Court held that from the facts of the case it was evident that the wound up Society had availed of loans from Goa State Co-operative Bank Ltd. as well as from the Agricultural Refinance Development Corporation. However, the Society failed to perform its functions which included non-recovery of loans from the members which resulted in overdues. Further, there were irregularities in sanction of the loans resulting in benami transactions, advancement of loans to non-traditional fishermen, failure to strengthen the affiliated primary fisheries.

The Apex Court cited Amarjeet Singh v. Devi Ratan, (2010) 1 SCC 417, in which it was held that “no person can suffer from the act of court and unfair advantage gained by a party of interim order must be neutralised. The Court should never permit a litigant to perpetuate illegality by abusing the legal process. It is the bounden duty of the court to ensure that dishonesty and any attempt to abuse the legal process must be effectively curbed and the court must ensure that there is no wrongful, unauthorised or unjust gain for anyone by the abuse of process of the court. No one should be allowed to use the judicial process for earning undeserved gains or unjust profits.”

The Court noted that the concept of restitution is a common law principle and it is a remedy against unjust enrichment or unjust benefit. "The court cannot be used as a tool by a litigant to perpetuate illegality."

The decision of the High Court was set aside and it was held that appellant Bank could continue the pending proceedings.

Full View Judgement