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CHAPTER IV
EXISTING LOAN RECOVERY PROCEDURES
Introduction
Loans and advances become the backbone of any banking business.
The deposits that the Banks accept, induct certain expenses, as interest will
have to be paid to the depositors periodically. The Banks are able to provide
for such expenses through processing fees, documentation fees and interest
charged on the loans and advances.
It is imperative that the Banks maintain prudent approach while
sanctioning loans and advances. RBI’s regulations and banking practices
directly have a control on the sanctioning and disbursement of loans and
advances. In spite of these, non-payment of loan instalments accumulating
into over dues and bad debts adversely affecting the Bank’s income is a
potential risk that needs to be addressed.
In the considered opinion of the Bankers subsequent to years of close
observation, there are two reasons behind the recurring problems of default in
the repayment of loans and advances, major among them being ‘Lack of
willingness to pay’ and ‘Lack of ability to pay’. The first one builds up a long
list of wilful defaulters, whereas, lack of ability to pay emerges from a variety
of causes.
Studies over the years attribute the incurring inability to pay to the
following factors:
1. Loss of job of the borrower
2. Unexpected expenditure due to medical emergencies, committed
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education expenses, and unavoidable social obligations
3. Loss of regular income due to accidents
4. Natural calamities
Major causes for wilful defaulters are as follows:
1. Habitual defaulting
2. Adopting lengthy legal tactics to delay and if possible avoid
repayments
3. Taking advantage of inadvertent lapses in the Bank’s documentation
4. Employing political and other pressures on the Director Board
executives and officers of the bank
Whatever be the cause, the Banks must realise and initiate appropriate
legal proceedings against all defaulters who show ‘Lack of willingness to
pay’ or suffer from ‘Lack of ability to pay’.
The Primary Urban Co-operative Banks (PUCBs) have a set procedure to
recover loan over dues, which can be briefly listed as follows:
1. Intimate the defaulter through oral reminders.
2. Follow them up with a written reminder.
3. Send a legal notice asking for all pending dues to be cleared within a
specific period or else face legal proceedings.
4. Ask the Board of Directors for a resolution empowering the Bank
officials to file a recovery suit against the defaulter.
5. File recovery proceedings to initiate the recovery process.
6. Serve notice of prosecution and summons to the Loanee and the
Sureties. The Sureties also known as Guarantors are treated as joint
Loanees in the matter of loan recovery, because according to the
relevant law, they remain Guarantors as long as the loanee is regular in
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repaying his loan instalments, but the moment he becomes a defaulter
and is served with a demand notice, his Guarantors assume the status
of a joint borrower.
7. Convince the competent authorities with supporting documentation, to
issue an award to recover the loans from the defaulters.
8. After receiving the competent authority’s award, the degree for
execution of the award or order is decided. The outstanding payments
can be recovered by attaching the movable and immovable properties
of the Borrower and Guarantors with the right to sell the properties thus
attached.
In this process of recovery, the PUCBs can seek the help of the Co-
operative Department which is a government body. The Special Recovery
Officers thus appointed by the Bank enjoy the rights of the Civil Court. They
also have the seal of Government of the State which gives them the powers to
recover the loan amount without much legal complications.
The Law of Limitation
The law of limitation is generally applied in the recovery of loans,
advances and over dues. As per this law, a debt is considered irrecoverable
for three years period from the date of the last transaction in the loan account.
This makes it imperative for the nationalised, third generation, and foreign
Banks to file the loan recovery suit prior to the expiry of the three year period.
The PUCBs however do not come within the purview of the law of limitation,
because as per the Co-operative Societies Act 1960 of Maharashtra, Co-
operative banks can lend only to its members. Since the law of limitation does
not cover such lendings, it is in one way advantageous to the PUCBs.
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Recovery as a matter of due from land revenue
In the state of Maharashtra, loan recovery is given the same status as
that of land revenue dues. Accordingly, the District Collector is authorised to
recover the loan overdue in the same way he exercises his powers to recover
the land revenue dues. This accords the PUCBs better control over its
borrowers and their guarantors, with regard to realising the loans and
advances with interest.
Legislative Provisions in Recovery of Loans and Advances (Debts)
Government offers various types of legislative assistance to recover
overdue payments from the borrowers. The Maharashtra Co-operative Act
1960 and Section 49 among the various legislative provisions have
specifically included salary deduction as an effective recovery tool, which can
be outlined as under:
1. The agreement executed by a member in the societies favour
authorises his employer to deduct from his salary / wages, the total
amount to be paid to the bank in instalments as specified in the
agreement and to pay to the society such amounts deducted towards
any debt owed by the member to the society. The society shall
forward to the employer, an attested copy of the agreement..
2. The employer on receipt of this agreement, and a requisition in
writing from the society shall make the deduction as specified as if it
were a part of the wages under the 1936 Payment of Wages Act, and
disburse the amount thus deducted to the bank.
3. If, after getting the requisition from the Society, the employer fails to
act either in deducting the specified amount from the salary / wages
of the concerned member, or fail to remit the deducted amount , the
employer will be forced to remit the amount with interest charged that
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too with one and half times the rate generally charged by the society.
The Registrar’s certificate to this effect shall deem such amount
together with interest recoverable as arrears of land revenue and will
rank the same in priority as wages in arrears in respect of the
employer’s liabilities.
4. This provisions section shall not be implemented to the personnel
employed in the Indian Railways and in mines and oil fields.
Object of Section 49
This section lays down a methodology to recover the loan any Society
advances to its who are employees / wage earners. As per normal law, an
employer does not have the authority to make any deduction from the salary
or wages towards repayment of loans the employee has taken from a third
party. Section 7(1) of the Payment of Wages Act is clear in this aspect where it
ensures disbursal of the salary / wages of an employee without any deduction
other than those authorised by the Act. Subsection 2(j) however gives
statutory recognition to an agreement entered into between the society and
the borrower employed elsewhere, which authorises the employer to deduct
the declared amount from the salary / wages. This provision was incorporated
with a view to legalise an agreement between the Society and its member/s,
whereby the latter authorise/s his employer to deduct the instalment due on
the loan from his salary / wage and to remit the same to the society, ensuring
easing of its implementation especially in the case of salaried members. (Vide
Statement of Objects and Reasons: B.G.G.Pt.IV p.61 dt. 11.6.42).
The member, borrowing from such a salary earners’ Society, against
the security of his salary on the proof of his solvency and permanent
employment, is entitled to borrow from the society. The Society, in such cases
shall confirm the borrower’s repayment capacity in respect of the instalments
agreed.
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Scope of the section
The Section provides for deductions to be made by the bank just like it
is a part of salary wages payable under Payment of Wages act, 1936-Vide
Statement of Objects and Reasons:M.G.G.Pt.V.p.271 dt. 3.11.1960. The
employer is authorised to make deductions from the salaries of his employees
who as members of the Cooperative Society has taken a loan. Any such
deductions shall be according to the provisions of the Payment of Wages Act
1936, and shall be remitted to the concerned Society as agreed.
Marginal note to Section 49 shows the drift with respect to salary
deductions to fulfil the Society’s claim in particular cases. The drift evident in
the words “certain cases” refers to the cases of employers in whose
undertaking the borrowing members are employed who joined together to
form a society known as the ‘Salary Earners’ Society’. The lending policy of
any credit society considers the repaying capacity of the borrowing member
based on his actual earnings per month. The grant of loans is considered after
the borrowing member submits a salary certificate from his employer with
regard to the salary / wages he earns.
In respect of societies other than the ‘Salary Earners’ Societies’, the
securities prescribed for loans may be different. But in the case the ‘Salary
Earners’ Society’, there is no protection for the recovery of loans / debts from
its members. Since the members are not required to furnish any security by
way of property etc., the problem the Societies face is how to recover the
payments due in case of a default. To overcome this difficulty, the legislature
has provided legal protection by taking agreements from the employees in
favour of the society, authorising such society to claim recoveries from their
salaries. It also provides that the employer is bound to honour this agreement
as and when requisitioned by the Society. The statement of objection and
reasons published in the Bombay Government Gazette, Part 4-B 1961 dated
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11.2.42 and Maharashtra Government Gazette Part-V, page 271 dated
30.11.1960 make this very clear.
The burden of making payment after the Requisition by the Primary
Urban Co-operative Bank is shifted to the Employer
Sub sections(2) and (3) make the liability for payment to the Society
specific, and the penalty for failure to honour it a deterrent by ensuring that
the employer shall be liable for deducting and remitting the amount specified
in the Society’s requisition order. The recovery of loan can be done just as the
arrears of Land Revenue, and shall have the same priority as wages in
arrears.
Considering the time that an employer may need to adjust the wage
accounts of each member, the Societies are required to forward their
deduction sheets at least 10 days before the date of disbursement of salary /
wages. The amount due under the requisition as also the amount deducted
but not paid will be considered as priority in respect of such liabilities.
Therefore, the amount deducted, but not paid shall rank on par with wages
unpaid in the case of liquidation proceedings affecting the employers.
Failure to comply with sec. 49(2) is an offence
The employer or his agent, the director, manager, secretary, or other
office bearers who fails to comply with Subsection (2) will be liable for
punishment for an offence under Sec. 146(b).
If a Company is the employer and fails to deduct the salary of the
employee as required by this section, not only the Company but even the
Directors thereof are liable to be prosecuted.
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Persons employed in railways, mines and oil-fields
Section 49 does not apply to employees in the Mines, Oil Fields and
Railways (within the meaning of the Constitution), who are under the direct
control of Central Government, and due to this the State Government is
incompetent to legislate about them.
The expression ‘within the meaning of the constitution’ has reference to
Article 366 (20) of the Constitution which provides or defines that Railway
does not include (a) tramways within the area of a Municipality (b) any other
communication line entirely situated in one State and announced by
Parliament by law which should not be the railway.
Section 91 (A) of 1960, Co-operative Societies Act 1960, Maharashtra
The legislative provisions of this Section of the Maharashtra Societies
Act can be outlined as follows :
1. As per the official Gazette notification of the State Government ,
there should be one or more Co-operative Courts for settling the
disputes under Section 91, and 105 or the other provisions of
this Act.
2. This Co-operative Court should have one member who is
appointed by the State Government, and this member should
possess the prescribed qualifications.
3. The jurisdiction of the Co-operative court shall be over the whole
State or part thereof as mentioned in the notification under sub-
section (1).
4. All the pending disputes and other proceedings existing before the
implementation of the Co-operative Societies, Maharashtra, (3rd
Amendment) Act 1973 shall by general or special order, be
transferred by the Registrar or any individual delegated and
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enjoying a Registrar’s power or any nominated person appointed
by the Registrar to any specified Co-operative Court decided by
him and that Court shall proceed to hear and solve such disputes
from the stage reached before such transfer or may commence
the hearing de novo as if they are originally filed before the court.
History
There have been periodical changes in the constitutions of the judicial
machinery. The Co-operative movement has been officially functioning in the
State of Maharashtra for the last 100 years or so. The disputes concerning the
affairs of the co-operative societies were settled by some authority whom the
powers were vested as per the Co-operative Societies Act. In the initial
stages, the taluka honorary organisers or local advocates having Co-operative
bias and legal knowledge were appointed as the Registrar’s nominees for
settling such disputes. Subsequently, a Board of nominees was appointed to
give decisions in such matters. The system continued to work till 1966-67.
Thereafter, the registrar’s nominees and Board of nominees were substituted
by Officers on Special Duty. This continued until 1974. It was after that the
system of deciding the disputes by the regular Co-operative Courts was
introduced. 91-A section of 1960 Maharashtra Co-operative Societies Act was
inserted by the Maharashtra Act 3 of 1974. Co-operative Courts were
established with territorial jurisdictions considering the number of cases
pending in a particular area, the flow of fresh cases there, and the average
work that could be turned out by the court in a year.
Even after establishing the Co-operative Courts, disputes were
required to be referred to the Registrar, primarily to decide whether any
dispute existed within the meaning of the section.
This was considered necessary until 1982, and then came the
amendment contained in section 3-A of the Maharashtra Act 18 of 1982, which
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facilitated the cases of the disputes to be directly filed before the Co-operative
Court.
Object
The purpose in creating a separate judicial machinery for disputes of
Co-operative societies was to render justice to the aggrieved parties
expeditiously, independently, and in a comparatively less expensive manner.
The specialised Courts established under the Co-operative Societies Act were
expected to decide along with other matters whether there existed a proper
dispute between the parties with regard to the societies working.
Members Qualifications of the Co-operative Courts
The Maharashtra Co-operative Societies Rules, 1961 containing
Chapter VIII have provisions relating to the disputes and arbitration. Rule No.
77-A in the chapter deals with the qualifications and appointment of the judges
of the Co-operative Court. Any person eligible for such appointment must be
holding a judicial position not lower than the rank of a Junior Division Civil
Judge. The Government of any state may also consider a person who fulfils
the following conditions for appointment as a judge of the Co-operative Court:
1. One who has practised as an Advocate, Pleader or Vakil for not
less than three years
2. One who is enrolled as an Advocate or who holds a degree of
law from an established University which entitles him to practise as an
advocate
3. One who has held office not lower than that of a Deputy
Registrar of Co-operative Societies for at least have three years of
experience or a person having good knowledge and experience of Co-
operative law and practice.
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Rule 77-B prescribes the age limit up to 62 years, while Rule 77-C
prescribes the conditions of service and Rule 77-D deals with holidays and
vacations. But the Government of Maharashtra in supersession of all
these existing rules, has come out with a new instrument called The
Maharashtra Judicial Officers of the Co-operative Courts and Co-operative
Appellate Courts (Recruitment) Rules 1998 (M.C.T.1090 (8716/CC-154/5-
C dated 31st August, 1998. These Rules appear in Appendix E to Vol. 2 of
this publication. The President and members of the appellate Court shall
be appointed by the Government after consulting with the High Court by
promotion, nomination or transfer, while the appointment of Judges of the
Co-operative Court are to be made by the Governor in consultations with
the Public Service Commission. The relevant age is fixed at 60 subject to
assessment and evaluation of utility at the age of 58.
Jurisdiction of the Co-operative Courts
The Government notification issued pertaining to the constitution of Co-
operative Courts defines both the extent and limit of their jurisdiction. Where
the Bank’s Registered office was situated at Nasik, the Co-operative Court
having jurisdiction over Nasik District was considered competent to try the
dispute of a Society situated at Yeola. As such the Co-operative Court, Nasik
had a jurisdiction since the Bank’s registered Office was at Nasik.
Where the society had branches at different places, and the disputes
related to any of those branches, it was considered to be the dispute of the
society. The Co-operative Court having jurisdiction in the area where the
Society was situated was therefore considered to have the jurisdiction to
decide the case.
The agreement for the commission agency contained a specific
provision that if a dispute arose between the parties in respect of that
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commission business, it should only be tried in Bombay. Since such a
provision in the agreement referred to the Court at Bombay only, it was
considered that the Co-operative Court at Nasik had no jurisdiction to hear
and decide even though the Society’s Registered office was at Nasik.
Where a Co-operative Society is registered in this State but has
branches in another State, the branch of the Society in the other State will be
deemed to be the registered office in the other State under the law of that
particular State. Therefore in case of a dispute between the Society and its
member residing in other State arises in respect of a transaction occurring in
the other State, the same will be decided by the authority under the law of that
State and not by the Registrar or Co-op Court in this State.
Where the by-laws of the federation provide that the dispute by its sub
agents would be triable by the Co-operative Courts at Bombay (Mumbai), the
Co-operative Courts at other places would have no jurisdiction over such
disputes.
Territorial Jurisdiction entails that a claim can be filed at a place where
even a part of the cause of action arises (sec.20, C.P. Code), Accordingly
under Sec. 54, if the Society with which the Appellant had a dealing was
located in Baroda and his loan was sanctioned there, the fact that the property
mortgaged was situated outside, will not oust the jurisdiction of the Assistant
Registrar, Baroda.
Further, the power of reference is held to lie with the Registrar-nay-
even the appointment of a nominee for a particular area. Accordingly,
reference made to a nominee from another area after exhausting the
nominees from the area from which the dispute arose will not be invalid or
illegal, and consequently the award passed will not be without jurisdiction.
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Section 94 of the Maharashtra Co-operative Societies Act 1960
The dispute settlement procedures and the Co-operative Court’s Power
1. Under the last preceding section, The dispute hearing Co-operative
Court shall have the power to call witnesses and to insist them to
give evidence on oath, affirmation or affidavit, and as and when
demanded they should produce all relevant documents, as in the
case of a Civil Court by 1908 Code of Civil Procedure.
The Co-operative Court shall hear, decide and endeavour to
conclude expeditiously the hearing and decision of every dispute in
relation to any election within six months from the date of filing of
such dispute before it.
2. No party shall be represented at the hearing by a Legal practitioner
without the permission of the Co-operative Court
3. (a) If a person has acquired an interest of another person’s property
who is a party to a dispute, the Co-operative Court may order that
the person who has acquired the interest may join as party to the
dispute, and any decision taken by the Co operative Court shall be
applicable on the joined party in the same way as the original party
to the dispute.
(b) If a dispute is emerged in the wrong person’s name, or if some
of the defenders are excluded, the Co-operative Court if satisfied
that the mistake was bona fide, any other person to be added or
substituted as a defendant by an order as it thinks just.
(c) At any stage of the proceedings with or without the application,
The Co-operative Court may order to struck out the name of any
party improperly joined, and order the presence of any person
before the court if necessary in order to enable the Co-operative
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Court effectively settle the questions involved in the dispute.
At any point of time if the Co-operative Court decides a dispute ex-
parte against any person, within thirty days from the date of decision
he should apply to the court, to set it aside. If a person enable to
satisfies the Court about the actual reason for his failure to appear
the court when the dispute was called and heard, the court can set
aside the decision against him and fix an another date for the
hearing and decision.
4. Every dispute shall be decided in such summary manner as may be
prescribed and as expeditiously as possible.
Civil Procedure Code does not apply
In matters pertaining to the proceedings under Sec. 91, neither the
provisions of the Civil Procedure Code nor some of the provisions of the
Limitation Act are applicable, except to the extent provided therein or
elsewhere under Sec. 92 of the Maharashtra Co-operative Societies Act. For
specific types of claims in Sec. 91 there are specific limitations with their
periods differing from the usual limitation periods.
Though the Civil Procedure Code does not apply, general principles
regarding evidence, burden of proof etc. are required to be observed by the
Court in proceedings before it in order to avoid confusion. No fundamental
principle governing the proof of a claim is to be disregarded. The basic
principle that a party making a claim which is not admitted by the person
against whom it is made is required to prove it according to the recognised
mode of proof viz., by producing admissible evidence. The Co-operative Court
could not claim any justification in arriving at a conclusion disregarding this
fundamental principle.
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Even though S. 11 of C.P.C may not be implemented to the
proceedings in Co-operative Courts, the principle of res-judicata will still apply.
Although technically, the Civil procedures code does not apply to the Co-
operative Courts, almost all the relevant procedural provisions are
incorporated in the Act, instead of straight away applying the C.P.C, with a
view to show that Co-operative Courts are Special Courts and not ordinary
Civil Courts.
Speedy Disposal of Matters under Sec. 94
Sub-sec 1A has been added to the sanction by the amending Act 20 of
1986. This has been done notwithstanding the experiences from similar
provisions in some Acts. For Example, the Hindu Marriage Act, 1955 was
amended in 1976 by adding Sec. 20A, which has continued to remain a dead
letter. Hence the addition of Sub-section (1) too will meet the same fate, as it
only expresses the Legislature’s hope that matters before the Co-operative
Courts should be disposed off within six months. Such provisions become a
subject of derision, since the inherent provision in any judicial ‘trials’,
necessitates speedy disposal of all matters. Any specific provision to this
effect tends to give only a mental satisfaction.
Legal Practitioner barred under Section 94
Sub-sec. (2) provides that, no party will be represented except with the
permission of the Co-operative Court, by legal practitioners in any dispute
before the Court. This provision was somewhat discernible when the disputes
were decided or settled in the nature of arbitration proceedings by the
Registrar or his nominee who themselves were not necessarily lawyers. But
this provision is untenable now when the adjudicating authority is a Court
presided over by legally qualified persons. By this provision, the Court has
thrown the burden of deciding whether a lawyer should be allowed or not on
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the Legislature. And unless exceptional, the Court generally does not prevent
a lawyer from appearing. In practice also this provision is rendered ludicrous
as advocates as a matter of practice if not as a matter of rule, are allowed to
appear without the need to seek the formal permission of the Court in each
case. In actual practice with the growth of the Societies and frequent
emergence of complex issues, legal aid is considered desirable.
Co-operative Courts are held high by the High Court as Courts and not
merely tribunals (see Note 6 under Sec. 91A supra). If that is so, Sec. 1961
Advocates Act, section 30 provides , all Advocate are permitted to practise in
the territories where their name is entered and this Act allows a) in all courts,
b) any person or tribunal legally authorised to take evidence c) before any
person or authority before whom any law for the time being in force entitled to
practise. The Co-operative Court being a Court in any event is allowed to take
evidence legally. Therefore the provision of Sub-sec. 2 is inconsistent with the
provision of Sec. 30 of the Advocates Act though it may not be bad in law.
Cooperative Courts and Disputes
The Cooperative Courts have no specific provisions or restrictions in its
powers to decide disputes. In this aspect such powers are more or less the
same as those of any Civil Court. Being a Court of justice, the Cooperative
Court too will decide the dispute as per written laws, and where such laws are
not available the Court will follow the principles of equity and good
conscience, the ultimate object being to do justice to the parties. The Co-
operative Court is therefore expected to adopt the same methodology as that
of any ordinary Civil Courts by taking proper documentary and oral evidence,
allowing the parties to examine and cross-examine witness, hearing the
parties fully discussing the law applicable and following it and thereafter arrive
at a decision by giving relief to the party deserving the same.
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Power to grant instalments for the defaulted borrowers under Sec. 94
In granting instalments one of the main considerations is the means of
the debtor, though in allowing the instalments, there should be better care that
the debt is not perpetuated by spreading over the instalments for an indefinite
period. But it is equally true that honest debtors who make every effort to
repay their dues should be allowed the facility.
Questions about awarding instalments is depending upon the
circumstances and facts of each case and therefore it should be seen firstly
whether there was good reason for the debtor to have fallen in arrears and
secondly whether he has acted bona fide.
Claim for instalments cannot be made by filing a separate proceeding
under Sec. 54 (presently S. 91) when no such request was made in the
dispute which resulted in a money award.
Justice, Equity and good Conscience with reference to Sec. 94
The Co-op. Court has greater latitude than the civil courts in order to do
complete justice between the parties. They may also take the moral aspect of
a question into consideration in forming their judgement and deciding
according to ‘justice, equity and good conscience’. An arbitrator (now Co-op
Court) may relieve a party against a right which lies hard upon him but which
cannot be resisted in a Court of justice. Nominees (now Co-op Court) are final
judges not only of all matters of facts but also of all questions of law and
particularly so in regard to reference under the Co-operative Societies Act
under which Civil Courts are debarred from entertaining objections to
decisions given under the Act.
Wherever necessary, and the principles of justice, equity and good
conscience require it, the principles underlying the provisions of the Civil Pro.
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Code may be applied.
The function of the Registrar (now Co-operative Court) is to arrive at
the substantial truth upon such material as may be available to him. The test
that will have to be applied in appeal is whether upon the material the
Nominee’s finding can be held to be justified or whether they appear to be
unjust or perverse.
Scope of the Section Section 95 of the Maharashtra Co-operative
Societies Act 1960
This section confers power on the Co-op Court (as well as the
Registrar or his nominee exercising jurisdiction under S. 88) to pass any of the
following orders (direction) by way of interim relief. (i) an order for attachment
of the property before the award is made or what is known as attachment
before judgement under Code of Civil Procedure (ii) an interlocutory order.
The order for the attachment before award can be made if, pending the
disposal of the dispute, the defendant is likely either to dispose of his property
or to remove the same from the jurisdiction of the Court with a view to defeat
the enforcement of the award that the Court may pass in favour of the plaintiff.
If such an attachment is made on any property of the defendant and an award
for money is passed in favour of the plaintiff, the latter can hope to recover the
money by sale of the property attached. So far as interlocutory order is
concerned it is generally of two types, one an interim injunction and the
second, appointment of receiver. These orders are made on the ground of
‘preventing the ends of justice being defeated’. If the defendant gives
sufficient security for the plaintiff’s claim then the attachment can be removed
otherwise the attachment will continue until the disposal of the dispute and if
any decree is passed in favour of the plaintiff against the defendant then it can
be enforced against such property by sale thereof and realisation of the sale
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proceeds so that the plaintiff’s claim can be paid out of such proceeds.
These powers are as per the powers of the Civil Court under Orders
38, 39 of the Civil Procedure Code.
Section 88 of the Act referred to in this section confers power on the
Registrar or his nominee to assess damages against a delinquent promoter or
past or present officer of the society, In the proceedings under sec 88 the
Registrar or his authorised person is given the same powers of granting
interim relief as the Co-operative Court.
Procedure in ordering attachment before award
In the first place, the Co-operative Court should call upon the Society to
produce evidence to satisfy it on the point that the opponent is going to
dispose of whole or part of his property. It should also take care to satisfy itself
that there are prima facie grounds to support the claim. This can be done by
asking for affidavits from persons in the know of such matter. The Co-
operative Court may pass an interim order stating the grounds and not merely
a warrant for attachment before its judgement. By referring to the order as
interim, it is meant to simultaneously issue a notice to the opponent calling
upon him to show cause against the interim attachment levied by the Co-
operative Court and then after hearing both the sides, confirm or set aside the
order of attachment.
The Registrar or the Co-operative Court must be satisfied on enquiry or
otherwise that the debtor of the party to the dispute whose property is sought
to be attached has done something on his part to constitute an attempt either
to dispose of or to remove any part of his property from the jurisdiction of the
Court or the Registrar. In other words, there must be some allegation of overt
act on the part of the person whose property is sought to be attached.
Jurisdiction of the Co-operative Court or the Registrar means the
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territorial jurisdiction which so far as the Registrar is concerned extends to the
whole of Maharashtra state, but the jurisdiction of every Co-operative Court is
limited.
The Registrar or the Co-operative Court has to issue a notice calling
upon the person who will be affected by the order to furnish adequate security.
On his failure to do so, the order of attachment shall be confirmed.
Section 98 of the Maharashtra Co-operative Societies Act 1960
The section 98 lays down how money which is overdue from the
borrower can be recovered. The salient features are as follows:
Passed orders passed by an authorised person or Registrar under
Section 88 or by the or the Co-operative Court under Section 95 or under
Section 96 in appeal under the last preceding Section, by a Liquidator under
section 105, by a State government in appeal against orders passed under
section 105, and those passed in revision under Section 154 shall, if not
carried out, -
(a) On a certificate signed by the Co-operative Court or Registrar or a
Liquidator shall be deemed to be an order in force of a Civil Court and
executed in the same manner as an order of such Court, or
(b) Executed under prevailing rules or as per the law for the land revenue the
recovery of arrears :
Provided, any application for recoveries shall be made by the Collector and
accompanied by a Registrar’s signed certificate within twelve years from the
fixed date in the order and in its absence from the date of the order.
Section 101 of Maharashtra Co-operative Societies act 1960
Section 101 has more practical provisions in the hands of the PUCBs
offering time and advantage to recover over dues from the defaulting
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borrowers. It speaks about more with reference to the recoveries due to
certain Societies as arrears of land revenue.
Scope of the Section
This section deals with special treatment of some classes of Societies
in the matter of recovery of certain nature of amount due to them.
Table 5.1
Special Treatment to Classes of Societies to Recover the Amount Due
Sr. No. Nature of Amount Due Class of Society
1. Arrears from loans extended for financing
for seasonal finance or for the purpose of
agricultural , repayable after 18 months
but within 5 years
Resource society undertaking
the crop financing and
seasonal finance or financing
for other activities of
agriculture.
2. Initial arrears cost or any contribution for
getting services for crop protection
requirements
Crop protection society
3. Any subscription arrears due from its
members for acquiring services needed
for water supply provisions.
Lift irrigation society
4. Arrears of loans or cash credit facility Block or Taluka level village
artisans multipurpose society
5. Arrears of its dues from its members Co-operative housing society
6. Arrears of loans advanced to members Co-operative Dairy Society
7. Arrears of its dues from its members Urban Co-operative Bank
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8. Arrears of its dues Co-operative Society of Salary
Earners.
9. Arrears of its dues Fisheries Co-operative Society
10. Any subscription or any amount
advanced to or any subscription or any
other amount due from the members of
such Society
Any other society or class of
society notified by the State
Government
The Registrar after inquiry must issue a certificate for the arrears
recoverable, which will be final and conclusive. Generally, the society is
required to apply for such a certificate. Even in its absence, the Registrar may
suo motu issue such a certificate which is legally enforceable.
In short, the section virtually confers on the Registrar the power of a
Special Court having jurisdiction to pass a money decree. But it may be noted
that the section does not provide the Registrar to accord any opportunity to
the debtor to put up his defence before issuing the certificate. The section only
requires the Registrar to make such inquiries as he deems fit and carries no
provision for appeal to any higher authority or Court. However, except for the
capacity of the High Court under Act 226/227 of the Constitution to intervene
and set right any wrong done, there seems to be no control or guideline in
respect of issuance of such certificates by the Registrar.
Inquiries by the Registrar
Sec 101 provides for the Registrar to make inquiries as he deems fit
before granting any recovery certificate. Such enquiries shall be conducted by
the Registrar’s subordinates who must submit his recommendations after
making spot-visits and verifying the genuineness of the borrower’s claims. In
case of any reasonable dispute about the liability, granting of the certificate
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should be withheld till settlement of that dispute under Sections 91 and 93 of
the Maharashtra Act. In such cases, the Asst. Registrar / Officer conducting
such enquiries must issue notices to the concerned borrower. If found
subsequently that the recovery certificate was granted without proper enquiry,
such certificate shall become null and void.
Any certificate of arrears issued without giving the debtor satisfactory
opportunities to defend his case shall be treated as invalid. Therefore, the
officer must look into the facts of the case and ascertain the correctness of the
claim. A certificate issued on completion of this procedure as well as after
hearing the parties concerned, shall be final in respect of the arrears due, and
the debtor shall not have the legal right to reopen or file a fresh suit under
Sec. 91(2) challenging the validity of the certificate or contents therein.
Registrar’s powers for suo motu action under section 101
If any society is found to act in contravention of the provisions of the
Act, the Central Bank is authorised to bring this to the attention of the
Registrar, who in turn shall initiate action suo motu.
Recovery of Overdue, Claim and Arrears As Arrears of Land Revenue
under Sec.101
Sub-sections 168 to 223 of the Maharashtra Land Revenue Code,
stipulate that arrears due will be recoverable as per the law for the recovery of
land revenue. The words ‘Recovery of land revenue’ appearing in Sub-section
(3) of the Maharashtra Land Revenue Code seem to stress that the claim of
the Societies will have precedence over all other claims. A certificate issued
under section 101 for recovery of moneys was sought to be executed under
section 98 of the Act and was held that such a certificate can be executed
only as provided in section 156 of the Act.
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The certificate being conclusive stresses that no action can lie against
it under section 91 and the only remedy is for revision under section 154 of
this Act. It is surprising that the reference to the Code of 1879 still continues,
although this Act has been in existence for over thirty years and the Co-op.
Societies Act has been undergoing amendments almost every year. Arrears
have no reference to the over-due instalments.
The Indian Contract Act 1872 becomes an important piece of legislation
as it dominates the transaction between the bank and the borrower. The bank
and the borrower enter into a contractual obligation in the process of providing
loans and advances by the bank under a written agreement that the borrower
along with his guarantor will repay the loan / advance amount received by
them with interest within the specified time.
A breach of contract occurs, when the promised instalment as per
contractual obligations does not materialise, thus initiating litigation
procedures under the relevant provisions of Indian Contract Act 1872 to
recover the amount due from the borrower and his guarantor. The liability of
the Guarantor (Surety) and his obligation to indemnify the bankers from the
liabilities arising out of non-performance as per contractual agreement by the
principal borrower thus emerges in favour of the bankers.
The Negotiable Instrument Act 2002 also helps in recovery of loan and
advance amount as instrument. “Promissory note” provides adequate force
and strength to get the recovery of net amount in arrears with interest.
Enforcement of the Security Interest Act 2002 and the reconstruction and
securitisation, further provide adequate strength and force to the recovery
proceedings. 13th section of the said act specifies the right of the banks in the
recovery process as follows:
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Enforcement of Security Interest
1882, the Transfer of Property Act, irrespective of its Section 69 / 69-A
provides for due enforcement of security interests in respect of all secured
creditors without any interference of the Court or tribunal.
In the event of repayment default by any borrower, his account must be
declared as N P A, and a written notice issued to the borrower to repay his
liabilities in full within sixty days thereof and if fail to do so , the secured
creditor shall be at liberty to act according to the provisions of the Act. The
notice shall carry the amount payable details, and the secured assets of the
borrower which the creditor aim to attach in the event of non-payment.
On receipt of the notice, if the borrower makes a representation, the
secured creditor shall duly consider the same, and if the representation is
found to be untenable / unacceptable respond within one week citing reasons
thereof.
If the borrower not able to complete his liability in full within the
specified period, the secured creditor can take charge of his secured assets or
take over the management of his business including the capacity to transfer
by way of lease, assignment or sale, only where the business is security for
the debt. In such cases, the secured creditor shall appoint a person to
manage the secured assets. Any such transfer of secured asset or takeover of
business shall bestow the secured creditor all legal rights normally available
as in the case of transfer of any asset.
Where a borrower faces action under the above provisions, all
expenses, costs, and charges as established to have been incurred by the
secured creditor, shall be charged from the borrower, and the amount thus
received shall be held in trust by the secured creditor in the absence of any
agreement to the contrary, firstly to be disbursed as payment of expenses,
costs, and charges and secondly towards discharging the secured creditor’s
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dues, and balance if any to the person entitled to receive it.
Where two or more secured creditors separately or jointly extend
finance no creditor shall exercise the rights available, unless its application is
agreed upon by those creditors who together account for at least three-fourth
of the amount outstanding, and is acceptable to the entire secured creditors.
If a company is goes under liquidation, the proceeds realised from the sale of
assets must be distributed as dictated by the Companies Act, 1956 Section
529-A (1of 1956) subject to the conditions as follows:
The secured creditor of the company under liquidation, who opts to
realise his security instead of relinquishing the same and who can
substantiate his debt under the Companies Act 1956 Section 529 (1of 1956),
shall keep the amount realised from the secured assets sale after depositing
the wages due with the liquidator as per the section 529-A provisions Act.
he liquidator shall duly inform the secured creditor of the dues in
respect of the wages, and in case of difficulties in ascertaining the same,
intimate an estimated amount thereby enabling the secured creditor to deposit
the estimated amount with the liquidator, and retain the balance with him, on
condition that the creditor shall either pay the balance of such dues or receive
the excess amount paid if any, as soon as the wage dues are properly
ascertained.
1. In case of disputes involving the the secured assets sale or
proceeds thereof, the secured creditor shall be entitled to approach
the Debts Recovery Tribunal or a competent Court to proceed
against the guarantors, or sell the secured assets.
2. The borrower on receipt of such a notice from the secured Creditor
shall not sell, lease or transfer any of his pledged assets without the
written consent of the creditor.
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The banks also are authorised to approach the Tribunal of Debt Recovery
established under the Banks & Financial Institution Act 1993 Sub-section
(1), Section 3 to realise any legitimate dues from a defaulting borrower.
The RBI through its directives and guidelines from time to time
addresses the problems, the Creditors face on account of the borrowers who
default their repayments. While considering such cases sympathetically, the
RBI has announced various measures aimed at recovering such outstanding
from the defaulting borrowers including the successful “One Time Settlement
Scheme” (OTS). Under this scheme, the defaulting borrower may express his
readiness to avail the OTS in writing to the concerned Creditor. On receipt of
this application, the lending bank will refer the matter to the Committee for
OTS constituted by the board of Directors of the PUCBs. This Committee, on
the basis of the RBI’s guidelines, will determine the Principal amount and the
interest to be recovered. Unlike the commercial bank rate, Prime Lending
Rate (PLR) shall be the basis of the interest to be charged. The purpose
behind reworking the Principal and interest is to enable the entire transaction
between the defaulting borrower and the Creditor to be brought to a full and
final settlement.
While implementing the OTS, the status of NPA (Non-performing
Assets) must be reviewed thoroughly and its findings communicated to the
defaulting borrower. The OTS normally has provisions for financial rebates,
intended to turn a defaulting borrower’s inability to pay into a positive
readiness to pay and settle. One such method is to restructure loans and
advances, by adding the outstanding amount to another unpaid loan, and
extending its repayment period in such a way as to minimise the financial
pressure on the borrower and help him repay in easy instalments. For the
Banks, this approach means “Keep the customer and collect the dues”.
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The objective is to adopt a practical mix of legislative and non
legislative steps that would make Banking law and practice an effective tool in
recovering payments from the defaulting borrowers.
Conclusion
The chapter tried to provide clear explanations of the recovery
procedures of co operative banks. The proper and efficient implementation of
these statutory procedures will keep a lower level of NPA which can boost the
efficiency of the working of Co Operative Banks.