2018 (6) TMI 1766 - HC - Indian Laws

Failure to refund the deposit amount which was deposited with Co-operative Societies - cheating general public/investors by misappropriation of the fund deposited - HELD THAT - It is not in dispute that the petitioner Society is a registered Co-operative Society under KCS Act 1959. Admittedly the petitioner-Society is not an assisted Society under the KCS Act. Even though the petitioner Society is required to file its audit returns to the Registrar of Cooperative Societies and with respect to its accounts it is subject to the provision and control of the Registrar of Cooperative Societies under Section 2A(6) of the KCS Act. Still it cannot be ignored of the fact that the society would have its own management to run its business and its entire management would vest in the Board constituted under Section 28A of the KCS Act. The Society would run its activities as per the bye-law framed by it. As such the Society will frame the bye-law though on par the model bye-law to conduct its business in the manner recognized under the law. Its internal management and affairs will be governed and controlled by the Board of Management constituted under Section 28(A) of the KCS Act. Merely because the society is required to be registered under a particular statute or that it is required to submit its audited report to the particular Department of the Government annually would by itself not make the society as the one under the direct control of the State. Even though the present petitioner Society is also a Body Corporate but under KCS Act the final Authority of the said Society vests in the General Body of its members and under Section 28A of the KCS Act. The Societies managed by the Managing Committee constituted in terms of the bye-laws. Final Authority so far as the petitioner-Society is the general body and not the Registrar of Co-operative Societies or State Government. Therefore merely because the petitioner-Society is regulated in its activities by the Registrar or Joint Registrar of Co-operative Societies but the same cannot be said that the said regulatory act is by any means a direct or indirect control over the affairs of the Society bringing it within the ambit of the definition of Section 2(4) of KPID Act as the Co-operative Society controlled by the State. There are no merits in the petition - petition dismissed.

Summary

Issues Involved:
1. Applicability of the Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 (KPID Act) to the petitioner's Co-operative Society.
2. Definition and interpretation of 'Financial Establishment' under Section 2(4) of the KPID Act.
3. Control of the Co-operative Society by the State Government or Central Government.

Detailed Analysis:

1. Applicability of KPID Act to the Petitioner's Co-operative Society:
The petitioner sought to quash the proceedings pending before the Special Court under the KPID Act, arguing that his Co-operative Society, being controlled by the State, is excluded from the definition of 'Financial Establishment' under Section 2(4) of the Act. The respondent alleged that the petitioner failed to refund deposits and misappropriated funds, leading to the Special Court taking cognizance of the complaint and issuing summons.

2. Definition and Interpretation of 'Financial Establishment':
Section 2(4) of the KPID Act defines 'Financial Establishment' as any person or group accepting deposits but excludes corporations or co-operative societies owned or controlled by the State or Central Government. The petitioner argued that his society, being registered under the Karnataka Co-operative Societies Act, 1959 (KCS Act), and subject to its regulations, should be considered controlled by the State, thus excluded from the KPID Act.

3. Control of the Co-operative Society by the State Government or Central Government:
The court examined whether the petitioner's society is controlled by the State. The petitioner’s counsel cited judgments to support the argument that regulatory oversight by the Registrar of Co-operative Societies constitutes state control. However, the court noted that mere registration and regulatory compliance do not equate to control by the State. The society's management and operations are governed by its own board and bye-laws, not directly by the State.

The court referred to the Supreme Court's observations in Thalappalam Ser. Co-op Bank Ltd. v. State of Kerala, which distinguished between statutory bodies and those governed by statutes. It emphasized that regulatory oversight does not imply deep and pervasive control by the State. Consequently, the petitioner's society, despite being regulated by the KCS Act, is not controlled by the State in a manner that would exclude it from the definition of 'Financial Establishment' under the KPID Act.

Conclusion:
The court concluded that the petitioner's society does not fall under the exclusion provided in Section 2(4) of the KPID Act. The regulatory oversight by the Registrar of Co-operative Societies does not amount to state control. Therefore, the Special Court's cognizance of the complaint under the KPID Act was valid. The petition was dismissed as not fit for admission, and the interim application (IA No. 1 of 2018) was rendered moot.