MANU/CF/0761/2016

IN THE NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION

NEW DELHI
Revision Petition Nos. 2512, 2513, 2514, 2515, 2516, 2517 and 2518 of 2011
Decided On: 19.12.2016
Appellants: Amarjit Singh
Vs.
Respondent: Gagandeep Singh and Ors.
Hon'ble Judges/Coram:
Ajit Bharihoke, J. (Presiding Member), V.K. Jain, J. (Member) and Dr. B.C. Gupta,
Member
Counsels:
For Appellant/Petitioner/Plaintiff: Jaspreet Gogia, Advocate, Proxy Counsel for Vipin
Gogia, Advocate
For Respondents/Defendant: Yogesh Das, Advocates and Swaran Kaur
ORDER
Ajit Bharihoke, J. (Presiding Member)
1. The above noted revision petitions have been referred to the Larger Bench by the
orders of Hon'ble President dated 31.05.2013 for answering the following question:
"Whether the Ex-Secretary or the Ex-President or other office bearers of any
Cooperative Credit Society fall within the category of the service providers?"
2 . Above noted revision petitions have arisen from almost identical consumer
complaints filed by various depositors who had deposited certain amounts in fixed
term deposits with opposite party Sarb Bank Employees Cooperative U.S.E.T. &
Credit Society Limited with minor variations. The basic allegations in the respective
complaints are almost similar. Allegations of the complainants in their respective
complaints are that petitioner/opposite party No. 1 Amarjit Singh, the then President
of the above noted Cooperative Society approached the respective complainants and
represented to them that if they deposit any amount with the cooperative society,
they would receive interest @ 15-16% p.a. on their respective fixed deposits.
Allegedly, the petitioner/opposite party Amarjit Singh convinced the complainants
that the opposite party/cooperative society has been floated by the employees of
State Bank of India and there was no risk involved. Being lured by the attractive
offer, the complainants deposited specific amounts in fixed deposit with the opposite
party/cooperative society. The complainants received interest of their deposit for
sometime. Thereafter, remittance on account of interest stopped. On being
approached, the petitioner Amarjit Singh informed the complainants that their
interest would be duly remitted on clearance of their dues by some loanees. Later,
however, the complainants came to know from the newspaper reports that there had
been some bungling in the cooperative society. The complainants thus demanded
return of their deposits but the opposite parties failed to make payment. This led to
the complainants approaching the District Forum concerned and filing their respective
complaints.

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3 . The opposite parties on being served with notice of the complaint resisted the
respective complaints by filing their written statement.
4 . The District Forum on consideration of the pleadings before it directed all the
opposite parties including the petitioner Amarjit Singh to pay to the respective
complainants the amount deposited by them with 16% interest p.a. from the date of
deposit till the payment.
5. Being aggrieved of the order of the District Forum, the opposite parties preferred
appeals. The State Commission UT Chandigarh confirmed the order of the District
Forum and dismissed the respective appeals. Aggrieved by the dismissal of appeal,
the petitioner Amarjit Singh has filed the above noted revision petitions.
6 . It may be noted that similar revision petitions were filed by Anil Pahwa, the Ex-
Secretary of the above noted cooperative society. The aforesaid revision petitions
being RP No. 1579 of 2011 and 1580 of 2011 were dismissed by a two member
Bench of this Commission vide order dated 31.05.2011. In the said revision petitions,
Anil Pahwa opposite party/petitioner took the plea that he could not be held
personally liable as he was discharging functioning of an office bearer of the
cooperative society and also because an administrator had been appointed to take
care of the assets and liabilities of the cooperative society. The two member Bench of
this Commission, however was not convinced with the arguments taken by the ex
secretary of the cooperative society and they observed that "they do not find anything
wrong in the impugned order as the complainant/depositor cannot be left high and
dry for the conduct of the petitioner who is held to have connived with opposite party
No. 1". The reading of judgment of two member bench in R.P. No. 1579 & 1580 of
2011 filed by Ex-Secretary Anil Pahwa gives an impression that bench was of the
view that if the office bearer of a cooperative society is involved in unethical practice,
in such a situation, the office bearer would be liable for deficiency in service.
7 . Learned Shri Vipin Gogia, Advocate for the petitioner in the respective revision
petitions has contended that former President or former Secretary of the cooperative
society or the office bearers have an entity distinct from the cooperative society. They
have no privity of contract with the complainant. Therefore, they cannot be held
responsible for any deficiency in service on the part of the cooperative society. In
support of his contention, learned counsel for the petitioner has referred to section
30 of Punjab Cooperative Societies Act, 1961.
8. Learned counsel for the respondents complainants on the contrary has submitted
that President, Secretary or the Office Bearer of a cooperative society were running
the affairs of the cooperative society. Therefore, they are directly responsible for
deficiency in service. It is further contended that the petitioner who was the President
of the society lured the respondents complainants by misrepresentation to deposit
money in fixed deposit. Therefore, also, the petitioner is liable for deficiency in
service in support of his contention, learned counsel for the respondent has relied
upon the judgment of Coordinate Bench of this Commission in R.P. No. 1579 & 1580
of 2011 filed by Anil Pahwa, the then Secretary of the Sarb Bank Employees
Cooperative U.S.E.T. & Credit Society Limited decided on 31.05.2011. Learned
counsel for the respondent has also relied upon the judgment of the Supreme Court
in the matter of Delhi Development Authority Vs. Skipper Construction Co. (P) Ltd. &
Another MANU/SC/0497/1996 : (1996) 4 SCC 622.
9. As per the reference order dated 31.05.2013, we are required to answer whether

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the Ex-Secretary or Ex-President or other office bearers of any Cooperative Credit
society falls within the definition of service provider. In order to effectively answer
this question, it would be useful to have a look on the definition of term "consumer"
qua hiring or availing of any service as provided under section 2(1)(d)(ii) of the
Consumer Protection Act, 1986 (in short, the Act) The relevant provision is
reproduced as under:
(d) "consumer" means any person who-
(i) buys any goods for a consideration which has been paid or
promised or partly paid and partly promised, or under any system of
deferred payment and includes any user of such goods other than
the person who buys such goods for consideration paid or promised
or partly paid or partly promised, or under any system of deferred
payment when such use is made with the approval of such person,
but does not include a person who obtains such goods for resale or
for any commercial purpose; or
(ii) hires or avails of any services for a consideration which has been
paid or promised or partly paid and partly promised, or under any
system of deferred payment and includes any beneficiary of such
services other than the person who 'hires or avails of the services for
consideration paid or promised, or partly paid and partly promised,
or under any system of deferred payment, when such services are
availed of with the approval of the first mentioned person but does
not include a person who avails of such services for any commercial
purposes.
10. On bare reading of the above it is clear that a consumer is a person who hires or
avails of any service for consideration which has been paid, promised or partly paid
and partly promised or under any deferred system of payment subject to the
exception that a person hiring any service for commercial purpose shall not be a
consumer for the purpose of the Act.
11. Complaint has been defined under section 2(1)(c) of Act as under:
(i) an unfair trade practice or a restrictive trade practice has been adopted by
any trader or service provider;
(ii) the goods bought by him or agreed to be bought by him; suffer from one
or more defects;
(iii) the services hired or availed of or agreed to be hired or availed of by
him suffer from deficiency in any respect;
(iv) a trader or service provider, as the case may be, has charged for the
goods or for the service mentioned in the complaint a price in excess of the
price-
(a) fixed by or under any law for the time being in force
(b) displayed on the goods or any package containing such goods;
(c) displayed on the price list exhibited by him by or under any law
for the time being in force;

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 1. agreed between the parties;
(v) goods which will be hazardous to life and safety when used or being
offered for sale to the public,--
(A) in contravention of any standards relating to safety of such
goods as required to be complied with, by or under any law for the
time being in force;
(B) if the trader could have known with due diligence that the goods
so offered are unsafe to the public
1 2 . On reading of the above, it is clear that a consumer can make a consumer
complaint against the vendor of the goods or a service provider on the grounds
specified in Section 2(1)(c).
13. Thus, the question is whether or not the Ex-Secretary or Ex-President or other
office bearers of any Cooperative Credit Society would fall within the category of
service provider.
14. In order to find answer to the question under reference, it would be useful to
have a look on Section 30 of Punjab Cooperative Societies Act, 1961 which reads
thus:
30. Co-operative societies to be bodies corporate.-The registration of a co-
operative society shall render it a body corporate by the name under which it
is registered having perpetual succession and a common seal, and with
power to hold property, enter into contract, institute and defend suits and
other legal proceedings and to do all things necessary for the purposes for
which it is constituted.
1 5 . It is pertinent to note that we have also taken note of Section 43 of Delhi
Cooperative Societies Act, 2003 and Section 36 of Maharashtra Cooperative Societies
Act 1960 which are pari materia to section 30 of Punjab Cooperative Societies Act.
16. On bare reading of the above, it is clear that a cooperative society on registration
is a rendered body corporate, meaning thereby that it acquires an identity distinct
from its member shareholders or the office bearers. Therefore, in our considered
view, if a consumer has availed of services of the cooperative credit society for
consideration, the cooperative credit society alone would be service provider qua that
consumer and the office bearers of the said society who by virtue of being elected to
the said position to manage the affairs of the society would have no privity of
contract with the consumer and could not be termed as service provider. In our
aforesaid view, we find support from the judgment of Bombay High Court in the
matter of Sou. Varsha Ravindra Isai Vs. Sou. Rajashri Rajkumar Chaudhari & Ors.
reported in MANU/MH/1856/2010 : AIR 2011 Bombay 6 wherein Hon'ble High court
after discussing the provision of Maharashtra Cooperative Societies Act, particularly
Section 36 has observed thus:
"As stated above, in view of the provisions of Section 36 of the Maharashtra
Co-operative Societies Act, the society can be proceeded against and can be
sued or the society may defend any action in Civil Court or forum. However,
so far as members of the managing committee are concerned, they stand on
totally different footing and they cannot be held responsible to contribute to

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 the damages or make payment in respect of dues recoverable from the
society unless the methodology prescribed under the Act for holding them
responsible for making such payment is adopted. In my view, the Consumer
Protection Act, 1986, does not prescribe modalities for holding inquiry
against the Directors in respect of acts or omissions committed by them.
Unless the members of the managing committee are held responsible for any
act detrimental to the interest of the society or any inaction on their part,
which caused wrongful loss to the society, they cannot be held responsible to
contribute the loss or in respect of liability, which is required to be borne by
the society. The forum created under the Consumer Protection Act, 1986 does
not provide for an audit, inquiry or inspection, as laid down under Sections
81, 83 and 84 of the Maharashtra Cooperative Societies Act, 1960, nor
provides for any methodology for assessing the damages against the
members of the managing committee, as contemplated by Section 88 of the
Act. The members of the managing committee or the directors cannot be held
responsible in their individual capacity. The complaint can be instituted
against the society before the Consumer Forum by a depositor or a member
of the society and a relief can also be granted as against the society.
However, so far as members of the managing committee/directors are
concerned, they stand on a different footing and unless the procedure
prescribed under the special enactment i.e. Maharashtra Co-operative
Societies Act, 1960 is followed and unless the liability is fixed against them,
they cannot be held responsible in respect of payment of any dues
recoverable from the society."
17. In view of the discussion above, we are of the view that ordinarily Ex-Secretary
or the Ex-President or office bearers of any Cooperative Credit Society will not fall
within the category of service providers in respect of any contract between the
consumer and the cooperative society as they have the identity distinct from the duly
registered cooperative credit society. However, there can be cases in which certain
individuals may indulge in unfair trade practice or defrauding of the gullible
depositors under the cloak of cooperative society. The question is, what would be the
liability of the Ex-Secretary or the Ex-President or office bearers of such society in
such a case. This issue was dealt by the Hon'ble Supreme court in the matter of Delhi
Development Authority Vs. Skipper Construction (P) Ltd. & Another (supra), wherein
Hon'ble Supreme Court has observed thus:
"Lifting the corporate veil:
In Aron Salomon v. Salomon & Company Limited (1897 Appeal Cases 22),
the House of Lords had observed,
"the company is at law a different person altogether from the subscriber...;
and though it may be that after incorporation the business is precisely the
same as it was before and the same persons are managers and the same
hands received the profits, the company is not in law the agent of the
subscribers or trustee for them. Nor are the subscribers as members liable,
on any shape or form, except to the extent and in the manner provided by
that Act". Since then, however, the Courts have come to recognize several
exceptions to the said rule. While it is not necessary to refer to all of them,
the one relevant to us is "when the corporate personality is being blatantly
used as a cloak for fraud or improper conduct". [Gower: Modern Company
Law-4th Edn. (1979) at P.137]. Pennington [Company Law-5th Edn. 1985 at

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 P.53] also states that "where the protection of public interests is of
paramount importance or where the company has been formed to evade
obligations imposed by the law", the court will disregard the corporate veil.
A Professor of Law, S. Ottolenghi in his article "From Peeping Behind the
Corporate Veil, to Ignoring it Completely" says
"the concept of 'piercing the veil' in the United States is much more
developed than in the UK. The motto, which was laid down by Sanborn, J.
and cited since then as the law, is that 'when the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons. The
same can be seen in various European jurisdictions". [(1990) 53 Modern Law
Review 338].
Indeed, as far back 1912, another American Professor L. Maurice Wormser
examined the American decisions on the subject in a brilliantly written article
"Piercing the veil of corporate entity" [published in (1912) XII Columbia Law
Review 496] and summarized their central holding in the following words:
"The various classes of cases where the concept of corporate entity
should be ignored and the veil drawn aside have vow been briefly
reviewed. What general rule, if any, can be laid down? The nearest
approximation to generalization which the present state of the
authorities would warrant is this:
When the conception of corporate entity is employed to
defraud creditors, to evade an existing obligation, to
circumvent a statute, to achieve or perpetuate monopoly, or
to protect knavery or crime, the courts will draw aside the
web of entity, will regard the corporate company as an
association of live, up-and-doing, men and women
shareholders, and will do justice between real persons."
In Palmer's Company law, this topic discussed in Part-II of Vol-I Several
situations where the court will disregard the corporate veil are set out. It
would be sufficient for our purposes to quote the eighth exception. It runs:
"The courts have further shown themselves willing to 'lifting the veil' where
the device of incorporation is used for some illegal or improper
purpose....Where a vendor of land sought to avoid the action for specific
performance by transferring the land in breach of contract to a company he
had formed for the purpose, the court treated the company as a mere 'sham'
and made an order for specific performance against both the vendor and the
company".
Similar views have been expressed by all the commentators on the Company
Law which we do not think it necessary to refer.
The law as stated by Palmer and Gower has been approved by this Court in
Tata Engineering and Locomotive Company Limited v. State of Bihar
[MANU/SC/0036/1964 : 1964 (6) S.C.R. 885.] The following passage form
the decision is apposite:
"Gower has classified seven categories of cases where the veil of a
corporate body has been lifted. But, it would not be possible to

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 evolve a rational consistent and inflexible principle which can be
invoked in determining the question as to whether the veil of the
corporation should be lifted or not. Broadly, where fraud is intended
to be prevented, or trading with enemy is sought to be defeated, the
veil of corporation is lifted by judicial decisions and the shareholders
are held to be 'persons who actually work for the corporation."
In DHN Food Distributors Ltd. & Ors. v. London Borough of Tower Hamlets
[1976 (3) All. E.R. 462], the Court of Appeal dealt with a group of
companies. Lord Denning quoted with approval the statement in Gower's
Company Law that
"there is evidence of a general tendency to ignore the separate legal
entities of various companies within a group, and to look instead at
the economic entity of the whole group".
The learned Master of Rolls observed that "this group is virtually the
same as a partnership in which all the three companies are
partners". He called it a case of "three-in-one"-and, alternatively, as
"one-in-three".
The concept of corporate entity was evolved to encourage and promote trade
and commerce but not to commit illegalities or to defraud people. Where,
therefore, the corporate character is employed for the purpose of committing
illegality or for defrauding others, the court would ignore the corporate
character and will look at the reality behind the corporate veil so as to enable
it to pass appropriate orders to do justice between the parties concerned.
The fact that Tejwant Singh and members of his family have created several
corporate bodies does not prevent this Court from treating all of them as one
entity belonging to and controlled by Tejwant Singh and family if it is found
that these corporate bodies are merely cloaks behind which lurks Tejwant
Singh and/or members of his family and that the device of incorporation was
really a Ploy adopted for committing illegalities and/or to defraud people.
18. From the above, it is clear that if the Ex-Secretary or the Ex-President or office
bearers of any cooperative credit society has exploited the corporate character of the
cooperative society for purpose of committing illegality or defrauding other, then the
Courts would ignore the corporate character of the Cooperative Credit Society and
will look into their reality behind the corporate veil so as to pass appropriate orders
to do justice to the parties. Thus, it is clear that if the Ex-Secretary or the Ex-
President or office bearers of any Cooperative Credit Society have indulged in
misfeasance and fraudulent practice to defraud the people in order to get material
gains under the garb of corporate veil they shall also be treated as service providers
to the depositors/complainants and held personally responsible for the deficiency in
service, if any. This, however, shall be the question of fact to be decided on the basis
of evidence.
19. In view of the discussion above, we answer the reference as follows:
a. Ordinarily Ex-Secretary or the Ex-President or other office bearers of any
Cooperative Credit Society shall not fall within the category of service
providers in respect of any dealing of the depositors with such society.
b. However, if it is established that the Ex-Secretary or the Ex-President or

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 office bearers of any Cooperative Credit Society has indulged in
misfeasance/fraudulent activity with view to defraud depositors under the
cloak of the cooperative credit society, such person shall fall within the
category of service providers and shall be liable to compensate the
consumers for deficiency in service.
The revision petitions in which the reference was made be listed before appropriate
Benches for further proceedings in the light of answer to the reference.
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