M/s. Panama Builders & Developers Pvt. Ltd. v. M/s. Nutan Kalpana Co-op. Housing Society Ltd.

14. The learned sole Arbitrator who was initially appointed, resigned and by a further order dated 14 August, 2014 passed by this Court, a retired Judge of this Court was appointed as a Substitute Arbitrator.

15. The learned sole Arbitrator heard the parties on the preliminary issues and by the impugned order dated 20 November, 2014, as rendered on Page 8 / 54 the first preliminary issue held that the Development Agreement entered between the petitioner and the society was void ab initio, as a consequence of which the petitioner/claimant had no right to claim specific performance of the Development Agreement. It was also held that in view of the findings on the first issue, the second issue was not required to be decided.

16. On the above conspectus, assailing the order dated 20 November, 2014 passed by the arbitral tribunal, the present petition has been filed. (B) Respondent – Society’s Reply

17. On behalf of the Society, a reply/affidavit has been filed by Mr. Mandar Suhas Jopule, Secretary of the Society opposing the petition. The reply affidavit inter alia, states that the plot of land has four structures which were constructed in or about 1964-80 and had become old. It was hence decided to construct a new building in place of building no. 5. It is stated that accordingly, an AGM was held on 30 July, 2000. It is further stated that on 11 August, 2002, the new Managing Committee was elected, and as per the provisions of Section 73(1AB) of the MCS Act, the elected members of the Managing Committee were required to execute a bond within 15 days from the date of assuming office. It is stated that although these elected members of the Managing Committee, had assumed office on 11.08.2002, such members were under a mandate to execute their respective bonds in favour of the Society as per the said provisions of the MCS Act by Page 9 / 54 25 August, 2002. It is contended that as the members of the Managing Committee failed to execute their respective bonds, the Managing Committee members automatically by operation of law were deemed to have vacated their office on 26 August, 2002. It is stated that despite such legal bar, on 13 September, 2002, the purported Development Agreement came to be executed and signed by Kum. Leelu S. Lalwani (Chairperson), Shri. Manohar Bhau Kamble (Secretary) and Shri Yogesh L. Desai (Treasurer) of the Society, who had already vacated their office as members of the Managing Committee by operation of law. Hence, the development agreement entered by persons who had no authority to execute such Development Agreement which itself was illegal, bad in law and void ab initio. There are other contentions to the effect that no tenders were invited by the society so as to give the redevelopment rights in favour of a developer as also no procedure was followed. This according to the Society being clear from the fact that the managing committee came to be elected in the AGM dated 11 August, 2008 and in the same meeting, the Committee approved the draft for the Development Agreement. Thus, according to the Society, keeping the members of the society in dark, the development rights were purportedly awarded in favour of the petitioner.

18. It is next contended that before executing such Development Agreement, the Managing Committee had not placed the draft of the Page 10 / 54 Development Agreement for approval before the General Body of the Society and the members were mislead to obtain the approval from the General Body. It is submitted that as the bonds were not furnished by the elected managing committee members, their election as per the requirement of law was illegal, hence any decision taken by the managing committee after the period of fifteen days from the date of election as stipulated by the provision of Section 73(1AB) for submitting of the bonds, was illegal and not binding on the society. It was contended that thus the Development Agreement dated 13 September, 2002 was illegal void ab initio.

19. It is also the case of the society that in the year 2008-09, some of its members had lodged complaint with the Registrar, Co-operative Societies against the Managing Committee of the society. The Deputy Registrar of Co-operative Societies (T ward, Mumbai), accordingly, had issued a show cause notice dated 09 January, 2009 to the Managing Committee under Section 78 of the MCS Act. On such proceedings, the Deputy Registrar passed an order dated 18 February, 2009 and appointed Mr. Y. E. Salunkhe, as an Administrator for the re-election of the Managing Committee and submitted his report. It is stated that the Administrator held elections in October 2009 and after the elections, handed over the charge of the society to the newly elected committee on 29 October, 2009 and, accordingly, the new Managing Committee took charge of the affairs of the society. Page 11 / 54

20. It is contended that after the said election of the new Managing Committee, on 28 December, 2009, a Special General Body meeting was convened, in which it was unanimously decided to terminate the Development Agreement, and a decision was taken that the society would proceed with the redevelopment of its premises. Accordingly, a notice was published by the society in the newspaper ‘Times of India: Mumbai Edition’ dated 22 November, 2011, whereby objections were invited in regard to the redevelopment of the entire property of the respondent. It is contended that in pursuance of such notice, the petitioner raised an objection by its letter dated 02 December, 2011, however, the society did not accept the petitioner’s objections and proceeded to publish a public notice as per the Government guidelines inviting tenders for redevelopment of the society's premises/property. Such notice was also published in the Mumbai Edition of the Times of India dated 25 February, 2013. It is contended that the petitioner again by its letter dated 09 March, 2013, recorded its objections to the said tender notice. Thereafter, the petitioner filed a civil suit before this Court against the society. An interim application (Notice of Motion) was moved in the said suit praying for interim reliefs. By an order dated 08 April, 2013 passed by the learned Single Judge of this Court, the matter was referred for adjudication by appointing a sole arbitrator. It was ordered that the notice of motion in the suit be treated as an application under Section Page 12 / 54 17 of the Act, to be decided by the arbitral tribunal. The arbitral tribunal being constituted, decided the Section 17 application. By an order dated 11 May, 2013, the petitioner’s Section 17 application was dismissed. The learned sole arbitrator observed that the petitioner-claimant had committed default and delayed the performance of its obligation under the agreement. As also, there was gross delay and laches on the part of the petitioner in initiation of the proceedings, and for about eleven years, the petitioner had not been able to carry out redevelopment work as also the petitioner was presently not in a position to carry out the said work. It is contended that the Section 17 order passed by the learned Arbitrator when challenged by the petitioner was upheld by the learned Single Judge of this Court in the proceedings of Arbitration Petition No. 1079 of 2013, which came to be dismissed by the co-ordinate bench of this Court by an order dated 24 January, 2014. The appeal against the order passed by the learned Single Judge was also dismissed by the appeal Court by its order dated 05 May,

2014.

21. It is contended by the society that the termination notice dated 30 January, 2010 also specifically and clearly mentioned that the Committee signing the Development Agreement dated 13 September, 2002 itself was illegal, as the members of the Committee had not executed bonds as per the Page 13 / 54 requirement of Section 73(1AB) of the MCS Act and hence, the agreement itself was void ab initio.

22. It is next contended that the petitioner's reliance on Section 77 of the MCS Act, is not relevant as the Registrar had removed the Managing Committee for non-compliance of the mandatory provisions under Section 73(1AB) of the MCS Act. It is contended that Section 77 does not give any protection to persons who had violated the mandate of the bye-laws and the rules under the Co-operative Societies Act. It is contended that the action which is illegal and void ab initio being contrary to the provisions of the act and rules are not saved under section 77 of the MCS Act. Referring to the provisions of Section 77(3), it is contended that the Registrar in the present case had already taken a decision and had removed the Managing Committee after issuing a show cause notice and appointing an Administrator under Section 78 of the MCS Act by an order dated 18 February, 2009, which signifies that the Committee had no mandate to discharge any duties as on Managing Committee so as to bind the society. It is contended that once an action of the Managing Committee or its members is illegal, there is no question of any sanctity being accorded to an illegal act by taking recourse to section 77 of the MCS Act.

23. It is contended by the society that the learned Arbitrator in the impugned order, considering the legal position, has correctly held that the Page 14 / 54 Committee absolutely had no power and authority to enter into any Development Agreement, and much less an agreement as serious as the Development Agreement, involving properties of crores of rupees. It is contended that it was rightly observed by the learned Arbitrator in the impugned order that the Committee itself had deemed to vacate its office on its failure to submit a bond on or before 26 August, 2002 and hence w.e.f. 22 August, 2002, the Committee had no existence in the eyes of law much less to execute the Development Agreement on 13 September, 2002. It is thus contended that the petition be dismissed.

24. On the above pleadings, Ms. Gulnar Mistry learned Counsel for the petitioner and Mr. Daga, learned Counsel for the society, have made detailed submissions.

(C) Submissions on behalf of the petitioner:

25. Ms. Mistry has made the following submissions:

(i) The Development Agreement dated 13 September, 2002 was unanimously approved by the General Body of the society and recorded in the minutes of the General Body held on 12 August, 2002. It is submitted that Section 72 of the MCS Act, inter alia, provides that the “final authority of every society shall vest in the General Body of members in general meeting”. It is submitted that the impugned order ignores the purport of Page 15 / 54 Section 72 and the binding nature of the Development Agreement, executed in pursuance of the general body resolution.

(ii) The execution of the Development Agreement by the Managing

Committee was in substance a ministerial act which implemented the final decision of the general body. Hence, the execution of the agreement was not an independent act of the Managing Committee.

(iii) The resolution of the General Body approving the draft

Development Agreement and authorizing its execution by the Chairman, Secretary and Treasurer, was never challenged. Such aspect has been overlooked by the arbitral tribunal and as also arbitral tribunal had failed to appreciate the significance of the General Body resolution.

(iv) Notwithstanding the defect in the constitution of the Managing

Committee, the execution of the Agreement between the petitioner and the Society was also saved by Section 77 of the MCS Act, as Section 77 interalia provides that the acts done in good faith in pursuance of the business of the Society, shall not be deemed to be invalid by reason only of some defect subsequently discovered in the constitution of the Managing Committee.

(v) The impugned order fails to appreciate the significance of the letter dated 29 May, 2009 addressed by the Administrator appointed to look into the affairs of the respondent, confirming that the agreement was valid and Page 16 / 54 binding on both the parties. Under Section 78(6), all acts of the administrator were binding on the Committee subsequently appointed.

(vi) It is submitted that there can be no quarrel with the propositions that

Section 73 (1AB) is a mandatory provision and that the managing committee members vacated office as a result of their failure to file the required bonds, however, the acts done by the Managing Committee despite such disqualification, were saved by the provisions of Section 77 of the Act. Hence, the provisions of Section 73 (1AB) are mandatory is no answer to the implication as brought about by Section 77 of the MCS Act, by which acts done by disqualified committee members stand saved. This contention of the petitioner has not been meaningfully addressed by the respondent, except for the respondent’s reliance on Section 73 (1AB).

(vii) The provisions of Section 77 of the MCS Act becomes relevant as

Section 77 stipulates that no act of the Society or a Committee or “any officer” done in good faith and in pursuance of the business of the Society shall be deemed to be invalid by reason only of some defect subsequently discovered in the organization of the society or in the constitution of the committee or in the appointment of the election of an officer, or on the ground that such officer was disqualified for office. Section 2(20) defines “officer” to expressly include a member of the Committee. This is also held by this Court in Babasaheb Borade vs. Additional Divisional Page 17 / 54 Commissioner[1] that members of the Managing Committee fall within the definition of “Officer”.

(viii) The submission is that saving provisions are found in various statutes that provide for the circumstances in which certain acts are saved notwithstanding a disqualification that may attach in respect of the appointee/person undertaking such an act. It is the savings provision that is required to be interpreted to arrive at a conclusion on whether or not acts done are saved. In the present case, such provision is Section 77 of the MCS Act. The respondent has not made out a case to show why Section 77 does not operate to save acts done by the Managing Committee.

(ix) The respondent’s contention that due to disqualification attached to the Managing Committee, its members were “akin to a person disqualified for contracting by the law to which they were subject”, under Section 11 of the Indian Contract Act, 1872, is misplaced. The reason being that the Managing Committee of the Cooperative Society is not a legal person. In the present case, it is not the Managing Committee that is the contracting party and the contracting party is a respondent-Society. Under Section 36 of the MCS Act, the registration of a society renders it as a body corporate with perpetual succession and the power to enter into a contract and to do all other things as are necessary for the purpose for which it is constituted. 1 2011 6 BomCR 63. Page 18 / 54 The society is an artificial legal person who has contracted with the petitioner under the Development Agreement dated 13 September, 2002. Thus, the Society was under no disqualification and was not incompetent to contract. Moreover, the genesis of the contract between the parties lies in the General Body Resolution dated 11 August, 2002, by which the draft Development Agreement was unanimously approved. The Managing Committee was merely a delegate of the General Body of the Society, which was authorized to execute the Development Agreement. Consequently, the provisions of Section 11 had no application whatsoever to the present case. Thus, under Section 72 of the MCS Act the final authority of the Cooperative Society vests in the General Body, unless otherwise indicated under the MCS Act. If the disqualified Managing Committee had first executed the contract and then placed it before the General Body for ratification, such an act would be considered a “stillborn act”, as it was without authority at its inception. That is not so in the present case, as the the Society’s General Body had first resolved to execute the Development Agreement and it is only thereafter that the contract was entered into. This is hence a case where the Society was seeking to resile from the solemn contractual obligation on the specious ground that its own officers, who were expressly authorized by the General Body Resolution had vacated office at the time of execution of the said agreement and therefore Page 19 / 54 the Development Agreement is void. Such an argument is an argument of convenience and has no foundation in law and ought to be rejected.

(x) There exists no conflict between the provisions of Sections 72 and

73 or Section 73 (1AB) of the MCS Act. The contention of the society that Section 72 must yield to Section 73 (1AB) as the provisions of Section 72 are “subject to” other provisions of the MCS Act, ought not to be accepted. It is submitted that Section 72 interalia provides that the final authority of every society vests in the General Body in a general meeting summoned in such a manner as may be specified by the bye-laws. Section 73 provides that the management of every society shall vest in a committee which shall exercise such powers and perform such duties as may be conferred or imposed by the Act, rules, and bye-laws. These provisions do not in any way conflict or interfere with the other. In support of the contention that Section 72 provides for the primacy of the General Body, reliance is placed on the decisions in (a) A-I Cooperative Housing Society v. Laxminarayan Goel[2] and (b) B. Madappa v. State of Karnataka[3].

(xi) It is submitted that the mandatory prescription under Section

73 (1AB) does not, and cannot, operate to nullify the decisions made by the General Body in a general meeting. The words “subject to” at the beginning of Section 72 could only mean that unless otherwise indicated in 2 (1969)71 BLR 616 3 ILR 1990 Kar 1785 Page 20 / 54 the Act or in the rules framed thereunder, the General Body acting in pursuance of a validly convened general meeting will be the final authority. In certain situations prescribed under the Act, the General Body is not the final authority. Thus, despite a disqualification of the Managing Committee that may have resulted due to a failure to comply with the provisions of Section 73(1AB), the General Body retains its primacy under Section 72, except as otherwise indicated under the Act. Section 73(1AB) does not provide, whether expressly or impliedly, for overriding the primacy of the General Body.

26. On the above submissions, it is submitted that the petition be allowed.

(D) Submissions on behalf of the Respondents:

27. Mr. Daga, learned Counsel appearing on behalf of the respondent- Society has made the following submissions: i. In so far as the provisions of Section 73 (1AB) of the MCS Act are concerned, it is submitted that the new Managing Committee of the society was elected on 11 August, 2002 and assumed office. It is submitted that as per the said provisions of the MCS Act which were in force and applicable, the Managing Committee was bound to execute the M20 bonds within a period of 15 days from assuming office, in the prescribed format and the members who fail to execute such bonds within the specified period shall be Page 21 / 54 deemed to have vacated their office as members of the Managing Committee as specifically provided by the said provision. It is submitted that the period of 15 days expired on 26 August, 2002. It is a matter of fact that none of the members of the Committee executed the requisite bond within the stipulated time period of 15 days from 11 August, 2002 and therefore, they have deemed to be and / or automatically vacated office on 26 August, 2002. ii. It is submitted that it is not in dispute that the subject agreement was executed on 13 September, 2002 i.e. after expiry of 15 days time period for the elected Managing Committee members to mandatorily execute the bond as per the provisions of Section 73(1AB), consequently they ceased to have any power or authority to perform any duty or task on behalf of the respondent society, much less to enter into a Development Agreement which is an act of a very serious nature. It is submitted that the committee had no authority on 13 September, 2002 or post 26 August, 2002 and therefore they could not have entered into any contract on behalf of the society so as to bind the society or its members. Consequently, the subject agreement dated 13 September, 2002 and all acts/decisions taken by such committee on or after 26 August, 2002 are void ab initio and non-est. Page 22 / 54 iii. It is submitted that the Registrar by his Order dated 18 February, 2009 has superseded the said Managing Committee and appointed an administrator for violation of Section 73 (1AB) of the MCS Act being failure to execute the M20 bonds within the stipulated time period of 15 days. The said Order dated 18 February, 2009 has not been challenged and had attained finality. Even after the new committee was appointed, there was no ratification of the said agreement dated 13 September, 2002 by the new Managing Committee which subsequently came into existence and took charge. iv. It is submitted that the provisions of Section 73 (1AB) of the MCS Act are mandatory and not merely directory. This is a well settled position in law. In supporting such submissions, reliance is placed on the decision of the Division Bench of this Court in the matter of ‘Assissi CHS Ltd. vs. State of Maharashtra & Ors.’ [Appeal No.683/2006 in WP No.501/2005]. Such view was reiterated by the other Benches of this Court in the matter of (i) Gulab Rameshnath Khote vs. State of Maharashtra & Ors.4, (ii) Shashikant Jesrani & Ors. vs. Assistant Registrar & Ors.5, and (iii) Dr. Deepak Panditrao & Ors. vs. State of Maharashtra[6]. 4 (2008) 1 Mh.L.J. 83 5 WP No.1671/2009, Order dt.27.1.2009 6 WP No.2587/2007, Order dt.19.12.2007 Page 23 / 54 v. It is next submitted that the use of the words “shall be deemed to have vacated his office” in the proviso to Section 73 (1AB) of the MCS Act shows that there is a ‘deeming fiction’ engrafted into the language of the said section. In the context of Section 9-A of the Maharashtra Municipal Councils, Nagarpanchayats & Industrial Townships Act 1965 (for short “the 1965 Act”), the Full Bench of the Bombay High Court in the matter of ‘Anant H. Ulhahalkar vs. Chief Election Commissioner’7 had the occasion to consider the effect of deeming fiction contained in the proviso to Section 9-A of the 1965 Act and so as to consider whether the interpretation of the provision when it stipulated a period of 6 months for the production of a validity certificate was directory or mandatory. The Court while interpreting the provisions of Section 9-A of the 1965 Act held that the same is pari materia to the provisions of Section 73 (1AB) of the MCS Act and that the language of the two provisions are materially identical. vi. It is not in dispute that the members of the Managing Committee who executed the Development Agreement on 13 September, 2002 were ineligible and therefore, disqualified on the date when the said agreement was executed. The position of these members was nothing but akin to a person who was disqualified from contracting by any law to which they 7 (2017) 1 Mh.L.J. 431 Page 24 / 54 were subjected as per Section 11 of the Indian Contract Act, 1872. Section 11 of the Indian Contract Act is certainly relevant in the present context as Section 11 of the Indian Contract Act provides that “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject”. In support of this proposition, reliance is placed on the decision in (Lal) Chandradwaj Deo Vs. (Lal) Artraran Deo[8]. It is submitted that this decision would also go to show that the position of the committee members was clearly covered by the provisions of Section 11 of the Contract Act, therefore the agreement never came into existence and hence, cannot give rise to any claim even based on Section 65 of the Contract Act. For such reason, even the subsequent act of the Registrar of writing a letter dated 29 May, 2009 cannot be of any consequence or effect. vii. It is submitted that the ‘de-facto doctrine’ is not applicable. The reliance of the petitioner on the decision of ‘Gokaraju Rangaraju Vs. State of Andhra Pradesh[9], and ‘Hamilton Houseware Private Limited vs. Designate Authority, DGAD&LD10 ’ is misplaced. Whether the Committee members were eligible on the date when the Development Agreement is 8 AIR (1936) Nagpur 15

10 2012 (1) MhLJ 442 Page 25 / 54 executed i.e. on 13 September, 2002, is the core issue and not something that arises collaterally. It is submitted that it is only in case of a dispute between two private litigants when the issue of defective appointment of a de facto Judge cannot be permitted to be questioned, because in such a case “a litigant is not directly concerned with the authority or a title of the Judge to his office.” viii. It is next submitted that Section 72 of the MCS Act cannot be an answer. Section 72 cannot be read as having any overriding effect on Section 73 (1AB) or cannot be read in a manner completely ignoring the provisions of Section 73 (1AB). If any other provision of the MCS Act is being violated, the shelter under Section 72 cannot be taken. Section 73(1AB) will prevail over Section 72 if there is a conflict between the said provisions. This contention is supported by placing reliance on the decision of the Supreme Court in the case ‘Aloys Wobben vs Yogesh Mehra11. ix. It is submitted that the reliance on the Minutes of the General Body Meeting dated 11 August, 2002 is entirely misplaced, as an action was filed/ initiated for specific performance of the Development Agreement and not the Minutes or the Resolution. The resolution and minutes are internal documents of the respondent society and cannot create any vested right in

Page 26 / 54 favour of the petitioner. Further, the resolution never authorized ineligible or disqualified committee members to execute the Development Agreement. The said persons were authorized to execute only in their capacity as members of the managing committee and not otherwise. x. It is next submitted that this is not the case where there is a conflict between the society and the Managing Committee. xi. It is submitted that the petitioner’s case based on Section 77 of the MCS Act is misconceived. The emphasis on behalf of the petitioner on the words “good faith” appearing in Section 77 as to protect the action of the Committee members also ought not to be accepted. It is submitted that it cannot be disputed that “good faith” is a question of fact that has to be pleaded and then proved by the party who wants to take advantage of such a provision. There is no pleading of good faith by the petitioner. Also, the redevelopment of the building of the respondent society is not relatable to the business of the society as the said activity cannot be considered as touching the business of the society. In such context, reliance is placed on the decision of this Court in ‘Mohinder Kaur Kochar Vs. Mayfair Housing12 ’, to contend that redevelopment of the property of a society does not mean that the society is engaged in the business of redevelopment. The process of redevelopment of the society in the facts of 12 (2013)1 Mh.L.J. 389 Page 27 / 54 the present matter does not constitute the business of the society within the meaning of Section 91 of the MCS Act. The object of the society is not to engage in the business of construction and real estate. Moreover, the byelaws of the society are identical to the bye-laws that were the subject matter in the case of ‘Mohinder Kaur Kochar’ (supra), as seen from paragraphs 14 and 15 of the said decision. Further, even the petitioner considered that the redevelopment in the present case was not in pursuance of the business of the society and therefore, it did not give any notice under Section 164 of the MCS Act to the Registrar before filing the suit. Therefore, the petitioner itself proceeded on the basis that the execution of the said agreement was not in pursuance of the business of the society or touching the business of the society and therefore, now cannot be permitted to place reliance on Section 77 of the MCS Act. Such an argument is also afterthought not realizing that by the conduct of not giving notice under Section 164 of the MCS Act, the petitioner had accepted that the proposed redevelopment did not relate to something that touches the business of the society. xii. It is next submitted that the view taken by the tribunal is a plausible view and is not perverse. In such context, it is submitted that in a challenge to an order or an award made under Section 16 upholding the jurisdictional objection raised, this Court cannot go into facts and law on every aspect and substitute its own opinion in place of the tribunal. The Court would be Page 28 / 54 required to consider whether the order passed by the tribunal was a plausible view and once this test is applied to the facts of the present case, no interference is called for in the impugned order. (E) Analysis and Conclusion:

28. I have heard learned counsel for the parties as also with their assistance, I have perused the record.

29. It is not in dispute that the Society was contemplating redevelopment of its structures in the year 2000 and in that regard, a unanimous decision was taken in the meeting held on 30 July, 2000. It is also not in dispute that in December, the Society issued a circular inviting offers for construction work to be undertaken. In pursuance thereto, two offers were received, one of them being of the petitioner. It appears that on 12 August, 2001, the 41st Annual General Body Meeting was held in which a resolution was passed whereunder the Managing Committee and its office bearers were authorized to finalize the terms and conditions and appoint a developer to whom the redevelopment project could be entrusted. On 09 July, 2002, an MoU was executed between the petitioner and the society delineating the broad terms and conditions in relation to the project in question. Page 29 / 54

30. On 11 August, 2002, the 42nd AGM of the society was held in which the minutes of the 41st AGM held on 12 August, 2001 were confirmed unanimously. Significantly in such meeting nine members of the Managing Committee of the society were elected for the term 2003 to 2005 in place of the retiring members.

31. The case of the petitioner is that the MoU as also the draft Development Agreement were placed before the AGM dated 11 August,

2002. In so far as the draft Development Agreement is concerned, it is stated that it was resolved that the draft Development Agreement as well as irrevocable General Power of Attorney be drawn on requisite stamp paper and the same be signed and executed for and on behalf of the society by its Chairman, Secretary and Treasurer.

32. It needs to be observed that simpliciter election of the Managing Committee would not empower the managing committee members to act on behalf of the society, unless they become eligible and/or qualified in law to discharge the functions of the Managing Committee as specifically provided at the relevant time namely on the Managing Committee members executing a bond in favour of the society as per the requirement of Section 73(1AB) of the MCS Act. Section 73 of the MCS Page 30 / 54 Act came to be incorporated by Maharashtra Act No. 41 of 2000 which was prevailing at the relevant time and reads thus:- “73. Committee, its powers and functions. (1) The management of every society shall vest in a committee, constituted in accordance with this Act, the rules and bye-laws, which shall exercise such powers and perform such duties as may be conferred or imposed respectively by this Act, the rules and the byelaws. (1AB) 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. Every such member shall execute a bond to that effect within fifteen days of his assuming the office, in the form as specified by the State Government by general or special order. The member who fails to execute such bond within the specified period shall be deemed to have vacated his office as a member of the committee: 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: Provided further that, any member of the committee, who does not agree with any of the resolution or decision of the committee, may express his dissenting opinion which shall be recorded in the proceedings of the meeting and such member shall not be held responsible for the decision embodied in the said resolution or such acts or omissions committed by the committee of that society as per the said resolution. Such dissenting member, if he so desires, may also communicate in writing his dissenting note to the decision. Any member, who is not present for the meeting in which the business of the society is transacted, and who has not subsequently confirmed the proceeding of that meeting, such member shall also not be held responsible for any of the business transacted in that meeting of the society.” (emphasis supplied) Page 31 / 54

33. As the learned counsel for the parties have also referred to the provisions of Sections 72, 77, and 78, the same are also required to be noted which read thus:- “72. Final authority of society.— Subject to the provisions in this Act and the rules, the final authority of every society shall vest in the general body of members in general meeting, summoned in such a manner as may be specified in the bye-laws. Where the bye-laws of a society so provide, the general meeting shall be attended by delegates appointed by the members, and such meeting shall be deemed to be the meeting of the general body, for the purpose of exercising all the powers of the general body....... …

77 Acts of societies, etc. not to be invalidated by certain defects. (1) No act of a society or a committee or any officer, done in good faith in pursuance of the business of the society shall be deemed to be invalid by reason only of some defect subsequently discovered in the organisation of the society, or in the constitution of the committee, or in the appointment or election of an officer, or on the ground that such officer was disqualified for his office. (2) No act done in good faith by any person appointed under this Act, the rules and the by-laws shall be invalid merely by reason of the fact that his appointment has been cancelled by or in consequence of any order subsequently passed under this Act, rules and the by-laws. (3) The Registrar shall decide whether any act was done in good faith in pursuance of the business of the society; and his decision thereon shall be final.

78. Power of removal of committee or member thereof.— (1) If, in the opinion of the Registrar, the committee of any society or any member of such committee makes default, or is negligent in the performance of the duties imposed on it or him by this Act or the rules or the bye-laws, or commits any act which is prejudicial to the interests of the society or its members, or willfully disobeys directions issued by the State Government, or by the Registrar for the purposes of securing proper implementation of Co-operative policy and development program approved or undertaken by the State Government or is otherwise not discharging its or his functions properly and diligently or where a situation has arisen in which the committee or any member of such committee refuses or has ceased to Page 32 / 54 discharge its or his functions and the business of the society has or is likely to come to a stand still, or where any member of such committee stands disqualified by or under this Act for being a member, the Registrar may, after giving the committee or the member, as the case may be, an opportunity of stating its or his objections, if any, within 15 days from the date of receipt of notice, and after consultation with the federal society to which the society is affiliated, by order- (a) (i) remove the committee, and

(ii) appoint a committee consisting of three or more members (who shall not be the members of the committees so removed) of the society in its place, or appoint one or more Administrators who need not be members of the society, but who shall not be the members of the committee so removed to manage the affairs of the society for a period not exceeding six months, which period, at the discretion of the Registrar, be extended by a further period Dot exceeding three months so, however, that the total period does not exceed nine months in the aggregate: Provided that, the Registrar shall have the power to change the committee or any member thereof or the administrator or administrators appointed under paragraph (ii) at his discretion even before the expiry of the period specified in the order made under this sub-section; (b) Remove the member and appoint any person as member of such committee in his place, or direct the society to elect or appoint a member in his place, for the remainder of the term of office of the member so removed. Provided that, the member who has been so removed, shall not be eligible to be re-elected, re-appointed, re-nominated, or re-co-opted, as a member of the committee till the expiry of the period of next one full term of the committee from the date on which he has been so removed or till such lesser period as may be laid down under the provisions of section 73FFF or 144E, as the case may be. Provided further that, the supersession or removal of the committee of the District Central Co-operative Bank or the State Cooperative Bank under this sub-section shall not be done without prior consultation with the Reserve Bank of India; Provided also that, the committee of a primary agricultural cooperative credit society shall not be superseded by the Registrar except under the following circumstances, namely:-

(i) if a society incurs losses for three consecutive years; or

(ii) if serious financial irregularities or frauds have been identified; or

(iii) if there are judicial directives to this effect; or

(iv) if there is perpetual lack of quorum:

Provided also that, the members of the Board of a primary agricultural credit co-operative society which has been superseded shall not be eligible to be re-elected, re-appointed, re-nominated or reco-opted, as a member of the committee for a period of three years from the date of supersession of the Board. (1A) When a notice is issued against any committee or member under sub-section (1), if resignation from any office is tendered by the committee or member, it shall not be valid or effective until two months have elapsed from the date of issue of the notice or until it is permitted to be accepted by the Registrar, whichever is earlier. (2) The committee or administrator so appointed shall, subject to the control of the Registrar and to such instructions as he may from time to time give, have power to exercise all or any of the functions of the committee or of any officer of the society, and take all such action as may be required in the interests of the society. [The committee or administrator appointed as aforesaid shall, notwithstanding anything contained in the bye-laws, have power to call a special general meeting of the society to review or to reconsider the decision or the resolution taken or passed at the general meetings called by the previous committee or to endorse action taken by it.] (2A) The Registrar may fix the remuneration payable to the administrators and any expenses of management which shall be payable out of the funds of the society within such time and at such intervals as the Registrar may fix, and if such remuneration or expenses are not paid within such time or at intervals, the Registrar may direct the person having custody of the funds of the society to pay to the administrators such remuneration and expenses in priority to any other payments (except land revenue, any arrears of land revenue, or any sum recoverable from the society as arrears of land revenue) and he shall, so far as the funds to the credit of the society allow, comply with the orders of the Registrar.] (3) If at any time during any period, or extended period referred to in sub-section (1), it appears to the Registrar, that it is no longer necessary to continue to carry on the affairs of the society as aforesaid, the Registrar may, by an order direct that the management shall terminate; and on such order being made, the management of the society shall be handed over to a new committee duly constituted. (4) The committee or administrator shall, at the expiry or termination of its or his term of office, arrange for the constitution of a new committee in accordance with the bye-laws of the society: Page 34 / 54 Provided that, the committee or Administrator shall make arrangements for constitution of a new committee of co-operative credit structure entity, within a period of two months from the date of order of supersession of board of co-operative credit structure entity; Provided further that, if a new committee is not, or cannot be, constituted at the expiry or termination of the term of office of the committee or administrator, for any reason beyond the control of the committee or administrator, the term of office of the committee or the administrator, as the case may be, shall be deemed to be extended, until the new committee is duly constituted. Provided also that, in no circumstances, the term of office of the committee of, or the Administrator appointed on, the co-operative credit structure entity shall exceed six months from the date of supersession of the committee. (5) All acts done or purported to be done by the committee or administrator during the period the affairs of the society are carried on by the committee or administrator appointed under subsection (1), shall be binding on the new committee.”

34. It appears that the newly elected managing committee members did not discharge their mandatory obligation to execute bonds within 15 days of their assuming office in compliance with the provision of sub-section (1AB) of Section 73 of the MCS Act. There is an automatic consequence brought about by the said provision by which, by operation of law, the member who fails to execute the bond within the specified period, shall be deemed to have vacated his/her office as a member of the committee. It, therefore, appears that as the election was held on 11 August, 2002, as decided in the 42nd Annual General Body Meeting, within 15 days of the said election, the elected managing committee members were required to execute bonds within 15 days i.e. till 26 August, 2002, and having not Page 35 / 54 executed such bonds, by operation of law and/or automatically as per the provisions of sub-section (1AB) of Section 73, a consequence was brought about of these members having vacated their offices. In fact, the word “shall” has been used in sub-section (1AB) of Section 73 of the MCS Act which indicates the mandatory consequence, being brought about and taking place, namely these members vacating their office as members of the Managing Committee.

35. It is on such backdrop and having attained disqualification and/or ineligibility, it appears that the concerned Managing Committee members went ahead, who on 13 September, 2002 entered into a Development Agreement with the petitioner. Certainly, such an act of the newly elected managing committee members would be opposed to what has been provided by Section 73(1AB), namely that these managing committee members were no more the members of the managing committee as they had deemed to have vacated their offices. This is the plain conclusion that is brought about by the provisions of Section 73(1AB) of the MCS Act.

36. Once Section 73(1AB) of the MCS Act mandates and has brought about such consequence merely because the petitioner was not aware of these members not executing the mandatory bonds, would not alter the consequence which is brought about by Section 73(1AB). This for the Page 36 / 54 reason that once these members ceased to be members of the Managing Committee by operation of law and they were rendered to be mere members of the society, as they lost their status of being the elected members of the Managing Committee. As mere members of the society, they are at par with the other members of the society, consequently, they would not have any authority to bind the society with any such of their acts of executing a Development Agreement and bind the other members of the society and/or the society itself by such acts. This appears to be the plain consequence as brought about by the provisions of Section 73(1AB) of the MCS Act.

37. However, the contention as urged on behalf of the petitioner is relying on the provisions of Section 72 of the MCS Act, which provides that “the final authority of every society shall vest in the General Body of members in general meeting”. The contention is that once the general body has approved the draft of the Development Agreement, the same would be binding on the society and the execution of the same by the managing committee members, who were not eligible for want of compliances under Section 73(1AB) of the MCS Act, becomes secondary. In my opinion, such an argument needs to fail for more than one reason. Firstly, it cannot be conceived that Section 72 in any manner condones or effaces or takes away the mandate of Section 73(1AB). Both these provisions stand independent Page 37 / 54 of each other. Both are required to read in conjunction. There is also no conflict between two, the object and purpose which is sought to be achieved by these provisions is clear from the wording of Section 72 of the MCS Act which itself provides “to be subject to the provisions in the Act and the rules.” This itself contemplates that the effect and operation of Section 73(1AB) has not been disturbed by the legislation, the compliance of which was binding on the society and its elected members. There is another reason to reject such contention of the petitioner namely that the General Body Resolution itself provided that the Development Agreement would be required to be executed. Thus, once the General Body itself provides that such an agreement is to be executed by the persons having such authority to execute, then there is no gainsaying for the petitioner to contend that the execution of the development is secondary and what is primary and/or binding on the society, is a resolution approving the Development Agreement. It would be too far-fetched to conclude that mere approval of the Development Agreement in the general body meeting would bring about a binding contract between the society and the petitioner without such a document being executed between the parties. This would be against the basic norms as to what can be a contract between the parties as provided for under the Indian Contract Act, 1972. In this context Section Page 38 / 54 11 of the Contract Act is also relevant which provides as to who is competent to contract. Section 11 reads thus:- “11. Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.”

38. It can thus be noted from Section 11 of the Contract Act that a party entering into a contract cannot be disqualified from contracting by any law to which he is subject. In the present case, it is clear that Section 73(1AB) brought about a direct disqualification of the elected members of the managing committee in as much as they ceased to be the members of the managing committee who had deemed to have vacated their offices as members of the managing committee. If that be so, there is no question of these elected persons having any authority in law to execute an agreement. Also it cannot be that the person who is disqualified in law, can enter into any binding agreement. Countering the respondent’s submission on Section 11 of the Contract Act, the petitioner’s contention that the Managing Committee of a co-operative society is not a legal person but the Society is a legal person considering the provisions of Section 36 of the MCS Act, and it is the Society which had entered into a Development Agreement, is factually as also legally untenable. It is factually untenable as such argument is contrary to the General Body Resolution of the Society as noted above. It is legally untenable for the reason that Section 11 of the Indian Contract Page 39 / 54 Act, 1872 categorically speaks about “every person” who would be competent to contract and who is entirely not disqualified from contracting by any law to which he is subject, to mean only the Society and not the members of the Managing Committee, as canvassed by the petitioner would be nothing short of misreading the provisions of Section 11 of the Indian Contract Act, 1872. In such context respondent’s reliance on the decision in (Lal) Chandradwaj Deo vs. (Lal) Artraran Deo (supra) is apposite.

39. It may also be observed that mere approval of the draft Development Agreement by the general body cannot bring about a binding contract between the parties. It is for such reason, the petitioner has consciously not prayed for any relief in the arbitral proceedings that the general body resolution of the 42nd AGM held on 11 August, 2002 be considered as a binding contract. The prayer in the arbitral proceedings is purely on the purported rights under the Development Agreement executed on 13 September, 2002 which is clear from the prayers as made in the arbitral proceedings. The relevant extract of the prayers in the award needs to be noted, which reads thus:- “a) That this Hon’ble Court be pleased to declare that the Agreement dated 13-09-2002 and Power of Attorney dated 24-09-2002 executed by and between the Plaintiff and the Defendant are valid subsisting and binding on the Defendant and the Plaintiff is entitled to specific performance of the terms and conditions of the said Agreement in respect of the suit property admeasuring 4657.50 sq. mt. along with the buildings & structures standing thereon situated lying & being at Village Mulund, Tal. Kurla, Dist. MSD, within limits of Gr. Mumbai Municipal corporation bearing Revenue S. No. 189B & 190A,

Page 40 / 54 b) That this Hon’ble Court by an order be pleased to direct the Defendants to specifically perform the Agreement dated 13-09-2002 executed by and between the Plaintiff and the Defendant on the terms and conditions, in respect of the suit property admeasuring 4657.50 sq. mt. along with the building & structures standing thereon situate lying & being at Village Mulund, Tal. Kurla, Dist. MSD, within limits of Gr. Mumbai Municipal Corporation bearing Revenue S. No. 189B & 190A,

40. The next contention as urged on behalf of the petitioner is relying on the provisions of Section 77 of the MCS Act, which as noted above, provides for the act of a society not to be invalidated by certain defects. In my opinion, the petitioner’s contention relying on Section 77 of the MCS Act is totally untenable, in as much as if such a contention is accepted, it would amount to Section 77 of the MCS Act overriding the provisions of Section 73(1AB) which is not the intention of the legislature as seen from the plain reading of these provisions. Secondly, sub-section (1) of Section 77 when it talks about no act of a society or a committee or any officer, done in good faith in pursuance of the business of the society shall be deemed to be invalid by reason only of some defect subsequently discovered interalia in regard to the organization of the society or in the constitution of the committee, or in the appointment or election of an Page 41 / 54 officer, or on the ground that such officer was disqualified for his office. Thus the provision talks about mere defects in regard to such specific incidents as referred to in sub-section (1) of Section 77. Sub-section (1) of Section 77 when it speaks about defects, cannot take within its ambit and/or bring about a consequence that it would render sub-section (1AB) of Section 73 nugatory. Once by operation of law, the elected members are deemed to have vacated their office by virtue of sub-section (1AB) of Section 73, it cannot be countenanced that Section 77 is a provision that would validate and/or nullify the mandate and effect brought about by subsection (1AB) of Section 73 of the MCS Act. Thus, Section 77 of the MCS Act does not bring about any consequence to remove the bar and invalidity as mandated and occasioned by the provision of Section 73(1AB) of the MCS Act. For such reason, the petitioner’s contention relying on Section 77 of the MCS Act to contend that the act of the disqualified members signing the Development Agreement is saved by Section 77 of the MCS Act is ill founded.

41. The next contention as urged on behalf of the petitioner is that the execution of the Development Agreement by the members of the managing committee was a ministerial act and what was imperative was the general body’s decision is totally unacceptable for the above reasons. Page 42 / 54

42. The aforesaid discussion would lead me to conclude that the provisions of Section 73(1AB) in so far as it required the elected members of the managing committee to submit bonds as per the specific requirements of the said provision, was certainly a necessary and mandatory compliance. I am not shown any provision which would exempt the elected members from dispensing with the requirement of submitting such bonds. The provision itself makes it crystal clear as to what would be the legal effect of such elected members not submitting their bonds namely that on the lapse of a period during which they were under a mandate to submit the bonds and the bonds being not submitted by operation of law, they were deemed to have vacated their offices as elected members. The legal consequence also is that in law they ceased to be members of the managing committee and were rendered to be mere members of the society without any status of being members of the managing committee which is certainly a different status from that of a mere member.

43. It also cannot be forgotten that the object and intention of the legislature to make the provision in the nature of sub-section (1AB) of Section 73 was to bring about the accountability of the members of the managing committee towards the society. It was thought appropriate that such accountability can be brought about by providing that the elected members would mandatorily furnish bonds within 15 days of their Page 43 / 54 assuming office and that too in “Form M-20” specified by the State Government by general or special order. There cannot be any other reading of Section 73(1AB) of the MCS Act. As noted above, neither Section 72 nor Section 77 of the MCS Act would obliterate and/or override the mandate of Section 73(1AB) of the MCS Act.

44. Now coming to the decisions as cited on behalf of the parties. In the context of what has been observed above, Mr. Daga would be justified to rely upon the decision of the learned Single Judge of this Court in the case of Assissi Co-operative Housing Society Limited & Ors. Vs. The State of Maharashtra & Ors. (supra). The learned Single Judge, considering the provisions of Section 73(1AB) of the MCS Act, held that there is no provision for an extension of time for the execution of the bond. Even if there is just and sufficient cause for non-execution of the bond within 15 days, the statute does not give power to the Registrar to extend the period for execution of the bond beyond the statutory period of 15 days. It was observed that the provision may appear draconian but if the legislature, in its wisdom, had chosen to enact and provide for the automatic vacation of the office without any power to grant an extension of time with a view to check the malpractices committed by the members of the committee of a society and that the Court cannot refuse to give full effect to it. The relevant observations of the Court are required to be noted with read thus:- Page 44 / 54 “7. Sub-section (1AB), consists of two parts. The first part lays down that the members of the committee shall be jointly and severally responsible for all decisions taken by the committee during its term relating to the business of the society and that members of the committee shall be jointly and severally responsible for all acts and omissions detrimental to the interest of the society. Proviso to subsection (1AB) requires the Registrar to inspect the records of the society and decide whether any losses incurred by the Society are on account of the acts or omissions on the part of the members of the committee or on account of any other cause such as natural calamities, accident or any circumstances beyond the control of the members of the committee. Second proviso to sub section (1AB) says that where any member of the committee expresses his dissenting opinion to any resolution or decision of the committee the dissent shall be recorded in the proceedings of the meeting and such member would not be responsible for the decision embodied in the said resolution. So also any member of the committee who is not present for the meeting in which the business of the Society is transacted and who has not subsequently confirmed the proceedings of that meeting would not be held responsible for the business transacted in that meeting of the society. Thus, the two provisos are exception to the principle of joint and several liability of the members of the committee for their acts and omissions. If the circumstances covered by the provisos exists, the member or the members of the committee may escape the liability for their acts and omissions. Second part of Sub-section (1AB) provides that every member of the committee shall execute a bond in the prescribed form, regarding his liability for the loss caused to the society by his acts and omissions, within 15 days of his assuming the office. Joint and several liability of every member of the committee for the actions of the committee arises statutorily out of the first part of subsection (1AB) of section 73 of the Act. However, in order to leave no doubt, the legislature has introduced further provision requiring every member of the committee to execute the bond regarding his joint and several liability. The legislature has further provided that a member of the committee who fails to execute the bond within the specified period shall be deemed to have vacated his office as a member of the committee. Vacation of the office is automatic and the statutory consequence of non execution of the bond within 15 days of assuming the office. Sub-section (1AB) of section 73 of the Act does not make any exception to the vacating of the office on non execution of the bond within 15 days. There is no provision for extension of time for execution of the bond. Even if there is just and sufficient cause for non execution of the bond within 15 days, the statute does not give power to the Registrar to extend the period for execution of the bond beyond the statutory period of 15 days. The provision may appear drachonic but if the legislature, in its wisdom, has chosen to enact and provide for automatic vacation of the office without any power to grant extension of time with a view to check the malpractices committed by the members of the committee of a society, the Court cannot refuse to give Page 45 / 54 full effect to it. It is for the legislature to amend the law, if it so thinks necessary to grant any suitable relief in appropriate cases by extension of time for execution of the bond. If the language of the statute is clear, the Court cannot refuse to enforce it on the ground that the enforcement would cause hardship.” The above decision of the learned Single Judge was subject matter of assail in proceedings of Appeal No. 683 of 2006. The Division Bench dismissed the appeal affirming the view taken by the learned Single Judge.

45. In Gulab Rameshnath Khote Vs. State of Maharashtra & Ors. (supra) a Division Bench of this Court referring to the decision of the learned Single Judge of this Court in Assisi Co-operative Housing Society Limited & Ors. Vs. The State of Maharashtra & Ors. (supra), observed that the provision of Section 73(1AB) is not directory, but it is mandatory. The Division Bench observed thus:- “10A. Shri Kumbhakoni, learned Addl. Advocate General has placed reliance on a case Assissi Co-op. Hsg. Soc. Ltd. v. State of Maharashtra, wherein while deciding the Appeal No. 683 of 2006 the Division Bench of this Court has clearly observed that the provision of Section 73(1AB) is not directory, but it is mandatory. We are in full agreement with the view expressed by the Division Bench of this Court in the above matter. So, relying upon the said ruling we hold that the said provision is mandatory.”

46. In Dr. Deepak Panditrao & Ors. vs. The State of Maharashtra & Ors. (supra), the learned Single Judge of this Court, again considering the provision of Section 73(1AB) of the MCS Act, held that the said provision Page 46 / 54 was mandatory and non-compliance of the said provision incurred automatic disqualification by operation of law. In such context, the Court observed thus:- “In so far as the elected executive members, who failed to execute the bond, in view of the mandatory provisions of Section 73(1AB), they incurred automatic disqualification by operation of law. As a result, four vacancies were automatically caused in the Managing Committee consisting of seven members.”

47. It is thus clear from the above decisions that consistently this Court has held the provision of Section 73(1AB) as prevailing at the relevant time to be mandatory and not directory. Once such consistent view has been taken, the petitioner would not be correct in placing reliance on the judgment of A-I Co-operative Housing Society Limited vs. Laxminarayan Goel (supra) to contend that the act of the general body in its meeting held on 11th August, 2002 to approve the draft Development Agreement would bring about a legal consequence that the Development Agreement executed by the disqualified members of the managing committee would stand validated, is an untenable proposition. No doubt it is the general body which was required to take certain decisions, but when it comes to executing an agreement, as serious as the Development Agreement, it was required to be executed on behalf of the society by persons who were delegated such task by the Society in its General Body Meeting namely the Managing Committee the members of which who were qualified in law to do so, and Page 47 / 54 not by such persons, who have attained any disqualification as noted above, even considering the provisions of Section 11 of the Indian Contract Act. Thus in the present facts, in view of the clear provisions of Section 73(1AB), the decision of the Division Bench in AI Cooperative Housing Society V. Laxminarayan Goel (supra) would not be applicable.

48. In so far as the petitioner’s reliance on the decision of Girish Mulchand Mehta & anr. Vs. Mahesh S. Mehta & Anr.13 to support a proposition that a resolution of the general body meeting to approve the draft Development Agreement is concerned, is not well founded considering the prayers as made in the arbitral proceedings which are to enforce the Development Agreement dated 13 September, 2002. It is not the prayer of the petitioner that the resolution of the general body is enforced as discussed in detail in the foregoing paragraphs.

49. Also the contention as urged on behalf of the petitioner that de facto doctrine is applicable in the present case, is untenable. It is well settled that the defective appointment of de facto Judge may be questioned directly in the proceedings to which he is a party, and cannot be permitted to be questioned in a litigation between two private litigants. The two litigants litigating a private dispute cannot be permitted to bring an issue and litigate 13 2010(1) Bom.C.R. 31 Page 48 / 54 upon the authority and title of a judge to his office. However, the present matter is not a case where there is a collateral attach on the eligibility of the committee members of the respondent society. In such context reliance on behalf of the respondent on the decision of the Supreme Court in Kishanlal Bishnoi Vs. Authorised Officer14 is well founded, where the Supreme Court has reiterated the said principle even referring to the decision in Gokaraju Rangaraju Vs. State of Andra Pradesh (supra). Thus de facto doctrine cannot be made applicable in the facts of the present case so as to hold that the Development Agreement in question is legal and valid. Also, the decision of the Division Bench in Hamilton Housewares Pvt. Ltd. vs. Designated Authority, Directorate General of Anti-Dumping and Allied Duties and others (supra) discussing the principles of de facto doctrine, is not applicable in the facts of the case. It needs to be observed that the principles of de facto doctrine in respect of a Government Officer appointed to discharge functions of a designated authority can in no manner be comparable to the position of the elected members of a cooperative society having rendered disqualification under the provisions of Section 73(1AB) of the MCS Act. For such reason also, reliance on the decision of Hamilton Housewares Pvt. Ltd. vs. Designated Authority (supra) is totally untenable. 14 (2017)2 Mh.L.J. 928 Page 49 / 54

50. The decision in the case of Shiromani Sugar Mills Limited v. Debi Prasad (supra) would also not assist the petitioner for more than one reason. Firstly, the position of the disqualification of directors of a company registered under the Companies Act cannot be compared to disqualification rendered by the managing committee members in the specific terms as contemplated under Section 73(1AB) of the MCS Act. The present case is not a case where an occasion has arisen to consider whether the act done by the elected directors to execute the Development Agreement on 13 September, 2002 was an act in good faith and was not hit by provisions of Section 73(1AB) of the MCS Act. In any event this is a question of fact and there was no material to accept any such contention by the petitioner that such act on the part of the Managing Committee members was taken in good faith. Thus, once by operation of law the elected members of the Managing Committee had attained disqualification, it hardly mattered as to whether the elected members of the Managing Committee had in their minds that they were acting in good faith. The situation which was considered by the Division Bench of Allahabad High Court in ‘Shiromani Sugar Mills Limited v. Debi Prasad ‘ (supra) was totally distinct from the present facts, when the Court made the following observations:- “In the present case, the Directors certainly knew that they had not paid the allotment and call moneys, but there is nothing to indicate that the fact that they had thereby disqualified themselves was present to their minds at the time when they allotted the shares and made the calls. Page 50 / 54 There was no defect in their appointment as Directors; the only defect is that they continued to act as Directors even after their disqualification. There is no suggestion that they acted dishonestly in passing the resolutions of allotment and making the calls. It seems that they acted bona fide, oblivious of the fact of their disqualification. There is no evidence of the fact of their disqualification having ever been brought to their minds. The language of Article 181 fully protects their actions. Had it been a case of only one or two Directors continuing to act as such despite the disqualification, I would have had no hesitation in forming the conclusion that I have. Here we have to deal with a large number of Directors acting as such despite the qualification. But there is no other circumstance f com which it can be said that they were conscious of the fact of their disqualification and yet continued to act as Directors So I come to the conclusion, though not without some hesitation, that the acts of allotting the shares to the opposite parties and making the first and second calls were valid.” The above observations of the Court itself would make it clear that the said decision is not relevant in the present case.

51. The next decision as relied on behalf of the petitioner is the decision of the learned Single Judge of this Court in Vithal Nagar Co-operative Housing Society Ltd. vs. Divisional Joint Registrar, CS, Mumbai Division and others (supra). This was a case where the elected members having achieved disqualification by non-submission of the mandatory bonds as per the provisions of Section 73(1AB) of the MCS Act, was an issue for consideration. However, it appears that number of illegal acts were performed by such members being the members of the Managing Committee. It is in such context, in considering the issue of delay and latches, the learned Single Judge observed that there would be no quarrel on the issue that the provisions contained in Section 73(1AB) of the MCS Act Page 51 / 54 are mandatory and that the consequence of not executing the Bonds within the prescribed period of 15 days of assuming office would result in vacation of the office by the members of the Managing Committee by operation of law. It was observed that this has also been held so, even by two Division Benches of this Court. It is in such context, the Court made the following observations:- “There can be no quarrel on the issue that the provisions contained in Section 73(1AB) of MCS Act are mandatory and that the consequence of not executing the Bonds within the prescribed period of 15 days of assuming office would result in vacation of the office by the members of the Managing Committee by operation of law. This has been held so, even by two Division Benches of this Court as indicated earlier. Primafacie though, I find it hard to accept that because the members of a Managing Committee of a Society did not execute the M-20 Bonds within the prescribed period, until an Administrator is appointed under Section 78 of the MCS Act who would hold elections of the Managing Committee, all the actions and decisions taken by the Society during the interregnum through subsequent Managing Committee would be set at naught for all times to come, on account of lack of competence, which period in a given case may even be decades. That, in my prima facie view would be an extreme proposition and would not be in sync with the cooperative movement. In any case, this issue is an important issue that needs to be determined in an appropriate case after a proper debate and certain parameters may be required to be laid down after construing section 77 of the MCS Act and I do not deem it appropriate to express any final opinion on this aspect in the present case where the issue is somewhat diluted as the Petitioner-Society has agreed to go in for a fresh election of the Managing Committee. None of the judgments cited before me specifically deal with the issue of delay and latches read in conjunction with section 77 of the MCS Act.”

52. It is thus clear that these are mere observations and not the final decision of the Court, as the Court itself had left the situation to be determined in an appropriate case. Even otherwise the said observations as Page 52 / 54 made by the Court would not assist the petitioner in view of the clear mandate as laid down by this Court in Assissi CHS Ltd. vs. State of Maharashtra & Ors. (supra) and Gulab Rameshnath Khote vs. State of Maharashtra & Ors. (supra) and the other decisions as noted above.

53. It is also difficult to accept the contention as urged on behalf of the petitioner that although the elected members of the Managing Committee having cased to be members of the Managing Committee by operation of law, namely by the provisions of Section 73(1AB), nonetheless their act of executing the Development Agreement would amount to matter touching the business of the society. In such context, the reliance on behalf of the petitioner to submit that Section 77 would have an application in the present facts as such action on the part of the members would amount to an action in good faith in relation to the business of the society, is not an acceptable proposition, even relying on the decision of the learned Single Judge in Suprabhat Co-operative Housing Society Ltd. and another vs. Span Builders and another15. Moreover, the facts of the said case are totally inapplicable to the facts of the present case, in as much as what was impugned before the Court in the said case, was an order passed by the learned Single Judge, Senior Division, who had dismissed the application filed on behalf of the applicants therein praying that the plaint be rejected 15 2002(3) Mh.L.J. 837 Page 53 / 54 under the provisions contained in Order 7, Rule 11(d) of the Code of Civil Procedure, 1908, on the ground that notices prior to the institution of the suit under Section 164 of the MCS Act had not been given.

54. In the light of the above discussion, the arbitral tribunal has correctly applied the mandate of Section 73(1AB) of the MCS Act to hold that the members of the Managing Committee, who executed the Development Agreement dated 13 September, 2002, had no authority to execute the said agreement, hence, such a document, being the only subject matter for consideration, would not confer any right on the petitioner to enforce any arbitration against the society. The arbitral tribunal has appropriately exercised its jurisdiction under Section 16 of the Act.

55. Resultantly, the petition is without merit. It is accordingly dismissed. No costs.

G. S. KULKARNI, J.