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Bombay High Court: “Recording of Reasons Is a Facet of Natural Justice” — Recovery Certificate under Section 101 of Maharashtra Cooperative Societies Act Set Aside for Non-Application of Mind

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Court’s Decision

The Bombay High Court (Kolhapur Bench), per Justice S. G. Chapalgaonkar, quashed a recovery certificate issued under Section 101 of the Maharashtra Cooperative Societies Act, 1960, holding that the Deputy Registrar had failed to apply his mind and record reasons while granting the certificate in favour of a cooperative bank.

The Court ruled that “recording of reasons is one of the most important facets of the principles of natural justice”, and that quasi-judicial authorities like registrars are statutorily bound to render a reasoned judgment under Rule 86-F of the Maharashtra Cooperative Societies Rules, 1961.

The matter was remanded for fresh inquiry within four weeks, with the Court observing that the impugned order reflected “absolute non-application of mind”.

Facts

The dispute arose from a loan allegedly sanctioned by a cooperative bank registered under the Maharashtra Cooperative Societies Act, 1960. The bank initiated recovery proceedings under Section 101 of the Act for recovery of arrears against the borrowers and guarantors, contending that the petitioners had executed demand promissory notes and defaulted on repayment.

The borrowers contested the bank’s claim, asserting that no loan was ever disbursed to them and that the alleged loan documentation was forged and fabricated. They claimed that one of the bank’s employees had misused their details to extend a personal loan under his own scheme, in violation of the bank’s by-laws, which permit loan disbursement to only one member at a time.

It was further alleged that the loan amount had been transferred to bank employees’ savings accounts, indicating embezzlement and fraud. The borrowers maintained that the bank must first prove the genuineness of the documents, which could only be examined in proper proceedings under Section 91, and that recovery under Section 101 was premature and unlawful.

Despite these objections, the Deputy Registrar of Cooperative Societies, Solapur, issued a recovery certificate under Section 101, prompting the petitioners to approach the High Court.

Issues

  1. Whether the writ petition was maintainable despite the availability of an alternative remedy of revision under Section 154 of the Act.
  2. Whether the Deputy Registrar had followed the procedure prescribed under Chapter VIII-A (Rules 86-A to 86-F) before issuing the recovery certificate.
  3. Whether the absence of a reasoned judgment violated the principles of natural justice and rendered the certificate unsustainable in law.

Petitioners’ Arguments

Counsel for the petitioners, Mr. Prasad Dani, argued that the Deputy Registrar’s order was mechanical, unreasoned, and contrary to statutory procedure. He submitted that:

He further contended that since the dispute involved serious allegations of fraud and forgery, it fell beyond the narrow jurisdiction of Section 101 and required adjudication under Section 91.

Mr. Dani relied on several precedents emphasizing procedural fairness and recording of reasons, including:

Respondent’s Arguments

The respondent bank, represented by Mr. V. S. Talkute, objected to the maintainability of the writ petition, arguing that the petitioners had an alternative efficacious remedy of revision under Section 154(2A), which required a 50 per cent pre-deposit of the disputed amount.

He contended that:

Reliance was placed on:

Analysis of the Law

The Court first examined whether it should entertain the writ petition despite the statutory revision remedy. It held that where procedural violations and lack of application of mind are apparent on the face of the record, the High Court can exercise jurisdiction under Article 226.

Justice Chapalgaonkar elaborated on the statutory framework of Section 101 and Rules 86-A to 86-F, which collectively require:

The Court underscored that if a bona fide dispute arises regarding the existence or quantum of arrears, the Registrar’s jurisdiction under Section 101 ceases to apply, and the bank must seek remedy under Section 91.

Precedent Analysis

  1. Top Ten v. State of Maharashtra (2012 (1) Mh.L.J. 347)
     Clarified that Section 101 covers only limited inquiries into quantification of arrears. When genuine disputes arise, the Registrar must deny a recovery certificate and direct the society to invoke Section 91.
  2. Sundeep Polymers Pvt. Ltd. (2010 (7) Mh.L.J. 538)
     Held that issuing a recovery certificate without following Rules 86-A to 86-F violates natural justice and renders the certificate invalid.
  3. Kranti Associates Pvt. Ltd. (2010 (9) SCC 496)
     The Supreme Court affirmed that quasi-judicial authorities must record reasons; “justice must not only be done but must also appear to be done.”
  4. P.R. Prints v. District Deputy Registrar (2025)
     Recently reiterated that omission to record a reasoned order under Section 101 amounts to defiance of statutory duty and vitiates the recovery proceedings.

These rulings, read collectively, compelled the Court to hold that the Registrar’s non-speaking order in the present case was void for lack of reasoning.

Court’s Reasoning

Justice Chapalgaonkar found that the Deputy Registrar had merely recited the parties’ submissions and accepted the bank’s application without addressing the defence or explaining the conclusions. The order displayed “absolute non-application of mind” and failed to qualify as a judgment under Rule 86-F.

The Court emphasized:

“Recording of reasons is one of the important facets of the principles of natural justice. The pretense of reasons or ‘rubber-stamp reasons’ is not to be equated with a valid decision-making process.”

It held that the Registrar’s omission to deliberate on the borrowers’ fraud allegations and procedural objections rendered the order unsustainable. The High Court, therefore, set aside the recovery certificate.

Conclusion

The High Court partly allowed the writ petitions, quashing the impugned order dated 24 September 2024. It directed the Deputy Registrar, Solapur, to conduct a de novo inquiry in accordance with Rules 86-A to 86-F and pass a reasoned judgment within four weeks from the appearance of the parties (scheduled for 17 November 2025).

Implications

This ruling reinforces the duty of quasi-judicial authorities to record reasons, affirming that even in summary recovery proceedings, procedural compliance and fairness are indispensable. It protects borrowers from arbitrary recovery actions by cooperative banks and reasserts the High Court’s supervisory role when statutory authorities act mechanically.

By insisting that Section 101 proceedings cannot bypass natural justice, the judgment fortifies procedural discipline in cooperative banking recoveries across Maharashtra.

FAQs

1. Can a Deputy Registrar issue a recovery certificate without a detailed judgment?
 No. The Registrar must deliver a reasoned order under Rule 86-F, showing application of mind to both the society’s claim and the borrower’s defence.

2. What if there are allegations of fraud in loan documents?
 If genuine disputes or fraud are alleged, the matter must be pursued under Section 91, not Section 101, which is limited to uncontested recoveries.

3. Is an alternative remedy under Section 154 mandatory before filing a writ petition?
 Not when the order is without jurisdiction, unreasoned, or violates natural justice. In such cases, the High Court may intervene under Article 226.

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Also Read: Karnataka High Court: Refundable Security Deposit under Lease Not Liable for Stamp Duty — “Refundable Security Deposit Does Not Constitute Money Advanced in Addition to Rent”

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