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CHAPTER IV

EXISTING LOAN RECOVERY PROCEDURES

Introduction

Loans and advances become the backbone of any banking business.

The deposits that the Banks accept, induct certain expenses, as interest will

have to be paid to the depositors periodically. The Banks are able to provide

for such expenses through processing fees, documentation fees and interest

charged on the loans and advances.

It is imperative that the Banks maintain prudent approach while

sanctioning loans and advances. RBI’s regulations and banking practices

directly have a control on the sanctioning and disbursement of loans and

advances. In spite of these, non-payment of loan instalments accumulating

into over dues and bad debts adversely affecting the Bank’s income is a

potential risk that needs to be addressed.

In the considered opinion of the Bankers subsequent to years of close

observation, there are two reasons behind the recurring problems of default in

the repayment of loans and advances, major among them being ‘Lack of

willingness to pay’ and ‘Lack of ability to pay’. The first one builds up a long

list of wilful defaulters, whereas, lack of ability to pay emerges from a variety

of causes.

Studies over the years attribute the incurring inability to pay to the

following factors:

1. Loss of job of the borrower

2. Unexpected expenditure due to medical emergencies, committed

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education expenses, and unavoidable social obligations

3. Loss of regular income due to accidents

4. Natural calamities

Major causes for wilful defaulters are as follows:

1. Habitual defaulting

2. Adopting lengthy legal tactics to delay and if possible avoid

repayments

3. Taking advantage of inadvertent lapses in the Bank’s documentation

4. Employing political and other pressures on the Director Board

executives and officers of the bank

Whatever be the cause, the Banks must realise and initiate appropriate

legal proceedings against all defaulters who show ‘Lack of willingness to

pay’ or suffer from ‘Lack of ability to pay’.

The Primary Urban Co-operative Banks (PUCBs) have a set procedure to

recover loan over dues, which can be briefly listed as follows:

1. Intimate the defaulter through oral reminders.

2. Follow them up with a written reminder.

3. Send a legal notice asking for all pending dues to be cleared within a

specific period or else face legal proceedings.

4. Ask the Board of Directors for a resolution empowering the Bank

officials to file a recovery suit against the defaulter.

5. File recovery proceedings to initiate the recovery process.

6. Serve notice of prosecution and summons to the Loanee and the

Sureties. The Sureties also known as Guarantors are treated as joint

Loanees in the matter of loan recovery, because according to the

relevant law, they remain Guarantors as long as the loanee is regular in

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repaying his loan instalments, but the moment he becomes a defaulter

and is served with a demand notice, his Guarantors assume the status

of a joint borrower.

7. Convince the competent authorities with supporting documentation, to

issue an award to recover the loans from the defaulters.

8. After receiving the competent authority’s award, the degree for

execution of the award or order is decided. The outstanding payments

can be recovered by attaching the movable and immovable properties

of the Borrower and Guarantors with the right to sell the properties thus

attached.

In this process of recovery, the PUCBs can seek the help of the Co-

operative Department which is a government body. The Special Recovery

Officers thus appointed by the Bank enjoy the rights of the Civil Court. They

also have the seal of Government of the State which gives them the powers to

recover the loan amount without much legal complications.

The Law of Limitation

The law of limitation is generally applied in the recovery of loans,

advances and over dues. As per this law, a debt is considered irrecoverable

for three years period from the date of the last transaction in the loan account.

This makes it imperative for the nationalised, third generation, and foreign

Banks to file the loan recovery suit prior to the expiry of the three year period.

The PUCBs however do not come within the purview of the law of limitation,

because as per the Co-operative Societies Act 1960 of Maharashtra, Co-

operative banks can lend only to its members. Since the law of limitation does

not cover such lendings, it is in one way advantageous to the PUCBs.

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Recovery as a matter of due from land revenue

In the state of Maharashtra, loan recovery is given the same status as

that of land revenue dues. Accordingly, the District Collector is authorised to

recover the loan overdue in the same way he exercises his powers to recover

the land revenue dues. This accords the PUCBs better control over its

borrowers and their guarantors, with regard to realising the loans and

advances with interest.

Legislative Provisions in Recovery of Loans and Advances (Debts)

Government offers various types of legislative assistance to recover

overdue payments from the borrowers. The Maharashtra Co-operative Act

1960 and Section 49 among the various legislative provisions have

specifically included salary deduction as an effective recovery tool, which can

be outlined as under:

1. The agreement executed by a member in the societies favour

authorises his employer to deduct from his salary / wages, the total

amount to be paid to the bank in instalments as specified in the

agreement and to pay to the society such amounts deducted towards

any debt owed by the member to the society. The society shall

forward to the employer, an attested copy of the agreement..

2. The employer on receipt of this agreement, and a requisition in

writing from the society shall make the deduction as specified as if it

were a part of the wages under the 1936 Payment of Wages Act, and

disburse the amount thus deducted to the bank.

3. If, after getting the requisition from the Society, the employer fails to

act either in deducting the specified amount from the salary / wages

of the concerned member, or fail to remit the deducted amount , the

employer will be forced to remit the amount with interest charged that

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too with one and half times the rate generally charged by the society.

The Registrar’s certificate to this effect shall deem such amount

together with interest recoverable as arrears of land revenue and will

rank the same in priority as wages in arrears in respect of the

employer’s liabilities.

4. This provisions section shall not be implemented to the personnel

employed in the Indian Railways and in mines and oil fields.

Object of Section 49

This section lays down a methodology to recover the loan any Society

advances to its who are employees / wage earners. As per normal law, an

employer does not have the authority to make any deduction from the salary

or wages towards repayment of loans the employee has taken from a third

party. Section 7(1) of the Payment of Wages Act is clear in this aspect where it

ensures disbursal of the salary / wages of an employee without any deduction

other than those authorised by the Act. Subsection 2(j) however gives

statutory recognition to an agreement entered into between the society and

the borrower employed elsewhere, which authorises the employer to deduct

the declared amount from the salary / wages. This provision was incorporated

with a view to legalise an agreement between the Society and its member/s,

whereby the latter authorise/s his employer to deduct the instalment due on

the loan from his salary / wage and to remit the same to the society, ensuring

easing of its implementation especially in the case of salaried members. (Vide

Statement of Objects and Reasons: B.G.G.Pt.IV p.61 dt. 11.6.42).

The member, borrowing from such a salary earners’ Society, against

the security of his salary on the proof of his solvency and permanent

employment, is entitled to borrow from the society. The Society, in such cases

shall confirm the borrower’s repayment capacity in respect of the instalments

agreed.

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Scope of the section

The Section provides for deductions to be made by the bank just like it

is a part of salary wages payable under Payment of Wages act, 1936-Vide

Statement of Objects and Reasons:M.G.G.Pt.V.p.271 dt. 3.11.1960. The

employer is authorised to make deductions from the salaries of his employees

who as members of the Cooperative Society has taken a loan. Any such

deductions shall be according to the provisions of the Payment of Wages Act

1936, and shall be remitted to the concerned Society as agreed.

Marginal note to Section 49 shows the drift with respect to salary

deductions to fulfil the Society’s claim in particular cases. The drift evident in

the words “certain cases” refers to the cases of employers in whose

undertaking the borrowing members are employed who joined together to

form a society known as the ‘Salary Earners’ Society’. The lending policy of

any credit society considers the repaying capacity of the borrowing member

based on his actual earnings per month. The grant of loans is considered after

the borrowing member submits a salary certificate from his employer with

regard to the salary / wages he earns.

In respect of societies other than the ‘Salary Earners’ Societies’, the

securities prescribed for loans may be different. But in the case the ‘Salary

Earners’ Society’, there is no protection for the recovery of loans / debts from

its members. Since the members are not required to furnish any security by

way of property etc., the problem the Societies face is how to recover the

payments due in case of a default. To overcome this difficulty, the legislature

has provided legal protection by taking agreements from the employees in

favour of the society, authorising such society to claim recoveries from their

salaries. It also provides that the employer is bound to honour this agreement

as and when requisitioned by the Society. The statement of objection and

reasons published in the Bombay Government Gazette, Part 4-B 1961 dated

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11.2.42 and Maharashtra Government Gazette Part-V, page 271 dated

30.11.1960 make this very clear.

The burden of making payment after the Requisition by the Primary

Urban Co-operative Bank is shifted to the Employer

Sub sections(2) and (3) make the liability for payment to the Society

specific, and the penalty for failure to honour it a deterrent by ensuring that

the employer shall be liable for deducting and remitting the amount specified

in the Society’s requisition order. The recovery of loan can be done just as the

arrears of Land Revenue, and shall have the same priority as wages in

arrears.

Considering the time that an employer may need to adjust the wage

accounts of each member, the Societies are required to forward their

deduction sheets at least 10 days before the date of disbursement of salary /

wages. The amount due under the requisition as also the amount deducted

but not paid will be considered as priority in respect of such liabilities.

Therefore, the amount deducted, but not paid shall rank on par with wages

unpaid in the case of liquidation proceedings affecting the employers.

Failure to comply with sec. 49(2) is an offence

The employer or his agent, the director, manager, secretary, or other

office bearers who fails to comply with Subsection (2) will be liable for

punishment for an offence under Sec. 146(b).

If a Company is the employer and fails to deduct the salary of the

employee as required by this section, not only the Company but even the

Directors thereof are liable to be prosecuted.

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Persons employed in railways, mines and oil-fields

Section 49 does not apply to employees in the Mines, Oil Fields and

Railways (within the meaning of the Constitution), who are under the direct

control of Central Government, and due to this the State Government is

incompetent to legislate about them.

The expression ‘within the meaning of the constitution’ has reference to

Article 366 (20) of the Constitution which provides or defines that Railway

does not include (a) tramways within the area of a Municipality (b) any other

communication line entirely situated in one State and announced by

Parliament by law which should not be the railway.

Section 91 (A) of 1960, Co-operative Societies Act 1960, Maharashtra

The legislative provisions of this Section of the Maharashtra Societies

Act can be outlined as follows :

1. As per the official Gazette notification of the State Government ,

there should be one or more Co-operative Courts for settling the

disputes under Section 91, and 105 or the other provisions of

this Act.

2. This Co-operative Court should have one member who is

appointed by the State Government, and this member should

possess the prescribed qualifications.

3. The jurisdiction of the Co-operative court shall be over the whole

State or part thereof as mentioned in the notification under sub-

section (1).

4. All the pending disputes and other proceedings existing before the

implementation of the Co-operative Societies, Maharashtra, (3rd

Amendment) Act 1973 shall by general or special order, be

transferred by the Registrar or any individual delegated and

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enjoying a Registrar’s power or any nominated person appointed

by the Registrar to any specified Co-operative Court decided by

him and that Court shall proceed to hear and solve such disputes

from the stage reached before such transfer or may commence

the hearing de novo as if they are originally filed before the court.

History

There have been periodical changes in the constitutions of the judicial

machinery. The Co-operative movement has been officially functioning in the

State of Maharashtra for the last 100 years or so. The disputes concerning the

affairs of the co-operative societies were settled by some authority whom the

powers were vested as per the Co-operative Societies Act. In the initial

stages, the taluka honorary organisers or local advocates having Co-operative

bias and legal knowledge were appointed as the Registrar’s nominees for

settling such disputes. Subsequently, a Board of nominees was appointed to

give decisions in such matters. The system continued to work till 1966-67.

Thereafter, the registrar’s nominees and Board of nominees were substituted

by Officers on Special Duty. This continued until 1974. It was after that the

system of deciding the disputes by the regular Co-operative Courts was

introduced. 91-A section of 1960 Maharashtra Co-operative Societies Act was

inserted by the Maharashtra Act 3 of 1974. Co-operative Courts were

established with territorial jurisdictions considering the number of cases

pending in a particular area, the flow of fresh cases there, and the average

work that could be turned out by the court in a year.

Even after establishing the Co-operative Courts, disputes were

required to be referred to the Registrar, primarily to decide whether any

dispute existed within the meaning of the section.

This was considered necessary until 1982, and then came the

amendment contained in section 3-A of the Maharashtra Act 18 of 1982, which

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facilitated the cases of the disputes to be directly filed before the Co-operative

Court.

Object

The purpose in creating a separate judicial machinery for disputes of

Co-operative societies was to render justice to the aggrieved parties

expeditiously, independently, and in a comparatively less expensive manner.

The specialised Courts established under the Co-operative Societies Act were

expected to decide along with other matters whether there existed a proper

dispute between the parties with regard to the societies working.

Members Qualifications of the Co-operative Courts

The Maharashtra Co-operative Societies Rules, 1961 containing

Chapter VIII have provisions relating to the disputes and arbitration. Rule No.

77-A in the chapter deals with the qualifications and appointment of the judges

of the Co-operative Court. Any person eligible for such appointment must be

holding a judicial position not lower than the rank of a Junior Division Civil

Judge. The Government of any state may also consider a person who fulfils

the following conditions for appointment as a judge of the Co-operative Court:

1. One who has practised as an Advocate, Pleader or Vakil for not

less than three years

2. One who is enrolled as an Advocate or who holds a degree of

law from an established University which entitles him to practise as an

advocate

3. One who has held office not lower than that of a Deputy

Registrar of Co-operative Societies for at least have three years of

experience or a person having good knowledge and experience of Co-

operative law and practice.

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Rule 77-B prescribes the age limit up to 62 years, while Rule 77-C

prescribes the conditions of service and Rule 77-D deals with holidays and

vacations. But the Government of Maharashtra in supersession of all

these existing rules, has come out with a new instrument called The

Maharashtra Judicial Officers of the Co-operative Courts and Co-operative

Appellate Courts (Recruitment) Rules 1998 (M.C.T.1090 (8716/CC-154/5-

C dated 31st August, 1998. These Rules appear in Appendix E to Vol. 2 of

this publication. The President and members of the appellate Court shall

be appointed by the Government after consulting with the High Court by

promotion, nomination or transfer, while the appointment of Judges of the

Co-operative Court are to be made by the Governor in consultations with

the Public Service Commission. The relevant age is fixed at 60 subject to

assessment and evaluation of utility at the age of 58.

Jurisdiction of the Co-operative Courts

The Government notification issued pertaining to the constitution of Co-

operative Courts defines both the extent and limit of their jurisdiction. Where

the Bank’s Registered office was situated at Nasik, the Co-operative Court

having jurisdiction over Nasik District was considered competent to try the

dispute of a Society situated at Yeola. As such the Co-operative Court, Nasik

had a jurisdiction since the Bank’s registered Office was at Nasik.

Where the society had branches at different places, and the disputes

related to any of those branches, it was considered to be the dispute of the

society. The Co-operative Court having jurisdiction in the area where the

Society was situated was therefore considered to have the jurisdiction to

decide the case.

The agreement for the commission agency contained a specific

provision that if a dispute arose between the parties in respect of that

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commission business, it should only be tried in Bombay. Since such a

provision in the agreement referred to the Court at Bombay only, it was

considered that the Co-operative Court at Nasik had no jurisdiction to hear

and decide even though the Society’s Registered office was at Nasik.

Where a Co-operative Society is registered in this State but has

branches in another State, the branch of the Society in the other State will be

deemed to be the registered office in the other State under the law of that

particular State. Therefore in case of a dispute between the Society and its

member residing in other State arises in respect of a transaction occurring in

the other State, the same will be decided by the authority under the law of that

State and not by the Registrar or Co-op Court in this State.

Where the by-laws of the federation provide that the dispute by its sub

agents would be triable by the Co-operative Courts at Bombay (Mumbai), the

Co-operative Courts at other places would have no jurisdiction over such

disputes.

Territorial Jurisdiction entails that a claim can be filed at a place where

even a part of the cause of action arises (sec.20, C.P. Code), Accordingly

under Sec. 54, if the Society with which the Appellant had a dealing was

located in Baroda and his loan was sanctioned there, the fact that the property

mortgaged was situated outside, will not oust the jurisdiction of the Assistant

Registrar, Baroda.

Further, the power of reference is held to lie with the Registrar-nay-

even the appointment of a nominee for a particular area. Accordingly,

reference made to a nominee from another area after exhausting the

nominees from the area from which the dispute arose will not be invalid or

illegal, and consequently the award passed will not be without jurisdiction.

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Section 94 of the Maharashtra Co-operative Societies Act 1960

The dispute settlement procedures and the Co-operative Court’s Power

1. Under the last preceding section, The dispute hearing Co-operative

Court shall have the power to call witnesses and to insist them to

give evidence on oath, affirmation or affidavit, and as and when

demanded they should produce all relevant documents, as in the

case of a Civil Court by 1908 Code of Civil Procedure.

The Co-operative Court shall hear, decide and endeavour to

conclude expeditiously the hearing and decision of every dispute in

relation to any election within six months from the date of filing of

such dispute before it.

2. No party shall be represented at the hearing by a Legal practitioner

without the permission of the Co-operative Court

3. (a) If a person has acquired an interest of another person’s property

who is a party to a dispute, the Co-operative Court may order that

the person who has acquired the interest may join as party to the

dispute, and any decision taken by the Co operative Court shall be

applicable on the joined party in the same way as the original party

to the dispute.

(b) If a dispute is emerged in the wrong person’s name, or if some

of the defenders are excluded, the Co-operative Court if satisfied

that the mistake was bona fide, any other person to be added or

substituted as a defendant by an order as it thinks just.

(c) At any stage of the proceedings with or without the application,

The Co-operative Court may order to struck out the name of any

party improperly joined, and order the presence of any person

before the court if necessary in order to enable the Co-operative

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Court effectively settle the questions involved in the dispute.

At any point of time if the Co-operative Court decides a dispute ex-

parte against any person, within thirty days from the date of decision

he should apply to the court, to set it aside. If a person enable to

satisfies the Court about the actual reason for his failure to appear

the court when the dispute was called and heard, the court can set

aside the decision against him and fix an another date for the

hearing and decision.

4. Every dispute shall be decided in such summary manner as may be

prescribed and as expeditiously as possible.

Civil Procedure Code does not apply

In matters pertaining to the proceedings under Sec. 91, neither the

provisions of the Civil Procedure Code nor some of the provisions of the

Limitation Act are applicable, except to the extent provided therein or

elsewhere under Sec. 92 of the Maharashtra Co-operative Societies Act. For

specific types of claims in Sec. 91 there are specific limitations with their

periods differing from the usual limitation periods.

Though the Civil Procedure Code does not apply, general principles

regarding evidence, burden of proof etc. are required to be observed by the

Court in proceedings before it in order to avoid confusion. No fundamental

principle governing the proof of a claim is to be disregarded. The basic

principle that a party making a claim which is not admitted by the person

against whom it is made is required to prove it according to the recognised

mode of proof viz., by producing admissible evidence. The Co-operative Court

could not claim any justification in arriving at a conclusion disregarding this

fundamental principle.

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Even though S. 11 of C.P.C may not be implemented to the

proceedings in Co-operative Courts, the principle of res-judicata will still apply.

Although technically, the Civil procedures code does not apply to the Co-

operative Courts, almost all the relevant procedural provisions are

incorporated in the Act, instead of straight away applying the C.P.C, with a

view to show that Co-operative Courts are Special Courts and not ordinary

Civil Courts.

Speedy Disposal of Matters under Sec. 94

Sub-sec 1A has been added to the sanction by the amending Act 20 of

1986. This has been done notwithstanding the experiences from similar

provisions in some Acts. For Example, the Hindu Marriage Act, 1955 was

amended in 1976 by adding Sec. 20A, which has continued to remain a dead

letter. Hence the addition of Sub-section (1) too will meet the same fate, as it

only expresses the Legislature’s hope that matters before the Co-operative

Courts should be disposed off within six months. Such provisions become a

subject of derision, since the inherent provision in any judicial ‘trials’,

necessitates speedy disposal of all matters. Any specific provision to this

effect tends to give only a mental satisfaction.

Legal Practitioner barred under Section 94

Sub-sec. (2) provides that, no party will be represented except with the

permission of the Co-operative Court, by legal practitioners in any dispute

before the Court. This provision was somewhat discernible when the disputes

were decided or settled in the nature of arbitration proceedings by the

Registrar or his nominee who themselves were not necessarily lawyers. But

this provision is untenable now when the adjudicating authority is a Court

presided over by legally qualified persons. By this provision, the Court has

thrown the burden of deciding whether a lawyer should be allowed or not on

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the Legislature. And unless exceptional, the Court generally does not prevent

a lawyer from appearing. In practice also this provision is rendered ludicrous

as advocates as a matter of practice if not as a matter of rule, are allowed to

appear without the need to seek the formal permission of the Court in each

case. In actual practice with the growth of the Societies and frequent

emergence of complex issues, legal aid is considered desirable.

Co-operative Courts are held high by the High Court as Courts and not

merely tribunals (see Note 6 under Sec. 91A supra). If that is so, Sec. 1961

Advocates Act, section 30 provides , all Advocate are permitted to practise in

the territories where their name is entered and this Act allows a) in all courts,

b) any person or tribunal legally authorised to take evidence c) before any

person or authority before whom any law for the time being in force entitled to

practise. The Co-operative Court being a Court in any event is allowed to take

evidence legally. Therefore the provision of Sub-sec. 2 is inconsistent with the

provision of Sec. 30 of the Advocates Act though it may not be bad in law.

Cooperative Courts and Disputes

The Cooperative Courts have no specific provisions or restrictions in its

powers to decide disputes. In this aspect such powers are more or less the

same as those of any Civil Court. Being a Court of justice, the Cooperative

Court too will decide the dispute as per written laws, and where such laws are

not available the Court will follow the principles of equity and good

conscience, the ultimate object being to do justice to the parties. The Co-

operative Court is therefore expected to adopt the same methodology as that

of any ordinary Civil Courts by taking proper documentary and oral evidence,

allowing the parties to examine and cross-examine witness, hearing the

parties fully discussing the law applicable and following it and thereafter arrive

at a decision by giving relief to the party deserving the same.

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Power to grant instalments for the defaulted borrowers under Sec. 94

In granting instalments one of the main considerations is the means of

the debtor, though in allowing the instalments, there should be better care that

the debt is not perpetuated by spreading over the instalments for an indefinite

period. But it is equally true that honest debtors who make every effort to

repay their dues should be allowed the facility.

Questions about awarding instalments is depending upon the

circumstances and facts of each case and therefore it should be seen firstly

whether there was good reason for the debtor to have fallen in arrears and

secondly whether he has acted bona fide.

Claim for instalments cannot be made by filing a separate proceeding

under Sec. 54 (presently S. 91) when no such request was made in the

dispute which resulted in a money award.

Justice, Equity and good Conscience with reference to Sec. 94

The Co-op. Court has greater latitude than the civil courts in order to do

complete justice between the parties. They may also take the moral aspect of

a question into consideration in forming their judgement and deciding

according to ‘justice, equity and good conscience’. An arbitrator (now Co-op

Court) may relieve a party against a right which lies hard upon him but which

cannot be resisted in a Court of justice. Nominees (now Co-op Court) are final

judges not only of all matters of facts but also of all questions of law and

particularly so in regard to reference under the Co-operative Societies Act

under which Civil Courts are debarred from entertaining objections to

decisions given under the Act.

Wherever necessary, and the principles of justice, equity and good

conscience require it, the principles underlying the provisions of the Civil Pro.

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Code may be applied.

The function of the Registrar (now Co-operative Court) is to arrive at

the substantial truth upon such material as may be available to him. The test

that will have to be applied in appeal is whether upon the material the

Nominee’s finding can be held to be justified or whether they appear to be

unjust or perverse.

Scope of the Section Section 95 of the Maharashtra Co-operative

Societies Act 1960

This section confers power on the Co-op Court (as well as the

Registrar or his nominee exercising jurisdiction under S. 88) to pass any of the

following orders (direction) by way of interim relief. (i) an order for attachment

of the property before the award is made or what is known as attachment

before judgement under Code of Civil Procedure (ii) an interlocutory order.

The order for the attachment before award can be made if, pending the

disposal of the dispute, the defendant is likely either to dispose of his property

or to remove the same from the jurisdiction of the Court with a view to defeat

the enforcement of the award that the Court may pass in favour of the plaintiff.

If such an attachment is made on any property of the defendant and an award

for money is passed in favour of the plaintiff, the latter can hope to recover the

money by sale of the property attached. So far as interlocutory order is

concerned it is generally of two types, one an interim injunction and the

second, appointment of receiver. These orders are made on the ground of

‘preventing the ends of justice being defeated’. If the defendant gives

sufficient security for the plaintiff’s claim then the attachment can be removed

otherwise the attachment will continue until the disposal of the dispute and if

any decree is passed in favour of the plaintiff against the defendant then it can

be enforced against such property by sale thereof and realisation of the sale

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proceeds so that the plaintiff’s claim can be paid out of such proceeds.

These powers are as per the powers of the Civil Court under Orders

38, 39 of the Civil Procedure Code.

Section 88 of the Act referred to in this section confers power on the

Registrar or his nominee to assess damages against a delinquent promoter or

past or present officer of the society, In the proceedings under sec 88 the

Registrar or his authorised person is given the same powers of granting

interim relief as the Co-operative Court.

Procedure in ordering attachment before award

In the first place, the Co-operative Court should call upon the Society to

produce evidence to satisfy it on the point that the opponent is going to

dispose of whole or part of his property. It should also take care to satisfy itself

that there are prima facie grounds to support the claim. This can be done by

asking for affidavits from persons in the know of such matter. The Co-

operative Court may pass an interim order stating the grounds and not merely

a warrant for attachment before its judgement. By referring to the order as

interim, it is meant to simultaneously issue a notice to the opponent calling

upon him to show cause against the interim attachment levied by the Co-

operative Court and then after hearing both the sides, confirm or set aside the

order of attachment.

The Registrar or the Co-operative Court must be satisfied on enquiry or

otherwise that the debtor of the party to the dispute whose property is sought

to be attached has done something on his part to constitute an attempt either

to dispose of or to remove any part of his property from the jurisdiction of the

Court or the Registrar. In other words, there must be some allegation of overt

act on the part of the person whose property is sought to be attached.

Jurisdiction of the Co-operative Court or the Registrar means the

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territorial jurisdiction which so far as the Registrar is concerned extends to the

whole of Maharashtra state, but the jurisdiction of every Co-operative Court is

limited.

The Registrar or the Co-operative Court has to issue a notice calling

upon the person who will be affected by the order to furnish adequate security.

On his failure to do so, the order of attachment shall be confirmed.

Section 98 of the Maharashtra Co-operative Societies Act 1960

The section 98 lays down how money which is overdue from the

borrower can be recovered. The salient features are as follows:

Passed orders passed by an authorised person or Registrar under

Section 88 or by the or the Co-operative Court under Section 95 or under

Section 96 in appeal under the last preceding Section, by a Liquidator under

section 105, by a State government in appeal against orders passed under

section 105, and those passed in revision under Section 154 shall, if not

carried out, -

(a) On a certificate signed by the Co-operative Court or Registrar or a

Liquidator shall be deemed to be an order in force of a Civil Court and

executed in the same manner as an order of such Court, or

(b) Executed under prevailing rules or as per the law for the land revenue the

recovery of arrears :

Provided, any application for recoveries shall be made by the Collector and

accompanied by a Registrar’s signed certificate within twelve years from the

fixed date in the order and in its absence from the date of the order.

Section 101 of Maharashtra Co-operative Societies act 1960

Section 101 has more practical provisions in the hands of the PUCBs

offering time and advantage to recover over dues from the defaulting

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borrowers. It speaks about more with reference to the recoveries due to

certain Societies as arrears of land revenue.

Scope of the Section

This section deals with special treatment of some classes of Societies

in the matter of recovery of certain nature of amount due to them.

Table 5.1

Special Treatment to Classes of Societies to Recover the Amount Due

Sr. No. Nature of Amount Due Class of Society

1. Arrears from loans extended for financing

for seasonal finance or for the purpose of

agricultural , repayable after 18 months

but within 5 years

Resource society undertaking

the crop financing and

seasonal finance or financing

for other activities of

agriculture.

2. Initial arrears cost or any contribution for

getting services for crop protection

requirements

Crop protection society

3. Any subscription arrears due from its

members for acquiring services needed

for water supply provisions.

Lift irrigation society

4. Arrears of loans or cash credit facility Block or Taluka level village

artisans multipurpose society

5. Arrears of its dues from its members Co-operative housing society

6. Arrears of loans advanced to members Co-operative Dairy Society

7. Arrears of its dues from its members Urban Co-operative Bank

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8. Arrears of its dues Co-operative Society of Salary

Earners.

9. Arrears of its dues Fisheries Co-operative Society

10. Any subscription or any amount

advanced to or any subscription or any

other amount due from the members of

such Society

Any other society or class of

society notified by the State

Government

The Registrar after inquiry must issue a certificate for the arrears

recoverable, which will be final and conclusive. Generally, the society is

required to apply for such a certificate. Even in its absence, the Registrar may

suo motu issue such a certificate which is legally enforceable.

In short, the section virtually confers on the Registrar the power of a

Special Court having jurisdiction to pass a money decree. But it may be noted

that the section does not provide the Registrar to accord any opportunity to

the debtor to put up his defence before issuing the certificate. The section only

requires the Registrar to make such inquiries as he deems fit and carries no

provision for appeal to any higher authority or Court. However, except for the

capacity of the High Court under Act 226/227 of the Constitution to intervene

and set right any wrong done, there seems to be no control or guideline in

respect of issuance of such certificates by the Registrar.

Inquiries by the Registrar

Sec 101 provides for the Registrar to make inquiries as he deems fit

before granting any recovery certificate. Such enquiries shall be conducted by

the Registrar’s subordinates who must submit his recommendations after

making spot-visits and verifying the genuineness of the borrower’s claims. In

case of any reasonable dispute about the liability, granting of the certificate

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should be withheld till settlement of that dispute under Sections 91 and 93 of

the Maharashtra Act. In such cases, the Asst. Registrar / Officer conducting

such enquiries must issue notices to the concerned borrower. If found

subsequently that the recovery certificate was granted without proper enquiry,

such certificate shall become null and void.

Any certificate of arrears issued without giving the debtor satisfactory

opportunities to defend his case shall be treated as invalid. Therefore, the

officer must look into the facts of the case and ascertain the correctness of the

claim. A certificate issued on completion of this procedure as well as after

hearing the parties concerned, shall be final in respect of the arrears due, and

the debtor shall not have the legal right to reopen or file a fresh suit under

Sec. 91(2) challenging the validity of the certificate or contents therein.

Registrar’s powers for suo motu action under section 101

If any society is found to act in contravention of the provisions of the

Act, the Central Bank is authorised to bring this to the attention of the

Registrar, who in turn shall initiate action suo motu.

Recovery of Overdue, Claim and Arrears As Arrears of Land Revenue

under Sec.101

Sub-sections 168 to 223 of the Maharashtra Land Revenue Code,

stipulate that arrears due will be recoverable as per the law for the recovery of

land revenue. The words ‘Recovery of land revenue’ appearing in Sub-section

(3) of the Maharashtra Land Revenue Code seem to stress that the claim of

the Societies will have precedence over all other claims. A certificate issued

under section 101 for recovery of moneys was sought to be executed under

section 98 of the Act and was held that such a certificate can be executed

only as provided in section 156 of the Act.

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The certificate being conclusive stresses that no action can lie against

it under section 91 and the only remedy is for revision under section 154 of

this Act. It is surprising that the reference to the Code of 1879 still continues,

although this Act has been in existence for over thirty years and the Co-op.

Societies Act has been undergoing amendments almost every year. Arrears

have no reference to the over-due instalments.

The Indian Contract Act 1872 becomes an important piece of legislation

as it dominates the transaction between the bank and the borrower. The bank

and the borrower enter into a contractual obligation in the process of providing

loans and advances by the bank under a written agreement that the borrower

along with his guarantor will repay the loan / advance amount received by

them with interest within the specified time.

A breach of contract occurs, when the promised instalment as per

contractual obligations does not materialise, thus initiating litigation

procedures under the relevant provisions of Indian Contract Act 1872 to

recover the amount due from the borrower and his guarantor. The liability of

the Guarantor (Surety) and his obligation to indemnify the bankers from the

liabilities arising out of non-performance as per contractual agreement by the

principal borrower thus emerges in favour of the bankers.

The Negotiable Instrument Act 2002 also helps in recovery of loan and

advance amount as instrument. “Promissory note” provides adequate force

and strength to get the recovery of net amount in arrears with interest.

Enforcement of the Security Interest Act 2002 and the reconstruction and

securitisation, further provide adequate strength and force to the recovery

proceedings. 13th section of the said act specifies the right of the banks in the

recovery process as follows:

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Enforcement of Security Interest

1882, the Transfer of Property Act, irrespective of its Section 69 / 69-A

provides for due enforcement of security interests in respect of all secured

creditors without any interference of the Court or tribunal.

In the event of repayment default by any borrower, his account must be

declared as N P A, and a written notice issued to the borrower to repay his

liabilities in full within sixty days thereof and if fail to do so , the secured

creditor shall be at liberty to act according to the provisions of the Act. The

notice shall carry the amount payable details, and the secured assets of the

borrower which the creditor aim to attach in the event of non-payment.

On receipt of the notice, if the borrower makes a representation, the

secured creditor shall duly consider the same, and if the representation is

found to be untenable / unacceptable respond within one week citing reasons

thereof.

If the borrower not able to complete his liability in full within the

specified period, the secured creditor can take charge of his secured assets or

take over the management of his business including the capacity to transfer

by way of lease, assignment or sale, only where the business is security for

the debt. In such cases, the secured creditor shall appoint a person to

manage the secured assets. Any such transfer of secured asset or takeover of

business shall bestow the secured creditor all legal rights normally available

as in the case of transfer of any asset.

Where a borrower faces action under the above provisions, all

expenses, costs, and charges as established to have been incurred by the

secured creditor, shall be charged from the borrower, and the amount thus

received shall be held in trust by the secured creditor in the absence of any

agreement to the contrary, firstly to be disbursed as payment of expenses,

costs, and charges and secondly towards discharging the secured creditor’s

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dues, and balance if any to the person entitled to receive it.

Where two or more secured creditors separately or jointly extend

finance no creditor shall exercise the rights available, unless its application is

agreed upon by those creditors who together account for at least three-fourth

of the amount outstanding, and is acceptable to the entire secured creditors.

If a company is goes under liquidation, the proceeds realised from the sale of

assets must be distributed as dictated by the Companies Act, 1956 Section

529-A (1of 1956) subject to the conditions as follows:

The secured creditor of the company under liquidation, who opts to

realise his security instead of relinquishing the same and who can

substantiate his debt under the Companies Act 1956 Section 529 (1of 1956),

shall keep the amount realised from the secured assets sale after depositing

the wages due with the liquidator as per the section 529-A provisions Act.

he liquidator shall duly inform the secured creditor of the dues in

respect of the wages, and in case of difficulties in ascertaining the same,

intimate an estimated amount thereby enabling the secured creditor to deposit

the estimated amount with the liquidator, and retain the balance with him, on

condition that the creditor shall either pay the balance of such dues or receive

the excess amount paid if any, as soon as the wage dues are properly

ascertained.

1. In case of disputes involving the the secured assets sale or

proceeds thereof, the secured creditor shall be entitled to approach

the Debts Recovery Tribunal or a competent Court to proceed

against the guarantors, or sell the secured assets.

2. The borrower on receipt of such a notice from the secured Creditor

shall not sell, lease or transfer any of his pledged assets without the

written consent of the creditor.

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The banks also are authorised to approach the Tribunal of Debt Recovery

established under the Banks & Financial Institution Act 1993 Sub-section

(1), Section 3 to realise any legitimate dues from a defaulting borrower.

The RBI through its directives and guidelines from time to time

addresses the problems, the Creditors face on account of the borrowers who

default their repayments. While considering such cases sympathetically, the

RBI has announced various measures aimed at recovering such outstanding

from the defaulting borrowers including the successful “One Time Settlement

Scheme” (OTS). Under this scheme, the defaulting borrower may express his

readiness to avail the OTS in writing to the concerned Creditor. On receipt of

this application, the lending bank will refer the matter to the Committee for

OTS constituted by the board of Directors of the PUCBs. This Committee, on

the basis of the RBI’s guidelines, will determine the Principal amount and the

interest to be recovered. Unlike the commercial bank rate, Prime Lending

Rate (PLR) shall be the basis of the interest to be charged. The purpose

behind reworking the Principal and interest is to enable the entire transaction

between the defaulting borrower and the Creditor to be brought to a full and

final settlement.

While implementing the OTS, the status of NPA (Non-performing

Assets) must be reviewed thoroughly and its findings communicated to the

defaulting borrower. The OTS normally has provisions for financial rebates,

intended to turn a defaulting borrower’s inability to pay into a positive

readiness to pay and settle. One such method is to restructure loans and

advances, by adding the outstanding amount to another unpaid loan, and

extending its repayment period in such a way as to minimise the financial

pressure on the borrower and help him repay in easy instalments. For the

Banks, this approach means “Keep the customer and collect the dues”.

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The objective is to adopt a practical mix of legislative and non

legislative steps that would make Banking law and practice an effective tool in

recovering payments from the defaulting borrowers.

Conclusion

The chapter tried to provide clear explanations of the recovery

procedures of co operative banks. The proper and efficient implementation of

these statutory procedures will keep a lower level of NPA which can boost the

efficiency of the working of Co Operative Banks.