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Petitioner: The PROVINCE OF PUNJAB and anothers VS Respondent: NATIONAL INDUSTRIAL JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Nasir Aslam Zahid, Abdur Rehman Khan, Munawar Ahmed Mirza Title:The PROVINCE OF PUNJAB and anothers vs NATIONAL INDUSTRIAL
JUDGMENT
Reported As: 2000 SCMR 567 Result: Order accordingly Judgment JUDGMENT NASIR ASLAM ZAHID, J.---This judgment will decide the following. Civil Appeals arising out of petitions filed by Province/Government of Punjab:-- Number of AppealRespondents 1. 427 of 1992. National Industrial Cooperative Credit Corporation. 2. 428 of 1992 Mercantile Cooperative Corporation. 3. 429 of 1992 -do- 4. 430 of 1992 -do- 5. 558 of 1992 National Industrial Cooperative Corporation. 6. 559 of 1992 Tariq Mahmood and others. 7. 560 of 1992 Hammad Riaz and others. 8. 561 of 1992 Faisal Dilawar and others. 9. 563 of 1992 Pasban Cooperative Society. 10. 564 of 1992 Muhammad Ramzan and others.
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11. 565 of 1992 National Industrial Cooperative Finance Corporation. 12. 566 of 1992 Shaikh Manzoor Elahi Peracha and others. 13. 567 of 1992 Muhammad Abdullah and others. 14. 568 of 1992 Zulfiqar Ahmed Awan and another. 15. 569 of 1992 Premier Industrial Development Corporation and others. 2. In these, appeals the main question which arises for consideration is about the constitutionality and legality of certain provisions of the Punjab Undesirable Cooperative Societies (Dissolution) Ordinance XX of 1992. The Ordinance was promulgated to prohibit the carrying on the business by Cooperative Societies as banking/ financial institutions and to provide for a mechanism to bring quick relief to hundreds of thousands of depositors whose deposits/ investments running into billions of rupees were stuck with a large number of defaulting Cooperative Societies. The main judgment of the Full Bench of Lahore High Court was rendered in Writ Petition No,4607 of 1992 and others (since reported in National Industrial Cooperative Credit Corporation Limited v. Province of Punjab (PLD 1992 Lah. 462). The background which led the Governor of Punjab to issue the Ordinance is described in some detail in the impugned judgment of the Lahore High Court as follows:-- "The uproar with respect to the financial debacle of the finance companies in the country and in particular about Taj Company had not yet subsided when the clamor about the financial scandal in the Cooperative Societies came to earth. Obviously, such news of scandals harassed the small depositors, and there was a run of the small depositors upon the Cooperative Societies to withdraw their money. The situation was so worsened that the Government had to intervene, and particularly, the factum of seeking loans by the industrialists tycoons of this country led the Federal Government to constitute a Commission headed by a Judge of the Supreme Court and two Judges of the High Court to examine the management, and working etc. Of the Cooperative Societies in Punjab. The Commission was constituted under the Pakistan Commissions of Enquiry Act, 1956 (VI of 1956) and precisely following was the charter of the Commission:-- '(a) to identify and determine the extent of assets and liabilities of each cooperative finance society or corporation; (b) to ascertain and determine the extent of outstanding liabilities of the defaulters together with their full names and particulars as well as properties and assets of such defaulters. (c) to examine and determine the illegalities in the establishment of each defaulting society or corporation; (d) to ascertain and identify the irregularities, illegalities, if any committed in respect of receipt, disbursement, return of funds by any such society or corporation or its officials including Directors, managers or employees and to fix responsibility; (e) to enquire into, identify and fix the responsibility of the regulating agencies, authorities, or bodies required or authorised by law to supervise and control the working of such societies and corporations and recommend measures to be taken against their officials or employees who neglected or avoided to perform their duties and functions diligently and honestly; (f) to identify the ultimate beneficiaries or persons, where funds and the assets of the society or corporations have been diverted and trace out particulars of any properties and assets acquired with such funds; (g) to suggest measures to be taken for repayment of the amounts or dues of the depositors or compensation, as the case may be, or to the members of such societies or corporations and for these purposes--
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(i) ascertain the properties and assets of such societies and corporations including their Directors, members and identify the assets to which the same have been illegally converted; (ii) ascertain and register all claims outstanding against the societies and corporations; (iii) ascertain the mode and manner of repayment and satisfaction of the outstanding claims and also to recommend appropriate measures to be taken for recovering loans from the defaulters and for winding up the societies, and corporations wherever need be; (iv) recommend measures to meet short fall, if any, through recovery from the properties of the Directors, sponsors and other officials of such societies and corporations and to propose legislative measures if necessary; and (v) recommend and take such other measures as may be necessary to fix responsibility on all relevant quarters and repay all genuine claims.' The Commission after making thorough probe and after recording the statements of certain individuals made recommendations but while doing so being cognizant of their limits, the following observations were made by the Commission:-- "The matter of ascertainment of the properties and assets of the Corporations as well as of their Directors, Officers and members cannot possibly be resolved by the Commission and it had neither the means, nor sufficient time, nor even perhaps the authority to give a binding determination after admitting evidence of the parties for and against the respective versions. The proceedings being inquisitorial rather than adversary and life span of the Commission being of a few weeks, any attempt to find the answer in the circumstances and the legal position obtaining in the matter, would have been impossible." It is further pertinent to mention that the Commission examined the affairs of 20 big societies and hearing was afforded to at least 127 societies. The commission also went in depth to examine the nature of the business carried out by the Cooperative Societies/ Corporations and observed illegalities in the establishment of the societies and also irregularities and illegalities in the receipt, disbursement and return of funds and also in the purchase and sale of real estates by the Corporations/ Societies and also commented upon the role of the regulatory bodies such as Federal Cooperative Bank, State Bank of Pakistan, Federal and Provincial Governments and the Cooperative Department. Eventually, on pages 209 to 212 of the report, the Commission also examined as to whether it was necessary to wind up these companies, and thus, proposed legislation in this behalf. It is not necessary at this stage to go into the details of the report, but suffice it would be to mention that the Commission made the observations with regard to the winding up of the Corporations/ Societies. The relevant recommendations of the Commission are reproduced here under:-- Features of new Legislature The winding up as such is necessary and new law providing for winding up of these corporations will have to be made by the Parliament, which inter alia may provide for-- (i) the winding up of the Cooperative finance corporation registered under the Cooperative Societies Act, 1925 and were conducting banking business; (ii) determination of the liabilities; (iii) Prosecution of the office-bearers of the societies and other persons accused of misappropriation, embezzlement of its funds and assets, violation of law of banking and other laws. The accused should be tried by a Special Court presided over by Judge, in service not below the rank of Sessions Judge. An officer of the State Bank well-versed in book keeping should assist the prosecutor and be also associated with the Investigating Agency. In consequence of trial if the accused or any person on his behalf is found to be in possessionof assets disproportionate to his known source and which he fails to account for (burden to prove that the property is lawfully owned by him should be placed on the accused) upon conviction be forfeited in favor of the
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society for the benefit of the depositors members. Provisions may also be made in the law that while determining as to whether or not the assets in possession of the accused persons are disproportionate to his known sources, the Court shall take into consideration his income-tax assessm ent record including his wealth statement filed under the Income Tax laws. The Court should have the power to summon income-tax record notwithstanding anything to the contrary contained in the Income Tax Ordinance, 1979. The societies will be called "defaulting societies" which would mean a society registered under any of the Cooperative laws and has accepted or is accepting for the purpose of lending or investment deposits of money from the public payable on demand or otherwise and with draw able by cheque, draft, order or otherwise. (1) The law should provide that every defaulting society existing immediately before the commencement of the proposed enactment on its commencement, shall cease to function notwithstanding anything to the contrary in the Banking Companies Ordinance, 1962, the Cooperative Societies Act, 1925 or any other law for the time being in force and shall be wound up in the manner provided in the proposed enactment. List of defaulting societies should be added as a Schedule to the Act. (2) Vesting in preservation of assets and deposits of cash etc., with the Board and also surrender of assets to it. For reference see section 5 of Act X of 1958. (3) Conferment of power to proceed against any concealed property or the property which has been obtained or procured by using or diverting the funds of the defaulting society. (4) A provision regarding informer and payment of compensation to him in cash up to 15% of the value of the hidden assets, if information is proved, to be correct be incorporated in the new Act. (5) A provision for settlement of objections against the rejection or non-verification of the claim. The verified claims be made assignable. (6) The law should also provide for the settlement of objections of the third parties relating to the property /assets claimed by the society/ Admn. Board. (7) The law should further confer necessary powers on the Board to retrieve the loans due and make payments of the verified claims. (8) Appropriate provision barring the taking of plea of limitation in the matter of recovery of assets and loans should also be provided. Any persons or office-bearer of the society nominated on the Board who on being required to give any information or produce any document or render assistance fails to do so without reasonable cause, after giving him an opportunity of hearing may be detained in the civil prison by the Judge (Companies) /Cooperative Societies on the representation of the Board or on his own motion for such period as may be specified under the new dispensation. Constitution of Board of Liquidators of the Big Societies.--For the purposes of achieving the objects of law, tackling the problems likely to arise in the winding up process and to deal with allied matter, a Board of Management /Liquidation for each corporation having liability of 15 crores or above and similar Boards for group of societies as considered appropriate may be constituted by the Government. The Boards should consist of the following:-- (1) An officer in service not below Grade-19 Chairman (2) Registrar Cooperative Societies or his nominee Member (3) A Chartered Accountant in service in DFIS/Bank Member (4) An Advocate having more than 10 years standing (to be nominated by the Company Judge) Member
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(5) A representative of the depositors to be elected in the manner provided hereinafter. Member (Working in honorary capacity) (6) An office-bearer of the society who is not accused of commission of an offence relating to its business. To be nominated by the Government. Associated Member The officer nominated to the Board shall be on deputation and paid by their respective departments, while the Advocate shall receive such monthly remuneration as fixed by the Company Judge. The Managing Director/ Chairman/ President/ Director/ Office-bearer of the society including the office-bearer nominated to the Board shall be bound in law to attend to the work of the Board, provide necessary information and also to render such assistance as is necessary for realizing and safeguarding the assets and interest of the society. Selection of the Members from Depositors.--A list of depositors of each district shall be prepared on the basis of the verified claims. These depositors will elect among themselves a committee comprising three depositors for the purposes of rendering assistance to the Board for collecting necessary evidence material, unearthing the concealed property if the society, identifying and locating its assets, which might have been purchased benami or through diversion of funds and any other illegalities or irregularities committed by its management and the staff. The election of the members of the committee will be conducted under the supervision of the District Magistrate. The members of the District Committee of each Corporation will elect and for such election a meeting will be called by the Chairman of the Board. Function of the Board,--(i) The Board of liquidation shall determine the assets and liabilities of the corporation and that of its office-bearers. (ii) Shall verify the claims, if need be, disposed of objections against the acceptance or rejection of claim filed by the depositor and may also entertain the claim, in case, reasonable cause is shown for filing the same earlier and also if directed by the Company Judge. (iii) Determine any complaint as to unauthorize adjustment of the deposit, SMR or any such deposit certificate or instrument. (iv) Determination of assets and liabilities would include the power to unearth, hidden or concealed properties/ property which actually and really belongs to the corporation due to use of its funds but appearing in the name of some other persons. A careful consideration of the report of the Commission reveals that all the Cooperative Societies/ Corporations were indulging into illegal banking business and that is why, the Commission lamented upon the conduct of the regulatory bodies referred to above." Relevant provisions of the Punjab Undesirable Cooperative Societies (Dissolution) Ordinance, 1992 (Ordinance XX of 1992) reads as follows:-- "ORDINANCE XX OF 1992 PUNJAB UNDESIRABLE COOPERATIVE SOCIETIES (DISSOLUTION) ORDINANCE, 1992 ......................................................................................... ......................................................................................... ......................................................................................... [Gazette of Punjab, Extraordinary, 16th May, 1992] ......................................................................................... ......................................................................................... .........................................................................................
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1. Short title, extent and commencement.--(1) This Ordinance may be called the Punjab Undesirable Cooperative Societies (Dissolution) Ordinance, 1992. (2) It shall extend to the whole of the Punjab. (3) It shall come into force at once. 2. Definition.---In this Ordinance, unless there is anything repugnant in the subject or context:-- (a) .......................................................................................... ......................................................................................... ......................................................................................... (b) "Commission" means the Commission appointed by the Federal Government under section 3 of the Pakistan Commission of Industrial Act, 1956 by Notification No,F-2(1)/91 Pub., dated 6th November, 1991. (c) "Cooperatives Board" means a Board constituted under section 5. (d) Cooperatives Judge" means a Judge of the Supreme Court of Pakistan nominated by the Chief Justice of Pakistan, or a Judge of the Lahore High Court, qualified for appointment as Judge of the Supreme Court, of Pakistan nominated by the Chief Justice of Pakistan after consultation with the Chief Justice of the High Court. (e) ......................................................................................... ......................................................................................... ......................................................................................... ......................................................................................... (f) "Liquidator" means the "Cooperative Board" constituted under section 5 of the Act. (g)......................................................................................... ......................................................................................... ......................................................................................... ......................................................................................... (h)......................................................................................... ......................................................................................... ......................................................................................... (i) "Schedule" means schedule of this Ordinance. (j) "Undesirable Cooperative Society" means a Cooperative Society registered under the Act by whatever name called to which section 4 applies, or wath is specified in the schedule; and (k) All other words and expressions used in this Ordinance and not defined shall have the same meanings as assigned to them in the Act. 3. Ordinance to override other laws. Etc.----The provisions of this Ordinance shall have effect notwithstanding anything contained in any other law for the time being in force, or in any judgment or decision of any Court or in any agreement contract, or instrument. 4. Registration of certain Cooperative Societies prohibited.--(1) No cooperative society formed with the object of accepting deposits from its members or public for the purposes of lending, investment or allowing withdrawals in any manner shall after the commencement of this Ordinance be registered under the Act. (2) Any registration made in contravention of subsection (1) shall be void. 5. Cooperative Boards.---(1) Government may establish as many Cooperatives Boards as it may deem necessary and assign names to them. (2) A Cooperatives Board shall be a body corporate having perpetual succession and a common seal, with powers subject to the provisions of this Ordinance to enter into contracts and to acquire, hold and dispose of property, both movable and immovable, and shall by the said name, sue and be sued. (3) A Cooperatives Board shall consist of a Chairman and at least two members.
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(4) The Chairman and other members whose qualifications and terms and conditions of the service shall be such as may be prescribed shall be appointed by the Government. 6.......................................................................................... ......................................................................................... ......................................................................................... 7. Power of a Cooperatives Board.--A Cooperatives Board when appointed as a Liquidator under this Ordinance shall have all the powers exercisable by a Liquidator under the Act and in addition to that shall have the power to- (a) verify the claims already filed with the Commission; entertain and dispose of objections against the acceptance or rejection thereof and also entertain claims, in case, reasonable cause is shown for not filing the same earlier; (b) unearth and proceed against any concealed or hidden property of an undesirable cooperative society, whether in the name of any Director, Officer, agent or any of the members of their families or in the name of any other person, body, company or firm acquired or purchased by using or diverting the funds of such a society; (c) determine the assets and liabilities of an undesirable cooperative society and those of its promoters, Directors, Officers and agents and of the past members of its committees of management; (d) fix and pay to any person on whose information to a Cooperatives Board any hidden assets of an Undesirable Cooperative Society are retrieved, a compensation not exceeding fifteen per cent. Of the value of such assets; (e) cancel all agreements entered into by an undesirable cooperative society or its previous managements or. Directors, Officers or agents which in the opinion of the Cooperatives Board, are mala fide and against the interest of such a society the interest of such Society or the members there of; (f) decide and settle objections and claims of third parties relating to assets and properties of an Undesirable Cooperative Society; provided that the plea of limitation shall not be a defence against the recovery of any assets and properties of an undesirable society; (g) recall and recover loans advanced by an Undesirable Cooperative Society; for the purpose of such recovery the provisions of all existing laws including the Cooperative Societies and Cooperative Banks (Repayment of Loans) Ordinance, 1966 with necessary adaptations shall apply to the Cooperative Boards; provided that nothing contained in this clause shall be a bar for a Cooperative Board to make reference in respect of any loan, in terms of section 4 of the said Ordinance to the Assistant Registrar or Registrar as the case may be, who shall thereafter proceed against the borrowers under the provisions of the Ordinance; determine validity of adjustment of the deposits, loans, deposit certificates, securities, or such other instruments; call for any information, document, record or evidence from any person, authority, agency, department; (j) initiate inquiries through police and other agencies for unearthing hidden or concealed properties and assets of an undesirable cooperative society and its Directors, Officers, agents, benamindars and the members of their families; (k) initiate, subject to the approval of the Cooperatives Judge, criminal prosecution of Directors, Officers and agents of undesirable cooperative societies and such other persons connected with the properties and affairs of such societies; (l) avail itself of financial assistance from Bait-ul-Mal and other agencies for payment to deserving destitute, widows, orphans and infirm depositors; (m) develop the properties of an Undesirable Society and for that purpose to formulate and execute development schemes with or without the collaboration of the official development agencies and dispose of assets and properties;
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(n) assess market value or properties and assets of an undesirable cooperative society for their disposal; (o) take loans, financial assistance and do all such acts, deeds and things necessary for implementation of requirements, of this Ordinance and directions, orders and decisions of the Cooperatives Judges; (q) satisfy wholly or partly the verified claims with the approval of the Cooperatives Judge at any time pending winding up proceedings and final determination of assets and liabilities of an undesirable cooperative society; (r) to incur all reasonable expenses for management of the society to be dealt with by it and for other purposes under this Ordinance; (s) subject to the rules appoint such officers, advisers and servants as it considers necessary for the efficient performance of its functions on such terms and conditions as it may deem fit; (t) delegate to the Chairman, or any member or committee or, officer or adviser, any of its powers under this Ordinance or the rules; (u) apply to the Cooperatives Judge for guidance, in relation to any particular matter arising in winding up proceedings; and (v) maintain accounts in such manner as may be prescribed. 8. ......................................................................................... ......................................................................................... .........................................................................................…
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