The Bombay High Court has affirmed the authority of the Central Registrar of Cooperative Societies to impose an immediate restraint on a multi-state cooperative society from accepting new deposits when prima facie evidence reveals systemic financial irregularities, fund diversion, and regulatory violations that endanger public deposits. This ruling underscores the regulatory imperative to protect small depositors from systemic collapse, even before final adjudication.
Background & Facts
The Dispute
The petitioner, Nirmal Ujjwal Credit Cooperative Society Limited, Nagpur (a Multi-State Cooperative Society), challenged an order dated 24.04.2026 issued by the Central Registrar of Cooperative Societies, Ministry of Cooperation, New Delhi. The order prohibited the Society from accepting any fresh or renewed deposits from its members until further orders, citing serious financial irregularities uncovered during an ongoing investigation by a Special Investigation Team (SIT).
Key Facts
- The Society had total deposits of Rs. 1,497 crores as of 31.03.2023, exceeding the statutory limit of Rs. 1,072 crores permitted under Section 67 of the Multi-State Cooperative Societies Act, 2002 (MSCS Act) by Rs. 425 crores.
- The Society accepted deposits from non-members, violating Section 68 of the MSCS Act, as confirmed by inspection reports from the Maharashtra State Cooperative Registrar.
- The Society reported Rs. 119.11 crores in Non-Performing Assets (NPAs) as of 31.03.2021, yet showed Rs. 19.05 crores in interest income from these NPAs as profit, misleading members and inducing further deposits.
- An amount of Rs. 317.73 crores was diverted to unrelated enterprises without Central Registrar approval, many of which were loss-making.
- The Society granted loans to staff and transferred funds to PNG Corporation, a partnership firm established by its then-Secretary, Shri Pramod Manmode.
- Shri Pramod Manmode, a member of the Managing Committee, had an outstanding personal loan of Rs. 10 crores from the Society, with no recovery action taken.
- The Society failed to file complete annual returns for FY 2022-23, 2023-24, and 2024-25, omitting auditor’s reports and financial annexures as mandated under Section 120 of the MSCS Act.
- FIR No. 327/2022 was registered at Nandanwan Police Station against Shri Pramod Manmode for misappropriation and cheating.
- The Society admitted before the Central Registrar that it had made PNG Corporation and Nirmal Food Product its members and granted loans to them, which is a violation of the MSCS Act.
Procedural History
- 27.12.2023: Registrar of Co-operative Societies, Maharashtra, submitted inspection report to Central Registrar highlighting violations of Sections 64 and 67 of the MSCS Act.
- 30.01.2024: Central Registrar issued show cause notice to the Society, which was replied to on 10.02.2024.
- 20.11.2025: Bombay High Court, in Writ Petitions Nos. 1068/2019, 811/2025, and 16/2024, directed investigation by CBI due to inaction by state agencies and grave allegations of fraud.
- 01.12.2025: Supreme Court modified the High Court’s order, directing constitution of a Special Investigation Team (SIT) with officers not from Maharashtra cadre, to investigate independently.
- 08.04.2026: Deputy Commissioner (Cooperation) issued notice to the Society seeking explanation on SIT findings.
- 14.04.2026: Society submitted reply denying all allegations without producing supporting documents.
- 21.04.2026: Hearing notice issued by Central Registrar directing appearance via video conference on 24.04.2026.
- 24.04.2026: Hearing conducted before Central Registrar via video conference; Society representatives appeared and admitted violations.
- 24.04.2026: Central Registrar issued order restraining the Society from accepting deposits.
- 27.04.2026: Order communicated to the Society.
- 06.05.2026: Hearing before Bombay High Court on interim stay application.
- 08.05.2026: Judgment pronounced.
The Parties' Positions
Petitioner (Nirmal Ujjwal Credit Cooperative Society Limited): Argued that the Central Registrar lacked statutory power to issue a deposit restraint order. Contended that the order was non-speaking, violated principles of natural justice, and that the hearing was conducted by the Deputy Commissioner, not the Central Registrar. Asserted that only winding-up under Section 86 was permissible, and that the Society had substantially complied with Section 120.
Respondent (Union of India & Central Registrar): Maintained that the order was issued under Sections 78 and 79 of the MSCS Act, based on prima facie findings from SIT investigation, the Society’s own admissions, and the risk to over 1 lakh depositors. Emphasized that the hearing was conducted by the Central Registrar himself, as evidenced by email confirmation and order sheet.
Relief Sought
The petitioner sought an interim stay on the Central Registrar’s order dated 24.04.2026, arguing that the restraint would cause irreparable harm to its business and depositors. It also sought quashing of the notice dated 08.04.2026 and hearing notice dated 21.04.2026.
The Legal Issue
Can the Central Registrar of Cooperative Societies, under the Multi-State Cooperative Societies Act, 2002, issue an interim order restraining a society from accepting deposits on prima facie findings of financial irregularities, fund diversion, and regulatory non-compliance, even before initiating winding-up proceedings?
Arguments Presented
For the Petitioner
The petitioner relied on Kranti Associates Private Limited v. Masood Ahmed Khan and Rasid Javed v. State of Uttar Pradesh to argue that the order was non-speaking and violated the doctrine of audi alteram partem. It contended that the Central Registrar had no express power under the MSCS Act to impose a deposit freeze, and that only Sections 78, 79, and 86 provided for inquiry, inspection, and winding-up - none of which authorize interim deposit restrictions. It further claimed the hearing was conducted by the Deputy Commissioner, not the Central Registrar, rendering the order ultra vires.
For the Respondent
The respondent argued that Section 78(1-A), inserted in 2023, empowers the Central Registrar to act upon information from government agencies indicating fraudulent or unlawful conduct. The Registrar acted on SIT findings, the Society’s own admission of violations, and the risk to over 1 lakh depositors. The order was a preventive measure under inherent regulatory authority to protect public interest, and the hearing was duly conducted by the Central Registrar himself, as confirmed by email and order sheet.
The Court's Analysis
The Court examined the statutory framework under the MSCS Act, particularly Sections 78, 79, and 86. It noted that while Section 86 provides for winding-up, Sections 78 and 79 empower the Central Registrar to conduct inquiries and inspections upon receipt of credible information of irregularities. The 2023 amendment to Section 78(1-A) explicitly permits the Registrar to call for explanations when fraud or unlawful conduct is suspected, and to conduct inquiry if the explanation is unsatisfactory.
"And whereas, upon consideration of the material available on record, including the reply of the Society, submissions made during the hearing, and the findings emerging from the ongoing investigation, this Authority is of the prima facie view that serious issues relating to financial impropriety, diversion of funds, conflict of interest and regulatory non-compliance exist in the functioning of the Society..."
The Court held that the order was not non-speaking. It referenced the Registrar’s detailed reasoning, which incorporated the SIT’s findings, the Society’s admission of violations, and the statutory breach of deposit limits under Section 67. The Court rejected the claim that the hearing was conducted by the Deputy Commissioner, citing the email trail and order sheet confirming the Central Registrar presided over the video hearing.
The Court emphasized that the Society’s conduct - accepting deposits from non-members, inflating profits via NPA interest, diverting Rs. 317 crores without approval, and failing to recover Rs. 10 crores in personal loans - constituted a clear threat to public deposits. The Court noted that the depositors were small investors whose life savings were at stake, and that the SIT’s investigation, supervised by the High Court and affirmed by the Supreme Court, provided a credible basis for the restraint.
The Court distinguished between punitive measures (like winding-up) and preventive regulatory actions. It held that the Central Registrar’s order was a legitimate, proportionate, and necessary interim measure to prevent further dissipation of funds and protect the public interest, consistent with the spirit of the MSCS Act and the Supreme Court’s directive for objective investigation.
The Verdict
The petition was dismissed. The Bombay High Court upheld the Central Registrar’s order dated 24.04.2026, which prohibits the Nirmal Ujjwal Credit Cooperative Society from accepting any fresh or renewed deposits from its members until further orders. The Court found no illegality in the order, affirmed the validity of the hearing conducted by the Central Registrar, and held that the restraint was a lawful, necessary, and proportionate measure to protect over one lakh depositors from irreparable financial harm. The Society’s interim prayer for stay was rejected.
What This Means For Similar Cases
Regulatory Authorities May Impose Preventive Deposit Restraints
- Practitioners must now recognize that under Section 78(1-A) of the MSCS Act, the Central Registrar can impose immediate deposit freezes on cooperative societies when prima facie evidence of fraud, fund diversion, or regulatory breaches exists.
- Such orders are not limited to winding-up proceedings and may be issued even before final adjudication.
- The burden shifts to the society to demonstrate that its operations are compliant and that depositors are not at risk.
Prima Facie Evidence Suffices for Interim Relief
- Courts will uphold regulatory action based on credible investigative findings, even if the matter is sub judice.
- Admissions made during hearings before regulatory authorities are binding and can form the basis for interim orders.
- Failure to produce documentary evidence in response to show cause notices weakens a society’s position significantly.
Procedural Compliance Is Non-Negotiable
- All hearings must be conducted by the authority empowered to pass the order; delegation without ratification invalidates proceedings.
- Email confirmations and order sheets are admissible evidence of procedural compliance.
- Non-speaking orders remain vulnerable to challenge, but detailed reasoning referencing investigation reports and statutory breaches will withstand scrutiny.
