The Bombay High Court has clarified that a dispute over unpaid professional fees for valuation services rendered to a multi-state co-operative bank does not constitute a matter touching the bank’s business, thereby exempting it from the mandatory pre-suit notice requirement under Section 115 of the Multi-State Co-operative Societies Act, 2002. This ruling reinforces the principle that statutory notice provisions must be strictly confined to disputes with direct nexus to the society’s core functions.
Background & Facts
The Dispute
The dispute arose between Mulani Associates, a government-recognized valuer and architectural consultant, and The Saraswat Co-operative Bank Ltd, a multi-state co-operative bank registered under the Multi-State Co-operative Societies Act, 2002. Mulani Associates claimed that it had been empanelled by the Bank since 1992 to prepare valuation reports for immovable properties offered as collateral security by loan applicants. Despite rendering services over several years and raising invoices, the Bank allegedly failed to pay professional fees amounting to Rs.6,96,595.
Key Facts
- Mulani Associates was empanelled as a valuer and architectural consultant by the Bank from 1992 onwards, with renewals over time.
- Services rendered included preparation of valuation reports for properties pledged as security for loans.
- Invoices for professional fees were raised periodically between 2015 and 2020.
- A legal notice dated 20.02.2020 was sent by Mulani Associates demanding payment of Rs.6,96,595.
- The Bank responded by seeking details of the outstanding bills, which were furnished by Mulani Associates.
- No payment was made, prompting the institution of Summary Suit No.1 of 2021.
- The Bank had no direct contractual relationship with borrowers; its engagement with Mulani Associates was purely for third-party valuation services.
- The Reserve Bank of India’s Master Circulars dated 04.07.2007, 05.07.2015, and 08.04.2022 mandated valuation of collateral, but did not create a statutory obligation on the Bank to treat valuers as integral to its internal business structure.
Procedural History
- 20.02.2020: Legal notice sent by Mulani Associates demanding payment of Rs.6,96,595.
- 01.01.2021: Summary Suit No.1 of 2021 filed before Civil Judge, Senior Division, Palghar.
- 15.09.2022: Trial Court rejected the Bank’s application under Order VII Rule 11 CPC, holding Section 115 of the Multi-State Co-operative Societies Act, 2002, inapplicable.
- 12.06.2023: Civil Revision Application No.331 of 2023 filed before Bombay High Court challenging the Trial Court’s order.
- 12.06.2026: Hearing concluded before Justice Milind N. Jadhav.
The Parties' Positions
Applicant (Bank): Contended that valuation of collateral is an indispensable part of its lending business, as per RBI guidelines, and therefore any dispute arising from such services touches its business under Section 115. Relied on Mohan Meakin Limited v. Pravara Sahakari Sakhar Karkhana to argue for a broad interpretation of "touching the business of the society".
Respondent (Mulani Associates): Argued that the suit is purely for recovery of professional fees under a service contract, with no connection to the Bank’s constitution, management, or core banking functions. The dispute is contractual and commercial, not institutional.
Relief Sought
The Applicant sought dismissal of the suit under Order VII Rule 11 CPC for non-compliance with Section 115 of the Multi-State Co-operative Societies Act, 2002. The Respondent sought continuation of the suit for recovery of Rs.6,96,595 plus interest.
The Legal Issue
The central question was whether a suit for recovery of professional fees for valuation services rendered to a multi-state co-operative bank constitutes a dispute "touching the constitution, management or business" of the society within the meaning of Section 115 of the Multi-State Co-operative Societies Act, 2002.
Arguments Presented
For the Appellant/Petitioner
The Applicant argued that valuation of collateral security is a mandatory and integral component of the Bank’s lending business, as mandated by RBI Master Circulars. It contended that without such valuations, the Bank cannot sanction or disburse loans, making the service indispensable to its core function. Relying on Mohan Meakin Limited v. Pravara Sahakari Sakhar Karkhana, it asserted that the phrase "touching the business" must be interpreted liberally to include any activity directly connected to the society’s principal objects. It further submitted that the Trial Court erred in adopting a narrow interpretation and that non-compliance with Section 115 renders the suit non-maintainable.
For the Respondent/State
The Respondent maintained that the suit is for recovery of professional fees under a service contract, akin to any other professional engagement. It emphasized that the dispute does not concern loan sanctioning, recovery, enforcement of security, or internal governance of the Bank. The services were rendered as an independent contractor, not as a member or officer of the society. The Respondent argued that extending Section 115 to such commercial transactions would render the provision overbroad and defeat the purpose of access to civil courts for service providers.
The Court's Analysis
The Court began by affirming that under Order VII Rule 11 CPC, the court must examine only the averments in the plaint, not the defendant’s defence. The plaint clearly pleaded a claim for unpaid professional fees, with no allegation of interference in the Bank’s internal affairs, loan policies, or borrower disputes.
"The controversy is confined to recovery of professional fees allegedly payable to the Respondent."
The Court rejected the Applicant’s argument that the mere use of valuation services in the lending process automatically brings the dispute within Section 115. It distinguished between the utility of a service and the nature of the dispute arising from it. While valuation reports are essential for the Bank’s operations, the dispute here is not about the adequacy of the valuation, the rejection of a report, or the Bank’s lending policy - it is purely about non-payment of fees.
"The test is not whether the services rendered by the Respondent were utilised by the Applicant in the course of its banking activities, but whether the subject matter of the dispute itself directly concerns the business."
The Court acknowledged that the expression "touching the business" must be interpreted broadly, as held in Mohan Meakin, but cautioned against stretching it to include every transaction with a remote or incidental connection. It held that a direct and proximate nexus is required - one where the dispute itself relates to the society’s constitution, governance, or core economic functions. Recovery of professional fees from an independent contractor does not meet this threshold.
The Court further noted that the Bank’s engagement with Mulani Associates was commercial and contractual, not institutional. The Respondent was not a member, employee, or agent of the society. The Bank’s compliance with RBI guidelines did not transform a service contract into a matter of internal administration.
The Trial Court’s conclusion that Section 115 was inapplicable was found to be legally sound, well-reasoned, and free from jurisdictional error. No perversity or illegality warranted interference under Article 227.
The Verdict
The Civil Revision Application was dismissed. The order dated 15.09.2022 of the Civil Judge, Senior Division, Palghar, was confirmed. The suit for recovery of Rs.6,96,595 plus interest shall proceed in accordance with law. The Court directed that Summary Suit No.1 of 2021 be expedited.
What This Means For Similar Cases
Professional Services Are Not Automatically "Touching the Business"
- Practitioners must distinguish between services that are integral to a co-operative society’s governance versus those that are commercially contracted.
- A dispute over fees for external consultants - such as valuers, auditors, or legal advisors - does not attract Section 115 unless the dispute concerns the society’s internal management or core functions.
Section 115 Notice Is Not a Blanket Requirement
- Co-operative societies cannot invoke Section 115 to shield themselves from routine commercial claims.
- Courts will examine the nature of the dispute, not the nature of the service provider’s client.
- The burden lies on the defendant to demonstrate a direct nexus between the subject matter of the suit and the society’s constitution, management, or business.
Valuation Services Do Not Convert a Contractual Claim into a Societal Dispute
- Even if valuation is mandated by regulators like RBI, the contractual obligation to pay for such services remains separate from the society’s statutory business.
- This ruling protects independent professionals from being forced into cumbersome co-operative dispute resolution mechanisms for simple debt recovery.
