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Andhra Pradesh High Court
Judges : D.REDDAPPA REDDY, LINGARAJA RATH
N.S.Sreenivasan - Appellant
Versus
Deputy Registrar of Co-operative Societies, Hyderabad - Respondent
Decided On : 02-07-96
COOPERATIVE SOCIETIES - DISPUTE - SURETY - LIABILITY - INTERPRETATION OF SECTIONS 61 AND 128 OF THE INDIAN CONTRACT ACT, 1872 - APPLICABILITY TO COOPERATIVE SOCIETIES - ADMISSIBILITY OF NON-MEMBER SURETY AS PARTY TO DISPUTE - SCOPE OF EXPLANATION (II) TO SECTION 61(1)(B) OF THE ANDHRA PRADESH COOPERATIVE SOCIETIES ACT, 1964 - DISTINCTION BETWEEN NOMINAL AND REGULAR MEMBERS UNDER SECTIONS 19 AND 20 OF THE ACT - EFFECT OF PROVISO TO SECTION 19 - APPLICABILITY OF SCHEME FRAMED UNDER SECTION 3(1) OF THE ANDHRA PRADESH STATE COOPERATIVE BANK (FORMATION) ACT, 1963 - INTERPRETATION.
Fact of the Case:
The appellant, a surety for a loan advanced by the third respondent to the fourth respondent, challenged an order issued by the first respondent for recovery of the loan amount in monthly installments. The appellant contended that a non-member surety cannot be proceeded against under the Andhra Pradesh Cooperative Societies Act, 1964 (the Act), that the fourth respondent, being an individual, was not eligible for membership in the third respondent-society, and that the first proviso to Section 19 of the Act overrides Sections 19 and 20, prohibiting the admission of individual members.
Finding of the Court:
The court held that a non-member surety is liable to be proceeded against under the Act, as per the interpretation of Sections 61 and 128 of the Indian Contract Act, 1872. The court also held that the first proviso to Section 19 of the Act does not override Sections 19 and 20, and that nominal or associate members, as defined in Section 2(j) of the Act, are distinct from regular members. Furthermore, the court found that the scheme framed under Section 3(1) of the Andhra Pradesh State Cooperative Bank (Formation) Act, 1963, does not prohibit the admission of individual members.
Issues: 1. Whether a non-member surety can be proceeded against under the Andhra Pradesh Cooperative Societies Act, 1964? 2. Whether the fourth respondent, being an individual, was eligible for membership in the third respondent-society? 3. Whether the first proviso to Section 19 of the Act overrides Sections 19 and 20, prohibiting the admission of individual members? 4. Whether the scheme framed under Section 3(1) of the Andhra Pradesh State Cooperative Bank (Formation) Act, 1963, prohibits the admission of individual members?
Ratio Decidendi: 1. Section 61 of the Act, read with Explanation (ii) to Section 61(1)(b), allows a society to recover the loan amount from a surety, and the surety can file a dispute before the arbitrator to recover the loss suffered due to the principal debtor's default. Therefore, the society can proceed against the surety in a dispute to realize its loan. 2. Section 19 of the Act provides for eligibility for membership, and the first proviso to Section 19 prohibits the admission of individuals as members of financing banks or federal societies. However, Section 20 provides for the admission of nominal or associate members, who have limited rights and privileges compared to regular members. Therefore, the fourth respondent could be admitted as a nominal member of the third respondent-society. 3. The first proviso to Section 19 is an exception to the general rule of membership eligibility under Section 19, and it operates only within the field covered by Section 19. It does not extend to Section 20, which deals with nominal or associate members. Therefore, the first proviso does not override Sections 19 and 20. 4. The scheme framed under Section 3(1) of the Andhra Pradesh State Cooperative Bank (Formation) Act, 1963, is intended to facilitate the amalgamation of banks and matters incidental thereto. It does not provide for matters after the amalgamation is effected and the society is registered under the Cooperative Societies Act. Therefore, the scheme does not prohibit the admission of individual members.
Final Decision: The appeal was dismissed with costs, and the appellant's request to uphold the direction of the learned single Judge to file an appeal before the Tribunal within four weeks was rejected.
( 1 ) THE writ petitioner is the appellant. He had stood as surety for a loan advanced by the third respondent to the fourth respondent. The repayment of the loan having been defaulted,the dispute raised by the third respondent was referred by the Registrar under Section 61 of the A. P. Cooperative societies Act, referred hereinafter as the act ,to the first respondent for adjudication. To the dispute both the fourth respondent and the petitioner-appellant were parties. The arbitrator passed the award on 6-1 -1986 for sum of Rs. 54,314. 62 Ps. with interest at 13. 5%. In executing the decree in pursuance of the award,the first respondent issued order dated 18-8-1988 in E. P. No. 43/87/87 a. S. O. for recovery of the amount in monthly instalments of Rs. 500/- till the whole amount was discharged. It is this order which was challenged in the writ petition, which having been dismissed, the present appeal has been preferred.
( 2 ) MR. Srinivas, the learned counsel for the appellant has strenuously assailed before us the proceedings on various grounds. The submissions are - (A) Section 61 of the Act does not contemplate the entertainment of a, dispute against a non-member surety, which the appellant is, for which reason, the award made against the appellant is unenforceable; (B) the fourth respondent being an individual was not eligible to have become a member of the third respondent-society which is a federal one and as no loan could have been advanced to him,the grant of loan to him was illegal for which reason the suretyship of the appellant to such loan was also not sanctioned by law; (C) the first proviso to Section 19 of the act was brought in by way of an amendment by Act 14 of 1966 and being a later provision would override sections 19 and 20 of the Act which sections must be read as integrated sections controlled by the proviso for which the fourth respondent could not have been admitted as a nominal member; and (D) the third respondent-Bank was formed out of the amalgamation of andhra State Cooperative Bank Limited and Hyderabad Cooperative Apex Bank limited made under the provisions of act 12 of 1963 which Act provided the amalgamation to be made in pursuance of a scheme evolved by the Registrar of the Cooperative societies under Section 3 of the Act. that the provisions of the scheme would override the provisions of the Andhra Pradesh Cooperative societies Act and that the scheme prohibits admission of individual as members of the Bank. We propose to take up the submission seriatim.
( 3 ) IN negativing the contention of non- member surety being not within the ambit of the Act, the learned single Judge relied upon a Division Bench decision of this court in (1) w. A. No. 516 of 1972 decided on 27-7-1973 which held that a surety, by offering himself as such,becomes attached to the loan transaction and hence comes under the liability which is the same as that of the principal debtor and hence he is liable to be proceeded against in a dispute proceedings under Sections 61 and 62 of the Act. Mr. Srinivas seeks to distinguish the decision on the ground that in the case before the court the surety was also a member of the credit cooperative Society and hence was a person who could be proceeded against. But that the question as to whether a non-member surety could be a party to the dispute did not arise before the court in that case. The facts of that case were that the writ petitioner - appellant was the president of the Credit cooperative Society which obtained the loan from Nellore District Cooperative Central bank and the appellant stood surety for the loan. The loan having not been cleared by the society, the dispute was commenced against the credit cooperative society as well as the appellant as the surety. Though, admittedly,the appellant was the member of the loanee society yet he could not have become member of the Cooperative Central bank in view of the bar contained in first proviso of Section 19 w
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