2007 Supreme(Kar) 414

Karnataka High Court
Judges : AJIT J.GUNJAL
V.KRISHNASWAMY - Appellant
Versus
KARNATAKA RAJYA KAIGARIKA SAHAKARA BANK NIYAMITHA - Respondent
(GM-RES)C/W 7659 Of 2007
Decided On : 07/12/2007
Advocates Appeared :
B.N.Prasad, C.S.KOTHAVALE, Iyengar, Nandgopal, R.CHANDRANNA, Venkatesh R.Bhagat

Headnote:Section 29C (1)(a) - Show cause notice as to disqualification - Petitioner elected as director of management committee - Obtained loan under various heads/accounts - Failure to repay - Show cause notice issued seeking as to why he should not be disqualified and membership be cancelled - Challenge fails because notive by itself does not amount to disqualification. [N. K. Patil, J.]: an opportunity has been afforded by the said authority by issuing the impugned notice, mentioning that, if he has to say anything in the matter, he is entitled to give his reply in writing and to be present before the said authority on 15th October 2007 at 11.00 A.M to substantiate his stand. Further, it is stated that, if petitioner fails to reply and be present before the said authority, it will be presumed and accepted that, he does not have any defence as such and appropriate proceedings will be initiated as per the mandatory provisions of the Act. Therefore, from a plain reading of the impugned notice issued by second respondent, it can easily be concluded that, it is only a show cause notice, calling upon the petitioner to put forth his case regarding the contents of the report submitted by third respondent in due compliance with the statutory provisions of theAct, as referred above and to show cause as to why he should not be disqualified from the Directorship of the Committee of Management of the said Society. There is no disqualification order as such passed by the competent authority and before passing such an order, petitioner has been issued with the impugned show cause notice calling upon him to have his say in the matter regarding disqualification. Therefore, the impugned notice vide AnnexureAis not a disqualification order itself as futilely contended by learned counsel for petitioner. Therefore the said submission of the learned counsel for petitioner fall to dust. Ronald Jerome DSouza Vs. State of Karnataka Rep. by the Secretary to Government and Another, 2007 (4) KLO 3762: ILR 2007 Kar 5286: 2007 (4) KCCR 2751; Writ Petition No. 16060/2007(CS-RES), Decided on 9-10-2007. Case Referred: 2001 (1) Kar. L.J. P 542.

       Karnataka Co-operative Societies Act, 1959 - Section 70 - Recovery of dues - If creditor is a co-operative bank, it should raise a dispute under Section 70 for recovery of dues - Proceedings under Securitisation Act cannot be initiated for this Act is not applicable to a co-operative Bank - Co-operative Banks cannot be equated to corporate Banks. [Ajit J. Gunjal, J]: Apparently once it is held that the banking company as defined under Section 5( cc) of the Banking Regulation Act does not include or encompass the Co-operative Bank, I am of the view that the proceedings could not have been initiated by the Co-operative Bank in both these petitions under the Securitisation Act. The Apex Court while dealing with the said question has further observed that the dues of Co-operative Bank and recovery proceedings thereof are self regulated, in as much as, under the Karnataka Co-operative Societies Act any amount due by a borrower to the Co-operative Bank, a dispute can be raised under Section 70 of the Co-operative Societies Act for recovery of the said amount. It is also to be noticed that even the Co-operative Societies involved in the activities of banking which involves lending and borrowing which are incidental to their main Co-operative activity which is a function in public domain. The meaning of Banking Company must, therefore, necessarily be strictly confined to the words used in Section 5@ of the BR Act. Indeed, it would have been the easiest thing for Parliament to say that Banking Company shall mean Banking Company as defined in Section 5@ and shall include Co-operative Bank as defined in Section 5(cci) and Primary Co-operative Bank as defined in Section 5 (ccv). This would necessarily lead to a logical conclusion that there was a conscious exclusion of the Co-operative Bank from the purview of the Securitisation Act. Indeed, the reason for excluding Co-operative Banks seems to be that Co-operative Banks have comprehensive; self-contained and less expensive remedies available to them under the Co-operative Societies Act, while other banks and financial institutions did not have such speedy remedies and they have to file suits in civil courts.

       Cases Referred: 2007 (5) Scale P. 366.

       Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Preamble - Object of the Act - Meaning of Banking Company Vis-à-vis a Co-operative Bank. Dilatory Settled Principles: In Section 2(d) of the Securitisation Act same meaning is given to the word banking company as is assigned to it in clause @ Section 5 of the B.R. Act. Again the definition of Banking Company was lifted from the BR Act but while defining Bank Parliament gave five meanings to it under Section 2© and one of which is Banking Company. The Central Government is authorised by Section 2© ( v ) of the Act to specify any other bank for the purpose of the Act. In exercise of this power, the Central Government by Notification dated 28.01.2003, has specified "Co-operative Bank respectively from Section 56 Clauses 5( cci) and (ccv) of Part V The Parliament has thus consistently made the meaning of Banking Company clear beyond doubt to mean a company engaged in banking, and not a Co-operative Society engaged in banking and in Act No. 23 of 1965, while amending the BRAct, it did not change the definition in Section 5© or even in 5(d), to include Co-operative Banks; on the other hand, it added a separate definition of Co-operative Bank in Section 5 (cci) and primary Co-operative Bank in section 5(ccv) of Section 56 of Part V of the BR Act. Parliament while enacting the Securitisation Act created a residuary power in Section 2@(v) to specify any other bank as a bank for the purpose of that Act and in fact did specify Co-operative Banks by Notification dated 29.01.2003. The context of the interpretation clause plainly excludes the effect of a reference to Banking Company being construed as reference to a Co-operative Bank for three reasons: firstly, Section 5 is an interpretation clause; secondly, substitution of Co-operative Bank for banking company in the definition in section 5@ would result in ; absurdity because then section 5@ would read thus: Co-operative Bank" means any company, which transacts the business of banking in India; thirdly, Section 56© does define "Co-operative Bank" separately by expressly deleting/inserting clause (cci) in Section 5. The Parliament in its wisdom had not altered or modified the definition of Banking Company in Section 5@ of the BRAct by Act No. 23 of 1965." "Co-operative Bank" was separately defined by the newly inserted clause (cci) and "Primary Co-operative Bank" was similarly separately defined by clause (ccv). The meaning of Banking Company must, therefore, necessarily be strictly confined to the words used in Section 5@ of the BR Act. If the intention of the Parliament was to define the Co-operative Bank as Banking Company, it would have been the easiest way for the Parliament to say that Banking Company shall mean banking company as defined in Section 5© and shall include co-operative bank and Primary Co-operative Bank as inserted in clauses (cci) and (ccv) in Section 5 of the Act 23 of 1965. [2007 (5) Scale 366].

       Cases Referred: 2007 (5) Scale P. 366.

       Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 13 and 14 - Applicability of the Act - Not applicable to a co-operative Bank - Hence, such Bank cannot initiate proceedings against a borrower for recovery of its dues - Appropriate remedy is to raise a dispute under Section 70 of the Karnataka Co-operative Societies Act.

       Cases Referred: 2007 (5) Scale P. 366.