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2010 Supreme(Kar) 513
2010(6) Kar. L.J. 126 (DB)
IN THE HIGH COURT OF KARNATAKA AT BAN GALORE (DIVISION BENCH)
K SREEDHAR RAO AND B. V. PINTO, JJ.
P.C. MOHAN AND ANOTHER
Verses
STATE OF KARNATAKA AND OTHERS
Writ Petition Nos. 35163 and 35164 of 2009 connected with Writ Petition Nos. 34813 and 28148 to 28156 of 2009.
Decided On : 20th April, 2010
Sriyuths Kishore Kumar, G. Muralidhar, M/s. Jayakumar S. Patil Associates and Deshraj, Advocates for Petitioners;
Sriyuths D. Vijayakumar, Additional Government Advocate, P.S. Rajagopal, Senior Counsel fur M/s. Fox MandaI Associates, N. Ramachandra, U.S. Sanjeev Murthy, H.N. Shashidhar, M/s. Kesvy and Company, M/s. Suuthern Law Associates, Madhusudhan R. Naik, Senior Counsel for M/s. Naik and Naik Law Firm, M/s. A.H. Law Firm for M/s. DKS Associates, Advocates for Respondents.
Headnote:KARNATAKA CO-OPERATIVE SOCIETIES ACT, 1959 - Section 30(5): [K.Sreedhar Rao & B.V.Pinto,JJ] Supercession of Kannika Parameshwari Co-operative Bank and Grain Merchant Co-operative Bank - R.B.I. inspection report indicating serious financial irregularities like grant of (1) loan to relatives of Directors, (2) Loan without proper securities, (3) Loans to fictitious persons, and (4) misapplications of one time settlement scheme to the loan accounts not covered under the Scheme - RBI granted 4 month time to rectify -Even before the Banks sent compliance report directing Registrar of co-operative societies to remove managing Committees - Grain Merchant Bank submitted action taken report after suppression but before 4 months - Kannika Parameswari Co-operative Bank did not submit action taken report to RBI - Order challenged by Directors - Held, On a thorough consideration of the analogous provisions relating to supersession of the Managing Committee under Section 30(1) of the Act, 35 and 36AA of the Banking Regulations Act, the pre-decisional hearing is mandatory. It cannot be gainsaid that an order of removal of the Managing Committee under Section 30(5)of the Act, visit with civil consequences to the affected members. Therefore, in the fitness of things, it cannot be said that the RBI can issue directions to the Registrar for removal of the members of the Managing Committee without providing an opportunity of hearing. More so, when there is no scope for affected members to avail the benefit of post decisional hearing. It is incumbent upon RBI while issuing directions under Section 30(5) of the Act, should adhere to the principles of natural justice. Otherwise, the affected members stand almost eternally condemned without an opportunity of hearing. The un-amended provision of Section 30(5) of the Act, declared that "appointment of an administrator to manage the affairs of the Co-operative Bank for a period not exceeding 5 years in aggregate as may from time to time specified by the Reserve Bank". By Act 25 of the 1998 w.e.f. 15.9.88 the words "not exceeding 5 years" is omitted. A close reading of the provisions of Selection 30(5) of the Act, discloses that the order of the removing committee should be co-terminus with the tenure of the committee, because after the expiry of the term, the committee would cease to exist by operation of law, the tenure of the members of the committee comes to an end. The provisions of Section 30(1) of the Act, mandate that when once committee is removed, the administrator should be appointed for six months and further extension by six months and in any case, such extension shall not exceed by one year in aggregate. In other words, the elections are to be held immediately after one year. The provisions of Section 39A of the Act declares that the general elections for electing the members of the committee to be held within 15 days before the date of expiry of the term of office of the committee and the out going committee shall fix the date for election. In the absence of committee, the administrator or the Special Officer will fix the date of election. Seciton 39(A)(4) of the Act, empowers the Government to post-pone the conduct of elections for the reasons stated in the said provisions for a period not exceeding six months and in any case not exceeding two years in aggregate. The conduct of elections is an inviolable democratic process in the scheme of the Act. The RBI has no right to continue appointment of an Administrator without elections contrary to the spirit and provisions of Sections 31 and 39A of the Act. Therefore, the power of the RBI under Sections 30(5) of the Act, for removal of the committee and appointment of an Administrator should be in consonance and consistent with the other allied provisions of theAct. The Administrator once appointed has the discretion of holding elections in accordance with the provisions of the Act and the postponement of election is necessary under Sections 39A(4) of the Act, and he can recommend accordingly. In respect of Grain Merchants co-operative Bank, during the hearing of the petition, the tenure of the elected committee came to an end and fresh elections have been held. Therefore, the relief prayed for in Writ Petition is only of an academic interest. The tenure of the Kannika Parameshwari Cooperative Bank is also expired. The elections are to be held. The order passed by the Registrar under Section 30(5) of the Act, disqualifying the Managing Committee members to contest elections for a period of four years is bad in law. The Registrar is however, empowered to conduct separate enquiry under Section 29 of the Act and pass appropriate order, but while passing orders under Section 30(5) of the Act, the Registrar does not get jurisdiction to disqualify the members from contesting elections.
Writ Petition Nos. 34813, 35163 and 35164 of 2009 pertain to supersession of Grain Merchants Co-operative Bank. Writ Petition Nos. 28148 and 28156 of 2009 pertain to super-session of Kannika Parameshwari Co-operative Bank. The above writ petitions involve common question of law and fact. Hence, heard together for common disposal.
2. The Reserve Bank of India (RBI) conducted periodical inspection of Grain Merchants Co-operative Bank and Kannika Parameshwari Co-operative Bank for the period ending with March 31, 2009. In the course of inspection, serious financial irregularities like grant of (1) loan to the relatives of the directors; (2) loan without proper securities; (3) loan to the fictitious persons; and (4) misapplications of one time settlement scheme to the loan accounts not covered under the schemes.
3. The RBI sent a copy of the inspection report granting four months time to the above co-operative Banks to rectify the defects and to offer explanation for mis-fisiciance and mal-fisiciance. The RBI even before the above banks sent their compliance report, directed the Registrar to remove the Managing Committees of the above Banks under Section 30(5) of the Kamataka Co-operative Societies Act, 1959 (for short, 'Ace). The tenure of the elected committee of both the Banks was to expire by 31st March, 2010. The super-session was recommended by the RBI 4 months prior to the expiry of the tenure.
4. The Grain Merchants Co-operative Bank, after super-session but within the period of four months had submitted the action taken report to the RBI. The Kannika Parameshwari Co-operative Bank has not submitted action taken report to the RBI so far. The Registrar of Co-operative Societies, pursuant to the directions of the RBI, passed order of super-session of both the Banks and in respect of members of Kannika Parameshwari Co-operative Bank. The Registrar further declared that the Committee members of Kannika Parameshwari Co-operative Bank are disqualified to contest the election for a period of 4 years. The members of the committee aggrieved by the order have filed the writ petitions.
5. Respondent 6 in W.P. No. 34813 of 2009 has come as intervener on record supporting the order of super-session.
6. The following common questions of law arise for consideration in the above petitions:
(1) Whether it is incumbent on the RBI to provide an opportunity of hearing before recommending the super-session Under Section 30(5) of the KCS Act?
(2) Whether the provision of Section 30(5) of KCS Act, imbibes a scope for post decisional hearing?
(3) Whether the RBI under Section 30(5) of KCS Act, while recommending the super-session appoint an administrator for a term beyond the period mandated for holding elections?
7. The provisions of Section 30(1) of the Act, empower the Registrar to supersede the committee at his discretion if the stated irregularities are found. However, the Registrar is obligated to hear the affected committee before the order of super-session is made. The Section 30(1) of the Act, came to be amended with effect £Tom 30-10-2009, where under the Registrar has to seek prior approval from RBI for effecting super-session under Section 30(1) of the Act. Section 30(3) of the Act debars the members of the superseded committee to contest for election for a period of four years from the date of order under Section 30(1) of the Act. The members who are disqualified in an enquiry under Section 29 of the Act, are also disqualified to contest for the elections for a period of four years.
8. The RBI is empowered to issue direction to the Registrar for removal of the Managing Committee of the Bank under Section 30(5) of the Act. For convenient reference, the provisions of Section 30(5) of the Act, are extracted hereunder.
"30. (5) Notwithstanding anything contained in this Act, the Registrar shall, in the case of a Co-operative Bank, if so required in writing by the Reserve Bank of India in public interest or for preventing the affairs of the Co
