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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
R.D. Dhanuka, V.G. Bisht, JJ.
Keda Tanaji Aher - Appellant
Versus
State Of Maharashtra - Respondent
Writ Petition No. 2301 of 2018; Civil Application No. 271 of 2019, 1275 of 2018
Decided On : 19-03-2021
CO-OPERATIVE SOCIETIES - SUPERSESSION OF BOARD OF DIRECTORS - POWER OF REGISTRAR - DIRECTIVES OF RESERVE BANK OF INDIA - BINDING NATURE - SHOW CAUSE NOTICE AND PERSONAL HEARING - NECESSITY - AMENDMENT TO SECTION 110A(1)(III) OF THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1960 - VALIDITY - REPUGNANCY WITH ARTICLE 243 ZL OF THE CONSTITUTION OF INDIA - APPOINTMENT OF SOLE ADMINISTRATOR - VALIDITY - PROCEDURE UNDER SECTION 102 OF THE ACT - APPLICABILITY - JUDICIAL REVIEW - SCOPE.
Fact of the Case:
The petitioners, being the Board of Directors of a District Central Co-operative Bank, challenged the order passed by the Commissioner for Co-operation and Registrar of Co-operative Societies (Registrar) superseding their Board and appointing an Administrator. The Registrar had passed the order in compliance with the directives issued by the Reserve Bank of India (RBI) under Section 110A(1)(iii) of the Maharashtra Co-operative Societies Act, 1960 (MCS Act). The petitioners contended that the Registrar was required to issue a show-cause notice and grant them a personal hearing before passing the order, and that the amendment to Section 110A(1)(iii) of the MCS Act, which reduced the period of supersession from five years to one year, was not in conformity with Article 243 ZL of the Constitution of India. They also challenged the appointment of a sole Administrator instead of a Board of Administrators.
Finding of the Court:
The Court held that the Registrar was not required to issue a show-cause notice or grant a personal hearing to the petitioners before passing the order, as the directives issued by the RBI under Section 110A(1)(iii) of the MCS Act were mandatory and binding on the Registrar. The Court also held that the amendment to Section 110A(1)(iii) of the MCS Act was in conformity with Article 243 ZL of the Constitution of India and that there was no repugnancy between the two provisions. Further, the Court held that the appointment of a sole Administrator was valid and that the Registrar was not required to follow the procedure prescribed under Section 102 of the MCS Act while complying with the directives issued by the RBI under Section 110A(1)(iii) of the Act. The Court also held that the scope of judicial review in such cases was limited and that the Court could not interfere with the order passed by the Registrar unless it was passed with malafide intention or was otherwise arbitrary or unreasonable.
Issues: 1. Whether the Registrar was required to issue a show-cause notice and grant a personal hearing to the petitioners before passing the order of supersession of the Board of Directors and appointment of an Administrator? 2. Whether the amendment to Section 110A(1)(iii) of the MCS Act was in conformity with and in compliance with Article 243 ZL of the Constitution of India? 3. Whether there was repugnancy in the provisions of Article 243 ZL and Section 110A(1)(iii) of the MCS Act? 4. Whether the order passed by the Registrar appointing the sole Administrator of the respondent bank was a quasi-judicial order or an executive/administrative order? 5. Whether the RBI was empowered to issue directives to the Registrar of Cooperative Societies to supersede the Board of Directors of the Co-operative Bank and to appoint Board of Administrators under the provisions of the Banking Regulation Act, 1949 read with Section 110A of the MCS Act or not? 6. Whether the Registrar, Co-operative Societies was required to follow the procedure prescribed under Section 102 of the MCS Act while complying with the directives issued by the RBI Section 110A(1) (iii) of the MCS Act and superseding the Board of Directors of the Co-operative Bank or while appointing board of administrators/sole administrator of a co-operative bank or not?
Ratio Decidendi: 1. The directives issued by the RBI under Section 110A(1)(iii) of the MCS Act are mandatory and binding on the Registrar, and the Registrar is not required to issue a show-cause notice or grant a personal hearing to the affected parties before passing an order in compliance with such directives. 2. The amendment to Section 110A(1)(iii) of the MCS Act, which reduced the period of supersession from five years to one year, is in conformity with and in compliance with Article 243 ZL of the Constitution of India, and there is no repugnancy between the two provisions. 3. The order passed by the Registrar appointing the sole Administrator of the respondent bank is an executive/administrative order and not a quasi-judicial order, and thus the Registrar was not required to issue a show-cause notice or grant a personal hearing to the petitioners before passing the order. 4. The RBI is empowered to issue directives to the Registrar of Cooperative Societies to supersede the Board of Directors of the Co-operative Bank and to appoint Board of Administrators under the provisions of the Banking Regulation Act, 1949 read with Section 110A of the MCS Act. 5. The Registrar, Co-operative Societies is not required to follow the procedure prescribed under Section 102 of the MCS Act while complying with the directives issued by the RBI Section 110A(1) (iii) of the MCS Act and superseding the Board of Directors of the Co-operative Bank or while appointing board of administrators/sole administrator of a co-operative bank.
Final Decision: The Court dismissed the writ petition filed by the petitioners, upholding the order passed by the Registrar superseding the Board of Directors of the respondent bank and appointing an Administrator.
JUDGMENT
R. D. Dhanuka, J. - Learned Advocate General appearing for the respondent nos.1 to 3 waives service. Learned counsel appearing for respondent no.4 waives service. Learned senior counsel appearing for respondent no.5 waives service. Learned counsel appearing for respondent nos. 6 to 11 waives service. By consent of parties, this Writ Petition is heard finally.
2. By this petition filed under Article 226 of the Constitution of India, the petitioners seek a writ of certiorari or any other appropriate writ, order or direction in the nature of writ of certiorari thereby quashing and setting aside the order dated 29th December, 2017 passed by the Commissioner for Co-operation and Registrar of Co-operative Societies-respondent no.2 herein under Section 110A(1)(iii) of the Maharashtra Co-operative Societies Act, 1960 (for short 'the MCS Act'). Civil Application No. 271 of 2019 is filed by the respondent no.3 inter-alia praying for recalling or vacating the ad-interim order dated 6th February, 2018 passed by this Court in the writ petition and to permit the administrator to continue the function, in view of charge taken on 30th December, 2017. Some of the relevant facts for the purpose of deciding the writ petition are as under :-
3. The petitioners claim to be the Board of Directors of the respondent no.4 i.e. Nashik District Central Co-operative Bank Ltd. registered under provisions of the said MCS Act. Section 56 of the Banking Regulation Act, 1949 which was introduced in the year 1966 by way of amendment, made the provisions in the said Banking Regulation Act applicable to the Co-operative Banks with such modification as set out therein.
4. It is the case of the respondents that NABARD had examined the affairs of the respondent no.4 bank under Section 35(6) of the Banking Regulation Act, 1949 which refers to its financial position as on 31st March, 2016 and submitted a detailed report along with issues of supervisory concerns. The NABARD was of the opinion that the Board of Directors of respondent no.4 had affected the financial health of the respondent no.4.
5. On 29th April, 2017, the office of the Divisional Joint Registrar, Co-operative Societies addressed a letter to the Commissioner for Co-operation and Registrar of Co-operative Societies pointing out the financial irregularities and the loss suffered by the respondent no.4 bank and that the respondent no.4 bank was left with no liquidity and was also not in a position to clear the daily transaction. It was stated that in the larger interest of the members of bank particularly farmers, it was necessary to remove the existing inefficient Board of Directors under Section 110A of the MCS Act and to appoint an Administrator immediately. The Divisional Joint Registrar, Co-operative Societies requested to submit proposal to the Reserve Bank of India (hereinafter referred as 'RBI') under Section 110A of the MCS Act for removal of the present Board of Directors and appoint an administrator/ administrative board to look after the day-to-day affairs of the respondent no.4.
6. On 6th July, 2017, the said NABARD prepared a report and sought opinion of the General Manager of the Additional Chief Secretary, Corporation, Government of Maharashtra requesting the Government to advice the respondent no.4-bank to augment capital funds to achieve 9% CRAR, reduce NPAs, ensure KYC/AML compliance etc to improve the financial position and methods of operation in a time bound manner. The NABARD also requested to nominate NABARD and Maharashtra RO, Pune about the action proposed to be taken in the matter. A copy of the said opinion was also sent to the Reserve Bank of India (for short 'RBI'), the Registrar of Co-operative Societies and the Managing Director, the Maharashtra State Co-operative Bank Ltd. and also to respondent no.4.
7. On 12th July, 2017, the office of the Commissioner for Co-operation and Registrar of Co-operative Societies, Maharashtra State addressed a letter to the RBI pointing ou
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