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Kerala High Court
G.VISWANATHA IYER,T.KOCHU THOMMEN
Jose Kuttiyani - Appellant
Versus
Registrar of Co-operative Societies, Kerala, Trivandrum - Respondent
Decided On : 07/28/1981
Co-operative Society - Supersession of Committee - Grounds - Mala fides - Consultation with financing Bank - Show cause notice - Charges - Satisfaction of Registrar - Scope of judicial review - Kerala Co-operative Societies Act, 1969 (1 of 1969), Ss. 32, 63 to 68, 74-A - Deposit Insurance Corporation Act, 1961 (47 of 1961) - Banking Regulation Act, 1949 (10 of 1949) - Reserve Bank of India Act, 1934 (2 of 1934).
Fact of the Case:
The petitioners were the elected members of the Idikki District Co-operative Bank Ltd. (the Bank), a society registered under the Kerala Co-operative Societies Act, 1969. The Bank was insured under the Deposit Insurance Corporation Act, 1961 and was subject to the provisions of the Banking Regulation Act, 1949. The Reserve Bank of India had issued a license to the Bank to carry on banking business. The Bank received deposits from individuals and granted loans to individuals. The management of the Bank was vested in a Board of Directors consisting of 11 elected members and 3 official members nominated by the Government. The petitioners' term of office was from 1-7-1978 to 30-6-1981. In 1974, the Reserve Bank issued a circular allowing Co-operative Banks to make loans and advances to individuals. The circulars issued in 1976 and 1979 further liberalised the scheme. The State Government also issued notifications exempting the Apex Bank and Central Co-operative Banks from the provisions of Section 59 of the Kerala Co-operative Societies Act, which prohibited lending to non-members. The notifications allowed lending to individuals up to a limit of 35% and 10% of the time and demand liabilities, respectively. In 1981, the Registrar of Co-operative Societies (the Registrar) issued a show cause notice to the petitioners alleging that they had committed persistent default and were negligent in the performance of their duties under the Act, the rules and the bye-laws, and that their actions were prejudicial to the interests of the Bank. The petitioners filed objections to the show cause notice and also filed a writ petition in the High Court challenging the validity of the show cause notice and the proposed supersession of the Committee. The High Court admitted the petition and stayed the operation of the show cause notice. The Registrar, however, passed an order on 15-4-1981 superseding the Committee and appointing an Administrator to manage the affairs of the Bank until a fresh election was held.
Finding of the Court:
The High Court held that the Registrar's order superseding the Committee was illegal and an abuse of power. The Court found that the Registrar was biased against the petitioners and that he had not acted in a reasonable manner. The Court also held that the Registrar had not properly consulted the financing Bank, the Apex Bank, before passing the order of supersession. The Court further held that the charges against the petitioners were not substantiated and that the Registrar had failed to take into account relevant matters. The Court quashed the order of supersession and directed the Registrar to appoint an Administrator to manage the affairs of the Bank and to conduct a fresh election within three months.
Issues: 1. Whether the Registrar's order superseding the Committee was valid. 2. Whether the Registrar had properly consulted the financing Bank before passing the order of supersession. 3. Whether the charges against the petitioners were substantiated. 4. Whether the Registrar had failed to take into account relevant matters.
Ratio Decidendi: 1. The Registrar's order superseding the Committee was illegal and an abuse of power because: a) The Registrar was biased against the petitioners and had not acted in a reasonable manner. b) The Registrar had not properly consulted the financing Bank, the Apex Bank, before passing the order of supersession. c) The charges against the petitioners were not substantiated. d) The Registrar had failed to take into account relevant matters. 2. The Registrar had not properly consulted the financing Bank, the Apex Bank, before passing the order of supersession because: a) The Registrar had not sought the Bank's opinion on the allegations against the petitioners. b) The Registrar had not given the Bank sufficient time to respond to the show cause notice. c) The Registrar had not taken into account the Bank's views when making his decision. 3. The charges against the petitioners were not substantiated because: a) The Registrar had failed to consider the relevant circulars and notifications issued by the Reserve Bank and the State Government. b) The Registrar had failed to take into account the petitioners' explanations for their actions. c) The Registrar had failed to consider the overall financial position of the Bank. 4. The Registrar had failed to take into account relevant matters because: a) The Registrar had failed to consider the impact of the supersession order on the Bank's customers and employees. b) The Registrar had failed to consider the fact that the petitioners' term of office was due to expire shortly.
Final Decision: The High Court quashed the Registrar's order superseding the Committee and directed the Registrar to appoint an Administrator to manage the affairs of the Bank and to conduct a fresh election within three months.
VISWANATHA IYER, J. :- Idikki District Co-operative Bank Ltd. is a Society registered under the Kerala Co-operative Societies Act, 1969. It has 14 branches and all the members of the Bank are primary societies. However the Bank receives deposits from individuals and also grants loans to individuals. The management of the Bank is vested in Board of Directors consisting of 11 elected members and 3 official members nominated by the Government. Of the 11 elected members three ceased to be Directors for one reason or another and so the remaining elected and non-elected members were managing the affairs of the Bank. The Board entered office on 1-7-1978, their term being three years, normally they would have had to go out on 30-6-1981.
2. This Bank is insured under the Deposit Insurance Corporation Act 1961 (Central Act). Chapter X-A of the Kerala Co-operative Societies Act contains additional provisions of law regarding such insured co-operative banks. The Banking Regulation Act 1949 (Central Act) applies to this Bank subject to certain modifications mentioned in Part 5 of the said Act. In 1974 the Reserve Bank issued license to this Bank to carry on banking business. The volume of business attended to for the years from 1974 to 1980 as evidenced by the progress statements issued by the Bank in December 1980 shows that it has 159 members (all societies and Government). The share capital comes to Rs. 116.26 lakhs, deposit comes to Rs. 484.43 lakhs, investiments Rs. 188.31 lakhs and loans and advances given by the Bank comes to Rs. 874.43 lakhs. Under Rule
35 of the Co-operative Societies Rules the Committee should meet at least 60 days in advance of the date of expiration of its term and pass a resolution fixing the date, time and place for the conduct of the election of a new committee. A copy of the resolution should be sent to the Registrar by registered post within a week. For this purpose the Committee met on 4-3-1981 and resolved to hold the election on 21st June, 1981. The copy of the resolution was forwarded to the Registrar on 5-3-1981. Thereafter on 5-3-1981 itself and 8-3-1981 the elected members of the Committee who are the petitioners in this petition received notice from the Registrar mentioning certain allegations and charges and they were required to show cause why the committee shall not be superseded under Section 32(1) of the Act. The members were required to send a reply, if any, within 10 days and the personal hearing was fixed for 21-3-1981. The copy of the said notice is dated 2-3-1981. Extension of time for submitting replies was granted till 6th April. 1981 and personal hearing was also fixed for the same date. The petitioners individually filed objections and also moved this Court in O.P. No.1792 of 1981 to quash the notice on the ground that even before hearing their objection the Registrar has come to a conclusion that grounds for supersession exist. On 6-4-1981 that Original Petition was admitted and on the, Registrar taking notice the Court passed a final order on 8-4-1981 disposing of the Original Petition. The findings in the show cause notice were directed to be treated as provisional and a decision taken within two weeks and in the light of the objections filed by the petitioners and hearing their arguments. Even before the decision of this court in the above O.P. on 6-4-1981 itself the Registrar heard the parties who were present. The Registrar also passed an order on 15-4-1981 superseding the Committee consisting of the petitioners and non-official members. An Administrator also was appointed to manage the affairs of the Bank until an election is held and a fresh Committee appointed.
3. This order of supersession is attacked in this Original Petition mainly On the following grounds :-
(a) The show cause notice and the order are vitiated by legal and factual mala fides. The notice is issued after taking a decision to supersede and no purpose will be served by calling the objections. The first
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