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2016 Supreme(Ker) 350
IN THE HIGH COURT OF KERALA AT ERNAKULAM
SHAJI P. CHALY, J.
A.M. Prakasan - Petitioner
Vs.
State of Kerala & Ors. - Respondents
W.P.(C) No. 5591 of 2006
Decided On : 29-06-2016
Advocate Appeared:
For the Petitioner: Sri. T.N. Manoj
For the Respondents: Sri. G. Gopakumar, Sri. V.G. Arun, Sri. N.P. Samuel, Sri. Jaiby Paul, Sri. P.K. Sajeev
The main legal point established in the judgment is the requirement for transparency and member involvement in the decision-making process of co-operative societies, especially in matters involving significant financial transactions.
Headnote:
Loan Transaction - Kerala Co-operative Societies Act, 1969 - Sec.27, Sec.30(1) - The court quashed the orders passed by the Director Board of the 4th respondent Bank and the 3rd respondent, and directed the 3rd respondent to convene a special General Body meeting of the 4th respondent to place the decision of the Director Board before the general body for consideration.
Fact of the Case:
The petitioner sought to quash a loan sanction and declared it illegal and irregular. The loan was sanctioned to a hospital where the 8th respondent, the President of the bank, was also the President of the hospital. The loan was sanctioned without obtaining property security and valuation statement as cautioned by the Joint Registrar. The 6th respondent failed to repay the loan, and the 4th respondent resolved to set off the interest and penal interest under a One Time Settlement Scheme.
Finding of the Court:
The court found that the actions of the Director Board and the 3rd respondent in settling the loan transaction were not in accordance with the law and were arbitrary and illegal. The court quashed the orders and directed the 3rd respondent to convene a special General Body meeting of the 4th respondent to place the decision of the Director Board before the general body for consideration.
Issues: The issues involved the legality of the loan sanction, the release of property security, and the settlement of the loan transaction without the approval of the General Body of the 4th respondent.
Ratio Decidendi: The court held that the Director Board had a duty to place the situation before the General Body and ascertain their views and opinion on the settlement of the loan transaction. The court also emphasized the need for transparency and member involvement in such decisions.
Final Decision: The writ petition was allowed, and the court quashed the orders passed by the Director Board of the 4th respondent Bank and the 3rd respondent. The 3rd respondent was directed to convene a special General Body meeting of the 4th respondent to place the decision of the Director Board before the general body for consideration.
This writ petition is filed by the petitioner seeking to quash Ext.P2 and further to declare that Ext.P1 is illegal and irregular and is sanctioned without any authority or support of law, and for other related reliefs. Material facts for the disposal of the writ petition are as follows:
2. Writ petitioner is a shareholder of the 4th respondent Bank. The 8th respondent while functioning as the President of the 4th respondent Bank, accorded sanction for a mid-term loan of Rs.1,02,75,000/- to the 6th respondent hospital in which the 8th respondent himself was the President during that period.
3. According to the petitioner, loan was sanctioned before the order of the Joint Registrar was obtained. The Joint Registrar cautioned that loan can be sanctioned only after obtaining property security towards loan and after obtaining valuation statement of the property offered as security. The property offered as security was only to the extent of 2 acres and 2 cents, which according to the petitioner, was hardly enough to secure the loan advanced. That apart, it is contended that, the property offered as security was never accepted and registered as security and the same was returned to the 6th respondent hospital.
4. The 6th respondent failed to repay the loan. The principal amount alone with interest multiplied up to Rs.2,03,41,000/-. It is also the contention of the petitioner that, the 3rd respondent with the connivance of Minister of Co-operative Department, resolved to set off the entire interest and penal interest totally amounting to Rs.1,03,41,000/-, on the strength of a One Time Settlement Scheme. It is thus aggrieved by the said action of the 4th respondent, petitioner has approached this Court by filing the writ petition.
5. Fourth respondent has filed a counter affidavit refuting the allegations and reliefs sought for by the petitioner. The loan advanced to the 6th respondent is admitted, but however, contends that the same was done as per the decision of the Director Board meeting of the 4th respondent held on 26.04.1995, 14.02.1996 and 29.02.1996 and also in compliance with the sanction orders of the Registrar of Co-operative Societies and the Joint Registrar, Thrissur. It is also contended that the amount was disbursed to the 6th respondent by way of 11 instalments during the period 09.03.1996 to 04.12.1996. That, as per the suggestion of the Reserve Bank of India, second-charged over the property as per the agreement was got registered in October, 2000 and the Bank had incurred registration expenses of Rs.2,07,500/-, which was agreed to be returned by the 6th respondent. It is also stated, accordingly, the registration charges were returned to the Bank on 31.03.2004.
6. That, there is no practice prevailing in the 4th respondent Bank to demand valuation certificate from the borrower and the normal procedure is to secure valuation by constituting a permanent sub-committee before sanctioning the loan applications. Accordingly, a sub-committee was constituted by the Board on 29.02.1996 and thereafter only the loan was recommended. It is also contended that, the allegation that loan of Rs.1,02,75,000/- was sanctioned on 09.03.1996 is absolutely wrong. Based on the valuation report submitted by the sub-committee and earlier resolution of the Director Board only Rs.10,00,000/- was issued to the hospital and that too, in compliance with the order of the Registrar and each instalments were issued on securing specific valuation report of the sub-committee after separate resolutions of the Board. It is also contended that, the land of 2.02 acres mortgaged to the HUDCO was purchased by the hospital for Rs.22,27,841/-. The cost of the land escalated many-fold, following purchase of properties for a pathway to a nearby road by the 6th respondent on 18.10.1995, and another 20 cents for getting access to the State Highway at a cost of Rs.14,90,550/- on 14.01.1998, in addition to general spurt in land prices in this area. Therefore
