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Little Gibbs Co-op, Housing Society Ltd., Bombay and anr. Vs. the State of Maharashtra and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtMumbai High Court
Decided On
Case NumberSpl. Civil Appln. No. 2127 of 1970 and Civil Appln. No. 3050 of 1970
Judge
Reported inAIR1972Bom108; (1971)73BOMLR773; (1972)8CompLJ229(Bom)
ActsMaharashtra Co-operative Societies Act, 1960 - Sections 78
AppellantLittle Gibbs Co-op, Housing Society Ltd., Bombay and anr.
RespondentThe State of Maharashtra and ors.
Appellant AdvocateH.G. Adwani and ;B.S. Chandnani, Advs.
Respondent AdvocateS.N. Naik, Adv., i/b., Little & Co. Attorneys, ;D.R. Dhanuka and ;P.N. Tulsian, Advs.
Excerpt:
.....two rival groups in the society, each questioning the actions of the other, and secondly, that the adhoc committee failed to hold elections implying thereby that it failed to get regular managing committee elected. 2 and 3 in the notice dated 26th april 1969. one of the findings of the state government is that the petitioners failed to hold elections. the implication is that the adhoc committee was appointed only by the way of a stop-gap arrangement and the said committee failed to convene a general body meeting of the society and get the regular managing committee elected from 27-10-1968 till 26-4-1969. there is no doubt, from minutes, that the said adhoc managing committee was appointed 'till the regular managing committee' was elected. this omission or failure, however, is not..........meeting. at the said meeting on 27-10-1968 referred to as 'eighth annual general body meeting' an adhoc managing committee was elected, and petitioner no.2 to this petition was elected as honorary secretary of the same. some differences of opinion seem to have arisen between the adhoc managing committee on the one hand and the district deputy registrar on the other hand in regard to the precise follow up actions to be taken to comply with the findings of the inquiry officer. it is unnecessary to make a detailed reference to all these differences. on 1-2-1969, the honorary secretary of the society seems to have complained against the district deputy registrar to the divisional joint registrar, bombay, but he seems to have virtually refused to take any notice of the same and, on the.....
Judgment:

Deshpande, J.

1. The two petitioners in this Special Civil Application challenge the legality and validity of order passed by the Government of Maharashtra on 8th November 1970 in exercise of their revisional jurisdiction under Section 154 of the Maharashtra Co-operative Societies Act, 1960, hereinafter referred to as 'the Act'. Petitioner No. 1 is a Co-operative housing Society registered under the Act in or about the year 1960. Petitioner No. 2 is one of the 13 shareholders of the said society and also Honorary Secretary appointed as such at the General Body meeting held on 27-10-1968. The facts, which gave rise to this special Civil Application, briefly are that on 3rd September 1964 the Assistant Registrar, Co-operative Societies, passed an order directing an inquiry in the affairs of this society under Section 83 of the Act. On 28-5-1968 the Inquiry Officer submitted his report and referred therein to several irregularities and malpractices. The Deputy Registrar then sent extracts of the said report to the society presumably in terms of subsection (4) of S. 83 on 28-6-1968. On 11-9-1968 the then Managing Committee of the Society resigned en bloc. The District Deputy Registrar thereupon convened a General Body meeting of the Society on 27-10-1968. Normally the balance-sheet and statements of accounts of this society for the year ending on 30th June 1968 should have been placed before the expiry of the month of September 1968. It, however, appears that for some reasons or the other the accounts of this society remained unedited and such statements were not ready for placing before any such Annual General Meeting. At the said meeting on 27-10-1968 referred to as 'Eighth Annual General Body meeting' an Adhoc Managing Committee was elected, and petitioner No.2 to this petition was elected as Honorary Secretary of the same. Some differences of opinion seem to have arisen between the Adhoc Managing Committee on the one hand and the District Deputy Registrar on the other hand in regard to the precise follow up actions to be taken to comply with the findings of the Inquiry Officer. It is unnecessary to make a detailed reference to all these differences. On 1-2-1969, the Honorary Secretary of the Society seems to have complained against the District Deputy Registrar to the Divisional Joint Registrar, Bombay, but he seems to have virtually refused to take any notice of the same and, on the contrary, by his letter dated 11-4-1969 asked the Secretary vaguely to proceed with the follow up action in compliance with the report of the Inquiry Officer.

2.On 26-4-1968 the District Deputy Registrar served a notice under Section 78(I) of the Act on the Chairman and Secretary and all the Members of the Adhoc Committee of the Society calling upon them to show cause as to why the said Adhoc Committee should not be superseded 'in the interest of smooth and proper functioning of the Society' as in his opinion 'the Adhoc Managing Committee .............. has not been functioning properly.' By explanation dated 8th May 1969 cause was shown against the said proposed action, by the Honorary Secretary. At the end of the said letter the Secretary had requested the District Deputy Registrar to give him and the members of the said Adhoc Committee a personal hearing. On 18-10-1969, however, the District Deputy Registrar without any further enquiry or hearing passed an order superseding the said Adhoc Managing Committee under sub-section (1) of S. 78 of the Act and appointed one B.S.Gokral as the Administrator to manage the affairs of the said Society. The Society thereupon preferred an appeal to the Divisional Joint Registrar and on 17-1-1970 the said appeal was allowed and the supersession order of the District Deputy Registrar dated 18-10-1969 was set aside. It appears that seven other members of this Society out of the total strength of 13 had also appeared before the Divisional Joint Registrar seeking his permission to intervene and support the supersession order and their request seems to have been granted and the appeal of the society seems to have been allowed only after hearing them. These seven members then preferred a revision application to the State under Section 154 of the Act. This is how the impugned order dated 8th September 1970 came to be passed by the Government.

3.The principal contention of Mr. H.G.Advani, the learned advocate appearing for the petitioners, is two-fold. The findings recorded by the Government in their order dated 8th September 1970, according to Mr. Advani, are at variance with and on matters other than the charges levelled against the petitioners in the notice dated 26th April 1969. He, therefore, contends that the petitioners have been deprived of the management of the Society and their office of the Managing Committee on the basis of charges and/or causes on which they have not been afforded any opportunity to show cause. This action is, therefore, in contravention of the Scheme and provisions in Section 78 and accordingly entirely illegal. He further contends that even if the findings recorded by the State Government are accepted as correct and binding, the same still do not make out any case for action under Section 78 of the Co-operative Societies Act.

4.Now, the notice dated 26th April 1969 broadly alleges that the Adhoc Committee of the Society was not functioning properly. In support of this allegation four charges are incorporated in four clauses of the said notice. Supersession order of the State Government is based on two findings, firstly that there were two rival groups in the Society, each questioning the actions of the other, and secondly, that the Adhoc Committee failed to hold elections implying thereby that it failed to get regular Managing Committee elected. This, according to the State Government, affected the functioning of the Society, Mr. Advani contends that the petitioners were never called upon to answer these charges, Mr. Dhanuka, Mr. Tulsian and Mr. Naik, the learned advocates for the respondents, contended that the allegations are implicit in the charges Nos. 2 and 3 of the Show Cause notice dated 24-4-1969. The text of the charges is as follows :-

'2 .There is practically no co-operative spirit in the members of the Society with the result that mere exchange of letters from the Adhoc Committee and the members making allegations against each other is going on.

3. That the Adhoc Committee did not convene the Annual General meeting of the Society for the year 1968 - 69 and did not get the Society's accounts for the year ending 1967 - 68 audited so far and that the statement of accounts etc. for that year have not been placed before the General Body for approval so far.' It is unnecessary to quote the allegations in charges Nos. 1 and 4 inasmuch as no adverse findings against the petitioners are recorded, either by the District Deputy Registrar or by the State Government in their orders nor any reliance was placed on them seriously before us by the respondents' Advocates.

5. In our opinion, the two findings, on which the supersession, order of the State Government is based, are at variance with and on matters other than the allegations which were the subject matter of charges nos. 2 and 3 in the notice dated 26th April 1969. One of the findings of the State Government is that the petitioners failed to hold elections. The finding is vague but the learned advocates on both sides agreed on the implications thereof. The implication is that the Adhoc Committee was appointed only by the way of a stop-gap arrangement and the said Committee failed to convene a General Body meeting of the Society and get the regular Managing Committee elected from 27-10-1968 till 26-4-1969. There is no doubt, from minutes, that the said Adhoc Managing Committee was appointed 'till the regular Managing Committee' was elected. It is possible to contend that the petitioners should have taken steps to get regular Committee elected. This omission or failure, however, is not specifically mentioned in any one of these charges. The learned Advocate appearing for the respondents tried to argue that this allegation is implicit in charge No.3. We have therefore, deliberately quoted charge no. 3. It consists of two parts. The first part refers to the failure of the Adhoc Committee to convene Annual General meeting of the Society for the year 1968-69. This charge is absurd and frivolous. It could not have been levelled at all inasmuch as the accounting year 1968 - 69 itself had not expired by 26th April 1969, when the notice was given, and it was open for the Society to convene Annual General meeting for the said year ending on 30-6-1969 before the expiry of September 1969. The second part of this charge pertains to the failure of the Adhoc Committee in not getting the Society's accounts for the year ending 1967-68 audited and placed before the General Body meeting for approval. This, however, has nothing to do with the failure to get the regular committee elected. Thus neither part of charge No.3 pertains to the failure of the Adhoc Committee to get regular Managing Committee elected. It is thus clear that the petitioners were never called upon to explain as to why regular Managing Committee was not got elected and it was not open for the Government to base its order on such a charge and finding.

6. Second finding is that 'the membership is small and each rival group will continue to question the action of the other.' Mr. Dhanuka contends that allegations in Charge No. 2 are sufficient to warrant such a finding. All that is alleged under this charge is that there was 'practically no co-operative spirit in the members of the Society's and secondly that the same resulted in 'mere exchange of letters from the Adhoc Committee against each other.' It is not known as to what precisely is meant by the allegation that co-operative spirit was not in existence in the members of the Society. To us the allegation appears to be too vague, wide and general for any one to meet and reply. There is indication which precise correspondence the District Deputy Registrar had in his mind. It is pertinent in this context to note that inspite of the petitioners' objections and insistence in their reply dated 8th May 1969, no details were furnished nor particulars were supplied to them nor personal hearing was given before the order dated 18-10-1969 was passed by the District Deputy Registrar. In fact, such charges really could not have been answered in the absence of any specific details and specific references to such particular letters.

7.Assuming, however, that there was absence of co-operative spirit among the members of the Society, and that they went on indulging in making merely allegations against each other, the same cannot necessarily lead to the proof of the existence of two rival groups, and even such existence of two rival groups in a Society or in any institution does not necessarily lead to the further conclusion that each group is determined to question the action of the other. Existence of rival groups as also the extend of the depth of their rivalry, are after all questions of facts. The necessary facts and allegations not having been mentioned in the show Cause notice dated 26th April 1969, the finding recorded by the State Government in this behalf, is liable to be quashed for want of charge and notice to show cause. Both the findings of the State Government on which the supersession order is founded thus are arrived at by non-observance of principles of natural justice.

8.Mr. Dhanuka urged that no interference is called for in exercise of jurisdiction under Arts, 226 and 227 of the Constitution on such technical grounds, when facts are incapable of being disputed. It is true, as contended by Mr. Dhanuka, that admittedly the petitioners have failed to get the regular Managing Committee elected till this day. But Mr. Advani contends that this was because of the stay order obtained and obstructions created by the respondents and he could have proved this to the hilt had he been called upon to explain his failure.

9.In connection with the contention, as to the scope of Section 78 made by Mr. Advani it is necessary to ascertain the true meaning and effect of the provision in Section 78, the relevant parts whereof read as follows:--

'78(1) If, in the opinion of the Registrar, the Committee of any Society or any member or such Committee persistently makes default, or is negligent, in the performance of the duties imposed on it or him by this Act or the rules or the bye-laws or commits any act which is prejudicial to the interests of the Society or its members or wilfully disobeys directions issued by the Registrar for the purposes of securing proper implementation of co-operative production and other development programmes approved or undertaken by Government, or is otherwise not discharging its or his functions properly, or where a situation has arisen in which the committee or any member thereof ceases or refuses to discharge its or his functions and the business of the society has or is likely to come to a standstill, the Registrar may, after giving the Committee or the member, as the case may be, an opportunity of stating its or his objections (if any) within fifteen days from the date of issue of notice, and after consulting the federal society to which the society is affiliated, by order

(a) remove the committee, and

(I) xx xx xx

(ii) appoint one or more administrators, who need not be members of the society, to manage the affairs of the Society for a period (not exceeding two years) specified in the order, x x x x xx

xx'

Apparently the legislature has by the language of the section indicated that in its view the authority and power to remove the Committee enacted by the section was extraordinary and abnormal and that this authority and power must not be used except in abnormal situations mentioned in the section and only upon satisfaction of the conditions mentioned in the section. These abnormal situations are:----------

(a) the committee of any Society or any member of such committee persistently makes default; or

(b) the said committee or any member thereof is negligent in the performance of the duties imposed on it or him by the Act or the Rules or the Bye-laws; or

(c) the committee or any Society or any member of such committee commits any act which is prejudicial to the interests of the Society or its members or

(d) the committee or its member willfully disobeys directions issued by the Registrar for the purposes of securing proper implementation of co-operative production and other development programmes approved or undertaken by Government; or

(e) committee or its members is otherwise not discharging its or his functions properly; or

(f) where a situation has arisen in which the committee or any member thereof ceases or refuses to discharge its or his functions and the business of the Society has or is likely to come to a standstill.

10.It is only when the Registrar forms an opinion as to the existence of such situation that he can proceed to take action for the removal of the Committee. The conditions which are required to be satisfied prior to the exercise of the authority and power are:

(1) there is an opportunity to the Committee or its member, as the case may be 'of stating its or his objections' and

(2) consultation with the Federal Society. These in our opinion, are not empty formalities. The safeguards appear to have been provided against the misuse of the powers by the officers of the Co-operative Department.

11.Apparently the co-operative Societies under the Act are autonomous bodies. Final authority of each such Society vests in the General Body of members. The management, however, of such Society vests in a Committee which is otherwise known as Managing Committee. The provisions of the Act, Rules and the Bye-laws regulate proceedings at the General Body meeting as also the manner of election of the Managing Committee and the exercise of control over it by members of the society. These also provide for the removal thereof, in case of loss of their confidence. Members and shareholders are prima facie the masters of their own Society and the property or the business owned by it, and it is really for them to decide as to how they should function, subject to their obligation to comply with the provisions of the Act as also other laws of the land. Powers are also vested in the Registrar under Section 79 to enforce the performances of such obligations which a Society or its Committee owe under the law. It is only when such normal checks are found to be unenforceable and lawful functioning of the Society becomes impossible, that recourse to the extreme step contemplated under Section 78 is intended to be taken. In the event of any action under Section 78, the shareholders are deprived, at any rate, temporarily of their rights to manage their own affairs through the Committee of their choice. Such action also, on the other hand, constitutes a slur on the persons who happen to occupy seats in the Managing Committee. The management then consequently stands vested in the Managing Committee. The management then consequently stands vested in the hands of one who is not of their own choice, but is the choice of the Registrar. This apart, the remuneration of the Administrator is also required to be borne by the shareholders or is otherwise defrayed from the assets of the Society. This drastic action, therefore, cannot be resorted to lightly and without regard to the legal rights of the shareholders as also the members of the Managing Committee. Such action has to be taken only to protect the interest of the Society, or the community at large. That is why the Registrar cannot have recourse to such an extreme step unless the members of the Managing Committee are given an extreme step unless the members of the Managing Committee are given an opportunity to explain their conduct. The scheme of the section is that action taken thereunder without affording due opportunity to show cause would be illegal and accordingly of no effect.

12.Now, the order of the State Government itself does not show which of the several contingencies contemplated under Section 78 of the Act had, in its opinion, warranted, such supersession in this case. All that the learned Advocates for the respondents could do in defence of the order, was to harp on the admitted existence of rival groups in the Society and rely on Clause (e) of Section 48, as analysed above. In our opinion, existence of rival groups by itself, cannot furnish any basis for such action unless it is shown further that it interferes with the normal functioning of the Managing Committee and exercise of control by it over the affairs of the Society. We have already shown that this aspect of the matter, as discussed earlier, was not even the subject-matter of any one of the charges incorporated in the show-cause notice dated 26th April 1969.

13.Mr. Dhanuka contends that findings of the Inquiry Officer as also the conduct of the parties during the present litigation do warrant some action to put the house of the Society in order. All this undoubtedly presents a very sorry picture. It will be open for the Registrar to have a fresh look and take such action as is warranted in his opinion. It is for the Registrar to examine and take appropriate action.

14.We cannot but observe that the timing at which the show cause notice is given against the background of the controversy between the Co-operative Department and the Committee, and the casual manner in which the charges are levelled and the way in which the supersession order is passed on 18-10-1969, does not inspire much confidence in the judgment of the District Deputy Registrar, as to the necessity and urgency of the action. Complaint of the petitioners to the Joint Registrar dated 1-2-1969 against the District Deputy Registrar was almost ignored on 11-4-1969 and show cause notice follows on its heels on 26-4-1969. Charge No.2 is absurd and frivolous as the petitioners were charged with the omission of holding a meeting for the year 1968-69 on 26-4-69 when the year itself had not expired and last date in the month of September was still five months ahead. Charge No.4 could have hardly any relevance for action under Section 78 and complaints under three other charges could have been got removed by recourse to other milder provisions. While under charge No.1 the petitioners are accused of not recovering dues of Rs. 56,000/- it was admitted by the respondents' advocates that implication of charge No.2 was the grievance as to why Rs. 24,000/- and odd included in the above sum of Rs.56,000/- was being recovered from respondent No.3, Laconic order dated 18-10-1969 beyond repeating some phrase from the Section 78 does not even refer to any findings on the four charges. While officers must act fearlessly where action is necessary, they must also not fail to acquit the delinquents of the charges, when charges are not found to have been justified. This silence is unfair not only to the persons charged but to the department itself as the fog of suspicion will continue to cloud and obscure their visions while examining any subsequent allegations, when an occasion arises. Order of the Deputy Registrar is based ultimately on the petitioners. (a) failure to get the regular Managing Committee elected and (b) existence of factions, with which allegations they were not charged. This can hardly be said to be fair manner of exercising statutory powers pregnant with far-reaching consequences.

15.Mr. Dhanuka also made a grievance that the conduct of petitioner no.2 in not complying with the order of the State Government, even when stay was refused, amounts to an offence under Section 146(f) and (g) of the Act, Mr.Advani has tendered unconditional apology on behalf of petitioner no.2 and we do not propose to take any notice thereof, in view of this apology.

16. The appointment of the present Ad hoc Committee at the General Body meeting dated 27-10-1968 was contemplated, no doubt, to be a stop-gap arrangement. The present litigation has unwarrantedly prolonged the life of the said Ad hoc Committee. Mr Advani, the learned advocate appearing for the petitioners, has made a statement before us that his clients, the petitioners, are willing to write to the Registrar. Co-operative Societies immediately requesting him to convene a General Body meeting of the Society as early as possible, with a view to get the new Managing Committee elected. If he fails to do, it will be open for the Registrar, to convene such meeting and get the regular Managing Committee elected. He is also free to proceed afresh in accordance with law, if the situation so warrants.

17. We accordingly allow this petition and make the rule absolute. The order of the State Government dated 8-9-1970 is set aside and that of the Divisional Joint Registrar dated 17-1-1970 is restored.

18.In the circumstances of the case there will be no order as to costs.

19.No order on Civil Application No. 3050 of 1970.

20. Petition allowed.


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