1. The above petition under Article 226 of the Constitution of India is directed against the proceedings under Section 88 of the Maharashtra Co-operative Societies Act, 1960. It involves an important question as to whether in exercise of its powers under Section 72 of the Maharashtra Co-operative Societies Act, 1960, the general meeting of a Co-operative Society can pass a resolution to pay honorarium to its member for services rendered by him to the Society.
2. The few facts relevant to the case may be stated as follows:
3. Respondent No, 6, the Navjivan Co-operative Housing Society Ltd., having its office at Lamington Road, was registered on December 12, 1955, under the Bombay Co-operative Societies Act, 1925. It is deemed to be registered under the Maharashtra Co-operative Societies Act, 1960. It is governed by its registered bye-laws. It is one of the largest Co-operative Housing Societies1 in the State of Maharashtra. It has a membership of 1800 members. It has provided residential accommodation to about 1,600 families in four housing schemes at Mahim, Matunga, Chembur and Lamington Road. The total cost of this project came to about Rs. 4 crores. Every colony started and built up by respondent No. 6 is having residential flats, shopping centre, a library-cum-community hall, a temple, garages, a high school, a milk centre and number of other common amenities for residential houses.
4. Petitioner No. 1, Kumari Jethi T. Sipahimalani, has been the Chairman of the Society. She was once the Deputy Chairman of the Former Sind Legislative Assembly and also a Member of the Maharashtra Legislative Council. Petitioner No. 2, Principal Lalsingh H. Ajwani, was till recently the Principal of the National College, Bandra. He also happens to be a Member of the Sahitya Academy of India. Petitioner No. 3, Balram B. Motwani, is a journalist and Deputy Editor of 'Hindustan' a Sindhi daily. Petitioner No. 4, Smt. Thakuri S. Jagtiani, claims to be an eminent Social Worker in Bombay. Petitioner No. 5, Dr. Kewalram H. Khilnani, also claims to be a noted educationist and a leading social worker. All these petitioners were members of the Managing Committee of respondent No. 6, Co-operative Housing Society, during the years 1963-64 and 1964-65. Petitioner No. 6, Mangharam N. Thadani, was an advocate of this Court and was, during the above years, Hon. General Secretary of the Navjivan Co-operative Housing Society Ltd., respondent No. 6 herein. In fact, he was its Hon. General Secretary since its inception. At the time of the filing of the petition, he was Chairman of the Bombay Co-operative Housing Federation Ltd., Member of the Maharashtra Co-operative Housing Advisory Council, and Member of the Advisory Committee, Maharashtra State Co-operative Bank Ltd.
5. The petitioners commanded confidence of the majority of the members of the Society and were elected as members of the Managing Committee. The first Scheme of the Housing Society consisting of 280 flats with a shopping centre, a library-cum-community hall, a temple, garages and a high school, a milk centre and number of other common amenities was completed at Mahim in 1959. The second scheme was at Tulsi Pipe Road, Matunga. It consisted of 86 flats, a shopping centre, a library room, a temple and other common amenities. The third scheme of respondent No. 6 was at Chembur. It was completed in 1963, consisting of 516 residential flats, 16 shops, a. school-cum-community hall, 12 garages, a temple, a charitable dispensary, a diagnostic centre and other common amenities for the residents of the colony. The fourth scheme of the respondent No. 6, which was nearing completion when the petition was filed and which has been completed during the pendency of this petition, is situated on a large plot of land at Lamington Road. It provides 724 residential flats, 350 offices, a school-cum-community hall, a shopping centre, garages and several other common amenities.
6. All these schemes are the result of the vast and painstaking enterprise and efforts of the petitioners and particularly of the Hon. General Secretary of the Society. He has been the Secretary of the Society right from 1955. In appreciation of the yeoman's services rendered by him to the Society in getting lands and thereafter in planning and executing successfully in good time the Chembur and Lamington Road Schemes of the Society, the members of the Society passed with an overwhelming majority resolutions at the Annual General Meetings of the Society held on October 28, 1963, and November 29, 1964, directing that Rs. 70,000 and Rs. 40,000 respectively, should be paid to petitioner No. 6, as honorarium.
7. The Resolution passed at the Annual General Meeting of the Society held on October 28, 1963 is as follows:
In appreciation of very valuable and unique services rendered by the Hon. General Secretary, Shri M.N. Thadani, in. getting the land and thereafter planning and executing successfully the Chembur Scheme of the Society, consisting of 516 houses, and 16 shops, school and Hall Building during last 3 years, at a great personal and professional sacrifice, this Meeting of the General Body of the Navjivan Co-operative Housing Society Limited, hereby resolves that an amount of Rs. 70,000/- be paid to him as a token of our appreciation and it is further resolved that the said amount be debited to Construction Account of the Chembur Scheme of the Society.
The Resolution was passed with 233 members voting in support and 3 members voting against it.
8. On November 29, 1964, the following Resolution was passed by the General Meeting:
The Managing Committee places on record its high sense of appreciation of very valuable service rendered by the Hon. General Secretary of the Society, Shri Mangharam N. Thadani during the year 1963-64 and recommends to the General Body of the Society that as a token of appreciation of his Services a sum of Rs. 40,000/- (Rupees forty thousand only) be paid to him as and by way of honorarium for the year ending June, 1964. The Committee further recommends that the said amount when paid be debited to the construction account of the Lamington Road Scheme.
This resolution was passed by majority vote, 308 voting in favour and 5 against it.
9. It appears that an arbitration case was referred to the Registrar's nominee under Section 91 of the Maharashtra Co-operative Societies Act, 1960, challenging the validity of the payment of honoraria to petitioner No. 6, at the instance of 5 members. The Registrar's nominee passed an award dated January 24, 1963, holding that the resolution was valid. The said five members did not even challenge the said decision. The Society was also a party defendant No. 1 in the said case. The Society also did not challenge the said decision.
10. The Registrar, Co-operative Societies, appointed under Section 81 a Special Auditor to audit the accounts of the Society for the year 1964-65. The Auditor, inter alia, objected to the payment of Rs. 70,000 as the amount of honorarium paid in the past to petitioner No. 6. He then made a report to the Registrar. The Registrar by his order dated September 18, 1967, directed the Society to rectify the defects pointed out by the Auditor. One of these defects was regarding the honoraria paid to petitioner No. 6, viz. Rs. 30,000 on March 31, 1964, Rs. 40,000 paid on April 16, 1964 and Rs. 40,000 paid on December 3, 1964, which was the amount sanctioned during the year 1963-64 by the General Meeting of the Society.
11. The Auditor wanted the Society to rectify the defects by taking refund from petitioner No. 6 of the amount of Rs. 1,10,000 which was paid to him by observing as follows:
As per the provisions under Section 65(P) of the Maharashtra Co-operative Societies Act, 1960, the Society may appropriate its profits to payment of honorarium when specified in the bye-laws'. The amount of honorarium paid as above was taken to the capital expenditure of the society. There is no provision as mentioned above for paying honorarium and so the amount of Rs. 1,10,000/- paid as honorarium is recoverable.
The Society sent an explanation to the Registrar with regard to these items as follows:
The Said amount is not paid out of any profits but as directed by the Genera] Meeting, is paid from and debited to construction account of the concerned scheme, Before making payments the Society had obtained expert legal opinion from the society's Solicitors and Advocates (copies of which are enclosed for ready reference). It is submitted that no contravention of provisions of Section 65(2) has been made, as the amount is not debited to profit and loss or income and expenditure account. It is an expense of capital nature and has been directly capitalised with specific permission of the General Body.
Notwithstanding this, the Joint Registrar, Co-operative Societies, respondent No. 5, issued an order under Section 88 of the Maharashtra Co-operative Societies Act, appointing respondent No. 4 as an Inquiry Officer to conduct the proceedings under Section 88 against the members of the Managing Committee for the years 1963-64, 1964-65 and 1965-66, and to make an order, if so deemed just, requiring them to repay or restore the amount of Rs. 1,10,000 with interest. Respondent No. 4 thereafter sent a notice to the members of the Managing Committee to show cause why the order for payment of the said amount should not be passed against them.
12. The petitioners filed a Written Statement before him. They contended that as the honoraria was paid as part of construction costs with the sanction of the General Body, which was the supreme organ of the Society under Section 72 of the Maharashtra Co-operative Societies Act, subject to the provisions of the Act, the Rules and the bye-laws of the Society (which did not prohibit the payment of honorarium in deserving cases), the inquiry tinder Section 88 was without any legal basis and that there was no misapplication of any funds of the Society; and hence the enquiry itself was liable to be dropped.
13. The point was first heard and decided as a preliminary point by the Inquiry Officer. On the competence of the enquiry under Section 88 the Inquiry Officer recorded rather a, halting finding by observing that he did not want to express any final opinion with regard to the liability of the members of the General Meeting. That decision of the Inquiry Officer dated February 16, 1968, was challenged by the petitioners in appeal before the Maharashtra State Co-operative Tribunal, Bombay, respondent No. 1 to this petition. The Tribunal dismissed the said appeal an October 7, 1968, observing, inter alia, as follows:
However, the contention in that respect is on the merits. At present, as the inquiry is at the initial stage for the framing of the charges what is necessary to be considered is whether the provisions of Section 88 have been properly complied with... An indicated above, the payment has been made on the strength of the resolution of the general body and the same may be1 a matter for consideration on the merits to determine the liability of the members of the managing committee. So also, the general body not being made a party to the proceedings may be also a point to be considered on the merits to determine the effect of such non-joinder as party, if necessary....
Feeling aggrieved by the said decisions the petitioners have filed the above petition to quash the proceedings under Section 88 on the ground that the Joint Registrar, the Inquiry Officer, and the Co-operative Tribunal, manifestly erred in law in holding that the enquiry was maintainable under Section 88, notwithstanding the Resolutions passed by the General Meeting of the Society, sanctioning the honoraria. It is submitted that the said authorities failed to give effect to the plenary and final powers given to the general body of the society, subject to the Act, the Rules and the bye-laws, and misinterpreted Sections 64, 85 and 88 of the Maharashtra Co-operative Societies Act.
14. Mr. Gursahani, the learned Counsel for the petitioners, further submits that even to-day the Society, respondent No. 6, though served with the notice of this petition has not appeared in this Court to oppose the petition and this clearly shows that, the Society is not interested in recovering the honoraria paid to petitioner No. 6, in appreciation of the voluntary yeoman's services rendered by him to the Society and its members from 1955 till 1965 for nearly 10 years. Mr. Gursahani further argues that the Society was bound by the decision of the Registrar's nominee who held that the Resolutions of the General Body sanctioning the payment of honoraria to petitioner No. 6 were perfectly valid. These contentions are well founded and must be upheld.
15. Section 72 of the Maharashtra Co-operative Societies Act, 1960, is as follows:
72. Subject to the provisions in this Act and the rules, the final authority of every society shall vest in the general body of members in general meeting, summoned in such a manner as may be specified in the bye-laws'.
It must be noted that the powers of the General Body are not subjected to the Auditor's objections or the Registrar's interference unwarranted by law. The Registrar and the Auditors have authority to look into the Societies' affairs and advise the Society and pass orders against the Society only to the extent and within the limits prescribed by law.
16. The section relied upon by the Auditor and the Joint Registrar for finding fault with the general meeting resolutions was Section 65(2), which runs as follows:
65. (2) A society may appropriate its net profits to the reserve fund or any other fund, to payment of dividends to members on their shares, to the payment of bonus on the basis of support received from members and persons who are not members to its business, to payment of honoraria and towards any other purpose which may be specified in the rule or by-laws:Provided that no part of the profits shall be appropriated except with the approval of the annual general meeting and in conformity with the Act rules and by-laws.
The Auditor and the Joint Registrar objected to the payment of honoraria further on the ground that there is no provision in the bye-laws of the Society for paying honorarium to any of the office bearers.
17. We do not think that the Auditor and the Joint Registrar were right in their conclusion. The words, 'which may be specified in Rules or Bye-laws' in Section 65(2) cannot go with the words 'payment of honoraria'. The bye-laws must be read as always subject to the Act or the Rules. It is difficult to imagine that the Legislature after having mentioned in Section 65(2) payment of bonus to members and persons who are not members who gave support to its business and the payment of honoraria, would further require some bye-law to specify that they may be paid. If the Act authorised the payment, it is not necessary to have bye-laws specifying the same. Similarly, appropriation of profits to reserve fund or any other fund or payment of dividends on their shares cannot be said to be required to be specified in the bye-laws.
18. What is required to be specified under Section 65(2) in the rules and bye-laws is appropriation of net profits 'towards any other purpose,' which is the last part of Section 65(2). It is only because no such other purpose is specified under Section 65(2) of the said Act. In our opinion, the Joint Registrar and the Auditor are manifestly in error in reading the words, 'which may be specified in the rules or bye-laws' in Section 65(2) with the words 'payment of honoraria.' Moreover, Section 65(2) is attracted to appropriation of profits and not to payment of honorarium as construction costs as in this ease. It is surprising that neither the Inquiry Officer nor the Tribunal applied their mind to any section of the Act or to Section 88. They decided to continue the inquiry under Section 88 without considering the preliminary point and ignoring the provisions of Section 72 of the Maharashtra Co-operative Societies Act.
19. Mr. Dalvi, the learned Counsel appearing for respondent No. 5, Joint Registrar, Co-operative Societies, tried to justify the enquiry by arguing that neither Section 64 nor Section 65(2) may apply but, in the absence of express power in the Act, Rules or bye-laws, the Society could not grant honorarium. He contended that the powers of the General Body under Section 72 were subject to the provisions of the Act and that the General Body could not in view of Section 64, if it applies, appropriate any part of the fund or profits unless there were profits and it could not also pay honorarium unless it was so specified or fixed by the bye-laws. There is no substance in these contentions. Section 64 deals only with the division of funds amongst members of the society as members. It has nothing to do with the payment of honorarium to a member, not qua member but qua his services to the Society. Honorarium is a voluntary payment in consideration of the voluntary services. The services may be rendered by a member or non-member. The services rendered to the society were not required to be rendered under the Act, rules or bye-laws. Section 64 is as follows:
64. No part of the funds, other than the dividend equalisation or bonus equalisation funds as may be prescribed or the net profits of the Society, shall be paid by way of bonus or dividend, or otherwise distributed among its members:Provided that, a member may be paid remuneration on such scale as may be laid down by the bye-laws, for any services rendered by him to the Society.
Mr. Dalvi contends that the proviso to Section 64 deals with 'remuneration' and not with 'honorarium' arid, therefore, Section 64 will not permit the General Meeting to pass a Resolution to pay honorarium. He also contended that honorarium which was permitted under Section 65(2) could be paid only out of net profits and as there was no net profit even Section 65(2) could not justify the General Meeting in passing the Resolution to give honorarium to petitioner No. 6.
20. It is difficult to follow the arguments of Mr. Dalvi. If his argument is that Sections 64 and 65 did not apply to the resolutions passed by the General Meeting, these sections could not prevent the General Meeting from passing the resolutions. As stated above Section 72 constitutes the General Meeting of the Society, the Supreme authority in the Society subject to the Act, Rules and Bye-laws. The General Body of the members in general meeting is the final authority in all matters, unless there is some limitation imposed on that power under the general law of the land or under some section of the Act or some provision in rules framed thereunder or under the bye-laws registered under the Act. If honorarium is not remuneration as contended by Mr. Dalvi Section 64 also Will not apply. Mr. Dalvi was unable to point out any limitation on the powers of the general meeting in any provision of the Act or in any rules framed under the Act or under the Society's Bye-laws or under any other law. What is not prohibited under the Act, the Rules and Bye-laws framed thereunder is permitted to the general meeting subject to the general laws of the land. It is free to do what it likes subject to the provisions of the Act, the Rules and the Bye-laws provided it does not infringe any general law for the time being in force.
21. Jowitt's Dictionary of English Law gives the meaning of 'honorarium' as: 'a recompense for service rendered; a voluntary fee to one exercising a liberal profession, a barrister's fee.' Wharton's Law Lexicon also gives the same meaning. The Concise Oxford Dictionary gives the meaning of 'honorarium' as '(voluntary) fee esp. for professional services'. The same dictionary gives the meaning of 'remunerate' as: 'Reward, pay for service rendered; serve as or provide recompense for (toil etc.) or to (person).' A co-operative society can like any other reasonable and prudent person decide to pay such honorarium for services rendered to it.
22. It is true that Section 64 deals with remuneration and not with honorarium. Section 65(2) deals with payment of honorarium only out of net profits. None of these sections came in the way of the general meeting of the Society in passing the resolutions for payment of honorarium as part of the construction cost. It was for the majority of the members in the general meeting to decide how much was the value of the services of petitioner No. 6 and how and when it should be paid to him. Petitioner No. 6, who was Honorary General Secretary of the Society, is an advocate. He had sacrificed all his time and energy and dedicated his services to the Society for ten years. Members who enjoyed the benefit of these services could decide to reward him. We do not think that Section 64 was a stumbling block to the members of the Society who wanted to pass any resolution regarding honorarium to be paid in such a case as construction costs. Section 64 applied to division of the profits of the Society to any member qua member. Section 65 deals with appropriation of profits. All that Section 65(2) lays down is that out of net profits honorarium also may be paid. Even Section 65(2) does not prevent the general body of the Housing Society to pay honorarium to petitioner No. 6 as part of the construction cost. Construction cost was to be paid by members. Society was not paying it to him as a matter of division of funds. We, therefore, do not find any legal restriction whatsoever on the power of the general body under Section 72 to pass a resolution to pay honorarium as part of the construction cost to a person like petitioner No. 6, for the services rendered by him to the Society.
23. Section 88 can be invoked by the Registrar only when he comes to the conclusion prima facie that the persons concerned with the management or organisation of the society had 'misapplied or retained, or become liable or accountable for, any money or property of the society or has been guilty of misfeasance or breach of trust in relation to the society' and every such person, who according to the Registrar is liable, should contribute such sum to the Society by way of compensation in regard to the appropriation, or retention or misfeasance or breach of trust. Having regard to the General Body Resolutions passed in the present case in exercise of its plenary powers under Section 72, the Registrar had no power to come to such a conclusion.
24. It could not be said that honorarium paid was misapplication when it was granted by the General Body in exercise of its powers. It could not also be said that it was retained illegally by petitioner No. 6 or any one else, or any of them had become liable or accountable for any money or property of the society or has been guilty of misfeasance or breach of trust in relation to the society. The Registrar could not have, therefore, directed the enquiry under Section 88. In the facts and circumstances of this case, the Inquiry Officer could not have framed any charges in this case.
25. The very fact that the Society is not even interested in recovering the honoraria from petitioner No. 6 by opposing the petition shows that it does not claim this amount as part of the assets of the Society. Even assuming that it were to try to claim it, the claim would have been conflicting with the aforesaid award to which it was a party and which was never challenged by it.
26. In these circumstances the petition must be allowed. The order passed by respondent No. 5, Joint Registrar, Co-operative Societies, on December 7, 1967, the order passed by the Inquiry Officer, respondent No. 6, on February 16, 1968, and the order passed by the Maharashtra State Co-operative Tribunal, Bombay, respondent No. 1, on October 7, 1968, are set aside and the proceedings under Section 88 against the petitioners are quashed. In the facts and circumstances of the case there will be no order as to costs.