1. In this petition in which the petitioner has prayed for quashing the order of the Joint Registrar of Co-operative Societies made under Section 126-A of the Karnataka Co-operative Societies Act, 1959 ('the Act' for short) removing him from the membership of the committee of management of Bijapur District Central Co-operative Bank and disqualifying him from holding any office in the Bank as also in any other co-operative society, for a period of three years, which has been confirmed in appeal by the Additional Registrar of Co-operative Societies, the following question of law arises for consideration -
'Whether a member of a managing committee of a co-operative society is liable to be removed from the office and disqualified for being a member of managing committee on the ground that he was a party to a decision or act, of the managing committee, which is found to be violative of the provisions of the Act or the Rules or the bye-laws and/or prejudicial to the interests of the Society, by an order made under Section 126-A of the Act?'
2. The facts of the case, in brief, are as follows: The Bijapur District Central Cooperative Bank, Bijapur, is a Society functioning under the provisions of the Karnataka Co-operative Societies Act, 1959 ('the Act' for short). The petitioner was a member of the Executive Committee of the Bank. He was also a member of the Loan Subcommittee. In the executive committee meeting of the Bank held on 14-12-1983, a decision was taken to grant extension of time for three months from 1-12-1983 for repayment of 41 loans of 34 societies involving an amount of Rs. 67,35,504/-. Bye-law No. 39 of the Bank reads -
'39. The period of loans shall be as under -
(1) Short term loans In case of loans given to member societies for seasonal agricultural operations, the period of repayment shall be limited to harvesting season of the crop for the raising of which the loan is given; in other cases, the period shall not be more than one year or the harvesting season of the principal crop of the area.
(2) Intermediate loans: The period shall not exceed five years.
(3) Loans to Nominal Members: The period shall not exceed nine months.
The Executive Committee or the Board of Directors shall specify period of loans in each case on the basis of the above at the time of sanctioning loans. The executive committee, if so authorised by the Board, shall have power to grant extension of time for repayment of loans in exceptional circumstances before the repayment falls due'.
According the above bye-law, extension of time could be granted in exceptional circumstances and only before repayment fell due. The extension granted by the Committee on 14-12-1983 were in cases in which not only there were no exceptional circumstances but also the loan had become overdue.
3. On 12-12-1983 a meeting of the Loan Sub-Committee was held. In the said meeting a decision was taken to sanction Cash Credit Loan of Rs. 5,74,600/- to IS societies and High Yielding Variety Programme Loan amounting to Rs. 3,16,000/- to three societies. These two types of loans were adjusted to Short Term/Medium Term Loan accounts of the respective societies in the Bank on or before 14th December, 1983. The sanction was made just three days before the announcement of the list of defaulters for the purpose of general body meeting and election of the Managing committee of the Bank.
4. The Joint Registrar of Co-operative Societies, Belgaum, was of the view that the giving of three months time to repay the loans after the 34 societies had become defaulters, by the resolution of the Executive Committee on 14-12-1983 and the sanctioning of loans and adjusting the same towards Short Term and Medium Term loan accounts of the respective societies, by the Loans Sub-Committee on 14th December 1983, were done with the intention of excluding those societies from the defaulters list and for the purpose of the election at the general body meeting and lacked in bona fides. Therefore, the Joint Registrar was of the view that members of the Executive Committee as well as the members of the Loans Sub-Committee were guilty of committing acts prejudicial to the interest of the Bank. He initiated action under Section 126-A of the Act against all the members, who were parties to the resolution. The petitioner was a member of both the Executive Committee and of the Loans Sub-Committee. Show-cause notice was issued to the petitioner calling upon him to furnish his explanation to the action proposed. The petitioner submitted his written statement contending that no action under Section 126-A of the Act was permissible. The objection was overruled by the Joint Registrar. He made the impugned order on 17-3-1984. By that order, the petitioner was disqualified for serving on the committees of management of the Bank and also holding any office in any other co-operative society for a period of three years from the date of the said order. Aggrieved by the said order, the petitioner presented an appeal before the Additional Registrar. Before the appellate authority, the contention of the petitioner was that he had not committed any act contrary to the provisions of the Act fraudulently or otherwise individually, so as to incur a disqualification for holding office tinder the Bank or under any other society and the act complained of was an act of the committee of which the petitioner was a member and that Section 126-A did not authorise the taking of action against a member of the committee for the act done by the committee. This plea was rejected by the appellate authority. The relevant part of the appellate order reads -
'4. The learned counsel contended that the appellant as an individual has neither committed any act contrary to the provisions of the Act nor had acted fraudulently which incurs disqualification as provided under the Act. The allegation made by the respondent is against certain actions of the committee. The 1st respondent ought to have proceeded against the committee instead of the individual member. The1st respondent in his para-wise remarks stated that each individual who is a party to the resolution is personally responsible, such an individual member cannot shirk responsibility on the ground of collective responsibility. Since opinion of each individual being counted to effect the resolution. I agree with the remarks of the 1st respondent. Individual members should exercise their rights judiciously. They are empowered to put a dissent note for illegal resolution. Therefore individual members, who are a party to wrong decision of the committee, cannot escape from the clutches of law pleading collective responsibility. In addition to this there is no provision under the Act to initiate action against sub-committees like Loans Committee Executive Committee etc. The only recourse in this instant case is provisions under Sec. 126-A K.C. S. Act. Therefore the 1st respondent is justified in initiating action under Sec. 126-A of the Act.'
On that view of the matter the appeal was dismissed. Aggrieved by the said order, the petitioner has presented this petition.
5. The plea of the petitioner urged by his learned counsel Sri Shantesh Gureddi before this Court was the same as the one advanced before the appellate authority. Sri B. J. Somayaji, learned High Court Government Pleader appearing for the State, however, contended that under Section 126-A of the Act action could also be taken against individuals if they were parties to a decision of the Executive Committee or of any other subcommittee which is found to be prejudicial to the interest of the society concerned. Sri S. G. Sundaraswamy, learned Senior Counsel, whose assistance was sought for by the Court, submitted that the trend in the latest law in relation to companies was that an individual Director becomes liable for the acts of the company to which he was a party. He invited my attention to a passage in Modern Company Law, IV Edition, by Gower. It reads -
'Recent years have seen a further development whereby the rule that the acts of directors are treated as those of the company is, in effect, applied in reverse, so that the acts of the company are treated as those of its directors Many modern statutes and regulations provide that if. an offence is committed by a company, every director o officer who was implicated shall be guilty o that offence and often the onus is placed on him to prove that it was committed without his consent and that he exercised due diligence to prevent its commission.'
He also invited my attention to one other passage in Palmer's Company Law at page 888. It reads -
'Any director who is a party to a fraud or to the commission of any other tort is personally liable to the injured party. This is on the principle that whoever commits a wrong is liable for it himself, and nonetheless so that he was acting as an agent or servant on behalf, and for the benefit, of another; for the contract of agency or service cannot impose any obligation on the agent or servant to commit, or assist in the committing of, fraud or any other wrong.'
The above passages indicate that even when an act complained of is that of a corporate body like the Board of Directors of a Company, the individuals become liable as many modem statutes provide for taking action against individual directors for the acts committed by a company to which they were parties. On a careful consideration of the submission made by the learned counsel, I am of the view that the answer to the question has to be found out on the interpretations of the provisions of the Act. The relevant provisions of the Act are thus set out below:
(i) The expression 'committee' is defined in Section 2(b) of the Act. According to the said definition, the committee means the governing body of a co-operative society by whatever name it is called to which the management of the affairs of the Society is entrusted.
(ii) Section 30(1) of the Act provides for supersession of committee of management of a society. It reads -
'30. Supersession of Committee.
(1) If, in the opinion of the Registrar, the committee of any co-operative society persistently makes default or is negligent in the performance of the duties imposed on it by this Act or the rules or the bye-laws, or commits any act which is prejudicial to the interests of the s6ciety or its members, or is otherwise not functioning properly, the Registrar may, after giving the committee an opportunity to state its objections, if any, by order in writing, remove the committee, and
(a) appoint a new committee consisting of one or more members of the society in its place, or
(b) appoint one or more Administrators who need not be members of the Society,
to manage the affairs of the society for such period or periods not exceeding two years as may be specified by order of the Registrar; and after the period of two years that Registrar may in accordance with the provisions of subsection (2) by order extend such period from time to time, so that the aggregate period does not exceed four years.
(1-A) Notwithstanding anything contained in this Act, the Registrar shall, in the case of a co-operative bank, if so required in writing by the Reserve Bank in the public interest or for preventing the affairs of the co-operative bank being conducted in a manner detrimental to the interests of the depositors or for securing the proper management of the co-operative bank, by order in writing, remove the committee of that co-operative bank and appoint an Administrator to manage the affairs of the co-operative bank for such period or periods not exceeding five years in the aggregate as may from time to time be specified by the Reserve Bank.'
This is a specific provision incorporated in the Act for taking action against a committee of management of a society for its acts of commission and/or omission specified in the section.
(iii) Section 30-A of the Act reads -
'30-A. Appointment of Special Officer. -(1) Where the State Government, on a report made to it by the Registrar or otherwise, is satisfied that any co-operative society is not functioning in accordance with the provisions of this Act or the rules made thereunder or its bye-laws or any order, direction or circular issued by the State Government or the Registrar, it may, notwithstanding anything in this Act, by. order, appoint a Special Officer for such co-operative society for such period not exceeding two years:
Provided that the State Government may, if it considers it necessary, extend the said period of two years by such further period not exceeding one year. (2) On the issue of the order under subsection (1) -
(a) the members of the committee of the cooperative society shall vacate and shall be deemed to have vacated their office; and
(b) the Special Officer shall be deemed to have assumed charge of the affairs of the cooperative society.'
This section gives power to-the Government to appoint a Special Officer replacing an elected committee of a society, when it is satisfied that the committee is not functioning in accordance with the provisions of the Act.
(iv) Section 29(c) of the Act provides that if a person becomes subject to any one or more of the disqualifications specified in the section, he could be removed by an order of the Registrar made under the provisions of the Act.
(v) Section 126-A of the Act, under which the impugned order has been made, reads -
'126-A. Removal and disqualification of a member of a committee.
(1) If any member of a committee of a cooperative society during the term of his office,
(a) becomes subject to any disqualification specified in Section 29C; or
(b) has acted or has been acting fraudulently or with gross negligence or in contravention of the provisions of this Act, the rules or the bye-laws of the co-operative society or without the sanction of the committee of the co-, operative society where such sanction is necessary or contrary to any resolution of the co-operative society or its committee or in any way prejudicial to the interest of the cooperative society; or
(c) has acted or has been acting persistently against the directions or orders issued under the Act or the rules made thereunder; or
(d) is not discharging his duties satisfactorily,
the Registrar may, either on a report made to him or otherwise, by order remove such member and in cases falling under clauses (b), (c) and (d) disqualify him from serving on the committee of the co-operative society or holding any office in any co-operative society for such period not exceeding three years, as he may specify:
Provided that no such order shall be made except after giving such member an opportunity of making representation.
(2) A copy of the order made under subsection (1) shall be communicated to the member and the co-operative society concerned.'
A careful reading of the above provision would indicate that the power conferred on the Registrar and the State Government under Sections 30 and 30-A of the Act respectively is for the purpose of removing the managing committee of a society if the Registrar or the Government is satisfied that the management of the affairs of the Society are not being carried on by the committee of management in accordance with the provisions of the Act and the rules framed thereunder and/or the acts of the committee are prejudicial. to the interests of the society concerned and/or there has been persistent default in the performance of its duties. In such a situation, Section 30 authorises the Registrar to supersede the Managing Committee by appointing an Administrator. Section 30-A authorises the Government to appoint a Special Officer for a society, if it is found that its committee of management is not carrying on the affairs of the society in accordance with the provisions of the Act and on such appointment, the members of the managing committee automatically vacate the office. These are two specific provisions provided for preventing mal-administration or mismanagement in the affairs of a co-operative society. Section 126-A of the Act confers power on the Registrar to remove a member either if he becomes subject to any disqualification mentioned in Section 29-C or it is found that he had acted and had been acting fraudulently or in gross negligence or in contravention of the provisions of the Act or the rules or the bye-laws of the cooperative society or without the sanction of the Committee of the Society etc. Thus it may be seen the provisions of Sections 30 and 30-A deal with mal-administration or mismanagement of the affairs of the society by the elected body and Sections 29-C and 126-A of the Act deal with specific acts committed by a member of a committee of a co-operative society during the term of his office, in contravention of the Act, rules or bye-laws and which are prejudicial to the interest of the society.
6. The wording of Section 126-A indicates that action to remove a member from the managing committee and to disqualify him for being a member of the Managing Committee could be taken if he commits any of the misconducts specified in clauses (b), (c) or (d) of the sub-section. On consideration of the language of Sections 30, 30-A and 126-A, I am of the view that whereas the object, intention and purpose of Sections 30 and 30-A is to empower the Registrar and the Government to take action against acts of omission and commission by committee of management of societies, Section 126-A contemplates action against acts of commission or omission of a member as an individual and not in respect of the decision of a committee to which he was a party. Earlier to introduction of Section 126-A a provision similar to that Section had been made under Rule 16 of the Rules. Subsequently it was considered expedient by the legislature to incorporate a provision similar to Rule 16 in the Act itself. The relevant part of the Statement of Objects and Reasons annexed to the Bill through which Section 126-A was introduced into the Act reads -
'Provision for removal of members of the committee existed in the rules. It was necessary to make provision in the Act.'
If the intention of the Legislature was that when all or majority of the members of a committee joined together and had acted in a manner prejudicial to the interest of the society, action could be taken against individual members concerned and to remove and disqualify them for being members of the committee in addition to the action for replacing the managing committee either by appointing an Administrator under Section 30 or by appointing a Special Officer, under Section 30-A it would have done so by use of express words in Section 126-A. What is pointed out in Modern Company Law by Gower referred to earlier is that many modem statutes create individual liability for acts of a company, to which the individual was a party. To illustrate one such provision is Section 25 of the Contract Labour (Regulation and Abolition) Act, 1970. It reads -
'25. Offences by companies. - (1) If the person committing an offence under this Act is a company, the company as well as every person in charge of, and responsible to, the company for the conduct of its business at the time of commission of the offence shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this subsection shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.' Section 110 of the Act is also similarly worded. If the intention of the Legislature was to create individual liability for the actions of the committee of society, it would have done so by the use of express words to that effect in Section 126-A. No such provision is incorporated in Section 126-A of the Act. Therefore, it is clear that purposes with which Section 126-A has been introduced into the Act are -
(i) To remove a person from the membership of the managing committee of a society if he had become subject to any of the disqualifications mentioned under Section 29C of the Act, and
(ii) if it is found that he had acted fraudulently or with gross negligence or in contravention of the provisions of the Act, rules or bye-laws or had acted persistently against the direction or orders issued under the Act individually or it is found that the member was not discharging his duties properly.
7. For these reasons, I hold that action under Section 126-A of the Act is permissible for misconduct committed by a member individually and not in respect of decisions or acts of the committee of management or its sub-committee to which he was a party as its member.
8. Before concluding, I place on record the very valuable assistance rendered by Sri S. G. Sundaraswamy, Senior Advocate, as amicus curiae.
9. In the result, I make the following order -
(i) The writ petition is allowed.
(ii) The impugned orders dated 17-3-1984 (Annexure-A) passed by the Joint Registrar of Co-op. Societies, Belgaum, Division, and 6-7-1984 (Annexure-B) passed by the Additional Registrar of Co-op. Societies, Bangalore, are set aside.
(iii) No costs.
10. Petition allowed.