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B. Suryanarayana and ors. Vs. the Kollur Parvathi Co-operative Bank Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petn. No. 2242 of 1980
Judge
Reported inAIR1983AP1
ActsA.P. Co-operative Societies Act, 1964 - Sections 64, 115-A and 115-B; Deposit Insurance and Credit Guarantee Corporation Act, 1961 - Sections 13-D
AppellantB. Suryanarayana and ors.
RespondentThe Kollur Parvathi Co-operative Bank Ltd. and ors.
Appellant AdvocateK.G. Kannabhiran, Adv.
Respondent AdvocateGovernment Pleader for F. and A. and ;C. Poornaiah, Adv.
Excerpt:
.....contentions presented by petitioners also rejected - petition accordingly dismissed. - - the reserve bank, the 4th respondent herein has actually drawn up a programme of rehabilitation and appointed the deputy registrar of co-operative societies to function as special officer of the first respondent-bank on 16-7-1979. in spite of the best efforts of the special officer, the programme was not successful as the borrowers failed to repay the loans and there was no hope of complying with the demands made on the bank from the depositors. due to the failure of the bank to pay its day-to -day liabilities, some of the depositors approached the civil courts for repayment and decrees also were passed against the bank. it is stated tha the bank is under the process of liquidation now and the..........the a.p. co-operative that the high court alone has jurisdiction or in the alternative direct the reserve bank of india to take steps under sub-cl. (iii) of s. 115-b of the a.p. co-operative societies act, 1964 and by declaring that the deputy registrar, tenali and the registrar of co-operative societies, hyderabad have no jurisdiction to order liquidation of the kollur parvathi co-operative bank ltd.2. the averments in the affidavit filed in support of the writ petition are as follows: the petitioners are members and depositors of kollur parvathi co-op. bamk ltd. kolluru, 1st respondent here in. the petitioners 1 to 8 hold the deposits of rs. 69,000/- rs. 49,000/- rupees 90,000/- rs. 75,000/-, rs. 37,155/-, rupees 28,000/-, rs. 35,000/- and rs. 20,000/- respectively. the 1st respondent.....
Judgment:
ORDER

1. This is a petition of issue of writ of mandamus declaring that liquidation proceedings against Kollur parvathi co-operative Bank Limited, is illegal and void by holding that provisions of S. 64 of the A.P. Co-operative that the High Court alone has jurisdiction or in the alternative direct the reserve Bank of India to take steps under sub-cl. (Iii) of S. 115-B of the A.P. Co-operative societies Act, 1964 and by declaring that the Deputy Registrar, Tenali and the registrar of co-operative societies, Hyderabad have no jurisdiction to order liquidation of the Kollur parvathi co-operative Bank ltd.

2. The averments in the affidavit filed in support of the writ petition are as follows: The petitioners are members and depositors of Kollur parvathi co-op. Bamk Ltd. Kolluru, 1st respondent here in. The petitioners 1 to 8 hold the deposits of Rs. 69,000/- Rs. 49,000/- Rupees 90,000/- Rs. 75,000/-, rs. 37,155/-, Rupees 28,000/-, Rs. 35,000/- and Rs. 20,000/- respectively. The 1st respondent bank is an Urban co-operative Bank established in the year 1915 at Kollur, tenali taluk as on 31-7-1976 there were 1001 members in the society with paid up share capital of Rs. 4,22,537/- The bank accepts current savings fixed recurring daily deposits and Kalpataruvu deposits both from members and non-members. The deposits in the society were to the tune of Rs. 31,70,158/- as on 31-7-1976. The loans outstanding as on 31-7-1976 are Rs. 28,25,000/-. The state Government holds share capital of two lakhs rupees. The 2nd respondent by proceedings dated 1-8-1976 ordered an enquiry under S. 51 of the co-operative societies Act and after the enquiry report was submitted on 24-7-1977 and 26-9-1977 the 2nd respondent by his proceedings dated 26-6-1978 initiated surcharge proceedings under S. 60 of the Act. As a result of the surcharge proceedings and enquiry reports it was found that there was defalcation of Rs. 6,74,433-85. Subsequent to the receipt of the report the 2nd respondent issued a show cause notice to the 1st respondent bank as to why it should not be wound up. There upon the 1st respondent called for a general body meeting of the members on 25-3-1980. The general body decided against the winding up and communicated the decision to the 2nd respondent however, the 2nd respondent by his order dated 16-4-1980 ordered winding up of 1st respondent and appointed the Taluk co-operative sub-registrar as Liquidator of the 1st respondent. On Liquidator of the 1st respondent. On 14-8-1976 the then president of the 1st respondent Bank addressed a letter to the reserve Bank of India, 4th respondent herein that he suspects misappropriation to the tune of Rs. 3,44,200/- due to wilful acts and omissions of the employees with a request that the 4th respondent may appoint a senior officer to rectify the matter. The 4th respondent did not take any action in this regard. In every audit either by the 3rd respondent or by the 4th respondent the audit report certified that the 1st respondent bank is an 'A' class bank.

3. The second respondent filed counter-affidavit as follows:-

The general body of the first respondent-bank passed a resolution objecting to the proposed liquidation and the resolution was passed at a meeting attended by only 40 members as against 993 members eligible to participate in the meeting. After giving due consideration to the said resolution this respondent decided that the affairs of the bank should be wound up in the interests of the bulk of the members of the bank. Sri J. Malleswara Rao, co-operative sub-Registrar was appointed as Liquidator by order dated 10-5-1980 and he took charge on 17-4-1980. He handed over charge to his successor on 25-5-1980. The 40 members who attended the General Body meeting the heavily indebted to the Bank. In the proceedings initiated for the recovery of the amounts due from the borrower-members loaness are raising untenable contentions and they are deliberately obstructing the progress of the enquiry. Though the bank was certified as 'A' class bank there was a sudden fall in its resources with the result that it has been considered as 'b' class only in 1975-76 and as 'C' class for the subsequent period. In exercise of the powers delegated to this respondent by the registrar, the third respondent herein an Enquiry officer under s. 51 of the Act was appointed to hold an enquiry into the complaints and other aspects and on 16-4-1980, a decision was taken to order the winding up the affairs of the bank. This respondent is not under an obligation under law to communicate to the petitioners the order passed by this respondent. The reserve Bank, the 4th respondent herein has actually drawn up a programme of rehabilitation and appointed the Deputy Registrar of co-operative societies to function as special officer of the first respondent-bank on 16-7-1979. In spite of the best efforts of the special officer, the programme was not successful as the borrowers failed to repay the loans and there was no hope of complying with the demands made on the bank from the depositors. Due to the failure of the bank to pay its day-to -day liabilities, some of the depositors approached the civil courts for repayment and decrees also were passed against the bank. The winding up order was passed by the respondent as a last resort.

4. The co-operative sub-Registrar who was appointed as Liquidator filed an additional counter-affidavit. It is stated tha the bank is under the process of liquidation now and the financial position of the bank is very poor and it cannot pay interest also on the deposit amounts. In spite of the best efforts the Liquidator is not able to collect the amounts from the judgment-debtor loanees and therefore, the bank is not able to discharge the liabilities and also is not able to pay the amounts to the depositors, the bank is facing a financial crisis now.

5. Counter-affidavit on behalf of the reserve Bank 4th respondent herein ha been filed stating that under the powers vested under s. 25 of the banking regulation Act, 1949 as applicable to the co-operative societies the reserve Bank initiated inspection into the affairs of the first respondent-Bank with reference to the position as on 30-6-1977. It was revealed in this inspection which is the eighth in the series of inspections that have been done previously that the financial position of the bank deteriorated considerably due to misappropriation of funds to the tune of 6-74 lakhs. As a result of this, assets of the bank eroded to the extent of 17, 18 lakhs and this erosion wiped out the owned funds (share capital assets) but also affected the deposits to the extent of 3.65 lakhs. Therefore the first respondent-bank did not comply with the necessary provisions of the banking Regulation Act, 1949 as applicable to the co-operative societies the inspection report was forwarded to the bank by letter dated 2-5-1978 and the bank was advised to rectify the defect and submit a compliance report the first respondent-bank did not take any steps to rectify the defects. As a serious situation developed in the financial position of the bank the registrar of co-operative societies was informed by letter dated 18-5-1978. Subsequently the matter was also discussed by a senior official of the Reserve Bank of India with the secretary of the state Government bringing to his notice the gravity of the situation. After discussion between the officials of the Reserve Bank and the joint registrar of the co-operative societies and in consultation with the leading members of the bank, a concrete programme was drawn to rehabilitate the bank but, however complaints were received about the nonpayments of deposits and the depositors also instituted legal proceedings for recovery of the deposits. The findings of the Zonal chief officer, southern Zone, Madras indicated that the financial position of the bank has further deteriorated and these findings were communicated to the bank by letter dated 4-1-1980. After discussion, by the senior officials of the bank with the officials of the Government of Andhra pradesh and the registrar of co-operative societies it was considered that there was no possibility of reviving the bank. Thereupon, the reserve Bank by D. O. Letter dated 4-2-1980 requested the registrar of co-operative societies to initiate action for liquidation of the bank. After issue of a show cause notice, the Deputy registrar issued orders of winding up on 16-4-1980 and appointed the Taluk co-operative officer, Tenali as Liquidator and the said officer took charge on 17-4-1980.

6. The learned counsel for the petitioners contended that no guidelines or rules for winding up procedure have been evolved and as such the order is violative of Art. 14 of the Constitution and in any event in the absence of procedure of following the fundamental principles of natural justice by giving opportunity to the creditors or depositors and members, the entire proceedings are vitiated. The learned counsel for the respondents contended that the procedure contemplated under the co-operative societies Act has been followed and sufficient guidelines are set out in the co-operative societies Act and the provisions of the enactments referred to and as such, there is no violation of Art. 14. It is further contended that there is no provision in the winding up procedure under the co-operative societies Act to give notice to the members. Therefore there is no obligation to issue notice to them and the question of violation of principles of natural justice does not arise.

7. Section 64 of the Andhra pradesh co-operative societies Act 1964 (hereinafter referred to as the Act) empowers the Registrar to wind up any society registered under the Act after conducting inquiry under S. 51 or making inspection under s. 52 and after giving an opportunity to the concerned society. Chapter XIII-A prescribes the procedure in respect of the eligible co-operative banks. It is not disputed that the first respondent of the eligible co-operative Banks. It is not disputed that the first respondent-bank comes within the purview of eligible co-operative Bank as contemplated under this chapter. S. 115-A under Chap. XIII-A defines eligible co-operative bank as one defines as S. 2(gg) of the Deposit insurance and Credit Guarantee corporation Act 1961 (Central Act 47 of 1961). S. 115-B prescribes the procedure for winding up of the eligible co-operative Bank Before adverting to s. 115-B. It is necessary to refer to the provisions of the Deposit Insurance and credit Guarantee corporation Act, 1961 (Act XLVII of 1961) as the provisions of the said Act have been incorporated by reference S. 2(gg) defines eligible co-operative Bank as a co-operative bank in respect of which the law governing the same provides that an order for the winding up or an order of sanctioning a scheme of compromise or arrangement or of amalgamation or reconstruction of the bank shall be made only with the previous sanction of the Reserve Bank and the Reserve Bank is empowered to order for the winding up under S. 13-D of this Act S. 13-D enumerates circumstances in which the reserve Bank may require winding up of co-operative Banks. The circumstances set out in S. 13-D are that the co-operative Bank fails to comply with the requirements specified in s. 11 of the Banking Regulation Act, 1949 that the co-operative bank becomes disentitled to carry on banking business under S. 22 of the said Act, the bank is prohibited from receiving fresh deposits and that the bank contravenes the regulations of the Banking regulation Act, 1949 and is unable to pay its debts and that in the opinion of the reserve Bank compromise or arrangement sanctioned by the competent authority cannot be worked out satisfactorily and the connnuance of the bank is prejudicial to the interests of its depositors. A deeming provision is also inserted in sub-sec. (2) of S. 13-D wherein lapses of the bank enumerated therein are considered as being unable to pay the debts s. 115-A and S. 115-B of the co-operative societies provide for the definition of eligible co-operative. Bank and also the procedure for winding up of the said eligible co-operative Bank. S. 115-B apart from the incorporation of the entirety of the provisions of S. 13-D of the Deposit Insurance and Credit Guarantee corporation Act, 1961 which pertains to the winding up of banks also provides for other aspects namely, that the winding up order can be passed in the event of failure of any steps for reconstruction of the bank and also if it is found by the Reserve Bank that the continuance of the affairs of the bank is detrimental to the interests of the depositors and also in certain events for supersession of the bank and for appointment of the special officer for a period not exceeding five years if the rehabilitation of the bank is possible by such steps.

8. The essence of the contention of the learned counsel for the petitioners is that the scheme of the Act as discerned from the provisions of S. 115-A and S. 115-B of the Act is to preserve the bank to the extent possible, but not to destruct the same by passing a winding up order and no guidelines or circumstances have been indicated in the Act for winding up of the societies. This contention is untenable. S. 64 confers the power upon the Registrar and it is not in dispute that this power has been delegated to the Deputy registrar. Therefore, the power to wind up the society registered under the co-operative societies Act is traceable to S. 64. The source of power is S. 64 and the procedure for winding up is contained in Ss. 115-A and 115-B as the first respondent-bank is an eligible co-operative Bank. S. 115-B itself profusely furnishes guidelines for the winding up of the bank, apart from incorporating the procedure contained in s. 13-D of the deposit Insurance and credit Guarantee corporation Act, 1961. S. 115-B (I) and (ii) provides for winding up with the previous sanction of the Reserve Bank and also in accordance with the procedure laid down in s. 13-D of the said Act. Cl. (I) evidently provides for sufficient safeguard for taking clearance of the reserve Bank and this itself furnishes a cautious step for taking up Liquidation proceedings and S. 13-D of the said Act enumerates several circumstances for the initation of proceedings for winding up. Three conditions that are relevant for the purpose of winding up are containedin S. 13-D of the said Act. They are failure of any arrangement to rehabilitate the bank, the continuance of the co-operative bank is prejudicial to the interests of the depositors and that the bank is unable to pay its debts. Apart from the several conditions enumerated in this provisions these three conditions which are relevant for the purpose of winding up are applicable to the proceeding of winding up. It has been clearly stated in the counters of the Deputy registrar and filed on behalf of the Reserve Bank that eight at tempts were made during a period of three years to revive the bank and after all these attempts failed, recourse to winding up was made as there was no alternative. Therefore the requirements mentioned in s. 13-D of the said Act have been fulfilled as it was considered that there was absolutely no hope of resurrection of the bank; Further it is also found on enquiry and also considering the present financial position that the bank is unable to pay its debts and due to failure of the bank to comply with the demands of the depositors, several suits have been filed by the depositors and decrees have been passed. It is also found that the bank is not able to meet even the day-to-day administrative expenses. In these circumstances, it was felt necessary that the affairs of the bank should be wound. Up. The provisions of S. 115-B coupled with the provisions of S. 13-D of the Act provide ample safeguards and also stipulate several conditions and circumstances for the winding up order. The scheme of s. 115-B in conjunction with S. 13-D of the Act is to save the bank from extinction as far as possible and it is only in the absence of any ameliorative step the winding up should be resorted to Further, it is also stated that attempts have been made to rehabilitate the bank and some time was given to the bank to see whether the bank can meet the liabilities and proceed with the business of the bank. After several discussions between the officials of the Reserve bank and also the officials of the co-operative department certain arrangements were made and actually the bank was put on oxygen, but as there was no hope of recovery the winding up order was passed.

9. The learned counsel for the petitioners has relied upon the decision of the Supreme Court in M. Gordhandas & Co. V. M. W. Industries (p.) ltd. : [1972]2SCR201 and contended that the provisions for winding up of the company and the facilities contained in those provisions have not been incorporated in the Act. It must be borne in mind that the co-operative societies Act which is a self-contained Act in respect of the co-operative societies registered under the Act evolved the procedure for winding up of the societies. It cannot be said that the same procedure adopted for the winding up of the company under the companies Act should be adopted under the co-operative societies Act also. Relying upon the principles enunciated in the decision of the Supreme Court in swadeshi cotton Mills v. Union of India : [1981]2SCR533 , it was contended that the creditor should be given notice before the winding up order is passed as there was no rule excluding the issuance of giving notice. The Supreme Court in that case held that when there is no specific exclusion with regard to issuance of notice has to be given to comply with the fundamental principles of natural justice and fair play. The principle enunciated in this decision cannot be made applicable to this case because there is a provision for notice to the society as contemplated in S. 64 of the Act. It is considered that notice to the society is sufficient for winding up of the society under the co-operative societies Act. The creditors or depositors are not entitled for issuance of notice under this Act. Further, it cannot be said that any maxim of fair play has been violated in this case as the society itself is given notice.

10. The learned counsel for the fourth respondent Reserve Bank relied upon the decision of the Supreme Court in Vellukunnel v. Reserve Bank of India : AIR1962SC1371 where the Supreme Court dealing with winding up a bank and making the Reserve Bank as the sole judge to decide whether the affairs of the bank were conducted prejudicially to the interests of the depositors held that they are not violative of Art. 14 of the Constitution Basing upon this decision, it is contended that the provisions of the co-operative societies Act prescribing a special procedure for winding up of the society under the co-operative societies Act are not violative of any constitutional provision and the procedure contemplated under this Act has to be followed and the provisions of other enactments in respect of the winding up of the companies have no relevance for the purposes of winding up the societies under this Act. I agree with this contention. A special procedure has been evolved under the co-operative societies Act for the winding up of the societies. The co-operative societies Act provides a special procedure for registration of societies and also the management of the affairs of the society and winding up of the societies. This is a self contained Act which deals exclusively with the co-operative banks registered under this Act. Therefore the analogy of winding up of companies under the companies Act cannot be pressed into service.

11. Lastly, it is contended by the learned counsel for the petitioners that this bank is in existence since more than 60 years and it should not be wound up and at least some time should have been given for providing finance and making arrangements for the rehabilitation of the bank. It is evident that several attempts have been made by the concerned officials including the Reserve Bank officials to revive the bank and in view of the deteriorating condition of the bank day after day, it will be of no practical utility to evolve some more measures again to revive the bank. It is true that this bank is an old one as it was promoted in 1915 and it has been functioning efficiently before the condition is deteriorated. This silver linin in this dense cloud cannot be a solance or relieving feature for setting aside the winding up order and prolonging the agony. The winding up order was made as there is a colossal depletion of the financial resources of the bank and it is on the verge of explosion and as there is absolutely no hope of revival.

12. Therefore, the writ petition is dismissed with costs advocate's fee Rs. 100/-

Petition Dismissed.


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