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Jose Kuttiyani and ors. Vs. the Registrar of Co-operative Societies, Kerala, Trivandrum and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtKerala High Court
Decided On
Case NumberO.P. No. 1981 of 1981
Reported inAIR1982Ker12
ActsKerala Co-operative Societies Act, 1969 - Sections 2, 32, 32(2) and 74A; Constitution of India - Article 226; Administrative Law
AppellantJose Kuttiyani and ors.
RespondentThe Registrar of Co-operative Societies, Kerala, Trivandrum and ors.
Appellant Advocate Chandrasekharan and; Chandrasekhara Menon, Advs.
Respondent Advocate Addl. Adv. General,; V. Sivaraman Nair,; V.M. Nayanar
DispositionPetition allowed
Cases ReferredMaradana Mosque Trustees v. Mahumud
trusts and societies - abuse of power - sections 2, 32 and 74 a of kerala co-operative societies act, 1969 and article 226 of constitution of india - as per registrar petitioners committed persistent default and were negligent in implementing provisions of act, rules and bye-laws and that their action is prejudicial to interests of bank - registrar satisfied that case of suppression made out - registrar acting bona fide and reasonably would have asked elucidation of doubts from reserve bank regarding percentage limit to individuals - registrar would not have searched for defects to get petitioners out - irregularities which are minor and old forgotten compared to volume of business turned out by bank are magnified and highlighted by beyond proportion - in case registrar passed orders.....viswanatha iyer, j.1. idikki district co-operative bank ltd. is a society registered under the kerala cooperative secieties act, 1969. it has 14 branches and all the members of the bank are primary societies. however the bank receives deposits from individuals and also grants loans to individuals. the management of the bank is vested in board of directors consisting of 11 elected members and 3 official members nominated by the government. of the 11 elected members three ceased to be directors for one reason or another and so the remaining elected and non-elected members were managing the affairs of the bank. the board entered office on 1-7-1978, their term being three years, normally they would have had to go out on 30-6-1981.2. this bank is insured under the deposit insurance corporation.....

Viswanatha Iyer, J.

1. Idikki District Co-operative Bank Ltd. is a Society registered under the Kerala Cooperative Secieties Act, 1969. It has 14 branches and all the members of the Bank are primary societies. However the Bank receives deposits from individuals and also grants loans to individuals. The management of the Bank is vested in Board of Directors consisting of 11 elected members and 3 official members nominated by the Government. Of the 11 elected members three ceased to be Directors for one reason or another and so the remaining elected and non-elected members were managing the affairs of the Bank. The Board entered office on 1-7-1978, their term being three years, normally they would have had to go out on 30-6-1981.

2. This Bank is insured under the Deposit Insurance Corporation Act 1961 (Central Act). Chapter X-A of the Kerala Co-operative Societies Act contains additional provisions of law regarding such insured co-operative banks. The Banking Regulation Act 1949 (Central Act) applies to this Bank subject to certain modifications mentioned in Part 5 of the said Act. In 1974 the Reserve Bank issued license to this Bank to carry on banking business. The volume of business attended to for the years from 1974 to 1980 as evidenced by the progress statements issued by the Bank in December 1980 shows that it has 159 members (all societies and Government). The share capital comes to Rs. 116.26 lakhs, deposit comes to Rs. 484.43 lakhs, investments Rs. 188.31 lakhs and loans and advances given by the Bank comes to Rs. 874.43 lakhs. Under Rule 35 of the Co-operative Societies Rules the Committee should meet at least 60 days in advance of the date of expiration of its term and pass a resolution fixing the date, time and place for the conduct of the election of a new committee. A copy of the resolution should be sent to the Registrar by registered post within a week. For this purpose the Committee met on 4-3-19&1 and resolved to hold the election on 21st June, 1981. The copy of the resolution was forwarded to the Registrar on 5-3-1981. Thereafter on 5-3-1981 itself and 8-3-1981 the elected members of the Committee who are the petitioners in this petition received notice from the Registrar mentioning certain allegations and charges and they were required to show cause why the committee shall not be superseded under Section 32 (1) of the Act. The members were required to send a reply, if any, within 10 days and the personal hearing was fixed for 21-3-1981. The copy of the said notice is dated 2-3-1961. Extension of time for submitting replies was granted tin 6th April. 1981 and personal hearing was also fixed for the same. date. The petitioners individually filed objections and also moved this Court in 6. P. No. 1792 of 1981 to quash the notice on the ground that even before hearing their objection the Registrar has come to a conclusion that grounds for supersession exist. On 6-4-1981 that Original Petition was admitted and on the Registrar taking notice the Court passed a final order on 8-4-1981 disposing of the Original Petition. The findings in the show cause notice were directed to be treated as provisional and a decision taken within two weeks and in the light of the objections filed by the petitioners and hearing their arguments. Even before the decision of this court in the above O. P. on 6-4-1981 itself the Registrar heard the parties who were present. The. Registrar also passed an order on 15-4-1981 superseding the Committee consisting of the petitioners and non-official members. An Administrator also was appointed to manage the affairs of the Bank until an election is held and a fresh Committee appointed.

3. This order of supersession is attacked in this Original Petition mainly on the following grounds :--

(a) The show cause notice and the order are vitiated by legal and factual mala fides. The notice is issued after taking a decision to supersede and no purpose, will be served by calling the objections. The first petitioner is member of the Legislative Assembly and belongs to one of the parties in the opposition. He had filed a petition alleging corrupt practice against one of the Ministers and another M.L.A. He had alleged irregularities in the matter Of assigning land in Mangulam and he also raised the question of the spirit deal on the floor of the Assembly. Some of the ruling party people had formed a Society called Mangulam Cooperative Farming Society and that Society's application for loan was not granted because of certain legal objections, that the members of the ruling party then started campaigning against the first petitioner and it is only at their instance the Registrar has issued the show cause notice without making any enquiry or assessment of the facts put forward as constituting acts prejudicial to the interest of the Society;

(b) The direction of this Court in O. P. No. 1792 of 1981 has not been heeded to in taking a decision to supersede the Committee. Though this court on 8-4-1981 gave certain directions to the. Registrar there was no reference to this decision and in the various papers stated as read, even this court's decision is not mentioned. In other words there was a complete disregard of this court's judgment that the findings in the show cause notice should be. treated as purely provisional and the matter has to be decided with reference to the. objections filed by the petitioners and also with reference to the arguments put forward by them at the time of hearing.

(c) There has not been any proper consultation with the financing Banks as required under Section 32 (2) of the Act. The Bank has been insured under the Deposit Insurance Corporation Act 1961. The Reserve Bank of India has taken upon themselves the liability to completely discharge the obligations towards such depositors and their deposits. The Reserve Bank has issued a license to the second respondent to carry on banking business, and complete control of the banking business is with the Reserve Bank. In the light of Chapter X-A and Section 74A of the Co-operative Societies Act the failure of the Registrar to consult the Reserve Bank before action of the extreme kind ashes now been taken is illegal.

(d) The State Co-operative Bank (hereinafter called the Apex Bank) has been financing large funds to the second respondent earmarking that amount for the purpose of granting loans to individuals. That Bank also inspects the financial affairs of the second respondent Bank and they have opposed the supersession of the Committee. Still the Registrar has not considered their objection. The consultation with the financing bank has been reduced to a mere formality and this is in clear violation of Section 32 (2) of the Act.

(e) The show cause notice should be in the nature of an allegation and it should be required to be answered by the Committee. But in the instant case the show cause notice only calls for objections in respect of the order of supersession proposed to be passed.

(f) None of the objections and explanations mentioned in the reply statement filed before the Registrar is properly considered and no attempt has been made by the Registrar to look into the records of the Bank to verify whether the facts and figures mentioned in the reply statement are true and constitute a satisfactory explanation for the irregularities alleged in the show cause notice.

(g) A clarification statement was filed on 9-4-1981 in the light of the decision of this Court in O. P. No. 1792 of 1981. But the same has not been referred to or looked into by the Registrar before taking a decision.

(h) The main or the principal charge put forward against the petitioners is that they have sanctioned loans to individuals exceeding 10% of the Bank's total time and demand liabilities. The reply of the petitioners is that no loan has been sanctioned from out of the amount covered by time and demand liabilities exceeding 10% of such liabilities. Their case is that loans to individuals sanctioned by the Bank were mostly from out of the concessional finance and reimbursement funds provided by the Apex Bank which finances are specifically earmarked for the purpose of grant of such loans to individuals. In such circumstances it was the duty of the Registrar to ascertain whether this is a fact and only in the light of such ascertainment and consideration alone he can as a reasonable person take a decision whether there is any violation of any of the directions of the Reserve Bank. This has not been done and therefore the decision is ultra vires and in excess of the power conferred under Section 32 (1) and

(i) The petitioners have not violated any of the provisions of the Act or Rules framed thereunder or bye-laws under which the Society was registered. The facts stated as constituting persisting default or negligence in the performance of the duties under the Act and the facts alleged as constituting a wilful default in carrying out lawful orders of the Registrar under the Act, Rules or Bye-laws are either imaginery or highly technical. Any irregularity in the grant of the loans or overdraft facility, discounting of bills or delay in taking steps or in the renewal of overdrafts without taking action to recover the amounts covered by them, are not irregularities committed by the Managing Committee. They at best amount to a violation by the officers to follow the guidelines issued by the Bank. No prejudice or loss is pointed out as having been caused to the Bank by such technical irregularities. Therefore the order for supersession is passed in excess .of the jurisdiction conferred by the Act on the Registrar.

4-5. The Registrar has in the reply denied all these grounds. According to him he was satisfied from the allegations and the reply that the petitioners have committed persistent default and were negligent in implementing the provisions of the Act, Rules and Bye-laws and their action is prejudicial to the interests of the Bank and therefore he was satisfied that a case is made out for supersession. He also contended that the Apex Bank alone was the financing Bank and the Reserve Bank need not be consulted on this and therefore there is no jurisdictional errror in passing the order under Section 32 (1) of the Act. In the light of these facts we have to see the scope and power of the Registrar under Section 32 of the Act and in the light of the conclusion thereon the facts in this case have to be adjudged.

6. In the scheme governing the functioning of Co-operative Secieties the Registrar is the main functionary who controls and supervises the various cooperative societies through his subordinates. Chapter VIII of the Act contains detailed provision for audit, inquiry, inspection and surcharge. Section 63, provides for audit of accounts of every society at least once in each year. The audit includes examination of overdues debts, if any, verification of the cash balance and securities and a valuation of the assets and liabilities of the society. Every officer and employee of the society and every member is required to furnish such information in regard to the transactions and working of the society as the Registrar may require. A fee is levied for audit and recovered from the society. Section 64 requires . communication of defects disclosed in audit to the society. The Registrar is enjoined to bring such defects to the notice of the society with a direction to take such action as may be specified in the order within the time mentioned therein to remedy any defects disclosed in the audit. Section 65 provides for an enquiry by the Registrar or any person authorised by him to hold an enquiry into the constitution, working and financial condition of the society. The Registrar may do it on his own moti&n; or on the application of the majority of the members. The person enquiring has got all the powers to call for books of accounts, documents, securities, cash and other properties to or in custody of the society and may summon any person and examine him regarding his knowledge of the affiairs of the society. The result of the enquiry should be communicated to the financing Bank, if any, to which the society is affiliated and also the circle co-operative unit. Minor defects, if any, revealed at the enquiry can be communicated to the society for rectification within a time to be specified. Section 66 enables the Registrar to supervise the working of every society as frequently as he may consider necessary and for that purpose inspect any society either by himself or by a person authorised by him. The cost of such enquiry or inspection can be ordered to be paid in the manner prescribed under Section 67. Section 68 empowers the Registrar to surcharge any person who is or was entrusted with the organisation or management of the society or who is an officer or employee of the society who has made any payment contrary to the Act; Rules and Bye-laws or caused any deficiency in the assets of the society by breach of trust or wilful negligence or misappropriated or fraudulently retained any money or other property belonging to the society.

7. These provisions show that no society is excluded from the audit inquiry, inspection or surcharge by the Registrar. The conferment of such powers on the Registrar is quite understandable because the societies require such supervisory control. If these powers are properly exercised there is no reason why the societies cannot function properly, at the same time leave the members of the. Society or the Managing Committee of the Society to manage. As a matter of fact the purpose of any co-operative endeavour and principle of co-operation is that cooperative societies formed for any purpose should be managed by the members of the society and not by an outside body. But if some crisis occurs and the ordinary regulation and rectification of defects or recovery of loss cannot be had under the provisions of Sections 63 to 68, the Act provides for an extraordinary power with the Registrar to supersede the Committee or the Board managing the affairs of the society for a period and assume the management through an Administrator. This is really an extraordinary power which should not be resorted to unless there is an extraordinary situation. That extraordinary power is contained in Section 32 of the Act. That section reads as follows :--

'32. Supersession of Committee. --(1) If the Registrar is satisfied that the committee of any 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 society or wilfully disobeys or wilfully fails to comply with any lawful order or direction issued under this Act or the rules, 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 not more than three members of the society in its place; or

(b) appoint one or more administrator or administrators who need not be a member or members of the society, to manage the affairs of the society for a period not exceeding one year as may be specified in the order, which period may, at the discretion of the Registrar, be extended from time to time, so however that the aggregate period does not exceed two years.

(2) The Registrar shall consult thefinancing bank and circle co-operative union or State Co-operative Union as the case may be before passing an. order under Sub-section (1).

(3) Notwithstanding anything contained in Sub-section (1) or Sub-section (2) it shall not be necessary to give an opportunity to the committee to state its objections and to consult the Unions and financing banks, in cases where the Registrar is of the opinion that it is not reasonably practicable to do so, subject however to the condition that in such cases the period of supersession shall generally be for six months and in case a new committee cannot be constituted Or enter upon office in accordance with the bye-laws of the society within the period of supersession the period may be extended for a further period not exceeding six months--

(a) in the, case of a co-operative society only after consulting the circle cooperative union concerned; and

(b) in the case of an Apex Society ,or a Central Society only after consulting the State Co-operative Union.

(4) The committee or administrator or administrators so appointed shall, subject to the control of the Registrar and to such instructions as he may from time to time give, have power to exercise all or any of the functions of the committee or of any officer of the society and take all such action as may be required in the interests of the society.

(5) The committee or administrator or administrators shall, before the expiry of its or his or their term of office, arrange for the constitution of a new committee in accordance with the bye-laws of the society.

(6) Every order made by the Registrar under Sub-section (1) shall be communicated to circle co-operative union.' The jurisdiction to exercise the power depends on the satisfaction of the. Registrar of one or other of the three conditions mentioned in the section, that is,--

(a) that the Managing Committee persistently makes default or is negligent in. the performance of the duties imposed by the Act. Rules and bye-laws;

(b) commits any act which is prejudicial to the interests of the society, and

(c) wilfully disobeys or wilfully fails to comply with any lawful order or direction issued under this Act or the rules.'

Further before an order superseding the committee is passed the Registrar must consult the financing bank and the circle or State co-operative union as the case may be. All these are conditions precedent for the exercise of the power of supersession. No doubt whether) these conditions exist or not it is for the Registrar to be satisfied. No doubt the satisfaction may be subjective, but it shall not be arbitrary. The scope of the enquiry by the court into his satisfaction regarding the existence or otherwise of the circumstances referred to in the section is limited in proceedings under Article 226 of the Constitution, The court will not function as an ap-pellate authority and investigate into the sufficiency of the materials on which the Registrar has arrived at the satisfaction referred to in Sub-section (1). If the contention is that the Registrar never applied his mind and therefore he could not have been satisfied, the court can enter into that question, the ingredient of satisfaction being the condition precedent to the exercise, of power, if the power exercised is for a purpose or with an intention beyond the scope and contemplation of the provision the action is liable to be interfered with on the ground that it constitutes; fraud on the power granted by the Statute. The order of a statutory authority can also be challenged if it is shown that the action was taken on grounds or materials totally irrelevant to the purpose and intention of the Statute or that relevant matters have not been considered or that the grounds or evidence on the basis of which the authority acted are such that no one could reasonably arrive on such basis at the opinion or satisfaction required under the Legislation.

8. The scope of judicial review of the exercise of the power depending upon the satisfaction on the existence of one or the other ground has been the subject matter of a number of decisions here and elsewhere. It is necessary to refer only to a few of them. In Barium Chemicals Ltd. v. Company Law Board (AIR 1967 SC 295) Hidayatullah, J. in paragraphs 26 and 27 stated the principle thus :--

'The words 'in the opinion of the Central Government' indicate that the opinion must be formed by the Central Government and it is of course implicit that the, opinion must be an honest opinion. The next requirement is that 'there are circumstances suggesting, etc.' These words indicate that before the Central Government forms its opinion it must have before it circumstances suggesting certain inferences'.

'It is not sufficient to assert that the circumstances exist and give no clue what they are because the circumstances must be such as to lead to conclusions of certain definiteness.'

and in paragraph 60 Shelat, J. after quoting the decision in Ross Clunis v. Fapadopoullos ((1958) 1 WLR 548) stated the principle thus :--

'Though an order passed in exercise of power under a statute cannot be challenged on the ground of propriety or sufficiency, it is liable to be quashed on the ground of mala fides, dishonesty or corrupt purpose. Even if it is passed in good faith and with the best of intention to further the purpose of the legislation which confers the powers, since the Authority has to act in accordance with and within the limits of that legislation, its order can also be challenged if it is beyond those limits or is passed on grounds extraneous to the legislation or if there are no grounds at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or satisfaction requisite under the legislation. In any one of these situations it can well be said that the authority did not honestly form its opinion or that in forming it, it did not apply its mind to the relevant facts.'

This decision was followed in Smt. Maneka Gandhi v. Union of India (AIR 1978 SC 597) at page 691 paragraph 222. It is said that there can be judicial scrutiny of the impugned decision on the point of rational or reasonable nexus.

9. To the same effect is the decision of the English courts in a number of cases, the latest among them being Secretary of State for Education and Science v. Tameside Metropolitan Borough Council (19761 S WLR 6411. The decision of the court of appeal and of the House of Lords in that case are given in that report. It will be useful to quote the observations of Lord Denning M. R. at pages 651 and 652--

'To my mind, if a statute gives a minister power to take drastic action if he is statisfied that a local authority has acted or is proposing to act improperly or unreasonably, then the minister should obey all the elementary rules of fairness before he finds that the local authority is guilty or before he takes drastic action overruling them. He should Rive the party affected notice of the charge of impropriety or unreasonableness and a fair opportunity of dealing with it. I am glad to see that the Secretary of State did so in this case, He had before him the written proposals of the new council and he met their leaders. In addition, however, the minister must direct himself properly in law. He must call his own attention to the matters he is bound to consider. He must exclude from his consideration matters which are irrelevant to that which he has to consider and the decision to which he comes must be one which is reasonable in this sense; that it is, or can be, supported with good reason or at any rate be a decision which a reasonable person might reasonably reach. Such is. J think, plain from Padfleld v. Minister of Agriculture, Fisheries and Pood ((1968) AC 997) which is a landmark in our administrative law and which we had in mind in Secretary of State for Employment v. ASLEF (No. 2) ( (1972) 2 QB 455. 493, 510). So much for the requirement if the minister is to be satisfied.'

At page 656 Scarman L.J. observed--

'When, however, Mr. Bingham came to summarise law, he put it, I think, a little too narrowly. He submitted --and, if I may, I will put his submissions in my own words and not necessarily his -- that (1) Section 68 confers on the Secretary of State a 'subjective' discretion: (2) while judicial review of the exercise of the discretion is not excluded by the section, the court can declare the Secretary of State's direction unlawful only if there be proved to exist one or other of the following , situations : bad faith on the part of the Secretary of State, misdirection in law, taking account of irrelevant matters or omitting to consider relevant matters, and finally a situation where the Secretary of State has taken a view which on the material and the Information available to him no reasonable man could have taken : (3) the court must assume the discretion to have been lawfully exercised, until the contrary be shown: (4) the court must always bear in mind that the discretion is the minister's, not the court's. He relied on a well known line of cases of which the familiar landmarks are Liversidge v. Anderson, (1942) 2 AC 206 (particularly the dissenting speech of Lord Atkin, at pp. 232, 235 and 245V and Associated Provincial Picture Houses Ltd. v. Wed-nesbury Corporation ( (1948) 1 KB 223). I agree with the great majority of Mr. Bingham's submissions. But, first, I think that the epithet 'subjective' is of no assistance in this context. The point of principle is simply that it is not a judicial but a ministerial discretion in an administrative matter which is under review. of course, the unusual feature of the present case is that we have under review two administrative decisions, each by a different authority; the Secretary of State's decision to use his Section 68 power of discretion, and the local education authority's earlier decision not to implement the Section 13 proposals, the decision which in fact led the Secretary of State to act under Section 68.

Secondly, I do not accept that the scope of judicial review is limited quite to the extent suggested by Mr. Bingham. I would add a further situation to those specified by him : misunderstanding or ignorance of an established and relevant fact.'

Again at page 657 he observes thus :--

'I have already put in my own words the situation which I think, in addition to those more commonly described, enables the court to exercise its power of review. I would now try and put that situation into a formula: and my formula would be as follows : that the Secretary of State cannot lawfully be satisfied that the local education authority is proposing to act unreasonably unless upon the information that was or ought to have been available to him the local education authority, acting reasonably could not have acted, or proposed to act, as it in fact did. In other words, while it is not tor the court to substitute its view for the minister's it is also the law that the minister cannot substitute his view for that of the local education authority. provided always that an authority acting reasonably, could have made the decision that in fact it made.'

In the House of Lords the observations of Lord Wiberforce are seen at p. 665-

'The section is framed in a 'subjective' form if the Secretary of State 'is satisfied'. This form of section is quite well known, and at first sight might seem to exclude judicial review. Sections in this form may, no doubt, exclude judicial review on what is or has become a matter of pure judgment. But I do not think that they go further than that. If a judgment requires, before it can be made, the existence of some facts, then, although the evaluation of these facts is for the Secretary of State alone, the court must inquire whether those facts exist, and have been taken into account, whether the judgment has been made upon a proper self-direction as to those facts, whether the judgment has not been made upon other facts which ought not to have been taken into account. If these requirements are not met. then the exercise of judgment, however bona fide it may be, becomes capable of challenge: see Secretary of State for Employment v. ASLEF (No. 2), (1972) 2 QB 455, per Lord Denning M. R. at p. 493.'

Lord Diplock stated the principle thus at p. 681 :--

'It is not for any court of law to substitute its own opinion for his; but it is for a court of law to determine whether it has been established that in reaching his decision unfavourable to the council he had directed himself properly in law and had in consequence taken into consideration the matters which upon the true construction of the Act he ought to have considered and excluded from his consideration matters that were irrelevant to what he had to consider see Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, (1948) 1 KB 223, per Lord Greene M.R. at p. 229. Or. put more compendiously, the question for the court is, did the Secretary of Stale ask himself the right question and take reasonable steps to acquaint himself with the relevant information to enable him to answer it correctly ?'

10. In our court the question came up for consideration in Balakrishnan Nair v. State of Kerala. ILR (1973) 2 Ker 511. The same principle has been re-stated in that decision, professor Wade in his Book on Administrative Law, Fourth Edition has in the light of the cases summarised, discussed the principle succinctly and remarked that the case Secretary of State for Education and Science v. Tameside Metropolitan Borough Council ((1976) 3 WLR 641) is undoubtedly a landmark on this branch of the law. We are in agreement with the above decisions.

11. What we have now to see in this case is whether the Registrar before exercising the power under Section 32 directed himself properly in law and had taken into consideration matters which upon a true construction of the Act he ought to have considered and whether he took reasonable steps to acquaint himself with the relevant information to enable him to answer it correctly.

12. Before we go into that question it will be useful to consider the charge of mala fides levelled against the Registrar by the petitioners. According to them he was influenced by other considerations in initiating action under this section. In support of that the petitioners urge that the Registrar initiated the proceedings under political pressure from the ruling party and especially by the Minister in charge of Co-operation. The background and the sequence of facts preceding the show cause notice, marked Ext. P-3, are stated in Ground No. G of the grounds urged in the petition. In the counter filed on behalf of the first respondent in paragraph 16 they are only generally denied. Mala fide, if any, is essentially an inference from the facts. Being a case under Article 226 seeking a writ of certiorari we looked into the file of the Registrar relating to this matter. On a perusal of the same we find the following :

13. Certain allegations against the working of the Bank are seen made by tone Chandran Nair, Board Member of Karikode Service Co-operative Bank Ltd., and he sent two petitions one Bated 8-11-1980 and another dated S6-12-1980 direct to the Home Minister. Simultaneously similar allegations were Been published in the Deshabhimani daily dated 29-12-1980 and 30-12-1980. (These petitions were forwarded to the Registrar of Co-operative Societies by the Special Secretary to Government and the Private Secretary to the Minister (Home) for immediate enquiry and report The covering letters contained a suggestion to send the report to the Minister in ten days positively. From the Registrar's office copies of the petitions are seen sent to the Assistant Rer gistrar on 29-12-1980 with an intimation that the Minister (Home) has asked the Registrar to submit the report in the matter in seven days. The enquiry officer prepared and submitted the report on 4-2-1981. of course he had called for various statements and documents from the Bank relating to each of the allegations contained in the petition and the newspaper and such statements and documents were also forwarded to the Registrar along with the report. He reported that there is substance in the allegations in the petitions and that they are of a serious nature. He recommended immediate action.

14. As soon as he received the report, on 7-2-1981 the Registrar forwarded to the Special Secretary, Agriculture (Co-operation) to Government, a copy of the report and also informed the Government that he is taking necessary action in the matter.

15. The various allegations in the show-cause notice served on the petitioners are verbatim taken from the report and the Registrar does not appear to have weighed and assessed the facts independently or tried to notice or try to know the various circulars or directives of the Reserve Bank or the reports and other papers connected with the sanction of the various categories of loans, the purposes for which they were sanctioned to the Idikki Bank etc. Even without hearing what the petitioners have to say he seems to have taken a firm decision to supersede the Committee. This is evident from the file placed before us. The file shows that he directed the Deputy Registrar, Idikki to serve the notices by a special messenger as well as by Registered Post simultaneously. He gave ten days to the petitioners to file objection and fixed 21-3-1981 for personal hearing if any. When the petitioners asked for extension of time stating that to answer the charges they have to look into the accounts, rules and various loan papers of three years covered by their management he posted the case to 6-4-1981 for objection as well as personal hearing. Though Section 32 (2) of the Act requires the Registrar to consult the financing Bank, i.e. the Apex Bank and the State Co-operative Union he sent a copy of the show cause notice alone to them for their remarks before 18-3-1981. When the Apex Bank on 21-3-1981 asked for time stating that they would like to know the reply of the petitioners before they furnish their remarks, the Apex Bank was told by the Registrar by his letter dt. 25-3-1981 that 'the copy of the petitioners' reply cannot be sent to the Apex Bank and there is no necessity for them to go through the replies which the petitioners may be giving to the shows cause notice for conveying their remarks on the action proposed.' The State Co-operative Union was also informed that they should furnish their remarks before 6-4-1981. From these it is clear that he was not keeping an open mind either to consider the reply of the petitioners or the opinion of the Apex Bank and State Co-operative Union.

16. This is further clear from the way he fixed 6-4-1981 for objection and personal hearing. He was not anxious to know what answer the petitioners are going to give or in the light of their reply to look into the various facts and circumstances that may be mentioned in the reply.

17. Again the petitioners, rightly apprehending that the Registrar has prejudged the case and alreadv expressed a firm decision to supersede and that the show cause notice issued only as a formality came to this Court with O.P. 1792 of 1981 to quash the notice. On 6-4-1981 this Court admitted the petition and as the Addl. Advocate General took notice immediately, the question of stay was posted for consideration to 8-4-1981. This was communicated by telegram to the Registrar on the 6th itself by the petitioner's counsel. On 8-4-1981 by consent this Court passed final orders on the Original Petition itself fay directing the Registrar to consider the findings in the show cause notice as purely provisional and directed the Registrar to decide the matter after considering the objections and the arguments of the petitioners. The case was not only not posted for fresh consideration or arguments after 8-4-1981 but on 10-4-1981 the Registrar intimated the petitioners by Express Phonogram and special messenger that the orders will be passed on 15-4-1981 at 3 P.M. at Trivandrum. From these facts we are inclined to come to the conclusion that the Registrar was from the beginning very much biased against the petitioners and be was not in a mood to consider the whole matters regarding the allegations against the petitioners in an impartial manner.

18. This becomes all the more confirmed when we consider the timing of the step taken by the Registrar. This Committee was in management from 1-7-1978. Their term would expire on 30-6-1981. Under the election rules for electing a new committee the out-going committee has to 'take steps and follow a procedure for the conduct of fresh elections, The committee has to meet at least 60 days in advance of the date of the expiration of its term and pass a resolution fixing the date, time and place for the conduct of the election of the new committee -- see Rule 35 Co-operative Societies Rules. In obedience to this rule the committee met on 4-3-1981 and resolved to hold the election on 21-6-1981. The holding of the meeting was not a secret. Simultaneously or synchronising with this meeting of the committee the Registrar issued the show cause notice dated 2-3-1981. Some o| the members were served with notice on 5-3-1981 through special messenger and the President got it on 8-3-1981. In a matter of this type requiring a consideration of so many allegations and explanations, verification of the records in the light of the explanation the Registrar gave them only 10 days' time to file objections, if any, and posted the matter to 21-3-1981 for personal hearing if any. From that date the time was extended at the request of the petitioners to 6-4-1981 and a request for further time by the President was not granted. In the light of the reply the Registrar never felt that he should check the details or explanations with the Bank files. The hearing was closed on that day itself; and orders were issued on 15-4-1981 superseding the committee. The consequence of superseding the committee is that the existing members of the committee are disqualified to seek election for a period of one year and that virtually disqualifies them for four years because if during the period of their disqualification fresh committee is selected that committee will have a term of three years. So the contention of the petitioners that the real idea of the show cause notice and he issue of the order for supersession was not a concern for the proper working of the Bank but to disqualify the members from seeking re-election for the new committee, has great force.

19. The next contention taken by the petitioners against the order Ext. P-9 is that the condition pre-requisite, namely that the Registrar should consult the financing bank and the State Co-operative Union before passing the order of supersession has not been satisfied in this case and therefore the order is without jurisdiction. According to the petitioners the Reserve Bank and the Apex Bank are the financing banks to this Bank. It is not disputed that the Apex Bank is a financing Bank to this Bank. The financing bank is defined in the Act itself to mean a Co-operative Society having as its members only other co-operative societies and the main object of which is to raise money and lend the same to its members; This definition will be satisfied only by the Apex Bank and not by the Reserve Bank.

20. No doubt the Reserve Bank has got a very important part in the functioning of any banking institution in India. It was on the basis of the license issued by the Reserve Bank under the provisions of the Reserve Bank Act that banking business was commenced by this District Co-operative Bank. The Banking Regulation Act subject to certain modifications applies to this Cooperative Bank. The Co-operative Bank has to conform to the provisions of the Banking Regulation Act in respect of cash reserve, liquid assets and in the matter of borrowings. All these are supervised by the Reserve Bank. Every borrowing from the Apex Bank has to be intimated to the Reserve Bank. If the Apex Bank has to lend any money to the Co-operative Bank sanction of the Reserve Bank is required. In the matter of lending and deposits the Reserve Bank has got power to issue necessary directions which this Co-operative Bank has to obey. The deposits received by the Co-operative Bank are insured under the Deposit Insurance Corporation Act, 1961. The scheme of insurance under that Act is also regulated by the Reserve Bank. There is a separate chapter -- Chapter X-A -- in the Kerala Co-operative Societies Act itself which gives extensive powers to the Reserve Bank--reorganisation, amalgamation or winding up of the society and supersession of the committee also. There is no appeal or revision against any such order of the Reserve Bank --Section 74-A of the Act. In spite of all these extraordinary and important powers given to the Reserve Bank it is not the financing bank within the meaning of that expression used in the Cooperative Societies Act. Therefore under Section 32 (2) it cannot be said that the Reserve Bank is a financing Bank.

21. Though the Reserve Bank is not the financing Bank, in the light of the extraordinary powers the Reserve Bank has, as an authority bound to act in a reasonable mariner whether the Registrar should not have informed the Reserve Bank and sought their advice is a matter which normally arises for consideration. In considering how far the Registrar has acted in a reasonable way and failed to take into account relevant matters this is relevant. We will have occasion to refer to this later. At this stage we only hold that consultation with the Reserve Bank is not statutorily required under Section 32 (2).

22. The nature of the consultation the Registrar had with the Apex Bank and the State Co-operative Union has already been referred to. The show cause notice was sent to them for remarks only. The extension of time asked for by the State Co-operative Union was not granted and so they did not express anything on the notice. When the Apex Bank asked for time to look into the reply that may be filed by the petitioners, it was informed that ft is not necessary. What opinion the Apex Bank can give on seeing the mere allegations in Ext. P-3 is not clear. In order that there may be a legal consultation the allegations, the objections the full materials in support of the allegations and the tentative conclusion of the Registrar should be followed to have a meaningful consultation.

23. The word 'consult' implies a conference of two or more persons or an impact of two or more minds in respect of a topic in order to enable them to evolve a correct or at least a satisfactory, solution--see R. Pushpam v. State of Madras (AIR 1953 Mad 392). This meaning was approved by the Supreme Court in Union of India v. Sankalchand (AIR 1977 SC 2328. Para 39) and then their Lordships added--

'In order that the two minds may be able to confer and produce a mutual impact, it is essential that each must have for its consideration full and identifical facts. which can at once constitute both the source and foundation of the final decision.'

In a case that arose under a similar provision in the Tamil Nadu Co-operative Societies Act a single Judge of the Madras High Court has in K. Thangavelu v. Jt. Registrar, Co-operative Societies (AIR 1976 Mad 280) considered the nature and occasion of consultation with the financing Bank. The aspect is stated thus at P. 281, para 4.

'At the stage of the issue of the above show cause notice no one knows as to what is going to happen ultimately. It is only the first respondent makes up his mind after due enquiry in relation to the irregularities referred to in the show cause notice, that the financing bank has to be consulted with regard to the action proposed to be taken. If the consultation is before the issue of show cause notice and if the first respondent ultimately finds that the irregularities referred to in the show cause notice have not been established, the consultation earlier obtained will become a mere formality and it would be a sheer waste of time.'

We think the principle is correctly stated in this case and we agree with it.

24. On the facts of this case and in the light of the above decisions we hold that there has not been a consultation as required by law. The Registrar never consulted the financing Bank after considering the explanation and forming a prima facie conclusion on the matter. So the order of supersession is invalid.

25. Then coming to the various charges we have first to consider whether and under which of the three grounds mentioned in Section 32 the charge is made. It is very difficult to make out from the notice which allegation is made to make out which charge. There are nine charges in the show cause notice Ext. P-3. All the charge are stated to be violation of all the three grounds mentioned in Section 32 (1) of the Act. But that is not correct.

26. The allegation mentioned in para 2 (a) & (b) cannot be put under grounds (1) and (3). Similarly allegations in paras 2 (c), 4, 5, 6, 8 and 9 also cannot be put under grounds (1) and (3) of the Act. No provision of the Act. the rules framed under it or the By-laws are violated even if the facts forming the allegations in the show cause notice are found true. The rules framed by the Bank for guidance of the officers or for transacting business of the Bank are not the type of rules mentioned in Section 32 (1) of the Act. If at all these allegations can be brought under any ground this is under only Ground No. 2 'commits any act which is prejudicial to the interest of the society'. Even that ground postulates a prejudice at the time of the action and not a past act which though technically wrong did not cause any prejudice.

27. Anyhow we will go into each allegation not in the nature of re-appraisal of the evidence as in an appeal, but onlv to find out whether the Registrar has properly directed his enquiry to the real question, taken all the relevant facts into consideration and called his attention to the matters he is bound to consider.

Charge in para 2 (a) and (b) in Ext. P-3.

28. The Bank is mainly constituted to raise resources and advance to primary agricultural co-operative societies. Its members are other societies in the District. The Act contains restrictions on loans. Section 59 of the Act provides that no society shall make a loan to any person or society other than a member. With the enactment of various Debt Relief Acts the scope for private credit got very much reduced. To give relief to the weaker section the Reserve Bank permitted loans and advances on certain terms and conditions to individuals. There are three circulars of the Reserve Bank relevant for this purpose. The first circular is dated 23-12-1974 (the counsel for the Reserve Bank placed it before us for our perusal). It allowed Co-operative Banks to make loans and advances to individuals. Individuals were grouped under two categories. Those engaged in small scale industries and those not coming under that category. Loans can be granted only up to 10 per cent of its time and demand liabilities. This is over and above the loan to depositors on the security of their deposit. This scheme was further liberalised by the Reserve Bank in 1976 by issuing another circular on 8-4-1976 marked Ext. R-1. The clause in this circular relied on by the first respondent is the following :--

'The aggregate of loans and advances of all types and for all purposes, including the jewel loans, issued by a Central Co-operative Bank directly to individuals and outstanding against them should not, on any day during a month, exceed 10 per cent of the Bank's total time and demand liabilities as on 1st Friday of the previous month.'

There is a third circular issued on 19-9-1979 by the Reserve Bank widening the scope of direct lending to individuals. Clause (i) of that circular reads as follows :--

'(i) The State and central co-opera-.tive banks may, in future, undertake financing of individuals directly under ARDC schemes, where such schemes envisage provisions of finance direct to individuals and not through societies. It will however be ensured by banks that the involvement of their own resources in such loans together with loans to other individuals (excluding advances against fixed deposits and to those for small scale industries) does not exceed 5 per cent of its TDL. In computing the ceiling of 5 per cent, refinance provided by ARDC would however be excluded.'

(The abbreviation TDL stands for time and demand liabilities).

29. It will be seen from the above circular that advances against fixed deposits and to those for small scale industries are not included in reckoning the 5 per cent of their own resources. This is capable of being understood to mean that from their resources only 5 per cent can be lent to individuals. The first circular quoted above allows another 5 per cent to individuals having small scale industries. That means 10 per cent of their own resources may be lent to individuals coming under both categories. Besides this, advances against fixed deposits are extra. Again under the Agriculturists Refinancing and Development Scheme (ARDC) it is open to the Banks to borrow and lend 100% of such borrowed amount. That is why the above clause begins and ends with a reference to refinance under ARDC.

30. Again in exercise of powers vested under Section 101 of the Co-operative Societies Act, the State Government can in public interest, by order exempt societies from any of the provisions of the Act or direct that any provision shall apply subject to such modification as may be specified in the order. Two notifications one dated 13-4-1976 and another dated 18-6-1976 have been issued under that provision exempting the Apex Bank and Central Co-operative Banks from the provisions of Section 59 of the Act. The latter section prohibits lending to non-members. As an incentive to attract more customers the first notification -- G.O. MS/141/76/AD allows lending to individuals up to a limit of 35% of the time and demand liabilities. The second notification G. O. Ms. 181/77/AD allows loans and advances up to a maximum of ten per cent of the time and demand liabilities to industrial units. Both these notifications are published in the gazette and available for perusal by the Registrar.

31. Though time and demand liabilities as defined in the Banking Regulation Act would take all liabilities of the Bank, whether such liabilities are to repay the deposits, current, savings banks and fixed, or to repay amounts borrowed, it is common ground between the parties that only deposit liabilities are taken in by the time, and demand liabilities to reckon the percentage that can be advanced to individuals. Even then the scope of the above three circulars and the Government notification may have to be examined when the petitioners in their objection stated that reimbursements given by the Apex Bank cannot be reckoned in finding out the limit of ten per cent of time and demand liabilities for advance to individuals. When the Government themselves allows advance of 35% and the Reserve Bank 10% of the time and demand liabilities and the Reserve Bank directs refinance funds to be excluded, the Registrar has to consider the objections of the petitioners in that background. The petitioners had given a copy of the objection to the Apex Bank and it is on considering it that they directed the Registrar to drop the proposed action. In the objection they have clearly stated that amounts reimbursed by the Apex Bank have to be deducted to find out the limit of advance to individuals. The failure to look into all these matters vitiate the order of the Registrar. In such circumstances as an authority acting reasonably the Registrar could have ascertained the. views of the Reserve Bank before taking action. The order fails to take these relevant matters into consideration.

32. Another factor which has not been taken into account by the Registrar is the case of the petitioners regarding the large withdrawals during July to December every year. A reference to the tabular statement, in the notice Ext. P-3 and the objection Ext. P-5, of loans given' to individuals shows that on 30-6-1980 the time and demand liabilities come to Rs. 501.62 lakhs and the advance is only 48.72 lakhs. i.e. well within the margin even as per the Registrar's allegation. The Bank can have no control over the withdrawals and heavy withdrawals are seen during the period July to December 1979-80. Since it is not possible to compel repayment of loans to match the ratio prescribed, normally this direction in the circular of the Reserve Bank has to be taken as a guideline only to limit a reckless lending. In that view it cannot be said that by advancing loans to individuals the petitioners committed any act prejudicial to the interest of the Society. Therefore, it follows that the satisfaction of the Registrar in respect of charges in para 2 (a) and (b) is vitiated.

33. The next charge made in Ext. P-3 is that on certain days in the year the Bank did not have the minimum Cash Reserve and Liquid Assets as provided for in Ss. 18 and 24 of the Banking Regulation Act. The petitioners do not contend that these provisions should not be adhered to. In Ext. P-3 charge it is stated that out of the whole year for 8 days between 31-12-1979 to 9-1-1980 there, was deficit in Liquid Assets and for seven days in August 1980 the Cash Reserve position was below the minimum prescribed. The explanation of the petitioners is because of the geographical area, information from various branches of the Bank could not be obtained in time to make arrangements to replenish the cash or from investments of the Bank in the Apex Bank. This was a technical violation that took place in one case, one year and two months before Ext. P-3 notice and in another case three months before it. No prejudice is seen to have been caused to the Bank and this has not been pointed out so far as any defect by the Reserve Bank though they were receiving periodical and monthly returns under Sections 18 and 24 of the Banking Regulation Act. The petitioners' explanation is not considered by the Registrar.

34. This is a failure to consider the right question by the Registrar. Is a prejudice caused or (does it) continue on the date action was taken is the question to be considered. An element of continuance in the prejudicial act is implicit in the ground mentioned in Section 32. The present tense is clear. It is the present conduct that is relevant and not the past, when making the order. We are supported in this conclusion by a passage of Lord Pearce in Maradana Mosque Trustees v. Mahumud ((1967) AC 13). In that case the appellant, a body corporate were charged with the administration of a Mosque including a school. Section 6 of Ceylon Assisted Schools and Training Colleges (Special Provisions) Act, I960 which applied to the school required teachers' salaries to be paid not later than 10th of the month following that in respect of which they were due and paragraph (k) required the proprietors to satisfy the Director that necessary fund would be available for this purpose. Section 11 enabled the Minister to take over the school if he is satisfied that the school was being administered in contravention of statutory provisions. Before July 1961 the payment of salaries had been punctual; in that month salaries were not paid on the due date but were promised to be paid later. This promise the management later fulfilled. There was a promise that all payments would in future be made on due date. Still the Minister took over the school. There was no ground on which the Minister could be 'satisfied' on the date of making the order. Their Lordships in that context observed thus at p. 25 --

'But for reasons which common sense may easily supply, it was enacted that the Minister should concern himself with the present conduct of the school, not the past, when making the Order. This does not mean, of course, that a school may habitually misconduct itself and yet repeatedly save itself from any order of the Minister by correcting its faults as soon as they are called to its attention. Such behaviour might well bring it within the words 'is being administered'. But in the present case no such situation arose.'

Lower down it is further observed thus:--

'As appears from the passages of his broadcast statement, he failed to consider the right question. He considered only whether a breach had been committed, and not whether the school was at the time of his Order being carried on in contravention of any of the provisions of the Act. Thus he had no jurisdiction to1 make the Order at the date on which he made it.'

The position here also is the same. Valid reasons have been given for the unintentional deficit for a short intermittent period. There is no material to find this charge on the date of taking action. So the conclusion on the charge cannot be supported.

35. The next charge -- Para 4 -- is that no effective action was taken by the Bank to recover long overdue overdraft amounts to individuals. The charge is that --

(a) Long overdue overdrafts are not recovered;

(b) Overdraft facilities have been given to persons other than long-standing customers. That is against the rules framed by the Bank;

(c) The overdraft accounts were not operated satisfactorily in many cases. The limits were fully drawn in lump immediately the overdraft was sanctioned. After the period of overdraft is over the limits were automatically renewed by the Branch Managers and ratified by the Executive Committee;

(d) In many instances to make the borrowers eligible for renewal cheques are discounted and credited to show credit balance and on renewal the amount is fully withdrawn;

(e) All these happened because of ineffective inspection, supervision and control of the work of the officers of the Bank. The Committee is negligent

36. In finding this charge as proved the Registrar had not looked into the directions earlier issued from the Head Office to the Branch Managers on this question of overdrafts. The office letters dated 31-7-1979 and 30-1-1980 prescribed the conditions for renewal of overdrafts. The implementation of this is for the Branch Managers and General Manager. Inspectors have been appointed for the supervision of the Branches. For most of the time a Deputy Registrar of Co-operative Societies was the General Manager. The Registrar failed to appreciate the scope of the duties of the Managing Committee and others. The Committee Members are non-official members. The day-to-day management is with the permanent staff. It is for them to have brought any irregularity to the notice of the Committee. The Bye-laws of the Society delineate the powers of the Committee, General Manager in respect of all matters. These are rules published in book form fixing the duties, responsibilities and powers of General Manager, Deputy General Manager, Executive Officer, Inspectors of Branches, Accountants, Superintendent (General), Superintendent (Loans), establishment, Branch Managers, Inspectors etc. They are comprehensive enough to ensure financial discipline for the successful working of the Bank. There is no allegation or proof that the petitioners acted mala fide or benefited themselves out of any overdraft. They are not even given any opportunity to set right the irregularities, if any, before passing the order.

37. Again overdraft facility is permitted under the rules to long-standing customers and reputed customers. A person need not previously have dealings to make him eligible for getting overdrafts. If taking into account their reputation and financial worth the facility is allowed to individuals the financial discipline prescribed is not violated. The case is not viewed in this direction by the Registrar.

38. Further picking out defects in a few out of hundreds of overdrafts issued from all the eleven branches amounting to many lakhs and then accusing that there has not been a proper supervision of the grant of overdraft facilities will be very unreasonable. When there are large dealings spread over a number of branches and there are permanent paid officers to attend to the day-to-day matters some irregularity may occur. The Managing Committee is not expected to have a day-to-day checking of each and every transaction. In every Bank having a large volume of business some loans may become sticky for which the persons in charge and the Branch Managers will be responsible and that will not in any way be taken as an ineffective supervision by the Committee. It is seen that the Committee has already taken steps to recover overdue loans and overdrafts. Again there can be a difference of opinion on the method of recovery to be resorted to. Some may think that a renewal of the overdraft and personal drive on the part of the Managers and Officers to persuade the borrowers to discharge the loans will be better than rushing to a court and taking the risk of the procedural delays in the machinery set UP for enforcement of such liabilities. The petitioners . themselves have pointed out the undue delay caused by the Deputy Registrars, (Arbitration), not effectively functioning to dispose of some cases already filed. As per rules the Managers are personally responsible for such overdrafts. So the Committee cannot be characterised as not supervising these matters. Whenever in the meeting the position is brought to their notice by the General Manager they haw always been giving proper directions. All these are evident from the list of overdrafts furnished to the' enquiry officer and the volume of business turned out by the Bank. The decision of the. Registrar on this point is therefore highly unreasonable. No reasonable authority can arrive at this conclusion if all the facts are taken into account.

39. The next item of charge relates to the discounting of cheques. Two or three persons were leading customers of the Bank and it is evident that their large amounts were in deposit with the Bank. They had huge amounts in their current accounts in more than one branch of the Bank. They were Manarkat Wines Co. and Joseph Michael and Brothers, Really these two are sister concerns of the same set of persons. They had been Riven as early as 1978 and January 1979 discount facilities of two lakhs and five lakhs respectively. The Board has parsed resolutions in respect of them. Later the Bank had been inspected by the Reserve Bank for the period up to 30-6-1979. It is not seen that any defect was pointed out in their reports to the discount facilities given to these entities. The date and contents of the resolution allowing discount facility were furnished to the Inquiry Officer and they are part of the file which the Registrar had before him. It is also not seen that before 24-7-1980 any discounted cheque happened to be dishonoured. When one discounted cheque for one lakh was dishonoured the facility was withdrawn and the amount covered by the discounted cheque was also paid. In respect of this it is highly unreasonable for the Registrar to make a charge. When fairly larger deposits are received from these concerns a concession in the matter of interest or commission shown to them cannot be reasonably viewed as prejudicial. The question has to be viewed as a package deal to these and find out whether any preiudice was caused to the Bank. There is no such proof in respect of it. It follows thai the conclusion of the Registrar on this charge is highly unreasonable.

40. The Registrar has held that when discounted cheques of two persons. A.T. Ouseph and P. Gopinanthan Nair were dishonoured, the Managing Committee should have taken action against the Branch Managers who allowed discount facility. The petitioners have stated that arbitration cases have been filed. It is for the Registrar and Deputy Registrar to expedite that. Only if amounts as per these cheques are not realised the question of proceeding against the Bank employees arises. There is no lack of supervision on the part of the petitioners. The General Manager and the Branch Managers are there to take further steps if a cheque is dishonoured. It was very unreasonable, for the Registrar to fish for even minor defects to take action against the petitioners. The next charge found is that with an ulterior motive of retaining the membership of one of the petitioners in the Committee the Committee totally diregarded all the rules and regulations relating to the renewal of overdraft accommodation to a Parathodu Ksheera Vyvasaya Co-operative Society. In this connection some facts relating to the overdraft accommodation have to be stated. The accommodation was sanctioned in 1974, 4 years before the petitioners' Committee took charge on 1-7-1978. That society had to recover Rs. 4076.53 under a Cooperative Court Award No. 21695/78. They had applied for execution. It is the Deputy Registrar (Arbitration to proceed with the execution. Stating these the Society informed the Bank that as soon as the award amount is realised they will clear the overdraft accommodation amount. They were paying the interest from time to time and the interest till 31-12-1980 had been paid. The Registrar points out this as a continuing prejudice to the Bank. The Committee was not very enthusiastic about going to court and undergo the procedural delay and the off chance of recovery through that method and the Bank also knows that the Society was pursuing execution of an award and the amount is earmarked to be paid to the Bank. The interest was not in arrears. Taking these into account one year and three months before show cause notice the renewal was sanctioned on 29-12-1979. This is fished out as an irregularity by the Registrar prejudicing the Bank. This is a very unreasonable stand and the defect if any was rectified when this was objected to and the Registrar informed of it. Still the Registrar is not prepared to treat this as not an act prejudicial to the Bank. That is clearly unsupportable.

41. The next charge is about T. A. payment for the tour of the petitioners to Kashmir to attend a Conference of National Union of Agriculture. According to the Registrar this tour was not advancing the business activity of the Bank and without obtaining sanction of the Registrar the tour was undertaken by the entire non-official members of the Committee.

42. First of all the tour was in October, 1978. Though the resolution approving the tour was forwarded to the Registrar well in time until the team left he did not object. Further the first petitioner on his return from tour reported the benefit to the Bank and asked for ratification. The Reserve Bank and the State Apex Bank in their inspection report for the period ending 30-6-1979 never raised any objection about this. The amount spent for the tour is negligible compared to the other expenses like advertisement etc. annually spent by the Bank. The present action of the Registrar 2 years and 5 months after the tour appears to be unreasonable. The last charge found is also very unreasonable. The previous Committee purchased certain sheds from the Hindusthan Construction Company and paid the amount on 10-4-78. The previous Committee ratified the transaction in their meeting on 19-4-78. If that action was wrong this Committee cannot be taken to task. The Reserve Bank and the Apex Bank in their inspection reports for the period ending 30-6-78 or 30-6-79 never pointed out this. Though the departmental audit noticed some flaw in the procedure followed and directed the defect to be cured by asking for the ratification of the Registrar the present Committee did not find for more reasons than one any need for any ratification. Even if they failed to ask for ratification there is no prejudice to the Bank, The staff of the Bank who had no other place to stay at Idikki were provided with accommodation. This is not a prejudicial act and no reasonable man will bold so.

43. One other minor point remains to be considered. The respondent has raised a contention that the order Ext. P-9 is appealable and hence this court may not under Article 226 of the Constitution interfere with it. This obiection has no force. There is no appeal provided for against an order passed by the Registrar under Section 32 (11 of the Act The discretionary power of revision of the Government under Section 87 is no bar much less ah adequate remedy in a case of this kind, Hence this objection fails.

44. It follows that for more than one reason all the charges are unsupportable. If the Registrar was acting bona fide and reasonably -- which is found against earlier -- he would have asked for elucidation of the doubts from the Reserve Bank regarding the percentaga limit to individuals. He would not have searched for defects to get the petitioners out : irregularities which are only minor and very old and forgotten compared to the volume of business turned out by the Bank are magnified and highlighted by him beyond proportion. Even without giving an opportunity to set right defects, if any the Registrar has passed orders superseding the Committee. The order Ext P-9 as illegal and as abuse of power. We quash the same.

45. Pending the consideration of the writ petition the order of supersession was stayed by this court by an interlocutory order and the Committee is continuing in management even now. Their term expired on 30-6-1981. But by another order passed on 29-6-1981 we directed the Registrar to arrange for the continuance of the same Committee till the disposal of the O. P. Because of the pendency of this case a new Committee has not been elected. The existing Committee had on 4-3-1981 resolved to hold an election on 21-6-1981, This Court had directed the Registrar to appoint a returning officer to hold the election and that was done. He received nominations for election, the petitioners it seems filed nominations but their nominations were rejected stating that by the order of supersession the petitioners are disqualified. Then the petitioners moved this court for appropriate directions in the matter of election and in C. M. P. No. 10331 of 1981 this court passed an order that if an election is held the election results shall not be published until the decision in the O. P. and the result of the election will be subject to the result of the decision in the O. P. Now that we have held that the supersession order is illegal and an abuse of the power vested in the Registrar it follows the petitioners are not disqualified from standing for election of the new Committee. The election conducted on 21-6-1981 on rejecting the nomination of the petitioners is therefore wrong and is set aside. A fresh election will be held for the constitution of a new Committee in accordance with law.

46. At the same time as by the orders of stay the petitioners have remained in office for their full term the management of the Committee shall hereafter be only as provided for by Section 33 of the Act. The Registrar shall appoint within one week from the date of this judgment an administrator to manage the affairs of the Bank, and the administrator so appointed shall conduct the election within three months from the date of his appointment and hand over the management to the newly elected Committee. He will obtain necessary orders from the Registrar for the conduct of the election according to law within the time stipulated above.

47. In the result and subject to the above directions the Original Petition is allowed. No costs.

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