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Navjivan Paper Mart Vs. Raikot Vibhagiva Nagrik Sahakari Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies;Constitution
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Appln. No. 186 of 1971
Judge
Reported inAIR1975Guj18; (1975)0GLR80
ActsGujarat Co-operative Societies Act, 1962 - Sections 48(3) and 96(1); Constitution of India - Articles 14 and 19(1)
AppellantNavjivan Paper Mart
RespondentRaikot Vibhagiva Nagrik Sahakari Bank Ltd.
Appellant Advocate R.A. Mehta, Adv. for; H.K. Gandhi, Adv.
Respondent Advocate J.B. Nanavati, Adv. and; C.T. Nanavati, Asstt. Govt. Pleader, i/b.,;
Cases ReferredRasiklal v. Kailasgauri
Excerpt:
(i) trust and societies - recovery - sections 48 (3) and 96 (1) of gujarat co-operative societies act, 1962 and articles 14 and 19 (1) of constitution of india - whether nominee had jurisdiction to pass award against petitioner - petitioner was not member of respondent -bank - nominee had jurisdiction to pass award in respect of machine in possession of petitioner as claim of petitioner regarding machine arose out of transaction entered into by respondent no. 2 as member of bank with petitioner - petitioner claiming through respondent no. 2 can be made party to dispute under section 96 (1) (b) - held, nominee of registrar had jurisdiction to proceed against him. (ii) ultra vires - whether section 48 (3) ultra vires articles 14 and 19 (1) (f) - object of section 48 (3) to ensure.....d.p. desai, j.1. the petitioner is a purchaser of a cutting machine from respondent no. 2 who had secured a loan from respondent no. 1 co-operative back for purchasing the said machine and had created a charge on that machine in favour of respondent no. 1 bank. as a result of this transaction of loan by respondent no. 2 with respondent no, 1 bank of which respondent no. 2 was, at the relevant time a member, arbitration proceedings under the provisions of the gujarat co-operative societies act, 1961 (hereinafter referred to as the act) came to be instituted by respondent no. i bank against the present petitioner, respondent no. 2 and another person who was the surety of respondent no. 2. those proceedings came to be started by respondent no. 1 bank for the recovery of its dues advanced to.....
Judgment:

D.P. Desai, J.

1. The petitioner is a purchaser of a cutting machine from respondent No. 2 who had secured a loan from respondent No. 1 Co-operative Back for purchasing the said machine and had created a charge on that machine in favour of respondent No. 1 Bank. As a result of this transaction of loan by respondent No. 2 with respondent No, 1 Bank of which respondent No. 2 was, at the relevant time a member, arbitration proceedings under the provisions of the Gujarat Co-operative Societies Act, 1961 (hereinafter referred to as the Act) came to be instituted by respondent No. I Bank against the present petitioner, respondent No. 2 and another person who was the surety of respondent No. 2. Those proceedings came to be started by respondent No. 1 Bank for the recovery of its dues advanced to respondent No. 2. The total amount of the dues including interest, notice charges and liquidation charges for which the claim was made under the provisions of the Act was Rs. 2,155.10 Ps. In these proceedings, the petitioner was impleaded as a party because he claimed his right or title to the machine hypothecated with respondent No. 1 Bank through respondent No. 2. It was alleged that the sale in favour of the petitioner by respondent No. 2 was void being in contravention of Section 48(3) of the Act. The petitioner in those proceedings contended in the first instance that the nominee of the Registrar had no jurisdiction, because the petitioner was not a member of the respondent No. I Bank and secondly that he was a bona fide purchaser of this machine for value without notice of the alleged hypothecation of the machine by his vendor to respondent No. I Bank. Both these contentions were negatived by the Nominee of the Registrar who passed an award on April 24, 1969 in the following terms:

'.........I for the reasons detailed separately, order that plaintiff do recover Rs. 2155.50 Ps. with interest at 6 1/2% from 1-7-1968 till realisation with costs of Rs. 83 from the defendants. Firstly defendants Nos. 1 and 2 (meaning thereby par-ties other than the present petitioner) are held liable for the suit claim and the deficit to be recovered from the machine in possession of defendant No. 3 (meaning thereby the present petitioner). That the amount shall carry interest at the rate of 6 1/2% per annum. from 24-4-1969 till realisation. The parties are informed about this decree.'

In the judgment upon which this award followed, the Nominee held that he had jurisdiction to hear the dispute and that the petitioner was not a bona fide purchaser of the machine for value without notice. Against this award, the petitioner went in appeal to the Co-operative Tribunal before which the plea as to the petitioner being a bona fide purchaser of the machine for value without notice was not pressed. However, the plea of want of jurisdiction was raised and the Tribunal negatived that plea and dismissed the appeal on March 25, 1970, confirming the award passed by the Registrar's Nominee. Hence the present petition has been filed to quash and set aside the judgment of the Nominee at Annexure A, the award following that judgment at Annexure B and the order of the Cooperative Tribunal in appeal at Annexure C. A declaration was also claimed to the effect that Sections 96 and 9, 8 to 107 and 48 of the Act were ultra vires and void. Out of this challenge based on vires, the challenge to Sections 96 and 98 to 107 has not been pressed before us; and we are only concerned with the, challenge to section 48 of the Act.

2. The correct date of the transaction of loan by respondent No. 2 with respondent No. 1 Bank has not been mentioned in the Petition, but we are told at the bar at the time of hearing that the loan was given on January 3, 1958 and the hypothecation also took Place on the same date. The claim by respondent No. 1 Bank for realization of its dues under the provisions of compulsory arbitration under the Act was made on October 30, 1968. The award was given by the Nominee on April 24, 1968 and as stated earlier, the Tribunal disposed of the appeal on March 25, 1970.

3. The award passed by the Nominee has been challenged before us at the time of hearing only on, two grounds; and no other ground was pressed 'before us by the learned -advocate for the petitioner. These two grounds were:

(1) That the Nominee had no jurisdiction to Pass the award against the petitioner, because the petitioner was not a member of respondent No. 1 Bank; and further that the Nominee had also no jurisdiction to pass the award in respect of the machine in possession of the petitioner, because the claim of the petitioner as regards the machine did not arise out of any transaction entered into by respondent No. 2 as a member of the Bank with the petitioner.

(2) That Section 48(3) of the Act is ultra vires as it offends Articles 14 and 19(1)(f) of the Constitution of India.

4. With regard to the first contention, the learned advocate for the petitioner relied upon certain observations of the Supreme Court in D. M, Co-op. Bank v. Dalichand, AIR 19,69 SC 1320. Before reproducing the observations which are relied upon, it 'will be necessary to state shortly the facts of that case and one of the conclusions arrived at by the Bombay High Court which is relevant for the purpose of the aforesaid contention. In that case, the respondent was a tenant of the entire ground floor area of a building in Delhi which was leased out in his favour by the original owner on June 29, 1961. Prior to that, the original owner who was the Chairman of the appellant Co-operative Bank had taken a loan from the Bank and as a security for the due payment of that loan, he had mortgaged the aforesaid building by depositing title deeds in favour of the Bank. The Bank took out arbitration proceedings before the Registrar's Nominee and a consent award for a sum of Rs. 6,00,000 payee by certain instalments was made on October 26, 1961. Under this award, the building was to be continued as security for the claim of the Bank till the full satisfaction of the amount of the award. As default was committed by the original owner under this award, the same was sought to be executed and in execution thereof the building was put up for sale. However, the same could not be sold for want of buyers, with the result that the Collector of Bombay made an order and issued a certificate of transfer under Section 100 of the Maharashtra Co-operative Societies Act, 1960 (hereinafter referred to as the 'Maharashtra Act') on May 13, 1963 in favour of the Bank directing that the right, title and interest of the owner in the said property would be transferred to the Bank subject to the terms and conditions laid down in the Schedule to the certificate of transfer. On June 5, 1963, the Bank addressed a letter to the petitioners-respondents alleging that the occupation of the petitioners-respondents was unauthorised and illegal and called' upon them to vacate the premises within 4,8 hours. Before the petitioners could reply to this communication, the Bank applied to the District Deputy Registrar of Co-operative Societies, Bombay under Section 91 of the Maharashtra Act praying that the dispute between the Bank and the petitioners be referred to arbitration. In these proceedings it was asserted by the Bank that the petitioners were not the tenants or sub-tenants of the property either within the meaning of the Bombay Rent Act or the Transfer of Property Act. The Assistant Registrar referred this dispute for decision to the Registrar's Nominee on June 19, 1963. Thereupon the petitioners-tenants filed the petition before the Bombay High Court under Article 226 of the Constitution of India. This -petition was heard by the Bombay High Court with two other petitions and the conclusion of the High Court, relevant for our purposes is to be found in sub-paragraph 7 of Paragraph 13. This conclusion reads as under:

'(7) the words 'claiming through a member' must be given -their ordinary meaning, that is, deriving title or rights through a, member. At the same time weight must be attached to the word 'member' and the title or rights claimed must be those to which a member was entitled or which he could claim by virtue of his being a member. The words 'claiming through a member' therefore, mean deriving such title or rights through a member as the member Possessed or had acquired by reason of his being a member or in his capacity as a member.' The High Court ultimately came to the conclusion that the Petitioners could not be said to be claiming through a member of the Bank as a member and consequently clause (b) of Section 91 did not apply and therefore, the dispute between the parties could not be the subject-matter of a reference under Section 91(1) of the Maharashtra Act. Against this decision of the High Court, the Bank went in appeal to the Supreme Court. Several contentions were raised before the Supreme Court, but out of them we are concerned with only one contention in the present case; and that contention was whether respondents-tenants could be said to be persons claiming through the member of the society with regard to the transaction of lease in their favour by the original owner while he was a mortgagor in possession of the mortgaged property. The following principle was laid down by the Supreme Court in paragraph 25 of the judgment with regard to this contention.

'It seems to us that before a person can be said to claim through a member, the claim should arise through a transaction or dealing which the member entered into with the society as a member. If a member entered into a transaction with the society not as a member but as a stranger then he must be covered, if at all by the provisions of Section 91(1) (a) or (c). But once it is held that the original transaction was entered into by the member with the society as a member then any person who claims rights or title through that member must come within the provisions of Section 91(1)(b).'

Having laid down this principle, their Lordships sought to apply the same to the facts of the case before them in paragraph 31. That paragraph reads as under:

'31. If this is the correct view, then was the lease or the tenancy rights obtained by the Petitioners a right or title derived from a member as a member? It seems to us that when the original owner executed the lease, he was not acting as a member but as a mortgagor in possession, and. therefore, the Bank's claim does not fall within Section 91(1)(b) of the Act.

The learned advocate for the petitioner being in contravention of Section 18(3) has relied upon these. two observations in of the Act. All these are different facets the aforesaid decision of the Supreme Court. He has laid great stress on pare graph 13 of the judgment of the Supreme Court reproduced above and has asked us to put the same question with regard to the sale of machine by respondent No. 2 in favour of the petitioner in the instant case. His contention was can it be said that the right obtained by the petitioner as an owner from the sale' of the machine by respondent No. 2 was the right derived by the Petitioner from respondent No. 2 as a member of the respondent No. 1 Bank? He further urged that when respondent No. 2 sold this property to, the petitioner, that respondent was not acting as a member, but as an owner in posses- sion of the machine. This argument, though it looks attractive at first sight, will not stand a close scrutiny. In order to find out whether a dispute attracts the provisions of section 96(1) of Gujarat Act corresponding to Section 91(1) of the Maharashtra Act, one has to see what in essence is the dispute. In the Supreme Court case, the mortgage was not with possession. As a result of this, the right to possession which the original owner (mortgagor) had, was not affected. And by virtue of that right the owner had let out the ground floor of the building to the respondents. The appellant Bank had become owner of this building in execution of its award against the original owner (member). In the subsequent proceedings under Section 91 of the Maharashtra Act, it sought to evict the tenants on the ground that they were trespassers and had no right to remain in possession. As against this the respondents asserted their rights to remain in possession as tenants. These were the two facets of the same dispute neither of which arose out of the original mortgage transaction made against the petitioner arises out of a transaction which respondent No. 2 entered into with the Bank as a no longer in existence) by the original owner with the Bank. Thus, the claim made against the respondents did not 'arise through a transaction or dealing which the member entered into with the society as a member.'

5. What is the dispute in our case? Here the Bank wants to enforce the charge on the machine in question for the purpose of realizing its dues. This charge admittedly arose out of a transaction which respondent No.2 entered into with the Bank as a member. As against this claim, the petitioner has set up a plea that the charge cannot be enforced against the hypothecated machine in his possession because he is a bona fide purchaser of the same from respondent No.2 for value without notice. Anticipating such defence the Bank in our case set up the plea that the transfer by respondent No. 2 in favour of the petitioner was void being in, contravention of Section 48(3) of the Act. All these are different facets of the same dispute arising out of the claim of the Bank to realize its dues by the sale of the hypothecated machine. Essentially. Therefore, the claim made against the petitioner arises out of a transaction which respondent No.2 entered into with the Bank as a member. As seen from the emphasized portion of para 25 of the Supreme Court judgment, if this original transaction was entered into by respondent No.2 as a member then the petitioner who claims right or title through that member must come within the provisions of section 96(1)(b) of our Act. The contention of the learned advocate for the petitioner was that we must enquire whether the transaction of sale entered into by respondent No.2 with the petitioner was a transaction entered into as a member. This contention is untenable. By the way, the far reaching effect of this contention may also be stated. In all cases where property is purchased from moneys raised by way of a loan from the Co-operative Bank or Society and that property is hypothecated to the Bank the person borrowing loan would by the sale of the said property place it beyond the scope of arbitration proceedings under the Act and leave the Co-operative Bank or the Society to fight out a long-drawn out litigation by way of a civil Suit. This approach will, in effect. To some extent, defeat th4 very purpose of enacting clause (b) of section 96(1) of the Act. If we read the principle laid down in paragraph 25 of the judgment of the Supreme Court as a whole, it becomes clear that the transaction referred to in that paragraph is not the subsequent transaction of the member with a stranger, but th4 original transaction in respect of the property by the member with the Co-operative Bank or the Society. The following observations of the Supreme Court in paragraph 25 will make the point quite clear:

It seems to us that before a person can be said to claim through a member, the claim (made against him) should arise through a transaction or dealing which the member entered into with the Society as a member.'

The claim contemplated in the aforesaid observations would also include the claim made against the non-member. If that claim made against a non-member arises through a transaction which the member entered into with the Society as a member, the non-member can be proceeded against under section 96 provided the value without notice. Anticipating non-member is a person who claims his rights or title through that member. Assuming that this interpretation of the word 'claim' occurring in the aforesaid observations of the Supreme Court is not correct, the conclusion in the present case remains the same for the following reasons.

6. In the present case, respondent No. 2 became the owner of the machine in question as a result of a transaction entered into by him with respondent No. 1 Bank; end the present' claim of the Petitioner under the subsequent transaction of sale can be said to have arisen through that earlier transaction of respondent No. 2 with respondent No. 1 Society. Thus, in our case the machine was purchased by respondent No. 2 with the money advanced by respondent No. 1 Bank; whereas in the case before the Supreme Court, there is nothing to show that the building mortgaged with the Bank was purchased with the moneys advanced by the Bank. If the original transaction of money lending by respondent No. 1 to respondent No. 2 as a member brought about the purchase of the machine, then the subsequent title derived by the petitioner through the sale of that property by respondent No. 2 arises through the transaction or dealing which respondent No. 2 had entered into with respondent No. 1 Bank as a member. The relevant provisions of section 96(1)(b) of the Act which are corresponding to Section 91(1)(b) of the Maharashtra Act may be set out:

'96 (1). Notwithstanding anything contained in any other law for the time being in force, any dispute touching the constitution. management or business of a Society shall be referred in the prescribed form either by any of the parties to the dispute, or by a federal Society to which the society is affiliated, or by a creditor of the Society, to the Registrar, if the parties thereto are from amongst the following:

(a) x x x

(b) a member, past member or a person claiming through a member, past member or a deceased member of a Society or a Society which is a member of the Society;

x x x

The dispute in the present case is as regards the enforcement of the hypothecation in regard to the machine Purchased by respondent No. 2 with the aid of the funds of the Bank. The present petitioner is a person claiming through respondent No. 2; and, therefore, he can be made a party to the dispute under Section 9, 6(1)(b) of the Act; and the nominee of the Registrar had jurisdiction to proceed against him. The present case is squarely covered by the emphasised portion of the observations of the Supreme Court reproduced above. Therefore, the first contention of Mr. Mehta must fail.

7. section 48 of the Act so far as relevant for our purpose may be reproduced:

'48. (1) Notwithstanding anything contained in any other law for the time being in force, but subject to any prior claim of Government in respect of land revenue or any money recoverable -as land revenue and to the provisions of Sections 60 and 61 of the Code of Civil Procedure, 1908:-

a) any debt or outstanding demand, owing to a Society by -any member or a person who has ceased to be a member shall be a first charge upon:

(i) the crops or other agricultural produce raised in whole or in part whether with or without a loan taken from the Society by him,

(ii) cattle fodder for cattle, agricultural or industrial implements or machinery, or raw materials for manufacture, or workshop, godown or place of business, supplied to, or purchased by him in whole or in part, from any loan whether in money or goods made to him by the Society, and

(iii) any movable 'property which may have been hypothecated, pledged or otherwise mortgaged by him with the Society, and remaining in his custody;

(b) any outstanding demands or dues payable to a Society by any member or a person who has ceased to be a member, in respect of rent, shares, loam or purchase money or any other rights or amounts payable to such Society, shall be a first -charge upon his interest in the immovable property of the Society:

Provided that, the prior, claim of Government in respect of dues other than land revenue, shall be restricted for the purpose of this sub-section to the assets created by a member out of the funds in respect of which the Government has a claim.

(2) No property or interest in property, which is subject to a charge under sub-section (1) shall be transferred in any manner without the previous permission of the Society; and such transfer shall be subject to such conditions, if any, as the Society may impose.

(3) Any transfer made in contravention of sub-section (2) shall be void.'

The contention based on Article 14 is that all creditors or money lenders axe situate alike with regard to properties obtained by them by way of hypothecation or pledge and that the provision of Section 48(3) which makes the transfer in contravention of sub-section (2) of section 48 void, is discriminatory inasmuch as the said provision has been made in favour of Co-operative Societies only and not in favour of other individual creditors. Now, it is settled that permissible classification must satisfy two conditions, viz., (i) it must be founded an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) the differentia must have a rational relation to the object sought to be achieved by the statute in question. As regards the intelligible differentia grouping the Co-operative Societies together as a separate class from the general class of creditors, it will be worthwhile to reproduce the following observations of a Division Bench of this Court in Rasiklal v. Kailasgauri, (1971) 12 Guj LR 355. Chief Justice Bhagwati (as he then was), speaking for the Bench, said in paragraph 19 as under:

'A co-operative society is a form of organisation in which persons voluntarily come together for promotion of their economic interests in accordance with cooperative principles. 'Co-operation' as pointed out by C. R. Fay, is 'an association for the purpose of joint trading among the weak and conducted always in an unselfish spirit on such tern-is that all who are prepared to assume the duties of membership may share its rewards in proportion to the degree in which they make use of their association'. It is essentially an association of persons of limited means and, as indicated in the preamble to the Bombay Co-operative Societies Act, 1925, its object is inter alia 'promotion of thrift, self-help and mutual -aid among -agriculturists and other persons with common economic needs'. It is based on the principle of equality -and avoids selfish exclusiveness by recognising that its membership should be open to all who want to join it. The voting power in a co-operative form of organisation is not in proportion to the shareholding as in the case of a joint-stock company but each member is given one vote so as to ensure actual participation in management by all, irrespective of their wealth. Co-operation also seeks to eliminate the middle man by bringing producers and consumers closer to each other through the process of integration and aims at preventing the exploitation of the weaker sections of the community by the stronger ones. It stands for distributive justice to all who contribute to the earning of wealth including the consumers. It is a form of organisation which avoids the evils of capitalism and yet assures the human dignity of the individual. That is why it has been accorded a preferred place in our socio-economic set up. The Legislature enacting a law in regard to it might, therefore, well consider it desirable that a special machinery should be -provided for adjudication of disputes touching the constitution management or business of a co-operative society which could be much simpler and speedier and much less extensive than the ordinary remedy of Adjudication by a Civil Court It was with that end in view that the Legislature enacted the impugned sections. The object of providing the social machinery by the impugned actions is to bring about speedy settlement of disputes, to lessen cost of litigation and to secure dispensation of justice unhampered by technical rules of procedure so that Co-operative Societies do not get involved in long drawn out protracted litigation which would consume their time energy and resources. This object having regard to the nature and character of the co-operative form of organisation, the principles on which it is founded and the objects it is intended to serve, would fully justify application of the special procedure to re-solution of disputes touching the constitution. management or business of a society.'

These observations will themselves show that there is an intelligible differentia for grouping the co-operative societies separately from the general class of creditors or money lenders. Such societies in the nature of things will require some State protection in order that this activity which stands for distributive justice to all who contribute to the earning of wealth including the consumers and also avoids the evils of capitalism may flourish and thrive. Section 48(3) is a sort of protective measure and its object is to see that the aforesaid co-operative activities are not hampered by members of the co-operative societies by hypothecating or pledging and thus placing the Properties out of the easy reach of the society concerned. This provision will prevent the member from parting with the property hypothecated or Pledged by him to the society, with the result that the society will be able to realize its dues from the property easily and without detriment to its interests. A transfer of different hypothecated Properties by the members of the society would also create further complications. The object in grouping the co-operative societies for the purpose of the provisions of section 48 being as stated above, it is clear that the intelligible differentia which enables the societies to be grouped together as a class has a rational nexus with the object sought to be achieved by that classification. In our opinion, therefore, the provisions of section 48 (3) are not violative of Article 14 of the Constitution.

8. Coming to the challenge under Article 19(1)(f), it appears to us that in the course of arguments the challenge was not developed except mentioning the article and, stating that it restricts the rights of every citizen to acquire property. Nothing was submitted in order to show that the restriction was not reasonable and was not in the interest of the general public. If the co-operative activity is designed to eliminate the middle man by bringing producers and consumers closure to each other through the process of integration and to prevent the exploitation of the weaker sections of the community by the stronger ones and to avoid evils of capitalism, it is clear that it occupies a preferred Place in our socioeconomic set up as observed by the Division Bench in Rasiklal's case, (1971) 12 Guj LR 355 (supra). The Legislature in enacting the law providing special machinery with regard to these societies, may well have thought it proper to provide State protection with regard to the monetory dealings of the society with its members. Therefore, imposing of restrictions on transfer of the hypothecated property being part of this protection, is reasonable. Besides, there is no absolute bar against the transfer of the property, if we look to sub-section (2) of section 48. Transfer can be made with the previous -permission of the society. This will also show that the extent of imposition is not unreasonable. In our opinion, such restriction is required in the interest of general public which will take active part in co-operative -activity. Therefore, the challenge under Article 19(1)(f) must also fail. The right of the petitioner to acquire property must give way to this protection. So far as the right of respondent No. 2 to dispose of this property is concerned, no grievance could be made, because this prohibition follows as a result of the hypothecation of the Property with the Bank. It will not lie in the mouth of such a person to show that the restriction on transfer is not reasonable. Therefore, the challenge under Article 19(1)(f) must also fail.

9. No other point was raised.

10. At the hearing of this petition, however, it was brought to our notice that the language in which the award has been framed by the Nominee as reproduced above may give an impression that the petitioner is also made personally liable for the amount of the award because the Nominee says that the plaintiff do recover that amount 'from the defendants' which would include the petitioner who was defendant No. 3. In order to alley the apprehension of the petitioner on this ground we will give a suitable direction that the present petitioner (original defendant No. 3) is not Personally liable for the amount of the award.

11. In the result, the petition fails and is dismissed subject to the direction that the petitioner who was original defendant No. 3 in the arbitration proceedings will not be personally liable for the amount of the award. Rule discharged with costs of respondent No. 1 Co-operative Bank and No. 4 the State of Gujarat. Costs to be taxed in separate sets.

12. Petition dismissed.


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