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The Peddanaickenpalayam Co-operative Agricultural Bank Ltd. Vs. Government of Tamil Nadu and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai High Court
Decided On
Case NumberWrit Petn. No. 6753 of 1973
Judge
Reported inAIR1979Mad241
ActsTamil Nadu Co-operative Societies Act - Sections 72, 73-J and 73-M; Tamil Nadu Co-operative Societies (Amendment) Act, 1970 - Sections 2; Tamil Nadu Co-operative Societies Rules - Rule 85-NA; Constitution of India - Article 19(1); Mysore Co-operative Societies Act; Hindi Sahitya Sammelan Act, 1962
AppellantThe Peddanaickenpalayam Co-operative Agricultural Bank Ltd.
RespondentGovernment of Tamil Nadu and ors.
Cases ReferredIn Damayanti v. Union of India
Excerpt:
.....the board and such resolution are in accordance with law, a managing director of the choice of the state government which is intricately involved in the administration of such societies was thought of. such co-operative societies are formed for the promotion of thrift, self-helf and mutual aid among persons of common economic needs and for the development of the community at large. public interest thus being well served by such a co-operative movement, the appointment of managing director to assist the board and to see that the affairs of the board are properly performed, in accordance with law and to subserve the community at large, cannot be said to be an activity which has an impact on article 19(1)(c) of the constitution at all.; if, therefore, the intendment of the legislature in..........for the development of the trade or industry with which the apex societies are concerned, as the state government has also recognised the role played by the apex societies in the implementation of the various development plans undertaken by the state, and as the government is sanctioning loans and grants and also giving guarantee for the loans taken by them from financing agencies, as the state government is also participating in the share capital of the apex societies in a large way, and as ultimately such activities might involve the state government's liability to provide for the guarantee for a larger amount, it was considered desirable that the extent of such liability should be subject to the control of the state legislature and the apex institutions availing themselves of such.....
Judgment:
1. This writ petition is filed by the President of the Peddanaickenpalayam Co-operative Agricultural Bank Ltd. After enumerating the various powers enjoyed by the Bank under the provisions of the Tamil Nadu Co-operative Societies Act, reference is made to the fact that the management and administration of the third respondent (Salem Co-operative Central Bank), of whom the petitioner is one of the share-holder members, vests in the general body of its members, and that the general body is empowered to constitute a Committee for the purpose of entrusting the management of the affairs of the Society to such nominees of theirs. As the Society has been registered under the provisions of the Tamil Nadu Co-operative Societies Act, it is body corporate with power to hold property and do all things necessary for the purpose for which it was constituted. Reference is made to the general powers vested under Chapter VIII of the Act, in the Government in and by which the Government is enabled to issue directions to the Registrar to make an enquiry or to take appropriate proceedings under the Act, if on audit or enquiry conducted by it, any acts of misfeasance and malfeasance are discovered. It is also stated that Section 72 of the Act empowers the Registrar to dissolve the Committee of Management and appoint a person or a Committee of his choice instead. After referring to the above and the preamble of the Act, the complainant is against the introduction of Chapter IX-B of the Act by the Tamil Nadu Co-operative Societies (Amendment) Act 1970. The grievance is that by G.O. Ms. No. 57 Co-operation dated 23-3-1973, the provisions of Chapter IX-B were made applicable to Central Co-operative Banks with effect from the date of the notification. Particular reference is made to Section 73-J of the Act and Rule 85-NA of the Rules which were introduced by reason of the induction of Chapter IX-B, and the challenge is directly against the said two provisions on the ground that they are illegal and invalid and violate the rights guaranteed under Article 19(1)(c) of the Constitution.

2. So far as Section 73-J (which is the new section) is concerned it is alleged that the appointment of the Managing director by the Government, without there being any option to the members of the Board of Directors to elect him, violates the provisions of Article 19(1)(c) of the Constitution. It is also stated that he composition of the Board of directors of the Central Co-operative Society is changed by such compulsory induction of the Managing Director. The gravamen of the charge is that the members of the Society are compelled to act with the Managing Director and that the aforesaid alteration in the composition and the apprehension that the Managing Director would sway the Board, leads to the conclusion that it was an impact on the normal fundamental right of the share-holders to form an association under Article 19(1)(c) of the Constitution.

3. So far as Rule 85-NA is concerned it is stated that the powers conferred on the Executive in the grab of the rule-making powers conferred under Section 73-M of the Act cannot empower the passing of such a rule and that, as in effect it would deprive the other elected members of the Board of their right to administer the affairs of the Society, it would constitute a violation of the fundamental right vested in the petitioner.

4. On all these grounds a writ of declaration is asked for declaring Section 73-J as inoperative and Rule 85-NA read along with the above section, as offending the constitutional guarantee given to the petitioner under Article 19(1)(c) of the constitution.

5. In the counter-affidavit of the respondents the allegations are denied and the legal contention are met by saying that neither Section 73-J nor rule 85-NA, which are challenged, would in any way offend the fundamental rights enshrined in Article 19(1)(c) of the Constitution. Particular reference is made to the text of the provisions challenged and it is averred that, as the Government have an obligation to safeguard the interests of the investing public and also the financing Bank, certain safeguards were thought of, and that, if, in order to achieve this object an amendment to the Act was brought on the anvil and a Managing Director was sought to be a appointed by the Government to the Board, that would not, in the absence of any allegation that the appointment would per se interfere with the normal duties of the Board, violate any Constitutional provision. The further contention is that it is incorrect to say that by appointing a Managing Director, the Government takes over the management of the Central Bank as alleged, and that, as the Managing Director is one among the other members of the Board, and as the views of the majority of the members would prevail, no prejudice would be caused by the induction of the two provisions. The allegation that there would be a change of composition of the Board and the members of the Boards is said to be without an substance, and ultimately it is stated that the said section and the rule, which are challenged, were made in public interest, by way of remedial measures and in order to safeguard the interests of the members of the Bank and the general investing public as well and that, in these circumstances, a writ as prayed for, ought not to issue.

6. This writ petition originally came up before my learned brother, Ramanujam, J. at a time when the Emergency provisions were in vogue and so the matter was directed to be posted before a fuller Bench, as challenge to a particular provision of an enactment was involved. After the amendment of the constitution, the writ petition comes up before us for final hearing.

7. Section 73-J, which has been introduced by Section 2 of the Tamil Nadu Co-operative Societies (Third Amendment) Act, 1970 (Tamil Nadu Act 32 of 1970) reads as follows:--

"73-J. (1) The Board shall consist of--

(i) such number of members to be elected and nominated as may be prescribed;

(ii) the Managing Director, if any, appointed under sub-section (2); and

(iii) an ex-officio member to be specified in the rules;

Provided that the number of nominated members shall not exceed one fifth of the trial number of members of the Board;

Provided further, that the existing members of the Board on the notified date shall, subject to the provisions of S. 28 continue as members of the Board constituted for the first time after the notified date, until the expiry of their existing term of office as members;

Provided also, that on the constitution of the Board for the first time after the notified date, the existing office bearers of the Board on the notified date, shall cease to hold office as such and new office bearers shall be elected in accordance with the rules made under this Chapter.

8. It provides for the appointment of a Managing Director as per sub-section (2) of Section 73-J. Sub-section (2) provided that a Managing Director or an Executive Officer for each apex society or central society may be appointed in such manner as may be prescribed and that the Managing Director if appointed, shall be a member of the Board, ex officio.

9. It is necessary at this stage to make a digression to find out the purpose for which the new chapter was introduced in the Act. In the Statement of Objects and Reasons for Tamil Nadu Act 32 of 1970, it is stated that, as the apex societies play a vital role, not only in the promotion of the interests of the affiliated units but also in the formulation of the policies and programmes for the development of the trade or industry with which the apex societies are concerned, as the State Government has also recognised the role played by the apex societies in the implementation of the various development plans undertaken by the State, and as the Government is sanctioning loans and grants and also giving guarantee for the loans taken by them from financing agencies, as the State Government is also participating in the share capital of the apex societies in a large way, and as ultimately such activities might involve the state Government's liability to provide for the guarantee for a larger amount, it was considered desirable that the extent of such liability should be subject to the control of the State Legislature and the apex institutions availing themselves of such large assistance by way of loans, grants and the State participation etc. should have a statutory recognition and status. It is further stated that in the management of these types of societies special interests and particularly persons actually engaged in the trade or occupation or industry concerned, should have their share and rightful place. To achieve these objects, as also the main objective which is reflected in the preamble to the Act, which is to facilitate the formation and working of co-operative societies for the promotion of thrift, self-help and mutual aid among the persons with common economic needs, so as to bring about improvements in agriculture and industry, better methods of production etc. Chapter IX-B was introduced. If therefore the intendment of the Legislature in inducting the new Chapter was to further the objective of the statute itself and to give an impetus to apex societies to have a blue-print of their own and plans for development, and contemporaneously give their assistance by way of guarantee or pragmatic financial help, and if Section 73-J provides for the appointment of a managing director, who would be ex officio a member of the Board, there cannot be any complaint at all. Mr. Venkataraman, learned counsel for the petitioner, says that rule 85-NA which has been introduced consequent upon the induction of Chapter IX-B and Section 73-J of the Act, gives a reasonable impression that the Managing Director would be the sole authority of the Board as such each in the normal day-to-day administration and that he would be a substitute for the Board in the realistic sense and hat therefore such a rule framed to sub-serve the purpose of Section 73-J of the Act would offend the essential ratio of fundamental right guaranteed under Article 19(1)(c) of the Constitution. We are unable to agree. On a reading of Rule 85-NA (which is reproduced below for ready reference), it will be clear that no reasonable person can gain the impression that the Managing Director is likely to ride roughshod over any member and that he would be the only and sole authority for the administration of the affairs of the Society.

10. Rule 85-NA(1) There shall be a managing director in each Central Co-operative Bank, who shall be appointment by the Government.

Every person appointed as the Managing Director shall possess such qualification as the Government may determine.

(2) The Managing Director shall be the executive authority of the Bank and shall carry into effect the resolutions of the Committee. He shall have the overall control of the day to day administration of the Bank and all correspondence shall be conducted by him or by any person authorised by him in this behalf.

(3) The Managing Director may institute or defend any suit or other legal proceedings on behalf of the Bank.

(4) The Managing Director shall, have power for, and on behalf of the Bank, to endorse and negotiate cheques and other negotiable instruments and to endorse and transfer promissory notes, Government and other bonds and securities, to sign deposit and other receipts, to have custody of cash and other properties of the Bank and to do all acts connected with the business of the Bank.

(5) The Managing Director shall have power to draw and sign cheques on behalf of the Bank, to operate on accounts with other Banks and to overdraw the same;

Provided that for any transactions exceeding such limit as may be fixed by the Registrar, the managing director shall exercise the power jointly with any of the Deputy managers.

(6) The Managing director shall receive all loan applications made to the Bank and shall scrutinise and place them before the executive committee for sanction.

Provided that in the case of loans on the security of jewels, fixed deposits and trustee securities, the managing director may sanction and place the same before the next meeting of the executive for its ratification.

(7) The Managing Director shall exercise such other powers as may be vested in him by the Registrar or by the Committee.

(8) The Managing Director shall convene the meetings of the executive committee or the as and when found necessary or the general body, as and when directed by the committee or on receipt of requisition from requisite number or upon requisition from the Registrar.

(9) The Managing Director may delegate any of his powers and functions to a deputy manager subject to the approval of the Registrar.

Thus it will be seen that the Managing Director, though having an over-all control of the day-to-day administration of the Board, is one who shall carry into effect the resolutions of the Committee, which consists of eight members of whom six are elected members and two are nominated by the government. One such nominated member is the Managing Director appointed under Rule 85-NA consequent upon the induction of Section 73-J in Chapter IX-B of the Act. If, therefore, the Managing Director is to effectively implement the resolutions of the Committee, which ex facie, have the voting majority, to decide on matters concerning the Society, it would be idle for the petitioner to contend that the Managing director has usurped the place of the Board as such and that there is an apprehension that he would see to it that his views and directions prevail over those of the Board and its members. No specific complaint has been made and no illustrative grievance has been set out in the pleadings; and the bare apprehension, that the managing director is likely to behave like an arbiter for himself without reference to the Board, stands merely as a bare apprehension without further proof thereof. There is intrinsic evidence in the text of Rule 85-NA to show that the Managing Director should act in accordance with the wishes of the resolutions of the Committee. So far as loan applications are concerned, which obviously form the major part of the trading activity of the society, he could only scrutinise, but he is obliged to place them before the executive committee for sanction. This is sure indicia that the appointment of the Managing Director is only a step-in-aid to assist the Board in the normal and proper discharge of its functions and to safeguard the interests of the State Government, who, by necessity, have got themselves involved in the activities of the society in public interest. We have already referred to the statement of objects and reasons, which says that it was considered desirable that the extent of the liability of the State should be subject to the control of the State Legislature and that the apex institutions should have a statutory recognition and status. In order to achieve this and to provide themselves with a shield of supervision over the Board and to ensure that everything is all right in the matter of the treatment of the subjects which come up for discussion before the Board and such resolutions are in accordance with law, a Managing Director of the choice of the State Government, which is intrinsically involved in the administration of such societies, was thought of. We have already referred to the preamble to which learned counsel also made reference. Here again such co-operative societies are formed for the promotion of thrift, self-help and mutual aid among persons of common economic needs and for the development of the community at large. Public interest thus being well served by such a co-operative movement, the appointment of a Managing director to assist the Board and to see that the affairs of the Board are properly performed, in accordance with law and to sub-serve the community at large, cannot be said to be an activity which has an impact on Article 19(1)(c) of the Constitution at all.

11. Article 19(1)(c) of the Constitution no doubt guarantees to every citizen the freedom to form associations or unions. No complaint is made that either Section 73-J or Rule 85-NA prevented the forming of such an association as contemplated in Art. 19(1)(c) of the Constitution. The fundamental right guaranteed under Art. 19(1)(c) of the Constitution has to be viewed with reference to the facts of the particular case to find out whether the challenge against any particular order of the State does make an impact or impinge upon the exercise of such a fundamental right or the acquisition of such right.

12. Reference was made to a decision of the Mysore High Court in Allun Karibasappa v. State of Mysore, 1973-2 Mys LJ 43. That was a case where two notifications were made by the State Government under which they modified the provisions of the Mysore Co-operative Societies Act and nominated 15 officials as their representatives of the Board of directors of the Co-operative Central Bank which consisted of elected members. All those officials were to exercise their power and discharge their function and control of the State Government. The effect of the notifications, as summarised by the Division Bench of the Mysore High Court was that there was absolutely no chance for any member of the Bank to get elected, as the nominated members of the Board were of the majority. That is not the case here. It was in those circumstances that the learned Judges held that the true character of the notification was that the Government, in the guise of exercising control over the conduct of the business of the Bank, had taken over the management of the Bank in clear disobedience of the Legislative mandates expressed in the Act and therefore infringed on the vested rights of the share-holders. The facts of the present case are entirely different. Whereas there was an effacement of the Board in the Mysore case, there is a continuance of the Board in the instant case, with the only addition that a managing director was brought into the Board as ex officio member to give all possible aid to the Board and to sub-serve its resolutions, and assist them in the management and proper conduct of the Society.

13. Another decision relied on by learned counsel for the petitioner has also no relevance. In Damayanti v. Union of India, , the court was dealing with the Hindi Sahitya

Sammelan Act 1962, and was formulating a proposition that the right to form an association necessarily implied that the persons forming the association had also the right to continue to be associated with only those whom they voluntarily admitted in the association. In that case, members who did not voluntarily seek for admission in the association were sought to be introduced into the association. The Supreme Court therefore observed (1t page 971):--

"Any law by which members are introduced in the Voluntary Association without any option being given to the members to keep them out, or any law which takes away the membership of those who have voluntarily joined it, will be a law violating the right to form an association".

The facts of the present case are far different from those in the case before the Supreme court. It is not even suggested that any such attempt is being made by the State to prevent persons from becoming members of this Society or to bring in members into the Society much against the wish of the Society. Any such law which mandates the acceptance of members who did not seek for voluntary admission to the Society, but who are compelled to become such members by reason of the provision in the statute, would certainly be one which takes away or offends the right to form an association of persons within the meaning of Article 19(1)(c) of the Constitution by the induction of the managing director as ex-officio member of the Board, who has nothing to do with the general body of members and who is so brought in only for the purpose of being of service to the Board and contemporaneously of service to themselves. The State itself is very much involved is such apex societies and it cannot be said that there is any effacement of the Board or its members or a total avoidance of the rights of the elected members of the Board. We have already referred in detail to Rule 85-NA, wherein it has been made clear that the managing Director is not expected to interfere with the powers of the Board which still retains the power to pass resolutions on the basis of the majority view.

14. The complaint against both Section 73-J and Rule 85-NA therefore, fails and we hold that both the provisions have been validly enacted and do not violate Article 19(1)(c) of the Constitution. The writ petition accordingly fails and is dismissed with costs. Counsel's fee Rs. 250.

15. Petition dismissed.


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