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R. Venkatasubba Reddiar Vs. the Registrar, Co-operative Societies, Madras and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtChennai High Court
Decided On
Case NumberWrit Petn. No. 1026 of 1953
Judge
Reported inAIR1954Mad955
ActsMadras Co-operative Societies Act, 1932 - Sections 12(1) and 12(3); Co-operative Societies Act, 1912 - Sections 11(1) and 11(3)
AppellantR. Venkatasubba Reddiar
RespondentThe Registrar, Co-operative Societies, Madras and ors.
Appellant AdvocateM.K. Nambiar and ;C.F. Louis, Advs.
Respondent AdvocateGovernment Pleader, ;E. Venkatesam, ;P. Kothandaramayya and ;V.V. Krishnamurthi, Advs.
DispositionPetition dismissed
Cases ReferredMadhav Rao v. Surya Bao
Excerpt:
trust and societies - jurisdiction - sections 12 (1) and 12 (3) of madras co-operative societies act, 1932 and sections 11 (1) and 11 (3) of co-operative societies act, 1912 - function of section 12 (3) is to prevent question with regard to any antecedent irregularity in passing of any bye-law or amendment from being agitated in any court - in case rule or amendment as passed is contrary to provisions of act or to other laws jurisdiction of court to determine legality of amendment or rule exists - however in case of irregularity which are intra vires in passing of any rule or amendment of bye-law same cannot form subject matter of any complaint in court after amendment has been registered and certified by registrar. - - nambiar for the petitioner is that the amendment cutting down.....orderrajagopala ayyangar, j.1. the petitioner is one of the directors of the madras co-operative central land mortgage bank, ltd., and he files this-petition to obtain the quashing of a by-law effected by a resolution passed on 5-9-1953, by the general body of this co-operative bank and registered by the registrar of co-operative societies on the same date,2. it is necessary to set out in some detail the rules of this bank which is registered under the madras co-operative societies act, 1932, and to the proceedings that 'were' taken for its bifurcation consequent on the separation of the andhra state from the madras in order to understand the proceedings that have led to the filing of this writ petition.3. as stated above the madras co-operative central land mortgage bank is a society.....
Judgment:
ORDER

Rajagopala Ayyangar, J.

1. The petitioner is one of the directors of the Madras Co-operative Central Land Mortgage Bank, Ltd., and he files this-petition to obtain the quashing of a by-law effected by a resolution passed on 5-9-1953, by the general body of this co-operative bank and registered by the Registrar of Co-operative Societies on the same date,

2. It is necessary to set out in some detail the rules of this bank which is registered under the Madras Co-operative Societies Act, 1932, and to the proceedings that 'were' taken for its bifurcation consequent on the separation of the Andhra state from the Madras in order to understand the proceedings that have led to the filing of this writ petition.

3. As stated above the Madras Co-operative Central Land Mortgage Bank is a society registered under the provisions of the Madras Co-operative Societies Act. The management of this Bank was originally vested in a board of directors consisting of eighteen members of whom the Registrar of Co-operative Societies, Madras, was an ex-officio member. Six of the remaining seventeen members were elected from among individuals who are the share-holders of the Bank, nine were elected from the representatives of the share-holders of mortgage banks and the remaining two were the nominees of the Registrar of Co-operative Societies.

Under the by-laws the elected members of the Board hold office for a period of three years but under the rules as they originally stood the term of office of the directors of the board including the term of the petitioner would have expired on 31-12-1954. The main complaint of the petitioner in this writ petition is that his term of office which extended under the previous by-laws and rules upto 31-12-1954 has been illegally cut down so as to extend only upto 31-12-1953 under the amendment effected on 5-9-1953 and that is the grievance which he seeks to get redressed in this writ petition.

4. Consequent on the formation of the Andhra Stato this bank which was operating theretofore over the entire area of the Madras State had to be reconstituted by excluding from its operation the part of the territory of the Madras State which ceased to be part of it by reason of the formation of the Andhra State. The Madras Ordinance II of 1953 was promulgated in order to effectuate this object. The Ordinance authorised the re-constitution of the bank according to the proposals to be made by the Registrar under Section 3 (1) to be confirmed by a resolution of the general body on which the Registrar shall register the changes in the by-laws of the existing societies consequent-oh the formation and the registration of the new societies.

5. Accordingly on 3-8-1953 the Secretary of the Bank issued a notice that the General Body meeting of the share-holders would be held on 5-9-1953 the agenda for the meeting being the proposals for the bifurcation of the bank consequent on the formation of the Andhra State and the merger of portions of Bellary district with the Mysore State and amendments to, the by-laws. Subsequent to this on 29-8-1953 the secretary circularised to the share-holders what in effect was an addenda to the previous notice dated 3rd August including the text o'f the proposed amendments to the bye-laws.

6. As stated before the original by-law which was by-law No. 22(3) provided for the executive management of the bank being vested in a board consisting of 18 members of whom the Registrar of Co-operative Societies was an ex-offlcio one. An amendment proposed to this by-law proposed vesting of the executive management in a board of ten of whom the Registrar of Co-operative societies was to be an ex-officio member. There were consequential changes in the representation by election by the share-holders and by the constituent banks and also in the number to be nominated by the Registrar. This proposed amendment was followed by a transitory by-law under by-law No. 22 (a) which stated:

'Not-withstanding anything contained in these bylaws every director now in office in the Madras Co-operative Land Mortgage Bank who is a share-holder residing or a representative of a primary land mortgage bank within its area shall continue to retain his directorship and other office, till 31-12-1954.'

The general body met on 5-9-1953 as scheduled and the proposed amendments to the by-laws as set down in the agenda and in the notice were carried but in regard to this transitory by-law No. 22(a), one of the members present C. S. Ratnasabapathi Mudahar moved and another member, M. S. Pala-nippa Mudaliar seconded that the date at the end of the transitory by-law under the by-law 22 (a) viz., 31-12-1954 be changed to 31-12-1953. This amendment was accepted and the transitory by-law as amended was passed unanimously.

The amended by-law as passed by the general body was registered by the Registrar of Co-operative Societies. The petitioner however did not attend the meeting of the general body on 5-9-1953 and he complains that the amendment which was proposed at the meeting was illegal and contrary to the rules and that the resolution as passed with the amendment is 'ultra vires' and illegal and not binding on him and it is this which he seeks to get quashed by this writ petition.

7. The question, therefore, is whether this amendment by which the term of the office of the elected directors has been cut down from 81-12-1954 to 31-12-1953 has been validly passed and whether this court has jurisdiction to set aside this amended by-law registered by the Registrar of Co-operative Societies.

8. I shall deal with these two points, namely, the validity of the by-law passed and secondly the effect of the registration of the by-law separately.

9. At the outset it is necessary to set out the relevant by-laws which have a bearing on this question. Under by-law 46

'the ultimate authority in all matters relating to the administration of the bank shall be the general body of members who shall meet from time to time and at least once a year to conduct the work of the bank. The general body shall not, however, interfere with the actions of the Board of directors done in the exercise of the powers conferred on them by the by-laws. The following, among other matters, shall be dealt with by the general body: (i) the election of the members of the Board and their removal, (ii) amendments to the by-laws'. By-law No. 50 runs as follows: '!One month's notice shall be given to members for a meeting of the general body. At least five days' clear notice shall be given of a resolution. At least 20 days' clear notice shall be given for any amendment of a by-law proposed. But five days' clear notice shall be enough for amendments proposed by the Board.'

10. Rule 51 says:

'No amendment to the by-laws shall be made except at the general meeting of the members or shall take effect until.it shall have been registered by the Registrar.'

11. The question now is whether impugned amendment was properly proposed and was legally passed by the general body on 5-9-1953. In the first place it must be mentioned merely to pul it aside that this is not a case where a director has been removed from office within the meaning of Rule 46(1) of the by-laws so as to enable the invocation of the principles that natural justice are violated by the petitioner not being given an opportunity to show cause why he should not be removed from office. It is not a case of removal within by-law 46 (i) but of an amendment of a by-law falling within sub-rule (iv). The complaint of Mr. M. K. Nambiar for the petitioner is that the amendment cutting down the term of office of the existing directors from 31-12-1954 to 31-12-1953 was really a substantial amendment which required 20 days' clear notice or at least five days' notice under the latter part of Rule 50.

He also raised a further contention that the amendment was really beyond the scope of the original resolution and therefore bad as an amendment and that as a substantive resolution one month's notice was required as per the opening portion of Rule 50. I am unable to accept this portion of the argument. I hold that the amendment was within the scope of the main resolution. However, I agree with the learned counsel for the petitioner that the requisite notice has not been given for the proposal of this amendment to the transitory by-law No. 22(a) as notified to the members by the secretary on 20-8-1953. The theory of giving notice is based on the principle that members might absent themselves under the impression that the meeting would pass only amendments of the bye-laws of which they have notice and that they would have attended the meeting and possibly voted down any resolution if it was in a substantially different form, had they notice that such resolution or amendment would be passed.

In the present case even treating the amendment proposed by Sri C. S. Ratnasabapathi Mudaliar as an official amendment of the Board at least five days' notice was necessary. As admittedly it was merely moved at the meeting without any prior notice whatsoever as required by Rule 50, the amendment was not properly passed by the general body. In my opinion unless a resolution was passed or a decision arrived at by the general body at its meeting in the manner and after observing all the formalities prescribed by the rules the amendment must be treated as irregularly effected.

12. The next question that arises for consideration is as to the effect of the registration of the amended by-law by the Registrar of Co-operative Societies under S. 12, Madras Co-operative Societies Act, 1932. Section 12 of the Act runs thus:

'(1) No amendment of the by-laws of a registered Society shall be valid until the same has been registered under this Act, for which purpose a copy of the amendment shall be forwarded to the Registrar. (2) If the Registrar is satisfied that any amendment of the by-laws is not contrary to this Act or to the rules he may register the amendment. In case of refusal an appeal shall lie to the State Government within two months from the date of the issue of the order of refusal by registered post.

(3) When the Registrar registers amendment of the by-laws of a registered society, he shall issue to the society a copy of the amendment certified by him, which shall be conclusive evidence that the same is duly registered'.

Rules have been framed under the Madras Cooperative Societies Act 'inter alia' regarding the amendment of by-laws and their registration. The relevant rule in this context is rule No. 24 which is in the following terms:

'24 (1) The following procedure shall be adopted in regard to amendments to the by-laws of a society:

(1) Every amendment shall be made only by a resolution passed by a majority of the members present at a meeting of the general body of the members of the society.

(2) No such resolution shall be valid unless notice of the amendment proposed has been given in accordance with the by-laws.

(iii) Every application made to the Registrar for the registration of an amendment shall be signed by the President and two members of the Committee, and shall contain the following particulars, namely:

(a) The date of. the general body meeting at which the amendment was made;

(b) The number of days' notice given to convene the general body meeting;

(c) the total number of members of the society on the date of such meeting;

(d) the number of members who formed the quorum for such meeting;

(e) the number of members present at such meeting; and

(f) the number of members who voted for the amendment.

(iv) Notwithstanding anything contained in Clause (i) to (iii) the Registrar may, by order in writing, permit the by-laws of a society to be amended by such smaller body representing the members of the society as may be prescribed in the rule or in the by-laws of the soceity. In such cases all references to general body meetings contained in Clause. (D to (iii) shall be construed as references to the meetings of such smaller body.

(2) In every case in which the Registrar refused to register the by-laws of a society he shall briefly record in writing the reasons for his refusal and shall communicate his decision to the society.'

13. It will be seen that according to Rule 24(ii) no resolution would be valid unless notice of the amendment passed has been given in accordance with the by-laws. It is therefore, made a statutory condition of a valid resolution amending a by-law that the same should have been passed in the manner and after observance of all the formalities prescribed by the by-laws. It is, however, contended by the learned Advocate General who appeared for the Registrar of Co-operative Societies who is the first respondent in this Writ petition that when once the Registrar registers the amendment the registration imparts conclusive validity & legality to the amendment which cannot thereafter be questioned in any court,

14. There is considerable body of authority on the question of the effect of registration by the Registrar of the rules of societies like the present. The earliest decision of importance is the one -- 'Dewhurst v. Clarkson', (1854) 118 ER 1114 A) where the question arose under the Friendly Societies Act, 1834 (4 and 5 W. 4, Ch. 40). An action was brought for the recovery of the funds of a Friendly Society from the defendants who was admittedly in possession thereof. The defendant claimed to be the treasurer of the society and therefore lawfully in possession and contested the right of the plaintiffs to bring the action on behalf of the society, the contention being that they were not the validly appointed trustees of the society.

The resolution appointing the plaintiffs as trustees was effected by certain amendments to the rules which were confirmed by the Registrar of the Friendly Societies under Sections 4 and 5 of the Statute of William IV Ch. 40. The enactment in question provided for the Registrar certifying that the amendments were in conformity with the law and the provisions of the Act. The rules of the Society provided that for the amendments being effected thereto, notice of the amendments should be given at two general meetings of the subscribers of the Society. The amendment to the rules which enabled the appointment of the plaintiffs as trustees of the society was passed without conforming to this provision and yet the society forwarded the resolution as an amendment to the Registrar and obtained, his certificate that the amendment was in conformity with the law and with the provisions of the statute. The statute also provided that

'the rules and alterations and amendments there of from the time they were certified by the registrar shall be binding on the several member; and officers of the society and all other person having interest therein.'

The court by a majority, Erle J. dissenting, held that it was not open alter the certificate of the Registrar for the defendant to canvass the ques tion as to whether the necessary formalities with regard to the passing of the amendment had been complied with.

15. Lord Cambcll C. J. stated the position thus

'I cannot doubt that when the rules had been so confirmed and made binding a member could not have questioned the regularity of the manne in which they were made......The defendant' counsel admit that the certified rule is prim facie valid; but great mischief might arise there were only a presumption to be rebutted and then in every case where a rule is to b enforced, evidence might without notice be give] of some alleged irregularity in making it. I can not doubt that it would be for the general benefit of the Friendly Society that the rules when certified, should be considered binding till repealed and altered, and the language used by th Legislature seems to me fairly to bear this cor struction.'

16. This decision was followed and applied b the Court of Appeal in--'Rosenburg v. Northumbe' land Building Society', (1889) 22 Q B D 373 (B In this case the question arose in a suit on a mor gage executed in favour of a building society b the plaintiff. The mortgage deed contained covenant by the mortgagor to pay to the societ all subscriptions, fines and other moneys which according to the rules for the time being of th society should from time to time become due an payable by him. After the execution of the mor gage various alterations were made in the rule of the societies and the rules so altered were rule gistered under the Act the registration being duly certified by the Registrar in the manner prescribed ed by the Act,

It is unnecessary to set out the exact amendments effected to the rules but it is sufficient state that in September 1887 the mortgagors desi ed to pay off the mortgage amount of 1367-9s-f and tendered the same to the society. The Societ however, claimed an additional sum of .328-6s-', which they alleged to be the mortgagors' portion . the estimated losses sustained by the society ar which they claimed to be due from the plainti under the altered rules, and they refused to endor a receipt on the mortgage unless this addition amount was paid by the plaintiff. The mortgage there brought an aetion for the redemption of the mortgage on payment of the sum required und the original rules.

17. At the trial the plaintiff contended that the alterations in the rules were invalid on the groun that proper notice of the intended alterations has not been given to the members of the society before the resolutions adopting them were passe The matter came up before the court of appe on appeal by the society from the judgment Day J. who held that the mortgagors were boud to pay the amount determined by the rules which existed when the mortgage was executed. The (SIC) tention on behalf of the plaintiff who was respondent in the appeal was that as proper notices we not given before the resolutions amending the' (SIC) were passed the alterations were clearly invalid and that the certificate of the Registrar was or 'prima facie' evidence of the validity of the rules. Bowlen L. J. dealing with this question stated:

'With regard to the second point, viz., whether the certificate of the registrar is conclusive that the new rules were duly passed, the inconveni- ences which would arise either way were fully considered in -- '(1854) 118 ER 1114 (A)' and it was there decided, many years ago that the certificate was filial. I cannot think that the Legislature would have allowed the words of the present Act with regard to this matter to stand as they do, if they had intended to alter the law laid down in that case, and to enact that the certificate should not be final'.

Pry L. J. added

'With regard to the effect of the certificate of registration, I agree that it is conclusive as to the validity of the rules. It is difficult to find any intelligible reason for requiring such a certificate, unless it were intended to furnish proof that the rules had been duly passed. There are no words in the Act making the certificate 'prima facie' evidence only.'

The next case to be considered is the decision of :he Court of Appeal in -- 'Osborne v. Amalgamate id Society of Railway Servants', (1909) 1 Ch 163 (c). In this well-known case the question related to the validity of an amendment effected by the Amalgamated Society of Railway Servants which was a trade union registered under the Trade Jnion Act of 1871. Under the original rules nothing was said as to securing parliamentary representation for the members of the Trade Union or of levies for the purpose of achieving this object. in 1906 an amendment was made to the rules re-quiring all the candidates to sign and accept the conditions. of the Labour Party and be subject to their whip. The amended rule was certified by the Registrar.

The plaintiff who had been a member of the Society for some sixteen years commenced an action against the society for a declaration that the rule requiring payment of one shilling per member or parliamentary representation was invalid and alternatively the condition introduced in 1906 was nvalid. The provision in the Trade Union Act egarding the registration of amendments was in these terms:

'The Registrar before registering the partial alteration of rules shall ascertain that the rules of the Trade Union, if altered in accordance with the proposed partial alteration will provide for all the matters required to be provided for by the rules of a registered trade Union.'

The Court of Appeal held reversing the decision of Nevile J. that the rule was 'ultra vires' n the sense of being outside the purpose for which he Trade Union was established under the Trade Union Act of 1871. The learned Judges also considered the question as to how far the certificate if the Registrar imparted regularity to the amend-nent effected at the meeting of the Union. Their sordships held that the language of the provisions lealing with the effect of registration was not such as to render the procedure by which the mendments were effected immune from attack, pressing dissent from the decision in -- 'Rosenserg v. Northumberland Building Society (B)'. The (uestion has subsequently received full consideraion in the decision in 'In re, Quinn & National Catholic Benefit & Thrift Society's Arbitration', (1921) 2 Ch 318 (D). The matter there arose under he Friendly Societies Act, 1896, Section. 13, Sub-section (1) if which provided:

'An amendment of a rule made by a registered society shall not be valid until the amendment has been registered under this Act for which purpose copies of the amendment signed by three members and the Secretary shall be sent to the registrar.'

Sub-section (2) provided:

'The Registrar shall on being satisfied that any amendment of a rule is not contrary to the provisions of this Act, issue to the society an acknowledgment of registry of the amendment, and that acknowledgment shall be conclusive evidence that the amendment is duly registered'.

The matter came before the court by way of a special case stated for the opinion of the court under Section 19 of the Arbitration Act, 1889. The matter in dispute related to the validity of certain amendments effected to the rules of the National Catholic Benefit and Thrift Society registered under the Friendly Societies Act, 1896. It was contended on one side that the meetings at which the amendments were effected were not validly constituted, that the persons who were present at the meetings had no right to be there and that in consequence of these and other similar irregularities the rules were not properly passed. The contention on behalf of the society was that the approval of the registrar cured any antecedent defects in the procedure adopted at the meeting and rendered the rules completely valid. Reliance was placed for this purpose on the decision in --'(1854) 118 ER 1114 (A)' and -- '(1889) 22 Q B D 373 (B)'.

18. The learned Chief Justice upheld this contention of the society and stated:

'I shall assume for the moment that Mr. Peter's finding that the annual meeting of 1918 was invalidated by the admission thereto of the representatives of the new Liverpool district is well founded, and that the meeting being an invalid meeting was incompetent to pass any resolutions adopting the new rules......On the authorities I must hold that the approval of the 1918 rules by the Commissioners followed by their registration under the Act cured every irregularity in the procedure or at the meeting by or at which they were adopted. It is in my opinion impossible to read the decisions in -- '(1854) 118 ER 1114 (A)' and -- '(1889) 22 Q B D 373 (B)' without being convinced that the reasoning by which those decisions were arrived at is applicable to this case.

The wording of the Friendly Societies Act, 1896 is certainly stronger than any that is to be found in the Building Societies Act, and although I agree, if I may respectfully say so, with some criticisms made by Fletcher Moulton L. J. in -- '(1909) 1 Ch 163 (B) on the Judgments in the -- '(1889) 22 Q B D 373 (B)' it would be my duty, were I dealing with a case under that Act, to follow that decision; much more so in this case where I have wording which indicates as it seems to me, far more strongly that the certificate is to be conclusive and binding am I so bound....'

19. After referring to the relevant statutory provision his Lordship went on to state

'I cannot think that that only means that the acknowledgment is conclusive that the actual entry has been made in the books and the registration completed; it must mean that everything antecedently necessary to the registration has been duly carried out, and that when the certificate is once issued it is incompetent for anybody to raise objections on points of procedure and detail in reference to matters antecedent to the registration..... .The result is, so far as the rules of 1918 are concerned, any invalidity which was due to informality or irregularity antecedent to their pass big is cured by their registration.'

20. His Lordship then proceeded to deal with the question as to whether registration was conclusive as regards the legality gf the rules and in regard to this quoted the observations of Lord Chancellor in -- 'McEllistrim v. Ballymacelligott Co-operative Agricultural & Dairy Society', 1919 AC 543 (E) and held that such a question would not be concluded by the certificate of the Registrar. A precisely similar line of reasoning has been adopted by Dunckwerts J. in -- 'Birch v. National Union of Railwaymen', (1950) 2 All ER 253 (F) where the point of distinction was drawn thus: Where the rules are within the power of the society but they have been irregularly passed the certificate of the registrar is conclusive and the validity of the rules cannot be questioned thereafter on the ground of certain, irregularities in the passing of such rules. But where the question is as to the legality of the rule in the sense of the rule being 'ultra vires' of the society whether regularly or irregularly passed the certificate of the Registrar does not impart legality to the resolution or the rule as amended. After referring to the decisions on the point his Lordship states:

'So far as any principle can be ascertained from these cases, they indicate that such approval or certificate normally prevents inquiry into the regularity of the steps taken to pass the rules, but does not prevent judicial inquiry into the validity of the rules if it is contended that they are 'ultra vires'.'

His Lordship further held that the rules as amended in the case before him did not conform to the statutory pre-requisites and therefore he upheld the contention that the same was invalid. But the decision is clear authority for the position that and irregularity antecedent to the passing of the resolution cannot form the subject-matter of consideration by courts after the certificate of the registrar. The decision in -- '1919 AC 548 (E)' does not really touch the point to be determined in the present case since in that decision the question related to the 'ultra vires' character of the amendment effected by the Society.

21. The reasoning of these English decisions on the Friendly Societies Act and the Building Societies Act has been adopted by a Pull Bench of this Court in the decision reported in - 'Madhav Rao v. Surya Bao', : AIR1954Mad103 (G) I am unable to perceive any distinction between the language used in the Building Societies Act of 1874 which came up before the court of Appeal in -- '(1889) 22 Q B D 373 (B)' and the provisions of the Madras Co-operative Societies Act 6 of 1932. Rule 24 of the rules is designed to place before the Registrar details of formalities which were gone through by the society in passing the necessary resolutions to bring about an alteration in the by-laws.

Under sub-paragraph (2) of Rule 24 it will be seen that the Registrar may refuse to register an amendment obviously for the reason either that the amendment is not in accordance with the Act or the rules or that it has not been properly passed by the Society as required by its by-laws. When the Registrar decides to register an amendment under Sub-section (3) of Section 12 of the Act he issues to the society a copy of the amendment certified by him which shall be conclusive evidence that the same has been duly registered and certified.

In my judgment the function of Sub-section (3) of Section 12, Madras Co-operative Societies Act is to prevent the question with regard to any antecedent irregularity in the passing of any by-law or amendment from being agitated in any court. If a rule or amendment as passed is contrary to the provisions of the Act or to other laws the jurisdiction of the court to determine the legality of the amendment or the rule exists. Vide the decision in '1919 AC 548 (E)'. But where the question is not one in regard to the. legality of any amendment or the rule but merely raising a point of irregularity in a matter 'intra vires' of the society the registration of the amendment or the rule by the Registrar is conclusive and cannot be questioned in a court.

22. In this view though the amendment, as I have pointed out already, has not been properly passed as there has been informality in its passing 1 feel I am precluded from giving effect to this finding by reason of the provisions of Section 12(3), Madras Co-operative Societies Act, and that I am bound to hold that the irregularity in the passing of any rule or amendment of a by-law cannot form the subject-matter of any complaint in a court after the amendment has been registered and certified by the Registrar. The writ petition consequently fails and is dismissed but there will be no order as to costs. The costs of the Bank will be taken out of its own funds.


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