IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 27081 of 2009(E)
1. MARIYAMMA GEORGE,
... Petitioner
2. ANTONY JOSEPH,
3. K.K.JOSEPH,
4. JOSEPH CHAMAKALA,
5. K.J.ABRAHAM,
6. JOY KOTTATHIL,
7. ADV. K.A.PRASAD,
Vs
1. THE JOINT REGISTRAR OF CO-OPERATIVE
... Respondent
2. THE AYARKUNNAM SERVICE CO-OPERATIVE
3. THE PART TIME ADMINISTRATOR,
For Petitioner :SRI.GEORGE POONTHOTTAM
For Respondent :SRI.B.KRISHNA MANI
The Hon'ble MR. Justice K.SURENDRA MOHAN
Dated :07/06/2010
O R D E R
C.R.
K.SURENDRA MOHAN, J.
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W.P.(C) No. 27081 OF 2009
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Dated this the 7th day of June, 2010
J U D G M E N T
The petitioners are members of the Board of Directors of
Ayarkunnam Service Co-operative Bank Ltd, the second respondent
herein, who along with four others had assumed office on
3.12.2004. One of the members of the Board of Directors, viz., Shri.
O.K.Ramankutty is no more. Three other members who do not
support the petitioners, have got themselves impleaded as
additional respondents 4 to 6 in this writ petition. The term of office
of the committee comprising of the petitioners has expired on
2.12.2009. As per resolution No: 1308 dated 18.9.2009, the Board
of Directors had resolved to conduct a fresh election to the Board on
29.11.2009. The said resolution is Ext.P1. However, no action was
taken for the conduct of the election thereafter.
2. On 25.8.2008, an organisation called the Sahakarana
Janadhipathya Samrakshana Munnani, Ayarkunnam unit had filed a
petition before the first respondent Joint Registrar alleging
corruption, nepotism and maladministration against the Board of
Directors. On the basis of the said complaint, the first respondent
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directed the conduct of an enquiry against the committee under
Section 65 of the Kerala Co-operative Societies Act,1969 (the ‘Act’
for short). Accordingly, an enquiry was conducted and the report of
the said enquiry is Ext.P2. On the basis of the said enquiry, the first
respondent issued a show cause notice to the petitioners under
Section 65 of the Act seeking their explanation for the alleged
irregularities in Ext.P2 report. The said show cause notice is Ext.P3.
In response to the show cause notice, the petitioners submitted
Ext.P4 explanation to the first respondent. Thereafter, a personal
hearing was also conducted on 19.9.2009. Though the petitioners
were under the impression that their explanations would be accepted
by the first respondent, as per Ext.P5 proceedings, the Board of
Directors were superseded and the third respondent has been
appointed as the Administrator of the Society. According to the
petitioners, even before a copy of Ext.P5 was served on the
petitioners, the third respondent had assumed office. The petitioners
challenge Ext.P5 proceedings as being violative of the provisions of
Sections 32 and 65 of the Act.
3. The first respondent has filed counter affidavit justifying the
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impugned order Ext.P5. A separate counter affidavit has been filed
on behalf of respondents 2 and 3 also justifying the impugned
proceedings. Additional respondents 4 to 6 are also supporting the
respondents, as is evident from the statements in the affidavit filed in
support of their impleading petition I.A. No.12236/2009.
4. The gist of the contentions of the respondents is that the
petitioners, who constitute the majority in the Board of Directors,
were guilty of various acts of maladministration and misutilisation of
the funds of the society. According to them, the allegations against
the petitioners listed in Ext.P2 report constitute very serious acts of
misfeasance and malfeasance that justify the action that is initiated
against them. It is contended that in view of the gravity of the
charges against the petitioners, which are all proved, urgent and
drastic action was necessitated. In the compelling circumstances,
the first respondent had issued Ext.P5 which is absolutely justified
and is in compliance with the relevant provisions of law that are
applicable. Therefore, they pray for a dismissal of the writ petition.
5. I have heard Shri. George Poonthottam who appears for the
petitioners, the learned senior Govt. Pleader Shri. Mohammed
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Hashim who appears for the first respondent, Adv. P.C.Sasidharan
who appears for respondents 2 and 3 and Sri. B. Krishnamani who
appears for additional respondents 4 to 6.
6. According to the counsel for the petitioners, the impugned
proceedings Ext.P5 are absolutely unsustainable and liable to be set
aside for the reason that they have been issued in gross violation of
the mandatory provisions that are required to be complied with before
the issue of such proceedings by Sections 65 and 32 of the Act.
Regarding the factual allegations raised against the petitioners, the
counsel for the petitioners reiterates the explanation submitted as per
Ext.P4.
7. Adv. P.C.Sasidharan referred to the gravity of the
allegations raised against the petitioners to point out that loans have
been granted by them without proper documents or security, that an
amount of Rs.6.5 lakhs was deposited in the name of the Secretary
instead of depositing the same in the name of the Bank. When the
Secretary died, the amount was taken away by his wife. It is also
pointed out that the bank is running at a loss of Rs.26 lakhs at
present. According to the counsel, Section 65(6) empowers the first
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respondent to initiate action under Section 32 of the Act. Therefore,
action was initiated under Section 32. Since Section 32(3)
empowers the first respondent to dispense with the opportunity for
being heard, it is submitted that such an opportunity was dispensed
with. It is also pointed out that the general body of the society had
not met since the year 2006 and that non-convening of the general
body is one of the grounds for superseding the Committee.
8. Adv. Krishnamani submits that additional respondents 4 to 6
had resigned from the committee on 24.8.2009. Since no action was
taken on their resignation letters by the President, they had
complained to the Joint Registrar on 5.9.2009. According to the
counsel, though they were part of the Board of Directors, they were
not responsible for any of the alleged misdeeds for the reason that
they had resigned from the committee. He relies on the decision of
this Court in State of Kerala v. Sudarsanan {1997(2) KLT 522} to
submit that action under Section 32 could be initiated by the
Registrar even without taking resort to the provisions under Section
65 of the Act. Therefore, the impugned proceedings are not liable to
be set aside. He also refers to the seriousness of the allegations
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levelled against the petitioners to submit that the supersession was
perfectly justified. It is also the contention of the counsel for
respondents 4 to 6 that the first respondent had formed an objective
opinion on the basis of the various allegations against the petitioners
to which he has referred to in Ext.P5.
9. In reply, the counsel for the petitioners points out that the
Secretary of the Society, who has sworn to the counter affidavit in
this case, is a person who is also liable along with the petitioners in
view of Rule 47 of the Kerala Co-operative Societies Rules, 1969. It
is also pointed out that in Ext.P5 the first respondent has dispensed
with only the consultation that is contemplated under Section 32(2)
and that there is no reason stated for not following the procedure
mandated by Section 32(1) of the Act.
10. The power of enquiry by the Registrar is conferred by
Section 65 of the Act. In the present case, the action of the Registrar
has been initiated pursuant to a complaint by an outside
organisation. Pursuant to the complaint, an enquiry was ordered by
the first respondent and the report of the enquiry is Ext.P2. Section
65(4) stipulates that where an enquiry made under the section
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reveals only minor defects which in the opinion of the Registrar can
be remedied by the society, he shall communicate the result of the
enquiry to the society and he shall direct the society or its officers to
take such action within the time specified therein to rectify the
defects disclosed by such enquiry. Sub Section (6) provides that if
the Registrar on completion of the enquiry finds that there is a major
defect in the constitution or working or financial condition of the
society, he may initiate action in accordance with the provisions of
Section 32. Therefore, the Registrar on receipt of the report of
enquiry has to first enter a finding as to whether the report of enquiry
reveals only a minor defect or whether there is a major defect in the
constitution, working or financial condition of the society. Where
there are only minor defects, the Registrar is empowered to direct the
society to rectify the defects. Whereas, in the case of major defects,
he may initiate proceedings in accordance with the provisions of
Section 32. Therefore, a finding that the report of enquiry reveals a
major defect in the constitution or working or financial condition of the
society is a pre-condition for the initiation of action under Section 32
of the Act. The Joint Registrar exercising the powers of the Registrar
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is empowered to initiate proceedings in terms of Section 65 of the
Act, as done in the present case.
11. The question as to what is the correct procedure to be
followed while initiating proceedings under Section 65 of the Act has
been considered by this Court in the decision reported in Kandalloor
Farmers Service Co-operative Bank Ltd. v. Joint Registrar {2008
(4) KLT 856}. In paragraph 9 of the said decision, Thottathil
B.Radhakrishnan, J. has summarised the procedure to be followed
in the following words:-
“To arrive at the procedure to be followed, the
officer exercising the powers of the Registrar under
S.65 has necessarily to conclude whether the
enquiry reveals only minor defects or whether there
is major defect in the constitution or working or
financial condition of the society. The
consequences of the views that the Registrar may
have, following the enquiry under S.65(5), could be
drastic; having regard to S.68 and other provisions.
The legislative authorization in sub-section(6) of
S.65 that the Registrar may initiate action in
accordance with the provisions of S.32 is regulated
by the jurisdictional fact that the said officer reaches
a finding that there is major defect in either among
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the three aspects, namely, constitution, working and
financial condition of the society. On completion of
enquiry under sub-section (5) of S.65, the Registrar
will get the authority to initiate action in accordance
with the provisions of S.32 on the basis of that
enquiry, only when the Registrar, on completion of
the enquiry, finds that there is such major defect.
That provision in S.65(6), in contradistinction to
sub-section (1) of S.32, would show that the
grounds available for action under S.65(6) would be
beyond even those in clauses (a) to (d) of sub-
section (1) of S.32. All that the last limb of sub-
section (6) of S.65 provides is that the action under
that sub-section shall be in accordance with the
provisions of S.32. Therefore, to initiate action for
supersession on the basis of findings in an enquiry
under S.65(5), the Registrar has to definitely reach
at a finding that there are major defects in the
constitution or working or financial condition of the
society. Having commenced proceedings under
S.65, the Registrar cannot abdicate, or defer, the
function of arriving at a conclusion for himself
following the enquiry under S.65 and then, with the
materials gathered in the inquiry under S.65, move
on to S.32(1) of the Act. If that was permissible in
terms of the legislative intention, there was no
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necessity for sub-section (6) to use the words
“major defect” when such terms are not available in
S.32(1).”
I do not find any reasons to take a different view of the matter.
12. While initiating further action under Section 32 of the Act,
the procedure contemplated by Section 32 would have to be
complied with. As per Section 32(1), the Registrar has to be satisfied
that the committee of the society was guilty of persistent default or
negligence in the performance of the duties imposed on it by the Act,
or disobedience of the lawful orders or directions issued under the
provisions of the Act and the Rules or any of the other circumstances
enumerated therein. After having satisfied himself of the fact that the
circumstances justifying supersession of the committee were in
existence, he has to give an opportunity to the committee to state its
objections and thereafter he can remove the committee from office
and appoint a new committee in its place. Therefore, the question to
be decided in the present case is whether the first respondent has
complied with the above conditions before issuing Ext.P5 order.
13. As noticed above, Ext.P2 is the report of the enquiry under
Section 65 of the Act. It is true that various findings regarding the
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allegations against the petitioners have been reported in Ext.P2.
Therefore, Ext.P3 notice was issued to the petitioners directing them
to submit their explanation and to attend a personal hearing on
19.9.2006. Ext.P3 notice does not contain any finding regarding the
nature of the allegations levelled against the petitioners or their
sustainability. Ext.P3 merely states that the irregularities mentioned
therein have been found in the enquiry report under Section 65 of the
Act. Therefore, the members of the Board of Directors have been
directed to submit their explanations, if any, on 19.9.2009. An
opportunity to explain matters in person has also been granted as
per Ext.P3.
14. Pursuant to Ext.P3, Ext.P4 explanation has been submitted
by the petitioners. Ext.P5 shows that they were also personally
heard on 19.9.2009. Thereafter, Ext.P5 proceedings have been
issued, without following any other procedure. The Board has been
superseded as per Ext.P5 and a part-time administrator has been
appointed for the Society.
15. It is clear from the above that the first respondent has not
complied with the requirements of Section 65(6) or Section 32(1) of
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the Act. As per Section 65(6), the first respondent had to enter a
finding that there was a “major defect” in the constitution or working
or financial condition of the Society. In the present case, no such
finding has been entered by the first respondent. Once such a
finding is entered, the first respondent has the power to initiate action
in accordance with the provisions of Section 32 of the Act. Section
32 of the Act provides that where the Registrar is “satisfied” after an
enqiry by himself or through his subordinates or on a report of the
financing bank or the Vigilance and Anti Corruption Bureau of the
Government or the Vigilance officer or otherwise, that the committee
of a Society is guilty of one of the acts contemplated by Clauses (a)
to (d) of sub-section (1) thereof, he could proceed to take action
under the said provision. In such cases, the Registrar is duty bound
to give the committee an opportunity to state its objections, if any. It
is only thereafter that the Registrar has the power to pass an order
superseding the committee. No doubt sub-section (3) of Section 32
confers power on the Registrar to dispense with the opportunity
contemplated by sub-section (1) and the consultation contemplated
by sub-section (2) where the Registrar is of the opinion that it is not
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reasonably practicable to do so. In the present case, though Ext.P5
contains a statement dispensing with the consultation contemplated
by Section 32(3), there is no similar statement dispensing with an
opportunity under Section 32(1). In other words, Ext.P5 does not
contain any finding that the irregularities found by Ext.P2 report
constitute a “major defect’ as contemplated by Section 65(6) of the
Act. Such a finding is important for the reason that the procedure to
be followed in the case of “minor defect” is as laid down in sub-
section (4) whereas it is only in cases where a major defect is found
that the procedure under Section 65(6) of the Act is to be adopted.
Even when the Registrar is of the opinion that there is a “major
defect” in the constitution or working or financial condition of a
Society, he has to proceed under Section 32. It is clear from Ext.P5
that in the present case the procedure contemplated by Section 65(6)
as well as Section 32(1) have not been complied with.
16. Though the learned senior Government Pleader as well as
the counsel for the contesting respondents have vehemently argued
that a close reading of Exts.P3 and P5 would show that the first
respondent has applied his mind to the findings in Ext.P2 and that he
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had formed an opinion regarding the said findings, they are not
sufficient to satisfy the requirements of either Section 65(6) or
Section 32(1) of the Act which are mandatory. The finding regarding
a “major defect” and the “satisfaction” contemplated by Section 32(1)
of the Act have to be objectively arrived at and specifically entered. It
is clear from the wording of the provisions referred to above that the
legislature in its wisdom has conferred the drastic power of
supersession on the Registrar, hedged in by sufficient procedural
safeguards aimed at ensuring that the power was not misused.
When the statute provides that the exercise of a power shall be only
in accordance with the procedure stipulated in the provision, it follows
that the said power is not capable of being exercised in any other
manner.
17. The learned senior Government Pleader as well as the
learned counsel for the respondents were at considerable strain to
point out that the allegations levelled against the petitioners, by their
very nature are grave and serious. Therefore, it was not necessary
for the first respondent to specifically categorise the said irregularities
as “major defects”. Even without such a categorisation, the gravity of
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the defects was evident and clear in the present case. However, it is
a specific finding that there was “major defect” that is contemplated
by Section 65(6). When the provision specifically provides that the
action of the authority shall be preceded by a finding regarding the
existence of a “major defect”, a finding regarding the said
jurisdictional fact is necessary for initiating further action under
Section 32(1) of the Act. In the present case, since there is neither
such a finding nor compliance with Section 32(1), Ext.P5 cannot be
sustained.
For the foregoing reasons, this writ petition is allowed. Ext.P5
is quashed. It is made clear that the setting aside of Ext.P5 would
not preclude the first respondent from initiating appropriate action
afresh, on Ext.P2 report in accordance with law.
K.SURENDRA MOHAN
(JUDGE )
vps
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