w w w . L a w y e r S e r v i c e s . i n



The Managing Committee, (Under Order of Suspension), The Vellathooval Service Co-Operative Bank Ltd., Represented by Its President v/s The Joint Registrar of Co-Operative Societies (General), Office of The Joint Registrar of Co-Operative Societies (General), Idukki & Others


Company & Directors' Information:- B S AND SERVICE PRIVATE LIMITED [Active] CIN = U92419MH1946PTC004912

Company & Directors' Information:- BANK OF INDIA LIMITED [Active] CIN = U99999MH1906PLC000243

Company & Directors' Information:- CO-OPERATIVE COMPANY LIMITED [Active] CIN = U51226DL1910PLC299886

Company & Directors' Information:- CO-OPERATIVE COMPANY LIMITED [Active] CIN = U51226UP1910PLC000093

Company & Directors' Information:- GENERAL BANK PRIVATE LIMITED [Dissolved] CIN = U93090TN1935PTC000845

Company & Directors' Information:- OPERATIVE INDIA PRIVATE LIMITED [Active] CIN = U74300KA2008FTC048079

Company & Directors' Information:- N BANK LTD [Strike Off] CIN = U65191WB1924PLC000442

Company & Directors' Information:- SERVICE CORPORATION LIMITED [Dissolved] CIN = U93090KL1946PLC001075

Company & Directors' Information:- P N N BANK LIMITED [Strike Off] CIN = U65921TZ1948PLC000153

Company & Directors' Information:- CORPORATION BANK LIMITED [Strike Off] CIN = U99999KA1972PLC001067

Company & Directors' Information:- K AND C BANK LIMITED [Dissolved] CIN = U65191KL1928PLC000529

Company & Directors' Information:- CORPORATION BANK LIMITED [Not available for efiling] CIN = U99999MH1936PTC002552

    WP(C). No. 13602 of 2020 (A)

    Decided On, 04 August 2020

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE V. RAJA VIJAYARAGHAVAN

    For the Petitioner: George Poonthottam, Sr. Advocate, Arun Chandran, Nisha George, Advocates. For the Respondents: R1, Government Pleader, R2, P.C. Sasidharan, Sc, Bimal K. Nath, Sr. GP., R3, B.S. Swathi Kumar, Advocate.



Judgment Text


1. Questions posed for consideration in this Writ Petition filed by the Managing Committee of the Vellathooval Service Cooperative Bank Ltd. No.K71 (the ‘Bank’ for short) is whether the order of supersession of the Managing Committee invoking the exceptional powers of the Registrar under Section 32 (3) of the Kerala Cooperative Societies Act, 1969 (‘the Act’ for short) is justified in the facts and circumstances. The incidental question is whether the discretion exercised by the Registrar to proceed with the suspension of the Managing Committee without providing an opportunity to the Committee to state its objections and without consulting the Unions and financing Banks is arbitrary and liable to be interfered with by this Court.

2. To appreciate the grievance voiced by the Committee, few relevant facts which led to the exercise of such powers by the Registrar are required to be stated:

(a) The present Board of Directors of the Society was elected to office on 30.12.2018 and they assumed charge on 1.1.2019.

(b) During the tenure of the previous committee, based on various complaints which were received, an inquiry was conducted and it was noticed that the bank had failed to adhere to the provisions of the Act and Rules and also the circulars issued by the Registrar. Among other things, it was noticed that loans were sanctioned above limits and several other illegal acts were carried out in the matter of appointment, construction activities, auction of gold etc., resulting in the Bank incurring huge losses.

(c) The allegations were mainly directed against the Secretary of the Society, a certain Sri.Prestigu.K.S. It appears that as early as on 16.5.2017, he was suspended from service and a charge memo was served on him on various counts as can be seen from Exhibit P1. Exhibit P4 report by the Assistant Registrar also reveals that the former Secretary had misappropriated a sum of Rs.1,86,750/- from the accounts of a certain Chandi Mathew. Crime No.186 of 2019 of the Vellathooval Police Station is also seen to have been registered against the former Secretary as is evident from Exhibit P16.

(d) On 1.2.2018, a notice was issued to the previous Managing Committee under Section 32 (1) of the Act asking to show cause why proceedings under Section 32 of the Act shall not be initiated.

(e) The aforesaid proceeding was challenged before this Court and by judgment dated 5.12.2018 in W.P. (C) No.5739 of 2018, the challenge was repelled by this Court. The 1st respondent was ordered to take a decision after hearing the objections by the Managing Committee. However, no order had to be passed by 1st respondent as the present committee was elected to office by then.

(f) As stated earlier, the present Committee was elected to office and assumed charge on 1.1.2019.

(g) While so, based on a complaint lodged by Sri.P.K.Ibrahimkutty and others, an inquiry was ordered to be conducted by the Joint Inspector. From Exhibit P2 report submitted by the Assistant Registrar on 18.12.2019, it is apparent that the majority of the allegations are directed against Sri A.N. Sajikumar, the former President and, Sri.Prestigu, the former Secretary. It is also stated in the report that the present Managing Committee was elected to office only later.

(h) On the strength of Exhibit P2 report, Exhibit P3 proceedings were initiated by the 1st respondent under Section 65 of the Act.

(i) Exhibit P3 proceedings were challenged by the petitioner before this Court and by Exhibit P5 judgment, this Court dismissed the petition and the Society was asked to raise their objections before the Registrar. The petitioner took up the matter in appeal and a Division Bench of this Court by judgment dated 12.2.2020 disposed of the appeal by observing as follows :

“The present committee of the Bank assumed charge only on 30.12.2018. True that, a mere perusal of Ext.P3 as also the points directed to be enquired into under Ext.P4 would reveal that most of the actions allegedly done or incidents allegedly occurred while the previous committee was in office. Essentially, the apprehension of the appellant is that even if any illegality is found only with respect to the actions or incidents occurred prior to 30.12.2018 i.e., before the present Managing Committee assumed charge consequential drastic action is likely to be initiated against the appellant-committee subsequent to the submission of 65 enquiry report. We do not think that there is reason for entertaining any such apprehension as is clear that for the lapses or action of a previous committee the subsequent committee cannot be faulted and needless to say, cannot be proceeded against.”

(j) However, on 3.7.2020, the petitioner was served with an order under Section 32 (1) of the Act whereby the Managing Committee was suspended for a period of 6 months.

(k) Essentially, what is stated in Exhibit P7 is that the Managing Committee, which took charge on 1.1.2019 did not initiate any action to remedy the issues which were created by the previous Managing Committee. It is also stated that for conducting an effective inquiry under Section 65 of the Act, the continuance in office of the present committee would be an impediment.

3. The petitioner contends that Exhibit P7 order is vitiated by mala fides and arbitrariness. They state that Exhibit P7 order pertains to matters which took place during the tenure of the previous Managing Committee, and for their misdeeds, petitioner Society is not liable to be superseded. All that is stated in Exhibit P7 order is that the petitioner failed to rectify the illegal acts committed by the previous Committee and nothing more. It is contended that supersession or suspension, as the case may be, of an elected Managing Committee, is an exception and can be resorted to only in very exceptional circumstances as it is an affront on the concept of the democratic function of a Co-operative Society. It is further contended that the impugned order was passed by invoking 32(3) of the Act which enables the 1st respondent to suspend the Committee without affording an opportunity to the Committee to state its objections and consult the Unions and the financing banks. The impugned order would not show that the 1st respondent was satisfied that it was not reasonably practicable for him to permit the Committee to state its objections before the drastic step of suspension is taken. It is further contended that the appointment of an Administrator is a matter of serious import for the Society and its members as a democratically elected Committee is superseded and a nominee of the department assumes control and management of the Society. The normal mode of functioning for any such Society is through its elected Managing Committee and if this needs to be given a go by, it should only be for valid grounds, and after due and strict compliance with the provisions of the statute governing the matter.

4. The Joint Registrar has filed a statement justifying the action taken by him. It is stated that numerous complaints were received touching the functioning of the Managing Committee which necessitated the initiation of an inquiry. The preliminary report submitted before him showed that there are serious irregularities in the functioning of the Society. The present Managing Committee not only failed to rectify the wrong doings done by the former committee, but have been perpetrating more illegalities. Though they were asked to furnish the records, they have failed to do so. They have failed to cooperate and refused to furnish the documents called for. In so far as the allegations are concerned, it is stated that the Committee sanctioned loans to self-help group schemes beyond the sanctioned limit of Rs.10 lakhs and due to the mismanagement of funds, the loss of the bank rose to Rs.433.73 lakhs as on 31.3.2019. Hire Purchase loans and gold loans were being disbursed without adequate records and against the circulars. It is further stated that the petitioner had continued the functioning of the branches without obtaining the concurrence of the first respondent. The audit report for the year 2018 – 2019 revealed that while deposit outstanding is Rs.31.29 crores, the borrowings were Rs.4.35 crores. The loan outstanding is Rs.26.30 crores out of which Rs.8.71 crores are overdue. The 1st respondent, on the basis of the above materials, arrived at the satisfaction that continuance of the present managing committee would be against the interest of the members and depositors of the bank and accordingly proceeded to suspend the Committee invoking Section 32 of the Act and a parttime Administrator was appointed who took charge on 3.7.2020. It is further stated that since the exceptional powers under Section 32(3) of the Act were invoked, there is no requirement to either hear the committee or get the concurrence of the Union or the Bank.

5. The petitioner filed an additional affidavit wherein it is stated that the order of suspension of the former Secretary was challenged by him before the Cooperative Arbitration Court and the said Court stayed the disciplinary proceedings against the suspended employee and the Society was directed to take steps to take back the employee by Exhibit P12 interim order. The above interim order was subjected to challenge by the Society by filing W.P. (C) Nos. 40 & 144 of 2018 before this Court. The order of the Arbitration Court was stayed by this Court by Exhibit P13 order. Thereafter, the Writ petition was finally heard and the Arbitration Court was directed to finalise the proceedings within a further period of six weeks from the date of receipt of a copy of the judgment. It was further ordered that the interim order passed by this Court staying reinstatement shall continue till final orders are passed in the arbitration case. The Society challenged the judgment of the learned Single Judge by preferring W.A.No.1458 of 2019. By Exhibit P15 judgment dated 17.1.2020, the Writ Appeal was disposed of directing the Arbitration Court to conclude the proceedings within a period of six weeks without interfering with the stay of reinstatement. After taking charge of the management of the Society and during the pendency of this writ petition, without waiting for proceeding in the Arbitration Court to get completed as directed by this Court, the 2nd respondent issued Exhibit P11 proceeding and the Secretary was reinstated in service of the Society. This act of the 2nd respondent would show that the suspension of the Managing Committee is with ulterior motives and a clear case of abuse of power.

6. The second respondent has filed a counter affidavit. It is stated in the counter that Writ Petition is not maintainable as the petitioner has an equally efficacious remedy as per the statute governing the subject. It is stated that after assuming charge of the Society, the records were perused and it was realised that the Society, ignoring the statutory mandate, created artificial vacancies and appointed several persons without obtaining sanction. The Society was granted sanction for operating four branches at Saliyampara, Kallarkutty, Thokkupara and Koompanpara for a period of one year. Without obtaining continued sanction, the Society has been operating the said branches, that too by employing junior officers such as peons, and such arrangements are made to facilitate financial irregularity. Several irregularities in the matter of disbursal of loans without proper security were noticed as well. Several persons have been illegally promoted and the Committee failed to take steps to rectify the defects. It is further stated that the receipts by way of deposits, sale of manure, group deposits etc. do not tally with the money with the Society in the accounts maintained in the financing District Cooperative bank. The net loss incurred by the Society is about Rs.4.5 crores and the fund erosion is also Rs.4.5 crores. According to the 2nd respondent, the conduct of the Managing Committee referred to above would fall under the specific clauses referred to in Section 32 (1) of the Act. Insofar as reinstatement of the former Secretary is concerned, it is stated that arbitration proceedings challenging the disciplinary proceedings and suspension order are pending consideration. On assuming office the 2nd respondent noted that the suspended employee was not even granted subsistence allowance. Noting that the Society is incurring huge expenses owing to the continued suspension of the Secretary, and as it was felt that the suspension order was one issued as part of victimisation since the Secretary was not amenable to the financial irregularities, to ensure the smooth functioning of the Society, the Secretary was reinstated in service. It is stated that the action of the 2nd respondent is a bona fide action and is not based on any external influence. It is further stated that it is the duty of the President of the Society to maintain the registers and accounts in its proper form and to keep the records in safe custody. It is further stated that the Managing Committee is even more responsible than the Secretary in the financial transaction of the Society. It is stated that relatives of the employees were granted loans without proper security and one such instance was the advancement of a sum of Rs.10.25 lakhs by way of loan in favour of a certain Suriya, who is the wife of Ajesh .P. Raj, the peon of the Society.

7. A reply affidavit was filed by the petitioner controverting the contentions taken by the 2nd respondent in his counter. It is stated that one of the serious contentions raised by the 2nd respondent in the counter is that the branches of the Society are managed by junior employees. However, after resuming charge of the society, the part-time administrator is continuing with the same practice and by referring to Exhibit P17 proceedings of the administrator it is stated that peons of the Society have been entrusted with the management of the branches. Insofar as the sanctioning of loan to Suriya is concerned, it is stated that the loan was sanctioned on the strength of mortgaged property having an extent of 30 cents and which would cover the loan amount and even more. It is further stated that the 1st respondent is guilty of abuse of power and the management was entrusted with the 2nd respondent to facilitate the reinstatement of the suspended secretary.

8. I have heard Sri. George Poonthottam, the learned Senior Counsel as instructed by Sri. Arun Chandran, the learned Counsel, Sri Bimal.K.Nath, the learned Government Pleader, Sri P.C. Sasidharan, the learned counsel appearing for the 2nd respondent and Sri B.S. Swathi Kumar, the learned counsel appearing for the additional 3rd respondent.

9. Sri George Poonthottam, the learned senior Counsel submitted that suspension of the managing committee was for certain acts which took place during the period of the previous Managing Committee. The fact that the blame for the acts committed by the previous Committee cannot be placed on the present Committee was reiterated by the Division Bench while rendering Exhibit P6 judgment. It was contended that in the light of Exhibit P6, the conclusion is inescapable that Exhibit P7 is an order brought into effect to circumvent the orders of the Division Bench and to give a new lease of life to the former Secretary, who is being proceeded for having committed serious misappropriation. According to the learned counsel, though the 1st respondent has power under Section 32 (3) of the Act to super cede the Managing Committee of the Society, such power can be exercised, under normal circumstances only after issuing notice to the Managing Committee and after hearing their explanation under Section 32 (1) of the Act. Placing reliance on the judgment of the Apex Court in State of Madhya Pradesh and Others V Sanjay Nagayach and Others [(2013) 7 SCC 25], it was contended that when a statutory authority like the 1st respondent who is invested with power purports to act on its own but in substance the power is exercised by external guidance or pressure, it would amount to non-exercise of power. He contended that there was no justification for the petitioner being penalised for the shortcomings or illegalities committed by the previous Committee, unless there is any deliberate inaction in rectifying the illegalities by the previous Committee, which is not the case in the instant case. Much reliance was also placed on the judgment in Rajagopalan Nair V State of Kerala [1995 (2) KLT 184] and that in Rajeevan V.T. and others v K.A. Sukumaran and Others [2013 (3) KHC 46] to hammer home his contention.

10. Sri Bimal K. Nath, the learned Government Pleader, who appeared for the 1st respondent, defended his actions and it was argued that the reasons which persuaded the 1st respondent to invoke his powers under Section 32 (3) of the Act is emphatically laid down in Exhibit P7 order. The various defaults and irregularities are detailed in Exhibit P7 itself, and it has been stated that the illegal and irregular acts committed by the previous Managing Committee were continued by the petitioner as well. It has also been stated in Exhibit P7 that if emergent action under Section 32 (3) of the Act is not taken, the Committee would perpetuate further illegality and it would affect even the existence of the Bank. Much reliance is placed on the judgment of this Court in Hameed Kutty v Joint Registrar of Cooperative Societies [2017 (1) KLT 511] and also the judgment of the Division Bench in Hameed Kutty v Joint Registrar of Cooperative Societies (General) [2018 (3) KLT 149] to substantiate his submissions.

11. Sri P.C. Sasidharan, the learned counsel appearing for the 2nd respondent submitted that after taking over administration, several illegalities and irregularities were noticed and he points out that if the Managing Committee continues with the functioning of the Society, it would adversely affect the inquiry which is being conducted under Section 65 of the Act.

12. The submissions of the respondents were seconded by Sri.B.S.Swathi Kumar, the learned counsel who appeared for the additional 3rd respondent. It is contended that no interference is warranted under Article 226 of the Constitution of India as the action taken by the 1st respondent was well within his jurisdiction. It was contended that the continuance of the Committee would adversely affect the inquiry under Section 65 of the Act as they would be in a position to tamper with the documents and cover up the illegal activities. According to the learned counsel, the Registrar is empowered to pass an order of suspension in view of Section 32(3) of the Act if the conditions mentioned in the statutory provisions are satisfied. The learned counsel also placed reliance on the judgments of this Court in Hameed Kutty v Joint Registrar of Cooperative Societies [2017 (1) KLT 511] State of Kerala v. Sudarsanan [1997 (2) KLT 522], Hameed Kutty v Joint Registrar of Cooperative Societies (General) [2018 (3) KLT 149] , Dilip Khan v. Joint Registrar of Cooperative Societies, Tvm and Ors. [2018 (5) KHC 239], Utkal Cooperative Banking Society Ltd., v. State of Orissa and Ors. [AIR 2000 Ori 46] and Gurcharan Singh v. State of Haryana and Ors. [AIR 1979 P & H 61] to substantiate his contentions.

13. I have anxiously considered the submissions and have gone through the records. The question for consideration is whether Ext.P7 order passed by the 1st respondent is legal and valid. It is undisputed that Ext.P7 was passed in exercise of powers under Section 32(3) of the Act. A perusal of Ext.P7 would show that from the interim order submitted by the inquiry officer, serious irregularities, mismanagement and abuse of authority were noticed. However, what stands out is that most of the allegations are directed against the previous Managing Committee and the specific allegation against the petitioner is that no corrective action was taken by the present committee. This is apparent from a reading of Exhibit P7 which is extracted below.

“MALAYALAM”

14. It would be apposite at this juncture to refer to the statutory provisions. Section 32 of the Act deals with Supersession of committee which reads thus. –

32. Supersession of Committee

(1) If the Registrar, after an inquiry by himself or through his subordinates or on a report of the financing bank, or the Vigilance, and Anticorruption Bureau of the Government or the Vigilance Officer or otherwise, is satisfied that the committee of any society,-

(a) persistently makes default or is negligent in the performance of the duties imposed on it by this Act or the rules or the bye-laws or does anything which is prejudicial to the interests of the society; or

(b) wilfully disobeys or fails to comply with any lawful order or direction issued under this Act or the rules; or

(c) makes any payment contrary to this Act or the rules or the bye-laws or causes any loss or damage to the assets of the society, by breach of trust or wilful negligence; or

(d) misappropriates or destroys or tampers with the records or causes the destruction of records to cover up any misconduct or malpractice, he may, after giving the committee an opportunity to state its objections, if any, by order in writing, remove the committee and appoint in its place, one administrator or an administrative committee consisting of not more than three individuals, one among them as convener, who need not be members of the society, to manage the affairs of the society for a period not exceeding six months [***]

[Explanation I. For the Purposes of this proviso, financial assistance includes any financial assistance from the Kerala Co-operative Deposit Guarantee Fund Board, Kerala Co-operative Development and Welfare Fund Board, National Bank for Agriculture and Rural Development, National Co-operative Development Corporation and any other financial institution under the control of the State or Central Government and also any financial financial institution under the Control of the State or Central Government and also any financial assistance guaranteed by the said institutions.]

Explanation [II]. - A notice and an order given as per this clause to the President, in his absence to the Vice President or any committee member who is holding charge of President or Vice President or to the Chief Executive of a society shall be treated as an order given to the committee of the society.]

[(e) Every member of the committee superseded under this section shall from the date of order of such supersession stand disqualified to contest in the election to or to be nominated to the committee of any Society or to be appointed as an administrator in any society for two consecutive terms;]

[Provided that in the case of co-operative society, carrying on the business of banking, the provisions of the Banking Regulation Act, 1949 (Central Act 10 of 1949) shall also apply:

Provided further that in the case of a co-operative society, carrying on the business of Banking, appointment of administrator/administrative committee shall not exceed one year in the aggregate:

Provided also that the board of a co-operative society shall not be superseded or kept under suspension where there is no Government share holding or loan or financial assistance or any guarantee by the Government or any Board or Institutions constituted by the Government.]

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

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

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

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

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

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

(6) Every order made by the Registrar under sub-section (1) shall be communicated to the circle co-operative union.

15. As per sub-section (1) of Section 32, if the Registrar, after an enquiry 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, is satisfied that the committee of any society, persistently makes default or is negligent in the performance of the duties imposed on it by the Act or the rules or bye-laws or does anything which is prejudicial to the interests of the society; or wilfully disobeys or fails to comply with any lawful order or direction issued under the Act or the rules; or makes any payment contrary to the Act or the rules or the bye-laws or causes any loss or damage to the assets of the society, by breach of trust or wilful negligence; or misappropriates or destroys or tampers with the records or causes the destruction of records to cover up any misconduct or malpractice, the Registrar may, after giving the committee an opportunity to state its objections, if any, by order in writing, remove the committee and appoint in its place, one administrator or an administrative committee consisting of not more than three individuals, one among them as convener, who need not be members of the society, to manage the affairs of the society for a period not exceeding six months. The 3rd proviso to sub-section (1) of Section 32 provides that, the Board of Co-operative Society shall not be superseded or kept under suspension where there is no Government shareholding or loan or financial assistance or any guarantee by the Government or any Board or Institutions constituted by the Government. Going by sub-section (2) of Section 32, the Registrar shall consult the financing bank and Circle Co- operative Union or State Co-operative Union, as the case may be, before passing an order under sub-section (1). Subsection (3) of Section 32, which begins with a non obstante clause provides that, notwithstanding anything contained in sub-section (1) or sub-section (2) it shall not be necessary to give an opportunity to the committee to state its objections and to consult the Unions and financing banks, in cases where the Registrar is of the opinion that it is not reasonably practicable to do so, subject however to the condition that in such cases the period of supersession shall generally be for six months and in case a new committee cannot be constituted or enter upon office in accordance with the bye-laws of the society within the period of supersession, the period may be extended for a further period not exceeding six months in the case of a co-operative society only after consulting the Circle Co-operative Union concerned; and in the case of an Apex Society or a Central Society only after consulting the State Co-operative Union.

16. It is apparent that the present Committee had assumed office only on 1.1.2019. Exhibit P2 is the report dated 18.12.2019 submitted by the Assistant Registrar before the 1st respondent which incidentally is based on the report submitted by the Unit Inspector. After detailing about 14 counts of allegations, the Assistant Registrar concludes thus :-

“MALAYALAM”

17. Much deliberation is not required to conclude that the majority of the allegations are in respect of various acts committed during the term of the previous Managing Committee. When notice under Section 65 of the Act was issued to the petitioner they had approached this Court and a Division Bench of this Court, by Exhibit P6 judgement, took note of the grievance of the petitioner that drastic action including supersession would be initiated against them for the misdeeds of the previous Committee. This Court had observed that for the lapses or action of the previous Committee, the subsequent Committee cannot be faulted. It is in the above context that Exhibit P7 order passed by the 1st respondent invoking the exceptional powers are required to be considered. All that is mentioned is that the present Committee continued with the misdeeds committed by the previous Committee and that their continuance in office during the inquiry would adversely affect the inquiry. On its basis, the 1st respondent has proceeded to pass an order under Section 32 (3) of the Act.

18. Since the impugned order has resulted in the supersession of a Society which was elected on democratic principles, this Court is required to minutely scrutinize the order and to decide whether extraordinary action on the part of the 1st respondent was warranted in the facts and circumstances. As the preamble of the Act exhorts, the State has to endeavor to promote voluntary formation, autonomous functioning, democratic control and professional Management of Cooperative Societies. The legislature also felt that there is a strong need to keep the Societies free from outside interference and also to ensure their autonomous organisational setup and democratic functioning. The scheme of the Act is that the Societies are required to be managed by elected representatives and that being the mode of functioning as envisaged, the very drastic step of superseding the Managing Committee under Section 32 of the Act can be resorted to only in exceptional circumstances, that too only in strict compliance with the mandatory procedure prescribed in Section 32 of the Act. The significance of insisting with calling for objection and consultation is that if a Managing Committee is superseded under Section 32 of the Act, it will result in disqualification of every member of the Managing Committee in the matter of contesting future elections to the Managing Committee for two consecutive terms. It is in view of the drastic nature of the power that the Legislature has incorporated safeguards in the matter of exercise of such powers, so that the Registrar will have no alternative but to act in the best interest of the Society and its members and strictly in terms of the provisions of the Act. The first condition before invocation of powers under Section 32 (1) of the Act by the Registrar is that an opportunity needs to be given to the Committee to state its objections to the proposed act. The second condition is that the Registrar should consult the financing Bank and Circle Cooperative Union or State Cooperative Union, as the case may be, before passing an order under Sub section (1) of Section 32. These conditions are to be complied with in order to satisfy the requirements of natural justice. Sub-section (3), however, confers an extraordinary power on the Registrar to act under sub section (1) without complying with any of the above two conditions, if he is of the opinion that it is not reasonably practicable to do so. The Act, however, provides no indication as to how the said powers are to be exercised. However, there cannot be any second thoughts to conclude that the Registrar has to bear in mind that the Cooperative Societies should have greater autonomy in their functioning and the control over them should not culminate in virtually depriving them of their democratic and autonomous character. As held by this Court in Rajagopalan Nair V State of Kerala [1995 (2) KLT 184], progressive officialisation and politicisation should not result in inflicting serious damage to the cooperative movement resulting in supersession of elected boards of societies on flimsy grounds and reasons. Unless the Joint Registrar gives very cogent and acceptable reasons for dispensing with such requirements, his orders are liable to be called in question.

19. In the light of the above principles, if Ext.P7 order is examined, it would be apparent that the Committee which assumed office on 1.1.2019 was suspended for a period of 6 months mainly for the laches of the previous Managing Committee. This fact is clearly evident from Ext.P2 report which is dated 18.12.2019. The Registrar chose to suspend the petitioner without complying with the mandatory formalities like calling for objection and consultation as according to him, the Society would manage to interfere with the inquiry which is being conducted under Section 65 of the Act.

20. In Vallapuzha Service Cooperative Bank Ltd. v. Joint Registrar [2009 (3) KLT 838] this Court had observed that supersession of a democratically elected committee is a very drastic and extreme step. It is not necessary to cite any judicial precedents to hold that action under Section 32 of the Act cannot therefore be taken lightly for mundane violations. Only if the findings against the Committee are such that the continuance of the Committee would be extremely prejudicial to the interests of the Society, the exceptional and rare action under Section 32 of the Act shall be taken. Findings on the culpability of the Committee on their improper action should inform the action of the Registrar while initiating proceedings under Section 32 of the Act. In other words, the mere finding that the Committee has done the acts alleged alone is not sufficient; the same should be supported by a further finding that they did the same with a culpable mind, failing which the action of the Registrar would be improper. In Sanjay Nagayach (supra), the Supreme Court had occasion to observe that where the allegations are mainly relating to the period of the previous Managing Committee, it would not be proper for the Registrar to supersede the elected Managing Committee. It was further held that supersession of an elected Managing Committee is an exception and can be resorted only in exceptional circumstances and normally the elected body should be allowed to complete the term for which it is elected. It has also been held that the elected committee in office be not penalised for the shortcomings or illegalities committed by the previous Committee unless there is any deliberate inaction in rectifying the illegalities committed by the previous Committee. In paragraph No. 42 of the judgment, the Apex Court had issued general directions taking note of the mushrooming of cases in various Courts challenging orders of supersession of elected Committees:

1) Supersession of an elected managing Committee/Board is an exception and be resorted to only in exceptional circumstances and normally elected body be allowed to complete the term for which it is elected.

2) Elected Committee in office be not penalised for the shortcomings or illegalities committed by the previous Committee, unless there is any deliberate inaction in rectifying the illegalities committed by the previous committees.

3) Elected Committee in Office be given sufficient time, say at least six months, to rectify the defects, if any, pointed out in the audit report with regard to incidents which originated when the previous committee was in office.

4) Registrar/Joint Registrar are legally obliged to comply with all the statutory formalities, including consultation with the financing banks/Controlling Banks etc. Only after getting their view, an opinion be formed as to whether an elected Committee be ousted or not.

5) Registrar/ Joint Registrar should always bear in mind the consequences of an order of supersession which has the effect of not only ousting the Board out of office, but also disqualify them for standing for election in the succeeding elections. Registrar/Joint Registrar therefore is duty bound to exercise his powers bona fide and not on the dictation or direction of those who are in power.

6) Registrar/Joint Registrar shall not act under political pressure or influence and, if they do, be subjected to disciplinary proceedings and be also held personally liable for the cost of the legal proceedings.

7) Public money not to be spent by the State Government or the Registrar for unnecessary litigation involving disputes between various factions in a co-operative society. Tax payers money is not expected to be spent for settling those disputes. If found necessary, the same be spent from the funds available with the concerned Bank.

21. In Rajeevan T.V. and others v. K.A. Sukumaran and Others [2013 (3) KHC 46 ], this Court had occasion to hold that supersession of an elected Managing Committee or Board is an exception and can be resorted to only in very exceptional circumstances and normally an elected body shall be allowed to complete the term for which it was elected. In that case, notice was dispensed with and no opportunity was afforded to the committee to state their objections by invoking the powers under Section 32 (3) of the Act. While rejecting the contention of the learned Government Pleader that the practicability mentioned in Section 32(3) of the Act is not physical practicability, but logical practicability, this Court in paragraph No. 9 of the judgment had occasion to observe thus:

“We are not inclined to subscribe to the contention of the learned Government Pleader that the practicability mentioned in Section 32(3) of the Act is not physical practicability, but, logical practicability, taking into account all the facts including the seriousness of the allegations raised against the members of the managing committee and the probable result of giving such an opportunity, granting them time, which has to be considered while deciding to dispense with the opportunity. We are of the opinion that the words "it is not reasonably practicable to do so", qualifies the opportunity to the committee to state its objections and nothing else. It is settled law that an exception in a Section of an enactment has to be construed strictly. The learned Single Judge had, in paragraph 23 of the Judgment, considered this aspect of the matter thus:

"23. What is relevant is whether it is practically not possible to issue notice and give an opportunity to explain. It is not the gravity of allegations or irregularities noticed during inspection that matters, to avoid issuance of the notice. Notice contemplated under Section 32(1) can be dispensed only if it is not practical to issue notice to the managing committee and not based on the allegations in the report. Despite the fact that there are serious allegations, only in an instance where it is not practically possible to issue notice to the managing committee on account of various factors like failure of the managing committee in not accepting notice, the members of the managing committee not available to receive notice that an immediate seizure of all the books of the bank is required for verification etc. that such serious attempt can be made to supersede an elected body. The fact that the statute itself had given an opportunity in the form Section 32(1) to the managing committee to explain the irregularities or the mistakes or the defaults which are brought to their notice during inspection by itself indicates that it is not the allegations in the report that matters in order to avoid a notice but the practical difficulty in issuing notice to the members of the committee."

22. As observed in Rajeevan (supra) "it is not reasonably practicable to do so", in Section 32(3) qualifies the opportunity for the Committee to state its objections and to consult the Unions and financing Banks. What is relevant is whether it is practically impossible to issue notice and give an opportunity to explain and consult. It is not the gravity of allegations or irregularities noticed during inspection that matters, to avoid issuance of the notice. Notice contemplated under Section 32(1) of the Act can be dispensed only if it is not practical to issue notice to the Managing Committee and not based on the allegations in the report. Despite the fact that there are serious allegations, only in an instance where it is not practically possible to issue notice to the managing committee on account of various factors like failure of the Managing Committee in not accepti

Please Login To View The Full Judgment!

ng notice, the members of the Managing Committee not available to receive notice that an immediate seizure of all the books of the bank is required for verification etc. that such serious attempt can be made to supersede an elected body. The fact that the statute itself had given an opportunity in the form Section 32(1) of the Act to the Managing Committee to explain the irregularities or the mistakes or the defaults which are brought to their notice during inspection by itself indicates that it is not the allegations in the report that matters in order to avoid a notice but the practical difficulty in issuing notice to the members of the Committee. 23. In the case on hand, along with dispensing with the opportunity to the Committee to state its objections for explaining the steps taken by them to correct the irregularities committed by the previous Committee, consultation with the financing bank and the Circle Union were also dispensed with. Consultation has been held to be mandatory and serves an important and vital purpose in the context of an action to supersede an elected Managing Committee of a Society. Therefore, while dispensing with the opportunity to the Committee to state its objections results in non-consultation with the financing bank and the Circle Co-operative Union, that is also a reason to hold that the dispensing with the opportunity to the Committee to state its objections cannot be lightly resorted to. [See Rajeevan (Supra)]. Though the 1st respondent and the 2nd respondent in the respective counter affidavits have narrated several misdeeds, there is no reference to those accusations in Exhibit P7. Except for a bare accusation that the Committee would interfere with the inquiry under Section 65 of the Act, no other fact is stated. I am of the considered opinion that the reasons stated in the order are not of such a nature to dispense with the mandatory provisions of calling for objection from the Committee and carrying out a consultation as mandated under law. As has been observed by the Apex Court in Sanjay Nagayach (supra), the Registrar/ Joint Registrar, while exercising powers of supersession has to form an opinion and that opinion must be based on some objective criteria, which has nexus with the final decision. A statutory authority shall not act with pre-conceived notions, because the formation of opinion must be his own, not somebody else in power, to achieve some ulterior motive. There may be situations where the Registrar/Joint Registrar are expected to act in the best interest of the society and its members, but in such situations, they have to act bona fide and within the four corners of the Statute. 24. I am not impressed by the contention advanced by the learned counsel appearing for the 2nd respondent that in view of the alternate remedy available to the petitioner, this Court should refuse interference under Article 226 of the Constitution of India. As observed by the Apex Court in Sanjay Nagayach (supra), the alternate remedy of appeal is not a bar in exercise of jurisdiction, as the order passed by the 1st respondent is clearly arbitrary and in clear violation of the statutory provisions. 25. For the afore reasons, I am of the considered opinion that the impugned order cannot be sustained under law. 26. Though certain disturbing aspects were brought to the notice of this Court during the hearing about the act of the 2nd respondent in reinstating the previous Secretary against whom some accusations are pending as is borne out from Exts.P2 and P17, I do not deem it necessary to burden this judgment with those facts. 27. This Writ Petition will stand allowed. (A) Exhibit P 7 will stand quashed. (B) The petitioner as well as 1st respondent shall treat Exhibit P7 as a notice under Section 32 (1) of the Act. The petitioner shall file their objections within two weeks from today. The 1st respondent shall consider the objections and after complying with the procedure contemplated under Section 32 of the Act and in strict compliance with the decision of the Apex Court in Sanjay Nagayach (supra) shall pass appropriate orders. (C) The petitioner shall be put back in power forthwith and during the period of the inquiry, they shall not take any policy decisions affecting the society, but shall confine themselves to carrying out the day-to-day activities. (D) The petitioner shall fully cooperate with the inquiry and shall diligently comply with Section 65(2) of the Act to facilitate the completion of the inquiry.
O R