M. Purushothaman Nair v. State of Kerala — 1970 DIGILAW 47 (KER)

JUDGMENT M.U. Isaac, J. 1. The Trivandrum District Cooperative Bank Ltd., (hereinafter referred to as the Bank) is a registered cooperative society under the Travancore - Cochin Cooperative Societies Act, 1951. This Act has now been repealed and replaced by the Kerala Cooperative Societies Act, 1969 (hereinafter referred to as the Act). Under the bye laws of the Bank, the management of its affairs is vested in a Board of Directors consisting of not more than eleven members subject to such resolutions as the general body may pass from time to time. The Board shall elect from among themselves the president and the Vice President. The period of the Board shall be three years beginning with the first of September. The Board consists of both elected and nominated members. Each member of the Board shall continue in office after the expiry of his term, until another member is elected in his place; and a retiring number shall also be eligible for reelection; but a nominated member holds office only during the pleasure of the authority nominating him. It shall be competent for the general body to remove any elected number and elect another in his place after giving due notice. The Board of Directors shall meet once in three months or oftener if necessary to conduct the affairs of the Bank. The quorum for a meeting shall be five; and all questions shall be decided by a majority of votes. The President or the presiding number, as the case may be, shall have a casting vote in case of equality of votes. If a member of the Board absents himself for four consecutive meetings without its permission, he shall cease to be a member. A meeting of the Board may be convened by the Executive Committee or the President on seven days' notice. The President shall also call a meeting upon a written requisition of not less than one half of the members of the Board within 14 days from the date of giving such requisition. Subject to the general directions that the Board may issue from time to time, the administration of the affairs of the Bank is vested in an Executive Committee, consisting of five members including the President, the Vice President and three other directors elected by the Board of Directors from among themselves. Subject to the general directions that the Board may issue from time to time, the administration of the affairs of the Bank is vested in an Executive Committee, consisting of five members including the President, the Vice President and three other directors elected by the Board of Directors from among themselves. The members of the Executive Committee shall hold office during the term of their membership of the Board; but he shall cease to hold that office, if he absents himself from three consecutive meetings of the Committee. The Executive Committee also takes decisions by the majority of votes. Three members shall form the quorum for a meeting of the Executive Committee; and its decision shall not be valid unless it is assented to by at least three members. These are some of the relevant provisions in the bye laws of the Bank relating to its management. 2. The three petitioners in this Original Petition and respondents 5 to 12 are members of the Board of Directors, the fifth respondent being the President and the sixth respondent being the Vice President. Respondents 4, 6, 7 and 12 along with the third petitioner form the Executive Committee. Sometime after the constitution of the above Board, differences arose among the members on several matters. Consequently six members of the Board of Directors sent a non confidence motion against the members of the Executive Committee to the 5th respondent, the President, requesting him to convene a meeting of the Board of Directors to consider that matter. He placed it before the Executive Committee which resolved to convene a meeting of the Board of Directors on 10-4-1969. In the meanwhile, one Sri. Balakrishna Pillai, who is a member of the Bank, filed O. P. 2059 of 1969 in this Court and obtained an interim ex parts order on 8 4 1969, restraining the Board of Directors from convening its meeting on 10-4-1969. The interim order was vacated sometime in May 1969; but before that, the fifth respondent had taken steps to convene a general body meeting. Then another member of the Bank filed a suit in the Munsiff's Court, Trivandrum and obtained an interim order restraining the convening of the general body meeting. The interim order was vacated sometime in May 1969; but before that, the fifth respondent had taken steps to convene a general body meeting. Then another member of the Bank filed a suit in the Munsiff's Court, Trivandrum and obtained an interim order restraining the convening of the general body meeting. The six persons who had given notice of the no confidence motion against the Executive Committee then moved the Registrar of Cooperative Societies, the third respondent, to convene a meeting of the Board of Directors. The third respondent thereupon by his letter, Ex.. P 2 dated 23-5-1969, wrote to the fifth respondent the President of the Bank requesting him to convene an urgent meeting of the Board to consider all matters mentioned in Ex. P 2. The President, however, did not take any prompt steps to conduct the meeting. Then seven members of the Board of Directors, including petitioners 1 and 2, filed a representation, Ex. P 3 dated 27-5-1969 before the Deputy Registrar of Cooperative Societies, detailing the circumstances under which the administration of the Bank was coming to a standstill and requesting him to exercise his powers under S.30(4) of the Act to convene a meeting of the Board of Directors and solve all the problems which the Bank was facing. Apparently pursuant to Ex. P 3, a meeting of the Board of Directors was convened by the Deputy Registrar on 11-6-1969. Though the most important matter was to consider the no confidence motion, and to elect an Executive Committee to carry on the administration of the Bank, in case the no confidence was passed, that item was not included in the agenda of the meeting, but the Board transacted certain other administrative business and adjourned the meeting for being held on 20-6-1969. Then Shri Balakrishna Pillai again appeared on the stage by filing a suit in the Munsiff's Court, Trivandrum and obtained an ex parte interim order restraining the convening of the meeting of the Board of Directors fixed to be held on 20 6 1969. Thereafter nothing was heard except that the third respondent, the Registrar of Cooperative Societies in exercise of the power vested in him under S.32(1) of the Act read with Sub-s.(3) thereof issued an order, Ex. Thereafter nothing was heard except that the third respondent, the Registrar of Cooperative Societies in exercise of the power vested in him under S.32(1) of the Act read with Sub-s.(3) thereof issued an order, Ex. P5 dated 10-7-1967 by which he superseded the Board of Directors of the Bank and appointed the fourth respondent as administrator to manage the affairs of the Bank. This Original Petition has been filed to quash Ex. P5, to direct the fourth respondent to hand over the management of the affairs of the Bank to the Board of Directors, and to elect a new President, Vice President and an Executive Committee for carrying on the normal functioning of the Bank. 3. The second respondent in this Original Petition is Shri P. R. Kurup who was the Minister for Cooperation, at all relevant times. Very serious allegations have been made against him; and one of the main attacks against Ex. P5 is that it is an order passed by the Registrar at the dictation of the Minister malafide and merely on political considerations. According to the petitioners, Shri Balakrishna Pillai who filed O. P. 2059 of 1969 and the suit in the Munsiff's Court, Trivandrum and obtained ex pane interim injunctions restraining the convening of the meeting of the Board of Directors is one of the leaders of the political party to which Mr. Kurup belongs and all those proceedings were instituted and such orders obtained at the instance of Shri Kurup, in order to create a dead lock in the management of the Bank by the Board of Directors, and make use of that situation for superseding it under S.32(1) of the Act. Kurup belongs and all those proceedings were instituted and such orders obtained at the instance of Shri Kurup, in order to create a dead lock in the management of the Bank by the Board of Directors, and make use of that situation for superseding it under S.32(1) of the Act. The reason for this mala fide conduct and abuse of his high position as Minister of this State is said to be that the President and the Vice President belonged to the Minister's political party, that they had a majority in the Executive Committee, that the Minister and his party leaders were exploiting this situation for giving loans from the Bank to their party men contrary to its bye laws and to the detriment of the Bank and by creating unnecessary offices and making appointments thereto, that the Executive Committee could not hope to carry on like that, as the majority of the Board of Directors had given notice of no confidence motion against the Executive Committee, that under these circumstances the Minister wanted to supercede the Board and appoint his own nominee as administrator so as to enable him to continue to misuse the assets of the Bank for his personal advantage and the party men. The 2nd respondent has filed a counter affidavit denying the above charges. The 5th respondent also denies the allegations against him. I think that it is possible for me to dispose of this case without going into the above allegations. I may, however, observe, that, if the Deputy Registrar took up first, as he should have done, the no confidence motion against the Executive Committee in the meeting of the Board of Directors on 11-6-1969, and that matter was settled according to the majority of votes, all the difficulties created for the management of the affairs of the Bank according to its bye laws would have been solved, and there would have been no occasion for the Registrar to exercise his power under S.32 of the Act. 4. The order of the Registrar was also attacked on the grounds that on the facts of the case there was absolutely no reason to invoke his power under Sub-s.(3) of S.32 of the Act, and that this Sub-section is unconstitutional, as it confers an arbitrary and unguided power on the Registrar. 4. The order of the Registrar was also attacked on the grounds that on the facts of the case there was absolutely no reason to invoke his power under Sub-s.(3) of S.32 of the Act, and that this Sub-section is unconstitutional, as it confers an arbitrary and unguided power on the Registrar. It is necessary to read Sub-s.(1), (2) and (3) of S.32, in order to appreciate the above contention. "32. Supersession of Committee -- (1) If the Registrar is satisfied that the committee of any society 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 commits any act which is prejudicial to the interests of the society or wilfully disobeys or wilfully fails to comply with any lawful order or direction issued under this Act or the rules, the Registrar may, after giving the committee an opportunity to state its objections, if any, by order in writing remove the committee." (a) appoint a new committee consisting of not more than three members of the society in its place; or (b) appoint one or more administrator or administrators who need not be a member or members of the society, to manage the affairs of the society for a period not exceeding one year as may be specified in the order, which period may, at the discretion of the. Registrar, be extended from time to time, so however that the aggregate period does not exceed three years. (2) The Registrar shall consult the financing bank and circle Cooperative union or State Cooperative union as the case may be before passing an order under sub-s.(1). (3) Notwithstanding anything contained in Sub-s.(1) or sub-s.(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 reasonable practicable to do so, subject however to the condition that in such cases the period of super-session 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 super-session the period may be extended for a further period not exceeding six months. (a) in case of a cooperative society only after consulting the circle Cooperative union concerned; and (b) in the case of an Apex Society or a Central Society only after consulting the State Cooperative Union. XXX The reasons stated by the Registrar in Ex. P 5 are briefly the following: (1) There has been no meeting of the Executive Committee after 1-4-1969, for want of quorum. Subsequently meetings could not be held as the President and the Vice President alone were present. The remaining three members of the Committee lost their membership on account of their continued absence for three meetings. The Executive Committee itself has ceased to exist, as it cannot function without a minimum of three members. (2) No meeting of the Board was held after 6-3-1969, though under the bye laws the Board shall meet once in three months and oftener, if necessary. (3) The non existence of the Executive Committee and the failure of the Board of Directors to transact business were adversely affecting the loan operations of the Bank and the member societies. (4) The President did not convene a meeting of the Board of Directors as directed by the Registrar on 4-6-1969. (5) The adjourned meeting of the Board fixed to be held on 20-6-1969 was stayed by the Munsiff's Court, Trivandrum; and (6) The President failed to convene a General Body meeting, in spite of the direction of the Deputy Registrar and also a requisition from one fifth the members of the Bank. Ex. P5 shows that a situation had been created, which required interference of the Registrar. As already indicated, that situation could have been very well rectified by the Registrar convening a meeting of the Board of Directors in exercise of his power under S.30(4) of the Act, placing the no confidence motion against the Executive Committee for consideration of the meeting and electing a new committee according to the majority of votes. But I am concerned with the question whether the reasons stated above would warrant his action under Sub-s.(1) of S.32 read with Sub-s.(3). Sub-s.(1) confers on the Registrar the power to supersede the committee of any society and appoint a new committee or administrator for its management for any of the reasons mentioned therein. The exercise of this power is subject to two mandatory conditions. Sub-s.(1) confers on the Registrar the power to supersede the committee of any society and appoint a new committee or administrator for its management for any of the reasons mentioned therein. The exercise of this power is subject to two mandatory conditions. One is that he should give an opportunity to the Committee to state its objections to the proposed action. The other is that he should consult the financing bank and Circle Cooperative Union or the State Cooperative Union. These are the conditions required to satisfy the requirements of natural justice. Sub-s.(3) confers an extraordinary power on the Registrar to act under sub-s.(i) without complying with any of the above two conditions, if he is of the opinion that it is not practicable to do so. The Act contains no guidance for the exercise of the said power. R.44(1)(k) of the Cooperative Societies Rules, 1969 provides that a member of a superseded committee shall be ineligible for being elected or appointed as member of a committee of any society for a period of one year. The right to be elected or appointed to a committee is a valuable civil right; and the consequence of the exercise of the power under Sub-s.(3) of S.32 would be to take away such a right of a citizen without hearing him. There is prima facie considerable force in the contention that Sub-s.(3) of S.32 of the Act is unconstitutional, as it confers an unguided and naked extraordinary power on the Registrar. But I consider it unnecessary to decide that question as I am satisfied on the facts of this case, that the order of the Registrar cannot be sustained under S.32 on any of the reasons stated by him. In the first place, none of the reasons stated by him in Ex. P5 is relevant in forming an opinion that it was not "reasonably practicable" to comply with the mandatory requirements of Sub-s.(1) and (2) of S.32. Secondly the power under S.32 can be exercised only if the Registrar is satisfied that all or any one of the conditions mentioned in Sub-s.(1) exist. These conditions are: (1) The committee persistently makes default or is negligent in the performance of the duties imposed on it by the Act or the Rules or the bye laws. Secondly the power under S.32 can be exercised only if the Registrar is satisfied that all or any one of the conditions mentioned in Sub-s.(1) exist. These conditions are: (1) The committee persistently makes default or is negligent in the performance of the duties imposed on it by the Act or the Rules or the bye laws. (2) It commits any act which is prejudicial to the interests of the society; and (3) It wilfully disobeys or wilfully fails to comply with any lawful order or direction issued under the Act or the Rules made thereunder. The only allegation as regards the members of the Board of Directors are concerned is that they failed to convene meetings of the Board after 6-3-1969. The other charges relate to the Executive Committee and the President of the Board of Directors. The meetings of the Board fixed to be held on 10-4-1969 and 20-6-1969 were got stayed by ex pane interim orders obtained by Sri. Balakrishna Pillai, who is alleged to be the person set up by the Minister to create an impasse in the management of the Bank according to its bye laws and prepare a ground for the Registrar to take the impugned action. The majority of the Directors were doing everything possible to avert this situation; and as already stated if the Registrar acted under S.30(4) of the Act to convene a meeting of the Board of Directors to consider the non confidence motion and elect a new Executive Committee, there would have been an end of the whole trouble, and this alleged mismanagement of the President and Vice President for political objects would have come to an end. So, there was no scope for making any charge against the Board of Directors as such. The negligence or default or misconduct on the part of the President or Executive Committee is no ground for superseding the Board as a whole. 5. In the result I quash Ex. P5. At the same time, it is necessary in the circumstances of this case that the requisite directions should be given for the management of the affairs of the Bank in accordance with its bye laws. 5. In the result I quash Ex. P5. At the same time, it is necessary in the circumstances of this case that the requisite directions should be given for the management of the affairs of the Bank in accordance with its bye laws. The petitioners themselves have prayed for a writ of manadmus against the third respondent to convene a meeting of the Board of Directors to consider the no confidence motion and elect a new Executive Committee for the normal working of the Bank. But before that is done, the affairs of the Bank have to be carried on. I therefore direct the third respondent to convene a meeting of the Board of Directors of the Bank in exercise of his power under S.30(4) of the Act on or before 28-2-1970 to consider the no confidence motion against the present Executive Committee, and to elect a new committee in case the no confidence motion is passed. The third respondent shall give seven clear days' notice to the members of the Board for the above meeting. The fourth respondent, the Administrator, will continue in office until the above meeting is held; and he will hand over charge to the Board of Directors with effect from 1st March 1970. These directions will not, however, stand in the way of the Registrar in convening meetings of the Bank in exercise of his power under S.30(3) of the Act if deemed, necessary, or to include any other matters of urgency for consideration in the meeting of the Board of Directors hereby directed to be convened on or before 28-2-1970. In the circumstances of the case, the parties are directed to bear their own costs.