Janardhanan v. Joint Registrar — 1990 DIGILAW 103 (KER)

Judgment :- 1. The Cannanore Co-operative Hospital Society Ltd. popularly known as A. K. G. Hospital, (hereinafter referred to as the 'society'), appears to be a prestigious institution in Cannanore. It is a Co-operative Society registered under the Kerala Cooperative Societies Act, 1969, (the Act for brevity). The bye-laws of the society, as they stood registered under S.7 of the Act, authorised a share capital of Rs.Forty lakhs, consisting of five thousand A class members of Rs. 100/- each, fifty B class members of Rs.1,000/- each, two thousand five hundred C class members of Rs.1,000/- each, open to the State and Central Governments, and nine hundred and fifty D class members of Rs.1,000/- each, open to local bodies, co-operative and Charitable Societies. The petitioner is a member of the Society. 2. One M. V. Raghavan, who was a member of the Communist Party of India (Marxist) (but who, it is said, now stands expelled from it), was the Chairman of the Managing Committee of the society. An election was held to the managing committee for the period 1987-92, when the committee headed by M. V. Raghavan was ousted from office, alleged to be due to large scale rigging of the elections. Raghavan has filed a petition before the first respondent Joint Registrar, challenging the election under S.69 of the Act, as A.R.C. No.13/86-87. That petition is pending. It is the petitioner's case that the Raghavan group was ousted from office consequent on Raghavan's expulsion from the Communist Party of India (Marxist) due to political differences, and the subsequent formation by him of a new party, called the Communist Marxist Party. 3. After the new managing committee assumed office, the petitioner noted large scale, indiscriminate enrolment of members to the society. As a matter of fact, the entire authorised share capital of the society, of Rs. Forty lakhs, had been fully paid up, and there was no scope for any further enrolment of members. Petitioner complained to the first respondent, Joint Registrar, about this violation of the bye-laws, and the unauthorised enrolment of new members, by the petition Ext.P2 dated August 7,1987. The latter replied by Ext.P3 dated August 20,1987 stating that he had given permissive sanction to the society to amend its bye-laws, enhancing the authorised share capital from rupees forty lakhs to rupees one crore by his proceedings dated July 27,1987. The latter replied by Ext.P3 dated August 20,1987 stating that he had given permissive sanction to the society to amend its bye-laws, enhancing the authorised share capital from rupees forty lakhs to rupees one crore by his proceedings dated July 27,1987. The first respondent therefore regretted his inability to do anything on the petitioner's prayer to restrain the enrolment of new members to the society. 4. Petitioner thereupon obtained a copy of the first respondent's proceeding dated July 27,1987 referred to in Ext. P3. A copy of that proceeding is Ext.P4 and it runs thus: "Permissive sanction is hereby granted amending the Bye law No.S(a), 8(b) as noted below subject to the condition that the bye law shall be amended as per R.9 of the Rules framed under the Kerala Co-operative Societies Act 21 of 1969 within six months from the date of this order: Bye law 5(a): The authorised share capital of the society shall be Rs.1,00,00,000/- (One crore) made up. as follows: i) 3000 A class share of Rs.100/- each open to individuals. ii) 100 B class share of Rs.1000/- each open to medical practitioners. iii) 3,000 C class share of Rs.1,000/- each open to State and Central Governments. iv) 3,900 D class share of Rs.1000/- each open, to Co-operative Societies and Local Bodies and Charitable Societies registered under Societies Registration Act. Bye law No.8(b): No member shall hold shares in excess of the value of Rs.20,000/- except the State Government/ Central Government, Co-operative Societies, Local Bodies and Charitable Societies. Operation of this permissive sanction will cease to exist if the Society does not bring about the requisite amendment as envisaged under Rule (sic) of the Kerala Co-operative Societies Rules, within six months from the date of this Order". 5. Petitioner has filed this original petition challenging Ext.P4. He points out that the bye-laws of the society can be amended only in accordance with the provisions of S.12 of the Act read with R.9 of the Kerala Co-operative Societies Rules (Rules) by resolution passed by a two-third majority of the members present and voting after intimation of the proposed amendment, to the members, in the prescribed manner. The resolution has to be forwarded to the Registrar within one month of the meeting and be registered by him in accordance with the aforesaid provisions. The resolution has to be forwarded to the Registrar within one month of the meeting and be registered by him in accordance with the aforesaid provisions. Inter alia the proviso to sub-section (2) of S.12 provides that before registering any amendment to the bye-laws, the Registrar shall consult, in the case of a society like the one in question, the Circle Co-operative Union, and the financing bank to which the society is indebted. After registration, the Registrar should forward to the society a copy of the registered amendment, together with a certificate of registration, signed and sealed by him. It is only then, that the amendment comes into force, from the date on which it is registered, or any other day that may be specified (vide S.13). No such procedure was followed in this case. There is no sanction in the statutory provision for any permissive sanction for amendment of bye-laws as mentioned in Ext.P4. Therefore, the entire exercise leading to Ext.P4 is illegal, and not supported by any provision in the Act or the Rules. 6. The respondents, namely the Joint Registrar and the society, contend on the other hand, that Ext.P4 is referable to the power conferred on the Registrar under sub-sections (5) and (6) of S.12 of the Act. There is also a faint attempt to justify it with reference to R.180 of the Rules. Since these provisions have been relied on, I shall read the same: "12. Amendment of bye laws of a Society:- xx xx xx (5) Notwithstanding anything contained in this Act or the rules or bye laws, if the Registrar is satisfied that for the purpose of altering the area of operation of a registered society or for the purpose of improving the services rendered by it, an amendment of the bye laws of a society is necessary or desirable, he may, after consulting the financing bank, if any, to which the society is affiliated and the circle co-operative union by order in writing, require the society to make the amendment within such time as may be specified in such order or within such further time as he may grant for the purpose. (6) If within the time specified under sub-section (S), the society fails to make the amendment, as required by the Registrar or with such further changes as he may agree to, the Registrar may, after giving the society an opportunity for making its representations, register the amendments as required or agreed to by him and issue to the society a copy of such amendments together with a certificate of registration signed and sealed by him, and thereupon such amendment shall be binding on the society and its members." Rule 180 "Societies not to act without previous sanction of Registrar in certain matters- No society shall do any act which is not expressly provided for by the bye-laws of such society without the previous express sanction of the Registrar for the same." 7. Do these provisions envisage a permissive sanction for amending the bye-laws of a society? That is the question. It is well to remember at this stage that where a power or authority is conferred with a direction that certain regulations formalities or conditions shall be complied with, it is neither unjust nor incorrect to exact a rigorous observance of them as essential to the acquisition of the right or authority conferred (Haridwar Singh v. Bagun Sumbrui AIR 1972 SC 1242 quoting Maxwell on Interpretation of Statutes 6th Edition, pages 649-650). The power or authority must be exercised according to the mode provided and contemplated by the statutory provision. It is also well established that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. Even if there be no negative words, that shall not be done in any other way. Other modes of performance are necessarily forbidden (Stephens, exparte, (1876) 3 Ch.D.659, Nazir Ahmad v. King Emperor, AIR 1936 P.C. 253, Patna Improvement Trust v. Shrimati Lakshmi Devi, AIR 1963 S.C 1077). As the issue arising for decision has to be tackled in the light of these principles, I shall now examine the relevant provisions. 8. S.7 enables the Registrar (which includes any person on whom the powers of the Registrar are conferred) to register a society and its bye-laws, if he is satisfied, inter alia, that the proposed bye-laws are not contrary to the provisions of the Act and Rules. 8. S.7 enables the Registrar (which includes any person on whom the powers of the Registrar are conferred) to register a society and its bye-laws, if he is satisfied, inter alia, that the proposed bye-laws are not contrary to the provisions of the Act and Rules. S.12 and R.9 deal with the procedure for amendment of the bye-laws of a society of which R.9 lays down the conditions which have to be complied with by the society for amendment of its bye-laws. Sub-section (1) of S.12 states that amendment to any bye-law of a society shall not be valid unless such amendment has been registered under the Act. The provisions of S.7 specifying the conditions to be satisfied before registration of the bye-laws are mutatis mutandis made applicable to the registration of amendments to the bye-laws. But the Registrar shall, consult the Circle Co-operative Union in the case of the society like the petitioner, and the financing bank, if the society is indebted to the bank, before registering an amendment. After the amendment is registered, the Registrar shall forward a copy of the same to the society, together with a certificate of registration signed and sealed by him. The certificate constitutes conclusive evidence that the amendment has been duly registered. The amendment then comes into force on the day on which it is registered, unless some other date has been fixed, for the purpose. 9. This is the procedure for amendments at the instance of the society. But subsection (5) of S.12 enables the Registrar to require the society to make amendment within such time as may be specified in the order or within such further time, as he may grant, if he is satisfied that for the purpose of altering the area of operation of the society, or for the purpose of improving the services rendered by it, an amendment of its bye-laws is necessary or desirable. The sub-section also states that he may consult the financing bank to which the society is affiliated and the circle co-operative union before making the requisition. Sub-section (6) prescribes the procedure to be followed if such a requisition by the Registrar is not complied with. The sub-section also states that he may consult the financing bank to which the society is affiliated and the circle co-operative union before making the requisition. Sub-section (6) prescribes the procedure to be followed if such a requisition by the Registrar is not complied with. In such cases, where the society fails to make the amendment as required, or with such further changes as he may agree to, the Registrar may, after giving the society an opportunity for making its representations, register the amendment as required, or agreed to by him, and issue a copy of the amendment together with a certificate of registration signed and sealed by him to the society. Such amendment shall thereupon be binding on the society and its members. 10. The rules relevant for the decision of this case are R.9 and 10. R.9 lays down the procedure regarding amendment of bye-laws. Every proposal for amendment shall be made only by a resolution passed by two-third majority of the members present and voting. The resolution has to be forwarded to the Registrar within one month from the date of the general body meeting with a right to the Registrar to condone the delay for sufficient cause. No such resolution shall be valid unless intimation of the amendment proposed had been given to the members of the society in person and their full signature obtained in token of having received the notice, or by post under certificate of posting. The application for registration of the amendment has to be signed by the Secretary and two members of the managing committee and it should contain the various particulars specified. The Registrar has thereafter to deal with the matter as laid down in sub clauses (2) to (4) of S.12. 11. R.10 requires the "order" under sub section (5) of S.12 to be in form No.5. It is addressed to the President of the society and its operative portion runs as follows: "It appears to me that an amendment/ amendments of the bye-laws of your society as indicated in the attached statement is/are necessary and that it/hose is/are desirable in the interest of your society. It is addressed to the President of the society and its operative portion runs as follows: "It appears to me that an amendment/ amendments of the bye-laws of your society as indicated in the attached statement is/are necessary and that it/hose is/are desirable in the interest of your society. l am to request you to consider this/these amendment/ amendments in the interest of your society and to call upon you by this order under R.10(1) of the Kerala Co-operative Societies Rules, 1969 to take necessary steps to make the amendments to the bye laws of your society within two months from the date of receipt of this order failing which action will be taken as provided under S.12(6) of the Kerala Co-operative Societies Act, 1969" The notice calling for representation under sub-section (6) of S.12 is to be in form No.6. Sub rule (2) of R.10 specifies that where action is taken under sub-sections (5) and (6) of S.12, R.9 shall not apply. 12. The bye-laws of a co-operative society are in the nature of Articles of Association of a company incorporated under the Companies Act, binding between the persons affected by them, though not having the force of a statute (Co-operative Central Bank Ltd. v. Additional Industrial Tribunal, AIR 1970 S.C. 245). The bye-laws also constitute a contract between the co-operative society and its members in respect of their rights qua members (Beattie v. Beattie Ltd. (1938) 3 All E.R. 214). Any amendment to the bye-laws could therefore be effected only by the will of the general body of the society. This is recognised and accepted in R.9 by specifying that any such amendment can be made only by a resolution passed by two-third majority of the members present and voting, and that any such resolution shall not be valid unless intimation of the proposed amendment had been given to the members in the manner prescribed. The will of the general body is thus made sacrosanct in the matter of any amendment to the bye-laws of the society, and that has normally to prevail. The only exception, where an extraneous will, namely that of the Registrar, is imposed on the society, is that provided in subsections (5) and (6) of S.12. Even in that case, the general body is not ignored, and it is allowed to have its say in the matter. The only exception, where an extraneous will, namely that of the Registrar, is imposed on the society, is that provided in subsections (5) and (6) of S.12. Even in that case, the general body is not ignored, and it is allowed to have its say in the matter. The society is afforded an opportunity, either to adopt the amendment as directed, or with such changes as the Registrar may agree to, or to make representation against the requisition of the Registrar itself. There is also the in-built safeguard that the Registrar has to be satisfied that the amendment proposed is necessary or desirable for the purpose of altering the area of operation of the society or for improving the services rendered by it, before he could require the society to make any amendment. The society is given two months' time to consider, and act on, the requisition of the Registrar as evident from the contents of the notice issued under subsection (5) (extracted in Para.11 supra). Even if the society fails to act, or comply with the requisition, the amendment is not imposed on it. The matter is again dealt with by the Registrar in accordance with the principles of natural justice, and the society is given an opportunity to make its representation. The position therefore is that even if the proposal for amendment emanates from the Registrar, the society gets an effective opportunity to adopt or not to adopt the amendment, in to or with changes, or to make representation, if it is opposed to the proposal. It is only after all this, that the Registrar steps in by registering the amendment under sub-section (6) of S.12. 13. Any proposal for amendment at the instance of the society must therefore have the sanction of its general body as prescribed in R.9. Any amendment at the instance of the Registrar has to comply with the prescriptions of sub-sections (5) and (6) of S.12. No other mode of amendment is prescribed or permitted. Neither the managing committee of the society nor the Registrar can seek, or bring about, an amendment to the bye-laws in any other manner. 14. Any amendment at the instance of the Registrar has to comply with the prescriptions of sub-sections (5) and (6) of S.12. No other mode of amendment is prescribed or permitted. Neither the managing committee of the society nor the Registrar can seek, or bring about, an amendment to the bye-laws in any other manner. 14. When this be the position, and the general body is given its due supremacy in the matter of administration of the society, having regard to the democratic process involved in its functioning, it is grossly improper and illegal for the managing committee to seek, or for the Registrar to accord, permissive sanction to amend the bye-laws. There is no provision for any such sanction anywhere in the Act or in the Rules - verily, it is contrary to the very tenor of S.12, and the scheme, adumbrated by it, for amendment of the bye-laws. By according such permissive sanction, the Registrar virtually arrogates to himself the powers of the general body, and effectively deprives it of the opportunities which it has under S.12. What the Registrar does is to superimpose his imprimatur on the general body, by-passing the entire procedure prescribed by S.12. 15. The consequences of such permissive sanction can be disastrous, apart from the total illegality of it. What the Registrar has sanctioned in the instant case is increase in the authorised share capital of the society, in the various categories of members, A, B, C and D, from Rs. forty lakhs to Rs.one crore. What is the purpose, or effect, of the sanction unless it be to enable the society to enrol new members even without amending the bye-laws? Any such enrolment is unauthorised, and totally destructive of the provisions in the bye-laws. In fact, the permissive sanction in this case appears to have been treated as a licence to enrol new members. Petitioner's case in the original petition is that about two thousand members were newly enrolled based on the permissive sanction accorded by Ext.P4. The counter affidavit of the third respondent society admits in its Para.5 that the new managing committee enrolled 3736 A and B class members to the bank. This enrolment could only be on the strength of Ext. P4, in view of the undisputed fact that the entire authorised share capital of the society, of Rs.forty lakhs, was already fully paid up. 16. This enrolment could only be on the strength of Ext. P4, in view of the undisputed fact that the entire authorised share capital of the society, of Rs.forty lakhs, was already fully paid up. 16. Sub section (6) of S.12 envisages consideration of the amendment by the society, which, in the circumstances, means the society in general meeting. If ultimately the society refuses to endorse the amendment, for good and valid reasons, and if the society is able to show good cause why the amendment shall not be made, what is to happen to the large number of new members who have already been enrolled on the strength of the permissive sanction? Can these members be expelled? Can these members take part in the deliberations of the general body which takes place in the interregnum, or even in the meeting which is held to consider whether the proposed amendment should be made? I am afraid, they cannot - legally. Ostensibly, the enhancement of share capital steeply from Rs.forty lakhs to Rs.one crore was with a view to enable garnering of funds for the working of the society. If the amendment is not ultimately registered, will the society be in a position to repay the share money to the new members, if the funds raised have already been spent? All this and more will be the consequences, if the power to accord permissive sanction is found in the Registrar. I am therefore unable to uphold any such sweeping power in the Registrar, de hors subsections (5) and (6) of S.12. Those provisions prescribe a set procedure for the Registrar to require amendment of the bye-laws. The Registrar has to follow that procedure. Any other course for amending the bye-laws of the society is prohibited. 17. Ext.P4 is sought to be justified as one made at the instance of the managing committee, to advance the interests of the society. It is pointed out that the society was heavily indebted, but additional funds could not be raised unless the authorised share capital was enhanced. The managing committee therefore requested for permissive sanction to enhance the share capital. But it is admitted that there was no resolution of the general body proposing to amend the bye-laws relating to the share capital. The action of the managing committee in seeking permissive sanction was itself therefore unauthorised. The managing committee therefore requested for permissive sanction to enhance the share capital. But it is admitted that there was no resolution of the general body proposing to amend the bye-laws relating to the share capital. The action of the managing committee in seeking permissive sanction was itself therefore unauthorised. The proper course for the managing committee was to place the matter before the general body for amendment of the bye-laws in accordance with law, and then seek registration thereof. This was not a long drawn out process either. It was stated before me that a general body could be convened for the purpose within a period of three weeks. The dates available from the records make it clear that the whole process could have been gone through in accordance, with the procedure prescribed by law, without any delay or any detriment to the interests of the society. The managing committee passed its resolution for enhancing the share capital on July 12,1987 and the sanction was accorded by Ext.P4 on July 27,1987. Another week or two, would have sufficed to convene the general body in the normal course and to have the proposal considered by it. It is therefore, surprising why the managing committee resorted to the devious mode of seeking the so called permissive sanction. It may be that increase in the share capital was necessary, and it may be that the Registrar acted to enable the society to raise further funds for its operations. But the bona fides, of the Registrar is quite irrelevant. The question is one of legality of Ext.P4 in the light of the provisions of the Act and the Rules. Neither the Registrar nor the managing committee could dispense with the procedure prescribed by S.12 and R.9, whatever be the circumstances. To recognise any such power of permissive sanction will be to nullify the very statutory provisions which the Registrar as a statutory functionary is bound to obey or enforce compliance. 18. I must also observe that the respondents have not been able to establish before me any such urgency which could not brook resort to the prescribed procedure, and justifying departure from it (assuming that that was permissible). 19. There is also nothing to indicate that there was any consultation with the financing bank or the circle co-operative union before permissive sanction was accorded. 19. There is also nothing to indicate that there was any consultation with the financing bank or the circle co-operative union before permissive sanction was accorded. Such consultation is the normal rule under sub-sections (3) and (5) of S.12 and could be dispensed with only in extra-ordinary cases. There is nothing stated why this normal procedure was not followed. 20. The first respondent has thus purported to exercise powers by himself in a manner not provided by the Act, and without observing even the safeguards, so essential for an amendment of the bye-laws. He has made a law unto himself, and passed orders in a manner, not contemplated by the Act. The provisions of S.12 have been ignored in dealing with the matter, though the first respondent swears by the section in his counter affidavit (vide Para.11). 21. Counsel for the respondents justified Ext.P4 by referring to permissive sanctions accorded in the case of some other co-operative societies referred to in the counter affidavits. I am unable to agree. The fact that the departmental officers have not correctly understood, or are ignorant of, the provisions of the Act, is not an excuse for justifying an illegality. One illegality or mistake does not justify the perpetration of another similar illegality or mistake, or its perpetuation. (Ernakulam Mills Ltd. v. State of Kerala, 1971 KLT 318). There is no constitutional guarantee that an illegality once committed should continue to be committed in future to satisfy the non-discriminatory mandate of Art.14. The contention does not deserve any consideration. 22. R.180 on which considerable reliance was placed by the respondents is hardly applicable. That relates to action taken by a society for which there is no provision in the bye-laws, in which case the society is obliged to obtain previous express sanction of the Registrar. The rule does not apply to cases where the bye-laws of a society are grossly violated or departed from. The rule traverses regions not covered by the bye-laws, and not violations thereof. In such cases, no amount of sanction from the Registrar can validate the action of the society. The society is bound by the bye-laws, and it has to act only in accordance with the bye-laws. R.180 is intended to provide for extraordinary circumstances, where a society may have to act in a particular matter, and the bye-laws are silent on that aspect. The society is bound by the bye-laws, and it has to act only in accordance with the bye-laws. R.180 is intended to provide for extraordinary circumstances, where a society may have to act in a particular matter, and the bye-laws are silent on that aspect. In such cases, the action of the society is rendered legal if the express sanction of the Registrar is obtained previously. But this does not legitimatise illegalities committed in violation of the bye-laws of the society. That is the position here. When the bye-laws provided for only an authorised share capital of Rs.forty lakhs, permission was accorded, and members were admitted in excess in violation of the bye-laws. R.180 has no application, and it cannot validate Ext.P4, or the enrolment of members in excess of the authorised share capital of Rs.forty lakhs. 23. S.66(5) was also faintly invoked as empowering the Registrar to issue directions to the society to take such action as may be mentioned. This power has to be read in the light of the other provisions of the Act and the Rules and not de hors those provisions. When S.12 vests the Registrar with power to direct amendment of the bye-laws of the society, in certain conditions and circumstance and subject to following certain procedure, the Registrar cannot by-pass those provisions by resort to S.66(5). The latter is a supervisory power, the exercise of which should not and cannot conflict with the express provisions in the Act. The contention is bereft of any substance. 24. The fact that the first respondent granted six months time in Ext.P4 to amend the bye-laws is not relevant in deciding the validity of Ext.P4. What the first respondent has done is to put the entire procedure in the reverse, in total disregard of sub S.5 and 6 of S.12. 25. It was stated at the bar that a meeting of the general body of the society was convened for being held on November 26,1987 to consider amendment to the bye-laws as mentioned in Ext.P4. None of the parties was able to enlighten me as to whether the amendments had been passed by the general body and as to whether they have been registered. On the other hand, the parties chose to argue the matter before me on the validity or otherwise of Ext.P4. None of the parties was able to enlighten me as to whether the amendments had been passed by the general body and as to whether they have been registered. On the other hand, the parties chose to argue the matter before me on the validity or otherwise of Ext.P4. Parties were also in the dark as to whether the newly enrolled members had taken part in the meeting to legalise their own enrolment. But lam not going into the legality or otherwise of this meeting or of the decisions taken therein, in the absence of pleadings and details. All that I must state is that any decision taken at such subsequently held meeting will not retrospectively validate Ext.P4. 26. For all these reasons, I hold that Ext.P4 is one issued outside the purview of the Act. It has to be declared null and void. 27. The original petition is therefore, allowed. Ext.P4 is quashed. Issue photo copy on usual terms.