Sudarsanan v. State — 1996 DIGILAW 515 (KER)

Judgment :- Shanmugam, J. These Original Petitions are filed by the President and the members of the Board of Directors challenging the order of supersession. 2. Pazhayakunnunnel Service Co-operative Bank Ltd. is one of the oldest and biggest Class II Service Co-operative Bank in Trivandrum District. Election to the managing committee was held on 29.12.1994 and the members have assumed charge on 1.1.1995. The term of the committee would expire on 31.12.1997. Two enquiries under S.66 of the Act were ordered by the Joint Registrar in May 1996 and July 1996 regarding the general structure and financial status of the society and against the unauthorised appointments, arrears of the executive committee members and rejection of the direction 1997(1) of the Registrar. On the basis of the enquiry reports submitted by the Asst Registrar a show cause notice under S.32 of the Kerala Co-operative Societies Act, hereinafter referred to as 'the Act', dated 5.8.1996 was issued to the President of the society. The request of the petitioners for the copy of the enquiry reports was not conceded. Petitioners submitted their reply on 19.8.1996. Not being satisfied with the explanation and the reply, Joint Registrar passed the impugned order of supersession dated 22.8.1996. The Original Petitions are against this order. 3. The main submissions made by learned counsel for the petitioners are as follows: i) Show cause notice for supersession was issued only against the President of the society and not to the members of the committee individually Eight of the members of the managing committee have filed a separate Original Petition contending that the respondents have passed the supersession order without hearing and giving opportunity to the members of the managing committee and, therefore, the order is illegal. ii) The supersession order was passed based on the recommendation of the Assistant Registrar contained in the report under S.66 copies of which were not furnished by the petitioners. The supersession order was passed without independent assessment of the Registrar and therefore, it is illegal. iii) The financing bank was not consulted as required under S.32(2) of the Act iv) The order of supersession was made on malafide and extraneous grounds. (v) No grounds are made out on merits warranting the extreme step of supersession. 4. Learned Government Pleader repelled the contentions of the counsel for the petitioners and submitted that no individual notices are required to the members of the committee. (v) No grounds are made out on merits warranting the extreme step of supersession. 4. Learned Government Pleader repelled the contentions of the counsel for the petitioners and submitted that no individual notices are required to the members of the committee. He further submitted that show cause notice along with the final order were furnished to the financing bank and their opinions were sought for. He submitted that serious allegations of mismanagement and financial irregularities were noticed in the enquiry and the committee was given full opportunity to explain which they have miserably failed to do so. Hence supersession order was passed purely on merits. 5.1 have heard counsel at length. 6. S.32 of the Act contemplates an opportunity to the committee to state its objection on the proposed action of supersession. The committee has been defined under S.2(e) of the Act. According to this definition, the committee means the governing body of a co-operative society by whatever name called, to which the management of the affairs of the society is entrusted. Thus the committee is an entity acting collectively. There is no scope for individual members of the committee functioning on behalf of the There is a collective responsibility and a joint action of the members through the committee. Therefore, no individual notice is required to each and every member of the committee to state their objections. A plain reading of S.32 of the Act does not make out such a requirement. It is true that R.44(1)(k) of the Kerala Co-operative Societies Rules, hereinafter referred to as 'the Rules', disqualifies a member of the committee which has been superseded. That is the consequence of collective responsibility. From that it cannot follow that each member must be given an opportunity individually before the committee is superseded. If the committee has committed defaults as contemplated under S.32 of the Act all the members are liable whether they are aware of the said transactions or not since there is a collective responsibility. Hence there is no need for individual notices. A Division Bench of this Court in KLT 671) held that no such notice is required. 7. The show cause notice as well as the supersession order is based on the enquiry reports dated 21.6.1996 and 16.7.1996 of the Assistant Registrar. Hence there is no need for individual notices. A Division Bench of this Court in KLT 671) held that no such notice is required. 7. The show cause notice as well as the supersession order is based on the enquiry reports dated 21.6.1996 and 16.7.1996 of the Assistant Registrar. As a matter of fact, the show cause notice states that the Assistant Registrar has recommended that the continuance of the executive committee will adversely affect the conduct of the bank and damage its financial stability and hence action under S.32 of the Act should be initiated. S.66 of the Act authorises the Registrar to supervise and inspect the society. Sub-s.(5) of that Section enables the Registrar, by order in writing, to direct the society or its officers to take/such action as may be specified in such order within such time that may be mentioned in that order. Thus, it could be seen that the supervision and inspection is a power conferred on the Registrar and to take action independently based on such inspection and supervision. Similarly, S.65 contemplates inquiry by Registrar for which purpose the Registrar has got extensive power to peruse the books, accounts, documents, securities etc. summon persons and examine them on oath. Sub-s.(4) of that Section says that when an enquiry is made under the Section, the Registrar may communicate the result of the inquiry to the financing bank and sub-s.(5) enables the Registrar' to direct the society to take such action within the time specified. These provisions, viz., Ss.65 and 66 enquiries and inspection do not empower the Assistant Registrar to recommend the supersession under S.32 of the Act. That would be plainly beyond the scope of these provisions. 8. R.66 of the Rules sets out the procedure for the conduct of inquiry and inspection. An inquiry can be ordered on specific points. Sub-r.(5) of the Rule empowers the officer authorised to conduct an inquiry to submit a report containing his findings. The Registrar on the basis of the report shall pass such order as may be considered just and necessary after giving a reasonable opportunity of being heard to the society. Thus, if an action is taken in pursuance to an order of inquiry under S.65 and 66 of the Act, a separate order is contemplated under that section after giving an opportunity to the society. 9. Thus, if an action is taken in pursuance to an order of inquiry under S.65 and 66 of the Act, a separate order is contemplated under that section after giving an opportunity to the society. 9. In this case, an enquiry under S.66 of the Act was ordered and a report was submitted to the Registrar. But no order under S.66(5) of the Act was made as contemplated.' On the contrary, consequent on enquiry under S.66 of the Act a recommendation to supersede the committee was made by the Assistant Registrar. The request of the committee for the copies of the inquiry report was not granted, whereas it is seen that the report is the basis of the impugned order. This clearly vitiates the principles of natural justice. In S.1. Kapoor v. Jagmohan ((1980) 4 SCC 379) the Supreme Court held that mere furnishing of information casually is not proper notice. In that case, the failure to give the basis on which the Municipal Committee was proceeded and action proposed is violative of the principles of natural justice and was illegal. The contention of learned Government Pleader that after going through the enquiry report serious irregularities were noticed warranting supersession and, therefore, there was no need to pass orders under S.66 of the Act is not convincing. 10. It could be seen that an inquiry initially was ordered based on the complaint of one Smt. Jayakumari on the alleged action of the society in making hasty appointments to three junior clerks, one peon and one salesman. In pursuance of that complaint an order was made to enquire into the general structure and financial status of the society under S.66 of 'the Act. The Assistant Registrar has submitted a report on 21.6.1996. In that report, he has noted certain irregularities. Therefore, another enquiry under S.66 of the Act was ordered on 3.7.1996. A report appears to have been submitted on 16.7.1996. 11. Learned counsel for the petitioners is emphatic that there was no enquiry at all excepting a visit once by the Assistant Registrar to the Society. According to him, the enquiry report was only a ruse to the pre-determined action of the Joint Registrar to supersede the society. A report appears to have been submitted on 16.7.1996. 11. Learned counsel for the petitioners is emphatic that there was no enquiry at all excepting a visit once by the Assistant Registrar to the Society. According to him, the enquiry report was only a ruse to the pre-determined action of the Joint Registrar to supersede the society. He submits that it is clear from the direction for a time bound enquiry reports which were submitted with a recommendation to supersede the society that the order was stage managed for supersession. 12. I find much force in the said contention. If an order is made in pursuance to such recommendation, it is contrary to the provisions and such an order cannot be sustained. In Joint Registrar of Co-operative Societies, Madras & Ors. v. P.S. Rajagopal Naidu & Ors. (AIR 1970 SC 992) the Supreme Court held that the Registrar must as a condition precedent give a direction under Ss.64,65 and 66 of the Act, viz., the power of audit, enquiry and inspection for the defects or the irregularities to be remedied and should take action only if there is a wilful disobedience or wilful failure to comply with the orders or directions. There cannot be an order straightaway recommending supersession by the Assistant Registrar. 13. Coming to the facts of the case, the impugned order Ext. P8 sets out the main irregularities and states that on the basis of the reports submitted under S.66 of the Act, the Registrar is convinced that action under S.32 should be taken to remove The Joint Registrar did not independently consider the explanation furnished by the petitioners. Nowhere in the order, it is seen, that the Joint Registrar has discussed the alleged irregularities in reference to the explanation furnished by the petitioner. On the contrary, the Joint Registrar was proceeding on the basis that he intends to confirm the recommendations of the Assistant Registrar. This, in my view, is a clear abdication of the power Conferred under S.32 of the Act. Besides the Joint Registrar has failed to come to his independent satisfaction on the alleged irregularities. The Joint Registrar had failed to see that he was not sitting in appeal or for considering whether the decision taken by the Assistant Registrar in superseding the society is to be confirmed or not. Besides the Joint Registrar has failed to come to his independent satisfaction on the alleged irregularities. The Joint Registrar had failed to see that he was not sitting in appeal or for considering whether the decision taken by the Assistant Registrar in superseding the society is to be confirmed or not. The Joint Registrar should have independently considered the charges levelled in the show cause notice and the reply furnished by the petitioners. In Jose Kuttiyani v. Registrar of Co-operative Societies (AIR 1982 Ker. 12) a Division Bench of Ms Court held that Registrar does not appear to have weighed the facts independently. The Division Bench further held that the Registrar must be satisfied that the conditions precedent for the exercise of the power of supersession are in existence or not. No doubt the satisfaction may be subjective, but it shall not be arbitrary. If the contention is that the Registrar never applied his mind and therefore, he could not have been satisfied, the court can enter into that question, the ingredient of satisfaction being the condition precedent to the exercise of power. In the decision of the Supreme Court in Joint Registrar of Cooperative Societies, Madras and Ors. v. P.S. Rajagopal NaiduandOrs. (AIR 1970 SC 992) referred above, the Supreme Court held that even though the opinion of the Registrar is purely a subjective process, there must be cogent material on which the Registrar has to form his opinion that the society was not functioning properly in order to sustain the subsequent supersession of the committee after considering its representation on that ground. The requisite opinion has indisputably to be formed honestly and after applying Ms mind by the Registrar to the relevant materials before him the only condition precedent for taking action is that the Registrar must consult the financing bank. 14. S.32 6f the Act contemplates the satisfaction of the Registrar on the persistent default or negligence of the society. He should arrive at the satisfaction after considering the objections. 15. By going through the impugned order, nowhere the Registrar has considered the objections and has come to his subjective satisfaction. It is stated in conclusion that for safe guarding the administration, financial security and good reputation, he has passed the order of supersession. These are not germane to the reasons for which S.32 can be invoked. 16. 15. By going through the impugned order, nowhere the Registrar has considered the objections and has come to his subjective satisfaction. It is stated in conclusion that for safe guarding the administration, financial security and good reputation, he has passed the order of supersession. These are not germane to the reasons for which S.32 can be invoked. 16. For all these reasons set out above I summarise my conclusion as follows: (i) The Assistant Registrar has no authority or jurisdiction to recommend upersession after conducting enquiry under S.65 of the Act. (ii) The failure to furnish the copies of the report which formed the basis violates the principles of natural justice. (iii) The Joint Registrar failed to independently consider the complaint made against and the explanation submitted by the petitioners. Hence, the order of supersession is, in my view, clearly arbitrary and illegal and, therefore, it is quashed. Original Petitions are allowed.