T. T. James v. Joint Registrar — 1997 DIGILAW 171 (KER)

JUDGMENT P. Shanmugam, J. 1. The Directors of the Board of Management of the Koottar Service Cooperative Bank have filed this Original Petition challenging the order of supersession. 2. The committee was elected to office on 1.8.1994 and the term was to expire on 1.8.1997. A show cause notice under S.32(1) of the Kerala Cooperative Societies Act (hereinafter referred to as 'the Act') was issued against the committee mainly on three grounds, viz. a) Members of the committee have defaulted in repaying the loan amount. b) The committee had granted an overdraft facility to another Primary Milk Society violating the provisions of the Act and bye laws. c) The society started an extension counter without prior sanction. 3. The Committee submitted an explanation Ext.P2. Not being satisfied with the explanation, by Ext.P8 order, the Joint Registrar superseded the society. The Original Petition is against this order. 4. The main grounds raised by the learned counsel for the petitioner are as follows: a) Ali those members against whom allegations are made viz. Sri. Surendran and Smt. R. Kumari have left to Saudi Arabia and New Delhi for getting employment. Notices have already been issued to them dated 1.10.1996 and by a resolution of the same date requested the Joint Registrar to take action for removal of these two members. b) In respect of members Mr. Kunhambu and Mr. P.K.- Sadasivan, there is no disqualification since the default would arise only after notice under S.42(2)(a) and the member continues the default even thereafter. Mr. Kunhambu has availed of a loan of Rs.6,300/- on 29.4.1995 which was cleared on 8.10.1996. A short term loan of Rs.2,700/- was availed on 20.10.1995 which was cleared on 8.10.1996. Another loan of Rs.1000/- availed on 28.4.1995 has been cleared on 8.10.1996. Shri P.K. Sadasivan had availed of a loan from Idikki Dealers Cooperative Bank which has been remitted by him and therefore there is no default. Mr. O.P. Mohanan Nair had availed of two short term loans of Rs.2,000/- and 3,000/- each and they were closed on 20.7.1996. There is no arrears. Mr. T.T.James who availed of a loan of Rs. 10,000/- in the year 1995 to repay in 10 yearly instalments, has repaid the 1st instalment along with interest on 11.9.1996. Thus there is no default from the Directors of the society. 5. There is no arrears. Mr. T.T.James who availed of a loan of Rs. 10,000/- in the year 1995 to repay in 10 yearly instalments, has repaid the 1st instalment along with interest on 11.9.1996. Thus there is no default from the Directors of the society. 5. The Karunapuram Milk Producers Society was granted an overdraft of Rs.50,000/- on their application. The facility was given after getting a security bond, promissory note and a cheque. The facility was given at the rate of interest 18% per annum which was raised to 20% and later to 23%. As per Clause.3 (13) of the bye laws, the society is entitled to do banking activities, and therefore there is no irregularity in providing an overdraft facility to another society. The overdraft was closed on 7.10.1996, before show cause notice was served. In that transaction, the Bank has earned Rs. 10,000/- by way of interest. The Bank opened an extension counter to improve the facilities, within two kilometres away from Kuttar town. Clause.3(21) of the bye laws enables the Bank to expand its activities within the area of operation. The society sought permission from the Assistant Registrar who alter conducting a local inspection had recommended the opening of the extension counter. The extension counter was opened in a rented building and no employees have been appointed. 6. In the same Panchayat there are two other Service Cooperative Banks, viz., Pattom Colony Service Cooperative Bank and Nedumkandam Service Cooperative Bank who opened extension counters very near to Kuttar town without prior permission of the department. No action has been taken against these two societies. The petitioner society alone was singled out since the Directors do not belong to the ruling party, whereas the management of the other two societies are supporters of the ruling party. 7. The Assistant Registrar who had actually recommended the opening of the branches has filed a counter on behalf of the 2nd respondent. It is stated in Para.10 of the counter that the grant of overdraft facility is contrary to bye laws 3(2) and 50 (f)(1). It is further stated that a branch can be opened only with clear permission from the department as per Circular No. 17/81 dated 23.4.1981. He had also stated that the order of supersession is appealable and. therefore, the Original Petition is not maintainable. 8. It is further stated that a branch can be opened only with clear permission from the department as per Circular No. 17/81 dated 23.4.1981. He had also stated that the order of supersession is appealable and. therefore, the Original Petition is not maintainable. 8. Learned Government Pleader confined himself to the two allegations, namely, the overdraft facility provided to the Cooperative Society and the opening of an extension counter. In so far as the overdraft facility is concerned, according to him, the committee has violated bye law 3(2) and 50(f)(1). By granting overdraft facility to a non-member, they were negligent in the performance of their duties. 9. Learned Government Pleader further submitted that the petitioner bank ought not to have opened an extension counter contrary to Circular 17/81. This according to him, constitute wilful disobedience of the orders of the Registrar. Learned Government Pleader also took strong stand on the maintainability of the Original Petition and submitted that there is an effective alternative remedy for the petitioners by way of an appeal under S.83 of the Act. He submits that the High Court cannot be invited to go into merits of the allegation and decide the matter as if it is an appeal. 10. I have heard the counsel for the petitioners and the Government Pleader. The parameters under which the managing committee of a cooperative society can be superseded has been laid down by this Court in a series of decisions. However, in spite of the repeated reiteration of the principles, the officers competent to supersede the committee have continued to disregard the provisions as well as the decisions laid down by this Court. The present case is one example of such utter disregard of the provisions of the Act and the decisions of this Court. 11. Section 32 contemplates a subjective satisfaction of the Registrar on the persistent negligent or wilful act of the committee. It has also been laid down that the power of supersession is to be considered as an exceptional and rare action for persistent and wilful negligence and not for any violation or infraction of a rule or a circular of the Registrar. It has also been laid down that the power of supersession is to be considered as an exceptional and rare action for persistent and wilful negligence and not for any violation or infraction of a rule or a circular of the Registrar. It has been laid down that a committee who has been elected to office in a democratic process cannot be removed on the ipse dixit materials without making a strong case so that there is no other alternative except to supersede the committee. A mere default or disobedience or failure to comply with the provisions assuming to be found to be true cannot be a ground for supersession unless it is shown that there is persistent and wilful negligence and wilful disobedience. 12. In this case, it is seen that the Assistant Registrar has recommended for the supersession for which he has absolutely no jurisdiction. It is for the Registrar who had passed the order of supersession to satisfy himself on the requirement of S.32. 13. The show cause notice refers to the recommendation of the Assistant Registrar. In the explanation and in the Original Petition it is stated that the Assistant Registrar was in the society for one hour on 10.9.1996 and half an hour next week without notice and any enquiry. The Assistant Registrar had not pointed out any defect or issued any notice or enquiry contemplated under S.65 or inspection under S.66. This specific plea of allegation is not controverted in the impugned order and in the counter. A supersession of an elected committee is akin to a dismissal and would require categorical finding and violation of specific rule or an order. In spite of specific averments in reference to the opening of branch, expenditure for it and provision of overdraft facility being justified in reference to the provisions, the counter which deals with the contentions in Para.10 & 11 did not traverse to them. No rule is pointed out or referred that has been violated excepting regarding the granting of loan which is not relevant. No rule is pointed out or referred that has been violated excepting regarding the granting of loan which is not relevant. The Supreme Court in Rowjee v. State of A.P. ( AIR 1964 SC 962 ) has held that an averment in the application which is not traversed by the respondents by a counter affidavit must be taken to be true and expressed thus: "The Court is left to judge of the veracity of the allegation merely on test of probability with nothing more substantial by way of answer". 14. As it could be seen from the facts narrated above, there are three grounds raised against the supersession and are dealt with separately. 15. Default of the members: Two of the members, according to the allegations, are not attending the meeting. The explanation given by the society is that they have left for Saudi Arabia and New Delhi for getting employment. The society had requested Cor the removal of these persons. In the order it is stated that the Managing Committee has not paid proper attention and care for rectifying the disqualification of the members. The explanation offered by the petitioner was obviously accepted. In reference to members Smt. R. Kumari, Sri. Kunhambu and Sri. P.K. Sadasivan it is seen that they have cleared the loans in October, 1996 and in any event they cannot be treated as defaulters. In reference to qualification, R.44(l)(c) no member appointed as member of the committee is eligible to continue if he is in default for a period exceeding three months. The proviso to Sub-rule (2) of R.44 states that a disqualification under Sub-clause (i) of Clause (c) of Sub-rule (1) shall be deemed to be accrued only after the expiry of the period of one month from the date of receipt by the member concerned of a notice from the society demanding him to clear off the defaulted amount specified therein and he fails to remit or cause to remit the amount within the said period. Therefore, assuming that there is default of three months, there is no automatic disqualification. For the explanation submitted by the society in reference to these points and the averments raised in this Original Petition there is absolutely no reply in the impugned order or in the counter. Therefore, in my view, the society had not committed any irregularity in allowing these members to continue as committee members. For the explanation submitted by the society in reference to these points and the averments raised in this Original Petition there is absolutely no reply in the impugned order or in the counter. Therefore, in my view, the society had not committed any irregularity in allowing these members to continue as committee members. In any event, there is no persistent or wilful negligence on the part of the committee. 16. Overdraft facility: It is stated in the order that the overdraft facility granted to Karunapuram Milk Producers Society is against the bye laws of the Bank and is in violation of law and misuse of power. The overdraft facility was given for one year from 5.10.1995 to 4.10.1996. The facility was provided after securing sufficient security. The petitioner society being a credit society is entitled to function as a bank as per the bye laws. 17. The petitioner society is classified as an agricultural credit society under R.15 of the Rules. As per bye law 3(3) the society is entitled to perform all formal activities of a bank. The Karunapuram Milk Cooperative Society has opened a savings bank account and their turnover vary from Rs.5 lakhs to 15 lakhs. As an account holder and as a milk producing society their request to have an overdraft account was granted. The petitioner bank is receiving deposit from the members as well as the non-members. The Karunapuram Milk Producing Society is though not a member, is an account holder and the petitioner bank is entitled to do banking business and to open an account in favour of that society and in continuation of their banking business granted overdraft facility. There is absolutely no ground say that they are negligent in performing their duties. The society has not suffered any loss on account of this facility, on the contrary, the society had the benefit of a savings bank account with large volume of business from a milk producing society. Therefore, there is absolutely no ground to say that the petitioner bank had been negligent. In any event, the overdraft facility was closed on 6.10.1996, before the impugned order was passed. Even assuming for argument sake that there is any negligence, the respondents could have directed them to cancel the overdraft facility instead of invoking the extreme step of supersession. The Section contemplates a continuing violation of present form. In any event, the overdraft facility was closed on 6.10.1996, before the impugned order was passed. Even assuming for argument sake that there is any negligence, the respondents could have directed them to cancel the overdraft facility instead of invoking the extreme step of supersession. The Section contemplates a continuing violation of present form. It contemplates a milk society making a default or is negligent in the performance of the duties. Looking from any angle, there is absolutely no ground whatsoever to sustain an argument that the petitioner bank is negligent in the performance of the duties. The society has given a detailed explanation and for the averments contained in the Original Petition in Ground No.A, there is no reply. Obviously, the said act of the committee cannot be held to be against the provisions of the bye laws or Act of the Society. 18. Opening of an extension counter: The allegation against the committee is that they have opened extension counter two kilometres away from the main branch at Kuttar town. It is stated that the society has requested the Assistant Registrar and sought permission. The Assistant Registrar conducted a local inspection and has recommended the opening of the extension counter. Of course, there is no order in writing. But the statement made in the explanation and the O.P. has not been denied in the counter. The prior permission is required only in reference to opening of a branch and not for an extension counter. The Bank has not put up any new building, but has only taken on rent and there is no construction of any new building. The circular referred to in the impugned order is in reference to the opening of a branch office. The explanation and the averments contained in the Original Petition remains unanswered in the counter. 19. Another allegation is spending of Rs.20,396/10 towards the expenses incurred for the opening of an extension counter, form the society's fund without sanction. The explanation of the society was that it was only a rented room with a cash counter. Hence the society had to spend towards putting up of a minimum requirements. All the purchases and expenditure are covered by vouchers. There is no construction of any building or creation of fixed assets requiring prior sanction. This stand is also not replied in the counter and no argument in opposition made. Hence the society had to spend towards putting up of a minimum requirements. All the purchases and expenditure are covered by vouchers. There is no construction of any building or creation of fixed assets requiring prior sanction. This stand is also not replied in the counter and no argument in opposition made. The impugned order does not specify the rule or circular that had been violated. Besides, it is stated in the Original Petition itself that the action of the respondent in singling out the petitioner for opening of an extension counter is malafide. Two other societies had opened extension counters without prior permission and no action has been taken against them. Thus it is clear that the Joint Registrar who had passed the impugned order has actuated on malafide consideration and there is absolutely no ground warranting to supersede the managing committee. None of the ingredients much less the wilful disobedience is found for invoking S.32, namely, wilful or persistent disobedience. 20. In Jose Kuttiyani v. Registrar of Cooperative Societies ( AIR 1982 Ker. 12 ) a Division Bench of this Court held that an overdraft facility is permitted under the rules to long-standing customers, if taking into account the reputation and financial worth the facility is allowed to individuals, the financial discipline prescribed, is not violated. There is no allegation that the petitioners acted malafide or benefited themselves out of any overdraft. In the circumstances, the Division Bench held that the Registrar failed to view this properly. The said observation squarely applies to the facts of the case. The Division Bench also held that the power of supersession is an extra ordinary power which should not be resorted to unless there is an extra ordinary situation. The Division Bench was dealing with the power of the High Court under Art.226 of the Constitution against the order of supersession and held that the scope of the enquiry by this Court is limited and the court will not function as an appellate court and investigate into the sufficiency of the materials on which the Registrar has arrived a satisfaction. However, the Division Bench held that the order of the Registrar can be interfered with, if the Registrar has 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. However, the Division Bench held that the order of the Registrar can be interfered with, if the Registrar has 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. If the power exercised is for a purpose or an intention beyond the scope and contemplation of the provision the action is liable to be interfered with on the ground that it constitutes fraud on the power granted by the Statute. Similarly, the Division Bench held that if it is shown that the action was taken on grounds or materials totally irrelevant to the purpose and intention of the Statute or that relevant matters have not been considered or that the grounds or evidence on the basis of which the authority acted are such that no one could reasonably arrive on such basis at the opinion or satisfaction required under the legislation. 21. The observations of the Division Bench on the scope of S.32 squarely applies in all fours and I am clearly of the view that the ingredients of satisfaction is totally lacking in this case and that the statutory authority has taken the materials totally irrelevant and failed to take into account the relevant matters. I am also of the view that no one could have reasonably arrived at the satisfaction with the grounds set out in the notice for supersession. The scope of judicial review was also considered by the Division Bench and held that the power of exercising under S.32 can be gone into by this Court under Art.226 of the Constitution. 22. This Court in P. Govindankutty & others v. State and others ( 1990 (1) K.LJ. 474 ) held that supersession should not be exercised in casual manner and the learned Judge (as he then was) observed as follows: "The power under S.32 of the Act is not to be exercised in a casual manner. Cooperative Societies should have greater autonomy in their functioning. Registrar's control over the societies should not culminate in virtually depriving them of their democratic and autonomous character. Progressive officialisation and politicalisation is causing damage to the Cooperative movement. Cooperative Societies should have greater autonomy in their functioning. Registrar's control over the societies should not culminate in virtually depriving them of their democratic and autonomous character. Progressive officialisation and politicalisation is causing damage to the Cooperative movement. A growing tendency is now seen to supersede the elected boards of societies on flimpsy grounds, this move should be curbed if the cooperative movement is to thrive in this country. From the scheme of the Act and the Rules framed thereunder, it is evident that the affairs of a Cooperative society are to be controlled and managed by elected board of directors. It is only in the rarest of rare cases can be board be superseded and Administrator appointed. The Registrar is invested with wide powers to circumscribe the field of activities of the board of directors. The Registrar is to exercise that power and to control the affairs of the society in the best interest of the society. Registrar's attempt must be to get the activities of the society carried on by the elected board and not to remove it from office. Registrar must exercise power under the Act for strengthening the cooperative institutions by maintaining its democratic set up. On flimsy grounds elected boards of directors of societies are not to be superseded by invoking the provisions contained in S.32 of the Act." 23. In Rajagopalan Nair v. State of Kerala (1995 (2) K.L.T.184) it was held that the provision for supersession is to be considered as an exceptional and rare action. It was also held that the expression "persistent", "negligent", "wilful" and "lawful" are the key words to guide the normal understanding of the nature of satisfaction that is required by the Registrar. The Court was constrained to observe that in spite of the word of caution & experience recorded by this Court (Govindankutty's case) orders are passed without any application of mind. 24. On the question of malafides, the ground set out by the petitioner is that the impugned order has simply extracted the provisions of the supersession verbatim without application of mind. The Joint Registrar has considered the recommendation of the Assistant Registrar for supersession and there is no finding on the alleged wilful default on the performance of the duties and the persistent default in complying with the directions. The Joint Registrar has considered the recommendation of the Assistant Registrar for supersession and there is no finding on the alleged wilful default on the performance of the duties and the persistent default in complying with the directions. From the facts and the narrations and the events set out above, it is clear that there are no grounds to support the allegations of wilful default and persistent default by the committee. On the contrary the contention of the society that the action of the Joint Registrar in superseding the society is on biased grounds is supported by the allegation that the opening of extension counter by two other societies has not been objected to. 25. In Pollachi Cooperative Marketing Society v. K.N. Valuswami and others (1994 Supp. (3) SCC 134) the Supreme Court following the earlier decision found that to constitute wilful negligence the act done or omitted to be done must involve such reckless disregard of duty as to imply bad faith. The Supreme Court also held that the degree of negligence was not mere negligence but wilful negligence and that this imported a consciousness that injury or loss was likely to arise from an act of commission or omission. 26. Learned Govt. Pleader referred to the decision in Haryana Urban Dev. Authority v. Roochira Ceramics (1996) 6 SCC 584 ) on the scope of the power under Art.226 of the Constitution. The Supreme Court held that it is not open to the High Court in writ petition under Art.226 to entertain a plea of financial stringency raised for the first time before it and allow the petition on that basis. The said decision will not apply to the facts of the case. This Court was not called upon to go into the merits of the controversy, but it was invited to go into the question whether the ingredients under S.32 has been satisfied. If there is a total non-application of mind and the order of supersession has been invoked on totally irrelevant materials then jurisdiction under Art.226 can be invoked. Besides, it is alleged that this provision has been invoked on malafide grounds against the petitioner society. In ground no.I, it is not stated that the whole proceedings were initiated on the basis of the recommendation of the Assistant Registrar. 27. Besides, it is alleged that this provision has been invoked on malafide grounds against the petitioner society. In ground no.I, it is not stated that the whole proceedings were initiated on the basis of the recommendation of the Assistant Registrar. 27. The Supreme Court in S.R. Venkataraman v. Union of India ( AIR 1979 SC 49 ) has referred to a decision in Shearer v. Shields (1914 AC 808) which reads thus: "A person who inflicts an injury upon another person in contravention of the law is not allowed to say that he did so with an innocent mind; he is taken to know the law, and he must act within the law. He may, therefore, be guilty of malice in law, although, so far the state of his mind is concerned, he acts ignorantly, and in that sense innocently." After referring the above decision the Supreme Court held that malice in its legal sense means malice such as may be assumed from the doing of a wrongful act intentionally but without just cause or excuse, or for want of reasonable or probable Cause. 28. In Partap Singh v. State of Punjab ( AIR 1964 SC 72 ) the Supreme Court held that if the act is in excess of the power granted or is an abuse or misuse of power, the matter is capable of interference and rectification by the Court. Even in case of denial of malafides, the Court can enquire into the truth of the allegations and afford appropriate relief to the party aggrieved by such illegality or abuse of power in the event of the allegations being made out. 29. In this case, the allegations made against the society are found to be not substantiated under any standard. Even assuming that the allegations are true for arguments' sake, there is ample scope for requiring compliance and supersession should have been resorted to only as a last resort. On the contrary, it is evident that there is non-application of mind on the question of satisfaction of supersession. There is no counter for the contentions raised by the petitioner. In these circumstances, I am of the considered view that knowing full well of the parametres of S.32, the Joint Registrar acted arbitrarily in contravention of known and laid down principles for reasons best known. 30. There is no counter for the contentions raised by the petitioner. In these circumstances, I am of the considered view that knowing full well of the parametres of S.32, the Joint Registrar acted arbitrarily in contravention of known and laid down principles for reasons best known. 30. Therefore, the impugned order of supersession Ext.P8 is quashed and the respondents 1 to 3 are directed to allow the petitioners to function as Managing Committee of the 4th respondent Bank till the expiry of their term. The Original Petition is accordingly allowed with a cost of Rs.5,000/-.