Judgment :- K.S. Radhakrishnan, J. Complaints regarding the malpractices in the process of recruitment of officers and servants in the various Primary Agricultural Credit Societies, Primary Credit Societies, Urban Co-operative Banks, Primary Co-operative Agricultural and Rural Development Banks, etc. are increasing day by day. This Court had occasion to come across several cases in the recent past, and in very many cases, Co-operative Department and the Government have interfered with the selection process, after conducting enquiries. 2. Government, in view of the wide spread complaints and criticism, from various quarters with regard to appointment in the Primary Co-operative Agricultural and Rural Development Banks, Urban Co-operative Banks, and various other banks, issued Ordinance 10 of 1995 directing those banks to effect appointments of officers and servants in their banks only from a select list prepared by the Public Service Commission. Ordinance was later replaced by Act 6 of 1995. S.80 of the Kerala Cooperative Societies Act was later amended adding sub-s.(3A) to that Section, which states that notwithstanding anything contained in the Act, or the rules made or orders issued thereunder or in the bye-laws of any society relating to the recruitment and conditions of service officers and servants of societies, all appointments of officers and servants of the societies mentioned in the Schedule for which direct recruitment is resorted to shall be made from a select list of candidates furnished by the Kerala Public Service Commission. Sub-s. (3B) was also added which states that all appointments made by direct recruitment to the societies referred to in sub-s.(3 a) on or after the 25th day of April, 1995 and before the date of publication of the Kerala Co-operative Societies (Amendment) Ordinance, 1995 (Ordinance No. 10/95) shall be invalid. 3. Government had earlier issued circular No. 18/91 because of large number of complaints with regard to malpractices in the selection process adopted by various societies in the State. Circular lays down various procedures, some of which are extracted below: "(a) applications for the posts shall be invited through Advertisement in leading dailies having wide circulation in the area. (b) Selection shall be made only after conducting written test and interview, allotting 100 marks for written test and 20 marks for interview. (c) The Written test shall be conducted by an outside agency. (d) False numbers should be assigned to the answer scripts. (b) Selection shall be made only after conducting written test and interview, allotting 100 marks for written test and 20 marks for interview. (c) The Written test shall be conducted by an outside agency. (d) False numbers should be assigned to the answer scripts. (e) The conditions with regard to age limit, qualifications, mode of appointment, etc., as laid down in the rules framed under S.so. rules 183,186 and 187 of the KCS Rules shall be strictly followed. (f) Ten percent of the vacancies should be reserved for candidates belonging to Scheduled Castes/ Tribes." 4. Registrar of Co-operative Societies later vide circular No. 18/94 clarified the expression'outside agency' mentioned hereinbefore in clause (c). Clarification was necessitated because several instances came to the notice of the Registrar where written test was conducted by persons not having any expertise or any connection with the co-operative movement. This gave rise to serious allegations and long pending litigation. In the said circumstances, Registrar issued the following direction: "The Apex and Central Societies, societies with large volume of business should engage like Institute of Management in Government, Thiruvananthapuram, Institute of Co-operative Management. Thiruvananthapuram, other reputed autonomous institutions for conducting the written test for direct recruitment. The Primary Societies shall engage the services of Institute of Co-operative Management, Thiruvananthapuram or the State Co-operative Union or persons or agencies having sufficient expertise and knowledge in this regard for conducting written test for direct recruitment" 5. Registrar later issued circular No. 18/96 dated 9.8.1996 whereby the earlier circular No. 18/94 was cancelled, since appointment in the Apex Societies including District Co-operative Banks, were entrusted with the Kerala Public Service Commission vide Kerala Co-operative Societies (Amendment) Act, 1995 (Act 6 of 1995). Since recruitment through Public Service Commission would take time, Registrar issued yet another circular No. 31/96 directing all the apex co-operative banks as well as District Co-operative Banks to effect appointments only through Employment Exchange on provisional basis till appointments are effected from the list prepared by the Kerala Public Service Commission. However, no such procedure was laid down with respect to Primary Agricultural Credit Societies, Primary Credit Societies, Urban Co-operative Banks, etc. even though they are engaged in banking, doing large volume of business. However, no such procedure was laid down with respect to Primary Agricultural Credit Societies, Primary Credit Societies, Urban Co-operative Banks, etc. even though they are engaged in banking, doing large volume of business. In fact many of the Primary Agricultural Credit Societies, Primary Credit Societies, Urban Co-operative Banks, are doing large volume of business than the apex banks and some District Co-operative Banks in the State. Government, however, felt the necessity of laying down various regulatory measures in public interest to streamline the appointments in those banks, as well since they also deal with public money. 6. Government have now framed the Kerala Co-operative Societies (Amendment) Bill, 1999 to provide for the orderly development of the co-operative sector in the State, by organising the Co-operative Societies as self-governing, domestic institutions, to achieve the objects of equity, social justice and economic development as envisaged in the Directive-Principles of State Policy of the Constitution of India. Government also decided to constitute a Co-operative Service Recruitment Board. It is profitable to refer to Clause 13 of the Statement of Objects and Reasons of the said Bill, which is extracted below: "At present, recruitment of officers and servants, in the Primary Agricultural Credit Societies, Primary Credit Societies, Urban Co-operative Banks and Primary Co-operative Agricultural and Rural Development Banks, is made by the societies themselves. It has come to the notice of the Government that such recruitments are not made strictly in accordance with the provisions of the Act, and the Rules made thereunder and has resulted in widespread criticism and complaint. Government have, therefore, decided to entrust such recruitment to an independent body by constituting a Co-operative Service Recruitment Board." Bill was already introduced in the State Assembly an6 the same was retail to Select Committee. Recently in large number of cases undue hurry has been shown by various Banks' Directors Board in filling up posts in the Primary Co-operative Agricultural and Rural Development Banks, Urban Co-operative Banks, etc. before Co-operative Service Recruitment Board is constituted. Board of Directors of some of the banks are taking hasty steps to see that posts are filled up before the expiry of their term giving rise to several criticism and malpractices in the selection process. Serious complaints of corruption in the matter of appointment are also highlighted. This Court cannot shut its eyes to those complaints. Board of Directors of some of the banks are taking hasty steps to see that posts are filled up before the expiry of their term giving rise to several criticism and malpractices in the selection process. Serious complaints of corruption in the matter of appointment are also highlighted. This Court cannot shut its eyes to those complaints. Co-operative Department and also the Government have found substance in various allegations of corruption in the matter of appointment of officers and servants in the co-operative banks. It is highly necessary to lay down certain safeguards in public interest. 7. Co-operative Banks spread over the State have got greater role to play in the development of the economy of the State. Banks dealing with public money owe a social responsibility and have a social objective to achieve. Activities of the Cooperative Banks are expected to be in confirmity with the broad economic policy of the Government, thereby providing facilities for economic development and industrial programmes of the State. Industrial Banks, Commercial banks, Joint Stock Banks, Cooperative Banks, Agricultural Banks, Rural Development Banks, lead Banks and other credit institutions are functioning not only to meet the requirements in a State, but also on a national basis and have become now the custodian of monetary economics of the State. 8. Constitution of India made a specific reference to the incorporation, regulation and winding up of corporations than those specified in the list, which also includes co- operative societies, vide Entry 32 of List II of the Seventh Schedule to the Constitution. Aft. of India mandates that State shall promote economic interest of weaker sections of the people and save them from all forms of exploitation. All banking business have social objective to achieve as enshrined in Arts.38 and 39 of the Constitution. Kerala Co-operative Societies Act has been enacted by the State Legislature in order to give effect to the constitutional objectives enunciated in the Directive Principles of State Policy. The Preamble of the Act shows that it was enacted to provide for the orderly development of the co-operative movement in the State of Kerala in accordance with the relevant Directive Principle of State Policy enunciated in the Constitution of India. 9. Co-operative Societies dealing with banking business have more social responsibility to achieve the constitutional objectives enshrined in the Constitution. 9. Co-operative Societies dealing with banking business have more social responsibility to achieve the constitutional objectives enshrined in the Constitution. Supreme Court in R. C. Cooper v. Union of India, AIR 1970 SC 564 held as follows: "Business of banking thrives on its reputation for probity of its dealings, efficiency of the service it provides, courtesy and promptness of the staff, and above all, the confidence it inspires among the customers for the safety of the funds en trusted. The Reserve Bank, it is true, exercises stringent control over the transactions which banks carry on in India... Existence of these powers and exercise thereof may and ensure to a certain extent the safety of the funds entrusted to the banks. But the business which abank attracts still depends upon the confidence which the depositor reposes in the management. The regulatory provisions of the Banking Companies Act and the control which the Reserve Bank exercises over the banks may to a certain extent reduce the chance of the resources of the banks being misused, but a banking company for its business still largely depends upon the reputation of its management" 10. Banks which deal with public money have to act in public interest, since they discharge a public duty. If there is any erosion or dissenting by those who control the activities, all expectation and hopes of the people will be destroyed. Every action of a co-operative bank dealing with public money is having insignia element of public interest. Consequently their actions must be guided by reasonableness, fairness and justness. Co-operative Societies and banks cater to the needs of the rural areas as the borrowers and are also concerned with financing agriculturists. They also perform banking functions. They have also to follow such policies laid down by the Reserve Bank of India and Co-operative Department. S.56 of the Banking Regulation Act also lays down the procedure to be followed by the co-operative societies. National Bank for Agricultural and Rural Development setup under the National Bank for Agricultural and Rural Development Bank Act also support and promote agricultural and rural development activities undertaken by various co-operative societies in the State. 11. The Meenachil East Urban Co-operative Bank Ltd. is spread over the 14 Panchayats in the Meenachil and Kanjirapally Taluks. It has 19 offices consisting of 18 branches and head office. 11. The Meenachil East Urban Co-operative Bank Ltd. is spread over the 14 Panchayats in the Meenachil and Kanjirapally Taluks. It has 19 offices consisting of 18 branches and head office. The deposit is around Rs, 40 crores and loan outstanding is Rs. 26 crores. Staff strength is around 152. They accept money from public and also lend money. Large volume of business is being transacted by them than many of the District Co-operative Banks in the State. Officers and servants of the co-operative societies, clerks, cashiers, accountants, branch managers, deal with public money. In the year 1995, bank took steps to fill up the post of clerks in the bank. There were serious allegations with regard to selection process adopted by the bank. A detailed enquiry was conducted by the Assistant Registrar (Vigilance). Enquiry revealed that allegations were justified. Written test was directed to be conducted by one Leela Kumari. Enquiry revealed several instances of malpractices in the selection process. Ultimately the entire selection was cancelled. Registrar of Co-operative Societies came to the conclusion that the circumstances and background of the conduct of the written test and interview led to the irresistable conclusion that there was some or other kind of malpractice in the whole process of selection and appointment. It was further clear from the fact that eight out of nine persons selected for final appointment were known to others well before the actual finalisation of the select list. The said order of the Registrar was later confirmed by the Government vide order dated 24.7.1996. Those orders are now under challenge before this Court. But the facts reveal a sorry state of affairs. By the time Registrar interfered, appointments were already effected. 10 members of the present Board of Directors were members of the previous Board of Directors, whose action was found to be bad by the Joint Registrar and the same was confirmed by the Government. 12. The present Board of Directors have now issued a notification dated 19.12.1998 for filling up 23 posts in the bank. Petitioner is one of the applicants for the post. According to him, ten members of the present Board of Directors were members of the previous Board of Directors, whose action was found to be illegal by the Joint Registrar, and the Government. Petitioner is one of the applicants for the post. According to him, ten members of the present Board of Directors were members of the previous Board of Directors, whose action was found to be illegal by the Joint Registrar, and the Government. According to him, in the nature of things, it is highly necessary that the selection be conducted by an independent agency, like Institute of Management, an independent Government agency, and other Institutes of repute and credibility in the matter of selection process. 13. In the counter affidavit filed by respondents, it is stated that complaints were made against selection process by people with vested interests. It is also their contention that it is highly necessary to fill up various posts, since the bank is short of sufficient number of staff. Further it is their contention that society has got power to effect appointments by adopting their own recruitment process and that petitioner cannot insist that it should be done by an outside agency. 14. Thalassery Primary Co-operative Agricultural and Rural Development Bank, s a class I bank with working capital of Rs. 22 crores and the area of operation spreads over 48 villages of Tellicherry. Apart from Head Office, it has got 2 branches at India and Peravoor. With regard to the decision taken by the Bank to effect appointments in the bank, a complaint was raised by one of the members of the Board of Directors. Complaint was also raised that bank is effecting appointments when the bank is running atloss to a tune of Rs.85 lakhs. It is under the said circumstances that the Joint Registrar interferred and passed order dated 19.8.1998, 'Going by the decision of the Division Bench of this Court in Gouthaman v. Joint Registrar, 1998 (1) KLT 275, the course open to the Registrar in appropriate cases is to exercise powers under S.68(1) of the Act. If the Bank is running at loss that is one of the factors to be taken note of by the Joint Registrar. Assuming that the bank is acting within the staff strength of Class I bank, even then Registrar has got power to look into the question whether the committee is acting against the interests of the society. Therefore, it cannot be said that Joint Registrar has no power to look into those matters. Assuming that the bank is acting within the staff strength of Class I bank, even then Registrar has got power to look into the question whether the committee is acting against the interests of the society. Therefore, it cannot be said that Joint Registrar has no power to look into those matters. I am of the view that Joint Registrar could look into the matter and take further steps. Petitioners in O.P. Nos. 3868 and 4507 of 1999 highlight the necessity of effecting appointments in the banks through independent agency. Relying on Circular No. 18/91 counsel submitted that written test shall be conducted only by an 'outside agency'. Counsel submitted that the term'outside agency' would take only an institution of repute. He referred to the dictionary meaning of word 'agency' as an organisation or company that offers its services: New Webster Dictionary, 1979 Edn. According to him, bank is duty bound to entrust the matter to an organisation or company for conducting written test. 15. Institutions which are involved in banking business like co-operative banks dealing with public money have got a public duty to perform. They are one of the organs for the growth of the economy and complementary functionaries to nationalised banks. Business of Banking thrives on its reputation for probity of its dealings, efficiency of the service it provides, courtesy and promptness of the staff, and above all the confidence it inspires among the customers for the safety of the funds entrusted. Reserve Bank of India also exercises control over the transactions which the banks carry on in India. Existence of these powers and exercise thereof may ensure to a certain extent the safety of the funds entrusted to the banks. But the business which a bank attracts still depends upon the confidence which the depositor reposes in the management and its employees. Regulatory provisions of the Banking Companies Act and the control which the Reserve Bank exercise over the banks may to a certain extent reduce the chance of the resources of the banks being misused, but a banking company for its business still largely depends upon the reputation of its management, officers and employees. Regulatory provisions of the Banking Companies Act and the control which the Reserve Bank exercise over the banks may to a certain extent reduce the chance of the resources of the banks being misused, but a banking company for its business still largely depends upon the reputation of its management, officers and employees. Supreme Court in L.I.C. of India v. Consumer Education & Research Centre (1995) 5 SCC 482 held as follows: "Ifitisshowntliattlieexerciseofpowerisarbitrary,unjustandunfair,itshouldbenoanswer for the State, its instrumentality, public authority or person whose acts have a insignia of public element to say that their actions are in the field of private law and they are free to prescribe any conditions or limitations in their actions as private citizens implicit do in the field of private law. Its actions must be based on some rational and relevant principles." Again in Air India Statutory Coloration, v. United Labour Union, (1997) 9 SCC 377, the Supreme Court held that they throw open an element of public interest in its working. They share the burden and shoulder constitutional obligations to provide facilities and opportunities enjoined in the Directive Principles, the Preamble and the Fundamental rights enshrined in the Constitution. Co-operative Societies may not be creatures of the statute, but when they deal with public money, there is an insignia of public element in their actions. Officers and servants of the Co-operative banks are permanent officers and servants, unlike the management which come and go one after the other. It is for the officers and servants of the banks to safeguard the public money which they deal with. 16. Co-operative Societies Act and Rules oblige the management to effect appointments only through paper publication. They should invite applications from public. When applications are invited from public, vide open publication persons who deal with public money have got an obligation to see that selection process is done only by persons with integrity and impartiality. It is therefore, necessary to lay down some safeguard to check the abuse by the co-operative sector dealing with banking business. Regulatory measures are necessary to remedy the mischief. The procedure to be prescribed to effectuate this purpose must be a fortiori to be valid, fair and reasonable intended to check-mate the abuse of dealings with investors'/depositors' hard earned money. It is therefore, necessary to lay down some safeguard to check the abuse by the co-operative sector dealing with banking business. Regulatory measures are necessary to remedy the mischief. The procedure to be prescribed to effectuate this purpose must be a fortiori to be valid, fair and reasonable intended to check-mate the abuse of dealings with investors'/depositors' hard earned money. Any organisation which deals with money is always vulnerable to frauds and this is more so in the case of financial institutions like banks which are dealing only in money. Managing Committee will come and go. But investors' money must be safe in the hands of officers and servants of the society. Therefore, it is highly necessary to lay down appropriate procedures in the matter of their appointments since they deal with public money. Persons appointed in the banking institutions must be persons of high character and proven ability in the area of baking business. 17. Management of co-operative societies is vested in the managing committee constituted under S.28 of the Act. Rr.183 and 186 of the Rules lay down qualifications for appointment to various posts. Every provision of the Co-operative Societies Act just receive interpretation as to suppress the mischief and advance the object and also o achieve and translate into action the underlying intendment of the enactment for the realisation of constitutional goals set out in Part IV of the Constitution. We have to examine the problem not merely in semantics but in the broader and more appropriate on text to achieve the constitutional scheme of the Act, which is enacted to provide for it orderly development of the co-operative movement in the State of Kerala in accordance with the relevant directive principles of state policy enunciated in the 'constitution of India. 18. Various Co-operative banks in the State engaged in banking business implement the main effort of the State to serve better the needs and development of the economy in confirmity with the national policy objective and matters connected therewith. The national policy may be taken to be the policy in the Directive Principles of State Policy, especially in Arts.38 and 39 of the constitution of India. The national policy may be taken to be the policy in the Directive Principles of State Policy, especially in Arts.38 and 39 of the constitution of India. Supreme Court in Unnikrishnan v. State of A.P. (1993) 1 SCC 645 dealing with educational activity of private educational institutions held that educational activity of those institutions is supplemental to the main effort of the State and what applies to the main activity applies equally to the supplemental activity as well. Therefore, those statutory authorities are required to act fairly and in accordance with Art.14 of the Constitution of India. 19. Banking activities undertaken by various Primary Agricultural Credit Societies, Primary Credit Societies, Urban Co-operative Banks and Primary Co-operative Agricultural and Rural Development Banks, etc., are supplemental to those taken by the Apex banks and District Co-operative Banks and also other nationalised banks. They cannot be treated differently, since they also throw open an element of public interest in its working. They share the burden and shoulder constitutional obligations so as to serve national policy like those co-operative societies. Therefore, their actions must also be based on rational and relevant principles and must not be guided by irrational or irrelevant considerations and their actions should satisfy the basic law requirement of Art.14 of the Constitution of India. 20. Individual interest of the management of the Board of Directors should give way to larger public interest and the broader public purpose enshrined under Arts.14 and 21 of the Constitution of India. State has also got power to make legislation constituting Recruitment Board in exercise of powers conferred under Entry 32 of List II of VIth Schedule to the Constitution. 21. A Division Bench of the Bombay High Court in Nagpur District Central Cooperative Bank Ltd. v. Divisional Joint Stock Registrar of Co-operative Societies, AIR 1971 Bom. 365 held that the State Legislature has jurisdiction to regulate the functioning of the co-operative societies engaged in the business of banking: Entry 32 of List II of the Vth Schedule. The same is the view taken by the Punjab and Haryana High Court in Sadhu Singh v. State of Punjab, AIR 1970 P. & H. 528. 22. Therefore, I am of the view that those banks which do large volume of business and dealing with public money cannot be treated differently from those Apex and Central Banks, District Co-operative Societies, etc. 22. Therefore, I am of the view that those banks which do large volume of business and dealing with public money cannot be treated differently from those Apex and Central Banks, District Co-operative Societies, etc. They must also require the same treatment which is extended to others. Otherwise Co-operative Societies intended to act in accordance with the relevant principles of State Policy enunciated in the Constitution of India would become citadels of patronage, favouritism and institutions for arbitrary action. I am of the view that Registrar has rightly issued the circular earlier entrusting the appointment to various posts to the Institute of Management. The right to issue circulars to safeguard the interests of societies as well as public at large has been recognised by this Court in Gouthaman v. Joint Registrar 1998 (1) KLT 275, wherein this Court held that even if the co-operative society functions as an autonomous body and has got its own freedom of activities, society can act only subject to the limitations of the Act, Rules, bye-laws and directions issued by the Registrar. Therefore, under the Act, Joint Registrar has got power to issue appropriate directions. 23. The Supreme Court also in U.P.S. Co-operative Land Development Bank Ltd. v. Chandra Bhain Dubey, JT (1998) SC 81 held when any citizen or person is wronged, the High Court will step into protect him, be that wrong be done by the State, an instrumentality of the State, a company or a co-operative society or association or body of individuals whether incorporated or not, or even an individual. 24. It is therefore declared that all Primary Agricultural Credit Societies, Primary Credit Societies, Urban Co-operative Banks, Primary Co-operative Agricultural and Rural Development Banks etc. which are engaged in banking business would effect appointments only through the employment exchanges till a Co-operative Service Recruitment Board, as provided by the Kerala Co-operative Societies (Amendment) Bill, 1999, is constituted. Registrar may also permit the societies to effect appointments through written test conducted by Institute of Management or other reputed Government agencies, if situation warrants till a Co-operative Service Recruitment Board is constitute Registrar will issue a circular to the above effect to all the societies mentioned hereinbefore forthwith. Original Petitions are disposed of as above.