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2003 DIGILAW 578 (GAU)

Manoj Chakraborty v. Union of India (UOI)

2003-12-11

AMITAVA ROY

body2003
JUDGMENT Amitava Roy, J. 1. The petitioner No. 1 before this Court is a Shareholder/Member and petitioner No. 2, a depositor of the Silchar Co-operative Urban Bank (hereinafter referred to as the 'Bank') assailed the legality and validity of the communication dated 15.2.2000 and one 23.3.2000 pertaining to winding up thereof as directed by the Reserve Bank of India (hereinafter referred to as the 'RBI'). This court issued rule on 27.3.2000 but no interim order was passed. 2. Heard Mr. N. Dhar, learned counsel for the petitioners, Mr. M. Bhuyan, learned counsel for the RBI and Mr. A. Thakur, learned State counsel for respondent Nos. 2, 4 and 5. 3. The primary facts in short as can be gathered from the writ petition are that the bank is a registered Society under the Assam Co-operative Societies Act, 1949 (hereinafter referred to as the Act) and has been functioning for the last about a century but had become financial sick due to non-payment of loans by the borrowers. According to the petitioners, the Registrar, Co-operative Society, Assam in such circumstances ought to have made an endeavour to recover the outstanding loan amounts through Bakijai proceedings as contemplated in law. Instead, pursuant to the communication dated 15.2.2000 of the RBI, the impugned notification dated 25.3.2000 has been issued to initiate necessary action for winding up the Bank. A representation was submitted before the Government against the proposed action in the interest of the depositors which however did not evoke any response. It has been contended by the petitioners that the impugned action is not inconformity with the provisions of the Act, more particularly those contained in Sections 60, 61, 65,66, 70 and 83 thereof inasmuch as winding up of a registered society is not permissible unless its registration is first cancelled after an enquiry contemplated under Sections 60, 61 of the Act. In the alternative, it has been contended, that as in taking the decision contained in the communication dated 15.2.2000 the power under Section 15A of the Assam Co-operative Bank (Amendment Act, 1989) (hereinafter referred to as the Amendment 'Act') has been exercised purportedly on the circumstances comprehended under Section 13(D) of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (hereinafter referred to as the Deposit 'Act'), the procedure prescribed for an inspection before winding up of the Bank as envisaged under Section 35 of the Banking Regulation Act, 1949 (hereinafter referred to as the 1949 Act) was indispensable and therefore in absence of such an enquiry, the communications dated 15.2.2000 and 23.2.2000 are not sustainable in law. The further contention is that the impugned action is also legally not tenable as no endeavour was made to recover the outstanding loan amounts of the Bank to revive the same before taking a decision for winding it up. 4. In its counter, the RBI claimed that under Section 22 of the 1949 Act, which was extended to the Co-operative Societies by the Banking Law (Application to Co-operative Societies) Act, 1965, the Bank submitted an application on 19.3.1986 for grant of licence. The application was kept in abeyance in view of its unsatisfactory financial condition as revealed by the statutory inspection conducted by RBI, and the Bank was classified as a 'weak' Bank. Pending consideration of the application, it was however allowed to continue with the banking business by virtue of proviso (hi) of Section 22 of the 1949 Act. The case of the RBI is that the bank was not in a position to comply with the provisions of the minimum requirement, of share capital as prescribed under Section 11 of the 1949 Act. On the other hand, the bank was advised to pray for exemption from the application of the said provisions, but no such action was taken. The statutory inspection on 30.6.1994 revealed the following deficiencies in the functioning of the bank : "(i) It had defaulted in the maintenance of cash reserve and liquid assets, required to be maintained under Sections 18 and 24 of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies) almost throughout the period covered by inspection. (ii) It had not framed any well defined loan rules, nor it ensured post disbursement supervision and verification of end use of funds lent. (ii) It had not framed any well defined loan rules, nor it ensured post disbursement supervision and verification of end use of funds lent. (iii) The internal control and accounting system of the respondent No. 6 suffered from deficiencies. (iv) It has also a chronic defaulter as regard to submission of statutory returns. It was not responding to the letters issued by RBI. (v) There was no normal functioning of the Bank. The Manager of the Bank was absenting from duty since 6 November, 1997 without handing over charge to anybody. (vi) The balancing of books was in arrears since 1994-95. (vii) The internal control and accounting system of the Bank was in shambles. (viii) It was not in a position to pay the depositors on maturity of their deposits or on demand." 5. In the above premises, on 7.6.1999, the RBI issued a notice calling upon the Bank to show cause as to why its request for grant of licence shall not be refused. The Bank prayed for sometime, asking for a copy of the inspection report which was provided to it. The Bank however remained lukewarm in the matter. It was thereafter, in public interest and in the interest of the depositors that the application for licence was refused and the impugned action was taken. The RBI has categorically contended that the Bank had failed to show any significant improvement in its position and factors like mismanagement of the affairs, neglect of the internal and accounting system etc. contributed to it precarious condition which was beyond revival. It is the case of the RBI that the deficiencies and the irregularities in the functioning of the Bank were circumstances as contemplated under Section 13(D)of the Deposit Act and the RBI being satisfied that it was in public interest that the Bank should be wound up, took the impugned decision. 6. Reiterating the contentions raised in the petition, Mr. Dhar strenuously argued that the Bank is a registered society under the Act, and therefore before the winding up thereof, the procedure prescribed under Sections 60, 61, 65 and 83 of the Act had to be mandatorily followed. As the same had not been done, the impugned decision is not tenable in law. Dhar strenuously argued that the Bank is a registered society under the Act, and therefore before the winding up thereof, the procedure prescribed under Sections 60, 61, 65 and 83 of the Act had to be mandatorily followed. As the same had not been done, the impugned decision is not tenable in law. He argued in the alternative, that as the Bank was sought to be wound up in view of the existence of circumstances enumerated under Section 13(D) of the Deposit Act, the procedure prescribed by Section 35 of the 1949 Act must have been followed. According to him, as the grounds set out in Section 13(D) of the Deposit Act refer to the 1949 Act such a procedure was to be compulsorily followed to sustain the decision of winding up. Mr. Dhar maintained that in absence of compliance of the procedure either under the Act or the 1949 Act, the RBI had no authority of its own to take the decision for winding up and therefore the impugned action is liable to be adjudged null and void. Without prejudice to the above, the learned counsel has argued that in the interest of the depositors and in the facts and circumstances of the case, before resorting to such drastic action, necessary steps should have been taken through the Registrar of Co-operative Societies, Assam to make all out efforts to revive the Bank by instituting Baljai proceedings for recovery of the outstanding amounts lying with the defaulters and the impugned action in absence of such an exercise is no bonafide as well. In support of his submissions Mr. Dhar relied on a decision Andhra Pradesh High Court, B. Suryanarayana and Ors. v. The Kollur Parvathi Co-op Bank Ltd. and Ors. 7. Per contra, Mr. Bhuyan has submitted that the impugned decision has been taken by the RBI in exercise of its power under Section 15(A) of the Amendment Act being satisfied that one or more circumstances enumerated in Section 13(D) of the Deposit Act are present and therefore, the impugned decision cannot be faulted with in any manner. 7. Per contra, Mr. Bhuyan has submitted that the impugned decision has been taken by the RBI in exercise of its power under Section 15(A) of the Amendment Act being satisfied that one or more circumstances enumerated in Section 13(D) of the Deposit Act are present and therefore, the impugned decision cannot be faulted with in any manner. According to him, the Bank being a Co-op Bank and not only a registered society within the meaning of the Act, it was not incumbent on the part of the RBI to go through the process of inspection through the Registrar of Co-op Societies, Assam as contemplated under the provisions thereof before taking a decision for winding up the Bank. He further submitted that as the application of 1949 Act has been extended to the Co-op Societies with necessary modifications as can be culled out from Section 56 thereof it is apparent therefrom that the provisions of the said Act as a whole do not apply to a Co-op Bank. According to him, mere reference of the 1949 Act made in Section 13(D) of the Deposit Act, does not make it necessary for the RBI to follow the provisions thereof before taking a decision for winding up a concerned Co-op Bank. The learned counsel contended that for the facts and circumstances as in the present case, no procedure as such has been prescribed, and as the provisions of the Act and the 1949 Act to that effect are not applicable, a procedure which is fair has to be adopted. In the case in hand, inspections were caused to be made by the RBI to investigate into the operation of the Bank, results whereof called for immediate intervention of the RBI in the public interest and in the interest of the depositors. The Bank was duly notified about the results of the inspections and was asked to show cause as to why its application for licence should not be cancelled and further why it should not be wound up. As there was no response to the said notice, the RBI being satisfied that such a action was imperative, took the impugned decision. Mr. Bhuyan, therefore, strongly submitted that this Court in exercise of its power of judicial review having regard to the materials on record, more particularly, those reflecting the results of the inspection would not interfere with the impugned decision. 8. Mr. Bhuyan, therefore, strongly submitted that this Court in exercise of its power of judicial review having regard to the materials on record, more particularly, those reflecting the results of the inspection would not interfere with the impugned decision. 8. The essence of the contentions raised on behalf of the petitioner is that the Bank is essentially a registered Co-operative Society under the Act, and therefore, the provisions contained in the Act laying down the procedure to be followed before winding it up have to be compulsorily complied with. However, if the Bank is taken to be a Banking Company under the 1949 Act, the procedure under Section 35 thereof at least has to be followed for the purpose. This is so, because the grounds contained in Section 13(D) of the Deposit Act make reference of the 1949 Act. 9. Apparently, the impugned action of the RBI is under Section 15A of the Amendment Act applicable to a Insured Co-op Bank. The expression Insured Co-op Bank has been defined in the said Section. It is a society which is a insured bank under the Deposit Act. The expression Insured Bank under the Deposit Act has been defined to mean, inter alia, an eligible Co-op Bank for the time being registered under the Deposit Act. An Insured Co-op Bank, therefore, in my view is a society which is a Co-op Bank, Section 56 of the 1949 Act, makes the provisions thereof applicable to the Co-op Bank/Co-op Societies with the modifications as set out therein. In sub-section (a) of Section 56 of the 1949 Act, it is clarified that reference to the "Banking Co." "Company" or such "Company" should be construed as references to a Co-op Bank. Section 5A of the 1949 Act, as applicable to the Co-op Bank has the effect of overriding anything to the contrary, contained in by laws of the corresponding Co-op Society. Section 7 thereof requires that no Co-op Society other than a Co-op Bank shall use as a part of its name, any of the words "Bank, "Banker" or "Banking" and no Co-op Society shall carry on business without using as a part of its name, at least one of such words. Section 7 thereof requires that no Co-op Society other than a Co-op Bank shall use as a part of its name, any of the words "Bank, "Banker" or "Banking" and no Co-op Society shall carry on business without using as a part of its name, at least one of such words. Sections 11,18,19 and 20deal with the requirement as to minimum capital reserve, cash reserve, restrictions on holding of shares in other Co-op Societies, and restrictions on loans and advances vis a vis a Co-op Bank. Section 22 requires that no Co-op Society shall carry on banking business in India unless it is a Co-op Bank and holds a licence issued in that behalf by the Reserve Bank subject to such conditions, if any, as the Reserve Bank may deem fit to impose. Section 35 of 1949 Act, also stands modified in its application in a Co-op Bank. 10. Looking at the language appearing in sub clause (i) and (ii) of Section 15A of the Amendment Act, it is apparent that the power conferred on the RBI is in addition to the power available to the Registrar of Co-op Societies under the Act for cancelling registration thereof or for winding it up. The mandate of the above two clauses of Section 15A appears to be that if a registered Society is a Co-op Bank, the Registrar of Co-op Societies in exercise of his power under the Act cannot wind up the Co-op Bank. Winding up of a Co-op Bank can only be with the previous sanction of the RBI in writing and such winding up shall be made by the Registrar if so required by the RBI only in the circumstances referred to in Section 13(D) of the Deposit Act. In other words, the power of the Registrar under the Act stands excluded dehors the RBI for winding up a Co-op Bank though it may be registered as a society under the Act. In that view of the matter, it is not possible to uphold the contention of Mr. Dhar that for wining up of the Bank, the necessary pre-condition was to hold on enquiry/inspection under the provisions of the Act and that the cancellation of its registration as per the Act should have preceded the impugned decision. These provisions of the Act are applicable to a society which is registered under the Act, but not a Coop Bank. 11. These provisions of the Act are applicable to a society which is registered under the Act, but not a Coop Bank. 11. The impugned action has been taken up Clause (ii) of Section 15A of the Amendment Act on the ground that one or more of the circumstances set out in Section 13(D) of the Deposit Act exist in the facts and circumstances of the present case. A casual look into the circumstances enumerated under Section 13(D) of the Deposit Act makes it clear that the same refer to various provisions of 1949 Act. In my view such reference is only for the purpose of indicating the nature of the irregularities and illegalities in the operation of a Co-op Bank necessitating the action of its winding up. 12. Section 35 of the 1949 Act, inter alia, empowers the Central Govt. to cause an inspection be made by the RBI, India into the functioning of a Banking Company for taking appropriate action as would be called for. This is independent of the power conferred on the RBI under Section 15A of the Amendment Act. It is difficult to appreciate, in view of the above two provisions, namely, Section 15Aof the Amendment Apt and Section 35 of the 1949 Act as to how it can be made incumbent on the RBI to follow the procedure of Section 35 of the 1949 Act before taking a decision for winding up of a Co-op Bank. The very fact, that Section 15A of the Act recognises an independent power vested with the RBI to deal with a Co-op Bank though essentially a registered society under the Act suggests a dichotomy between a society registered under the Act and a Co-op Bank. In the above premises, I am unable to concur with Mr. Dhar that before taking the impugned action, the procedure under the provisions of 1949 Act ought to have been followed. 13. It may be noticed that the petitioners have not file any rejoinder affidavit in reply to the averments made in the counter filed by the RBI, more particularly, with regard to the irregularities and deficiencies found in the functioning of the Bank. The representation submitted before the Govt also does not reveal any such stand. 13. It may be noticed that the petitioners have not file any rejoinder affidavit in reply to the averments made in the counter filed by the RBI, more particularly, with regard to the irregularities and deficiencies found in the functioning of the Bank. The representation submitted before the Govt also does not reveal any such stand. In absence of any material to the contrary demonstrating that the irregularities detected in the process of inspection caused by the RBI do not exist in fact, the action of the RBI on the face of the records, in directing winding up of the Bank in exercise of power Under Section 15A of the Amendment Act can neither be said to be based on non-existent grounds nor illegal, unconstitutional, null and void. This court in exercise of power of judicial review is not called upon to sit in appeal over a administrative decision that is impugned. It is only required to scrutinise the decision making process. It is when the grounds on which the impugned decision is taken are extraneous or the action is in blatant violation of any provision of a statute or in non-compliance of the principles of natural justice, that such an interference is called for. Before the impugned action, the Bank was called upon to show cause as to why its application for licence should not be rejected, in view of the irregularities detected in the inspection. There was no response to the said notice although a copy of the inspection report was furnished to the Bank as requested by it. In the above facts and circumstances, I am of the view that none of the recognised grounds on which a judicial view of administrative action under Article 226 of the Constitution is available, exists in the instant case. 14. In B Suryya Narayananna (supra), the Andhra Pradesh High Court while dealing with the provisions of A.P. Co-op Societies Act, 1964, referred to the provisions thereof, more particularly, Section 115(A) and 115(b) which required an endeavour to be made to preserve the Bank and not to destroy it by winding it up. This decision turns on its own facts governed by a different statute and therefore does not advance the case of the petitioners. 15. This decision turns on its own facts governed by a different statute and therefore does not advance the case of the petitioners. 15. Regarding the submission with regard to the steps to be taken for revival of the Bank, I do not find sufficient materials on record to direct such a course of action. The irregularities and deficiencies in functioning of the Bank which stand uncontroverted till date are of such a pervading nature that this Court in absence of convincing and overwhelming evidence to the contrary do not consider it necessary to interdict the process impugned in the present case, more particularly, when in view of the reasons recorded hereinabove, the impugned decision has been taken on an overall consideration of facts and circumstances of the case and the State of law indicated hereinabove. The petition is therefore devoid of merits and is accordingly dismissed. No costs. Petition dismissed