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2009 DIGILAW 1183 (BOM)

BABASAHEB SONBAJI WASADE v. STATE OF MAHARASHTRA

2009-09-11

R.C.CHAVAN

body2009
( 1 ) TWO Directors of respondent No. 3-Bank have filed this petition challenging the order passed by the Hon'ble Minister of State for cooperation on 30-12-2008 on appeal, maintaining the order passed by respondent no. 2 - the Divisional Joint Registrar, Co-operative Societies, on 9-6-2008 in the proceedings under section 78 of the Maharashtra Co-operative Societies Act, removing the petitioners from the post of Directors of respondent No. 3-Bank. ( 2 ) AFTER the matter was heard from time to time for admission, on 25-2-2009 it was admitted and listed for expeditious hearing. ( 3 ) FACTS, which are material for deciding this petition, are as under : the petitioners were elected as Directors of respondent No. 3 Chandrapur district Central Co-operative Bank. By a resolution of the Board of Directors of respondent No. 3-Bank passed on 21-12-2002, a Committee comprising of the petitioners and some others was constituted for purchase of the Government securities. During the period from 10-10-2003 to 27-4-2005, on behalf of respondent No. 3-Bank, Government securities worth Rs. 75 crores were purchased for a sum of Rs. 83. 73 crores. More than 5% each of these transactions were undertaken through a few individual brokers, when in terms of the guidelines issued by NABARD on 21-8-2002 not more than 5% of the transactions could be through a single broker in a year. The guidelines also require that if for any reason it became necessary to exceed this limit for any broker, specific reasons should be recorded in writing by the authority and the board should be informed of this post-facto. It was, however, stated at the bar that the Board had been apprised of the purchases and had approved the same. ( 4 ) ON a complaint dated 21-6-2005 by respondent No. 4 and two others, forwarded by Shri Sanjay Deotale, MLA, the Minister for Co-operation, ordered an enquiry. On 25-10-2005, the Divisional Joint Registrar of the Co-operative societies, issued a notice under section 78 (1) of the Maharashtra Co-operative societies Act to the petitioners directing them to show cause as to why they should not be removed from the Directorship of respondent No. 3-Bank. In pursuance of this notice, the petitioners appeared before the Divisional Joint registrar and filed their replies. In pursuance of this notice, the petitioners appeared before the Divisional Joint registrar and filed their replies. ( 5 ) AFTER considering the replies, by order dated 31-3-2006, the Divisional joint Registrar, Co-operative Societies, disqualified the petitioners, holding that the charges against them were proved. ( 6 ) THE petitioners preferred an appeal before the Minister for Co-operation, who allowed the appeal by his order dated 10-1-2007. While allowing the appeal, the Minister had specifically observed that the Divisional Joint Registrar had not considered as to what was the market price of the securities at the time of their purchase, at what price they were actually purchased by the Bank, what was the commission which was paid for such purchase, whether the investment was of snr type, what was the price of the securities at the time of deciding the proceedings, whether other Banks in Maharashtra had invested in such securities, whether such Banks had earned a profit or loss from such investment, whether any instructions or directions of the Reserve Bank of India or NABARD were violated and in what manner, what type of resolutions were passed by the Board of Directors, etc. He had, therefore, set aside the order dated 31-3-2006 passed by the Divisional Joint Registrar and directed him to hear the matter afresh and then decide it. ( 7 ) AFTER this, the Divisional Joint Registrar again heard the parties and passed the impugned order dated 9-6-2008. An appeal from this order was preferred, which was directed by the Chief Minister to be heard by the Minister of State for Co-operation, in the absence of Cabinet Minister. The Minister of state for Co-operation, by his impugned order dated 30-12-2008, maintained the order of the Divisional Joint Registrar. This is how the petitioners are before this court. ( 8 ) RESPONDENT No. 4 Pundlik Kadav, on whose complaint the entire exercise started, seems to have patched up the matter with the petitioners. Therefore, an affidavit sworn by him on 19-2-2009 is annexed to a compilation filed on behalf of the respondent by the erstwhile Advocate Shri S. P. Bhandarkar on 20-2-2009. A pursis bearing stamp No. 129 of 1999 by Pundlik Kadhav was also filed to this effect. ( 9 ) I have heard the learned counsel for the petitioners and the respondents. A pursis bearing stamp No. 129 of 1999 by Pundlik Kadhav was also filed to this effect. ( 9 ) I have heard the learned counsel for the petitioners and the respondents. ( 10 ) THE learned counsel for respondent No. 3-Bank raised a preliminary objection regarding maintainability of the petition on the ground of non-joinder of necessary parties. The learned counsel also referred to a number of judgments on the question of effect of non-joinder of necessary parties and the requirement to decide the preliminary objection to tenability of the petition first before going into the merits. ( 11 ) THE objection of respondent No. 3-Bank to the tenability of the petition is spelt out in Civil Application No. 851 of 2009. It appears that when the petition was filed, respondent No. 3 was to co-opt some persons as Directors on its Board. Shri R. S. Jaiswal, a Chartered Accountant, had been co-opted as director on 31-3-2009 and has not been joined as a party to the petition. While hearing some interim applications, on 4-4-2009, this Court had observed that Shri jaiswal was co-opted by a majority of 20 Directors and, therefore, no fault could be found with that co-option. The Court, however, added that the appointment would be subject to the final orders in the petition. ( 12 ) THE learned counsel for the petitioners submitted that in view of this, since the appointment of Shri Jaiswal was subject to the decision of the petition, he was a necessary party. ( 13 ) THE learned counsel for the petitioners submitted that though at that time, the petitioners had not acquiesced to co-option of Shri Jaiswal as Director, the fact remains that Shri Jaiswal was co-opted by a majority of 20 Directors out of 27. Therefore, two votes of the present petitioners would not have altered the result of co-option. Consequently, irrespective of the outcome of the petition, the position of Shri Jaiswal would not be affected. Hence, though the Court observed that the appointment shall be subject to the final orders in the petition, it could be clarified that the petitioners cannot have any grievance in respect of appointment of Shri Jaiswal. Consequently, irrespective of the outcome of the petition, the position of Shri Jaiswal would not be affected. Hence, though the Court observed that the appointment shall be subject to the final orders in the petition, it could be clarified that the petitioners cannot have any grievance in respect of appointment of Shri Jaiswal. ( 14 ) BY reply to the preliminary objection tendered on 13-8-2009 on affirmation by petitioner No. 2 Guru, the petitioners had categorically stated that the outcome of the petition would not adversely affect the interest of Shri Jaiswal and three other persons, namely Chairman, Vice-Chairman and Secretary, who came to be elected pending the hearing of this petition. The petitioners have clarified in paras 3 and 4 of the reply that in view of the fact that three other persons, who were elected as Chairman, Vice-Chairman and Secretary by a majority of 15 votes against 10 votes in a Board comprising of 27 Directors, even if the petitioners' votes were counted, the outcome of the election would not have changed and, therefore, non-joinder of the Chairman, or Sanjay Totawar as Vice-Chairman, or Vilas Dhande as Secretary would be inconsequential. ( 15 ) IN view of this development, it would be unnecessary to go into the question of necessity of joining these persons as parties to the petition and the consequences of such non-joinder. It is clear that the outcome of the petition would not change the fortunes of S/shri R. S. Jaiswal, Ravindra Shinde, Sanjay totawar or Vilas Dhande. Hence, the objection to the maintainability of the petition on the ground of non-joinder, has to be rejected. Incidentally, it may be pointed out that Shri Ravindra Shinde is already respondent No. 5 in the petition. ( 16 ) THE learned counsel for the petitioners submitted that the Minister of state for Co-operation had no jurisdiction to decide the appeal and he had been only entrusted with the hearing of prayers for interim orders by the Chief minister in the absence of the Cabinet Minister at the relevant time. The learned counsel for respondent No. 3-Bank pointed out that when the Minister of State for Co-operation granted stay, it was questioned on behalf of respondent No. 4 pundlik Kadhav by filing Writ Petition No. 3086 of 2008, contending, among other things, that the Minister of State for Co-operation had no jurisdiction to hear the matter. The learned counsel for respondent No. 3-Bank pointed out that when the Minister of State for Co-operation granted stay, it was questioned on behalf of respondent No. 4 pundlik Kadhav by filing Writ Petition No. 3086 of 2008, contending, among other things, that the Minister of State for Co-operation had no jurisdiction to hear the matter. The learned counsel for respondent No. 3 further pointed out that the petitioners supported the said interim orders of the Minister of State stating that he had jurisdiction. Having once acquiesced to the jurisdiction of the minister of State for Co-operation, it would not be open to the petitioners to question the jurisdiction. ( 17 ) THE learned counsel for the petitioners submitted that the acquiescence would not confer jurisdiction on an authority if it inherently lacks jurisdiction and, therefore, the statements made under a mistake would be immaterial. The judgment in Writ Petition No. 3086 of 2008, delivered on 10-9-2008, shows that advocate Shri P. C. Madkholkar, who was appearing for the petitioner therein (i. e. respondent No. 4 Pundlik Kadav in this petition) and now appearing for respondent No. 3-Bank, had specifically raised a question of jurisdiction of the minister of State for Co-operation to deal with the appeal. Advocate Shri R. S. Parsodkar, learned counsel for the petitioners, who were respondent Nos. 4 and 5 in the said petition, stated (as is recorded in para 7 of the judgment) that the Chief minister was entitled to allot the file to the Minister of State in terms of the Rules of Business of the Government of Maharashtra. It has also been recorded in para 10 of the judgment that on perusal of the original case papers, it was found that on 12-6-2008, the Chief Minister directed that the appeal papers along with the application for interim orders be placed before the Minister of State. It was held in that judgment that Rule 6a of the Rules of Business clearly entitles the Chief minister to direct any other Minister to discharge all or any of his functions during the absence of a Minister. ( 18 ) NOW it seems that the roles have been reversed and the petitioners are questioning the jurisdiction of the Minister of State, because his final orders have gone against them and respondent No. 3, opposing the stand taken by respondent no. ( 18 ) NOW it seems that the roles have been reversed and the petitioners are questioning the jurisdiction of the Minister of State, because his final orders have gone against them and respondent No. 3, opposing the stand taken by respondent no. 4 in the earlier writ petition is stating that the Minister of State had jurisdiction. An affidavit-in-reply filed on behalf of respondent No. 1-State takes the stand that the Minister of State had jurisdiction to hear the appeal. ( 19 ) FOR considering rival contentions, the relevant Rules of Business may be usefully reproduced as under : "6. The Chief Minister, and a Minister in consultation with the Chief minister, may allot to a Minister of State or a Deputy Minister any business appertaining a Department or part of a Department. 6a. When the Chief Minister is unable to discharge his functions owning to absence, illness, or for any other cause, the Chief Minister may direct any other Minister to discharge all or any of his functions during his absence. When any Minister is likewise unable to discharge his functions, the Chief Minister may direct any other Minister to discharge all or any of the functions of the Ministers during the minister's absence. " ( 20 ) ANOTHER affidavit-in-reply has been filed on behalf of respondent No. 1 on 20-4-2009. It has been stated in para 4 that in terms of Rule 6 of the Rules of business of Government of Maharashtra, the Chief Minister is entitled to direct any Minister to discharge all or any of his functions in his absence. ( 21 ) THE learned counsel for the petitioners submitted that a Minister of state would be entitled to discharge the functions of the Minister only during the absence of the Minister and it is not shown that the Minister for Co-operation was absent at the time of hearing of the appeal. In the synopsis filed on behalf of respondent No. 4 by Advocate Shri S. P. Bhandarkar on 20-2-2009, a letter addressed to AGP Shri A. S. Sonare on 18-2-2009 by one section Officer is annexed. This shows that on 25-11-2008, the date on which the appeal was heard, the Minister was at Karad along with the Chief Minister and was thus absent at the headquarters. This shows that on 25-11-2008, the date on which the appeal was heard, the Minister was at Karad along with the Chief Minister and was thus absent at the headquarters. ( 22 ) THE learned counsel for the petitioners submitted that the Chief minister would be entitled to entrust any matter to a Minister of State only after consulting the concerned Minister. Since it is not shown that the matter was entrusted to the Minister of State after consulting the Cabinet Minister for co-operation, the Minister of State did not get jurisdiction to decide the appeal. This submission is fallacious. It may be seen from Rule 6 that while the Chief minister can allot to a Minister of State any business appertaining to a department or a part of the Department, a Minister could do so only after consulting the Chief Minister. Also when a Cabinet Minister is unable to discharge the function, it is not open to him to allot any business to a Minister of state or other Minister. It is the Chief Minister, who can direct another Minister to discharge such functions during the absence of the Minister. Thus, the power of the Chief Minister to allot the business is not fettered by the requirement to consult the Cabinet Minister concerned. Hence, the objection to the jurisdiction of Minister of State raised by the petitioners has to be rejected. ( 23 ) THE learned counsel for the petitioners also contended that the impugned orders are bad, as they violate the principles of natural justice. This contention too would have to be rejected, since the petitioners not only had the show cause notices served on them, but went through two rounds of hearings before the Divisional Joint Registrar as well as the Minister. Therefore, it is not open for the petitioners to contend that they did not have an adequate opportunity of being heard. The contention, that the Minister of State, while deciding the appeal by his impugned order, had asked the petitioners to submit written notes of arguments and was thus restricting the opportunity of hearing, has to be rejected. There is nothing wrong in seeking written notes of arguments, particularly by authorities like the Minister, since it would ensure that no point, which is argued, is missed. There is nothing wrong in seeking written notes of arguments, particularly by authorities like the Minister, since it would ensure that no point, which is argued, is missed. The impugned orders show that Advocate Shri ahirrao for the petitioners had stated that the contents of memo of appeal should be treated as written arguments. After saying so before the Minister, it is not open to the counsel for the petitioners to contend that the petitioners did not have an opportunity of being heard. The objection to the impugned orders on the ground of violation of the principles of natural justice would have to be rejected. ( 24 ) THE petitioners had alleged that the order was passed because it had been politically motivated. It was submitted that respondent No. 4 had filed a complaint, which was forwarded by Shri Sanjay Deotale, MLA, and, therefore, an enquiry was ordered. Simply because a complaint was forwarded by MLA, it does not follow that the enquiry itself was politically motivated. There are no specific averments to show that there was any political motive in starting an enquiry or initiating an action. Therefore, this contention has to be rejected. ( 25 ) THE learned counsel for the petitioners next submitted that there was no effective consultation with the Apex Bank. He pointed out that the Apex Bank, by its letter dated 21-2-2005, which is at page 124 of the petition, had specifically observed that the so-called loss could be termed as loss in the transactions and the Board of Directors should not be held responsible for such loss. The Bank had, therefore, concluded that it would not be proper to initiate action under section 78 (1) of the Maharashtra Co-operative Societies Act. The learned counsel for the petitioners placed reliance on the judgment of this Court in Ravindra V. Gaikwud and others vs. State of Maharashtra and others, reported at 2002 (5)Mh. L. J, 464, in support of his contention. In that case, it was held that for effective and meaningful consultation, it is necessary to put all the material relevant to the matter before the federal society. In that case, the federal society had remained silent and this silence was taken as effective consultation before passing the order which was challenged before the Court. In that case, it was held that for effective and meaningful consultation, it is necessary to put all the material relevant to the matter before the federal society. In that case, the federal society had remained silent and this silence was taken as effective consultation before passing the order which was challenged before the Court. In this context, the court held that the silence of the federal society could not be construed as implied consent of the federal society. This judgment has no bearing on the facts of the present case. In this case, there is a clear opinion expressed by the Apex bank. Therefore, consultation is complete. ( 26 ) THE learned counsel for respondent No. 3 Bank submitted that the question of effective consultation was not raised in the first round of the litigation and has been raised for the first time now. He further submitted that since consultation is complete, this ground is devoid of any substance. He pointed out, and rightly in my view, that opinion of the Apex Bank is not binding on the authority acting under section 78 of the Maharashtra Co-operative Societies Act. What i s mandated is consultation and not concurrence. Therefore, this ground of challenge has to be rejected. ( 27 ) THE learned counsel for the petitioners submitted that though in breach of the guidelines of the Reserve Bank more than 5% of the securities were purchased through single broker, the same had been reported to the Board and the board had approved it. It may be seen from Annexure II about "investment portfolio of Banks - Transactions in Securities - Gist of Instructions", the dealings through individual brokers should not exceed 5% of the total transactions. The instructions further provide that if for any reason it becomes necessary to exceed this limit for any broker, specific reasons therefor should be recorded in writing by the authority empowered to put through the deals and the board should be informed of this post-facto. Thus, the instructions do not make such dealings irregular. They not only permit such deals to be entered through single broker for reasons to be recorded, but do not even require approval of the board. Mere information to the Board is enough. Thus, the instructions do not make such dealings irregular. They not only permit such deals to be entered through single broker for reasons to be recorded, but do not even require approval of the board. Mere information to the Board is enough. ( 28 ) THE learned counsel for the petitioners submitted that since the Board has ratified these deals, it could not be termed as an irregularity warranting action under section 78 of the Maharashtra Co-operative Societies Act. ( 29 ) THE learned counsel for respondent No. 3 Bank submitted that no reasons are shown to have been recorded in writing for deviating from the instructions from the Reserve Bank and, therefore, whether the Board has ratified or not, would be irrelevant and would not satisfy the requirements of the instructions. Though it is true that the reasons recorded are not shown, it may be harsh to hold that merely on this ground there was an irregularity warranting removal of the petitioners from the Board. It was necessary for the Bank authorities concerned to probe and find out whether deviation from the instructions was mischievous or mala fide or intended to enrich a selected few and also whether this act had led to any loss to the Bank. In view of this, it has to be held that there is merit in the argument that the petitioners could not have been removed on account of this irregularity. ( 30 ) THE learned counsel for the petitioners submitted that the directions of the Hon'ble Minister for Co-operation while remanding the matter had not been complied with by the Joint Registrar in his impugned order. ( 30 ) THE learned counsel for the petitioners submitted that the directions of the Hon'ble Minister for Co-operation while remanding the matter had not been complied with by the Joint Registrar in his impugned order. The Hon'ble minister while disposing of the appeal on 10-1-2007 had specifically observed that the Divisional Joint Registrar had not considered as to what was the market price of the securities at the time of their purchase, at what price they were actually purchased by the Bank, what was the commission which was paid for such purchase, whether the investment was of "snr" type, what was the price of the securities at the time of deciding the proceedings, whether other Banks in maharashtra had invested in such securities, whether such Banks had earned a profit or loss from such investment, whether any instructions or directions of the reserve Bank of India or NABARD were violated and in what manner, what type of resolutions were passed by the Board of Directors, etc. It does not appear from the order of the Joint Registrar that he had at all considered the question as to what was the market price of the securities at the time of their purchase, at what price they were actually purchased by the Bank, whether other Banks in maharashtra had invested in such securities, whether other Banks had earned profit or loss from such investment, etc. On the other hand, the Joint Registrar, as well as the Minister of State, seem to have simply gone by the face value of the securities and the price at which they were purchased, in order to conclude that there was a loss, which they wanted to attribute to the misfeasance of the petitioners. This betrayed naivete on the part of both the Joint Registrar and the minister about the security market. When in course of arguments, this aspect came to the fore, it was incumbent on the part of respondent No. 3 Bank to point out as to how the loss had been caused to the Bank. It appears that respondent no. 3 Bank has termed as a loss, the amount of premium amortized over the remaining period of maturity of the securities in view of the following instructions of the Reserve Bank in Annexure II about the investments referred to above. It appears that respondent no. 3 Bank has termed as a loss, the amount of premium amortized over the remaining period of maturity of the securities in view of the following instructions of the Reserve Bank in Annexure II about the investments referred to above. The relevant instructions read as under : "the Accounting Procedure, valuation of investments, etc. to be followed are as under [circular RPCD No. BC. 154/07. 02. 08/94-95 dated 23 May, 1995 addressed to all SCBs, CCBs and RRBs]: the "permanent" investments should be valued at cost and in case the cost price is higher than the face value, the premium should be amortized over the remaining period of maturity of the security. On the other hand, where the cost price is less than the face value, the difference should be ignored and should not be taken to income since the amount represents unrealised gain. Investments should be shown in the balance sheet net of depreciation. It would, however, be open to the bank, for disclosure purpose, to show in the balance sheet the book value of investments, the depreciation thereagainst and net amount of investments separately. Investments under "current" category should be carried at lower of cost or market value, on a consistent basis and the valuation should be done on a quarterly basis. Gain on sale of securities in the "permanent" category should be first taken to the profit and loss account and thereafter it could be appropriated to the "capital reserve" account. " now simply because the securities were held as permanent investments and the premium was to be amortized over the remaining period of maturity of the securities, it does not follow that there was actual loss. It was necessary for the authority to consider whether on account of purchase of securities by the petitioners, actual loss had been caused to the Bank. ( 31 ) THUS, there are two aspects of the matter. First, the authority should have clear material to show that there was in fact actual loss and secondly, that such loss was attributable to the activities of the petitioners. If the loss was caused to the Bank on account of the market as a whole falling and if all the investors, who had invested in similar securities, had similarly suffered, it would not be appropriate to hold the petitioners responsible for such loss. If the loss was caused to the Bank on account of the market as a whole falling and if all the investors, who had invested in similar securities, had similarly suffered, it would not be appropriate to hold the petitioners responsible for such loss. The Hon'ble minister for Co-operation had in fact taken into consideration all this and while ordering remand, had incorporated all the aspects, which the Joint Registrar was required to take into consideration. But ignoring this, the Joint Registrar seems to have simply rehashed his earlier order and come to the same conclusion. It is regrettable that the Hon'ble Minister for State, who heard the revision, also did not consider that there was non-compliance to the order passed by the Minister. Therefore, it would in fact be necessary to remand the matter back for fresh decision by the Joint Registrar on the directions of the Hon'ble Minister in the first order of remand. ( 32 ) AFTER hearing of the petition was over and the judgment was reserved, on behalf of respondent No. 3, Civil Application 1850 of 2009 was filed for re-hearing of the petition, claiming that the respondent-Bank wanted to file an affidavit along with a chart, which indicates that the actual loss was caused to the bank. A chart was also produced to show that the loss was caused to the Bank. It is regrettable that the Bank officers also did not consider the import of the order of the Hon'ble Minister and were content at showing a paper loss in the chart, which was produced for my perusal. They had needlessly sought to re-open a matter, which had been closed. All the same, they were heard and there is nothing to indicate that there was any new material establishing that loss attributable to the petitioners was caused in purchase of securities. ( 33 ) IN view of this, the petition is allowed. The impugned order dated 9-6-2008 passed by the Divisional Joint Registrar, Co-operative Societies, Nagpur division, Nagpur, and the order dated 30-12-2008 passed by the Hon'ble minister of State for Co-operation, Marketing and Textiles, Government of maharashtra, Mumbai, are quashed and set aside. ( 33 ) IN view of this, the petition is allowed. The impugned order dated 9-6-2008 passed by the Divisional Joint Registrar, Co-operative Societies, Nagpur division, Nagpur, and the order dated 30-12-2008 passed by the Hon'ble minister of State for Co-operation, Marketing and Textiles, Government of maharashtra, Mumbai, are quashed and set aside. The Divisional Joint Registrar is directed to decide the proceedings again only in respect of loss attributable to petitioners in purchase of securities, in terms of the order passed by the Hon'ble minister on 10-1-2007, without allowing the parties to re-open the questions, which have been concluded by this judgment. ( 34 ) RULE is made absolute in above terms. Petition allowed.