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Madhya Pradesh High Court · body

2014 DIGILAW 146 (MP)

Chhatrapal Singh v. State of M. P.

2014-01-30

D.K.PALIWAL, S.K.GANGELE

body2014
ORDER 1. The petitioners have filed this petition against the order dated 9.12.2009 (Annexure P/2) passed by the Joint Registrar, by which the Board of Directors of the Bank were superseded and also against the order dated 5.4.2011 (Annexure P/1) passed by the M.P.State Co-operative Tribunal, Bhopal. 2. The petitioners are the elected Board of Directors and one of them is the President of District Cooperative Agriculture and Rural Development Bank Maryadit, Datia. They were elected to their respective posts in the election held on 4.4.2008 for a period of five years. 3. Joint Registrar, Co-operative Societies, Gwalior Division, Gwalior issued a show cause notice in exercise of powers conferred under section 53 (10) of the M.P.Cooperative Societies Act, 1960 (hereinafter referred to the ‘Act of 1960’) that why the Board of the bank be not suspended. The authority also temporarily suspended the Board up to the decision on the show cause notice. Various omissions with regard to the performance of duties by the Bank have been mentioned by the authority in the show cause notice. The President of the Society filed a writ petition before this Court against the show cause notice, which was dismissed. A reply of the show cause notice was filed by some of the Board of the bank, in which the allegations mentioned in the show cause notice were denied. The case was transferred to Joint Registrar, Cooperative Societies Sagar because one of the Director Mr.Rajendra Bharti levelled allegation against the Joint Registrar. Again the case was transferred to Joint Registrar, Cooperative Societies, Bhopal. He vide order dated 12.6.2009 first suspended and thereafter vide order dated 9.12.2009 superseded the Board of the bank. Against the aforesaid order, an appeal was filed before the M.P.State Cooperative Tribunal. The Bank also filed an appeal before the Tribunal against the same order. The Tribunal vide impugned order dated 5.4.2011 (Annexure P/1) dismissed both the appeals. 4. Learned senior counsel appearing on behalf of the petitioners has contended that the order of supersession was against the provisions of the Act of 1960. There was no effective consultation in accordance with the provisions of section 53(7) of the Act of 1960. Joint Registrar acted malafidely under the influence of Minister from Datia because the elected members of the Board of Directors had association with another political party. There was no effective consultation in accordance with the provisions of section 53(7) of the Act of 1960. Joint Registrar acted malafidely under the influence of Minister from Datia because the elected members of the Board of Directors had association with another political party. He further submitted that there were no lapses on the part of the Board of Directors neither any opportunity was afforded to the Board to rectify the mistakes mentioned in the show cause notice. Learned senior counsel further pleaded that in regard to illegality, if there were any committed by the earlier Board, subsequent board could not be superseded. In support of his contentions, learned senior counsel relied on the following judgments :- (i) State of M.P. v. Sanjay Nagayach – 2013 RN 283 = (2013) 7 SCC 25 . (ii) Radheshyam Sharma v. Govt. of M.P. – 1972 JLJ 435 = 1972 MPLJ 796 . (iii) Shri Ganesh Sahakari Vipnan (Mktg.) Sanstha Maryadit v. Registrar, Coop. Societies -- 1981 JLJ 774 = 1982 MPLJ 46 . (iv) Sitaram v. Registrar of Coop. Societies – 1986 MPLJ 567. 5. Contrary to it, learned Dy.Advocate General has contended that the order passed by the Joint Registrar is in accordance with law. The authority has considered all the allegations before passing the order and the petitioners were afforded sufficient opportunity. The Tribunal in the appeal has again re-appreciated the facts and has upheld the order. The findings of facts appreciated by the Tribunal could not be re-appreciated in the writ petition. The provisions of section 53(7) of the Act of 1960 have been complied with by the Joint Registrar before passing the order. In support of his contentions, learned Dy.Advocate General relied on the following judgments :- (i) Shalini Shyam Shetty v. Rajendra Shankar Patil -- (2010) 8 SCC 329 . (ii) Sameer Suresh Gupta v. Rahul Kumar Agrawal -- (2013) 9 SCC 374 . (iii) Jt.Registrar Co-op. Societies, Madras v. Rajagopal -- AIR 1970 SC 992 . 6. A show cause notice dated 20.2.2009 (Annexure P/9) was issued to the Board of Directors. It is mentioned in the show cause notice that the Board had failed to comply mandatory directions issued by the financing authority and made omission in exercise of supervisory powers. Seven allegations were levelled against the Board of Directors. 6. A show cause notice dated 20.2.2009 (Annexure P/9) was issued to the Board of Directors. It is mentioned in the show cause notice that the Board had failed to comply mandatory directions issued by the financing authority and made omission in exercise of supervisory powers. Seven allegations were levelled against the Board of Directors. The allegations No.1 and 2 are related in regard to some disbursement of loan, which was disbursed upto the period 2008. In the allegation No.1 it is mentioned that the Bank had given benefit of loan waiver and exemption from payment of loan to the persons who were not eligible in accordance with the circular issued by the Finance Department dated 28.5.2008. The allegation No.2 is also the same. Allegation No.3 is in regard to non-payment/ non recovery of amount of loan. Allegations No.4, 5, 6 and 7 are in regard to illegalities in keeping the bank account books and audit note. A copy of the show cause notice was forwarded to the M.P.State Co-operative Agriculture and Rural Development Bank, Bhopal. The Managing Director of the Bank vide letter dt.28.2.2009 informed the Joint Registrar that the apex Bank had no objection in taking action against the petitioners in pursuance to the show cause notice. Some of the petitioners denied the allegations levelled in the show cause notice and filed their reply. The petitioners had also made allegations that the action proposed against them was politically motivated and malafide. The case was transferred to the Joint Registrar, Sagar and thereafter Joint Registrar, Bhopal. Ultimately Joint Registrar Bhopal passed an order of supersession. He upheld the allegations levelled against the petitioners and the Board of Directors in the show cause notice. The M.P.State Co-operative Tribunal also upheld the allegations levelled in the show cause notice. 7. Section 2 (hh) of the Act of 1960 defines ‘Development Bank”, which is as under :- “(hh) “Development Bank” means a Co-operative Agriculture and Rural Development Bank registered or deemed to be registered under this Act.” 8. The M.P.State Co-operative Tribunal also upheld the allegations levelled in the show cause notice. 7. Section 2 (hh) of the Act of 1960 defines ‘Development Bank”, which is as under :- “(hh) “Development Bank” means a Co-operative Agriculture and Rural Development Bank registered or deemed to be registered under this Act.” 8. Section (l) and (l-i) of the Act of 1960 defines “Financing Bank” and “Financing Institution”, which reads as under :- “Financing Bank” means a society, the objects of which is the creation of funds to be lent to other societies or its individual members, and includes State Co-operative Bank, Co-operative Agricultural and Rural Development Bank, Central Co-operative Bank, Primary Urban Cooperative Bank and District Co-operative Agriculture and Rural Development Bank.” “Financing Institution” means a National or State level Co-operative Institution or organisation, which provides financial assistance or advance or loan to a Co-operative Society or an individual.” 9. The District Co-operative Agriculture and Rural Development Bank Maryadit Datia is registered under the provisions of the Act of 1960. It advances loans to its members, hence, it is a “Development Bank”, as defined under section 2 (hh) of the Act of 1960. 10. Section 53 (1) of the Act of 1960 prescribes supersession of the Board of Directors, which reads as under :- “53. Supersession of Board of Directors.- (1) If, in the opinion of the Registrar, the Board of Directors of any society- (a) is negligent in the performance of the duties imposed on it by or under this Act or bye-laws of the society or by any lawful order passed by the Registrar or is unwilling to perform such duties; or (b) commits acts which are prejudicial to the interests of the society or its members; or (c) violates the provisions of this Act or the rules made thereunder or byelaws of the society or any order passed by the Registrar; the Registrar may, by order in writing, remove the Board of Directors and appoint a person or persons to manage the affairs of the society for a specified period not exceeding two years in the first instance: 11. Section 53 (7) of the Act of 1960 further prescribes that before taking action under sub-section (1) in respect of a financing Bank or in respect of a society indebted to a financing bank, the Registrar shall consult, in the former case, the Madhya Pradesh State Co-operative Bank Limited and in the latter case, the financing bank concerned. Relevant provision is under :- “(7) Before taking action under sub-section (1) in respect of a financing Bank or in respect of a society indebted to a financing bank, the Registrar shall consult, in the former case, the Madhya Pradesh State Co-operative Bank Limited and, in the latter case, the financing bank concerned, regarding such action. If the Madhya Pradesh State Co-operative Bank limited or the financing bank, as the case may be, fails to communicate its views within thirty days of the receipt by such bank of the request soliciting consultation, it shall be presumed that the Madhya Pradesh State Co-operative Bank Limited, or the financing bank concerned, as the case may be, agreed with the proposed action.” 12. In accordance with the aforesaid provision, it was necessary on the Registrar to consult financing bank concerned before taking action against the petitioners. 13. Respondents along with the return produced a letter dated 28.2.2009 written by the Managing Director to the Joint Registrar, Co-operative Societies, Gwalior, Division Gwalior. It is mentioned in the letter that in pursuance to the letter dated 20.2.2009, M.P.State Cooperative Agriculture and Rural Development Bank Ltd. has no objection in taking action in accordance with law against the petitioners. In the aforesaid letter, reference of letter dated 20.2.2009 has been made. It is a show cause notice to the petitioners. It means that the Joint Registrar sent a copy of the show cause notice to the Bank, which was issued to the petitioners. Except this show cause notice, no other documents were sent by the Registrar for consultation. 14. Hon’ble Supreme Court in State of M.P.v.Sanjay Nagayach reported in 2013 RN 283 = (2013)7 SCC 25 has considered the word ‘consultation’ mentioned in second proviso to section 53 (1) of the Act of 1960. Except this show cause notice, no other documents were sent by the Registrar for consultation. 14. Hon’ble Supreme Court in State of M.P.v.Sanjay Nagayach reported in 2013 RN 283 = (2013)7 SCC 25 has considered the word ‘consultation’ mentioned in second proviso to section 53 (1) of the Act of 1960. The aforesaid proviso is in regard to consultation in the event of supersession with the reserve bank, which reads as under :- “Provided further that in case of a Co-operative Bank, the order of supersession shall not be passed without previous consultation with the Reserve Bank.” 15. The same word has been mentioned in sub-section (7) of section 53 of the Act of 1960. It clearly stipulates that the Registrar shall consult the financing bank concerned before taking action under sub-section (1). 16. Hon’ble Supreme Court in Sanjay Nagayach (supra) has mentioned following requirement for effective consultation : “23. The mere serving a copy of the show-cause notice on RBI with supporting documents is not what is contemplated under the second proviso to section 53 (1). For a meaningful and effective consultation, the copy of the reply filed by the Bank to the various charges and allegations levelled against them should also be made available to RBI as well as the action proposed by the Joint Registrar, after examining the reply submitted by the Bank. On the other hand, RBI should be told of the action the Joint Registrar is intending to take. Only then, there will be an effective consultation and the views expressed by RBI will be a relevant material for deciding whether the elected Board be superseded or not. In other words, the previous consultation is a condition precedent before the forming of an opinion by the Joint Registrar to supersede the Board of Directors or not. 24. This Court in Indian Administrative Service (S.C.S.) Assn. v. Union of India, has laid down six propositions while examining the meaning of the expression “consultation”. We may add one more proposition that when the outcome of the proposed action is to oust a democratically elected body and the expression used is “shall not be passed without previous consultation”, it is to be construed as mandatory. Reference may also be made to the judgments of this Court in RBI v. Peerless General Finance and investment Co. We may add one more proposition that when the outcome of the proposed action is to oust a democratically elected body and the expression used is “shall not be passed without previous consultation”, it is to be construed as mandatory. Reference may also be made to the judgments of this Court in RBI v. Peerless General Finance and investment Co. Ltd., State of J & K v. A.R. Zakki, Gauhati High Court v. Kuladhar Phukan, Andhra Bank v. Andhra Bank Officers.” 17. The Court has approved the principles enumerated in earlier judgment of the Hon’ble Supreme Court in Indian Administrative Service (S.C.S.) Assn. v. Union of India reported in 1993 Supp(1) SCC 730 while examining the meaning of the expression “consultation”. The aforesaid propositions are as under :- “(1) Consultation is a process which requires meeting of minds between the parties involved in the process of consultation on the material facts and points involved to evolve a correct or at least satisfactory solution. There should be meeting of minds between the prosper and the persons to be consulted on the subject of consultation. There must be definite facts which constitute the foundation and source for final decision. The object of the consultation is to render consultation meaningful to serve the intended purpose. Prior consultation in that behalf is mandatory. (2) When the offending action affects fundamental rights or to effectuate built-in insulation, as fair procedure, consultation is mandatory and non-consultation renders the action ultra vires or invalid or void. (3) When the opinion or advice binds the prosper, consultation is mandatory and its infraction renders the action or order illegal. (4) When the opinion or advice or view does not bind the person or authority, any action or decision taken contrary to the advice is not illegal, nor becomes void. (5) When the object of the consultation is only to apprise of the proposed action and when the opinion or advice is not binding on the authorities or person and is not bound to be accepted, the prior consultation is only directory. (5) When the object of the consultation is only to apprise of the proposed action and when the opinion or advice is not binding on the authorities or person and is not bound to be accepted, the prior consultation is only directory. The authority proposing to take action should make known the general scheme or outlines of the actions proposed to be taken be put to notice of the authority or the persons to be consulted; have the views or objections, take them into consideration, and thereafter, the authority or person would be entitled or has/have authority to pass appropriate orders or take decision thereon. In such circumstances it amounts to an action “after consultation”. (6) No hard and fast rule could be laid, no useful purpose would be served by formulating words or definitions nor would it be appropriate to lay down the manner in which consultation must take place. It is for the Court to determine in each case in the light of its facts and circumstances whether the action is “after consultation”; “was in fact consulted” or was it a “sufficient consultation”. (7) Where any action is legislative in character, the consultation envisages like one under section 3 (1) of the Act, is that the Central Government is to intimate to the State Governments concerned of the proposed action in general outlines and on receiving the objections or suggestions, the Central Government or Legislature is free to evolve its policy decision, make appropriate legislation with necessary additions or modification or omit the proposed one in draft bill or rules. The revised draft bill or rules, amendments or additions in the altered or modified form need not again be communicated to all the concerned State Governments nor have rior fresh consultation. Rules or Regulations being legislative in character, would tacitly receive the approval of the State Governments through the people’s representatives when laid on the floor of each House of Parliament. The Act or the Rule made at the final shape is not rendered void or ultra vires or invalid for non-consultation.” 18. Rules or Regulations being legislative in character, would tacitly receive the approval of the State Governments through the people’s representatives when laid on the floor of each House of Parliament. The Act or the Rule made at the final shape is not rendered void or ultra vires or invalid for non-consultation.” 18. In the aforesaid case, Hon’ble Supreme Court has clearly held that the consultation is mandatory and it means that the order cannot be passed in exercise of aforesaid powers without consulting the institution and for effective consultation copy of the reply filed by the Bank to the various charges and allegations levelled against the show cause notice and intending action of the Joint Registrar shall be forwarded to the Institution. In the present case, the reply submitted by the petitioners was not forwarded to the Bank, only copy of the show cause notice was forwarded to the apex Bank. In the show cause notice, the Board of Directors and the Bank were granted time up to 28.2.2009 and the apex Bank itself forwarded a letter on 28.2.2009, in which it was mentioned that it had no objection to proceed against the petitioners and the Bank in the matter of supersession. It means that there was no satisfactory compliance by the Joint Registrar of the mandatory section. Hence, the order passed by the authority was in violation of the statutory provisions. M.P.State Co-operative Tribunal has not considered the aforesaid statutory provisions properly. 19. The elections of the Bank, in which the petitioners were elected, were held on 4.4.2008. Some of the allegations levelled in the letter are prior to 4.4.2008. Apart from this, the petitioners were not afforded opportunity to cure the defects. Hon’ble Supreme Court in Sanjay Nagayach (supra) has clearly held that elected candidate be given sufficient time at least six months to rectify the defects if any pointed out in the notice. Hon’ble Supreme Court has issued following directions in the aforesaid judgments in regard to supersession of elected Managing committee :- 42.1 Supersession of an elected Managing Committee/Board is an exception and be restored to only in exceptional circumstances and normally elected body be allowed to complete the term for which it is elected. Hon’ble Supreme Court has issued following directions in the aforesaid judgments in regard to supersession of elected Managing committee :- 42.1 Supersession of an elected Managing Committee/Board is an exception and be restored to only in exceptional circumstances and normally elected body be allowed to complete the term for which it is elected. 42.2 Elected Committee in office be not penalised for the shortcomings or illegalities committed by the previous Committee, unless there is any deliberate inaction in rectifying the illegalities committed by the previous Committees. 42.3 Elected Committees in office be given sufficient time, say at lest six months, to rectify the defects, if any, pointed out in the audit report with regard to incidents which originated when the previous committee was in office. 42.4 The Registrar/Joint Registrar are legally obliged to comply with all the statutory formalities, including consultation with the financing banks/controlling banks, etc. Only after getting their view, an opinion be formed as to whether an elected Committee be ousted or not. 42.5 The Registrar/Joint Registrar should always bear in mind the consequences of an order of supersession which has the effect of not only ousting the Board out of office, but also to disqualify them for standing for election in the succeeding elections. The Registrar/Joint Registrar therefore is duty-bound to exercise his powers bona fide and not on the dictation or direction of those who are in power. 42.6 The Registrar/Joint Registrar shall not act under political pressure or influence and, if they do, be subjected to disciplinary proceedings and be also held personally liable for the cost of the legal proceedings.” 20. Order of the Joint Registrar was passed in violation of the mandatory provisions of section 53(7) of the Act of 1960, there was no effective consultation as held by the Hon’ble Supreme Court in Sanjay Nagayach (supra), hence, in our opinion, it is not necessary to consider the factual position in detail. We have gathered an impression that the Bank was superseded by the Joint Registrar in haste. He has not cared to read the mandatory provisions of section 53 of the Act of 1960 before passing the impugned order. Hence, the petition is allowed. The impugned orders dated 9.12.2009 (Annexure P/2) and dated 5.4.2011 (Annexure P/1) are hereby quashed. No order as to costs.