Dilip Khan v. Joint Registrar of Co Operative Societies Trivandrum
2017-12-18
ANIL K.NARENDRAN
body2017
DigiLaw.ai
JUDGMENT : Anil K. Narendran, J. 1. The petitioner is the President of the Managing Committee of the Kerala Government Secretariat Staff Housing Co-operative Society No.P.732, the 3rd respondent herein. By Ext.P14 order dated 25.10.2017 of the 1st respondent Joint Registrar of Co-operative Societies, the Managing Committee of the 3rd respondent Society has been placed under suspension for a period of six months and the Assistant Registrar of Co-operative Societies has been appointed as the Administrator, invoking the provisions under Section 32 of the Kerala Cooperative Societies Act, 1969 by following the course provided under Section 32(3) of the said Act. The petitioner is before this Court in this Writ Petition filed under Article 226 of the Constitution of India seeking a writ of certiorari to quash Ext.P14 order. He has also sought for a declaration that Ext.P14 order has been passed in total disregard to the mandate of law and without authority, and therefore bad in law. 2. On 2.11.2017, when this Writ Petition came up for admission, the learned Government Pleader took notice for the 1st respondent and urgent notice was ordered to respondents 2 and 3. This Court has also granted an interim stay of operation of Ext.P14 for a period of two months. 3. A counter affidavit has been filed on behalf of the 1st respondent contending, inter alia, that Ext.P14 order has been passed in compliance of the provisions contained in Section 32 of the Act and as such, no interference is warranted. The 2nd respondent, the Administrator of the 3rd respondent Society appointed vide Ext.P14 order, has also filed a counter affidavit raising identical contentions. The petitioner has filed reply affidavits to the counter affidavits filed by the 1st and 2nd respondent and also I.A.No.19808 of 2017 seeking an order to accept as Ext.P15 a true copy of the remand report in Crime No.1394/2017 of Cantonment Police Station, filed before the Judicial First Class Magistrate Court-III, Thiruvananthapuram. 4. Heard the learned counsel for the petitioner, the learned Advocate General for the 1st respondent-Joint Registrar and also the learned Special Government Pleader for the 2nd respondent-Administrator of the 3rd respondent Society. 5. Going by the averments in the Writ Petition, there is no paid Secretary for the 3rd respondent Society.
4. Heard the learned counsel for the petitioner, the learned Advocate General for the 1st respondent-Joint Registrar and also the learned Special Government Pleader for the 2nd respondent-Administrator of the 3rd respondent Society. 5. Going by the averments in the Writ Petition, there is no paid Secretary for the 3rd respondent Society. As decided by the elected Board, one Mr.S.R.Raveendran Nair, who is a member of the Board of Directors of the Society was functioning as its Honorary Secretary. The said Raveendran Nair had enrolled several unqualified persons as members of the Society. He used fake seal and signature of the Controlling Officers of Government Secretariat for showing the authenticity of the applicants. Exts.P1 and P2 are the membership applications submitted by one Nisha M.S. and Vinod S. respectively, who are unqualified to be members of the Society. The applications were never placed before the Committee for grant of membership. Such applications were not further verified since they were countersigned by the Controlling Officer, by affixing seal. The loan applications preferred on behalf of fake members were sanctioned by Raveendran Nair himself. Ext.P3 is the loan application made by Vinod S., the applicant in Ext.P2 membership application. As discernible from the records maintained by the Society, Vinod S. applied for loan for Rs.1,50,000/- showing some fictitious members as sureties. In this manner, Raveendran Nair caused monetary loss to the Society to the tune of Rs.1,01,00,000/-. After playing such fraud, Raveendran Nair availed leave for 60 days, with effect from 28.9.2017, by submitting Ext.P4 application. Without realising the fraud played upon the Society, the Managing Committee in its meeting held on 4.10.2017 decided vide Ext.P5 minutes to grant him leave and one Smt.Sajitha Kumari R., another member of the Managing Committee was given the charge of the Secretary. 5.1. On inspection of the relevant records, the Secretary-in-Charge noticed that the photographs of the members enrolled by Raveendran Nair are not available in the register and the loans sanctioned to such members prima facie appear to be irregular. The Secretary-in-Charge brought it to the notice of the Managing Committee vide Ext.P6 report dated 6.10.2017. Acting upon Ext.P6 report, a Sub Committee was constituted, which found that the apprehensions expressed by the Secretary-in-Charge are justified to a considerable extent, as huge amounts have been advanced to such fictitious members.
The Secretary-in-Charge brought it to the notice of the Managing Committee vide Ext.P6 report dated 6.10.2017. Acting upon Ext.P6 report, a Sub Committee was constituted, which found that the apprehensions expressed by the Secretary-in-Charge are justified to a considerable extent, as huge amounts have been advanced to such fictitious members. Accordingly, the Sub Committee in Ext.P7 report dated 11.10.2017 recommended a detailed enquiry into the loans sanctioned to such members. The Sub Committee has also recommended initiation of criminal proceedings against Raveendran Nair by filing a complaint before Police and also proceedings to recover the loss sustained to the Society. In Ext.P7 report, the Sub-Committee found that seven members, who were enrolled by Raveendran Nair, were sanctioned with loan after removing their photographs from the membership register. 5.2. The Managing Committee of the Society, in its meeting held on 13.10.2017, considered Ext.P7 report of the Sub Committee and it was resolved to request the Registrar of Co-operative Societies to conduct a detailed enquiry into the act of fraud and misappropriation committed by Raveendran Nair and also to initiate criminal as well as arbitration proceedings against him. It was also resolved to remove Raveendran Nair from the post of Secretary forthwith and the Secretary-inCharge was authorised to file Arbitration Case against him for recovering the entire loss sustained to the Society. Ext.P8 is a true copy of the minutes of the Managing Committee held on 13.10.2017. Pursuant to Ext.P8, the 3rd respondent Society, addressed Ext.P8(a) petition dated 16.10.2017 before the 1st respondent-Joint Registrar seeking interference by ordering a detailed enquiry and also permission to file complaint before Cantonment Police Station for initiating criminal proceedings against Raveendran Nair. Thereafter, based on the complaint made, the Cantonment Police registered Crime No.1394 of 2017 against Raveendran Nair, who is a Section Officer in the General Administration Department, Government Secretariat, alleging offences under Sections 406, 409, 420, 465, 468 and 471 of Indian Penal Code, 1860. Ext.P9 is a true copy of the FIR dated 17.10.2017 filed before the Judicial First Class Magistrate Court-III, Thiruvananthapuram. As evidenced by Ext.P10 receipt, the Unit Inspector in the office of the 1st respondent-Joint Registrar has taken into custody the minutes books, Form-6B registers, etc. of the Society in connection with the enquiry.
Ext.P9 is a true copy of the FIR dated 17.10.2017 filed before the Judicial First Class Magistrate Court-III, Thiruvananthapuram. As evidenced by Ext.P10 receipt, the Unit Inspector in the office of the 1st respondent-Joint Registrar has taken into custody the minutes books, Form-6B registers, etc. of the Society in connection with the enquiry. The Society filed Ext.P11 Arbitration Case dated 21.10.2017 before the 1st respondent-Joint Registrar, under Section 69(1)(c) of the Act, seeking an award for Rs.1,01,00,000/- with 12% interest from Raveendran Nair and his wife Nitha and to realise the said amount from them and their assets. Along with the said Arbitration Case, the Society filed Ext.P12 interim application for attachment of the petition schedule property before award, invoking Section 78(a) and (b) of the Act. According to the petitioner, the properties of Raveendran Nair, which were mortgaged for securing fake housing loans, are more than adequate to cover the loss caused to the 3rd respondent Society by the sanctioning of fake loans. 5.3. Alleging that there occurred some delay on the part of the 1st respondent-Joint Registrar in entertaining Exts.P11 and P12, the 3rd respondent Society had approached this Court in W.P.(C).No.33896 of 2017. Though the Special Government Pleader, who appeared on behalf of the 1st respondent-Joint Registrar submitted before this Court that an appropriate decision will be taken by the said respondent on Ext.P12, no such decision was taken till 31.10.2017. The said Writ Petition filed on 1.11.2017 was closed by Ext.P13 judgment dated 24.10.2017 observing that, if any action is to be taken under Section 32 of the Act, the stipulations and parameters provided under the Act and the Rules made thereunder are to be strictly and scrupulously followed and that, there is no reason to think that the statutory authorities will initiate any such action without following the procedure contemplated under law. 5.4. However, on 24.10.2017, the 1st respondent-Joint Registrar has issued Ext.P14 order, whereby the Managing Committee of the 3rd respondent Society has been placed under suspension for a period of six months and appointed the Assistant Registrar of Co-operative Societies as the Administrator, invoking the provisions under Section 32 of the Act, by following the course provided under Section 32(3) of the said Act. 6.
6. The learned counsel for the petitioner would contend that, though a reference is made in Ext.P14 order as to a complaint made by one Anoop Kumar dated 4.10.2017, it is a fraudulent act on the part of the 1st respondent-Joint Registrar to make it appear that he was in receipt of such a complaint even before the 3rd respondent Society had reported the fraud and misappropriation committed by Raveendran Nair, vide Ext.P8(a) petition dated 16.10.2017. The learned counsel would also contend that, Ext.P14 order does not contain anything more than the resolution of the Managing Committee as evidenced by Ext.P8, which was reported to the 1st respondent vide Ext.P8(a). The Managing Committee has taken prompt action on the fraud and misappropriation committed by Raveendran Nair, immediately on receipt of Ext.P6 report of the Secretary-in-Charge. Therefore, Ext.P14 order of suspension, invoking Section 32(3) of the Act is vitiated by abuse of power and politically motivated. The power under Section 32(3) cannot be invoked by merely stating in Ext.P14 order that, the issuance of notice under Section 32(1) and the consultation with the Financing Bank and Circle Co-operative Union under Section 32(2) before passing an order under Section 32(1) is not reasonably practicable. Therefore, Ext.P14 order is liable to be set aside in this Writ Petition. 7. Per contra, according to the 1st respondent-Joint Registrar, the Managing Committee of the 3rd respondent Society has been placed under suspension for a period of six months vide Ext.P14 order, on account of grave irregularities, misappropriation and mismanagement and the Assistant Registrar of Co-operative Societies has been appointed as the Administrator, in compliance of the provisions under Section 32 of the Act. An enquiry under Section 65 of the Act has also been ordered into the working of the 3rd respondent Society, which is in progress, in which more irregularities were detected. Raveendran Nair, who is an employee in the Government Secretariat was the Honorary Secretary of the Society. He enrolled several unknown persons as members and huge amounts were sanctioned to such persons as loan, by fabricating documents. The Managing Committee of the Society had sanctioned a total sum of Rs.1,01,00,000/- to seven such bogus members. According to the 1st respondent, the Managing Committee of the Society is also responsible for dereliction of duties, inasmuch as, the Managing Committee is duty bound to ensure that loans are properly secured by sufficient documents.
The Managing Committee of the Society had sanctioned a total sum of Rs.1,01,00,000/- to seven such bogus members. According to the 1st respondent, the Managing Committee of the Society is also responsible for dereliction of duties, inasmuch as, the Managing Committee is duty bound to ensure that loans are properly secured by sufficient documents. The document marked as Ext.R1(a) is the true copy of the loan application dated 1.11.2016 submitted by one Anoop C., who is also unqualified to be a member of the 3rd respondent Society, who has been sanctioned with a loan for Rs.5,00,000/-. As per Ext.R1(a), the Secretary verified the application on 4.11.2016, and the Managing Committee sanctioned the loan on 15.11.2016. 7.1. According to the 1st respondent, based on Ext.P8(a)/ R1(c) petition made by the 3rd respondent Society an enquiry was conducted by the Assistant Registrar of Co-operative Societies, who submitted Ext.R1(d) report dated 19.10.2017. In the said enquiry it was found that, at the instance of the Managing Committee, loans were issued to many members without enquiring the genuineness of the salary certificates and that, those members were enrolled without complying with the procedures contemplated under the Act. Therefore, the Assistant Registrar, vide Ext.R1(d) report dated 19.10.2017, has recommended for a detailed enquiry and further action against the Managing Committee. 7.2. According to the 1st respondent, before sanctioning the loan, the salary certificates were to be verified by the Managing Committee and for that purpose, such certificates ought to have been transmitted to the authorities concerned. The Managing Committee of the Society, which is having collective responsibility for the management, cannot evade from that responsibility by accusing the Honorary Secretary for grave misappropriation and irregularities. The 1st respondent would also contend that as per records, the entire loan transactions were verified and sanctioned by the Managing Committee and they have sanctioned such loans at the recommendation of the Secretary, which would mean that the whole Managing Committee members are responsible for the misdeeds committed by the Honorary Secretary, which had resulted in huge loss to the Society.
In order to evade from that responsibility and liability of loss caused to the Society, an ARC has been filed against the former Secretary for recovery of money, at a stage when the 1st respondent had already conducted an inspection on the basis of Ext.P8(a)/R1(c) petition and on the basis of the report submitted by the Assistant Registrar of Co-operative Societies. 7.3. Relying on Ext.R1(e) note file, the 1st respondent would contend that there was no delay on his part in numbering Exts.P11 and P12 ARC and interlocutory application, which were numbered on 2.11.2017. Regarding the averment in the Writ Petition that the security offered by Raveendran Nair is worth more than Rs.3,00,00,000/-, the 1st respondent would point out that the total value of the said properties shown in the schedule of Ext.P11 ARC is only Rs.50,00,000/-. The 1st respondent would also point out that, the Managing Committee of the Society has not even removed the Honorary Secretary till the issuance of Ext.P14 order. 7.4. According to the 1st respondent, at the time of preliminary inspection major irregularities were found, which were communicated to the Assistant Registrar and with the permission of the Assistant Registrar, the Unit Inspector took possession of the books and records of the Society, in order to prevent additional entries. The minutes book is a prime record of the Society, entering all its policies. On verification of the said document, it was found that most of the members have not even signed the minutes at Board meetings and there was no prescribed quorum for most of the meetings. The minutes of six consecutive Board meeting were recorded without signature of even a single member and nine Board meetings were held without quorum, which itself is sufficient and crystal clear evidence for mismanagement and dereliction of duties. Ext.R1 (f) is the relevant pages of the minutes book. In the said enquiry, it was also found that the Board members have received sitting fee for those meetings, contrary to the provisions under the Act and the Rules, which would also show that the Managing Committee is responsible for the financial misappropriation. After verifying all the records, it was concluded that there are grave irregularities in the management of the 3rd respondent Society, which had resulted in its loss.
After verifying all the records, it was concluded that there are grave irregularities in the management of the 3rd respondent Society, which had resulted in its loss. In such circumstances, the 1st respondent had acted promptly and independently and issued Ext.P14 order placing the Managing Committee under suspension for a period of six months invoking Section 32 of the Act. 7.5. The 1st respondent would also contend that, as per the audit certificate for the year 2014-15, the State of Kerala, is having share worth Rs.1,07,80,000/- in the 3rd respondent Society and the Society is having a liability to pay an amount of Rs.6,28,400/- as dividend to the Government. The Society is also having liability to the District Co-operative Bank towards loan to the tune of Rs.18,00,000/-. There were laches on the part of the Society in rectifying the defects noted in the audit certificate issued by the authorities concerned. Even after dealing with public money including substantial portion of Government share, the Managing Committee of the Society had acted against the provisions of the Act and violated the provisions of the bye-laws, resulting huge loss to the Society and it has lost credibility among the public. 7.6. The members in the Managing Committee of the 3rd respondent Society are employees of Government Secretariat. According to the 1st respondent, considering the gravity of the crime, nature of fraud, it was not practical for seeking the opinion of the Financing Bank and Circle Co-operative Union or issuing notice to the Society, which would give more time to make corrections and manipulations in the records. Therefore, those procedures were dispensed with, by invoking the provisions of Section 32 of the Act. Therefore, according to the 1st respondent there is no extraneous consideration in any manner as alleged by the petitioner. The actual status of the misappropriation and mismanagement would reveal in the Section 65 enquiry ordered. The 1st respondent would also point out that, pursuant to Ext.P14 order dated 25.10.2017, the Administrator has taken charge on 26.10.2017 at 2.00 p.m., which is evident from Ext.R2(g) report. Therefore, as on 2.11.2017, the date on which this Writ Petition came up for admission, the Administrator was in charge of the Society. 8.
The 1st respondent would also point out that, pursuant to Ext.P14 order dated 25.10.2017, the Administrator has taken charge on 26.10.2017 at 2.00 p.m., which is evident from Ext.R2(g) report. Therefore, as on 2.11.2017, the date on which this Writ Petition came up for admission, the Administrator was in charge of the Society. 8. The learned Advocate General would contend that, the Managing Committee of the 3rd respondent Society is having collective responsibility for the management of the Society and as per records the entire loan transactions were verified and sanctioned by the Managing Committee at the recommendation of the Secretary. At the time of preliminary inspection major irregularities were found and with the permission of the Assistant Registrar, the Unit Inspector took possession of the books and records of the Society. Ext.R1(f), which is the relevant pages of the minutes book revealed clear evidence of mismanagement and dereliction of duties by the Members of the Managing Committee. After verifying all the records and also Ext.R1(d) report of the Assistant Registrar, the 1st respondent concluded that there are grave irregularities in the management of the Society, which had resulted in its loss. Considering the gravity of the crime, nature of fraud, it was not practical for seeking the opinion of the Financing Bank and Circle Co-operative Union or issuing notice to the Society. Therefore, the 1st respondent-Joint Registrar issued Ext.P14 order of suspension, invoking the provisions under Section 32 of the Act, by following the course provided under Section 32(3) of the said Act. The procedure adopted by the 1st respondent while issuing Ext.P14 is perfectly legal, which warrants no interference. 9. The learned Advocate General made available for the perusal of this Court the relevant provisions of the bye-laws of the 3rd respondent Society, which deal with membership and loans. Clause 6 of the bye-laws provides that, application for admission as members and for allotment of shares shall be made to the Secretary in the form, if any, prescribed by the Society for the purpose. Every such application shall be disposed of by the Board of Directors, who shall have the power to grant admission or to refuse it for adequate reasons. Similarly, Clause 44 of the bye-laws provides that, loans shall be given only to primary members but no such member shall claim a loan as a matter of right.
Every such application shall be disposed of by the Board of Directors, who shall have the power to grant admission or to refuse it for adequate reasons. Similarly, Clause 44 of the bye-laws provides that, loans shall be given only to primary members but no such member shall claim a loan as a matter of right. Application for loan shall be disposed of by the Board of Directors. Clause 45 provides further that, all applications for loan shall be made to the Secretary in the form, if any, prescribed, for the purpose, who shall place them before the Board of Directors. 10. Ext.P1 is the membership application submitted by one Nisha M.S., who is unqualified to be member of the 3rd respondent Society. Ext.P1 application contains a 'Nota Bene' (N.B.) clause, which specifies that “admission fee and share amount shall be accepted after the application is passed by the Board of Directors”. The document marked as Ext.R1(a) is the true copy of the loan application dated 1.11.2016 submitted by one Anoop C., who is also unqualified to be member of the 3rd respondent Society, who has been sanctioned with a loan for Rs.5,00,000/-. As per Ext.R1(a), the Secretary verified the application on 4.11.2016, and the Managing Committee sanctioned the loan on 15.11.2016. Ext.R1(a) application (@Page.14) bears the signature of the petitioner, who is the President of the Managing Committee, and also other members of the Managing Committee. On verification, it was found that false salary certificates were accepted by the Society for sanctioning loans to various members and in order to substantiate the said contention, reliance is placed on Ext.R1(b) statement dated 20.10.2017 given by the Under Secretary to Government, General Administration Department. 11. Section 32 of the Kerala Co-operative Societies Act deals with supersession of a committee.
11. Section 32 of the Kerala Co-operative Societies Act deals with supersession of a committee. As per sub-section (1) of Section 32, if the Registrar, after an enquiry by himself or through his subordinates or on a report of the financing bank, or the Vigilance and Anti Corruption Bureau of the Government or the Vigilance Officer or otherwise, is satisfied that the committee of any society, persistently makes default or is negligent in the performance of the duties imposed on it by the Act or the rules or bye-laws or does anything which is prejudicial to the interests of the society; or wilfully disobeys or fails to comply with any lawful order or direction issued under the Act or the rules; or makes any payment contrary to the Act or the rules or the bye-laws or causes any loss or damage to the assets of the society, by breach of trust or wilful negligence; or misappropriates or destroys or tampers with the records or causes the destruction of records to cover up any misconduct or malpractice, the Registrar may, after giving the committee an opportunity to state its objections, if any, by order in writing, remove the committee and appoint in its place, one administrator or an administrative committee consisting of not more than three individuals, one among them as convener, who need not be members of the society, to manage the affairs of the society for a period not exceeding six months. The 3rd proviso to sub-section (1) of Section 32 provides that, the Board of Co-operative Society shall not be superseded or kept under suspension where there is no Government share holding or loan or financial assistance or any guarantee by the Government or any Board or Institutions constituted by the Government. Going by sub-section (2) of Section 32, the Registrar shall consult the financing bank and Circle Cooperative Union or State Co-operative Union, as the case may be, before passing an order under sub-section (1). 12.
Going by sub-section (2) of Section 32, the Registrar shall consult the financing bank and Circle Cooperative Union or State Co-operative Union, as the case may be, before passing an order under sub-section (1). 12. Sub-section (3) of Section 32, which begins with a non obstante clause provides that, notwithstanding anything contained in sub-section (1) or sub-section (2) it shall not be necessary to give an opportunity to the committee to state its objections and to consult the Unions and financing banks, in cases where the Registrar is of the opinion that it is not reasonably practicable to do so, subject however to the condition that in such cases the period of supersession shall generally be for six months and in case a new committee cannot be constituted or enter upon office in accordance with the bye-laws of the society within the period of supersession, the period may be extended for a further period not exceeding six months in the case of a co-operative society only after consulting the Circle Co-operative Union concerned; and in the case of an Apex Society or a Central Society only after consulting the State Co-operative Union. 13. In Rajeevan v. Sukumaran, 2013 (3) KLJ 536 , a decision relied on by the learned counsel for the petitioner, a Division Bench of this Court held that, supersession of an elected Managing Committee or Board is an exception and can be resorted to only in very exceptional circumstances and normally, an elected body shall be allowed to complete the term, for which it is elected. The words “it is not reasonably practicable to do so” occurring in Section 32(3) of the Act qualifies the opportunity to the committee to state its objections. In spite of serious allegations, only in an instance where it is not practically possible to issue notice to the Managing Committee that serious attempt can be made to supersede an elected body. It is not the allegations in the report that matters in order to avoid a notice but the practical difficulty in issuing notice to the members of the Committee is what matters. The Division Bench held further that, consultation with the financing bank and the Circle Co-operative Union is mandatory and vital in the context of action to supersede an elected Managing Committee of a society.
The Division Bench held further that, consultation with the financing bank and the Circle Co-operative Union is mandatory and vital in the context of action to supersede an elected Managing Committee of a society. Therefore, when dispensing with the opportunity to the committee to state its objections results in non-consultation with the financing bank and the Circle Co-operative Union, that also is a reason to hold that dispensing with the opportunity to the committee to state its objections cannot be lightly resorted to. 14. In Rajeevan's case, the Managing Committee of ADAT Farmer's Service Co-operative Society was superseded under Section 32(3) of the Act, without following the procedure under sub-sections (1) and (2) of Section 32, on the allegation that the Managing Committee had waived crores of rupees of interest due to the society from mill owners, who had purchased paddy from the society, the price of which was due to the society from the mill owners. Although the mill owners had entered into an agreement with the society for paying the amounts due from them to the society and post dated cheques were issued for the same, those post dated cheques were not presented in time. Further, the committee granted arecanut key loans to certain parties without obtaining adequate security, as a result of which, the society suffered very huge loss running into crores of rupees. Before the Division Bench, it was contended by the members of the Managing Committee that, the statutory right to make a representation against the proposed action under Section 32 of the Act cannot be lightly dispensed with, merely on the allegation that the Managing Committee members are likely to mismanage the society or tamper with the records. It was contended further that, insofar as the documents have already been perused and the allegations have already been detailed in the order of supersession, there is no chance of tampering with the records at all. 15.
It was contended further that, insofar as the documents have already been perused and the allegations have already been detailed in the order of supersession, there is no chance of tampering with the records at all. 15. In Rajeevan's case, the Division Bench fully agreed with the view of the learned Single Judge in paragraph 23 of the judgment that despite the fact that there are serious allegations, only in an instance where it is not practically possible to issue notice to the Managing Committee on account of various factors like failure of the Managing Committee in not accepting notice, the members of the Managing Committee not available to receive notice, that an immediate seizure of all the books of the bank is required for verification, etc. that such serious attempt can be made to supersede an elected body. Paragraph 23 of the judgment of the learned Single Judge reads thus; "23. What is relevant is whether it is practically not possible to issue notice and give an opportunity to. It is not the gravity of allegations or irregularities noticed during inspection that matters, to avoid issuance of the notice. Notice contemplated under Section 32(1) can be dispensed only if it is not practical to issue notice to the managing committee and not based on the allegations in the report. Despite the fact that there are serious allegations, only in an instance where it is not practically possible to issue notice to the managing committee on account of various factors like failure of the managing committee in not accepting notice, the members of the managing committee not available to receive notice that an immediate seizure of all the books of the bank is required for verification, etc. that such serious attempt can be made to supersede an elected body. The fact that the statute itself had given an opportunity in the form Section 32(1) to the managing committee to explain the irregularities or the mistakes or the defaults which are brought to their notice during inspection by itself indicates that it is not the allegations in the report that matters in order to avoid a notice but the practical difficulty in issuing notice to the members of the committee." 16.
In State of M.P. v. Sanjay Nagayach, 2013 (2) KLT 733 , another decision relied on by the learned counsel for the petitioner, the Apex Court, in the context of Section 53 of the Madhya Pradesh Co-operative Societies Act, 1960 held that, the Registrar/Joint Registrar, while exercising powers of supersession has to form an opinion and that opinion must be based on some objective criteria, which has nexus with the final decision. A statutory authority shall not act with preconceived notion and shall not speak his masters' voice, because the formation of opinion must be his own, not somebody else in power, to achieve some ulterior motive. There may be situations where the Registrar/Joint Registrar are expected to act in the best interest of the society and its members, but in such situations, they have to act bona fide and within the four corners of the Statute. In the said case, the order of supersession was passed by the Joint Registrar after a period of two and a half years of the issuance of show cause notice and most of the charges levelled against the Board of Directors were related to the period when the previous committee was in office and even the charges based on the Audit Report dated 25.9.2008 were also rectified by the Board of Directors by addressing the primary societies. In paragraph of the judgment, the Apex Court laid down the general directions in the matter of supersession of the elected committee, which read thus; “35. Further, we are inclined to give the following general directions in view of the mushrooming of cases in various Courts challenging orders of supersession of elected Committees: (1) Supersession of an elected managing Committee/ Board is an exception and be resorted to only in exceptional circumstances and normally elected body be allowed to complete the term for which it is elected. (2) Elected Committee in office be not penalised for the short-comings or illegalities committed by the previous Committee, unless there is any deliberate inaction in rectifying the illegalities committed by the previous committees. (3) Elected Committee in Office be given sufficient time, say at least 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.
(3) Elected Committee in Office be given sufficient time, say at least 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. (4) 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. (5) 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 disqualify them for standing for election in the succeeding elections. 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. (6) 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. (7) Public money not to be spent by the State Government or the Registrar for unnecessary litigation involving disputes between various factions in a co-operative society. Tax payers money is not expected to be spent for settling those disputes. If found necessary, the same be spent from the funds available with the concerned Bank.” 17. The learned Advocate General, relying on the decision of this Court in Selvi v. General Manager, 2001 (2) KLJ 429 would contend that, if there is an emergent situation and allegation of misappropriation/tampering of records with the involvement of the members of the Managing Committee, the Registrar is well justified in invoking the procedure contemplated under Section 32(3) of the Act, in the matter of supersession or suspension of the Managing Committee. In Selvi's case this Court held that, a mere statement in the order that an alarming situation is present not enough in doing away with procedural requirements and the committee cannot be superceded by flimsy reasons. A reading of Section 32 itself shows that Legislature has prescribed very strict formalities before supersession of the elected body. Provisions for relaxing such procedural formalities can be done only in emergent situations. Even without the formalities prescribed under Section 32, principles of natural justice should have been followed before superseding the elected committee.
A reading of Section 32 itself shows that Legislature has prescribed very strict formalities before supersession of the elected body. Provisions for relaxing such procedural formalities can be done only in emergent situations. Even without the formalities prescribed under Section 32, principles of natural justice should have been followed before superseding the elected committee. In the said case, the main allegation against the society was in connection with the appointment of a Secretary and the disobeyance of the orders of the Registrar. The steps taken by the previous committee for the appointment of a Secretary was continued by the newly elected committee. No appointment was made in view of the order passed by the General Manager. Thereafter, an order of supersession was passed superseding the newly elected committee, without issuing notice and without complying with the formalities under Section 32(1). Considering the nature of allegations, this Court held that, there was no 'alarming situation' for superseding an elected managing committee dispensing with even a show cause notice and other procedural requirements. On the facts of that case, this Court found that, no emergency was there to make such a supersession without notice. This Court has also noticed that, there was no allegation that there is misappropriation by the committee members or because of their act the Co-operative Society was running in a loss. Paragraph 14 of the said judgment reads thus; “14. On the facts of this case there was no 'alarming situation' for superseding an elected managing committee dispensing with even a show cause notice and other procedural requirements. Otherwise in every case such a step can be used and violating the principles of natural justice and procedural formalities, elected body can be superseded arbitrarily. No emergency was here to make such a supersession without notice on the facts of the case. Real prejudice was caused, to the petitioner in not giving an opportunity to explain. Nothing would have taken place if at least a week's time was allowed to explain. There is no allegation that there is misappropriation by the committee members or because of their act the Cooperative Society was running in a loss. Absolutely no personal allegations were there. The supersession order was passed in continuation of the malafide action of the Secretary.
Nothing would have taken place if at least a week's time was allowed to explain. There is no allegation that there is misappropriation by the committee members or because of their act the Cooperative Society was running in a loss. Absolutely no personal allegations were there. The supersession order was passed in continuation of the malafide action of the Secretary. Therefore I see no ground to uphold the order of supersession passed against the society and I set aside the order of supersession passed [Ext.R1(e)] and O.P.No.3996/2000 is allowed. However, this is without prejudice to the right of the department to pass fresh order after complying with procedural formalities required under Section 32 if facts of the case warrant so.” 18. In Antony Jerome v. Joint Registrar, 1990 (2) KLJ 530 , a decision relied on by the learned Advocate General, in the context of Section 33 of the Act which deals with appointment of a new committee or Administrator on failure to constitute committee, etc. this Court held that, the appointment of an Administrator is a matter of serious import for the society, and its members, since the democratically elected committee is superseded and a nominee of the department assumes control and management of the society. The rights of the members to have the administration carried on by their duly elected representatives stand suspended. The normal mode of functioning for any such society is through its elected managing committee. If this is to be given the go by, it should only be for valid grounds, and after due and strict compliance with the provisions of the statute governing the matter. The proviso to Section 33(1) enjoins that before appointing an Administrator, the Registrar shall publish a notice on the notice board of the head office of the society inviting objections to the appointment, within a time to be specified and consider the objections if any received. This pre-requisite of publication of notice could be dispensed with if the Registrar is satisfied that it is not reasonably practicable, to do so. On the facts of that case, this Court found that, there is nothing stated against the Managing Committee, except that they have overstayed their term. That by itself is not a ground for the Registrar to be satisfied that it is not reasonably practicable to publish the notice envisaged by the proviso to sub-section (1) of Section 33.
On the facts of that case, this Court found that, there is nothing stated against the Managing Committee, except that they have overstayed their term. That by itself is not a ground for the Registrar to be satisfied that it is not reasonably practicable to publish the notice envisaged by the proviso to sub-section (1) of Section 33. The normal mode of appointment of an Administrator under Section 33 is after publishing notice, and after considering the objections, if any received to the proposal. It is only in extraordinary cases that this procedure can be by-passed. The circumstances of the case should be such that it will be unwise or impracticable to leave the affairs of the society any longer in the hands of the existing managing committee, or that a stalemate has occurred in the functioning of the committee or that an urgency of such a nature exists that it is not possible to publish such notice before appointing an administrator. In the absence of any such circumstances, the Registrar is bound to follow the normal rule, publish notice and invite and consider objections before appointing an Administrator. Cases where the committee has an unblemished record and there is nothing against it except the overstayal of the term, are not ipso facto ones for dispensing with the notice. 19. In Hameed Kutty M.S. and others v. The Joint Registrar of Co-operative Societies and others, 2017 (1) KLT 511 , a decision relied on by the learned Advocate General, one of the issues that came up for consideration before this Court is as to whether the Registrar has the authority to place the Managing Committee of a society under suspension, in exercise of the powers under Section 32(1) of the Act. This Court held that, it is explicit from the Section 32 of the Act that if the Registrar is satisfied of the existence of any of the grounds mentioned in Clauses (a) to (d) of sub-section (1) of Section 32 of the Act, he may remove the committee of a society from office and appoint in its place, one Administrator or an Administrative Committee.
The third proviso to Section 32 (1) clarifies that the Managing Committee of a Co-operative Society shall not be superseded or kept under suspension where there is no Government share holding or loan or financial assistance or any guarantee by the Government or any Board or institutions constituted by the Government. Relying on the words "kept under suspension" as contained in the third proviso to Section 32(1) of the Act it was contended that the power to remove the Managing Committee under Section 32(1) of the Act includes the power to keep it under suspension as well. This Court noticed that, in the absence of any direct provision in the Section which enables the Registrar to suspend the Managing Committee of a society for a period, a doubt may arise as to whether the Legislature intended to confer such a power on the Registrar. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. In other words, as a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and therefore, a proviso cannot, ordinarily be interpreted as stating a general rule. But, in a case where the enacting part is susceptible to several possible meanings, it may also be controlled by the proviso. Therefore, the third proviso to Section 32(1) has to be understood in the light of the aforesaid principles. Section 32(1) provides that, if any one of the circumstances referred to in clauses (a) to (d) of Section 32(1) exists, the Registrar may remove the Managing Committee from office. Going by the tenor of Section 32(1), the removal contemplated by the Statute is perpetual removal. If the Registrar is empowered to remove the Managing Committee of a society perpetually on satisfaction of the existence of the circumstances referred to in Section 32(1), there is no reason for to think that the Registrar is not empowered to remove the Managing Committee for a short period. It is, therefore, clear that the expression “remove” contained in Section 32(1) of the Act is susceptible to different meanings and therefore, the third proviso to the said provision can certainly be used as a guide to its interpretation.
It is, therefore, clear that the expression “remove” contained in Section 32(1) of the Act is susceptible to different meanings and therefore, the third proviso to the said provision can certainly be used as a guide to its interpretation. Further, since the word used in the main part of the Statute is "removal", even in the absence of the words "kept under suspension" in the third proviso, it is possible to infer that the power of removal takes in within its scope removal for a short period as well, where a perpetual removal of the Managing Committee is not warranted. Above all, if such a power was not intended to be conferred on the Registrar, there was no reason for the use of the words "kept under suspension" in the third proviso to Section 32(1) of the Act. Further, while Section 32 of the Act provides that the committee shall be given an opportunity to state their objections and the financing bank and the concerned Circle Co-operative Union have to be consulted before the power under Section 32(1) is invoked by the Registrar, Section 32(3) clarifies that it shall not be necessary to comply with the said provisions in cases where the Registrar is of the opinion that it is not reasonably practicable to do so. In the light of the said provisions, the interpretation of the provision as aforesaid will also take care of situations where the Managing Committee of a society needs to be removed forthwith and it is necessary to hear the Managing Committee and consult the financing bank and the Circle Co-operative Union before a final decision is taken as to whether they are to be removed perpetually from office. In such cases, the Managing Committee can be heard and the financing bank and circle co-operative union can be consulted after placing the Managing Committee under suspension before a final decision is taken as to whether the Managing Committee is to be removed perpetually. In the said circumstances, this Court held that the power of the Registrar to remove a Managing Committee from office includes the power to place the Managing Committee under suspension also. However, the said power can be exercised only in exceptional cases where such a course is necessary to protect the interests of the members of the society. 20.
In the said circumstances, this Court held that the power of the Registrar to remove a Managing Committee from office includes the power to place the Managing Committee under suspension also. However, the said power can be exercised only in exceptional cases where such a course is necessary to protect the interests of the members of the society. 20. In the instant case, Raveendran Nair who was functioning as Honorary Secretary of the 3rd respondent Society is a member of the Board of Directors of that Society. Going by the averments in paragraph 2 of the writ petition, it is an admitted fact that, several persons who were not qualified to be members of the 3rd respondent Society were enrolled as members of the Society, by presenting application showing those persons as the employees of the Government Secretariat, using fake seal and signature of the Controlling Officer of the Secretariat. Thereafter, the loan applications were preferred on behalf of these fake members, who were sanctioned with loan to the tune of Rs.1,01,00,000/- causing monetary loss to the Society. The specific case of the petitioner in paragraph 2 of the writ petition is that, several fake members were enrolled into the membership roll of the Society by Raveendran Nair and the applications were never placed before the Committee for grant of membership. Thereafter, loan applications were preferred on behalf of these fake members, which were sanctioned by himself. 21. As I have already noticed, as per Clause 6 of the bye-laws of the 3rd respondent Society, an application for admission as member and for allotment of share shall be made to the Secretary, in the prescribed form, and every such application shall be disposed of by the Board of Directors, which shall have the power to grant admission or to refuse it for adequate reasons. Similarly, as per Clause 44 of the bye-laws, loans shall be given only to primary members and the application for loan shall be disposed of by the Board of Directors. Similarly, as per Clause 45, all applications for loan shall be made to the Secretary in the prescribed form, who shall place them before the Board of Directors. 22.
Similarly, as per Clause 44 of the bye-laws, loans shall be given only to primary members and the application for loan shall be disposed of by the Board of Directors. Similarly, as per Clause 45, all applications for loan shall be made to the Secretary in the prescribed form, who shall place them before the Board of Directors. 22. In the counter affidavit, the specific stand taken by the 1st respondent-Joint Registrar is that, the Managing Committee of the 3rd respondent Society has been placed under suspension, vide Ext.P14 order, for a period of six months, on account of grave irregularities, misappropriation, etc. The Managing Committee had sanctioned loans to the tune of Rs.1,01,00,000/- to seven bogus members, who were enrolled by fabricating documents. An enquiry under Section 65 of the Act has also been ordered into the working of the 3rd respondent Society, which is in progress, in which more irregularities were detected. The Managing Committee of the Society is also responsible for dereliction of duties, inasmuch as, it is duty bound to ensure that loans are properly secured by sufficient documents. The document marked as Ext.R1(a), which is the true copy of the loan application dated 1.11.2016 submitted by one Anoop C., an unqualified member who has been sanctioned with a loan for Rs.5,00,000/-, would show that, the Secretary of the Society verified the application on 4.11.2016, and the Managing Committee sanctioned the loan on 15.11.2016. Ext.R1(a) application (@Page.14) bears the signature of the petitioner, who is the President of the Managing Committee, and also other members of the Managing Committee. Moreover, false salary certificates were accepted by the Society for sanctioning loans to various members, as evident from Ext.R1 (b) statement dated 20.10.2017 given by the Under Secretary to Government, General Administration Department. Ext.R1(a) loan application produced along with the counter affidavit of the 1st respondent would show that the loan applications of fake members were actually placed before the Board of Directors and the Board sanctioned loans to such fake members. It is pertinent to note that, in the reply affidavit filed by the petitioner he has not disputed the fact that Ext.R1(a) application (@Page.14) bears his signature and also that of other members of the Managing Committee. 23.
It is pertinent to note that, in the reply affidavit filed by the petitioner he has not disputed the fact that Ext.R1(a) application (@Page.14) bears his signature and also that of other members of the Managing Committee. 23. Going by the averments in paragraph 3 of the writ petition, it is an admitted fact that, the fictitious loans had been obtained by mortgaging the property belonging to Raveendran Nair, who is a member of the Managing Committee of the 3rd respondent Society. However, the petitioner would contend that, the property offered as security is worth more than Rs.2,00,00,000/-. The petitioner could offer no explanation for accepting the property offered by Raveedran Nair as security, while sanctioning loans to such persons. Moreover, going by Ext.P6 report dated 6.10.2017 of the Secretary-in-Charge, on inspection of the relevant records it was found that the photographs of the members enrolled by Raveendran Nair are not available in the register and the loans sanctioned to such members prima facie appear to be irregular. In Ext.P6 report it is found that, the photographs of some of the members, which were affixed in the membership register, were subsequently removed, and on verification of the loan register it was found that such persons were sanctioned with loan. Acting upon Ext.P6 report, a Sub Committee was constituted, which submitted Ext.P7 report dated 11.10.2017 recommending a detailed enquiry into the loans sanctioned to such members. In Ext.P7 report, the Sub Committee has also found that, the photographs of such members were subsequently removed from the membership register and they were sanctioned with loan. The Sub Committee has also noticed suspicious circumstances indicating fabrication of the non-liability certificates in support of such loan applications. Accepting Ext.P7 report of the Sub Committee, the Managing Committee of the Society, in its meeting held on 13.10.2017, resolved to request the Registrar of Co-operative Societies to conduct a detailed enquiry into the act of fraud and misappropriation committed by Raveendran Nair and also to initiate criminal as well as arbitration proceedings against him. Based on Ext.P8, the 1st respondent was addressed vide Ext.P8(a) petition dated 16.10.2017 seeking interference by ordering a detailed enquiry and also permission to file complaint before Cantonment Police Station for initiating criminal proceedings against Raveendran Nair. 24.
Based on Ext.P8, the 1st respondent was addressed vide Ext.P8(a) petition dated 16.10.2017 seeking interference by ordering a detailed enquiry and also permission to file complaint before Cantonment Police Station for initiating criminal proceedings against Raveendran Nair. 24. Subsequent to Ext.P8, based on the complaint made, the Cantonment Police registered Crime No.1394 of 2017 against Raveendran Nair, who is a Section Officer in the General Administration Department, Government Secretariat. It is evident from Ext.P9 FIR dated 17.10.2017 filed before the Judicial First Class Magistrate Court-III, Thiruvananthapuram. The Unit Inspector in the office of the 1st respondent-Joint Registrar has taken into custody the minutes books, Form-6B registers, etc. of the Society in connection with the enquiry, which is evident from Ext.P10 receipt. The 3rd respondent Society has also filed Arbitration Case dated 21.10.2017 before the 1st respondent-Joint Registrar, under Section 69(1)(c) of the Act, against Raveendran Nair and his wife Nitha, seeking an award for Rs.1,01,00,000/- with 12% interest, which is evident from Ext.P11 Arbitration Case and Ext.P12 interim application for attachment. 25. Based on Ext.P8(a) petition seeking interference, the 1st respondent-Joint Registrar conducted a preliminary inspection, in which major irregularities were found, which were communicated to the Assistant Registrar. The Unit Inspector, with the permission of the Assistant Registrar, took possession of the books and records of the 3rd respondent Society, in order to prevent additional entries, vide Ext.P10 receipt. The relevant pages of the minutes book produced as Ext.R1(f) would show that, most of the members have not even signed the minutes at Board meetings and there was no prescribed quorum for most of the meetings. The minutes of six consecutive Board meeting were recorded without signature of even a single member and nine Board meetings were held without quorum. It was also found that the Board members have received sitting fee for those meetings. 26. After conducting a preliminary inspection, the Assistant Registrar of Co-operative Societies, who submitted Ext.R1(d) report dated 19.10.2017 in which it was found that at the instance of the Managing Committee, loans were issued to many members without enquiring the genuineness of the salary certificates and that, those members were enrolled without complying with the procedures contemplated under the Act. Therefore, the Assistant Registrar in Ext.R1(d) report has recommended for a detailed enquiry and further action against the Managing Committee. 27.
Therefore, the Assistant Registrar in Ext.R1(d) report has recommended for a detailed enquiry and further action against the Managing Committee. 27. The first respondent-Joint Registrar, after verifying the records, taking note of Ext.P8(a) petition filed by the 3rd respondent Society and also Ext.R1(d) report of the Joint Registrar (Ref. Nos.3 and 4 in Ext.P14 order), arrived at a conclusion that, it was not practical for seeking the opinion of the Financing Bank and Circle Co-operative Union or issuing notice to the Society, which would give more time to make corrections and manipulations in the records. Accordingly, by Ext.P14 order of the 1st respondent, the Managing Committee of the 3rd respondent Society was placed under suspension for a period of six months invoking Section 32(3) of the Act and the management of the 3rd respondent Society was entrusted to the 2nd respondent Administrator. Considering the nature of fraud, misappropriation, and mismanagement found in the preliminary enquiry conducted based on Ext.P8(a) petition made by the 3rd respondent Society, it cannot be said that the 1st respondent Joint Registrar invoked the provisions under Section 32(3) of the Act on extraneous considerations. 28. It is pertinent to note that, on 2.11.2017 when this Writ Petition came up for admission, the 2nd respondent Administrator has already taken charge of the 3rd respondent Society pursuant to Ext.P14 order dated 25.10.2017. The said fact is evident from Ext.R2(g) report, which would show that the Administrator has taken charge on 26.10.2017 at 2.00 p.m. In the Writ Petition, the petitioner has sought for an interim order staying the operation of Ext.P14, by restoring the Committee back to office. On 2.11.2017, this Court has granted stay the operation of Ext.P14 for a period of two months. Now, as discernible from paragraph 5 of the reply affidavit filed by the petitioner to the counter affidavit filed by the 2nd respondent Administrator, subsequent to the interim order of this Court staying the operation of Ext.P14, the suspended committee assumed charge and it is discharging the functions. In the said reply affidavit it has also been stated that, after assuming charge, a detailed verification was conducted and on such verification, it was found that there are other transactions by the Secretary (Raveendran Nair) in excess of the amounts mentioned in Ext.P8(a) complaint. 29.
In the said reply affidavit it has also been stated that, after assuming charge, a detailed verification was conducted and on such verification, it was found that there are other transactions by the Secretary (Raveendran Nair) in excess of the amounts mentioned in Ext.P8(a) complaint. 29. Considering the facts and circumstances of the case, with reference to the statutory provisions under the Act and the Rules, and also the law laid down in the decisions referred to supra, I find absolutely no grounds to interfere with Ext.P14. It is for the 1st respondent to take a final decision as to whether the Managing Committee of the 3rd respondent Society is liable to be superseded invoking the provisions under Section 32 of the Act, after affording an opportunity of being heard to the Managing Committee, untramelled by the findings/observations contained in this judgment touching the merits of the allegations raised against the Managing Committee. This shall be done as expeditiously as possible, at any rate, within a period of two months from the date of receipt of a certified copy of this judgment. In the result, this Writ Petition fails and the same is accordingly dismissed.