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2025 DIGILAW 2135 (KER)

Board Of Directors, The Kozhippally Service Co-Operative Bank Limited v. Joint Registrar Of Co-Operatives (General)

2025-08-04

C.JAYACHANDRAN, C.PRATHEEP KUMAR, RAJA VIJAYARAGHAVAN V.

body2025
ORDER C. Jayachandran , J. The scope, ambit and interpretation of Section 65(1) of the Kerala Co-operative Societies Act, as elucidated in the Melukkara Service Co-operative Bank Ltd.No.PT.152, Pathanamthitta and Another v. Joint Registrar (General), District Co-operative Society, Pathanamthitta District - 689 [ 2018 (2) KHC 143 (DB)], has been doubted by a Division Bench in the above Writ Appeal, and accordingly, the matter has been placed before this Full Bench, as per the Orders of the Hon'ble the Chief Justice. 2. Interpreting Section 65(1), the Division Bench in Melukkara (supra) held that the responsibility cast upon the Registrar, when he acts 'on his own motion' as per Section 65(1)(a), is greater than the responsibility, when he acts as per the provisions of Section 65(1)(b) to (f) of the Co-operative Societies Act. Culling out the nature of cases covered by Section 65(1)(b) to (e), the learned Judges went on to hold that while acting under those sub Sections, the Registrar will generally have to act, subject to arriving at a prima facie satisfaction; but when he acts, suo moto, without any such inquiry report or application - as is available in cases covered by Section 65(1)(b) to (f) - the responsibility will have to be discharged by the Registrar with greater circumspection. Secondly, the Division Bench in Melukkara (supra) held that, even when the Registrar is within the limits of law to look into the report of the Assistant Registrar and to take that into account, the Registrar should have caused an inspection of all the relevant records and documents maintained by the society and should have personally  satisfied, by evaluation and assessment of such records, of the requirement to conduct an inquiry under Section 65 of the Act. These dicta in Melukkara (supra) have been doubted by the Division Bench and the above aspects are the specific points of reference in the Reference Order dated 02.11.2022. 3. When this matter was posted before the then Full Bench, an Order was passed on 16.02.2024, taking into account the general importance of the question, which arise for consideration in this reference, and directing the Registry to give notice in the website of the High Court, calling upon the counsel, who wish to address arguments on the point before the Full Bench. Accordingly, the learned counsel appearing for the appellant in W.A.No.2104/2023 and the petitioner in W.P.(C) No.40794/2023 have also addressed arguments before us. 4. Heard Sri.George Poonthottam , learned Senior Counsel, duly instructed by Smt.Nisha George , learned counsel for the appellant in W.A.No.745/2019; Sri.P.N.Mohanan , learned counsel for the appellant in W.A.No.2104/2023 and Sri.Swathi Kumar B.S , learned counsel for the petitioner in W.P.(C) No.40794/2023; and Sri.P.P.Thajudheen , learned Special Government Pleader (Co-op) on behalf of the official respondents. 5. Sri.George Poonthottam, learned Senior Counsel for the appellant in W.A.No.745/2019 would submit that, under Section 65, the Registrar 'may' hold an inquiry into the constitution, working and financial conditions of the Society, if he is satisfied that it is necessary to do so. Learned Senior Counsel emphasised on the terms 'may' and 'he', to contend that the satisfaction required is that of a personal nature, inasmuch as the term employed is 'he'. Learned Senior Counsel would seek to juxtapose the situation to the language employed in the proviso to Section 66, wherein, the term used is 'Registrar' in the context of the satisfaction contemplated in Clause (a) to the proviso, which is not the case in Section 65, wherein  the term 'he' is employed. Thus, the learned Senior Counsel would seek to carve out a distinction between Sections 65 and 66, to the effect that the satisfaction required in the former case is personal in nature; whereas, it is not so in the case of satisfaction required under Section 66, an argument too difficult for us to endorse. In either case, we are of the opinion that the satisfaction intended is that of the Registrar acting in his official capacity, and the legal position would not undergo any change by the employment of the term 'he', in Section 65 of the Kerala Co-operative Societies Act. When Section 65 starts with the expression, 'the Registrar may'; and after enumerating clauses (a) to (f), provides for holding an inquiry, by 'himself' or by a person authorised by Order in writing into the constitution, working and financial conditions of the society; followed by the words 'if he is satisfied that it is necessary to do so', the only meaning which can be ascribed to the expression 'he' is that it refers to the Registrar, who is empowered to act as per Section 65. Of course, the satisfaction contemplated is that of the  Registrar - and none else - and in both the cases. Per contra, if the argument of the learned Senior Counsel is that, the Registrar cannot act upon the report of his subordinate, inasmuch as the satisfaction contemplated is that of the Registrar, that contention will be dealt with separately, during the course of this judgment. 6. The learned Senior Counsel relied upon the judgment of the Hon'ble Supreme Court in Director General, ESI and Another v. T. Abdul Razak [ AIR 1996 SC 2292 ] - which has been relied on in Melukkara (supra) - to submit that the powers of the Registrar under Section 65 of the Act cannot be sub-delegated. Therefore, the Registrar acting on the report of the subordinate authority is illegal, is the submission made. On such premise, learned Senior Counsel would conclude that the Registrar should necessarily evaluate and assess all the relevant records and documents maintained by the society - even when he is permitted by law to take into account the report of his subordinate - to arrive at the satisfaction as to the requirement of an  inquiry under Section 65 of the Act. In other words, the dictum laid down in Melukkara (supra) is fully supported by the learned Senior Counsel. 7. Sri.P.N.Mohanan, learned counsel for the appellant in W.A.No.2104/2023 would submit that a suo moto action in terms of Section 65(1)(a) of the Kerala Co-operative Societies Act is of paramount importance and the satisfaction with respect to the sufficiency of the material to initiate such an action is pivotal. That being so, the legal position held by the Division Bench in Melukkara (supra) that the Registrar should shoulder a greater responsibility while proceeding under Section 65(1)(a) than the responsibility expected of him while initiating an action based on Section 65(1)(b) to (f), is only to be approved. The learned counsel would submit that, though what is ordered in terms of Section 65(1) is only an inquiry, the same amounts to interference with the functioning of the society, so as to create panic amongst its members, which aspect also would add emphasis to the  satisfaction to be arrived at by the Registrar, before initiating action under Section 65(1). Learned counsel would also endorse the law laid down in Melukkara (supra). 8. Learned counsel would also endorse the law laid down in Melukkara (supra). 8. Learned counsel for the petitioner in W.P.(C) No.40794/2023 would submit that the personal satisfaction of the Registrar while acting under Section 65(1) should necessarily be reflected in the Order, as per which, inquiry is directed. Learned counsel would also adopt the contentions of the learned Senior Counsel in W.A.No.745/2019, as regards the employment of the term 'if he is satisfied'. Learned counsel would hasten to add that, acting upon the report of a subordinate Officer is not permissible as per the scheme of Section 65 of the Kerala Co-operative Societies Act. 9. Per contra, learned Special Government Pleader (Co-op) would rely on Sivasankaran K. v. The Joint Registrar of Co- operative Societies [ 2022 (2) KHC 426 ] to contend that Melukkara (supra) cannot be understood as holding that the  competent authority should satisfy himself about the defects in the constitution, working or financial condition of the society before ordering the inquiry, for, the very purpose of the inquiry itself is to ascertain the same. Learned Special Government Pleader would completely rely on the dictum laid down by a Full Bench of the Karnataka High Court in Bangalore Grain Merchants Association v. The District Registrar for Societies and Another [ (2001) 1 KCCR 292 (FB)] as regards the scope of the expression 'on his own motion'. Learned Special Government Pleader would highlight that, it is impracticable for the Registrar himself to evaluate and assess all the records of the society, considering the large number of Co-operative Societies falling under the administrative control of the Registrar. It is urged that the same is not warranted by the statutory provisions as well. When the Registrar is acting on the report of a subordinate, upon expressing his satisfaction as regards the necessity of an inquiry, it cannot be said that he is acting mechanically. Learned Special Government Pleader would conclude that the law laid  down in Melukkara (supra), warranting the Registrar to evaluate and assess all the records maintained by the society personally, does not reflect the correct legal position. 10. Having heard the learned counsel appearing for the respective parties, we shall now address the issues raised for consideration. Learned Special Government Pleader would conclude that the law laid  down in Melukkara (supra), warranting the Registrar to evaluate and assess all the records maintained by the society personally, does not reflect the correct legal position. 10. Having heard the learned counsel appearing for the respective parties, we shall now address the issues raised for consideration. We may, at the outset, notice that Section 65, as it stood at the point of time of the factual setting in these cases, had undergone an amendment by Act-9 of 2024. However, for the purpose of the cases at hand, as also, in the context of evaluating the correctness of the law laid down in Melukkara (supra), we need only take into account the unamended provision in Section 65. Section 65(1) is extracted here below: “65.Inquiry by the Registrar.-(1)The Registrar may, (a)on his own motion; or (b)on an inquiry report of the Vigilance Officer appointed under section 68A; or (c) on a report of the Director of Co- operative Audit appointed under section 63;or (d) on an application by the majority of the members of the committee of the society, or by not less than one third of the quorum for the general body meeting, whichever is less; or (e) on an application by the apex society or financing bank of which such society is a member; or (f) on an application of a society to which the society concerned is affiliated; hold an enquiry by himself or by a person authorized by order in writing, into the constitution, working and financial condition of the society, if he is satisfied that it is necessary so to do. xxxx ” 11. It could be seen from the above that, as many as six situations are contemplated in Section 65(1), which enables the Registrar to initiate an inquiry into the constitution, working and financial condition of the Society. As is clear from employing the term 'may', there cannot be any doubt as regards the discretion of the Registrar to hold such an   inquiry, which is all the more fortified by the concluding requirement of the Section, that is to say, when the Registrar is satisfied that it is necessary to hold such an inquiry. As is clear from employing the term 'may', there cannot be any doubt as regards the discretion of the Registrar to hold such an   inquiry, which is all the more fortified by the concluding requirement of the Section, that is to say, when the Registrar is satisfied that it is necessary to hold such an inquiry. We may straight away proceed to hold that the Registrar's discretion to hold an inquiry, only if he is satisfied that it is necessary to do so, evenly applies to all situations covered by Section 65(1)(a) to (f). The reasons stated in paragraph no.18 of Melukkara (supra) to hold that the responsibility of the Registrar, while acting under Section 65(1)(a), is greater than the responsibility in cases covered by Section 65(1)(b) to (f) is based on the premise that in the latter case, there will be some material - like the inquiry report from the Vigilance Officer; a report from the Director of the Co-operative Audit; an application of the majority of the members; an application of the Apex Society, etc - for the Registrar to act upon. The Division Bench emphasised that, while acting suo moto under Section 65(1)(a), the Registrar is acting in the absence of any such inquiry report or applications, which makes the Registrar's responsibility greater, than in  cases covered by Section 65(1)(b) to (f). 12. We cannot persuade ourselves to endorse the said view. In a case, where the Registrar is holding an inquiry acting under Section 65(1)(a), on his own motion, it cannot be presumed that he is acting in the absence of any material. As rightly taken stock of in paragraph no.7 in Melukkara (supra), the existence of the power to order an inquiry, by itself, would not be sufficient to sustain such an order. The existence of such power only satisfy the basic jurisdictional pre-requisite to order such an inquiry. The question as to whether the inquiry ordered is otherwise sustainable in law will depend upon the satisfaction of any one of the six conditions specified in Section 65(1). In cases covered by Section 65(1)(a) also, there should be sufficient material before the Registrar to order an inquiry, even when he is empowered to act suo moto. The question as to whether the inquiry ordered is otherwise sustainable in law will depend upon the satisfaction of any one of the six conditions specified in Section 65(1). In cases covered by Section 65(1)(a) also, there should be sufficient material before the Registrar to order an inquiry, even when he is empowered to act suo moto. The source of such material has been enviably narrated by the Full Bench of the Karnataka High Court in Bangalore Grain Merchants Association (supra), which has been quoted with  approval by the Division Bench in Sivasankaran K. (supra). We are in complete agreement with the law laid down by the Full Bench in Bangalore Grain Merchants Association (supra), as relied upon by the Division Bench in Sivasankaran K. (supra). In this regard, we may also make profitable reference to K.G.Sadasivan v. Joint Registrar of Co-operative Societies [ 2008 (1) KHC 556 ], which held that a suo moto action can be triggered even by material information received by the Registrar from non-traceable sources as well. We are in agreement with that finding too. 13. Thus, we hold that in a case covered by Section 65(1)(a) as well, the Registrar can act only on the basis of requisite material, so as to arrive at the satisfaction that it is necessary to hold an inquiry into the constitution, working and financial condition of the Society; and not otherwise. Therefore, putting a case or situation covered by Section 65(1)(a) in an upper pedestal in the context of the responsibility of the Registrar, when compared to the cases covered by clauses (b) to (f) of  Section 65(1), as held in paragraph no.18 of Melukkara (supra), cannot be approved as correct exposition of law. We are of the opinion that the responsibility of the Registrar, while acting in terms of Section 65(1), is equal and even in all cases covered by Clauses (a) to (f) of Section 65(1); and Clause (a) cannot be singled out to hold that the responsibility thereunder is greater, than the rest of the situations covered by Clauses (b) to (f) of Section 65(1). In either case, rather in all cases, the Registrar has to arrive at the satisfaction that it is necessary to hold an inquiry into the constitution, working and financial condition of the society. In either case, rather in all cases, the Registrar has to arrive at the satisfaction that it is necessary to hold an inquiry into the constitution, working and financial condition of the society. The availability of certain materials in the case of Clauses (b) to (f), or for that matter, the so-called absence of material in cases covered by Clause (a) - in fact there is no absence of material, as we have held already – cannot make the responsibility of the Registrar less onerous in the former case, and more onerous in the latter case, the satisfaction required in all cases being the same, equal and even. We, therefore hold that the finding in paragraph no.18 of Melukkara (supra), holding the contrary, does not reflect the correct legal position. 14. In this regard, we should also delve into a collateral finding in Melukkara (supra) that, in cases covered by Clauses (b) to (e), the Registrar will have to act generally, subject to his prima facie satisfaction. This finding is also something to which we cannot subscribe. It could not be said that in cases covered by Section 65 (b) to (e) - where the Registrar is equipped with inquiry reports from the Vigilance Officer; report of the Director of the Co-operative Audit; an application by the majority of the members; application of the Apex society - the satisfaction required in terms of Section 65(1) is only a prima facie satisfaction; whereas the one required for the purpose of Section 65(1)(a) is that of a larger dimension. No legal mandate flows from Section 65(1) that the Registrar is bound to act generally, subject to his 'prima facie satisfaction' in cases covered by Clauses (b) to (e), or for that matter, (f) of Section 65(1). Nor does  a mandate emanate from Section 65(1) that he should assume larger responsibility, while ordering an inquiry in terms of Section 65(1)(a). The caution/circumspection/ circumscription required is even in all cases, which flow from the statutory requirement of the Registrar being satisfied that it is necessary to hold an inquiry into the working, constitution and financial condition of the society. We, therefore, do not approve that finding in paragraph no.18 as well. 15. The caution/circumspection/ circumscription required is even in all cases, which flow from the statutory requirement of the Registrar being satisfied that it is necessary to hold an inquiry into the working, constitution and financial condition of the society. We, therefore, do not approve that finding in paragraph no.18 as well. 15. Now, we come to the final aspect, which is more important, wherein, by virtue of the findings in paragraph 23 of Melukkara (supra), it is held that the Registrar has to inspect, evaluate and assess all relevant records and documents maintained by the society, in order to arrive at a valid conclusion as to the requirement of ordering an inquiry under Section 65 of the Act. We express our helplessness to subscribe to that view as well. It is true that the Registrar, while acting on the report of his subordinate, has to apply to his mind to such report and  the factual parameters contained therein. He cannot act mechanically. The legal position in this regard has been succinctly stated, again in the Full Bench of the Karnataka High Court in Bangalore Grain Merchants Association (supra). The law in this regard has been correctly laid down in Sivasankaran K. (supra) as well. We also hold that the satisfaction of the Registrar to hold an inquiry should be manifested from the Order initiating inquiry; and as pointed out by the referring Bench, the same should not be a mere rhetoric, recording a satisfaction, merely for the sake of it. The Order initiating inquiry should reflect the application of mind by the Registrar to arrive at the satisfaction that an inquiry in terms of Section 65(1) is necessary. However, that requirement/responsibility cannot be extended to the extent of holding that the Registrar should personally evaluate and assess all relevant records and documents maintained by the society, in order to arrive at the satisfaction contemplated in Section 65(1) of the Co-operative Societies Act. What is required is the subjective satisfaction of the Registrar based on the  materials before him and the further requirement is to reflect such satisfaction in the Order initiating inquiry. Nothing more can be read into Section 65(1), also for reason of the fact that Section 65(1) only sanctions an inquiry into the constitution, working and financial condition of the society, without arriving at any conclusion regarding the said three parameters of the society. Nothing more can be read into Section 65(1), also for reason of the fact that Section 65(1) only sanctions an inquiry into the constitution, working and financial condition of the society, without arriving at any conclusion regarding the said three parameters of the society. Having regard to the purpose of Section 65(1), the satisfaction contemplated therein cannot be given a free flight, so as to project the trajectory to the extent of evaluating and assessing all relevant records maintained by the society, by the Registrar, himself. The same will amount to over-stretching the requirements of Section 65(1), beyond its contemplation. 16. In this context, we also refer to the judgment of the Hon'ble Supreme Court in Director General, ESI (supra), which has been relied on by the Division Bench in Melukkara (supra), at paragraph no.23. The appellants' contention based on the principles of delegatus non potest delegare is  recorded in paragraph no.16 of Melukkara (supra). Having perused the judgment in Director General, ESI (supra), we are afraid that the dictum has no application, whatsoever, to the instant facts. In Director General, ESI (supra), what was under challenge before the Hon'ble Supreme Court was the judgment of the Central Administrative Tribunal, Bangalore, wherein, Rule 16(2) of the Employees' State Insurance (Central) Rules, 1950, and Regulations 12(2) and 13(1) of the Employees' State Insurance Corporation (Staff and Conditions of Service) Regulations, 1959, was considered. The Tribunal found that the powers of the corporation have been delegated to the Director General under Section 94A of the Employees' State Insurance Act, 1948. Section 94A does not contemplate a further delegation by the Director General, wherefore, Rule 16(2) and Regulations 12(2) and 13(1) empowering the Director General to specify any other person to exercise the said powers amount to sub-delegation, which is impermissible in law. Reversing that finding, the Hon'ble Supreme Court upheld the validity of Rule 16(2), holding that the principle of  sub-delegation does not apply, since Rule 16(2) confers independent statutory powers on the Director General. The principle of sub-delegation was found applicable only in respect of powers and duties conferred on the Director General under any resolution of Corporation or Standing Committee. 17. In the instant facts, we do not find the applicability of the principle of delegatus non potest delegare. The principle of sub-delegation was found applicable only in respect of powers and duties conferred on the Director General under any resolution of Corporation or Standing Committee. 17. In the instant facts, we do not find the applicability of the principle of delegatus non potest delegare. The power is given as per Section 65(1) upon the Registrar; and in all the three cases under consideration before us, the power has been exercised by the Registrar only. The principle is sought to be applied in the context of the Registrar calling for a report from his Subordinate. That exercise will not amount to sub-delegation. As already indicated, such report of the subordinate would only constitute a material before the Registrar to satisfy, whether an inquiry in terms of Section 65(1) is necessary or not. So long as there is independent application of mind by the Registrar into the report preferred by his  subordinate, thus arriving at the satisfaction as regards the necessity for an inquiry, we find no sub-delegation of his powers. Therefore, reliance placed on the Director General, ESI (supra), appears to be misconceived. In this regard, we also take into account the arguments of the learned Special Government Pleader (Co-op) that it is thoroughly impracticable for the Registrar to conduct a preliminary inquiry and collect the materials, by himself, taking into account the huge number of co-operative societies falling under his administrative control. We find nothing illegal in causing such preliminary inquiry to be conducted and materials collected through his subordinate officers, having administrative control over the society concerned. 18. We, therefore, cannot agree with that finding in paragraph no.23 of Melukkara (supra) as well. 19. We make ourselves clear that we have not considered and interpreted Section 65(1) of Kerala Co-operative  Societies Act, as amended by Act-9 of 2024. 20. The reference is thus answered by holding as follows: 1) The responsibility of the Registrar while acting under Section 65(1)(a) is not greater than the responsibility in situations covered by Clauses (b) to (f) of Section 65(1). Such responsibility is equal and even in all cases, the pivotal requirement being the satisfaction that it is necessary to hold/authorise an inquiry into the constitution, working and financial condition of the society. Such responsibility is equal and even in all cases, the pivotal requirement being the satisfaction that it is necessary to hold/authorise an inquiry into the constitution, working and financial condition of the society. 2) The findings in paragraph no.18 of Melukkara (supra)that in cases covered by Clauses (b) to (e), or for that matter (f), the Registrar will have to act generally, subject to his prima facie satisfaction, does not reflect the correct legal position. There is no mandate flowing from Section 65(1) that in cases covered by Clauses (b) to (f), the Registrar should act generally. Nor is there any mandate that in cases  covered by Clause (a) of Section 65(1), the Registrar should act with greater circumspection. In all cases covered by clauses (a) to (f) of Section 65(1), the Registrar will have to be equally satisfied that it is necessary to hold/authorise an inquiry into the constitution, working and financial condition of the society. Nothing more; nothing less either. 3) It cannot be recognized as a legal requirement flowing from Section 65(1) that the Registrar should personally inspect, evaluate and assess all relevant records and documents maintained by the society, in order to arrive at a valid satisfaction as to the requirement of holding/authorising an inquiry under Section 65 of the Act. The requirement is only to arrive at a satisfaction as regards the necessity to conduct an inquiry into the constitution, working and financial condition of the society, based on the materials available and that such satisfaction should be reflected/manifested in the order initiating the  inquiry. We may caution here that, what is required in the order initiating the inquiry is not a rhetoric that the Registrar is satisfied, but a reference to the materials based upon which such satisfaction is arrived at. Having answered the reference, we send back the Writ Appeals and the Writ Petition to the Courts concerned for adjudication and disposal.