IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE NINETEENTH DAY OF MARCH TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE GODA RAGHURAM W.P.NOs. 12100 AND 14222 OF 2004 WRIT PETITION NO : 12100 of 2004 Between: M.S.K. Narayana Rao, S/o. Sri Venkaiah, The Guntur Coop Urban Ltd. 3rd line, Brodipet, Guntur - 522 002. ..... PETITIONER AND 1 Registrar Cooperative Societies, Government of Andhra Pradesh, Gruhakalpa, Nampalli, Hyderabad. 2 Smt. K. Sri Lakshmi, Dist., Cooperative Audit Officer, Guntur & Administratrator, Guntur Coop. Urban Bank Ltd. Guntur. 3 Reserve Bank of India, rep by its Executive Director (Urban Banks), Central Office, Garment House, Mumbai. 4 District Cooperative Officer, Guntur. 5 Guntur Coop. Urban Bank Ltd. Guntur, rep by its Chief Executive Officer, Guntur. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue any writ order or direction particularly one in the nature of MADAMUS or any other appropriate writ declaring the proceedings Rc.No. 13108/2003-UB-1 dated 7-7-2004 of the 1st respondent as arbitrary illegal and by nullifying the same direct continuance of the elected committee and pass WRIT PETITION NO : 14222 of 2004 Between: 1 K.V. Ramana Rao S/o Subba Rao Ex-Director of the Guntur Coop. Urban Bank Ltd., Guntur 2 K. Narasimha Rao S/o Subba Rao Ex-Director of the Guntur Coop. Urban Bank Ltd., Guntur 3 Mohd Babu S/o Kasim Saheb Ex-Director of the Guntur Coop. Urban Bank Ltd., Guntur 4 K. ramana Babu S/o Krishnayya Ex-Director of the Guntur Coop. Urban Bank Ltd., Guntur 5 K. Mallikarjuna Rao S/o Ramalingayya Ex-Director of the Guntur Coop. Urban Bank Ltd., Guntur 6 A. Siva Koteswara rao S/o Gurunatham Ex-Director of the Guntur Coop. Urban Bank Ltd., Guntur 7 T.V. Narasimha Rao S/o Ramaiah Ex-Director of the Guntur Coop. Urban Bank Ltd., Guntur ..... PETITIONER(S) AND 1 Registrar of Cooperative Societies, Government of A.P., Gruhalkapa, Nampalli, Hyderabad 2 Smt. K. Sri Lakshmi Dist Cooperative Audit Officer, Guntur & Administrator, Guntur Coop. Urban Bank Ltd., Guntur 3 Reserve Bank of India, rep by Executive Director (Urbanks), Central Office, Garment House, Mumbai 4 Guntur Coop urban Bank Ltd., Guntur rep by Chief Executive Officer, Guntur .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue any writ order or direction particularly one in the nature of Mandamus declaring the proceeding Rc. No. 13108/2003-UB-1 dated 7- 7-2004 of the 1st respondent as arbitrary illegal and by nullifying the same direct continuance of the elected committee Counsel for the Petitioners: DR.P.B.VIJAY KUMAR Counsel for the Respondent No.: GP for Co-operation The Court made the following : W.P.NOs. 12100 AND 14222 OF 2004 COMMON ORDER: Heard Sri P.B. Vijay Kumar, learned counsel for the petitioners, learned Government Pleader for Co-operation appearing for the respondents 1, 2 and 4 and Sri K.G. Kannabiran, learned senior counsel appearing for Sri M.P. Ugle for respondent No.3. None appeared for 5th respondent. These two writ petitions are by a former Chairman and the former Director respectively of the 5th respondent-Guntur Co-Operative Urban Bank Limited. The challenge is to an order of the 1st respondent bearing Rc No. 13109/2003-UB-I, dt. 7.7.2004 whereby and whereunder, in purported exercise of powers under Section 36-A of the A.P. Mutually Aided Co- operative Societies Act, 1995 (hereinafter referred to as “the 1995 Act”), the 1st respondent superseded the Board of Directors of the 5th respondent-bank and appointed the 2nd respondent-the District Co-operative Audit Officer, Guntur as a Special Officer/Administrator to manage the affairs of the bank, initially for the specified period, from the date of resumption of the charge by the 2nd respondent. The impugned order of the 1st respondent is consequent on the directive issued by the 3rd respondent conveyed to the 1st respondent through letters dt. 12.4.2003 and 30.6.2004 whereby the 3rd respondent directed the 1st respondent to supersede the Board of Directors of the 5th respondent-bank and to appoint an Administrator to manage its affairs. The challenge is presented on the following grounds; (a) That the action of the 1st respondent is without jurisdiction and in transgression of his powers under Section 29 of the 1995 Act; (b) That the action of the 1st respondent in purported exercise of the powers under Section 115-B of the A.P. Co-Operative Societies Act, 1964 (hereinafter referred to as “the 1964 Act”) is arbitrary and a nullity for non-compliance with the principles of natural justice. This premise is substantiated by contending that in view of the incorporation of the provisions of Section 115B of the 1964 Act into 1995 Act, qua section 34 of the 1964 Act, the 1st respondent is required to follow the procedure prescribed under Section 34 of the 1964 Act or is at least required to observe the minimal principles of natural justice; (c) That the impugned order is irrational as the 5th respondent-bank is functioning on an impeccable financial basis and the appointment of the 2nd respondent as Administrator by the impugned order would send negative signals to the depositors resulting in a ‘run on the bank’, eventually leading to its collapse. The 5th respondent-bank was initially registered in 1949 as a Co-operative Bank under the provisions of the A.P. (Andhra Area) Co-operative Societies Act, 1932 and thereafter came to be governed by the provisions of the 1964 Act. In 1998 at the instance of the 5th respondent- bank, it was converted into a society under the provisions of the 1995 Act. In the 1964 Act, by amendments incorporated by A.P. Act No. 10 of 1970, Chapter XIII-A was inserted comprising Sections 115-A and 115-B. Section 115-A is a provision enumerating certain definitions and Section 115-B incorporates special provisions applicable to eligible co- operative banks. Section 115-B fortified with non obstante provides that notwithstanding anything in this Act, the following provisions shall apply to an eligible co-operative bank namely, (i)… (ii)… “(iii) if so required by the Reserve Bank in the public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interests of the depositors or for securing the proper management of the bank, an order shall be made under the provisions of this Act for the suppression of the committee of management or other managing body (by whatever name called) of the bank and the appointment of a special officer therefor for such periods not exceeding five years in the aggregate as may, from time to time, be specified by the Reserve Bank.” The 1995 Act was enacted, as apparent from the statement of objects and reasons accompanying the Bill which stood enacted as Act No. 30 of 1995, to liberate the Co-operative Societies from the perceived shackles of State intervention. As initially enacted, the 1995 Act did not have the provisions akin to those set out under Chapter XIII-A of the 1964 Act. However, by amendments introduced by the Act No. 29 of 1998, Section 36-A was incorporated into the 1995 Act, as this provisions is relevant and it is extracted as under: “36-A. Application of Chapter XIII-A of the Andhra Pradesh Co-operative Societies Act, 1964:- The provisions of Chapter XIII-A containing Sections 115-A and 115-B of the Andhra Pradesh Co-operative Societies Act, 1964 shall mutatis mutandis apply to all Co- operative Banks. Explanation:- For the purposes of this section, a “Co-operative Bank means a society registered under this Act, which is doing the business of Banking as defined in clause (b) of sub-section (1) of Section 5 of the Banking Regulation Act, 1949 (Central Act 10 of 1949)”. From the aforementioned legislative dynamics, it is apparent that the provisions of Chapter XIII-A of the 1964 Act have been incorporated into the body of the 1995 Act. The Banking Regulation Act, 1949 (hereinafter referred to as “the 1949 Act”), as initially enacted, did not extend its regulatory ambience to banks functioning in the Co- operative sector. However, by the Act 23 of 1965, Part-V was incorporated into the 1949 Act. Suffice it to note for the purpose of this case that plenitudinous regulatory powers are conferred on the Reserve Bank of India by part-V of the 1949 Act. It extends the application of a raft of regulatory provisions of the 1949 Act to Co-operative societies as well, areas which are not relevant to be dilated upon for the purpose of this writ petition. In passing, however, it must be noted that while Section 36-AA in Part II-A of the 1949 Act inheres a power in the Reserve Bank of India to remove managerial and other persons from office, when the Reserve Bank of India is satisfied as to the conditions spelt out in the said provision and after affording a reasonable opportunity to those specified Executive Officers of a banking company before ordering such removal of managerial and other persons from office, the provisions of Part IIA are excluded in their operation to Co-operative banks by a specific exclusionary clause qua Section 56 of the 1949 Act (as amended by Central Act 23 of 1965). The provisions of the 1949 Act therefore do not per se enable the Reserve Bank of India, despite a fascicula of regulatory power over Co- operative banks to either supersede or remove the management of a co-operative bank notwithstanding any degree of perceived delinquency or mal-administration by the management of a Co-operative Bank. Co-operative banks, in the matter of regulation of its management, are governed by the provisions of the State legislation, either under the provisions of the 1964 Act or the provisions of the 1995 Act, as the case may be. The 1995 Act qua Section 36-A consecrates powers in the Registrar-1st respondent to order supersession of the committee of the management of a co-operative society in any of the circumstances specified in Section 34 of the 1964 Act. It requires to be noticed that section 34 (1) (of the 1964 Act) obligates the Registrar to afford an opportunity to the committee of a co-operative society, to make its representation to a proposal for supersession. As already noticed, Chapter XIIIA of the 1964 Act incorporates a distinct regime in so far as co-operative banks are concerned. The regulatory power enumerated in section 115B of the 1964 Act was to be exercised with the previous sanction or on the directions of the Reserve Bank of India, as the case may be. Section 115-B of the 1964 Act enables the appropriate authority under this Act to order for the winding up, or to pass an order sanctioning a scheme of compromise or arrangement or of amalgamation or reconstruction, of a bank only with the previous sanction in writing by the Reserve Bank, and an order of the winding up of the bank shall be made under the provisions of the 1964 Act if so required by the Reserve Bank of India in the circumstances referred to in Section 13-D of the Deposit Insurance Corporation Act, 1961. Coming to the power for supersession of the committee of management of a Co-operative bank, Section 115-B (iii) enjoins that such an order be passed if so required by the Reserve Bank in public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interests of the depositors or for securing the proper management of the bank. From an interactive analysis of the provisions of the 1949 and the 1964 Acts, it could be legitimately inferred that the State legislation recognizes the available expertise of the federal regulatory agency, the Reserve Bank of India in view of the vast regulatory power conferred on the Reserve Bank under the provisions of 1949 Act. The 1964 Act has made a legislative choice, to regulate the managerial aspects of co- operative banks by treating the directive or sanction received from the federal agency-the Reserve Bank of India as mandatory in contouring its regulatory choices. This is an expressed legislative choice of the 1964 Act, the validity or the appropriateness of which is not in challenge in this writ petition and must be taken as such. In view of the phraseology of Section 115-B of the 1964 Act and the judgment of a Division Bench of this Court dt. 10.10.2007 in WA No. 1053 of 2005 and batch, the position is clear that an order superseding the committee of management of a co-operative bank must be issued by an appropriate authority under the provisions of the 1964 Act as directed by the Reserve Bank of India, there being no available independent discretion to the State authority in the matter. Such discretion is excluded by the specified legislative mandate of Section 115-B of the 1964 Act. The Division Bench judgment referred to supra also spells out unambiguously that having regard to the non obstante conferment of power in Section 115-B of the 1964 Act, the provisions of Section 34 of this Act which require affording of an opportunity to a committee of management before passing of an order of supersession are excluded. The Division Bench enunciates this principle in recognition of the position that the appropriate authority exercising power under the provisions of the Section 115-B of the 1964 Act is conferred no independent discretion and is to be guided exclusively by the directions of the Reserve Bank of India. The affording of an opportunity by the appropriate authority under the State Act would therefore be a vacuous and ritualistic exercise, as it is obligatory on such authority to act according to the directives of the Reserve Bank of India. This Court is in respectful agreement with the said construction of the provisions of Section 34 and 115-B of the Act, apart from being bound by it as a matter of hierarchical discipline. Consequent on the above analysis, the petitioners cannot gainfully contend that they are entitled to a notice or to an opportunity by the 1st respondent before an order superseding the committee of management is passed. Section 36 A of the 1995 Act incorporates the provisions of Chapter XIIIA containing sections 115-A and 115-B of the 1964 Act. The provisions of Section 115-A and 115-B of the 1964 Act are therefore incorporated into the provisions of the 1995 Act, as though enacted there. This is a well-established drafting technique and warrants no idle parade or familiar authority. As a consequence of such incorporation, the entire matrix of the regulatory power available under Section 115-B of the 1964 Act is exercisable qua the provisions of Section 36 A of the 1995 Act. It is therefore futile for the petitioners to contend that in the absence of any provisions akin to Section 115-B in the 1995 Act, there could be no incorporation of the provisions of Section 115-B into the 1995 Act. On the above analyses, an order for supersession of the committee of management of a co-operative bank falling within the regulatory domain of the provisions of section 36-A of the 1995 Act read with the provisions of Chapter XIII-A of the 1964 Act, could be made and shall be made if so directed by the 3rd respondent. That the 3rd respondent issued such a directive is not in dispute and therefore the exercise of the power by the 1st respondent resulting in the impugned order suffers from no incompetence. Additionally, the petitioners contended that inasmuch as Section 115-B of the 1964 Act enumerates no authority entitled to exercise the power of supersession of the committee of management of a co-operative bank, the 1st respondent is incompetent to issue the impugned order. This contention does not commend acceptance by this Court. As already noticed, Section 115-B enables an order of supersession of a committee of management of a co- operative bank to be made “under the provisions of this Act” namely; the 1964 Act. This is again a drafting technique whereby for brevity and avoidance of prolixity, the draftsman employed the existing body of the legislation (the 1964 Act) and avoided repetition. Section 34 of the 1964 Act, as already noticed, specifically empowers the Registrar to issue an order of supersession of a committee of management of any co-operative society on satisfaction of the circumstances enumerated in Section 34 of the 1964 Act. It is this authority, which is the competent authority for exercise of the powers under section 115-B as well, but subject to this distinction viz., that while exercising powers under section 34 of the 1964 Act, a statutory discretion inheres on the 1st respondent to arrive at a judgment and satisfaction as to the malfunctioning or wilful disobedience by a committee of management of a co-operative society, but no such discretion inheres when a Registrar exercised power under section 115-B, since he is to be guided by the directive of the pre-eminent regulatory agency-the Reserve Bank of India. But for this distinction and therefore as a natural corollary, the exclusion of the opportunity provision of Section 34, the authority competent under section 34 of the 1964 Act is also the authority competent to exercise power under Section 115-B of the 1964 Act. In view of the incorporation of the provisions of Sections 115-A and 115-B of the 1964 Act into the 1995 Act, by the amendments qua Section 36-A of the 1995 Act, not only are the legislative provisions of Section 115-B imported into the provisions of the 1995 Act, but also the authority of the 1st respondent qua Section 34 r/w. Section 115-B of the 1964 Act. On the aforesaid analysis, the contentions of the petitioners that in the absence of a specific enumeration in Section 115-B of the 1964 Act as to the authority competent to exercise the powers thereunder, the 1st respondent is incompetent to have issued the impugned order, is a contention that is extravagant and misconceived and must therefore fail. In the considered view of this Court, there is no ambiguity in the provisions of Section 115-B of the 1964 Act, as would warrant a conclusion that there is no specified competent authority but a mere regulatory power. Acceptance of such a contention would be subversive of the Legislative trajectory of the provisions of the 1964 and the 1995 Acts. The order of the Reserve Bank of India directing supersession of the management committee of the 5th respondent bank in public interest, is not challenged on merits and therefore does not fall for consideration here. No other point is argued. For all the aforesaid reasons, there are no merits in the writ petitions and they are accordingly dismissed. There shall be no order as to costs. ___________________ GODA RAGHURAM, J Dt. 19.3.2008 KR ..... REGISTRAR // TRUE COPY // SECTION OFFICER To 1 Registrar Cooperative Societies, Government of Andhra Pradesh, Gruhakalpa, Nampalli, Hyderabad. 2 Reserve Bank of India, rep by its Executive Director (Urban Banks), Central Office, Garment House, Mumbai. 3 District Cooperative Officer, Guntur. 4 Guntur Coop. Urban Bank Ltd. Guntur, rep by its Chief Executive Officer, Guntur. 5.2 CCs to GP for Co-operation 6.2 CD copies Form-NIC-OGS/WP{RLD}