IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN MONDAY, THE 7TH JUNE 2010 / 17TH JYAISTHA 1932 WP(C).No. 27081 of 2009(E) -------------------------- PETITIONERS: --------------- 1. MARIYAMMA GEORGE, MEMBER NO.7469, AYARKUNNAM SERVICE CO-OP. BANK LTD.NO.4147, KOVUKUNNEL, AMAYANNUR P.O., KOTTAYAM DISTRICT. 2. ANTONY JOSEPH, MEMBER NO.2413, -DO- -DO-, KUNNATHETTU HOUSE, AYARKUNNAM. 3. K.K.JOSEPH, MEMBER NO.1354, -DO- -DO-, KARINGOTTUMATTATHIL HOUSE, AYARKUNNAM. 4. JOSEPH CHAMAKALA, MEMBER NO.4730, -DO- -DO-, CHAMAKALAYIL HOUSE, KANGANDOOR P.O., AYARKUNNAM. 5. K.J.ABRAHAM, MEMBER NO.5733, -DO- -DO-, MANJESH BHAVAN, AYARKUNNAM. 6. JOY KOTTATHIL, MEMBER NO.1942, -DO- -DO-, KOTTATHIL HOUSE, ARUMANOOR P.O. 7. ADV. K.A.PRASAD, MEMBER NO.4253, -DO- -DO-, KULAKKATTIL HOUSE, KONGANDOOR P.O. BY ADV. SRI.GEORGE POONTHOTTAM SRI.JOSE J.MATHAIKAL RESPONDENTS: --------------- 1. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, KOTTAYAM. 2. THE AYARKUNNAM SERVICE CO-OPERATIVE BANK LTD.NO.4147, AYARKUNNAM P.O., KOTTAYAM, REPRESENTED BY ITS SECRETARY. 3. THE PART TIME ADMINISTRATOR, AYARKUNNAM SERVICE CO-OP. BANK LTD.NO.4147, (KUMARAKOM UNIT INSPECTOR, OFFICE OF THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES(GENERAL), KOTTAYAM. *4. T.K.UNNIKRISHNAN PILLAI, THEKKIL HOUSE, ARUMANOOR, P.O. AYARKUNNAM, KOTTAYAM. *5. P.K.ANTHRAYOSE, S/O. KURIAKOSE, AGED 54, PARAYIL PUNNAMATTOM, AYARKUNNAM P.O. KOTTAYAM. *6. T.R.RAGHAVAN NAIR, S/O. RAVEENDRAN NAIR, AGED 52, THARAYIL, ARUMANOOR, P.O. AYARKUNNAM. (*ADDL. RESPONDENTS 4 TO 6 ARE IMPLEADED AS PER ORDER IN I.A. NO.12236/2009 DT.7.6.2010 ) BY SR.GOVT. PLEADER SRI. K.S.MUHAMMED HASHIM FOR R1 ADV. SRI.B.KRISHNA MANI FOR ADDL. R4 TO 6 SRI.P.C.SASIDHARAN FOR R2-3 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 07/06/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC NO.27081/09 APPENDIX PETITIONER'S EXHIBITS: EXT.P1. COPY OF THE RESOULTION DT. 18.9.09 EXT.P2. COPY OF THE ENQUIRY REPORT EXT.P3. COPY OF THE SHAW CAUSE NOTICE EXT.P4. COPY OF THE REPLY BY PETITIONERS EXT.P5. COPY OF THE ORDER DT. 22.9.09 EXT.P6. COPY OF THE PROCEEDINGS OF THE REGISTRAR DT. 30.11.96 EXT.P7. COPY OF THE LETTER DT. 19.9.09 BY SECRETARY EXT.P8. COPY OF THE AWARD IN ARC 846/09 RESPONDENT'S EXHIBITS: EXT.R2(a). COPY OF THE MINUTES OF THE MANAGING COMMITTEE EXT.R2(b). COPY OF THE APPLICATION SUBMITTED BY SMT. MARIAMMA GEORGE EXT.R2(c). COPY OF THE PROMISSORY NOTE OF SMT. MARIAMMA GEORGE EXT.R2(d). COPY OF THE APPLICATION SUBMITTED BY SRI. GEORGEKUTTY ZACHARIAH EXT.R2(e). COPY OF THE PROMISSORY NOTE OF SRI. GEORGEKUTTY ZACHARIAH EXT.R2(f). COPY OF THE APPLICATION SUBMITTED BY SRI. JOY KOTTATHIL EXT.R2(g). COPY OF THE PROMISSORY NOTE OF SRI. JOY KOTTATHIL EXT.R2(h). COPY OF THE APPLICATION SUBMITTED BY SMT. MOLLY JOSEPH EXT.R2(i). COPY OF THE APPLICATION SUBMITTED BY SMT. ALEENA TREESA JOY EXT.R2(j). COPY OF THE LEASE AGREEMENT PRODUCED BY SMT. ALEENA TREESA JOY EXT.R2(k). COPY OF THE APPLICATION SUBMITTED BY SRI. ANTONY JOSEPH EXT.R2(l). COPY OF THE LEASE AGREEMENT PRODUCED BY SRI. ANTONY JOSEPH EXT.R2(m). COPY OF THE APPLICATION SUBMITTED BY SRI. ABRAHAM EXT.R2(n). COPY OF THE APPLICATION SUBMITTED BY SMT. LISSA EXT.R2(o). COPY OF THE NOTICE WPC NO.27081/09 EXT.R4(a). COPY OF THE PROCEEDINGS DT. 8.9.09 ISSUED BY THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, KOTTAYAM EXT.R4(b). COPY OF THE REPLY DT. 19.9.09 /TRUE COPY/ PA TO JUDGE C.R. K.SURENDRA MOHAN, J. --------------------------- W.P.(C) No. 27081 OF 2009 -------------------------- Dated this the 7th day of June, 2010 J U D G M E N T The petitioners are members of the Board of Directors of Ayarkunnam Service Co-operative Bank Ltd, the second respondent herein, who along with four others had assumed office on 3.12.2004. One of the members of the Board of Directors, viz., Shri. O.K.Ramankutty is no more. Three other members who do not support the petitioners, have got themselves impleaded as additional respondents 4 to 6 in this writ petition. The term of office of the committee comprising of the petitioners has expired on 2.12.2009. As per resolution No: 1308 dated 18.9.2009, the Board of Directors had resolved to conduct a fresh election to the Board on 29.11.2009. The said resolution is Ext.P1. However, no action was taken for the conduct of the election thereafter. 2. On 25.8.2008, an organisation called the Sahakarana Janadhipathya Samrakshana Munnani, Ayarkunnam unit had filed a petition before the first respondent Joint Registrar alleging corruption, nepotism and maladministration against the Board of Directors. On the basis of the said complaint, the first respondent W.P.C. No.27081/09 2 directed the conduct of an enquiry against the committee under Section 65 of the Kerala Co-operative Societies Act,1969 (the 'Act' for short). Accordingly, an enquiry was conducted and the report of the said enquiry is Ext.P2. On the basis of the said enquiry, the first respondent issued a show cause notice to the petitioners under Section 65 of the Act seeking their explanation for the alleged irregularities in Ext.P2 report. The said show cause notice is Ext.P3. In response to the show cause notice, the petitioners submitted Ext.P4 explanation to the first respondent. Thereafter, a personal hearing was also conducted on 19.9.2009. Though the petitioners were under the impression that their explanations would be accepted by the first respondent, as per Ext.P5 proceedings, the Board of Directors were superseded and the third respondent has been appointed as the Administrator of the Society. According to the petitioners, even before a copy of Ext.P5 was served on the petitioners, the third respondent had assumed office. The petitioners challenge Ext.P5 proceedings as being violative of the provisions of Sections 32 and 65 of the Act. 3. The first respondent has filed counter affidavit justifying the W.P.C. No.27081/09 3 impugned order Ext.P5. A separate counter affidavit has been filed on behalf of respondents 2 and 3 also justifying the impugned proceedings. Additional respondents 4 to 6 are also supporting the respondents, as is evident from the statements in the affidavit filed in support of their impleading petition I.A. No.12236/2009. 4. The gist of the contentions of the respondents is that the petitioners, who constitute the majority in the Board of Directors, were guilty of various acts of maladministration and misutilisation of the funds of the society. According to them, the allegations against the petitioners listed in Ext.P2 report constitute very serious acts of misfeasance and malfeasance that justify the action that is initiated against them. It is contended that in view of the gravity of the charges against the petitioners, which are all proved, urgent and drastic action was necessitated. In the compelling circumstances, the first respondent had issued Ext.P5 which is absolutely justified and is in compliance with the relevant provisions of law that are applicable. Therefore, they pray for a dismissal of the writ petition. 5. I have heard Shri. George Poonthottam who appears for the petitioners, the learned senior Govt. Pleader Shri. Mohammed W.P.C. No.27081/09 4 Hashim who appears for the first respondent, Adv. P.C.Sasidharan who appears for respondents 2 and 3 and Sri. B. Krishnamani who appears for additional respondents 4 to 6. 6. According to the counsel for the petitioners, the impugned proceedings Ext.P5 are absolutely unsustainable and liable to be set aside for the reason that they have been issued in gross violation of the mandatory provisions that are required to be complied with before the issue of such proceedings by Sections 65 and 32 of the Act. Regarding the factual allegations raised against the petitioners, the counsel for the petitioners reiterates the explanation submitted as per Ext.P4. 7. Adv. P.C.Sasidharan referred to the gravity of the allegations raised against the petitioners to point out that loans have been granted by them without proper documents or security, that an amount of Rs.6.5 lakhs was deposited in the name of the Secretary instead of depositing the same in the name of the Bank. When the Secretary died, the amount was taken away by his wife. It is also pointed out that the bank is running at a loss of Rs.26 lakhs at present. According to the counsel, Section 65(6) empowers the first W.P.C. No.27081/09 5 respondent to initiate action under Section 32 of the Act. Therefore, action was initiated under Section 32. Since Section 32(3) empowers the first respondent to dispense with the opportunity for being heard, it is submitted that such an opportunity was dispensed with. It is also pointed out that the general body of the society had not met since the year 2006 and that non-convening of the general body is one of the grounds for superseding the Committee. 8. Adv. Krishnamani submits that additional respondents 4 to 6 had resigned from the committee on 24.8.2009. Since no action was taken on their resignation letters by the President, they had complained to the Joint Registrar on 5.9.2009. According to the counsel, though they were part of the Board of Directors, they were not responsible for any of the alleged misdeeds for the reason that they had resigned from the committee. He relies on the decision of this Court in State of Kerala v. Sudarsanan {1997(2) KLT 522} to submit that action under Section 32 could be initiated by the Registrar even without taking resort to the provisions under Section 65 of the Act. Therefore, the impugned proceedings are not liable to be set aside. He also refers to the seriousness of the allegations W.P.C. No.27081/09 6 levelled against the petitioners to submit that the supersession was perfectly justified. It is also the contention of the counsel for respondents 4 to 6 that the first respondent had formed an objective opinion on the basis of the various allegations against the petitioners to which he has referred to in Ext.P5. 9. In reply, the counsel for the petitioners points out that the Secretary of the Society, who has sworn to the counter affidavit in this case, is a person who is also liable along with the petitioners in view of Rule 47 of the Kerala Co-operative Societies Rules, 1969. It is also pointed out that in Ext.P5 the first respondent has dispensed with only the consultation that is contemplated under Section 32(2) and that there is no reason stated for not following the procedure mandated by Section 32(1) of the Act. 10. The power of enquiry by the Registrar is conferred by Section 65 of the Act. In the present case, the action of the Registrar has been initiated pursuant to a complaint by an outside organisation. Pursuant to the complaint, an enquiry was ordered by the first respondent and the report of the enquiry is Ext.P2. Section 65(4) stipulates that where an enquiry made under the section W.P.C. No.27081/09 7 reveals only minor defects which in the opinion of the Registrar can be remedied by the society, he shall communicate the result of the enquiry to the society and he shall direct the society or its officers to take such action within the time specified therein to rectify the defects disclosed by such enquiry. Sub Section (6) provides that if the Registrar on completion of the enquiry finds that there is a major defect in the constitution or working or financial condition of the society, he may initiate action in accordance with the provisions of Section 32. Therefore, the Registrar on receipt of the report of enquiry has to first enter a finding as to whether the report of enquiry reveals only a minor defect or whether there is a major defect in the constitution, working or financial condition of the society. Where there are only minor defects, the Registrar is empowered to direct the society to rectify the defects. Whereas, in the case of major defects, he may initiate proceedings in accordance with the provisions of Section 32. Therefore, a finding that the report of enquiry reveals a major defect in the constitution or working or financial condition of the society is a pre-condition for the initiation of action under Section 32 of the Act. The Joint Registrar exercising the powers of the Registrar W.P.C. No.27081/09 8 is empowered to initiate proceedings in terms of Section 65 of the Act, as done in the present case. 11. The question as to what is the correct procedure to be followed while initiating proceedings under Section 65 of the Act has been considered by this Court in the decision reported in Kandalloor Farmers Service Co-operative Bank Ltd. v. Joint Registrar {2008 (4) KLT 856}. In paragraph 9 of the said decision, Thottathil B.Radhakrishnan, J. has summarised the procedure to be followed in the following words:- “To arrive at the procedure to be followed, the officer exercising the powers of the Registrar under S.65 has necessarily to conclude whether the enquiry reveals only minor defects or whether there is major defect in the constitution or working or financial condition of the society. The consequences of the views that the Registrar may have, following the enquiry under S.65(5), could be drastic; having regard to S.68 and other provisions. The legislative authorization in sub-section(6) of S.65 that the Registrar may initiate action in accordance with the provisions of S.32 is regulated by the jurisdictional fact that the said officer reaches a finding that there is major defect in either among W.P.C. No.27081/09 9 the three aspects, namely, constitution, working and financial condition of the society. On completion of enquiry under sub-section (5) of S.65, the Registrar will get the authority to initiate action in accordance with the provisions of S.32 on the basis of that enquiry, only when the Registrar, on completion of the enquiry, finds that there is such major defect. That provision in S.65(6), in contradistinction to sub-section (1) of S.32, would show that the grounds available for action under S.65(6) would be beyond even those in clauses (a) to (d) of sub- section (1) of S.32. All that the last limb of sub- section (6) of S.65 provides is that the action under that sub-section shall be in accordance with the provisions of S.32. Therefore, to initiate action for supersession on the basis of findings in an enquiry under S.65(5), the Registrar has to definitely reach at a finding that there are major defects in the constitution or working or financial condition of the society. Having commenced proceedings under S.65, the Registrar cannot abdicate, or defer, the function of arriving at a conclusion for himself following the enquiry under S.65 and then, with the materials gathered in the inquiry under S.65, move on to S.32(1) of the Act. If that was permissible in terms of the legislative intention, there was no W.P.C. No.27081/09 10 necessity for sub-section (6) to use the words “major defect” when such terms are not available in S.32(1).” I do not find any reasons to take a different view of the matter. 12. While initiating further action under Section 32 of the Act, the procedure contemplated by Section 32 would have to be complied with. As per Section 32(1), the Registrar has to be satisfied that the committee of the society was guilty of persistent default or negligence in the performance of the duties imposed on it by the Act, or disobedience of the lawful orders or directions issued under the provisions of the Act and the Rules or any of the other circumstances enumerated therein. After having satisfied himself of the fact that the circumstances justifying supersession of the committee were in existence, he has to give an opportunity to the committee to state its objections and thereafter he can remove the committee from office and appoint a new committee in its place. Therefore, the question to be decided in the present case is whether the first respondent has complied with the above conditions before issuing Ext.P5 order. 13. As noticed above, Ext.P2 is the report of the enquiry under Section 65 of the Act. It is true that various findings regarding the W.P.C. No.27081/09 11 allegations against the petitioners have been reported in Ext.P2. Therefore, Ext.P3 notice was issued to the petitioners directing them to submit their explanation and to attend a personal hearing on 19.9.2006. Ext.P3 notice does not contain any finding regarding the nature of the allegations levelled against the petitioners or their sustainability. Ext.P3 merely states that the irregularities mentioned therein have been found in the enquiry report under Section 65 of the Act. Therefore, the members of the Board of Directors have been directed to submit their explanations, if any, on 19.9.2009. An opportunity to explain matters in person has also been granted as per Ext.P3. 14. Pursuant to Ext.P3, Ext.P4 explanation has been submitted by the petitioners. Ext.P5 shows that they were also personally heard on 19.9.2009. Thereafter, Ext.P5 proceedings have been issued, without following any other procedure. The Board has been superseded as per Ext.P5 and a part-time administrator has been appointed for the Society. 15. It is clear from the above that the first respondent has not complied with the requirements of Section 65(6) or Section 32(1) of W.P.C. No.27081/09 12 the Act. As per Section 65(6), the first respondent had to enter a finding that there was a “major defect” in the constitution or working or financial condition of the Society. In the present case, no such finding has been entered by the first respondent. Once such a finding is entered, the first respondent has the power to initiate action in accordance with the provisions of Section 32 of the Act. Section 32 of the Act provides that where the Registrar is “satisfied” after an enqiry 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, that the committee of a Society is guilty of one of the acts contemplated by Clauses (a) to (d) of sub-section (1) thereof, he could proceed to take action under the said provision. In such cases, the Registrar is duty bound to give the committee an opportunity to state its objections, if any. It is only thereafter that the Registrar has the power to pass an order superseding the committee. No doubt sub-section (3) of Section 32 confers power on the Registrar to dispense with the opportunity contemplated by sub-section (1) and the consultation contemplated by sub-section (2) where the Registrar is of the opinion that it is not W.P.C. No.27081/09 13 reasonably practicable to do so. In the present case, though Ext.P5 contains a statement dispensing with the consultation contemplated by Section 32(3), there is no similar statement dispensing with an opportunity under Section 32(1). In other words, Ext.P5 does not contain any finding that the irregularities found by Ext.P2 report constitute a “major defect' as contemplated by Section 65(6) of the Act. Such a finding is important for the reason that the procedure to be followed in the case of “minor defect” is as laid down in sub- section (4) whereas it is only in cases where a major defect is found that the procedure under Section 65(6) of the Act is to be adopted. Even when the Registrar is of the opinion that there is a “major defect” in the constitution or working or financial condition of a Society, he has to proceed under Section 32. It is clear from Ext.P5 that in the present case the procedure contemplated by Section 65(6) as well as Section 32(1) have not been complied with. 16. Though the learned senior Government Pleader as well as the counsel for the contesting respondents have vehemently argued that a close reading of Exts.P3 and P5 would show that the first respondent has applied his mind to the findings in Ext.P2 and that he W.P.C. No.27081/09 14 had formed an opinion regarding the said findings, they are not sufficient to satisfy the requirements of either Section 65(6) or Section 32(1) of the Act which are mandatory. The finding regarding a “major defect” and the “satisfaction” contemplated by Section 32(1) of the Act have to be objectively arrived at and specifically entered. It is clear from the wording of the provisions referred to above that the legislature in its wisdom has conferred the drastic power of supersession on the Registrar, hedged in by sufficient procedural safeguards aimed at ensuring that the power was not misused. When the statute provides that the exercise of a power shall be only in accordance with the procedure stipulated in the provision, it follows that the said power is not capable of being exercised in any other manner. 17. The learned senior Government Pleader as well as the learned counsel for the respondents were at considerable strain to point out that the allegations levelled against the petitioners, by their very nature are grave and serious. Therefore, it was not necessary for the first respondent to specifically categorise the said irregularities as “major defects”. Even without such a categorisation, the gravity of W.P.C. No.27081/09 15 the defects was evident and clear in the present case. However, it is a specific finding that there was “major defect” that is contemplated by Section 65(6). When the provision specifically provides that the action of the authority shall be preceded by a finding regarding the existence of a “major defect”, a finding regarding the said jurisdictional fact is necessary for initiating further action under Section 32(1) of the Act. In the present case, since there is neither such a finding nor compliance with Section 32(1), Ext.P5 cannot be sustained. For the foregoing reasons, this writ petition is allowed. Ext.P5 is quashed. It is made clear that the setting aside of Ext.P5 would not preclude the first respondent from initiating appropriate action afresh, on Ext.P2 report in accordance with law. K.SURENDRA MOHAN (JUDGE ) vps W.P.C. No.27081/09 16 W.P.C. No.27081/09 17 W.P.C. No.27081/09 18