IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 7965 of 2004 with Special Civil Application No. 7968 of 2004 with Special Civil Application No. 7971 of 2004 with Special Civil Application No. 7974 of 2004 with Special Civil Application No. 7975 of 2004 ___________ For Approval and Signature: HON'BLE MR.JUSTICE M.R. SHAH ======================================================= 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? --------------------------------------------------------- MAMVADA SEVA SAHKARI MANDALI LIMITED & Others. Versus STATE OF GUJARAT & Ors. ---------------------------------------------------------- Appearance: 1. Special Civil Application No. 7965 of 2004 MR HARIN P RAVAL for Petitioners. Mr. Kamal B. Trivedi, Addl. Advocate General for Respondent No. 1-4,7-8 DS AFF.NOT FILED (N) for Respondent No. 5 MR SN THAKKAR for Respondent No. 6 --------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE M.R. SHAH Date of decision: 10/09/2004 ORAL COMMON JUDGEMENT Draft amendment is allowed in all the matters. 2. Rule. Due to paucity of time, a detailed and reasoned judgment could not be delivered, however with a view to pronounce the operative part of the judgment, by a separate order dated 10th September 2004 the operative portion of the judgment was pronounced and all the aforesaid Special Civil Applications came to be dismissed. The detailed reasons for dismissing the aforesaid Special Civil Applications in the following factual scenario are as under. 3. In Special Civil Application No. 7965 of 2004, the petitioner-Society has challenged the legality and validity of the judgment and order dated 26.8.2004 passed by Additional Registrar (Appeals), Cooperative Societies, State of Gujarat, Gandhinagar in Appeal No. 89/2004 in dismissing the appeal preferred by the petitioner-Society and confirming the order passed by the District Registrar, Patan, dated 21.6.2004 in superseding Managing Committee of the Society and appointing Mehsana District Central Cooperative Bank Ltd., as Administrator of the Society. 3.1. In Special Civil Application No. 7968 of 2004, the petitioner Shri Meloj Seva Sahkari Mandali Limited has challenged the legality and validity of the order passed by the Additional Registrar (Appeals), Cooperative Societies, State of Gujarat, Gandhinagar dated 26th August 2004 in Appeal No. 98 of 2004 in dismissing the said appeal and confirming the order passed by the District Registrar, Cooperative Societies, Patan dated 28.6.2004 in superseding Managing Committee of the society and appointing Mehsana District Central Cooperative Bank Ltd., as Administrator of the petitioner society. 3.2. In Special Civil Application No. 7971 of 2004, the petitioner, Shri Dashavada Juth Gopalak Vividh Karyakari Sahkari Mandali Limited has challenged the legality and validity of the judgment and order dated 26th August 2004 passed by the Additional Registrar (Appeals), Cooperative Societies, State of Gujarat, Gandhinagar in Appeal No. 91 of 2004 in dismissing the same and confirming the order passed by the District Registrar, Cooperative Societies, Patan dated 28.6.2004 in superseding the Managing Committee of the petitioner-society and appointing Mehsana District Central Cooperative Bank Ltd., as Administrator of the petitioner society. 3.3. In Special Civil Application No. 7974 of 2004, the petitioner, Shri Nedra Seva Sahkari Mandali Ltd., has challenged the legality and validity of the judgment and order dated 28.6.2004 passed by the Additional Registrar (Appeals), Cooperative Societies, State of Gujarat, Gandhinagar, in Appeal No. 118 of 2004 in dismissing the same and confirming the order passed by the District Registrar, Cooperative Societies, Patan, dated 28.6.2004 in superseding the Managing Committee of the Society and appointing Mehsana District Central Cooperative Bank Ltd., as Administrator of the said Society. 3.4. In Special Civil Application No. 7975 of 2004,, the petitioner, Shri Kholvada Seva Sahkari Mandali Ltd., has challenged the legality and validity of the judgment and order dated 26.8.2004 passed by the Additional Registrar (Appeals), Cooperative Societies, State of Gujarat, Gandhinagar, in Appeal No. 101 of 2004 in dismissing the same and confirming the order passed by the District Registrar, Cooperative Societies, Patan, dated 29th June 2004 in superseding the Managing Committee of the Society and appointing Mehsana District Central Cooperative Bank Ltd., as Administrator of the said Society. 4. It appears from the record, that all the petitioners had initially preferred the aforesaid Special Civil Applications challenging the orders passed by the District Registrar, Cooperative Societies, Patan in superseding the Managing Committee of the Society and appointing the Administrator and also the order passed by the Appellate Authority/Revisional Authority in not granting the interim relief during the pendency and final disposal of the appeal, and this Court by order dated 9.7.2004 issued notices in all the aforesaid Special Civil Applications and other cognate matters, and by way of ad-interim relief the operation of the order superseding the elected body of the society came to be stayed on condition that the office bearers of the society shall continue to look after day to day activities of the society and shall not spend any amount exceeding Rs. 2,500/- without prior permission of the District Registrar and shall not take any policy decision. This Court also passed an order that pendency of the petition shall not preclude the appellate authority to proceed with the appeal or shall not preclude the petitioner from prosecuting the remedy of appeal. Under the circumstances, during the pendency of the present Special Civil Applications, the Appellate Authority vide judgment and order dated 26.8.2004 dismissed all the appeals and therefore by way of amendment the legality and validity of the judgment and order passed by the appellate authority, i.e., Additional Registrar (Cooperative Societies), State of Gujarat, are also challenged. 4.1. As in all the present Special Civil Applications, a common question of law arises, all these five Special Civil Applications are being disposed of by this common judgment and order. 5. All these petitioner societies are Agricultural Credit Dispensing Societies and their main object and activity is to give credit to new agriculturists. 6. So far as Special Civil Application No. 7965 of 2004 is concerned, a show cause notice came to be issued by the District Registrar, Cooperative Societies, Patan, dated 26.5.2004, calling upon the petitioner to show cause why the proceedings under Section 81(1)(a) should not be initiated and Administrator should not be appointed by superseding the Managing Committee of the Society and alleging inter alia; (i) that as on 31st March 2004 the total amount to be recovered is Rs. 12,83,401 out of which Rs. 4,33,787 is the loan which is Overdue Advance and thus the total advance due to be recovered is more than 90% and though time and again the instructions are issued in the original memo under Section 106(1) of the Gujarat Cooperative Societies Act, 1961, [hereinafter referred to as "the Act" for short] to recover the overdue advance no proceedings are initiated and thus there is a financial loss caused to the society. (ii) The Society has in the year 2002-2003 wrongly shown Rs. 1,36,310 towards income from interest in the balance sheet, despite the fact that there was no income from interest and in fact the society has incurred loss of Rs. 66,123 and the said fact has been concealed in the Balance Sheet and thereby the society has violated the provisons of Section 66 of the said Act. (iii) For the year ended 31st March 2003 the society has incurred a cumulative loss of Rs.24,783.91 ps. and though it was directed by the Auditor in Para No.10 not to appropriate "profit" the society in its Annual General Meeting held on 29th June 2003 wrongly appropriated the profit which is against the provisions of Section 66 of the Act. (iv) The Society has not acted as per the instructions/directions given by the Audit Memo and thus violated the provisions of the said Act. It was contended on behalf of the petitioner society that the petitioner society has tried to recover the amount from the members by consensus and only 23% of the amount is due and payable towards the loan. It was also further submitted on behalf of the petitioner that it is true that Rs. 4,33,787/= is outstanding as overdue advance. However by 31st May 2004 they have been able to recover Rs. 1,49,294/=. Thus they are trying their best to recover the amount. It was further contended on behalf of the petitioner society that after instructions/directions by the Auditor there is a change in the accounting system. So far as allotment of profit is concerned it was submitted that the said decision was taken by the General Body and therefore the Managing Committee should not be punished and there is no illegality committed by the society. 6.1. After giving an opportunity to the society and considering the reply submitted by the petitioner society, the District Registrar passed an order of superseding the Managing Committee and appointed the Mehsana District Central Cooperative Bank Ltd., as Administrator of the said society by holding that the society has failed in its duty to recover advances as provided in Section 106 of the Act, and that there is a violation of Section 66 of the Act by not complying with the directions issued by the Auditor in his Audit Memo/Audit Para and that the society has failed to perform its duty as cast upon it by the Act. 6.2. Being aggrieved and dissatisfied with the said order, the petitioner society had preferred the appeal before the Additional Registrar (Appeals), which also came to be dismissed and the said orders are under challenge in the present Special Civil Application. 7. So far as Special Civil Application No. 7968 of 2004 is concerned, a show cause notice came to be issued upon thet petitioner society by the District Registrar, Cooperative Societies, Patan, dated 29.5.2004 and the petitioner society was called upon to show cause why proceedings under Section 81(1)(a) should not be initiated and the Managing Committee of the Society should not be superseded and the Administrator should not be appointed alleging inter alia; (i) As against the total members of the Society to the tune of 385, only 5 members (out of which two are Members of the Managing Committee) were given advances totalling to the tune of Rs. 50,000/= during the year 2003-2004 and similar benefit has not been extended to other members. (ii) No efforts were being made by the society to get loan from the funding agency for the purpose of extending advances, i.e., agricultural credit to its members. (iii) Net profit to the tune of Rs. 21,968.95 ps for the year ended 31st March 2003 was not made available for appropriation though the same was required to be done within 3 months on or before 30th June 2003. (iv) Total net profit brought forward for the year ended 31st March 2004 to the tune of Rs. 30,096.50 ps. came to be appropriated only on 20th June 2004 by carrying 1/4th thereof to reserve fund. (v) The proposal for amending the bye-law No.34 for increasing the number of members of the committee to 11 though stated to have been forwarded in the year 1999, the Managing Committee has not taken any steps for following-up the same. Thus failed in its duty which is discernible from Audit Paras 2 and 3 of the Audit Memo for the year 2003-2004. The society replied to the said show cause notice. It is submitted on behalf of the petitioner-society that the advances are given after obtaining necessary applications and getting it sanctioned by the Mehsana District Central Cooperative Bank Ltd., and after getting the sanction from the said Financing Agency 5 Members are given the advances to the extent of Rs. 50,000/= (out of the limit of Rs. 10,000/=) which is as per the bye-laws and out of 5, only 2 members are the Members of the Managing Committee. It was also further submitted that in the year 2004-2005 as on 3.5.2004 the advances are given to the members. It was further submitted on behalf of the petitioner society that for accounting bye-laws they have already sent a proposal to the Taluka Development Officer, Taluka-Panchayat, Sidhpur. However, still new proposal will be sent to the Taluka Development Officer, Taluka-Panchayat, Sidhpur. The budget is approved in the meeting of the General Board held on 20th June 2004. 7.1. After considering the submission made on behalf of the petitioner-society and the reply the District Registrar has held that out of 385 members only 5 members are given the advances, out of these 2 members are the members of the Managing Committee. Thus, the majority of the members are not given the benefit of the advances and the society has remained negligent in performance of its duties cast on it by the said Act which has in turn prejudicially affected the interests of the members of the society and that no efforts were made to amend the bye-laws since last 5 years, and no further steps were taken after the 1st proposal was made to see that the bye-laws are amended. Thus, there is a breach of Section 66 of the Act and directions issued by the Auditor in his Audit Memo for the year 2002-2003 and 2003-2004 are not complied with. 7.2. It was also further held by the District Registrar that the allotment of the profit as on 31st March 2004 is done only on 21st June 2004 after the show cause notice and ultimately the District Registrar passed an order of superseding the petitioner-society and appointing the Mehsana District Central Cooperative Bank Ltd, Mehsana as Administrator which came to be challenged before the appellate authority and dismissed, which is the subject matter of the Special Civil Application. 8. So far as Special Civil Application No. 7971 of 2004 is concerned a shwo cause notice came to be issued on 26.5.2004 and the petitioner-society was directed to show cause why the proceedings under Section 81 of the Act should not be initiated and the Managing Committee of the Society should not be superseded and the Administrator should not be appointed by alleging inter alia that; (i) Inspite of the directions issued in the Audit Memo the report is not sent for complying with the direction issued in the Audit Memo for the year ended 2000-2001 and 2001-2002. (ii) Except dispensing with agricultural credit no other activity which is required to be carried out as per the bye-laws is not carried out. (iii) Necessary approval of the competent authority for purchase of the house as required under Section 71 of the Act is not obtained and that the same is also not registered with the Sub-Registrar's office and the amount is paid in cash. (iv) No efforts are being made to give the advances to the members of the society and agricultural credit is given only to the members of the Managing Committee only and that the allotment of the profit for the year ending on 31st March 2003 is not done which is required under Section 66(2) of the Act. The petitioner society filed its reply and also appeared before the authority and had submitted that so far as the directions issued in the Audit Memo for the year 2000-2001 and 2001-2002 is concerned necessary report is sent to the Mehsana District Central Cooperative Bank, it is not necessary that the petitioner must do other activities as per the bye-laws, the society has not purchased the house and therefore there is no question of registration and getting the approval under Section 71 of the Act, and that the house was taken on mortgage and that after some time the mortgage was redeemed in favour of the original-owner, the advancess/credit which is given to the members of the Managing Committee is concerned that is shown after getting necessary sanction from the Mehsana District Central Cooperative Bank and there is no ban in giving credit to the members of the Managing Committee and nothing is on record and/or there is no complaint that some other persons have applied and the loan/credit is not given, the allotment of profit as on 31st March 2002 is already done in the meeting of the General Board for the year 2003-2004. 8.1. The District Registrar, Cooperative Societies, Patan, after considering the submissions made on behalf of the petitioner society and after considering the reply passed an order of superseding the Managing Committee and appointing the Mehsana District Central Cooperative Bank as Administrator by holding that the Society has remained negligent in performance of the duties cast on it by the Act as well as bye-laws which has in turn prejudicially affected the interests of the members of the society. It was also further held that the society has failed to comply with the provisions of Section 85 of the Act as per the provisions of Section 85 of the Act, and ratification is to be made within a period of 3 months and in the present case the audit made for the years 2000-2001 and 2001-2002 was ratified only on 25.7.2004. Thus, it was delayed by 2 years and 3 months. It was also observed that the show cause notice was issued on 26.5.2004 and on the very next day the society rectified the audit report on 27.5.2004. The District Registrar also held that instead of performing all the activities the society has not put its efforts in furtherance of the aforesaid objects of providing back linkage to the members by way of providing good quality of animal, cattle-feed, grass and necessary medical help to the animals owned by the members. It was also further held that the transaction with regard to 55000 rupees invested by cash was an illegal transaction and the said transaction was on a stamp paper of Rs. 10 only and there was an Audit Memo Para 5 for the year 2003-2004 also for the same. Thus the society has misused its position in improper usage of fund and it was found that for a small society this was a dead investment for a long period. It was contrary to Rule 29 and Section 71 of the Act. It was observed that the advance for the year ending 2002 was Rs. 55,000 and with a view to adjust the accounting entries the society has shown Rs.55,000 towards investment in building and in the balance sheet Rs. 55,000 is shown towards investment, and there is no mention as regards the property being mortgaged in the name of the society by the Board who had not given the advance. It was also observed that the said property belongs to one member of the society who was also the Son of the Chairman of the society. Thus there was a breach of Section 71 of the Act and misuse of power and position. It is also held that in the year 2002-2003 the total amount of advance of RS. 21,100 and the whole amount was given to the committee members only. In the year 2003-2004 the total advance was of Rs. 1,94,900 and it was also given only to Directors and that majority of the funds was advanced only to the Directors. It was also further held that there is a breach of provisions of Sections 66 and 67 of the Act and that there is no rectification of the Audit Para of the Audit Memo. Thus, the society has neglected in performing its duties and that the society has misused its position and ultimately the District Registrar passed an order of superseding the Managing Committee of the society and appointing the Administrator which came to be confirmed by the appellate authority, which is the subject matter of the present Special Civil Application. 9. So far as Special Civil Application No. 7974 of 2004 is concerned, a show cause notice came to be issued upon the petitioner society on 7.6.2004 calling upon the petitioner to show cause why the Managing Committee of the society should not be superseded and the Administrator should not be appointed under Section 81 of the Act alleging inter alia that; (i) There is no dispensing with the agricultural credit/credit finance. (ii) The society has accepted fixed deposits at higher rates causing financial loss to the society. (iii) The society has not initiated any action under Section 106 of the Act for recovery of advances to the tune of Rs. 12,503/= which is outstanding overdues till the year 1998. (iv) The society could not pay up the bank loan and had to pay towards interest an amount to the tune of Rs. 8,034/=. (v) There is a breach of Section 71 of the Act. 9.1. The society appeared before the authority and filed its reply. It was contended on behalf of the society that the society is dispensing with credit finance. As per the sanctioned bye-laws the petitioner can accept deposits. Against the overdue advances to the extent of Rs. 31,848/= efforts are made to recover the amount and only Rs. 12,503/= towards overdue advances are recovered. The society has already paid up the loan much prior to the show cause notice i.e. on 26.5.2003 and 7.6.2004. The District Registrar after considering the reply and the submission made on behalf of the petitioner-society passed an order of superseding the managing committee of the society and appointed the Mehsana District Central Cooperative Bank as the Administrator by holding that the society has remained negligent in performance of duty cast on it by the Act as well as bye-laws which has in turn prejudicially affected the interests of the members of the society, the society has not dispensed with as a credit finance and that the society has accepted the deposits at a higher rate and that the society has not recovered the overdue advances which is due since 1998. That there is a breach of Section 71 of the Act. 9.2. Being aggrieved and dissatisfied with the same, the petitioner society preferred appeal which came to be dismissed which is the subject matter of the present Special Civil Application. 10. So far as Special Civil Application No. 7975 of 2004 is concerned, a show cause notice came to be issued on 3.6.2004 and the petitioner society was directed to show cause why action under Section 81 of the Act should not be initiated and the managing committee of the society should not be superseded and Administrator should not be appointed alleging inter alia that; (i) The society has invested Rs. 9,000 in the shares and prior approval as required under Section 71 of the Act is not obtained, (ii) There is no agricultural credit dispensing by the petitioner society and the society has not tried to disburse the credit to the members of the society for which the society is established. (iii) No efforts are being made to get the income of interest as there is no agricultural credit dispensing. (iv) Though for the year 2002-2003 the society has got "D" audit class no efforts are being made to improve the condition and working of the society. 10.1. After considering the submission on behalf of the petitioner society and the reply the District Registrar passed an order of superseding the managing committee of the society and appointed the Mehsana District Central Cooperative Bank as 'Administrator' by holding that the society has remained negligent in performance of the duties cast on it by the Act, there is no agricultural credit dispensing to the members of the society for which the society is established. The society is categorised "D" in the year 2000 to 2003. Though in the earlier 5 years the society was categorised in "C" category the economic status of the society is declining and is not capable of doing its business to carry out the object for which it is constituted, total members of the society is 212,