SCA/2616/2007 1/56 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No.2616 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- ===================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ===================================================== VIPULBHAI MANSINGBHAI CHAUDHRY, CHAIRMAN-Petitioner(s) Versus GC MURMU OR HIS SUCCESSOR IN THE OFFICE & 1-Respondent(s) ===================================================== Appearance : MR SN SHELAT, learned Senior Counsel, with MR BS PATEL for Petitioner: 1 MRS RANJAN B PATEL for Petitioner: 1 MR PRAKASH K JANI for Respondent(s) : 1, MR KAMAL B. TRIVEDI, learned Advocate General, with MS SANGITA K. VISHAN, AGP, for Respondent(s) : 2, ===================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA Date : 22/27.02.2007 ORAL JUDGMENT (1) As the pleadings are complete, considering the issue involved, the petition has been heard finally. RULE. The learned advocates appearing for the respondents are directed to waive service of rule. SCA/2616/2007 2/56 JUDGMENT (2) This petition has been preferred challenging order dated 25.01.2007 (ANNEXURE-A) and following reliefs have been prayed for: 9. On the facts and circumstances mentioned hereinabove, the petitioner prays to Your Lordships that; A) be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction quashing and setting aside the order passed by respondent No.1 dated 25.1.2007 at Annexure-A to the petition; B) Pending admission and final disposal of this petition, Your Lordships will be pleased to stay further operation, execution and implementation of the order passed by respondent No.1 dated 25.1.2007 at Annexure-A to the petition; C) Be pleased to award the cost of this petition; D) Such other and further relief that is just, fit and expedient in the facts and circumstances of the case may be granted. (3) Mehsana District Co-operative Milk Producers Union Limited (the Union) is a specified society as defined under Section 74C of The Gujarat Co-operative SCA/2616/2007 3/56 JUDGMENT Societies Act, 1961 (the Act). The petitioner was one of the Directors elected along with others to the Board of Directors (the Board) on 05.03.2005. At the first meeting held on 15.03.2005 the petitioner was elected unanimously by the Board of Directors as chairman. (4) On 28.07.2005, as per resolution of the Board of Directors, one Shri Nagori was appointed as the Managing Director and power was delegated to the Managing Director to effect recruitment of staff, fix their salary and, the power of appointment included the power of terminating their services. (5) On 04.02.2006 the District Registrar, Mehsana passed an order under Section 82 of the Act directing the petitioner and the Managing Director to furnish details in the proforma annexed with the said order as regards recruitment process undertaken by the Union. Such details were to be furnished by 13.02.2006. On 14.02.2006 the Board passed a resolution in response to the aforesaid order dated 04.02.2006 wherein, after narrating the SCA/2616/2007 4/56 JUDGMENT facts, the Board resolved that the Union and/or the Board were not required to furnish the details called for as provisions of Section 82 of the Act did not empower the District Registrar to call for such details. It was also resolved that the District Registrar may be informed accordingly and asked to drop the proceedings; also that the chairman and the Managing Director exercise their discretion and sense of propriety to uphold the stature of the Union considering the traditions and the integrity of the Union. (6) Hence, on 16.02.2006 the petitioner addressed a letter to the District Registrar on the aforesaid lines. It was submitted that the District Registrar lacked powers to call for such information under Section 82 of the Act. At the same time certain details were also submitted. (7) On 02.03.2006 the District Registrar forwarded a notice proposing penal action under Sections 147(d) and 148(d) of the Act. The members of the Board sent a common reply on 10.04.2006 while the SCA/2616/2007 5/56 JUDGMENT petitioner forwarded a separate individual reply on the same day, namely, 10.04.2006. To complete the chain of events it is necessary to note that no further action was taken pursuant to the aforesaid notice dated 02.03.2006. However, on 25.08.2006 the District Registrar, Mehsana submitted a report to the Registrar, Co-operative Societies, Gujarat State, respondent No.1 herein, regarding irregularities stated to have been committed and deliberate non- compliance of information despite categorical order of the District Registrar. (8) In the meantime, it appears that one Khakhadi Dudh Utpadak Sahakari Mandali Limited, a milk producing co-operative society, moved this Court by way of Special Civil Application No.11791 of 2006. It was the case of the petitioner therein that despite successive representations dated 04.05.2006 and 12.06.2006 as regards the mismanagement of the Union, the authorities were not initiating any action to inquire into the irregularities pointed out by the said petitioner-Society. On 19.06.2006 the High SCA/2616/2007 6/56 JUDGMENT Court disposed of the petition by directing the Registrar to dispose of the representations of the said co-operative society and take appropriate steps as may be necessary, in the event there was any prima facie worth in the allegations made against the petitioner. (9) On 31.08.2006 respondent No.1 issued show cause notice calling upon the petitioner to show cause as to why action should not be taken against the petitioner under Section 76B of the Act for non- compliance of the order made under Section 82 of the Act, more particularly in relation to recruitment of 461 persons during the tenure of the petitioner as chairman of the Union. In response thereto on 18.09.2006 the petitioner wrote to respondent No.1 asking respondent No.1 to supply various documents which were forming the basis of the show cause notice. After supplying the details, on 21.09.2006 respondent No.1 asked the petitioner that the petitioner may submit his reply to the show cause notice and remain present for hearing fixed on 10.10.2006. SCA/2616/2007 7/56 JUDGMENT (10) In the meantime, the petitioner had moved this Court by way of Special Civil Application No.21337 of 2006 challenging the aforesaid show cause notice issued under Section 76B of the Act. One of the principal grounds of challenge was lack of jurisdiction of respondent No.1 as, according to the petitioner, respondent No.1 could not have exercised jurisdiction under Section 76B of the Act, because the Union was a Multi-State Co-operative Society within the meaning of The Multi-State Co-operative Societies Act, 2002 (MSCS Act). (11) Vide order dated 09.10.2006 the said petition came to be disposed of by the High Court with the following observations: “3.1 In facts of this case, therefore, it is provided that the petitioner if prays for additional time to file reply to the show cause notice, the same shall be granted. Learned advocate Shri Patel submitted that the petitioner will file reply latest by 1st November, 2006. 4. Considering the contention of the petitioner that the concerned Cooperative Society being a SCA/2616/2007 8/56 JUDGMENT Multi-State Cooperative Society, action u/s 76-B of the Gujarat Cooperative Societies Act cannot be initiated, the same be decided as a preliminary issue by the respondent before adverting to other issues arising in the show cause notice.” (12) On 19.10.2006 respondent No.1 communicated to the petitioner that as agreed by the advocate of the petitioner before the High Court the petitioner was required to submit his reply to the show cause notice on or before 01.11.2006, and that the reply may contain detailed material in support of the stand of the petitioner that the Union is a Multi-State Co- operative Society, not covered by the Act, and thus depriving respondent No.1 of powers and jurisdiction under Section 76B of the Act. (13) On 30.10.2006 the petitioner filed reply to the show cause notice raising preliminary issue as regards non-applicability of the provisions of the Act as the Union was a Multi-State Co-operative Society. The matter was partly heard by respondent No.1 on 20.11.2006, at which hearing the petitioner was SCA/2616/2007 9/56 JUDGMENT represented by a learned advocate. At the said hearing respondent No.1 informed the learned advocate of the petitioner that the contentions raised by the petitioner about the Union being a Multi-State Co-operative Society were not acceptable and the preliminary point shall be finally decided along with the other issues on merits. Therefore, respondent No.1 asked the learned advocate for the petitioner to submit a detailed reply on merits. (14) On 11.12.2006 the petitioner once again wrote to respondent No.1 asking respondent No.1 to decide the preliminary issue at the outset. This was followed up by another communication dated 18.12.2006 reiterating the earlier request to decide the preliminary issue first in point of time. Once again on 16.01.2007 similar request came to be made, namely, that respondent No.1 should take a decision on the preliminary issue in the first instance. (15) On 25.01.2007 impugned order came to be made by respondent No.1, on the basis of the material SCA/2616/2007 10/56 JUDGMENT available on record, removing the petitioner as chairman of the Board of Directors, and as a member director of the Board. Respondent No.1 also passed a consequential order disqualifying the petitioner under the provisions of Section 76B(2) of the Act for a period of four years. (16) Mr.S.N. Shelat, learned Senior Counsel representing the petitioner, assailed the impugned order on the following grounds: (i) That the impugned order was vitiated as there was a breach of direction made by this Court in its order dated 09.10.2006 in the petition filed by the petitioner challenging the show cause notice. That this Court had categorically stated in Paragraph No.4 of the order that the contention of the petitioner that the Union was a Multi-State Co-operative Society and action under the Act was not permissible be decided as a preliminary issue by respondent No.1 before adverting to other issues arising in the show cause notice. That a preliminary issue cannot be treated as one of the issues. Reliance was placed on provisions of Order XIV Rule 2 sub-rule (2) of the Code of Civil Procedure, 1908 in support of the aforesaid proposition; SCA/2616/2007 11/56 JUDGMENT (ii) That there was breach of principles of natural justice. The petitioner was under a bona fide belief that in light of the High Court order dated 09.10.2006 respondent No.1 was required to decide only the preliminary issue, and only thereafter the petitioner was required to submit, if necessary, detailed reply on merits; (iii) That provisions of Section 76B of the Act required removal of an officer by the Registrar if any officer makes persistent default or is negligent in performance of the duties imposed on the officer by the Act or the Rules or the Bye-laws, but there was no breach of any statutory duty in absence of any obligation on the petitioner either under the Act or the Rules or the Bye-laws; (iv) Alternatively, a mere breach of an order under Section 82 of the Act cannot constitute negligence in duty or persistent default, because whether provisions of Section 82 of the Act could be pressed into service for obtaining the information of the nature which was called for was itself in dispute. In this context the learned advocate read provisions of Section 82 of the Act to submit that the scope of powers under the said provision was confined to the items specifically enumerated by the provision and could not apply in case SCA/2616/2007 12/56 JUDGMENT of matters which were not provided for by Section 82 of the Act. That if sub-sections (2) and (3) of Section 82 of the Act are perused it would give an indication that Section 82(1) of the Act cannot apply because the other two sections talk of recovery from the society or the officer concerned and that can only be in context of the matters specified in sub- section (1) of Section 82 of the Act. That Section 82 of the Act was a complete provision by itself, the remedy for default having been provided in the section and hence, even on this count, provisions of Section 76B of the Act could not be pressed into service; (v) That the action is tainted with mala fides because the petitioner has been singled out and action taken in hot haste. For this purpose he placed reliance on the averments made in the petition as to the impugned order not having been made on the date on which it is purported to have been made considering the point of time of service and the manner of service of the impugned order; (vi) Lastly, it was submitted that in relation to service matters, namely, appointment / recruitment of staff / employees did not fall within the domain of respondent No.1 authority and for this purpose he pressed into SCA/2616/2007 13/56 JUDGMENT service the decisions in the case of – (i) Malvikaben Bhikhabhai Patel & Ors. Vs. State of Gujarat & Ors., 1998(1) G.L.H. 661; and (ii) Parmar Dipubhai B & Ors. Vs. Registrar of Co-operative Societies & Ors., 2006(2) G.L.H. 659. That though latter decision was relatable to exercise of powers under Section 160(1) of the Act, the same principles would apply while deciding as to whether under Section 82(1) of the Act the Registrar can call for information as regards appointment of employees. Following decisions were cited in support of the aforesaid submissions: (a) Union Public Service Commission Vs. Girish Jayanti Lal Vaghela & Ors., AIR 2006 SC 1165, with special reference to Paragraph No.12; (b) Zoroastrian Co-operative Housing Society Ltd. & Anr. Vs. District Registrar Co-operative Societies (Urban) & Ors., JT 2005 (4) SC 337, with special reference to Paragraph No.12; (c) Inderpreet Singh Kahlon & Ors. Vs. State of Punjab & Ors.; AIR 2006 SC 2571, with special reference to Paragraph Nos.76 and 77; SCA/2616/2007 14/56 JUDGMENT (d) State of N.C.T. Of Delhi & Anr. Vs. Sanjeev alias Bittoo, AIR 2005 SC 2080, with special reference to Paragraph Nos.15 and 16; (17) Learned Advocate General appearing on behalf of the respondent authorities submitted in response to the last contention that the petitioner cannot claim to be put at par with a private employer considering the status of the Union which is a federal society. That under Section 4 of the Act for the purposes of registering a society, the object has to be promotion of the economic interests or general welfare of the members of the society or of the public, in accordance with the principles of co-operation. Therefore, according to him, the petitioner cannot claim that the petitioner is not answerable as to the details of process of recruitment. 17.1) During course of hearing one of the issues raised on behalf of the petitioner was that inquiry under Section 86 of the Act has been initiated and is pending and, therefore, the action under Section 76B of the Act for alleged breach of order under SCA/2616/2007 15/56 JUDGMENT Section 82 of the Act is not warranted. Learned Advocate General responded to the said submission by pointing out that both the provisions are independent of each other and Section 86 of the Act relates to inquiry into the constitution, working and financial conditions of the society; while, Section 82 of the Act pertains to acts and obligations of the society; but Section 76B of the Act, independent of Sections 82 and 86 of the Act, relates to power available under the statute for removal of an officer. That exercise of such powers under Section 76B of the Act was not dependent either upon completion or non-completion, namely, pendency of proceedings under one or the other provisions of the Act. 17.2) After reading extensively from the show cause notice it was submitted that the petitioner was specifically put to notice as to whether recruitment of as many as 461 persons was necessary, and whether it was in the interest of the Union ? 17.3) That the show cause notice came to be challenged before this Court and the High Court in its order SCA/2616/2007 16/56 JUDGMENT dated 09.10.2006 has merely observed that the preliminary issue be decided as such before adverting to other issues arising in the show cause notice. That there was no question of breach of the order dated 09.10.2006 as contended, because the High Court never directed that the authority should not decide the other issues. 17.4) Responding to the contention regarding violation of principles of natural justice it was submitted that the impugned order itself records, and the record establishes, that number of adjournments were granted as prayed for on behalf of the petitioner for responding to the show cause notice. 17.5) That merely because the service of the order was effected on 26.01.2007 that fact by itself could not establish that the order was passed in hot haste Considering the time taken from the date of the show cause notice, the number of adjournments granted, the number of replies filed by the petitioner, it was apparent that the order was passed after giving full and proper opportunity of hearing SCA/2616/2007 17/56 JUDGMENT and there was no haste made while passing the order. It was submitted that the Court was required to only examine as to whether there was haste made in the decision making process and not whether there was haste made in the service of the order. This submission was in response to the various authorities cited on behalf of the petitioner on this count. 17.6) Responding to the contention regarding non- applicability of provisions of Section 82 of the Act it was submitted that the scope of the provision had to be ascertained in the context of the setting of the provisions. That the said section appears in Chapter VII which pertains to management of societies and takes within its fold Sections 73 to 83 of the Act. Therefore, Section 82 cannot be read in isolation and even on a plain reading of Section 82(1) of the Act the details called for were very much amenable to the provisions and the exercise of powers was perfectly in order. SCA/2616/2007 18/56 JUDGMENT 17.7) That in fact the order under Section 82 of the Act had never been challenged and could not be the basis for assailing validity of the order made under Section 76B of the Act. 17.8) That the petitioner having submitted various replies could not be heard to state that the liability as regards recruitment was not of the petitioner but only of the Managing Director. This was in response to the contention raised on behalf of the petitioner by referring to the resolution dated 28.07.2005 made by the Union giving the power of recruitment of staff to the Managing Director. 17.9) It was also submitted that the petition need not to be entertained as alternative remedy under provisions of Section 155 of the Act was available to the petitioner. 17.10) Inviting attention to provisions of Section 76B of the Act it was submitted that the said provision was applicable (a) for the default of being negligent in performance of the duties imposed on the petitioner SCA/2616/2007 19/56 JUDGMENT by the Act, or the Rules, or the Bye-laws, (b) or for the default of doing anything which is prejudicial to the interest of the society. That the petitioner was in overall charge of the matters and had control as provided by Bye-law No.44 and, therefore, any default rendered him liable. 17.11) Responding to the last submission on behalf of the petitioner that the show cause notice did not provide for removal of the petitioner as a member director but was only in relation to his post as a chairman, learned Advocate General submitted that the show cause notice was specific in terms and referred to the petitioner, both as a member and as a chairman. 17.12) It was submitted that the petitioner had all along insisted on there being lack of jurisdiction with the respondent authority as, according to the petitioner, the Union was a Multi-State Co-operative Society, but factually this was not correct, as there was no evidence on record to show compliance with provisions of Section 22 of the MSCS Act; in fact the petitioner had failed to produce either certificate of SCA/2616/2007 20/56 JUDGMENT registration of the amendment or the certificate of registration of the society by the Central Registrar. 17.13) That the disqualification provided under Section 76B(2) of the Act was only a consequence of the order made under sub-section (1) of Section 76B of the Act. 17.14) Lastly, it was submitted that in the alternative, the authority was prepared to hear the petitioner on merits, if so directed by the Court. (18) In rejoinder Mr. Shelat, learned Senior Counsel, submitted that the show cause notice did not contemplate either removal as a member director or disqualification in exercise of powers under Section 76B(2) of the Act. Responding to the query which was put by the Court to the counsel as to whether while challenging order under Section 76B of the Act was it open to the petitioner to challenge the order under Section 82 of the Act, it was submitted that as laid down by the Apex Court in the case of M/s. Anantharam Veerasinghaiah & Co. Vs. Commissioner SCA/2616/2007 21/56 JUDGMENT of Income-tax, Andhra Pradesh, AIR 1990 SC 1146 in penal proceedings it was always open to challenge the quantum of assessment even if the assessment was not independently challenged. That the authority was bound to examine independently on his own the validity and correctness of the order under Section 82 of the Act before relying on such an order for the purpose of passing an order under Section 76B of the Act. That even order under Section 82 of the Act took into consideration the fact that under Bye-law No.50(7) of the Bye-laws, the obligation was that of the Managing Director to furnish the information called for and hence also, the petitioner could not be held liable. 18.1) Lastly reliance was placed on the observations made by this Court in Paragraph Nos.84, 85, and 86 in the case of Amreli District Co-operative Sale & Purchase Union Ltd. & Ors. Vs. State of Gujarat, 1984(2) GLR 1244. (19) The principal plank of challenge has been non- SCA/2616/2007 22/56 JUDGMENT availability of jurisdiction under Section 76B of the Act to the respondent authority because, according to the petitioner, the Union being a Multi-State Co- operative Society under the MSCS Act respondent No.1 authority was divested of his jurisdiction. For that purpose one may examine the requirement of the MSCS Act. Under Section 3 clause (a) defines “area of operation” to mean the area from which the persons are admitted as members. Section 4 of MSCS Act provides for appointment of the Central Registrar who is empowered to register a Multi-State Co-operative Society. As to which society can be registered as a Multi-State Co-operative Society is laid down in Section 5 of MSCS Act, and Section 6 provides for the modality for making an application for registration. Section 7 provides for registration, and after such registration is granted a registration certificate is to be issued by the Central Registrar under Section 8 of the MSCS Act. However, these provisions apply in the case of a society which is seeking registration per se under the provisions of MSCS Act. SCA/2616/2007 23/56 JUDGMENT (20) In case of a society which is already in existence and seeks conversion into a Multi-State Co-operative Society, Section 22 lays down the requirements. Under sub-section (1) of Section 22 of the Act, it is provided that a co-operative society may, by an amendment of its bye-laws, extend its jurisdiction and convert itself into a Multi-State Co-operative Society; but the proviso thereunder stipulates that the amendment