IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOTTATHIL B.RADHAKRISHNAN MONDAY, THE 9TH JUNE 2008 / 19TH JYAISHTA 1930 WP(C).No. 2732 of 2008(A) --------------------------------------- PETITIONER: ------------------- RAJEEV RAJAN, PREVIOUS PRESIDENT OF THE BOARD OF MANAGEMENT OF THE UDUMBANNOOR SERVICE CO-OPERATIVE BANK LTD. NO.E.93, UDUMBANNOOR P.O.,THODUPUZHA,IDUKKI DIST. BY ADV. SRI.P.V.BABY SRI.A.N.SANTHOSH RESPONDENTS: ------------------------- 1. THE UNIT INSPECTOR, UNIT 'C', OFFICE OF THE ASSISTANT REGISTRAR TO CO-OPERATIVE SOCIETIES (GENERAL), THODUPUZHA, IDUKKI DISTRICT. 2. THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), THODUPUZHA, IDUKKI DISTRICT. 3. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), IDUKKI. 4. ADMINISTRATOR/JUNIOR INSPECTOR 'C' UNIT, OFFICE OF THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), THODUPUZHA, IDUKKI DISTRICT. BY SPL. GOVERNMENT PLEADER SMT. A.G. ANEETHA THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 28/05/2008 ALONG WITH WPC.NO.6788 OF 2008, THE COURT ON 09/06/2008 DELIVERED THE FOLLOWING: Kss WPC.NO.2732/2008 A APPENDIX PETITIONER'S EXHIBITS: EXT.P1: COPY OF THE JUDGMENT DTD. 7/09/2007 IN WP(C) NO. 26350/2007 OF THIS HON'BLE COURT. EXT.P2: COPY OF THE NOTICE DTD. 7/11/2007 ISSUED BY THE 3RD RESPONDENT. EXT.P3: COPY OF THE SUB RULE FRAMED BY THE PETITIONER BANK. EXT.P4: COPY OF THE SUB RULE FRAMED BY THE PETITIONER BANK. EXT.P5: COPY OF PRESCRIBED FORM FOR ADMISSION TO THE PETITIONER BANK. EXT.P6: COPY OF CIRCULAR DTD. 11/09/2006 ISSUED BY THE IDUKKI DISTRICT CO-OPERATIVE BANK. EXT.P7: COPY OF CIRCULAR DTD. 27/10/2006 ISSUED BY THE IDUKKI DISTRICT CO-OPERATIVE BANK. EXT.P8: COPY OF CIRCULAR DTD. 17/07/2007 ISSUED BY THE REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM. EXT.P9: COPY OF CIRCULAR NO.7/2007 DTD. 27/01/2007 ISSUED BY THE REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM. EXT.P10: COPY OF CIRCULAR NO.10/2007 DTD. 5/2/2007 ISSUED BY THE REGISTRAR CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM. EXT.P11: COPY OF THE PROGRESS REPORT OF THE PETITIONER BANK. EXT.P12: COPY OF JUDGMENT IN WP(C) NO.34182 OF 2007 DTD. 26/11/2007 OF THIS HON'BLE COURT. EXT.P13: COPY OF EXPLANATION DTD. 10/12/07 SUBMITTED BY THE PETITIONER OF THE BANK BEFORE THE 3RD RESPONDENT. EXT.P14: COPY OF THE ORDER DTD. 16/01/2008 OF THE 3RD RESPONDENT. EXT.P15: COPY OF THE ORDER DTD. 16/01/2008 OF THE 3RD RESPONDENT. RESPONDENT'S EXHIBITS: EXT.R3(A): COPY OF THE REPORT SUBMITTED TO THE JOINT REGISTRAR DTD. 19/07/2007 & 12/09/2007. EXT.R3(B): COPY OF THE STATEMENT. EXT.R3(C): COPY OF THE SALES BILL DTD. 06/11/2006 OF THE GOOD WOOD INDUSTRIES. /TRUE COPY/ Kss P.S.TO JUDGE THOTTATHIL B. RADHAKRISHNAN, J. = = = = = = = = = = = = = = = = = = = = = = = = WP(C).Nos.2732/2008-A & 6788/2008-G = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 9th day of June, 2008. JUDGMENT 1.These writ petitions are filed challenging an order of supersession issued under Section 32 of the Kerala Co-operative Societies Act, 1969, hereinafter referred to as the “Act”. The petitioner in WP(C).2732/2008 was the President and the petitioners in WP(C).6788/2008 were the members of the committee that was superseded as per the impugned order. Two members of the society have been impleaded as additional respondents on their application in WP(C). 6788/2008. Counter affidavit is filed by the official respondents in WP(C).2732/2008. 2.The materials are referred to hereinafter on the WP(C)2732 & 6788/08 -: 2 :- basis of the paper book in WP(C).2732/2008. 3.Going by the counter affidavit, one Mr.Benny Sebastian and one Mr.K.J.Devasia, members of the society, filed certain petitions on the basis of which the Joint Registrar directed the second respondent Assistant Registrar to conduct an enquiry. The Assistant Registrar submitted a report on 19-7-2007. On 7-11-2007, Ext.P2 notice to show cause against proceedings under Section 32 was issued. The President of the committee submitted Ext.P13 reply dated 10-12-2007 and the impugned supersession order Ext.P14 was issued on 16-1-2008, followed by Ext.P15 order by which an administrator was appointed. 4.The petitioners contend that the explanations offered through Ext.P13 have not been considered at all, at any rate, there was no objective consideration of those objections as envisaged in proceedings under Section 32 of the Act. It is WP(C)2732 & 6788/08 -: 3 :- their contention that the inspection conducted by the Assistant Registrar was with the only motive of creating a material for supersession and that the said report and the procedure adopted in that inspection are wholly contrary to the relevant statutory provisions and therefore, that report could not have been relied upon to pass the impugned order under Section 32. The inspection is criticized as one conducted in total violation of the relevant statutory provisions. Ext.P2 notice is further impugned as vague and actuated only by political influence and also as one issued without consideration of relevant materials. Different allegations made in Ext.P2 notice are made subject of criticism in WP(c). 6788/2008 with specific reference to detailed facts and it is contended that the impugned proceedings are actuated by malafides and are merely issued to satisfy the political dictates of superiors. The impugned Ext.P14 is further criticised as one rendered contrary to law in as WP(C)2732 & 6788/08 -: 4 :- much as there was no reasonable or sustainable ground to forgo consultation with the financing bank and the Circle Co-operative Union and the reasons stated in Ext.P14 in support of the non- consultation are unsustainable. 5.The counter affidavit of the third respondent refers to certain materials on the basis of which the impugned decision was taken, including a statement as regards the outstandings due under hire purchase loan transactions. 6.Heard learned counsel for parties. 7.I shall first deal with the question of consultation with the Circle Co-operative Union and the financing bank. Sub-section (2) of Section 32 provides that before passing an order under sub-section (1) removing the committee from office, the Registrar shall consult the financing bank and the Circle Co-operative Union or the WP(C)2732 & 6788/08 -: 5 :- State Co-operative Union, as the case may be. Sub-section (3) provides that notwithstanding anything contained in sub-section (1) or sub- section (2), it shall not be necessary to give an opportunity to the committee to state its objections and to consult the Unions and financing banks, in cases where the Registrar is of the opinion that it is not reasonably practicable to do so. This provision is essentially a proviso to the contents of sub- section (1) of Section 3, which provides for pre- decisional notice and hearing and also to the provision in sub-section (2) regarding consultation. Sub-section (2),in its terms, is mandatory in as much as the legislation says that the “Registrar shall consult”. But for sub- section (3), the provisions in sub-section (1) of Section 32 to give the committee an opportunity to state its objections are also mandatory. It is hence that it is stated in sub-section (1) of Section 32 that “.......after giving the WP(C)2732 & 6788/08 -: 6 :- committee an opportunity........”. The words “he may” occurring immediately preceding that, only indicate the discretion that the Registrar has, to proceed or not. Therefore, the quality of reasons on which consultation with the financing bank and the Union, mandated by sub-section (2) of Section 32, is not much different from those grounds on which the pre-decisional opportunity of notice and hearing under sub-section (1) of Section 32 could be dispensed with. In the case in hand, going by the counter affidavit, Mr.Benny Sebastian submitted his petition on 28-12-2006 and Mr.K.J.Devasia submitted his petition on 20- 1-2007. Ext.R3(a) report of the Assistant Registrar is dated 19-7-2007. No steps are shown to have been taken by the official respondents, calling upon the society to rectify any defect noticed during the inspection or to take any steps or actions on the basis of the findings in Ext.R3(a) inspection report dated 19-7-2007. Nearly 3½ months thereafter, on, 7-11-2007, WP(C)2732 & 6788/08 -: 7 :- Ext.P2 notice is issued fixing 28-11-2007 as the date to submit objections and hearing in relation to the proposal for supersession under Section 32. It also needs to be noticed that even with Ext.R3(a) inspection report dated 19-7-2007 on record, the submission made on 7-9-2007 before this Court was that if there is any intention to supersede under Section 32, that will be done only after issuance of notice and hearing, unless circumstances arise where such notice is to be dispensed with. It was also submitted on that day before this Court that as of then, there was no move to supersede under Section 32 of the Act. This is recorded in Ext.P1 judgment. Thereafter, it was only on 7-11-2007 that Ext.P2 notice for proceedings under Section 32 is issued, i.e., after two months. Ext.P13 objections dated 10-12- 2007 were referred to and the impugned Ext.P14 order is issued only on 16-1-2008 after a personal hearing on 2-1-2008. Consultation enjoined by sub-section (2) of Section 32 cannot WP(C)2732 & 6788/08 -: 8 :- be made an empty formality. The provision in sub- section (3) of Section 32 that if the Registrar is of the opinion that it is not reasonably practicable to do so, it shall not be necessary to give an opportunity to the committee to state its objections and to consult the Unions and financing banks, is no authority to do away with either the opportunity of pre-decisional hearing or consultation merely by saying that it is not expedient to do so. The formulation of opinion by the Registrar under sub-section (3) of Section 32 is a statutory exercise. Such opinion has to be an opinion in terms of law. Reason and rationale are the core foundations for the exercise of formulation of an opinion by a statutory authority. Here, the repository of power is a high office and the power is to take away a right in relation to a statutory procedure in the nature of Section 32, which results in drastic consequences. The only reason stated in Ext.P14 order to dispense with consultation with the WP(C)2732 & 6788/08 -: 9 :- financing bank and the Circle Co-operative Union is that it may take time to seek and obtain the opinion of the Circle Co-operative Union and the financing bank. As already noticed, the proceedings germinated by two petitions made on 28-12-2006 and 20-1-2007 and Ext.R3(a) inspection report dated 19-7-2007 led to the issuance of Ext.P2 notice under Section 32 only on 7-11-2007, that too, after stating on 7-9-2007 before this Court that no proceedings under Section 32 was then contemplated. In the nature of the allegations against the committee as are contained in Ext.P2 and the quality of reply given by the President in the form of Ext.P13, many of them related to allegations regarding the lending and collection of outstandings. The decision to do away with the consultation with the financing banks and the Circle Co-operative Union is taken for the first time by issuing the impugned order Ext.P14 on 16-1-2008. The mere statement in Ext.P14 that it may take time to WP(C)2732 & 6788/08 -: 10 :- seek and obtain the views of the financing bank and the Circle Co-operative Union, in the case in hand, strikes at the very legislative object of Section 32(2). The power to dispense with such consultation has to be exercised only when it is not reasonably practicable to do so and such opinion has to be based by the Registrar on the totality of the facts. If even after Ext.R3(a) report, the proceedings could drag on till 16-1- 2008, that too, after affording the committee an opportunity of pre-decisional hearing, it is unjust, irrational and unreasonable to state that there was no time to seek and obtain the opinion of the authorities to be consulted in terms of Section 32(2). If the reason offered in the last paragraph of the impugned Ext.P14 to abstain from consultation is accepted, that is a reason that could apply to all cases rendering sub-section (2) of Section 32 nugatory. 8.In considering whether Ext.P14 has been issued on WP(C)2732 & 6788/08 -: 11 :- an appropriate consideration of the objections contained in Ext.P13, this Court cannot sit in judgment as if it is sitting in a statutory appeal against Ext.P14 order. The parameters of judicial review under Article 226 of the Constitution of India would advise that on disputed questions of facts, interference may not be called for except in exceptional situations of glaring illegality. It has also to be borne in mind that Section 83 of the Act provides a right of appeal and such alternative remedy is explained by the petitioners as not available on account of different reasons, including that the same is not an efficacious remedy, having regard to the nature of the decision-making process that has led to the impugned Ext.P14. It is also alleged that in view of the political combination of the Government in power, it would be a futile exercise for the petitioners belonging to an opponent political faction to go for statutory appeal. While it may not be necessary or WP(C)2732 & 6788/08 -: 12 :- advisable for this Court to uphold the plea of the petitioners that the alternative remedy is not efficacious because of the political identity of the Government, it has to be found whether Ext.P14 is delivered following the due process and whether the same satisfies the constitutional and statutory bench marks as to exercise of the statutory power contained in Section 32 of the Act. 9.With the aforesaid position of law in mind, I proceed to refer to the contentions on facts to appreciate the quality of consideration and disposal that has resulted in Ext.P14. Ext.P2 notice contained 10 grounds on which reply was called for, from the committee. Ext.P13 contains the reply in answer to those allegations. A)Ground 1 in Ext.P2 notice relates to allegations regarding advances made in hire purchase transactions. In its gist, the allegation is that WP(C)2732 & 6788/08 -: 13 :- proper quotations, cash bills etc. were not found with the seal or signature of the vendor and that many of the transactions from the Udumbannoor branch were through one establishment by name “Good Wood Industries” in the name of the husband of the woman member of the committee. Though it is also stated that the relevant subsidiary rules have been violated in the matter of the hire purchase transactions, no specific provision is pointed out in the notice. An amount of Rs.21,55,335/- is stated to have been distributed between June, 2006 and September, 2006 and it is alleged that this has resulted in mismanagement. In answer to that allegation, it is stated in Ext.P13 that the husband of the woman member of the committee is a permanent employee of K.S.R.T.C. and he does not run any establishment as alleged in the notice and that the allegation in the notice is based on certain frivolous complaints made by some interested persons. It is asserted in the reply that the hire purchase WP(C)2732 & 6788/08 -: 14 :- transactions have been entered into in terms of Decision No.152 dated 23-8-2004 approved by the Joint Registrar on 4-5-2005. Admitting that until 30-9-2006, an amount of Rs.21,55,335/- has been extended in the hire purchase sector, it is asserted repeatedly that such transactions have been made strictly in accordance with the subsidiary rules and that there is no misuse of funds, having regard to the total deposits available. Turning to the impugned Ext.P14, all that is stated in relation to this is that the explanation given by the committee in relation to the hire purchase loans is against the facts and unsustainable. There is no further consideration, nor finding based on the specific answer in the reply. Still further, no particular rule or subsidiary rule as approved by the Joint Registrar on 4-5-2005 (relied on by the petitioners in Ext.P13) is pointed out, at least, to make out a case of violation of rules. WP(C)2732 & 6788/08 -: 15 :- B)The next allegation in Ext.P2 is regarding transactions of trade loans. The allegation appears to be that trade loans have been granted in favour of persons who do not have any trade or trade licence and that the same is against the interest of the bank and that an amount of Rs.3,50,000/- has been given as loans in that sector. In Ext.P13, the petitioners have replied to that allegation by stating that the trade loans have been issued in terms of the provisions in Decision No.266 of the committee dated 4-4- 2003 approved by the Joint Registrar on 19-7-2003 and that the allegation that loans were given for persons without licences is unsustainable because, it would be too technical to refuse loans in January and February merely on the ground that panchayat licence to conduct the business is due to expire in March. There is no consideration in Ext.P14 of the plea taken by the petitioners or regarding the terms of the decision of the committee regarding trade loans WP(C)2732 & 6788/08 -: 16 :- which were approved by the Joint Registrar. One sentence in Ext.P14 is that the explanation regarding trade loans is not satisfactory. C)The third allegation in Ext.P2 is that without prior sanction of the Registrar and in violation of the approved sub-rules, the bank purchased lockers spending Rs.1,43,000/- resulting in huge loss and that the same amounts to mismanagement of funds. The answer in Ext.P13 to that allegation is that the provision for lockers was decided upon by the committee taking into consideration, the consistent demands of the members of the society, which is a co-operative bank and that there is no provision in the Act or Rules requiring the society to obtain special sanction of the Registrar for purchase of movables. It is asserted in the reply that even then, all necessary precautions and procedures have been undertaken as is expected from a public body in the matter of purchase of lockers. In WP(C)2732 & 6788/08 -: 17 :- Ext.P14, all that is stated in this regard is that the reply given in relation to self deposit lockers cannot be accepted. D)Another allegation is that during the period of Onam, 2006, in July and August the society conducted a loan mela with the junction of one Lakshmi Traders, an establishment in Thrissur while bills, quotations etc. used in that loan mela were issued by establishments in Thodupuzha and Udumbannoor and that the loans were issued in violation of the subsidiary rules. It is alleged that the committee did not examine the issuance of such loans amounting to Rs.21,55,335/- and that in holding the loan mela and in distributing loans, widespread corruption and financial irregularities have been committed, leading to loss of funds of the bank. In Ext.P13, the petitioners have replied that the bank had never conducted any loan mela either with the establishment mentioned in Ext.P2 or with any WP(C)2732 & 6788/08 -: 18 :- other establishment and that in answer to allegation No.1, appropriate reply has been given that hire purchase transactions have been appropriately entered into in terms of the sub rules. It was also stated in Ext.P13 reply that the allegation regarding the alleged loan mela is superficial and if specific matters are pointed out, further reply could be given. As is in the case of other allegations, the solitary statement in Ext.P14 regarding the loan mela is that the loan meal was held by the committee against facts (വസവ വര ദ ) and illegal and therefore, the explanation of the committee is not acceptable. E)The next allegation in Ext.P2 that persons were employed on daily wages contrary to the provisions in the circular issued by the Registrar and there was, thus, mismanagement of funds was captioned by stating that wages are being given for those sent for training. In reply to this allegation, the petitioners stated in WP(C)2732 & 6788/08 -: 19 :- Ext.P13 that the bank had not sent anybody for training and no wages were given to any such person. It is stated in Ext.P13 that since the daily work of the bank fell in arrears, certain persons were engaged on contract basis to finish such work and they were paid in terms of the decision of the committee. It was also stated that this procedure is being adopted by different banks under the jurisdiction of the same Joint Registrar. Certain facts and figures regarding the total collections, outstandings etc. referable to different dates are also stated in the reply touching that issue, to ultimately state that the situation only shows prompt and effective administration by the committee, rather than mismanagement. In the impugned Ext.P14, the only statement in this regard is that the said explanation is not acceptable and that it has been done ignoring the circular of the Registrar and resulting in depleting the funds of the society. WP(C)2732 & 6788/08 -: 20 :- F)It is alleged that out of around 300 applications for membership considered during the term of the committee, in a very few number of applications the date of birth of the applicant is not recorded; instead, it was recorded as 18 years. Because it is illegal to give membership to a minor, it is alleged that there is abuse of authority. In answer, in Ext.P13, the petitioners stated that if any applicant has come showing the age of the applicant as 18 years and recommended by the member of the committee, the same was duly considered and allowed upholding the values of co-operative laws and that if any specific instance of a minor having been given a membership is pointed out, further action will be taken by the committee. The view in Ext.P14 in this regard is only that the reply is contrary to facts and baseless. G)The next allegation is that interest was being WP(C)2732 & 6788/08 -: 21 :- levied for agricultural loans at rates in excess of those dictated by the Registrar through circulars. No specific case was pointed out in Ext.P2 notice. In Ext.P13, the petitioners replied that interest for agricultural loans was being levied only at rates in terms of the circulars of the Registrar and also the conditions imposed by the financing banks. It is also specifically stated in Ext.P13 that no specific instance has been noticed by the Enquiry Officer, namely, the second respondent and that the allegation is only at the instance of certain actuated individuals. In the impugned Ext.P14, all that is stated is that the reply of the society on the question of agricultural loans is not satisfactory. H)In Ext.P2, it is further alleged that excess interest is being paid to the depositors in violation of the directions of the Registrar issued through circulars. Two instances are WP(C)2732 & 6788/08 -: 22 :- pointed out in the notice where it is alleged that interest at the rate of 8.75% was granted instead of 8% and it is alleged that it amounts to misuse of the funds. In Ext.P13, the petitioners refuted the allegations regarding payment of excess interest. As regards the two specific instances pointed out in Ext.P2, it was stated that revised interest rates were issued as per the circulars of the Registrar even during the currency of the deposits in question. All that is stated in Ext.P14 about this is that the reply is not satisfactory. I)The next allegation in Ext.P2 is regarding the functioning of a neethi store run by the society. It is alleged that from 1-4-2007 to 30-6-2007 when goods for Rs.43,225/- were purchased in the neethi store category, goods of non-neethi category were purchased to the tune of Rs.1,02,526.30 and such purchase in the non- neethi sector was to help private individuals and WP(C)2732 & 6788/08 -: 23 :- that the same is against law. resulting in maladministration. In reply, the petitioners stated in Ext.P13 that the bank was running a consumer store from 1980, for the benefits of its members and later, when the neethi sector project was brought in by the Government, the bank had to provide goods which were not available through the neethi sector, for sale through the consumer store. It is stated that the reason for