IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE THURSDAY, THE 15TH FEBRUARY 2007 / 26TH MAGHA 1928 WP(C).No. 29409 of 2005(A) -------------------------- PETITIONER: ------------ THE FACT MANAGERIAL STAFF HOUSE CONSTRUCTION CO-OPERATIVE SOCIETY, LTD.NO.E.243, SANTHINAGAR ANNEXE, RAJAGIRI.P.O., SOUTH KALAMASSERY-683 104, REP. BY ITS SECRETARY, M.K.PARAMESWARANKUTTY MENON. BY ADV. SRI.P.SANTHALINGAM SRI.S.SHARAN RESPONDENTS: ------------- 1. STATE OF KERALA, REP. BY SECRETARY TO GOVERNMENT, CO-OPERATIVE DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. 2. REGISTRAR OF CO-OP. SOCIETIES, O/O.THE REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM. 3. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), ERNAKULAM. ADDL 4. PAUL P.K., S/O.P.O.KUNJUVAREED, AGED 42 YEARS, PAREKADON HOUSE, KORATTY EAST PO., TRICHUR. WPC.29409/05 ADDL. 5. T.J.SUNNY, S/O.T.P.JOSEPH, AGED 32 YEARS, RESIDING AT THANNIKOT HOUSE, KUMBALAM PO., KOCHI-682506. ADDL.RESPONDENTS 4 AND 5 IMPLEADED AS PER ORDER IN I.A.NO.17336/05 DT.12.12.05 R1 TO R3 BY GOVT.PLEADER SRI.MATHEW G.VADAKKEL ADDL.R4 & R5 BY SR.ADV. SRI.L.NAGESWARA RAO ADV.SRI.TOM JOSE THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 15/02/2007, ALONG WITH WPC NO. 34130 OF 2005 & WPC NO. 31927 OF 2005, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- PIUS C. KURIAKOSE, J. .......................................................... W.P.(C) No.29409, 31927 & 34130 OF 2005 ........................................................... DATED THIS THE 15th FEBRUARY, 2007 J U D G M E N T W.P.(C)No.29409 of 2005 has been filed by the FACT Managerial Staff House Construction Co-operative Society, arraying the State, the Registrar of Co-operative Societies and the Joint Registrar of Co- operative Societies (General), Ernakulam as respondents 1 to 3, seeking a writ of certiorari to quash Ext.P13 order dated 10.8.2005 of the 3rd respondent-Joint Registrar appointing an enquiry officer for the conduct of enquiry under Section 68(1) of the Kerala Co-operative Societies Act (hereinafter referred to for short as 'the Act') on the basis of the report of an enquiry under Section 65 of the Act. 2. W.P.(C)No.34130 of 2005 is filed by the Secretary of FACT Ministerial Staff Housing Co-operative Society New Housing Colony Members' Association arraying as many as 12 respondents. The 1st respondent is the State; 2nd, 3rd and 4th respondents are the Registrar of Co-operative Societies, the Joint Registrar of Co-operative Societies and the Unit Inspector in the Office of the Assistant Registrar of Co- operative Societies; 5th respondent is the Society itself; 6th respondent is a sick industrial company by name Sudarsan Clay and Ceramics Ltd. whose scheme for revival is said to be pending before the BIFR; the WP(C)N0.29409 of 2005 etc. -2- 10th respondent is a concern by name Safe Care Associates and it is stated that as authorised by the BIFR, the 6th respondent has executed an agreement of understanding with the 10th respondent for sale of 15 acres of land belonging to the 6th respondent in favour of the 10th respondent. But that agreement was terminated since the 10th respondent could not pay the second instalment of advance amount as promised. Thereafter, after complying with the legal formalities, a pucca agreement for sale was executed in respect of that property with the 5th respondent-Society which paid a sum of Rs.2 Crores towards advance consideration. It is also stated that in furtherance to the agreement of sale, an extent of 2.60 acres stands already conveyed to the Society. The 9th respondent is the Chief Executive Officer of the 10th respondent; 7th and 8th respondents are described as benami agents set up with ulterior motives and it is stated that they are close associates of the 10th respondent; 11th and 12 respondents are respectively the Branch Managers of the Federal Bank in its Banerji Road Branch and Panampilly Nagar Branch. The Writ Petition has been instituted for a writ of certiorari to quash Ext.P5 enquiry report submitted by the 4th respondent (the enquiry report under Section 65 of the Act) to the 3rd respondent and to direct the 1st respondent to WP(C)N0.29409 of 2005 etc. -3- conduct an enquiry against the conduct of respondents 3 and 4. There is also a prayer that the proceedings initiated by respondents 3 and 4 against the 5th respondent are without jurisdiction and are vitiated by patent illegalities. 3. W.P.(C)No.31927 of 2005 has been filed by one P.K.Paul and T.J.Sunny (respondents 7 and 8 in W.P.(C)No.34130 of 2005) arraying the State, the Registrar of Co-operative Societies, the Joint Registrar of Co-operative Societies and the Assistant Registrar of Co-operative Societies as respondents 1 to 4. The 5th respondent is the Society itself and the 6th respondent is Sudarsan Clay and Ceramics Ltd. The de facto petitioner in W.P.(C)No.34130 of 2005 has been impleaded subsequently as additional 7th respondent. The prayers in this Writ Petition are for a writ of mandamus commanding respondents 1 to 4 to take urgent and necessary action including surcharge proceedings against the 5th respondent, after removing the present Director Board from the administration of the 5th respondent-Society and hand over the same to an administrator in the light of Ext.P10 enquiry report (the report under Section 65 of the Act relied on in Ext.P13 impugned in W.P.(C)No.29409 of 2005) and for a writ of mandamus commanding respondents to refund the advance amounts collected in full vide WP(C)N0.29409 of 2005 etc. -4- Ext.P1 circular published by the 5th respondent-Society in the context of application for membership and application for allotment of plots within a time frame and the balance amounts be ordered to be recovered from the office-bearers of the 5th respondent-Society in the light of Ext.P10 enquiry report. The other prayers in the Writ Petition are for a direction to the 5th respondent-Society to compensate the petitioners for the loss sustained by them towards legal expenses incurred on account of various proceedings initiated leading to Ext.P10 and for a direction to respondents 1 to 4 to take follow-up action on the basis of Ext.P10 report. 4. I shall refer to the facts as stated by the petitioner in W.P.(C) No.29409 of 2005, the FACT Managerial Staff House Construction Co- operative Society (hereinafter referred to as 'the Society'). The Society is a renowned Housing Society which had already set up 4 housing colonies in Kalamassery area. It was late M.K.K.Nair IAS, the first Chairman and M.D. of FACT who took the initiative for starting the Society and he was the first member of the society. It is stated that the Society took steps following normal proceedings for the commencement of a new housing colony. Ext.P1 produced in the Writ Petition is true copy of the annual report of the Society for the year WP(C)N0.29409 of 2005 etc. -5- 2000-01 approved by the Director Board on 13.2.2002 which shows that the Society was planning to have a new housing colony and that the General Body approved the report. Ext.P2 is the true copy of decision No.7 dated 3.6.2004 taken by the Society. This will show that further action for commencement of the new housing colony is being taken. The move gained momentum by 2004 and that was why Ext.P2 decision was taken by the Board of Directors of the Society to purchase 15 acres of land belonging to M/s.Sudarsan Clay and Ceramics Ltd. (the 6th respondent in W.P.(C)34130 of 2005) which will hereinafter be referred to as SCCL. SCCL was referred to BIFR vide case No.173/89 and BIFR by its order dated 15.10.2003 permitted SCCL to sell 15 acres of land to clear the outstanding liabilities so that the Company may be able to revive. SCCL entered into an agreement dated 30.12.2003 with M/s.Safe Care Associates (10th respondent in W.P.(C)No.34130 of 2005) (hereinafter referred to as 'SCA'), a real estate partnership firm for the sale of land at the rate of Rs.24,000/- per cent. After paying some advance money, SCA failed to pay the balance consideration within the stipulated time. While trying to get a new purchaser, SCCL, as requested by SCA, extended the time for final payment by one month. But SCA could not pay the balance WP(C)N0.29409 of 2005 etc. -6- consideration which led to cancellation of the agreement by written communication dated 7.6.2006. Thereafter, negotiations for sale of the land to the Society took place. Ext.P3 dated 16.6.2004 is copy of letter issued by SCCL to the Society. Ext.P3 will show that there is acceptance of the offer of purchase of land from SCCL.. Ext.P4 dated 15.6.2004 is copy of decision No.2 of the Board of Directors of the Society which will show that decision was taken for starting a new housing colony in a transparent manner. Ext.P5 is copy of Circular No.New HC/FMS/01/04 dated 17.6.2004 issued by the Society. This circular gives the details of the proposal for new housing colony and the requirements of paying advance amounts towards purchase and development of the land and all allied matters. Ext.P6 is copy of agreement dated 7.7.2004 for purchase of land entered into between SCCL and the Society. Ext.P6 will show that a sum of Rs.2 Crores was paid by the Society as advance. Pursuant to Ext.P6, an extent of 2.60 acres of land was conveyed to the Society and Ext.P7 is copy of sale deed dated 14.7.2004. The Society alleges that P.K.Paul and T.J.Sunny (petitioners in W.P.(C)No.31927 of 2005) approached the Society pretending to be interested to become members of the Society and to book house plots. They submitted applications for membership WP(C)N0.29409 of 2005 etc. -7- and letters requesting for reservation of house plots in the proposed colony. Cheques drawn on the Federal Bank for Rs.4.35 lakhs and Rs.3 lakhs were also handed over. But when these crossed cheques were presented for collection, both the cheques were returned with the remark that stop memos had been issued by the drawers Paul and Sunny. The meeting of the Board of Directors of the Society held on 1.7.2004 considered the membership application of Sri.Paul and decided to refuse membership and the decision was communicated to him by letter dated 26.7.2004. Similarly, membership application submitted by Sri.T.J.Sunny was also rejected on the same day and he was also informed regarding the said decision by letter dated 26.7.2004. It is stated that neither of them have so far questioned the decision of the Society to reject membership to them, a decision which was taken in accordance with Clause 7 of the byelaws of the Society. The Society refers to Exts.P2 and P3 documents produced in W.P.(C)No.34130 of 2005 (copies respectively of the complaint submitted by SCA and the partnership deed pertaining to SCA) to contend that Paul and Sunny are agents or employees of SCA which is a real estate firm. The petitioner-Society contends that after termination of the agreement for sale which SCA was previously WP(C)N0.29409 of 2005 etc. -8- having with SCA, SCA have no right at all to question the agreement dated 7.7.2004 entered into between the Society and the SCCL. But typical of the modus operandi of the land mafia in Kerala, SCA, it is alleged, took several coercive steps for blocking implementation of the petitioner's agreement with SCCL. A false complaint was submitted by Mr.Paul and Mr.Sunny at the behest of SCA against the Society before the Co-operative Department. Ext.P2 document produced in W.P.(C) No.31927 of 2005 is copy of the complaint submitted by them on 28.6.2004 before the Joint Registrar of Co-operative Societies, Ernakulam and the Assistant Registrar. Without even giving a few days' time to the Joint Registrar for enquiring into the complaint, they filed W.P.(C)No.19511 of 2004 before this Court, levelling what is described as false and wild allegations against the Society. W.P.(C) No.19511 of 2004 which was filed on 30.6.2004 was disposed of on 2.7.2004 without notice to the Society at the admission stage itself. Ext.P3 produced in W.P.(C)No. 31927 of 2005 is copy of that judgment. Under Ext.P3 this Court directed the Joint Registrar to ensure that appropriate follow up actions are initiated within a period of 14 days of receiving a copy of the judgment, however cautioning that principles of natural justice should be complied with. SCA filed WP(C)N0.29409 of 2005 etc. -9- O.S.252 of 2004 before the Subordinate Judge's Court, North Paravur and obtained an interim injunction against the Society and the SCCL. Thus, the implementation of the agreement dated 7.7.2004 between the Society and SCCL was blocked. Ext.P8 produced by the petitioner is copy of order No.HM/3793/04 dated 10.9.2004 issued by the 3rd respondent to the petitioner. Under Ext.P8 the entire land transaction is stayed by the Joint Registrar of Co-operative Societies (General). The petitioner-Society contends that but for Ext.P8 order and the injunction order passed by the civil court, the entire land transaction could have been completed within the fixed time itself. The second instalment of Rs.1.50 Crores was already deposited with the State Bank of India and payment and execution of sale deed as per the terms of the agreement could have been easily done before 7.8.2004 itself as per the terms of the agreement. Ext.P9 produced by the petitioner-Society is copy of order No.HM/3793/04 dated 30.9.2004 issued by the 3rd respondent. Under Ext.P9, an enquiry under Section 65 of the Act is ordered on the basis of the complaint submitted by Sri.P.K.Paul and T.J.Sunni. The petitioner contends that Sri.Paul and Sri.Sunny were two strangers. Their application for membership having been rejected by the Board of Directors of the Society and that WP(C)N0.29409 of 2005 etc. -10- order of rejection having attained finality, the new Joint Registrar has passed Ext.P9 without bothering to hear the petitioner on the real facts and has acted hastily. The Society filed W.P.(C)No.29482 of 2004 before this Court impugning Ext.P9. That Writ Petition and W.P.(C) 27807 of 2004 filed by Sri.P.K.Paul and Sri.T.J.Sunny were disposed of by a Division Bench by a common judgment. Ext.P10 is copy of that common judgment. Under Ext.P10, the Division Bench agreed with the contention of the Society that the Joint Registrar cannot pass an interim order though he is empowered to conduct an enquiry and in the circumstances of the case Ext.P9 order was set aside. Enquiry was allowed to be continued and it was ordered that petitioners in both the Writ Petitions should be given notice and the Society should be permitted to take whatever defence it wants to. The Society and the impleaded parties were permitted to plead non-maintainability of the petitions. The Joint Registrar was directed to pass orders finally after considering all the objections and the files placed by the parties. The petitioner-Society states that its Managing Committee members were asked to attend a hearing in connection with the enquiry in April, 2005 before the Unit Inspector of Co-operative Societies, Maradu. On coming to understand that the Unit Inspector has submitted a report to WP(C)N0.29409 of 2005 etc. -11- the 3rd respondent, the Society requested for a copy of that report from the 3rd respondent. Ext.P11 is copy of that request. The Society submits that till date no reply has been received by the Society. Even the copy of the enquiry report was not furnished to the Society for months. The contesting parties in Ext.P10 judgment preferred SLP before the Supreme Court of India and obtained Ext.P12 order directing that the disputed properties shall not be sold until further orders. The 3rd respondent-Joint Registrar has, on 10.8.2005, relying on the report of the enquiry officer ordered that surcharge proceedings must be initiated against the members of the Managing Committee under Section 68 of the Co-operative Societies Act, accepting the finding in the report that the land purchase deal was vitiated by illegalities and resulted in loss to the Society. Ext.P13 is copy of that order. Ext.P14 is copy of the enquiry report dated 25.4.2005 which was received by the petitioners only during the first week of November, 2005. The petitioner contends that the particulars mentioned in the report are totally incorrect and that such a report has been filed only on mala fide considerations. They claim that they have already disproved each and every allegation contained in Ext.P14 and that the motive behind raising the very same allegations WP(C)N0.29409 of 2005 etc. -12- again is to squeeze and ruin a housing society and thereby promote the interests of a real estate group. It is contended that the conclusions in Ext.P14 are perverse and that such conclusions have been entered only with the objective of helping the business venture of M/s.Safe Care Associates. Impugning Exts.P13 and P14 on various grounds, the petitioner prays in W.P.(C) No.29409/2005 that Ext.P13 be quashed and it be declared that no proceedings can be initiated against the petitioner under Section 68 of the Co-operative Societies Act. 5. As already indicated, W.P.(C) No.34130/2005 is field by an association of the members of the Society and the prayers in that writ petition are to quash the enquiry report and also for a declaration that the proceedings initiated by the Joint Registrar and by the Unit Inspector against the Society are vitiated by patent mala fides and thereby protect the interests of the members of the petitioner- association who have already advanced about Rs.3.8 Crores towards cost of 15 acres of land. W.P.(C) No.31927/2005 is filed by Sri.P.K.Paul and T.J.Sunny seeking a writ of mandamus directing respondents 1 to 4 in that writ petition, viz., the State of Kerala, the Registrar, the Joint Registrar and the Assistant Registrar, to take WP(C)N0.29409 of 2005 etc. -13- urgent and immediate action including surcharge proceedings against the Society after removing the present Director Board from the administration and hand over the same to an administrator in the light of the enquiry report. Further prayer in that writ petition is that the Society be directed to refund advance amount collected in full and grant interest on the same in a time-bound manner and the deficiency in the payment of the principal amount with interest be ordered to be recovered from the office bearers of the Society who are signatories to the circular. There is yet another prayer to direct the Society to compensate the loss sustained by the petitioners by way of legal expenses. 6. No counter affidavit is seen filed by any of the respondents in W.P.(C) No.29409/2005. But in W.P.(C) No.34130/2005 Sri.P.K.Paul and T.J.Sunny have filed a counter affidavit to the additional affidavit dated 19.10.2006 filed by the writ petitioner. Through that counter affidavit they answer the averments in the writ petition particularly the allegations which are directed against them. Ext.R7(a), a copy of the account statement relating to the account maintained by Sri.P.K.Paul, is relied on. Excerpt from the enquiry report is relied on to contend that the Society had been adopting double standards in the WP(C)N0.29409 of 2005 etc. -14- matter of giving membership to persons residing outside the area of the Society. Ext.R7(b), a copy of the voters list, is also relied on to substantiate the contention that persons residing outside the area of the operation of the Society have been given membership while the membership has been denied to the 7th and 8th respondents. It is stated that the Writ Appeal preferred by Sri.P.K.Paul and Sri.T.J.Sunny against the common interim order passed by this court in I.A. No.428/2006 in W.P.(C) No.31927/2005 was jointly considered with I.A. No.1073/2006 in W.P.(C) No.34130/2005. It is contended that the petitioner has suppressed the fact that the Division Bench had left open the right of respondents 7 and 8, the appellants in the writ appeal to raise the grounds raised in the writ appeal in the writ petition itself which was pending. This counter affidavit proceeds to justify the enquiry report and the surcharge proceedings proposed under Section 68 of the Act. The signatory to the writ petition is described as a proxy of the Society. 7. In W.P.(C) No.31927/2005, the Society has filed a detailed counter affidavit denying the allegations and refuting the grounds. The 6th respondent in that case, viz. SCCL, has filed a counter affidavit through Sri.T.P.Muralidharan,its Director. It is contended therein that WP(C)N0.29409 of 2005 etc. -15- even though no reliefs are claimed against the 6th respondent, the counter affidavit has been filed only for clarifying the stand of the 6th respondent company regarding the agreement for sale which was entered into with the Society. Inter alia it is contended that the 6th respondent on becoming a sick industrial undertaking as defined in the Sick Industrial Companies (Special Provisions) Act 1985 made a reference to the BIFR, pursuant to which case No.173/89 was registered and enquiry as contemplated in the said Act was ordered. Under the orders of the BIFR, the operating agency prepared a scheme for the rehabilitation of the company and was approved by the BIFR on 25.1.2002. This scheme inter alia provided for disposal of 5 acres of land belonging to the company for settlement of its liability. However, as the funds so generated would not have been sufficient for liquidating the liability, a modified scheme was prepared and was approved by the BIFR on 15.10.2003 which among others, permitted disposal of 15 acres of land belonging to the company. Pursuant to that, tenders were invited and the offer made by Safe Care Associates (SCA) Cochin being the highest bidder was accepted by the company and the same was approved by the BIFR. But agreement for sale executed between SCA and SCCL, due to reasons WP(C)N0.29409 of 2005 etc. -16- attributable to the purchaser, had to be terminated. Therefore, the offer made by the Society was accepted by the company and an agreement for sale subject to approval by the BIFR was entered into on 7.7.2004. Under this agreement the Society was to complete the transaction within 6 months, i.e., on or before 6.1.2005. Apart from the fact that the Society itself had committed default of the terms agreed to by them, in the meanwhile, some of the members of the Society (reference is to Sri.P.K.Paul, Sri. T.J.Sunny and another person) had sought an investigation into the transactions of the Society itself. In the said proceedings, the Joint Registrar of the Co- operative Societies had passed a prohibitory order restraining the Society from proceeding with the transaction. They filed W.P.(C) No.19511/2004 in which Ext.P3 judgment directing expeditious follow up action was passed by this court. While so, by an order dated 25.9.2004, the BIFR recommended winding up of the Company in which it inter alia found fault with the Company for having entered into the agreement without its approval. Against the said order, both SCA and SCCL preferred appeal Nos. 221 and 238/2004 before the AAIFR and the AAIFR by its order dated 20.7.2005 set aside the order of the BIFR and directed reconsideration. In the meanwhile, on the expiry WP(C)N0.29409 of 2005 etc. -17- of the agreement with the Society, the period of the same was extended by four months, i.e., till 5.5.2005. While the matters stood thus, the enquiry initiated under Section 65 of the Co-operative Societies Act was completed and Ext.P10 report was submitted. Counter affidavit contends that the 6th respondent cannot be faulted in any manner for having entered into the agreement for sale or for its non- performance. The non performance is due to reasons which are attributable only to the Society. It is pointed out that the Society filed O.S. No.618/2005 before the Sub Court, Ernakulam seeking specific performance of the agreement for sale and that the Sub Court dismissed that suit as not maintainable. Lastly, it is contended that the BIFR vide its proceedings dated 1.3.2006 directed the Company to cancel the agreement entered into with the Society and to refund the advance received along with reasonable amount of interest within a period of 60 days. Therefore, at present, there is no privity of contract between the company and the Society. 8. All these three cases were heard together. Sri.P.Santhalingam addressed me on behalf of the Society. Sri.D.Sreekumar addressed me on behalf of the petitioner in W.P.(C) No.34130/2005. The learned Government Pleader addressed me on WP(C)N0.29409 of 2005 etc. -18- behalf of the official respondents. It was Sri.Tom Jose and Sri.Nageswar Rao, Senior Advocate who addressed me on behalf of the contesting respondents. 9. Sri.Santhalingam and Sri.Sreekumar referred in their submissions to Ext.P9 order and Ext.P14 report in