IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN MONDAY, THE 20TH JULY 2009 / 29TH ASHADHA 1931 WP(C).No. 14657 of 2007(T) -------------------------- PETITIONER(S): -------------------------- THE MANAGING COMMITTEE OF VALLAPPUZHA SERVICE CO-OPERATIVE BANK LTD, NELLAYA, PALAKKAD DISTRICT REPRESENTED BY ITS PRESIDENT P.K.KOYA. BY ADV. MR.GEORGE POONTHOTTAM RESPONDENT(S): ------------------------- THE JOINT REGISTRAR OF CO-OPERATIVE SOCIEITIES (G),PALAKKAD. *ADDL. R2 IS IMPLEADED 2. K.B.SUBHASH, S/O. BALAKRISHNAN NAIR, KUNNAKOTTE HOUSE, P.O.MANAYAMANGALAM, PALAKKAD. *ADDL. R2 IS IMPLEADED AS PER ORDER DTD.29.5.07 IN IA. NO.6427/07. ADDL. R3 IS IMPLEADED 3. ABDULLA P. S/O. MARAKKAR, AGED 67 YEARS, PANIKKARUPARAMBIL, VALAPPUZHA POST, OTTAPPALAM, PALAKKAD DISTRICT. *ADDL. R3 IS IMPLEADED AS PER ORDER DTD. 25.7.08 IN IA. NO.9114/08. GOVERNMENT PLEADER MR.DILIP MOHAN FOR R1 BY ADVS.MR.P.N.MOHANAN MR.M.SASINDRAN FOR ADDL.R3 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 01/07/2009, THE COURT ON 20/07/2009 DELIVERED THE FOLLOWING: W.P.(C) NO.14657/2007 APPENDIX PETITIONER'S EXHIBITS P1:- COPY OF THE NOTICE NO.3118/06 CRP. DTD. 21.4.07 ISUED UNDER SECTION 32(1) OF THE KCS ACT. P2:- COPY OF THE REPLY GIVN BY THE PETITIONER DTD. 7.5.07. P3:- COPY OF THE ORDER NO.3118/06/CRP. DTD. 30.9.06. P4:- COPY OF THE JUDGMENT IN WPC. NO.6275/07 DTD. 26.2.07. P5:- COPY OF THE ORDER NO.3118/06/CRP. DTD. 6.12.07. P6:- COPY OF THE DECISION DTD. 13.3.02. P7:- COPY OF THE CIRCULAR NO.20/04 DTD. 3.8.04. P8:- COPY OF THE RESOLUTION NO.25 A DTD. 13.9.04. P9:- COPY OF THE LOAN TRANSACTION OF SRI. ALAVI. P10:- COPY OF THE COMMUNICATIONS NO.983/06/F DTD. 29.12.07. RESPONDENT'S EXHIBITS R1(a):- COPY OF THE EXT.P1 NOTICE. R1 (b) & (c) NIL. R1(d):- COPY OF THE RESOLUTION DTD. 1.7.06 OF THE VALLAPUZHA BANK. R1(e):- COPY OF THE NOTICE DTD. 9.11.06. R1(f):- COPY OF THE INSPECTION COUNDUCTED ON 14.3.07. R2(a):- COPY OF THE REPORT DTD. 5.3.06. R2(b):- COPY OF THE CIRCULAR 55/03. TRUE COPY P.S. TO JUDGE TSS S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= W. P (C) No. 14657 of 2007 =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-= Dated this, the 20th July, 2009. J U D G M E N T The petitioner in this writ petition is the present managing committee of the Vallappuzha Service Co-operative Bank Ltd., a co- operative Society registered under the Kerala Co-operative Societies Act, 1969, (hereinafter referred to as 'the Act', for short), represented by its President Sri. P.K. Koya. As originally constituted, the challenge in the writ petition was against Ext. P1 show cause notice issued under Section 32(1) of the Act, directing the committee to show cause why the committee should not be superseded under that Section for the 12 irregularities detailed therein. By interim order dated 8-5-2007, this Court directed that the implementation of any order pursuant to Ext. P1 shall be kept in abeyance for three weeks. Subsequently, after several extensions of the said order, the same was extended until further orders on 13-11-2007. Thereafter, Ext. P5 order dated 6-12-2007 was passed by the 1st respondent , superseding the Society and appointing an administrator for the Society. By Ext. P10 intimation dated 20-12-2007, the administrator appointed by Ext. P5, informed the Secretary of the Society that he has taken charge on 29-12-2007. The petitioner has subsequently got the writ petition amended to include a challenge against Ext. P5 order also. By interim order dated 1-1-2008, this Court stayed Exts. P5 and P10 until further orders. 2. The present committee was elected on 28-1-2006 and they took charge on 30-1-2006. The committee of the Society consists of 11 members. Out of the 11 members elected on 28-1-2006, 7 were new members who were not members of any of the previous committees. On the basis of a complaint received from 4 members of the Society, the 1st respondent ordered an inspection into the affairs of the Society under Section 66 of the Act, by Ext. P3 order dated 30- W.P.C. No. 14657/2007 -: 2 :- 9-2006. Pursuant thereto, the Unit Inspector of the Office of the Asst. Registrar (G), Ottappalam submitted Ext. R1(f) report dated 14-3- 2007, wherein the Unit Inspector reported that his inspection revealed the irregularities detailed in the report. Based on that report, the 1st respondent-Joint Registrar of Co-operative Societies (G), Palakkad issued Ext.P1 show cause notice, to which the petitioner submitted Ext. P2 reply stating that the committee has not committed any of the irregularities mentioned in Ext. P1 and therefore further proceedings pursuant to Ext. P1 may be dropped. Anticipating supersession despite the reply and alleging that Ext. P1 itself is lacking in the essential requirements of Section 32, the petitioner filed this writ petition and as stated earlier, after Ext. P5 order was passed confirming Ext. P1, the writ petition was got amended as per which the petitioner seeks the following reliefs: “(i) Issue a writ in the nature of certiorari calling for the records leading to Ext. P1 and to quash the same. (ii) Issue a writ declaring that the notice issued as per Ext. P1 and the allegations contained therein are not grounds for the invoking of the power under Section 32 of the KCS Act as against the committee now in office and therefore the proceedings are vitiated. (iii) Issue a writ declaring that Ext. P1 is in violation of the essential requirements mandated under Section 32(1) of the KCSW Act and therefore the same is bad. (iv) Issue a writ of certiorari calling for the records leading to Ext. P5 and to quash the same. (v) Issue a writ declaring that Ext. P5 order has been issued based on irrelevant consideration and taking into account factors which are beyond the scope of Section 32 of the KCS Act and therefore bad in the eye of law.” 3. The petitioner challenges the proceedings evidenced by Exts.P1 and P5 on the main ground that out of the 12 allegations in Ext. P1, 10 are in respect of actions of the previous committee, of W.P.C. No. 14657/2007 -: 3 :- which only 4 are members of the present committee and for the action of the previous committee, no proceedings for supersession can be initiated against the present committee. As far as the allegations against the actions of the present committee are concerned, the petitioner would contend either that they have not committed the same or that they are not irregularities and the same were taken in the best financial interests of the Society. The second contention is that an action under Section 32 should be invoked only as a last resort, that too only if the committee commits persistent defaults or is persistently negligent in the performance of its duties and that the findings in Ext. P5 do not contain the essential ingredients for an action under Section 32. It is further contended that the impugned action is an abuse of prower and mala fide, insofar as the same has been initiated on account of the change of political climate in the State, resulting from a new political alliance opposed to the members of the committee coming into power in the State, on whose directions the inspector and the 1st respondent have embarked on a pre-determined action for unseating the committee from power in the Society on some pretext or other. 4. Two members of the Society have got themselves impleaded as respondents 2 and 3 to support the impugned action of the 1st respondent. 5. The 1st respondent has filed counter affidavits to the writ petition before and after amendment, supporting the impugned action. According to the 1st respondent, the action has been taken on finding the committee guilty of very serious irregularities and the allegations of political interference and mala fides are without any basis. It is contended on behalf of all the respondents that the requirement that the default or negligence should be persistent is applicable only to sub section (a) of Section 32(1) and in respect of W.P.C. No. 14657/2007 -: 4 :- the actions referred to in sub sections (b) to (d), one single instance would suffice. According to them, the findings in Ext. P5 are referable to sub sections (b) to (d) and the allegations in respect thereof are proved by adequate materials on record. The counsel for the 1st respondent elaborates further that prior to amendment of Section 32 in 2000, sub section (a) alone was there in the statute book, to which alone the requirement of persistent default or negligence applies and while adding sub-sections (b) to (d), the legislature consciously did not add such requirement and therefore for a single instance of the action of the committee referable to those sub sections, action under Section 32 is maintainable. 6. I have considered the contentions of both sides. 7. Since elaborate arguments were advanced on the scope of Section 32(1) before and after amendment, I shall extract the Section as obtaining before and after amendment. Before amendment, Section 32(1) read thus: “(1) If the Registrar is satisfied that the committee of any society persistently makes default or is negligent in the performance of the duties imposed on it by this Act or the rules or bye-laws or commits any act which is prejudicial to the interest of the society or wilfully disobeys or wilfully fails to comply with any lawful order or direction issued under this Act or the rules, the Registrar may, after giving the committee an opportunity to state its objections, if any, by order in writing remove the committee and- (a) appoint a new committee consisting of not more than three members of the society in its place; or (b) appoint one or more administrator or administrators who need not be a member or members of the society, to manage the affairs of the society for a period not exceeding one year as may be specified in the order, which period may, at the discretion of the Registrar, be extended from time to time, so however that the aggregate period does not exceed two years.” After amendment, the same reads now thus: W.P.C. No. 14657/2007 -: 5 :- “32. Supersession of Committee:- (1) If the Registrar, after an inquiry by himself or through his subordinates or on a report of the financing bank, or the Vigilance and Anticorruption Bureau of the Government or the Vigilance officer or otherwise is satisfied that the committee of any society,-- (a) persistently makes default or is negligent in the performance of the duties imposed on it by this Act or the rules or bye-laws or does anything which is prejudicial to the interests of the society; or (b) wilfully disobeys or fails to comply with any lawful order or direction issued under this Act or the rules; or (c) makes any payment contrary to this Act or the rules or the bye-laws or causes any loss or damage to the assets of the society by breach of trust of wilful negligence; or (d) misappropriates or destroys or tampers with the records or causes the destruction of records to cover up any misconduct or malpractice, he may, after giving the committee an opportunity to state its objections, if any, by order in writing, remove the committee and appoint a new committee consisting of not more than three members of the society in its place or, appoint not more than three administrators, who need not be members of the society, to manage the affairs of the society for a period not exceeding six months, as may be specified in the order, which period may, at the discretion of the Registrar, be extended from time to time, so however that the aggregate period does not exceed one year. Prior to the amendment in 2000, Section 32(1) contained only the provisions contained in sub sections (a) and (b) of the present Section, but rolled into the same sub section. In Rajagopalan Nair v. State of Kerala, 1995 (2) KLT 184, a learned Judge of this Court held that the words 'persistent'. 'negligent', 'wilful', and 'lawful' occurring in the Section are the key words to guide the normal understanding of the satisfaction that is required of the Registrar for an action for superseding the committee. Another learned Single Judge of this Court has, in Krishnan v. Joint Registrar, 1997 (1) KLT S.N. 16 (Case No. 20), held that the relevant ingredients for satisfaction of the W.P.C. No. 14657/2007 -: 6 :- Registrar under Section 32 are persistent negligence in the performance of the duties imposed by the Act or Rules or bye-laws, acting against the interests of the Society and wilful disobeying and wilfully failing to comply with the orders and directions issued under the Act or Rules. But, those decisions were rendered construing the Section as it obtained prior to the amendment in 2000. After amendment also, a learned Judge of this Court had in Ashok Kumar v. State of Kerala, 2003(3) KLT 86 (Case No. 114) held that it is not negligence alone which authorises interference under Section 32 (1), but the same should be persistent, deliberate and also at times fit to be characterized as culpable. Then again that related only to negligence and not to the other ingredients of Section 32(1). 8. As far as sub section (b) is concerned, the action is qualified by the word 'wilfully'. Therefore, although it can be held that such action need not be persistent, the same should be wilful, no doubt. 9. As far as sub sections (c) and (d) are concerned, the same are also not qualified by the word 'persistent'. Sub section (c) is qualified by the words 'by breach of trust or wilful negligence'. Misappropriation or destruction or tampering with records or causing destruction of records to cover up any misconduct or malpractice mentioned in sub section (d), for obvious reasons, are not qualified by any such words, since such actions are per se culpable and only one single instance would be so disastrous to the Society that the Registrar would certainly be justified in taking action for that single instance itself. Therefore, I am of opinion that the acts mentioned in sub sections (c) and (d) being by the very nature of those acts, such that a single instance would be extremely prejudicial to the interests of the Society, the Registrar can invoke Section 32 even for a single instance. 10. The next question that arises for consideration on the facts W.P.C. No. 14657/2007 -: 7 :- of this case is as to whether for the action of the previous committee, even if some of the members of the present committee were also members of the previous committee, Section 32 can be invoked. That question is no more res integra, since that issue has been settled by two Division Bench decisions of this Court . In Sivadasan Nair v. Registrar of Co-operative Societies, 19997 (2) KLT 710, a Division Bench of this Court held in paragraphs 13 and 19 thus: 13. It can be seen from Ext.P2 notice as well as Ext.P4 order of the Registrar that none of the conditions mentioned in S.32 of the Act was relied upon to supersede or remove the present Committee in office. What has been done by the Registrar is that 11 members out of the present Board of Directors were removed by him and then the Registrar removed the Committee on the ground that the remaining members cannot form sufficient quorum for the Managing Committee. Thus, the Registrar had exercised his power under S.32(1) of the Act to remove 11 members from the Managing Committee of the Bank and thereafter, the entire committee was superseded. Therefore, the question is whether the Registrar has got power to remove the individual members under S.32 of the Act. The heading of the Section itself is supersession of Committee. Further the body of the Section says that the Registrar may by order in writing remove the committee and appoint a new committee or an arbitrator to manage the affairs of the Society. Sub-s.(3) of S.32 of the Act says that notwithstanding anything contained in sub-s.(1) or sub-s.(2) it shall not be necessary to give an opportunity to the committee to state its objections and to consult the Union and financing banks, in cases where the Registrar is of the opinion that it is not reasonably practicable to do so. Thus, a plain reading of S.32 of the Act shows that the power is given to the Registrar under S.32 to remove the entire body of Committee as a whole. xx xx xx 19. The second stage of the enquiry did not commence so far. The effect of Ext.P4 order is that the present Managing Committee is superseded for the faults of the previous Managing Committee. The power under S.32 of the Act can be invoked only if the existing Managing Committee is guilty. It may be that many of the members of the previous Managing Committee could have come back having been reelected and would be continuing as members of the existing Managing Committee. As already stated, what is to be adjudged is whether the existing committee is guilty of the conditions mentioned in S.32 of the Act and not whether some individual W.P.C. No. 14657/2007 -: 8 :- members of the Committee, were guilty of any act of corruption while they were members of the previous Committee. Again, by judgment dated 6-8-2004 in W.A. No. 1363 of 2004 (K.V. Mohanan v. State of Kerala and others), another Division Bench of this Court has held thus in paragraph 4: “4. From a perusal of Ext.P1 notice and Ext.P3 order and the averments in the writ petition and the counter affidavit it is abundantly clear that the alleged irregularities and defaults were committed by the Board of Directors which was in office from 27.6.1998 to 17.5.2003. The present Board of Directors took charge only on 18.5.2003. Therefore the only question to be considered is whether the present Board of Directors can be removed under Section 32 of the Kerala Co- operative Societies Act for the irregularities and defaults alleged to have been committed by the previous Board of Directors. Section 32 of the Kerala Co-operative Societies Act can be invoked only against a committee which has committed the irregularities or defaults. Removal of a committee for the defaults and irregularities of a previous committee is not contemplated by Section 32. It may be pointed out that under Rule 44(1)(k) of the Kerala Co-operative Societies Rules, no member of the society shall be eligible for being elected or appointed as a member of the committee of the society under Section 28 if he was a member of the committee which has been superseded and a period of one year has not elapsed from the date of supersession. Thus removal of the committee under Section 32 casts a stigma and imposes a disqualification on the members of the committee and the removal visits such members with serious consequences. Therefore we are of the view that the committee of a Co-operative Society cannot be superseded under Section 32 of the Kerala Co-operative Societies Act for the defaults and irregularities alleged to have been committed by a previous committee. In this view of the matter Exts.P1 and P3 are liable to be quashed.” In view of these decisions, it is settled law that proceedings under Section 32 can be invoked only for actions of the present committee as a whole, who is sought to be proceeded against under the Section, even if some of the members of the previous committee which is guilty of the action are also members of the present committee and not for actions of the previous committee. W.P.C. No. 14657/2007 -: 9 :- 11. Perhaps, being aware of the above legal position, the 1st respondent has, in his counter affidavits, sought to justify his action only on the basis of the actions alleged against the present committee. Respondents 2 and 3 also advanced arguments to justify Ext. P5 only on that basis. 12. Supersession of a democratically elected committee is a very drastic and extreme step. It is not necessary to cite any judicial precedents to hold that action under Section 32 cannot therefore be taken lightly for mundane violations. Only if the findings against the committee are such that the continuance of the committee would be extremely prejudicial to the interests of the Society, the exceptional and rare action under Section 32 shall be taken. Findings on the culpability of the committee on their improper action should inform the action of the Registrar while initiating proceedings under Section 32. In other words, the mere finding that the committee has done the acts alleged alone is not sufficient; the same should be supported by a further finding that they did the same with a culpable mind, failing which the action of the Registrar would be improper. 13. I shall examine the validity of Ext. P5 in the light of the above legal position. In Ext. P5, the findings of irregularities attributable to the present committee out of the 12 charges are only the following, the others being clearly attributable to the previous committee: (a) A jeep purchased by the Bank on 24-10-2002 for Rs. 3,68,850/- was sold by the present committee on 25-07-2006 for Rs. 2,31,676/-, which was without a performance certificate of a mechanical engineer and violating the instructions in Circular No. 55/03 dated 3- 10-2003 of the Registrar. W.P.C. No. 14657/2007 -: 10 :- (b) The vehicle belonging to the Bank was used for going to Mannarghat on 20-07-2006 as per trip sheet no. 834, to Thrissur on 13-07-2006 as per trip sheet no. 829 and to Mannarghat, Perinthalmanna and Malappuram on 18-07-2006, without specifying the purpose in the log book sheet. (c) The minutes book of the committee was tampered with by fraudulently adding the words 'also decided to give the gold coin of 8 grams given by the Company as gift to the lady director Smt. Vilasini teacher', in resolution no. 43 of the committee meeting held on 26-10-2002, to the word 'approved' which alone was there in the original minutes. (d) Although the place Kuruvattoor is excluded from the area of operation of the Society, many persons of that locality have been given membership in the Society without ascertaining whether they are members of the Kayiliyad Service Co-operative Bank and one Alavi, of Kuruvattoor member no. 13483, was given a loan of Rs. 16,000/- on 1-3- 2005. Although as per bye-law no. 55(2)(b) of the bye-laws of the Bank, for marriage, maintenance of house and seeking employment abroad, the maximum loan which can be sanctioned is Rs. 1 lakh, 11 loans detailed in Ext. P5 order were sanctioned in excess of the prescribed limit. (e) An amount of Rs. 84,447/- due from the former President of the Society has been transferred to suspense account, without recovering the same. (f) Two employees of the Bank, namely, the former Secretary Sri. P. Mohammed, and the Manager of the Marayamangalam Branch of the Bank, Sri. T.P. W.P.C. No. 14657/2007 -: 11 :- Unnikrishnan were allowed to be kept under suspension beyond one year in violation of Rule 198(6) of the Kerala Co-operative Societies Rules, 1969. 14. Since, out of the above charges, charge (c) narrated above is the most serious one, a decision regarding the sustainability of which against the petitioner may even obviate the necessity to consider the sustainability of the other charges, I shall consider the same first. 15. The details of the charge as given in Ext. P1 show cause notice roughly translated into English are as follows: “When the Bank purchased a vehicle, the Company from which the vehicle was purchased presented a gift of a gold coin weighing 8 grams. Although records have been kept in the Bank to the effect that the President of the Bank Sri. P.K. Koya had taken it on 29-11-2002, in the resolution of the committee meeting held on 26-12-2002, to the word 'approved' originally included in the minutes, it has been added by writing later that 'also decided to give the gold coin of 8 grams given by the Company as gift, to the